Despite the UK officially leaving the European Union (EU) on 31 January 2020, during the transition period, there has been little practical change to financial reporting requirements. The transition period came to an end at 11pm on 31 December 2020. In this blog we take a look at some of the key financial reporting changes.
The following change came into effect at 11pm on 31 December 2020.
Extending the accounting reference period
Companies are generally prevented from extending their accounting periods more than once every five years. An exception to this used to be available where the company extended its financial year to coincide with that of an EEA subsidiary or parent. This particular exception has changed such that it is now only available where a company extends its financial year to coincide with that of a UK subsidiary or parent.
For periods commencing on or after 1 January 2021
The following changes take effect for periods commencing on or after 1 January 2021.
Eligibility for the small companies regime
When considering whether a group is ineligible, the reference to “regulated market in an EEA state” in the Companies Act 2006 has been changed to “UK regulated market”. Coupled with a change to the definition of a “traded company”, this means that a group will no longer be ineligible simply because it has a member which is traded on an EEA regulated market. This may result in a company becoming eligible for the small companies regime when it was not previously.
Dormant company accounts
The exemption from the requirement for a dormant subsidiary to prepare accounts will only be available with a UK, rather than EEA parent. The extensive conditions to take advantage of this exemption (including the need for all members of the company to agree to the exemption and for a parent guarantee) remain.
Many companies with EEA parents have previously taken advantage of the s400 exemption from preparing consolidated accounts where their immediate parent is established under the law of an EEA state and they are consolidated higher up in the group (in addition to meeting the other conditions). This exemption changes such that it will only be available with an immediate parent established under the law of any part of the UK and where they are consolidated higher up in the group by a UK parent. Most companies affected by this change will still be able to claim exemption from consolidation by utilising the revised s401 exemption instead.
Basis of preparation – IFRS
Entities reporting under IFRS will need to apply UK-adopted IFRS rather than EU-adopted IFRS. At the end of the transition period, UK-adopted IFRS consisted of all international standards already adopted in the EU, so there will be little practical impact other than amending existing references to EU-adopted IFRS, at least initially. Going forwards, the newly formed UK Endorsement Board (UKEB) will take responsibility for endorsement and adoption of new or amended IFRSs in the UK.
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