Not every risk a company carries shows on its balance sheet. This note tells readers about material arrangements the balance sheet does not capture.
What this note shows
An off-balance sheet arrangement is a transaction or agreement that is not reflected on the balance sheet but that exposes the company to significant risks or benefits. Examples include assets held by a separate entity that the company uses or guarantees, debt factoring with recourse, or a commitment to a special purpose vehicle.
Companies Act 2006 s410A requires the notes to disclose the nature and business purpose of such an arrangement where the risks or benefits are material and disclosure is needed to assess the company's financial position. Companies subject to the small companies regime do not have to state the financial impact of the arrangement, although you can.
Some things look like off-balance sheet arrangements but have their own notes: operating lease commitments, capital commitments, contingent liabilities and guarantees on behalf of directors. Use those notes for those items.
Most small companies have no off-balance sheet arrangements. You can leave the note switched off, or use the “No off-balance sheet arrangements” template if you prefer to say so. The note is not available in FRS 105 micro-entity accounts.
Where the information comes from
This is a text note; nothing is taken from the trial balance. Ask the directors about agreements involving other entities, factoring or sale-and-leaseback arrangements, and any commitment the company has that is not recorded as an asset or liability.
Completing the note in Tax Optimiser
- Open the period, choose View Accounts, then Notes.
- Select Off-balance sheet arrangements and set Show this note in the accounts to Yes.
- Click Use Template and choose the wording, or type your own description.
- Click Save changes.
Wording templates
- Arrangement in place — describes an arrangement, its business purpose and its financial impact. Asks for {{ArrangementDescription}}, {{BusinessPurpose}} and {{FinancialImpact}}. A small company can delete the financial impact sentence if it chooses not to give it.
- No off-balance sheet arrangements — a nil statement. The period end date is filled in automatically.
How it appears in the accounts
The note prints as text under the heading “Off-balance sheet arrangements”.
Frequently asked questions
What is an off-balance sheet arrangement?
An agreement or transaction not recorded on the balance sheet that still exposes the company to material risks or benefits, such as factoring debts with recourse or using assets held by a separate entity.
Do small companies have to disclose off-balance sheet arrangements?
Yes, if they are material: Companies Act 2006 s410A requires their nature and business purpose. Small companies do not have to give the financial impact.
Are operating leases off-balance sheet arrangements?
Operating lease commitments have their own note, so disclose them there rather than here.
Do I need to say there are none?
No. If there are none, you can leave the note out. Some accountants include a nil statement for completeness.