The United Kingdom left the European Union on the 31st of January 2020, however, the end of the transition period, which the majority of the law changes hinge around, was only on the 31st of December 2020. For accounting periods that end on or before 31 December 2020, Brexit will have minimal impact on their financial statements, as the majority of provisions only apply after that date. It is accounting periods beginning on or after 1 January 2021 – effectively, 31 December 2021 year ends – that were most significantly affected.
One of the most significant impacts on the Companies Act 2006 has been the changes made to the small and ineligible groups (s384). Companies that qualify as “small” under UK law may be eligible to use a number of accounting, auditing and filing exemptions. To qualify as small, the company must meet certain size criteria, but also must not be an ineligible entity, or be part of an “ineligible group”. Companies that are part of an “ineligible group” are excluded from the small companies regime. The previous definition of an ineligible group included a company whose shares are traded on a regulated market in an EEA state. From 1 January 2021, this reference has been changed to shares that are traded on a regulated market in the UK. Therefore, the definition of an ineligible group is now less restrictive, allowing more companies to potentially qualify as small. Similar criteria exists for qualifying as medium or micro entities. None of the other small company criteria – such as the size limits – have changed. This change applies for periods beginning on or after 1 January 2021.
Another change worth noting relates to dormant companies (s394). A provision exists in UK company law that exempts some dormant companies from the requirement to file any financial statements at Companies House, where certain conditions are met. These conditions include the provision of a guarantee by a parent company over all the dormant subsidiary’s outstanding liabilities at the year's end. Previously, the parent giving the guarantee had to be incorporated in an EEA state.
From 1 January 2021, this reference has been changed so that the guarantee needs to be provided by a UK parent company. It doesn’t need to be the immediate parent – it can be any parent, producing consolidated accounts that the dormant subsidiary is consolidated into – provided that the parent is UK incorporated. Given this change, the option to not file financial statements will be available to fewer dormant companies going forward. This change became effective on the 1st of January 2021.