Every Irish company doing business in or with the UK needs to consider the optimal structure for their UK operations post Brexit. There is no one size fits all approach. Every company should review its supply chain, terms of business with UK customers / suppliers and any regulatory requirements particular to its sector to determine what is the most appropriate structure for their needs in the new business environment. For some Irish companies, this may involve setting up a UK entity.
In this article we provide a brief overview for Irish businesses of some of the key items to be considered from an accounting / corporate compliance perspective when setting up a UK entity.
Most companies in the UK apply the same accounting standard as Ireland which is FRS 102 with a similar option to use section 1A of that standard if the company qualifies as a small company. Listed companies and certain other companies must apply IFRS.
The relevant company law applied in the UK is the Companies Act 2006.
Requirement for Audit
A company may qualify for an audit exemption if it has at least two of the following:
- An annual turnover of no more than £10.2m
- Assets worth no more than £5.1m
- 50 or fewer employees on average
A company may require an audit if it articles of association state so or if at least 10% of shareholders ask for one.
Certain companies are required to have an audit regardless of size as follows:
- Public companies A subsidiary company (unless it qualifies for an exception)
- An authorized insurance company
- A company involved in banking or issuing e-money
- A MiFID Investment firm or an UCITS management company
- A body corporate and its shares have been traded on a regulated market in a European State.
Requirements for Filing in the Companies House
For all newly formed companies, their first accounting reference date will be the last day of the month in which the anniversary of their incorporation falls. Subsequent accounting reference dates will automatically fall on the same date each year.
You can change the current or the immediately previous accounting reference date so as to extend or shorten the period. To do this you must notify Companies House of a change of accounting reference date on Form AA01.
However, there are restrictions on extending accounting reference periods:
- you may not extend a period so that it lasts more than 18 months from the start date of the accounting period, unless the company is in administration;
- you may not extend more than once in 5 years unless:
- the company is in administration
- the Secretary of State has approved this
- the company is aligning its accounting reference date with that of a subsidiary or parent undertaking under the law of the UK or another state in the European Economic Area (EEA)
A company must keep its accounting records at its registered office address or a place that the directors think suitable. The records must be open to inspection by the company’s officers at all times.
If the company holds the records at a place outside of the UK, it must send accounts and returns at least every six months and keep them in the UK. Those accounts and returns must disclose the financial position and enable the directors to prepare accounts that comply with the requirements of the Companies Act, including where the accounts are prepared using International Accounting Standards.
Private companies must keep accounting records for 3 years from the date they were made. Public companies must keep them for 6 years.
All private limited and public companies must file their accounts at Companies House.
You must file a copy of the accounts that you have already prepared for the members/shareholders at Companies House. However small companies and micro-entities may prepare an abridged version of those accounts which has less detail by omitting certain balance sheet items
Unless you are filing your company’s first accounts (see below) the time normally allowed for delivering accounts to Companies House is:
- 9 months from the accounting reference date for a private company
- 6 months from the accounting reference date for a public company
The amount of the penalty depends on how late the accounts arrive and whether the company is private or public at the date of the balance sheet, as shown in the table below:
|LENGTH OF PERIOD||PRIVATE |
|Not more than 1 month||£150||£750|
|More than one month but not more than 3 months||£375||£1,500|
|More than 3 months but not more than 6 months||£750||£3,000|
|More than 6 months||£1,500||£7,500|
Directors and Shareholder Loans
Companies can make loans to directors and shareholders. Loans greater than £10,000 should have shareholder approval.
In terms of tax, a charge exists under s 455 CTA 2010, which dictates that if a loan is made to a director / shareholder then a tax payment equal to 32.5% of the loan value needs to be paid to HMRC by the company if the loan is still outstanding 9 months after the year end. This tax is repaid to the company 9 months after the accounting year in which the loan is repaid.
“Recycling” of loans before and after the year end is taken into account and is therefore not a solution.
A further complication relates to loans over £10,000 where a personal Benefit in Kind (BIK) charge for Income Tax and NI applies on notional interest unless interest is charged by the company at a market rate and physically paid to the company by the director / shareholder.
When dealing in foreign exchange transactions the exchange rate on the day of the transaction i.e. the sport rate is the rate used to translate the transactions in your records. At year end monetary assets and liabilities such as trade debtors, bank and trade creditors are retranslated at the year end rate which will result in a gain or loss on retranslation depending on the movement of the exchange rate. Non monetary assets and liabilities such as fixed assets and stock do not need to be retranslated at year end.
If you are consolidating a foreign subsidiary the profit and loss account of that subsidiary are translated at the average exchange rate for the year. The balance sheet is translated at the closing exchange rate. The difference arising on the opening reserves from a change between opening and closing exchange rates is taken to other comprehensive income and FX reserves.
If you are dealing in large volumes of foreign exchange transactions you may consider options available for hedging such as foreign exchange contracts, FX swaps and options etc. Careful consideration is required when accounting for these at year end as they may need to be fair valued which may result in a fair value gain or loss that needs to be recognised at year end.
The below gives a high level snap shot of the similarities and differences between operating a company in Ireland and in the United Kingdom.
|Company Law||Companies Act 2014||Companies Act 2006|
|Accounting Standards||FRS 102 for private companies.|
IFRS for public companies and other applicable
|FRS 102 for private companies.|
IFRS for public companies and other applicable
|Statutory Audit Exemption||Yes, depending on size and other criteria||Yes, depending on size and other criteria|
|Size Criteria - satisfy two out of three||Sales €12m|
Total Assets €6m
Total Assets £5.1m
|Minimum Number of Directors||One for private company but must have separate |
|One for private companies|
|EEA Director Requirement||At least one director required who is resident in the EEA||No requirement|
|Accounts Filing Requirements||Yes in Companies Registration Office normally with an |
Annual Return Date nine months after the year end.
|Yes in The Companies House normally nine months |
after the year end date.
|Maximum fine if Filed Late||€1,200||£1,500|
|Can Company make loans to a |
|Yes - prohibited under company law but possible |
under certain circumstances
|Yes - requires shareholder approval over £10k|
|Corporation Headline Tax Rate||12.5%||19%|
|Income Tax Rates||Standard 20%|
Additional rate 45% (over £150k)
If you are a business in the UK looking to set up in Ireland please refer to our “Doing Business in Ireland Guide”
If you have any queries in relation to this article or if you are interested in setting up a business in the UK of in Ireland please contact our team on (01) 6440100 / (090) 6480600:
- Brendan Mullally, Audit & Business Advisory Partner
- Ronan McGivern, International Tax & Business Advisory Partner