Audit burden reduction: An opportunity for property developers?

02 February 2016

For corporates the Government has recently announced that the audit threshold has been increased for financial years commencing on or after 1 January 2016. 

From that date there is no audit requirement at the balance sheet date if a company satisfies at least two of the three following criteria for two consecutive financial years:-

  • Turnover ≤ £10.2m
  • Balance Sheet to be ≤ 5.1m
  • Number of employees ≤ 50

The threshold where groups are concerned are:-

  • Turnover ≤ £12.2m
  • Balance sheet ≤ £6.1m
  • No of employees 50

For many property developers this increase in threshold presents a potential opportunity to avoid the audit altogether, with the right planning on the structure of the company. Whilst this was possible prior to the Government’s announcement, the increase helps widens the scope as now holding companies and subsidiaries in a group can have up to the threshold of £10.2m turnover net, or £12.2m gross in total – a more realistic and useful threshold commercially, making a good business case to review your corporate structure.   The number of employees is generally not an issue.  So, in any one year a company can either exceed the turnover threshold or the balance sheet total but not both.  The balance sheet totals is the aggregate of all assets held in the business i.e. fixed assets (property, plant and equipment) stock, debtors and cash ignoring any liabilities.

One could for example see a scenario where a developer runs two groups, or more, independently owned with the holding company being the banker and non trading, whilst the trading subsidiary undertakes individual deals.

If the stock held in the subsidiary company does not have a potential GDV of £10.2m then the audit is never in question.  The timing of sales receipts, which may spread over one or more years, needs to be considered.  At the end of the project, profits are distributed to the holding company (tax free) and are available for working capital for the next project which could be done in a new subsidiary. 

Contractors may feel having the service delivery in one company and the fixed assets and plant in another independent company with a management charge passing between the two also has its merits.

In summary, we suggest you consider the structure of your company NOW as it may pay significant rewards in terms of a reduction in audit fees. It is worth noting that once you are in the audit net one year, no matter what happens the second year, you still have to complete an audit so time is definitely of the essence.

If you would further information please email your enquiry to us. We strongly advise that your seek advice based on your specific circumstances.

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