Accounting Advice

What Are Abridged Accounts?

02 Aug 2020

What Are Abridged Accounts? Example And Short Guide

As a small business, you have a choice of how you file your accounts. You can either submit a full set of accounts or an abridged set, which contains less detail but meets the compliance requirements of Companies House and HMRC. 

Abridged accounts replaced another set of shorter accounts – abbreviated accounts, which are no longer valid for accounting periods beginning on or after 1st January 2016. Abridged accounts were introduced as part of The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. 

To be eligible for filing abridged accounts, you must meet the criteria for a small business: 

  • Maximum number of employees 50

  • Turnover under £10.2 million 

  • Balance sheet total under £5.1 million

Information to include in abridged accounts 

The ability to choose full or abridged accounts means you can omit certain information in the abridged version that could be useful to your competitors or other parties. However, as we explain later, if your competitors also choose to file abridged accounts, your own competitor research efforts will be limited.  

Under current guidelines for abridged accounts, you only have to include a balance sheet - an example is shown below – together with notes to the accounts. 

You can choose to omit a copy of your detailed profit and loss account and the directors’ report. You can also choose whether or not to include an auditor’s report. 

Abridged accounts example

Abridged Statement of Financial Position via Sage.
 Abridged accounts example

 

Notifying Companies House

If you decide to file abridged accounts, you and your fellow directors cannot make the filing decision alone. You must have the consent of all of your shareholders.

When you have all the consents, you must inform the Registrar at Companies House in writing. Before each new filing, you must obtain and report shareholders’ consents again.

To submit your abridged accounts to Companies House, include a note in your filed accounts of your decision. 

Learn More: How to Read Company Accounts

shareholders agreement

The impact of abridged accounts

Since their introduction in 2008 abbreviated accounts have been both a boon and a bane for small businesses in the UK. They simultaneously help businesses ensure their own commercially-sensitive information is protected from prying eyes, while also making it much more difficult for them to gain insights into the business performance (and competitive advantages) enjoyed by their existing competitors or future challengers.

As we explained earlier, abbreviated accounts are now a thing of the past, replaced by abridged accounts. 

Tax simplification?

The replacement of abbreviated accounts gave some people hope that it might make competitor analysis just a little bit easier for small businesses.

In theory abridged accounts have been introduced in order to simplify financial reporting and reduce the administrative burden for SMEs. Rather than compiling two sets of statutory accounts (a full set for shareholders and an abbreviated version to file with Companies House), with abridged accounts accountants can compile a single set of accounts to satisfy both requirements.

However, beyond reducing administrative burdens, some small businesses, particularly those operating in highly competitive sectors or competing with an entrenched competitor that’s managed to seize a disproportionately large market share, had been hoping that abridged accounts might help them gain access to more than the “basic balance sheet plus bare minimum notes” that (until now) often comprised the entirety of their competitors’ publicly available annual accounts.

Unfortunately, it’s not quite that simple.
  

The missing P&L

That’s because small businesses that decide to compile abridged accounts will still be able to omit the profit and loss account and directors’ report when they file with Companies House, so a key tool for competitor research will still be out of reach for most SMEs.

The bright side

However, it’s not all bad news when it comes to competitor research. Scrapping traditional abbreviated accounts could lead to more small business information entering the public domain, even where the directors’ report and profit and loss account are not filed.

Firstly, the balance sheet that forms part of a company’s abridged accounts (and which will make up the bulk of a company’s public financial records, assuming it does decide to omit the P&L and directors’ report when filing with Companies House) should offer more detail than the basic balance sheet that would have been included in the abbreviated accounts.

In addition, and perhaps more importantly, the notes filed with abridged accounts should be more detailed and comprehensive than the few generic, mandatory notes that formed the second part of abbreviated accounts (and which generally dealt with little more than how the accounts were compiled, the accounting standards used etc). For example, the balance sheet notes filed with the abridged accounts will disclose any dividends that have been distributed to shareholders.

Related: Deed of Partnership. Here’s Why You Need a Written Partnership or Shareholders Agreement

Ok. So what might a small business learn from a competitor’s abridged accounts?

Small businesses might be able to use a competitor’s abridged accounts to analyse several of that business’s key performance indicators. For example, by calculating the change in retained earnings from one year to the next, and adding to it any dividends that are recorded in the accounting notes, small businesses can make a reasonable guess about how much profit their competitor’s made in a given financial year.

Other competitor research

In addition, in a year or two, when several years’ of abridged accounts have been filed with Companies House, small businesses might be able to make a few other extrapolations, such as whether a competitor’s sales are increasing or decreasing, and whether their profit margins are widening healthily or being squeezed.

Savvy SMEs could also begin mapping these changes in their competitor’s annual financial performance to that company’s new product launches, PR campaigns or key staff hires, using this additional competitor research to understand what might be driving their competitor’s success (or contributing to their decline).

Helping your business compete and comply

If your SME is itching to take on the competition Accounts and Legal can help you understand the competitive landscape.

Our team of London accountants, Brighton accountants, Manchester accountants and online accountants offer a range of business planning, commercial strategy and financial forecasting services that are designed to help ambitious small businesses take on their competitors.

Get in touch  to discuss your growth plans, or get an online quote now using our instant accounting quote tool.

Keir Wright-Whyte

photo

Managing Director

0207 043 4000

About the author

Originally graduating with a degree in geography from Edinburgh University, Keir claims that he was then tricked into becoming an accountant by one of the UK's top 5 accountancy practices.The deception extended to the usual training in audit and associated activities.

Keir subsequently worked in a number of advisory roles with clients including in the energy trading, pharmaceuticals and financial services sectors.

He loves working at Accounts & Legal because of the variety of work and clients, the excellent team ethos and morale, the importance placed on genuinely helping and being useful for clients and because he believes what he does matters to clients and helps the firm.

Keir's primary role is to ensure that new clients with complex businesses or needs are on-boarded in the best way and he is a "trouble shooter" both for clients and where complex issues arise internally. He also helps the accounting teams strive to improve what we do for clients, whether processes or services.

When not debiting or crediting, Keir has a penchant for fixing old buildings, skiing, surfing and cycling.

  

We can help you grasp opportunities

 

If you’re setting up or running a business, we are full-service accountants offering tax and accounting support from bookkeeping to business plans, payroll to business strategy, growth, exit planning and general business advice.

 

Call our London or Brighton office today or get an instant quote for our services!

 

Instante-Quote-Accounting