Doing business in the UK – Audit and accountancy

The UK continues to be one of the most attractive places for global businesses to locate to in the world. With one of the most robust and trusted legal systems in the world, for hundreds of years businesses and assets have been far better protected in the UK than in many other jurisdictions; the UK’s legal system is designed to be fair and transparent. The UK has the sixth-largest national economy in the world measured by nominal gross domestic product (GDP).

Check out our guide on the tax implications of doing business in the UK.

Financing

Many businesses come to the UK as, simply put, it is easier to raise money here. We have firm and flexible regulations which enable the active involvement of hedge funds, private equity, banks and private individuals to invest in businesses through equity, loans and other financial instruments. This gives businesses the air that they require to breathe and grow, in turn giving investors the return that they need. Do also refer to our ‘Doing business in the UK, a tax perspective’. The UK finance system supports the sustained and continuous economic growth of the UK and ensures it is one of the best places to do business in the world.

Brexit

On 1st January 2021, the UK left the EU, whilst there is no argument that this has been a significant change to the UK’s relationship with the EU, the UK is seen by many as an attractive place to do business and to live, and here is why:

• Relaxation of EU regulations allowing UK businesses to trade more freely with other markets outside the EU
• Businesses outside the EU may have previously been reluctant to locate to the UK, given the control of the EU, pre-Brexit
• Such companies may be more tempted now that the UK is no longer in the EU

Regulation

The UK is highly regulated marketplace to ensure consistent and comparable reporting and robust governance practices. Regulation is by the likes of the Institute of Chartered Accountants in England and Wales who regulate accountants, HMRC, which oversees the tax regime, the Financial Reporting Council, which oversees financial reporting and the Financial Conduct Authority and the Prudential Regulation Authority, which regulates financial services on behalf of consumers, giving the UK a well-respected reputation.

Accounting standards and IFRS

All UK limited companies (including public limited companies) need to prepare annual accounts. As part of financial reporting, UK companies are required to adopt one of the available accounting frameworks. The globally recognised international financial reporting standards (IFRS), provide transparency and ease when carrying out cross border transactions. Adoption of IFRS is mandatory for UK listed entities and optional for other entities. The majority of non-listed UK companies adopt the alternative – UK generally accepted accounting principles (UK GAAP). The most recent convergence between the accounting standards means they are broadly comparable.

Accounting requirements in the UK

A requirement of the Companies Act 2006 is for UK annual accounts prepared under prescribed accounting standards to be filed with Companies House, even if a company is dormant. Failure to do so will result in penalties. A company’s first accounting period cannot be shorter than six months or longer than 18 months. The filing deadline at Companies House for a company is nine months after the period end (or if the company is a plc, then it is six months after the year-end). If you are regulated by the FCA and PRA, there may be different filing deadlines to adhere to with the regulators.

There are exemptions available for small and micro companies (as defined in the Companies Act) to file accounts with fewer disclosures at Companies House. Visit Sections 8 and 9 at Companies House for more information.

Audit requirements in the UK – recent increases

The audit requirements in the UK are based predominantly on size limits determined by the Companies Act. If entities are part of a group, the size of the entire group (both within the UK and overseas) needs to be considered to determine whether an audit is required. The thresholds that will come in to force for financial years that being on or after 6th April 2025 are:

• Turnover in excess of £15m ( £10.2m pre-6th April 2025)
• Gross assets in excess of £7.5m (£5.1m pre-6th April 2025)
• Employees more than 50 (no change)

If the standalone UK entity or the group in which it sits meet two out of three of the limits, each UK entity is required to have an audit. If these thresholds are exceeded in the first year, the company will require an audit for the first period. In all other scenarios, the limits need to be met for two consecutive years for an audit to be required.

Parent company guarantee

Subsidiary companies in the UK requiring audits can take advantage of the parent company guarantee.There are however some important things to take into consideration when guaranteeing a company – essentially the parent company would guarantee all of the liabilities at the year end within the subsidiaries it is providing a guarantee for until such time as the liabilities are settled in full. This could be many years in the future. The parent company must also be UK based.

There are some requirements that the group needs to adhere to in order to make use of this guarantee. Further details on this can be found on the ICAEW website here. Exemption from audit by parent guarantee.

Many entities might not be aware of the implications that Brexit has had on international groups and the availability of parent company guarantees, in particular. Prior to Brexit it was available to UK subsidiaries of EEA parent companies. Post Brexit the parent company guarantee can still be used, however it can only be sought from a UK parent company. This can lead to companies now requiring an audit, when previously they were exempting using this guarantee.

International groups

The team at Gravita is experienced in working with international groups and provide a tailored service to suit the individual needs of each client. We can provide audit, accounting and tax services to suit each of the needs and complexities of your group structure and dedicate the time to understand this fully.

Complexities and what is involved

We understand that every group is unique and will have different needs. You may have a parent company based in the UK with UK or foreign subsidiaries, or you may have a parent company incorporated overseas. We have extensive experience in auditing UK parent companies, where we also audit the UK based subsidiaries, and also where the subsidiaries are overseas, either working with the overseas accounting team to conduct audit procedures for the subsidiary (where an audit isn’t required in that territory) or working with overseas component auditors. This may be more common with subsidiaries where the audit threshold is significantly higher than in the UK, like the US. We also work on the opposite side of the process by communicating to the group auditors where the parent might be overseas.

Being part of a number of international networks means that we often work with member firms who are the auditors of foreign subsidiaries. The benefit of this to you is that we can recommend trusted professionals. We have built up a good working relationship with these firms, so we understand how they work which facilitates a smooth group audit.

What next?

Gravita have a team of experts who can smoothly guide overseas companies. If you are looking to set-up in the UK, please contact Dan Howarth for help with audit and accountancy.

If you would like to know more about MTD, corporate tax, or personal tax, please click through to our ‘Doing Business in the UK – A Tax Perspective’. Or contact Thomas Adcock for any of your tax needs.