Table of Content
- Definition
- Examples
- Frequently Asked Questions
- Related Terms
- Online Resources
- Suggested Books
- Quizzes
Definition
A small group refers to a collection of companies that meets at least two of the following three criteria for the current and preceding year, or the two preceding financial years:
- Net Worth: Should not exceed £3.26 million net or £3.9 million gross.
- Turnover: Should not exceed £6.5 million net or £7.8 million gross.
- Employees: The average number of employees should not exceed 50.
If a small group meets these criteria, a parent company is not required to prepare consolidated financial statements and may file abbreviated accounts instead of full accounts with the Registrar of Companies.
However, exemptions are not applicable if the group contains a public company, a banking or insurance company, or an authorized person under the Financial Services Act 1986.
Example
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Example 1:
- A UK-based parent company, with four subsidiaries.
- Consolidated net worth is £3 million.
- Consolidated turnover is £5 million.
- Average number of employees is 45.
- As this group meets all three criteria, it qualifies as a small group and enjoys exemptions for that financial year.
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Example 2:
- A UK-based holding company with three subsidiaries.
- Consolidated net worth is £2 million.
- Consolidated turnover is £7 million.
- Average number of employees is 60.
- This group only meets one of the three criteria and therefore does not qualify as a small group.
Frequently Asked Questions
What is a small group under the Companies Act?
A small group under the Companies Act is a group of companies that meets at least two out of three specific size criteria: net worth, turnover, and the number of employees.
What are the benefits of being classified as a small group?
A small group is exempt from preparing consolidated financial statements and may file abbreviated accounts with the Registrar of Companies.
What happens if a small group grows larger than the set criteria?
If a small group grows larger than the criteria in future financial years, it will no longer qualify for the small group exemptions and must comply with full reporting requirements.
Are public companies eligible for small group classification?
No, groups containing public companies, banking or insurance companies, or authorized persons under the Financial Services Act 1986 are ineligible for small group exemptions.
Can a new company in its first financial year qualify as a small group?
Yes, a new company may still qualify if it falls within the stipulated criteria for net worth, turnover, and number of employees.
Related Terms
Consolidated Financial Statements
Financial statements that present the assets, liabilities, revenues, expenses, and equity of a parent company and its subsidiaries as a single entity.
Abbreviated Accounts
Simplified financial statements that a small company or group is permitted to file with the Registrar of Companies instead of full financial statements.
Net Worth
The value of a company’s assets minus its liabilities, also referred to as shareholders’ equity.
Turnover
The total sales generated by a company during a specific period, often used as a key indicator of business size and health.
Registrar of Companies
A government office responsible for the administration of the register of companies, including the filing of accounts and other documents.
Medium-Sized Group
A classification for companies or groups that exceed the small group criteria but do not meet the size criteria of large-sized entities.
Online Resources
Suggested Books
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“Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
- An in-depth guide to financial reporting standards and practices, with a focus on UK regulations.
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“UK Accounting Standards: A Quick Reference Guide” by Steve Collings
- A comprehensive yet concise reference to UK accounting standards, including the Companies Act requirements.
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“Accounting for Non-Accountants” by Wayne Label
- A user-friendly resource that explains accounting concepts in plain language, ideal for those new to financial reporting.
Quizzes
Accounting Basics: “Small Group” Fundamentals Quiz
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!
