Blogs/Vlogs

Company threshold changes likely to benefit the motor retail industry

Most of us will be all too conscious of the impact of inflation on the prices of goods we purchase on a regular basis. Some of the larger ticket items, such as cars, continue to increase in value at a noticeable rate.

Personally, when I see the price of a new mainstream family SUV starting at £40k, I struggle to put this into context with what my price expectations are for my next vehicle.

This increase in sales price is very readily noticeable in the accounts of a number of the clients we work with, where a 5% and 10% increase in turnover are seen yearly without any real growth in the business as a whole.

My gut feeling tells me this increase in the price of a new vehicle is driven two-fold, firstly by the cost of materials and labour, and secondly due to the advances in technology with more PHEV and pure BEV platform vehicles being sold.

Sense checking this against the CPI of new car purchases, the index jumps from 119.4 in 2021 up to 132.6 in 2023, so just over 13 points over a two-year period! This is quite an achievement when you think the index is based against parity in 2015, so 6 years - 2015 to 2021 - to cover 19 points.

Many motor dealers are simple corporate businesses when you look beyond the headline turnover statistic. One benchmark that brings this home to me is the £200m threshold for some larger entities and the implicit need to then enter the Senior Accounting Officer regime.

Further up from here, additional disclosures within the Taskforce for Climate-related Financial Disclosures (TCFD) regime kick in, where turnover and staff numbers exceed £500m/500 FTEs.

Given the increase in new car prices, we see an increasing number of family-owned retailers entering the enhanced reporting regimes.

Ironically, one of the ‘upsides’ of the push towards an agency model would see the reported turnover of new car retailers drop sharply. However, the roll out of agency in the UK and the EU has been slow, with many OEMs delaying or even cancelling the shift.

So, in the short term, it looks like the average retailer selling a £40k ‘widget’ is here to stay.

Threshold changes

A recent written ministerial statement made 19 March 2024 outlined the government’s aim to simplify corporate reporting (don’t get too excited just yet). In short, it is anticipated that the thresholds that affect company size and audit requirements will be broadly increasing by 50% in October 2024.

These are summarised below from the release – we have omitted the micro company details for expedience:

2 of 3 out of:

Small

Medium

Large

Old

New

Old

New

Old

New

Annual turnover

>£10.2m

> £15m

> £36m

> £54m

£36m+

£54m+

Balance sheet total

> £5.1m

> £7.5m

> £18m

> £27m

£18m+

£27m+

Average number of employees

> 50

> 250

251 +

 

What impact do we believe this will have on the motor retail sector?

  1. Hopefully, there will be a removal of some additional reporting requirements for businesses that are hovering around the medium/large company thresholds.
  2. Potentially, a reassessment of the triggers for the larger entity enhanced reporting, for TCFD and Public Interest Entities (PIE) and Other Entities of Public Interest (OEPI).
  3. Some entities may fall below the audit thresholds in future years, however there are numerous funding institutions (especially captive) which continue to see an independent auditor’s opinion as a requirement to offer a facility. One source of published statistics considers that 13,000 medium-sized entities will be reclassified as small companies, implying no statutory requirement to be subject to an audit opinion.

The next step

We are always keen to discuss the reporting and auditing requirements with our clients and other motor businesses within the UK. If you have any enquiries regarding the above, please get in touch with Ian McMahon on i.mcmahon@uhy-manchester.com, or your usual UHY adviser.

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