Some obligations do not appear on a balance sheet because they have not happened yet, or might never happen. Examples are a signed order for a new machine, rent due under a lease, or a guarantee the company has given. Micro-entity accounts still have to mention them. In FRS 105 accounts in Tax Optimiser this is note 2, "Guarantees and other financial commitments".
What this note shows
The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 (SI 2008/409), Schedule 1, as applied to micro-entities, require the notes to give the total of any financial commitments, guarantees and contingencies not included in the balance sheet, and the nature and form of any security the company has given. Pension commitments and commitments to group or associated undertakings must be shown separately.
Tax Optimiser splits this into three sections:
| Section | What goes in it | Example |
|---|---|---|
| Capital commitments | Contracts signed for capital spending (fixed assets) not yet in the accounts | A £25,000 machine ordered before the year end, delivered after it |
| Other financial commitments | Other future obligations: operating lease payments, pension contributions owed, security given over the company’s assets | £18,000 a year under a non-cancellable lease |
| Contingent liabilities | Possible obligations that depend on a future event, including guarantees given for others and legal claims | A customer claim the company is defending |
If none of these applies, leave all three sections switched off. Guarantees given on behalf of a director go in the Advances and credit note instead.
Where the figures come from
All three sections are text. Nothing is taken from the trial balance, because by definition these amounts are not in it. Take the figures from signed contracts, lease agreements, loan and security documents, and correspondence about any claims. Use the position at the balance sheet date.
Completing the note in Tax Optimiser
Go to View Accounts > Notes and find "Guarantees and other financial commitments". Select each section you need, set Show this note in the accounts to Yes, and type the wording or click Use Template. In the demo company only the Other financial commitments section is used, for a lease of £18,000 a year:
Click Save changes to update the accounts.
Wording templates
{{EndDate}} is filled in with the period end date. You are asked for the other values. Type amounts without the £ sign.
Capital commitments
- Contracted but not provided: capital spending contracted for but not in the accounts. Asks for {{CommitmentAmount}}.
Other financial commitments
- Operating lease commitments: annual payments under non-cancellable operating leases. Asks for {{AnnualCommitment}} and {{LeaseEndDate}}.
- Pension commitments: defined contribution pension contributions outstanding at the year end. Asks for {{OutstandingAmount}}.
- Charge over assets: states that bank borrowings are secured by a fixed and floating charge. No values needed.
Contingent liabilities
- Guarantee given: a guarantee the company has given to a third party. Asks for {{GuaranteeAmount}} and {{Beneficiary}}.
- Legal claim: an outstanding claim not provided for. Asks for {{ClaimDescription}} and {{EstimatedAmount}}.
Each template fills the whole section and replaces what was there. To combine two (for example a lease commitment and a charge over assets), apply one, copy its text, apply the other, then paste the first back in.
How it appears in the accounts
The note prints beneath the balance sheet under "NOTES TO THE ACCOUNTS", headed "Guarantees and other financial commitments". Each section switched on prints as a paragraph, in the order Capital commitments, Other financial commitments, Contingent liabilities.
Frequently asked questions
Do micro-entities have to disclose operating lease commitments?
Micro-entities must disclose the total of financial commitments not on the balance sheet, which includes amounts due under non-cancellable leases. Use the Operating lease commitments template in Other financial commitments.
What is a contingent liability?
A possible obligation that depends on an uncertain future event, such as a legal claim or a guarantee that may be called. If the payment is probable and can be measured, it is usually a provision or liability on the balance sheet instead.
Where do I disclose that the bank has a charge over the company’s assets?
In the Other financial commitments section. The Charge over assets template gives standard wording.
Should a guarantee for a director go in this note?
No. Guarantees given on behalf of directors go in the Advances and credit note, under Guarantees and their terms.
Where to go next
- Accounts notes: a note-by-note guide
- Previous: Advances, credits and guarantees to directors (FRS 105)
- FRS 102 Section 1A equivalents: Capital commitments, Other financial commitments, Contingent liabilities and Operating lease commitments
- FRS 105 notes