Regulation implementing the increases in definition of the Small and Medium sized

Enterprise and Audit Exemption Thresholds.

Regulation increasing the thresholds was laid before Parliament on 9th January 2004 and came into
force on 30th January 2004. The new thresholds take effect in relation to financial years ending on or
after 30th January 2004.

The changes have several different effects: some 70,000 more companies will be entitled to apply
RSSE and to qualify for 40% tax allowances on plant and machinery and 100% relief on IT
investment (before the concession ends on 31 March). The increased thresholds will allow more small 
companies to take advantage of the less burdensome accounting requirements available to them.

The qualifications for small and medium-sized companies are ultimately set by EU law. New EU
maxima came into force on 15th May 2003 following adoption on 13 May 2003 or Council Directive
2003/38/EC – amending Directive 78/660/EEC concerning amounts expressed in euro. The new maxima are:

Small Company

Turnover

Not more than 5.6 million

Balance Sheet total

Not more than £2.8 million

Number of employees

Not more than 50

Medium Company

Turnover

Not more than £22.8 million

Balance Sheet Total

Not more than £11.4 million

Number of employees

Not more than 250

The audit exemption threshold for small and medium-sized companies will increase from £1 million
annual turnover to £5.6million turnover taking effect in relation to financial years ending on or after
30th March 2004. The two month delay will allow shareholders a period during which they can
consider whether they wish to require the company in which they hold shares to obtain an audit.*
Before clients are advised to extend accounting periods please be aware that unless the extension was
effected before 9 January 2004, it will not remove the audit requirement.
 

*Section 249(b)2 of the 1985 Act allows shareholders holding at least 10% of the share capital of a
company to require an audit of the accounts.