Financial reporting and compliance obligations for very small companies can be burdensome – much more burdensome than they are for larger companies. In the past, for example, a company turning over a few hundred thousand a year with one or two employees would have the same financial reporting requirements as a company turning over a few million with 10 times the employees. New legislation – and the creation of the company category micro company – addresses some of the problems that business owners face by reducing the administrative burden.
What is a micro company, however, does the category apply to your business and, if it does, what does it mean in practice?
What Is a Micro Company?
The category micro company was created as part of the Companies (Accounting) Act 2017. It became Irish law on 9 June 2017 and applies to financial years starting on or after 1 January 2017.
In the new legislation, the way your company is categorised depends on thresholds set by the legislation. The new act changes the thresholds for small and medium sized companies while adding a third – micro companies. In each of the three company categories, two of the three thresholds must apply for your company to get the categorisation.
- Turnover of €700,000 or less per year
- Balance sheet of €300,000 or less
- Have a maximum of 10 employees
- Turnover of €12 million or less per year (up from the previous threshold of €8.8 million)
- Balance sheet of €6 million or less (up from the previous threshold of €4.4 million)
- Have a maximum of 50 employees
- Turnover of €40 million or less per year (up from the previous threshold of €20 million)
- Balance sheet of €20 million or less (up from the previous threshold of €10 million)
- Have a maximum of 250 employees
The changes in the thresholds for small and medium sized companies mean there will be changes for businesses other than those now considered to be micro companies. For example, companies that didn’t previously fall into the medium company category may now find they do. Similarly, companies that were previously categorised as medium may now be in the small company category. The re-categorisation will normally mean fewer accounting and financial reporting obligations.
One other thing to note is there are some types of company that cannot become micro companies even if they meet the thresholds above. Examples are investment companies or holding companies that prepare the financial statements of a group.
What Does Being Classified as a Micro Company Mean?
In general, being classified as a micro company results in a reduced administrative burden on your business. This includes:
- You don’t have to create a director’s report
- You don’t have to disclose the remuneration of directors
- You can file abridged financial statements
With a reduce administrative burden, you can reallocate resources previously spent on compliance. Those resources can be allocated to, for example, growing your business and improving the service you offer to customers.
For more advice on micro companies or the new company thresholds – or anything else regarding your accounting or financial reporting obligations – please contact a member of the Gilroy Gannon team today.