The Companies Act 1985 (Audit Exemption) (Amendment) Regulations 2000

Explanatory Note

(This note is not part of the Regulations)

1.  These Regulations amend provisions in Part VII of the Companies Act 1985 (c. 6) (“the 1985 Act”) concerning—

• the exemption of certain small companies from the requirement to have their annual accounts audited, and

• the conditions a company must satisfy in order to qualify as dormant.

The amendments effected by the Regulations will apply to annual accounts and reports in respect of financial years ending two months or more after the date of coming into force of the Regulations (regulation 1(2)).

2.  Regulation 2 increases the turnover limit in section 249A(3)(b) of the 1985 Act which a small company other than a small charitable company must not exceed in respect of a financial year if it is to be exempt from audit. The turnover limit is increased from £350,000 to £1 million (for small charitable companies the gross income limit remains at £90,000).

3.  Regulation 4(3)(b) increases the turnover limit for a group to qualify as a small group for the purposes of section 249B(1C) from £350,000 net (£420,000 gross) to £1 million net (£1.2 million gross) (the limit as it applies in relation to small charitable companies remains unchanged). A company which would otherwise be disqualified from claiming exemption from audit under section 249A for a financial year because it was a parent company or subsidiary undertaking for any period in that year, may nevertheless claim the exemption if it is a member of a small group which satisfies the conditions specified in section 249B(1C). Regulation 4(3)(a) amends section 249B(1C)(a) to provide for the exemption from audit for small groups to apply to groups where not all the bodies in the group are companies within the meaning of section 735 of the 1985 Act.

4.  Regulation 3 inserts a new section 249AA making provision for dormant companies to replace that in section 250 (which is repealed by regulation 8(6)). Dormant companies as defined will no longer need to pass a special resolution in order to qualify for exemption from audit, but instead will so qualify automatically provided 10% of members do not request an audit. The definition of dormancy has also been amended (see new section 249AA(4) to (7)).

5.  Regulations 5 to 7 impose new requirements for companies which are claiming dormancy status under section 249AA for a financial year and which have during that year acted as agent for any person to disclose that fact in the notes to their accounts (the amendments are to Schedules 4, 8 and 8A).

6.  Regulations 2(3), 4(2), (4) and (5) and 8 make minor and consequential amendments.

7.  A Regulatory Impact Assessment of these Regulations is available from the Department of Trade and Industry, Company Law and Investigations Directorate, Room 4102, 1 Victoria Street, London SW1H 0ET. A copy has also been placed in the libraries of both Houses of Parliament.