Unincorporated entities need to adopt new UK GAAP
James Barbour, Director, Technical Policy, outlines what unincorporated entities need to know about adopting the new UK GAAP.
Widening of scope of micro-entity regime
Firstly, the applicability of the micro-entity regime was recently widened by the UK Government. As well as applicable limited companies it now also applies to applicable Limited Liability Partnerships (LLPs) and qualifying partnerships.
Further information on this is available on the FRC website.
UK GAAP and unincorporated entities
In many cases the only rules regarding the accounting framework to be applied in the preparation of accounts for such entities are to be found in tax legislation.
Broadly speaking, the tax rules require that taxable profits are derived from the accounting profit subject to any statutory adjustments required by the tax rules. As the accounting profit requires to be computed from extant UK GAAP, continuing to use the Financial Reporting Standard for Smaller Entities (FRSSE) etc to prepare the accounts of unincorporated entities will soon no longer be possible to meet this tax requirement as old UK GAAP will become as extinct as the Dodo. Those entities currently applying FRSSE 2015 will need to apply new UK GAAP for accounting periods commencing on or after 1 January 2016.
When they adopt UK GAAP, unincorporated entities, subject to meeting the necessary criteria, will generally have the choice of applying:
- Financial Reporting Standard 105 ‘The Financial Reporting Standard applicable to the Micro-entities Regime’
- FRS 102 (Taking advantage of the presentation and disclosure requirements of Section 1A); or
- FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’
These standards and any applicable updates can be viewedon the FRC website. An entity will need to make reference to FRS 103 ‘Insurance Contracts if it applies FRS 102 and it has either:
- (a) insurance contracts (including reinsurance contracts) that it issues and reinsurance contracts that it holds; and
- (b) financial instruments (other than insurance contracts) that it issues with a discretionary participation feature.
For unincorporated entities, if the size criteria are met, and provided they are not an entity which is specifically prohibited from applying this regime then HMRC will accept for tax purposes, profits calculated in accordance with FRS 105 (Micro-entity financial reporting standards) as FRS 105 is UK GAAP compliant (subject to any tax adjustments required).
For unincorporated entities which do not meet these criteria then they will need to apply FRS 102. Entities which satisfy the small entity criteria will be able to utilise section 1A of FRS 102 and the associated reduced presentation and disclosure requirements.
The table below summarises the requirements for unincorporated entities.
|Type of entity||Financial criteria||Applicable UK GAAP|
Turnover not more than £632,000
Balance sheet total not more than £316,000
Not more than 10 employees
FRS 105 (Charities and certain other entities cannot adopt this)
Turnover not more than £10.2 million
Balance sheet total not more than £5.1 million
Not more than 50 employees
FRS 102 (Including Section 1A) It is currently the view that charities cannot avail themselves of the concessions available – this may also apply to other entities)
Entities which do not satisfy any of the above criteria
As noted above, the other applicable criteria should be checked. Also, for those entities applying FRS 102 they will need to also apply the requirements of FRS 103 if they have an insurance contract.
Top 5 suggested courses on this subject matter
- One Stop Guide to Small Company Reporting 2016 - New UK GAAP for Small & Micro Entities
- FRS 102 – UK Financial Reporting
- LLP accounts current issues and refresher
- FRS 102 and Taxation
- How to Audit FRS 102 Financial Statements