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    Operating a Business and Employment in the United Kingdom: Part Three of The Investors' Guide to the United Kingdom 2015/16
    Operating a Business and Employment in the United Kingdom: Part Three of The Investors' Guide to the United Kingdom 2015/16
    Operating a Business and Employment in the United Kingdom: Part Three of The Investors' Guide to the United Kingdom 2015/16
    Ebook107 pages1 hour

    Operating a Business and Employment in the United Kingdom: Part Three of The Investors' Guide to the United Kingdom 2015/16

    By Jonathan Reuvid

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    About this ebook

    Those who have already taken the decision in principle to invest in the UK, will now need to be conversant with the legal, accounting and taxation regimes of operating a UK business. The third section of the Investors’ Guide to the United Kingdom covers in detail the important elements of financial reporting and accounting, business taxation and planning both for the business and foreign nationals, financial compliance issues and the legal aspects of employment, pensions and employee benefits and incentives.
    LanguageEnglish
    PublisherLegend Press
    Release dateDec 4, 2015
    ISBN9781785079399
    Operating a Business and Employment in the United Kingdom: Part Three of The Investors' Guide to the United Kingdom 2015/16

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      Book preview

      Operating a Business and Employment in the United Kingdom - Jonathan Reuvid

      Investment

      Part Three

      Operating a Business and Employment in the United Kingdom

      3.1 FINANCIAL REPORTING AND ACCOUNTING: AN OVERVIEW

      Stephen Brown, Mazars

      INTRODUCTION

      All limited and unlimited companies in the UK, regardless of whether they are trading or not, are required to keep accounting records throughout the period. This chapter sets out the key financial reporting and accounting requirements for companies trading or investing in the UK.

      GENERAL PRINCIPLES

      Where formal accounts are required, in particular for limited companies, these must include for accounting periods commencing after 1 January 2015:

      •   An Income Statement;

      •   A Statement of Financial Position signed by the director;

      •   A Directors’ Report signed by a director or the company secretary;

      •   A Strategic Report signed by a director (if applicable);

      •   Notes to the accounts; and

      •   Statement of Cashflows (if applicable);

      •   Consolidated Financial Statements (if applicable);

      •   An Auditor’s Report signed by the auditor (if required).

      In general, all private and public limited companies are required to send a full copy of their accounts to Companies House every year.

      Once received, all accounts filed and held at Companies House are available to the general public on request. For this reason the option to file abbreviated accounts is attractive to some small companies.

      Small companies are entitled to certain disclosure exemptions in relation to the accounts they must send their shareholders, and can, in addition, file abbreviated accounts with the Registrar of Companies. Medium-sized companies can also send abbreviated accounts to the Registrar but the reduction in disclosure in these accounts is negligible. In both instances they must, however, provide a full set of accounts for their shareholders. For both small and medium-sized companies, the production of abbreviated accounts is entirely voluntary.

      A company/group filing small company abbreviated financial statements does not need to file a Directors’ Report, Income Statement and can include fewer notes to the financial statements.

      For a company to qualify as small, at least two of the following conditions must be met:

      •   Turnover must be less than £6.5 million;

      •   Gross assets must be less than £3.26 million; and

      •   Average number of employees must be less than 50.

      A company filing medium abbreviated financial statements has a limited option to reduce disclosure but does need to include a Directors’ Report, an Income Statement and notes to the financial statements.

      For a company/group to qualify as medium-sized, again, at least two of the conditions below must be met:

      •   Turnover must be less than £25.9 million;

      •   Gross assets less than £12.9 million; and

      •   Average number of employees less than 250.

      The time normally allowed for companies to deliver their accounts to Companies House is:

      •   9 months from the ARD (Accounting Reference Date) for a private limited company.

      •   6 months from the ARD for a public limited company.

      The ARD is the period-end date to which all accounts are prepared and normally covers a period of 12 months, although this can be extended to a maximum of 18 months. Filing of financial statements for a first year entity must be within 21 months of incorporation. Late delivery of accounts to Companies House will result in a late filing penalty, which is, technically, a criminal offence for which Directors can be prosecuted.

      ACCOUNTING

      Regulations regarding the presentation of the primary financial statements in the UK are found in several sources such as UK company law and UK and international accounting standards. Note that subsidiaries of overseas firms incorporated outside the UK are subject to the normal UK accounting practices. Branches or places of business of overseas firms have special registration procedures.

      Accounting Principles

      All accounts in the UK are prepared in accordance with two fundamental accounting concepts:

      •   Going concern – the accounts are prepared as if the company will be trading in the foreseeable future (at least 12 months from the date of signing the financial statements).

      •   Accruals basis – income and expenditure should relate to the period in which it occurred, not the period in which it was received/paid.

      Whichever accounting policy is selected, they must be transparent and reflect industry and sector norms.

      Financial Reporting

      Until recently, Financial Reporting Standards were developed solely by the Accounting Standards Board (ASB). These standards, in conjunction with the requirements of UK companies legislation (principally the UK Companies Acts), helped make up what is known as UK GAAP, which gives guidance to companies and auditors on how UK accounts should be prepared to give a ‘true and fair’ view of the company’s financial position.

      However, due to increasing globalisation in the world economy, it became necessary to produce a set of International Financial Reporting Standards (IFRS) so that potential investors can compare firms on a global scale.

      EU firms with securities that are publicly traded on a regulated stock exchange are required to apply EU-adopted IFRS when producing consolidated accounts. In the UK, this means any company listed on any of the markets of the London Stock Exchange. Individual subsidiary companies are not yet required to prepare financial statements under IFRS.

      At present, only the types of company detailed above are required to adopt IFRS. However, even companies not required to do so can choose to adopt these new standards. A company that chooses to use IFRS to produce its accounts for one financial period cannot change back to UK standards in the following years. There are limited exceptions to this, such as if the company becomes a subsidiary of a group that uses UK standards as opposed to IFRS, in which case the company can revert back to using UK standards.

      UK companies were required to adopt a new financial reporting framework for accounting periods beginning on or after 1 January 2015 when the extant FRSs, SSAPs and UTIFs were withdrawn from UK GAAP.

      The new framework has been updated to achieve greater convergence with international standards and is split into three tiers (based on public accountability and size) for financial reporting purposes.

      Listed and AIM companies must use IFRS in their group accounts AIM companies because the listing rules require it and full listed companies because regulations require that all companies listed on an EU regulated market use IFRS, as adopted in the EU, in their group accounts.

      Other entities that are not required to use IFRS had the following choices:

      •   IFRS – any entity, except a charitable one, can adopt IFRS if they wish.

      •   FRS 101 – (‘IFRS’ with reduced disclosures) - this is only available to subsidiaries of parent companies who have adopted IFRS, and it allows the subsidiaries to adopt IFRS but with reduced disclosures;

      •   FRS 102 – the standard that has replaced UK GAAP;

      •   FRS103 – Insurance contracts is a fourth standard added to the framework which is relevant to entities that are applying FRS102 that have insurance contracts; and

      •   FRS105 – the financial reporting standard applicable to micro entities.

      FRS103 should be applied by an entity that applies FRS102 and issues insurance contracts and/or holds reinsurance contracts. This FRS should also be applied to financial instruments (other than insurance contracts) that it issues with a discretionary participation feature.

      Small companies/groups as

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