When a parent company must prepare group accounts

A company that is a parent at the end of its financial year must prepare group accounts as well as its own individual accounts unless one of the Companies Act 2006 exemptions applies. The main exemptions are for parents of small groups (section 399(2A)), for intermediate parents whose results are already consolidated by a larger group (sections 400 and 401), and for parents whose subsidiaries could all be excluded from consolidation (section 402). There is no exemption for a medium sized group.

When does the duty to prepare group accounts arise?

Section 399(2) says that if, at the end of a financial year, a company is a parent company, its directors must prepare group accounts for the year as well as individual accounts, unless the company is exempt. The test is applied at the year end, so a company that buys its first subsidiary a week before the year end is a parent for that year.

Section 399(3) lists the further exemptions in sections 400, 401 and 402, and section 399(4) allows any exempt company to prepare group accounts voluntarily. How consolidation is then carried out under FRS 102 is covered in FRS 102 Section 9 consolidated accounts; this page deals with the earlier question of whether the law requires them at all.

How does the small group exemption work?

Section 399(2A) exempts a parent that, at the end of the financial year, is subject to the small companies regime (or would be, but for being a public company), provided that no member of the group was, at any time in the year, a UK undertaking with transferable securities admitted to trading on a UK regulated market, a UK credit institution or an insurance undertaking.

A parent only qualifies as small if the group it heads qualifies as small (section 383(1)). Under section 383(4), for financial years beginning on or after 6 April 2025, a group meets the qualifying conditions if it satisfies at least two of these:

Test	Net limit	Gross limit
Aggregate turnover	£15 million	£18 million
Aggregate balance sheet total	£7.5 million	£9 million
Aggregate number of employees	50

The figures are aggregated across the group. Net means after the set offs and adjustments that would eliminate intra group transactions on consolidation; gross means before them, and section 383(6) lets the company use either. Section 383(7) says each subsidiary’s figures come from its own individual accounts for the financial year ending with, or last before, the parent’s year end.

The size test also has a two year rule. Under section 383(3), once a group has a track record, meeting or failing the conditions only changes its status if it happens in two consecutive years. A single good year does not take a small group out of the exemption, and a single quiet year does not bring a medium group into it.

The small companies regime is also closed to some groups regardless of size. Section 384 excludes a company that was at any time in the year a public company, an authorised insurance company, a banking company, an e money issuer, a MiFID investment firm or a UCITS management company, or a member of an ineligible group, for example one containing a traded company or a person (other than a small company) with Part 4A permission under the Financial Services and Markets Act 2000.

What does the size test look like in practice?

Illustration only. A parent and two trading subsidiaries have combined turnover of £17 million, of which £3 million is sales between group companies, so turnover is £14 million net. Combined assets are £10 million gross and £8 million net. The group employs 60 people on average.

• Turnover: £14 million net is within £15 million. Passed.
• Balance sheet total: £8 million net is above £7.5 million and £10 million gross is above £9 million. Failed.
• Employees: 60 is above 50. Failed.

Only one condition is met, so the group is not small in this year. If it was small last year, the two year rule means it stays small for this year, and it only loses the exemption if it fails again next year.

Is there an exemption for medium sized groups?

No. Companies House guidance states that a medium sized parent company must prepare group accounts and deliver them. For accounting periods beginning on or after 6 April 2025, a medium sized group meets at least two of: aggregate turnover of no more than £54 million net (£64 million gross), aggregate balance sheet total of no more than £27 million net (£32 million gross) and no more than 250 employees. Such a group gets some presentation reliefs, but it still consolidates unless one of the other exemptions applies.

When can an intermediate parent rely on its own parent’s accounts?

Section 400 exempts a company that is itself a subsidiary of a UK parent undertaking. Section 401 gives a parallel exemption where the parent undertaking is established outside the UK. Both use the same ownership tests:

• the company is wholly owned by that parent;
• the parent holds 90% or more of the allotted shares and the remaining shareholders have approved the exemption; or
• the parent holds more than 50% but less than 90%, and shareholders holding at least 5% of the allotted shares have not served notice requesting group accounts. That notice must be served at least six months before the end of the financial year.

