UK accounting rules generally require parent companies and LLPs to prepare consolidated (group) accounts. However, several legal and accounting exemptions may apply. If your company or LLP is a parent undertaking at its financial year end, you must prepare consolidated accounts unless you qualify for one of the exemptions outlined in our article below.

The exemptions for companies are included in the Companies Act 2006 (‘the Act’), and for LLPs the Act is applied by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008.

Available exemptions for FRS 102 preparers

1. Small group exemption (s399)

If the parent and the group it heads qualify as ‘small’ under the Act, the parent may be able to take the small group exemption and avoid preparing consolidated accounts. The group of which it is parent will qualify as small unless it exceeds two of the three following size criteria for two years in a row:

*The new thresholds apply to financial years that began on or after 6 April 2025.

Key:

• Gross means before consolidation adjustments and set-offs

• Net means after consolidation adjustments and set-offs.

Note:

Some groups are not eligible to qualify as small by their nature. This includes groups that include any of the following entities:

• UCITS management companies

• Banking companies

• Authorised insurance companies

• Firms that carry on insurance market activity

• E-money issuers

• Listed on a UK regulated market such as listed on the London Stock Exchange Main Market.

These definitions can be complex so, if you need assistance, please contact us via the form at the bottom of this article.

2. Intermediate parent exemption (included in a parent’s consolidated accounts) (s400 or s401)

An intermediate parent may be exempt from preparing group accounts if it is included in the audited consolidated accounts of a parent and the requirements of s400 of the Act (if the parent is a UK entity) or s401 of the Act (for non-UK parent entities) are met. This includes conditions on how the consolidated accounts are prepared, and the requirement that a copy of the consolidated accounts and audit report are filed with the accounts of the entity claiming the exemption from consolidation. If the consolidated accounts are in another language, they must be accompanied by a certified translation into English.

The “included in consolidated accounts” test is met even if only part of the period’s transactions has been included in the consolidation.

Where the entity taking the exemption is a company that is not wholly-owned, this exemption is not available if either of the following points are true:

• Its parent undertaking holds 90% or more of the allotted shares in the company and the remaining shareholders have not approved the exemption.

• Its parent undertaking holds more than 50% (but less than 90%) of the allotted shares in the company and notice requesting the preparation of group accounts has been served on the company by shareholders holding in aggregate at least 5% of the allotted shares in the company. The notice must be served at least six months before the end of the financial year to which it relates.

(For LLPs, equivalent provisions apply through the LLP Regulations, but the detailed conditions differ because LLPs do not have share capital or shareholders.)

The s400 and s401 exemptions do not apply if any transferable securities (e.g. share capital, debt securities) of the entity claiming the exemption are admitted to trading on a UK regulated market such as the London Stock Exchange Main Market.

3. All subsidiaries are excluded from consolidation (s402)

If all subsidiaries are excluded from consolidation, the parent does not need to prepare consolidated accounts.

When can a subsidiary be excluded from consolidation?

1. The subsidiary is immaterial

A subsidiary may be excluded from consolidation when its inclusion is not material for the purpose of giving a true and fair view (but two or more subsidiaries may be excluded only if they are not material taken together).

2. Severe long-term restrictions

A subsidiary must be excluded from consolidation where there are severe long-term restrictions that substantially hinder the parent’s ability to exercise rights over the subsidiary’s assets or management e.g. where a subsidiary is subject to an insolvency procedure and control has passed to a designated official.

3. Held exclusively with a view to subsequent resale

A subsidiary must be excluded from consolidation where the interest is held exclusively with a view to subsequent resale (and the subsidiary has not previously been consolidated under FRS 102). Broadly, this means a purchaser has been identified (or is being sought) and disposal is reasonably expected within around one year of acquisition. The definition also covers some interests held as part of an investment portfolio.

How Buzzacott can help

Group reporting can become complex quickly, particularly where ownership changes during the year, multiple layers of intermediate parents exist, or there are overseas holding companies involved. We can help you assess whether an exemption applies and ensure your financial statements comply with the Companies Act and FRS 102.

This article is for general information only and does not constitute accounting or legal advice. Please take professional advice for your circumstances.