With Brexit looming and the weakened pound, the UK has become an affordable place to invest for overseas companies.
If you are an international company looking to set up in the UK, there are various options to consider. If you are setting up a subsidiary in the UK, all companies are required to prepare and file a set of financial statements and corporation tax return, to be filed with Companies House (Registrar of Companies) and HM Revenue and Customs (tax authorities).
AUDIT REQUIREMENT FOR SUBSIDIARIES
All public-interest entities (broadly, those traded on a regulated market, credit and insurance institutions, trade unions and those specifically designated as such by Member States) must get their annual accounts audited.
Private companies (medium and large) that meet any two of the following for immediate past two consecutive years must also get their annual accounts audited:
- Annual turnover (revenue) more than £10.2 million;
- The balance sheet (assets) total more than £5.1 million;
- The average number of employees more than 50.
Unless they qualify for exemption per any of the following;
- A subsidiary company with an EEA (European Economic Area) parent who guarantee the subsidiary & make this guarantee and their own consolidated financial statements available on public record in the UK, or
- Is exempt from the requirements as a nonprofit making company subject to a public-sector audit, or
- Were exempt from audit for the previous year and thus can claim the exemption for the following year (grace period), or
A company that qualifies for exemption will still need to get its accounts audited if a member or members holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demand an audit and if it is required per the company’s Memorandum and Articles of Association.
If a company is part of a group, then the group as a whole, must meet the net criteria listed above.
NB: An audit may also be specifically required by any regulatory body, providers of finance or any legislation other than the provisions of the Companies Act 2006.
COSTS OF AUDITS
Generally audit fees are computed on the basis of the time spent on your affairs and the responsibility involved by the principals and staff of the firm. This also takes into account the nature and complexity of the transactions, and the subsequent time it will take to review these as well as the identifiable risks and impact on the audit. A fee quote prior to commencement of the work.
BENEFITS OF AUDIT
There are still benefits of an audit to be had even if a company is exempt which include the following:
- An audit can provide shareholders with assurance if they are not involved in the day to day running of the business for example since they are based overseas.
- A company’s credit rating may be affected by not having an audit which could impact when it comes to obtaining credit from suppliers or obtaining finance. Certain bank agreements require audited financial statements to be submitted to them within a certain timeframe of the year end.
- In the event that the parent company decides to sell the subsidiary then audited financial statements will add credibility to the figures provided to any prospective purchaser.
- An audit also helps to identify significant weaknesses around the accounting system and related controls and auditors will suggest improvements to deal with these.