The conditions are strict, and each must be met:

• the company must be included in consolidated accounts of a larger group drawn up to the same date, or an earlier date in the same financial year. Under section 401, the company and all of its own subsidiaries must be included;
• those accounts must be audited and, under section 400, drawn up under the Companies Act requirements (or the equivalent law for a non company parent) or UK adopted international accounting standards. Under section 401 they may also be drawn up in a manner equivalent to the Act’s requirements, or under accounting standards found equivalent to international standards, and must be audited by persons authorised under the parent’s own law;
• the company must disclose in its individual accounts that it is exempt from preparing and delivering group accounts, and give the name of the parent that draws up the group accounts and its registered office (or principal place of business if unincorporated);
• the company must deliver to Companies House, within its own filing period, copies of the group accounts, the parent’s annual report and the auditor’s report, with a certified English translation where Part 35 requires one.

Neither exemption is available to a traded company. A common failure is the final condition: the parent’s accounts are not ready in time for the subsidiary’s filing deadline, and the exemption is lost for that year. Filing deadlines and penalties are covered in Companies House accounts deadlines and penalties. Companies House treats these as group package accounts under section 400 or section 401, which can be filed through software in iXBRL format.

What if none of the subsidiaries would be consolidated anyway?

Section 402 exempts a parent if all of its subsidiary undertakings could be excluded from consolidation under section 405. Section 405 allows exclusion where:

• a subsidiary is not material for the true and fair view (two or more can be excluded only if they are not material taken together);
• severe long term restrictions substantially hinder the parent’s rights over the subsidiary’s assets or management;
• in extremely rare circumstances, the information cannot be obtained without disproportionate expense or undue delay; or
• the parent’s interest is held exclusively with a view to resale.

The materiality route suits a company whose only subsidiary is dormant or very small, but the judgement needs revisiting each year.

What changes in the parent’s own accounts?

An exempt parent still prepares individual accounts and shows its investments in subsidiaries, usually at cost less impairment; see investments in subsidiaries in the parent’s accounts. A small parent that chooses to prepare group accounts follows Schedule 6 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, and Companies House guidance says the balance sheet must then state that the accounts are prepared under the provisions applicable to companies subject to the small companies regime.

Where a company does prepare group accounts, section 408 lets it omit its individual profit and loss account from the annual accounts, provided the individual balance sheet shows the company’s profit or loss for the year, the individual profit and loss account is still approved by the board, and the accounts disclose that the exemption applies.

The exemption from preparing group accounts does not by itself remove an audit. A parent or subsidiary in a group that is not small, or in an ineligible group, cannot use the small company audit exemption, as explained in audit exemption for small companies. The accounting group is also a different thing from a tax group; see group relief for corporation tax.

What mistakes come up most often?

• Using the older thresholds for periods beginning on or after 6 April 2025, or forgetting the two consecutive year rule.
• Assuming a medium sized group is exempt.
• Relying on section 400 or 401 without filing the parent’s group accounts and auditor’s report at Companies House within the filing period.
• For a partly owned subsidiary, not obtaining the minority shareholders’ approval (90% route) or overlooking a notice served by 5% holders.
• Excluding subsidiaries as immaterial individually when, taken together, they are material.

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Related Accountapedia entries

• Which companies cannot use the micro entity regime
• Company size thresholds: micro, small, medium and large
• Small company in a group: audit exemption
• Can an LLP claim audit exemption
• Climate related financial disclosures for companies

Sources

• legislation.gov.uk: Act 2006 c. 46, section 399
• legislation.gov.uk: Act 2006 c. 46, section 383
• GOV.UK: Life of a company part 1 accounts
• legislation.gov.uk: Act 2006 c. 46, section 384
• legislation.gov.uk: Act 2006 c. 46, section 400
• legislation.gov.uk: Act 2006 c. 46, section 401
• legislation.gov.uk: Act 2006 c. 46, section 402
• legislation.gov.uk: Act 2006 c. 46, section 405
• legislation.gov.uk: Act 2006 c. 46, section 408

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.