COVID19: Disincorporation – what you need to know before dissolving your limited company

The ongoing lockdown may be the catalyst for many limited company owners to change their business model in order to survive or to create a simpler way of working. One option is to disincorporate – in other words, dissolve the limited company and, if the business is still viable, operate as a sole trader instead.

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Why Do Auditors Invoke Fear?

Auditors… Does this conjure up an image of an impersonal, fearful, detail-obsessed tyrant desperate to find errors in your accounts? I completely understand why the thought of an audit would fill you with dread, but this blog shares how to have the same positive audit experience that our clients enjoy and one that will ultimately help and support your business. 

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Why should you put your trust in an audit?

Around one in four small businesses believe that having their company’s annual accounts audited should be mandatory versus around half who disagree. In general, the larger the organisation and the more it wants to grow, the more likely it is to believe that annual accounts being audited should be mandatory, according to the recent study into small and medium sized businesses by the accountancy body, ICAEW.

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My top accounting tips for Hoddesdon businesses

1.    Make use of technology

Today, businesses have a myriad of resources available to make managing accountancy records convenient and simple. I’d urge businesses to make the most of cloud computing and automation. This is especially valuable now that the Government’s requirement for Making Tax Digital is a reality for the majority of businesses, and flexible working rights have all increased the demand for secure, flexible ‘on-the-move’ cloud-computing solutions.

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Five steps to ensure a smooth audit at year end

To ensure a smooth audit, ideally you should prepare for it during the year. By keeping on top of your finances throughout the year you’ll be well organised when you need to file your corporate tax returns with HM Revenue & Customs and provide audited annual accounts to Companies House at year end. So, who has to have an audit and what steps can you take to make your auditing process run smoothly, with minimal disruption to your day-to-day activities?

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Does my organisation need an audit?

Businesses and charities must audit their accounts when they have grown above a certain size. The smallest organisations are exempt from this legal requirement. There are also circumstances when you may need or want an audit regardless of the scale of your operations. If you are in any doubt as to whether you need to conduct an audit or not, just contact HB Accountants and we can talk you through the regulations.

 

Exactly what is an audit?

An audit is the systematic examination of an organisation’s accounting records, as well as the physical inspection of its assets. When performed by a qualified accountant, such as HB Accountants, it enables us to verify whether the financial statements have been prepared in line with relevant legislation and accounting standards, and importantly whether they provide a true and fair view of the organisation’s financial position.

When to book an audit – size threshold

When a private limited company hits two of these thresholds, in two out of three years, it’s time to book an audit.

  • annual turnover £10.2m
  • assets worth £5.1m
  • number of employees 50 on average

 

When a charity hits either one of these thresholds it’s time to book an audit.

  • gross annual income above £1m or
  • gross assets of above £3.26m and a gross annual income above £250,000.

 

Where a charity’s income is from £25,000 to £1m, external scrutiny in the form of an independent examination is still required by the Charities Commission. In addition, many charities require regular audits regardless of the size of the organisation, as set out in their constitution or legal instructions from donors or trustees.

Other reasons to book an audit

There are further reasons why organisations must or should complete an audit.

Regulated finance or legal industry sector firm

If you operate a regulated business, then there’s often a legal requirement that you undertake audits. For example, if your run a financial services business, friendly society or legal practice. These organisations operate in a position of trust with customers, and a regular financial audit provides much-needed assurance as well as compliance with the regulations.

 

Subsidiary of a company

If your parent company is legally required to audit its financial statements, then this extends to any subsidiary companies, even if they are individually below the legal threshold size unless the subsidiary exemption criteria has been met.

 

Shareholder makes a section 476 request

Under the Companies Act 2006, section 476, a shareholder can give notice that an audit is required. To be able to do this the shareholder must have at least a 10% stake in a class of the company’s shares or if there are no shares they must represent 10% of the members of the company.

 

Bank or lender audit requirement

In certain circumstances your bank or another lender may need the added assurance of an audit to assess your current financial position, and make decisions about the services it offers, such as a business loan.

 

Preparing for sale of business

It may be advantageous to audit your financial statements when you plan to sell your business to maximise the pay-out shareholders receive and to get the best possible terms.

 

Preference and good practice

Even when an organisation is not compelled to have an auditing regime due to legal regulations, many choose to have regular audits to provide stakeholders with complete confidence in their financial reports.

 

Audit exemptions

Some organisations are exempt from having full audits.

 

Small businesses

Small businesses may be exempt, provided they aren’t required to audit accounts due to being a charity or other regulated business. To be exempt as a small business, at least two of these figures for this year and last year must be below this size threshold:

 

  • Turnover below £10.2 million
  • Total assets below 5.1 million
  • Number of employees below 50

 

Subsidiary exemption

A subsidiary of a larger group may be exempt if the group meets certain criteria and the parent company gives a guarantee of all outstanding liabilities at the end of the financial year.

 

Charity exemption

Charities with a gross income of less than £1m can choose to opt out of a full audit provided that gross assets do not exceed £3.26m and gross income does not exceed £250,000 and provided their constitution does not demand an annual audit. Although if turnover exceeds £25,000 they will still need some form of independent examination.

 

It’s easy to be more audit savvy

These are broad guidelines about which organisations must audit their accounting records. If it’s obvious that you need an audit, then get in touch and we can explain the benefits of our audit service. If it’s not obvious whether you need an audit, then do talk to us to discuss your organisation’s circumstances. We can help you to identify if an audit is a legal requirement, or if it simply makes good sense, or if an audit is not required at all. We are always ready to answer questions and provide advice. Just call 01992 444466 or email directors@hbaccountants.co.uk

Benefits of Auditing

There are legal requirements for companies to undertake regular audits once a company meets certain criteria about its turnover, assets and staffing levels.

Many people see an audit as a massive inconvenience, but it can actually turn out to be a useful business tool. An audit acts as a metaphorical mirror reflecting how well, or otherwise, your company is doing. And because an external auditor will have an objective overview of your company, they can use their review of the accounting information in order to gain insights into your business. They can highlight trends, deficiencies and errors, enabling you to do something about them before they become major problems.

Advantages of using a local auditor

Hiring a local firm to do your auditing has many more advantages than just saving costs on using a big London accountancy. Not least is the fact that you’re much more likely to build up a good working relationship with them and face-to-face meetings, which equates to better support and continuity.

As we are geographically close to the majority of our clients, we are more accessible to them. We are more likely to have meetings with them rather than rely on phone calls, and that kind of personal connection can be really useful. If there is an issue the client is unsure about, the fact that they have a good relationship with us means they’re more likely to get in touch for advice.

The way we work means our clients are more likely to see the same auditor for a number of years, and this continuity can be invaluable. Whilst the audits are lead by experienced managers, the majority of the onsite work is generally undertaken by our trainees – our policy is to take on school leavers who will train with us for seven years. This gives them the chance to get to know your company really well which will enable them to work more quickly and efficiently, as well as getting the chance to work with your team.

If you are based in Hertfordshire and would like to discuss your auditing needs, please contact us to arrange a meeting.

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