The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008

Explanatory Note

(This note is not part of the Regulations)

These Regulations specify the form and content of the accounts and directors' report of companies subject to the small companies regime under Part 15 of the Companies Act 2006 (c.46) (“the 2006 Act”). Section 381 of the 2006 Act defines what is meant by “small companies regime”. The Regulations replace provisions previously contained in the Schedules to Part 7 of the Companies Act 1985 (c.6) (“the 1985 Act”) and in the Schedules to Part 8 of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) (“the 1986 Order”). They extend to the whole of the United Kingdom, reflecting the extent of the 2006 Act.

The Regulations come into force on 6th April 2008, and apply in relation to financial years beginning on or after that date (regulation 2). The corresponding provisions of the 1985 Act or the 1986 Order continue to apply to accounts and directors' reports for financial years beginning before that date.

The Regulations continue the implementation of the following Directives-

Council Directive 78/660/EEC on the annual accounts of certain types of companies (“the Fourth Directive”) (O.J.L222 of 14.8.1978, page 1), and

Council Directive 83/349/EEC on consolidated accounts (“the Seventh Directive”) (O.J. L193 of 18.7.1983, page 1).

Regulation 3(1) of, and Schedule 1 to, the Regulations specify the form and content of the individual accounts of a company which is subject to the small companies regime and which is preparing Companies Act individual accounts. Schedule 1 re-enacts Schedule 8 to the 1985 Act and Schedule 8 to the 1986 Order, with one substantive modification.

Paragraph 36(4) of Schedule 1 implements article 1.5 of Directive 2006/46 of the European Parliament and the Council of 14th June 2006 amending the Fourth and Seventh Directives and Council Directives 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings (O.J. L224 of 16th August 2006, pages 1 to 7). The Directive is also to be implemented by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, the Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008, and by the Financial Services Authority using powers under the Financial Services and Markets Act 2000 (c.8).

Paragraph 36(4) of Schedule 1 gives companies the option of including financial instruments in the accounts at a fair value provided that they may be so included under international accounting standards adopted under the IAS Regulation (as defined in section 474(1) of the 2006 Act) on or before 5th September 2006, and provided that the disclosures required by such standards are made.

Regulation 4 of, and Schedule 2 to, the Regulations re-enact the requirements of Part 1 of Schedule 5 to the 1985 Act and Part 1 of Schedule 5 to the 1986 Order for small companies. They concern information about related undertakings which must be provided in the notes to a company's individual accounts, whether they are Companies Act accounts or IAS accounts.

Regulation 5 of, and Schedule 3 to, the Regulations re-enact the requirements of Part 1 of Schedule 6 to the 1985 Act and Part 1 of Schedule 6 to the 1986 Order as they apply to small companies. They concern information about directors' remuneration which must be provided in the notes to a company's individual accounts, whether they are Companies Act accounts or IAS accounts.

Regulation 6 of, and Schedule 4 to, the Regulations make provision about Companies Act individual accounts which may be delivered to the registrar of companies for a small company under section 444 of the 2006 Act. Schedule 4 re-enacts Schedule 8A to the 1985 Act and Schedule 8A to the 1986 Order.

Regulation 7 of, and Schedule 5 to, the Regulations specify information to be included in the directors' report which a company's directors are required to prepare under section 415 of the 2006 Act. Schedule 5 re-enacts the provisions in Schedule 7 to the 1985 Act and Schedule 7 to the 1986 Order as they apply to small companies, with two modifications – the thresholds for disclosure of political donations and expenditure and charitable donations have been raised from £200 to £2000 (paragraphs 2 and 4), and provision is now made for disclosure of donations to independent election candidates (paragraph 2).

Regulation 8 of, and Part 1 of Schedule 6 to, the Regulations specify the form and content of Companies Act group accounts which a parent company subject to the small companies regime may choose to prepare, although not required to do so (see section 398 of the 2006 Act). The Schedule re-enacts Schedule 4A to the 1985 Act and Schedule 4A to the 1986 Order as they apply to small companies, save that paragraphs 9, 13 and 17 have been simplified to facilitate convergence with international accounting standards.

Regulations 9 and 10 apply the provisions of Schedule 3 (information in notes to accounts about directors' benefits) and Part 2 of Schedule 6 (information in notes about related undertakings) to Companies Act or IAS group accounts which the directors of a small parent company choose to prepare. Part 2 of Schedule 6 re-enacts Part 2 of Schedule 5 to the 1985 Act and Part 2 of Schedule 5 to the 1986 Order.

Regulation 11 makes provision for exemptions from Companies Act group accounts which may be delivered to the registrar of companies for a small parent company under section 444 of the 2006 Act.

Regulation 12 of, and Schedule 7 to, the Regulations define the term “provisions” for the purposes of the Regulations and for the purposes of sections 677(3)(a) (Companies Act accounts: relevant provisions for purposes of financial assistance), 712(2)(b)(i) (Companies Act accounts: relevant provisions to determine available profits for redemption or purchase out of capital) and 836(1)(b)(i) (Companies Act accounts: relevant provisions for distribution purposes) of the 2006 Act.

Regulation 13 of, and Schedule 8 to, the Regulations contain general interpretation provisions.

A transposition note has been prepared which sets out how Directive 2006/46 is to be transposed into UK law. An Impact Assessment of the effect that the implementation of Directive 2006/46 will have on the costs of business, charities or voluntary bodies has also been prepared. Both are available from the Department for Business, Enterprise and Regulatory Reform, Corporate Law and Governance Directorate, 1 Victoria Street, London SW1. They are also available electronically at www.berr.gov.uk. Copies have also been placed in the libraries of both Houses of Parliament. Otherwise, an Impact Assessment has not been produced for these Regulations as they have only a negligible impact on the costs of business, charities or voluntary bodies.