(1) In section 381 of the 2006 Act (companies subject to the small companies regime), omit "for accounts and reports".

(2) After section 415 of that Act insert -

"415A. Directors' report: small companies exemption

(1) A company is entitled to small companies exemption in relation to the directors' report for a financial year if -

(a) it is entitled to prepare accounts for the year in accordance with the small companies regime, or

(b) it would be so entitled but for being or having been a member of an ineligible group.

(2) The exemption is relevant to -

section 416(3) (contents of report: statement of amount recommended by way of dividend),

section 417 (contents of report: business review), and

sections 444 to 446 (filing obligations of different descriptions of company).".

(3) In section 416(3) of that Act (contents of report: statement of amount recommended by way of dividend), for "subject to the small companies regime" substitute "entitled to the small companies exemption".

(4) In section 417(1) of that Act (contents of report: business review), for "subject to the small companies regime" substitute "entitled to the small companies exemption".