INTM652060 - Distribution exemption: Exemption for small companies: definitions
What is a “small company”?
The term “small company” is defined for the purposes of CTA09/Part 9A/S931S by reference to the European Commission’s Recommendation 2003/361/EC of 6 May 2003. A company is a small company in an accounting period if it is a micro or small enterprise in that period.
Recommendation 2003/361/EC defines enterprises as small by reference to various ceilings relating to staff headcount, annual turnover and balance sheet totals. A company is small if it meets the “staff headcount” test and at least one of the requirements of the “turnover” or “balance sheet total” tests.
Ceilings within recommendation 2003/361/EC:
| Enterprise category | Staff Headcount | Turnover | Balance Sheet total |
|---|---|---|---|
| - | Less than 50 | Not exceeding €10m | Not exceeding €10m |
If the accounting period is not equal to one year, the figures are annualised.
Generally, where at the balance sheet date an enterprise goes over, or falls below, the staff headcount or financial thresholds, this will not result in a change of status until the position is repeated for the second consecutive year.
In order to apply these ceiling tests to an enterprise it is first necessary to identify into which of three types of enterprise it falls - autonomous, partner or linked:
- In the case of an autonomous enterprise the ceiling tests are applied solely by reference to the accounts of the enterprise itself.
- Where an enterprise is a partner enterprise the ceiling tests are applied to the aggregates of the figures in its own accounts and those from the accounts of all other enterprises which are its partners.
- Where an enterprise is a linked enterprise the ceiling tests are applied to the aggregates of the figures in its own accounts and those from the accounts of all other enterprises to which it is linked. The figures to be aggregated are based on the proportion of capital or voting rights held by the linked enterprise.
Balance Sheet Total
The balance sheet total is the gross value of the assets on the balance sheet. It does not refer to the net assets position.
Currency conversion
Conversion to sterling should be made at the average exchange rate for the period of account whose profit is being computed, or the exchange rate on the date the account was drawn up if this produces a fairer result. As with any of the thresholds, companies close to the limit should not rely on changes to the exchange rate but should plan in advance to meet the requirements (if any) which changing designation requires.