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Visionary Accountants | Filing shake-up for small companies to go ahead

Filing shake-up for small companies to go ahead

Filing shake-up for small companies to go ahead

Wednesday 1 November, 2023

Plans for tighter rules over how companies report information to Companies House were given the green light last week, enabling the government to press ahead with the requirement for small companies (including micro-entities) to file a profit and loss account.

The passing of the Economic Crime and Corporate Transparency Act means that small companies and micro-entities will have to file a profit and loss account, with small companies having to also file a director’s report. This change ensures that turnover is available on the public register. The Bill also removes the option for companies to prepare abridged accounts. 

Companies House said:

“We’re approaching a pivotal moment in the history of Companies House. This legislation, The Economic Crime and Transparency Bill, will fundamentally change our role and our purpose and will give us the powers we need to play a more significant role in tackling economic crime. Over time, we’ll become an active gatekeeper of the data on our registers rather than a passive recipient, and we’ll have the tools to go further to prevent the misuse of corporate entities.

It's widely known that the UK has one of the largest and most open economies in the world. However, it’s become increasingly apparent that this openness exposes the UK to criminals who want to use our corporate structures for illicit purposes. This is one of the things the new Bill will address.

The measures in the Bill will make sure the UK continues to be a great place to do business, while enabling us to take a tougher stance against economic crime.”

Who is affected?

For the purposes of these new rules, a small company is defined as satisfying two of the following three conditions:

  1. Turnover of £10.2m or less
  2. Balance Sheet of £5.1m or less
  3. 50 employees or fewer. 

As for a micro-entity, the government fact sheet defines these as satisfying two of the following three conditions:

  1. Turnover of £632,000 or less
  2. Balance Sheet of £316,000 or less
  3. 10 employees or fewer. 

While the Bill had been waiting in the wings for several months, currently there is no timetable for the new rules to be rolled out. 

A Companies House spokesperson said: “The requirements for a profit and loss account will be set out in regulations and we will ensure companies are given fair warning of the changed expectations. The secondary legislation and implementation programme is currently being finalised and further details will be communicated soon.”

The requirements will become clearer once the secondary legislation is issued, which should set out the form and content of the profit and loss account that will be delivered to Companies House.

In addition to the new profit and loss filing requirements, directors of companies that use audit exemption rules, such as dormant companies, will also have to provide additional information, including a statement to confirm the company qualifies for the exemption.  

This is the first step, but the government also plans to mandate digital filing and full tagging of financial information in iXBLR format and reduce the number of times a company can shorten its accounting reference period. 

What are the new measures?

The measures include:

  • introducing identity verification for all new and existing registered company directors, people with significant control, and those who file on behalf of companies;
  • broadening the registrar’s powers so that Companies House can become a more active gatekeeper over company creation and a custodian of more reliable data;
  • improving the financial information on the register so that the register is more reliable and accurate, reflects the latest advancements in digital technology, and enables better business decisions;
  • providing Companies House with more effective investigation and enforcement powers, and introducing better cross-checking of data with other public and private sector bodies; and
  • enhancing the protection of personal information provided to Companies House to protect individuals from fraud and other harms.

Opinions divided on the requirements

Opinions have been divided since news about the changes in filing requirements for small companies emerged last year. 

Some commentators suggest the filing of the profit and loss account for small companies is long overdue given the limited liability afforded to companies. Conversely, many practitioners and their clients are nervous about this information being placed on the public record for reasons of commercial sensitivity. Some have also suggested reverting back to a subscription-based Companies House service in light of this new information which will be available to companies.

When AccountingWEB polled readers in March on an episode of Any Answers Live, 51% opposed the reforms, with 32% saying they were undecided and only 16% saying that they supported changing the filing requirements. 

Some argue that the reforms are not going to meet their objective to prevent fraud because anyone who needs to see a profit and loss; such as Banks, lenders and HMRC, already receive this information direct from companies. Putting it in the public view will not combat fraud.

There are concerns that it's going to expose small businesses to a "nosy neighbour culture" and puts them at a weak competitive advantage against larger customers.

Clamp down on fraud

These requirements are part of a raft of new powers handed to Companies House to clamp down on fraud, including the rollout of identity verification for all new and existing registered company directors, people with significant control and those delivering documents to the registrar. 

The government’s ambition is for the new requirements for small companies to lead to a “more reliable and accurate” companies register and that the information filed at Companies House is “closer to what companies have already prepared”. 

The government said the reforms will “achieve a better balance between greater transparency and minimising burdens on business” while also solving the issue of inaccurate or insufficient information on the companies register. 

“Requiring more information to be filed will reduce the risk of deliberate misuse of minimal disclosure options to hide money laundering and other fraudulent activity. Ensuring all companies report sufficient information to determine a company’s size and eligibility to file under size-specific regimes will improve the value and reliability of the information,” expanded the government factsheet.

Do you own a small or micro business in St Albans?

How will the new legislation affect you and your business?

Increased Regulatory Compliance: Micro businesses will need to ensure compliance with the new reporting requirements. This may involve additional administrative work and potential costs associated with preparing and filing profit and loss accounts.

Operational Adjustments: Micro businesses may need to adjust their internal processes and accounting practices to meet the new reporting requirements. This could include implementing new accounting software or seeking professional accounting services.

Tax Implications: The information in the profit and loss account may also be used by tax authorities to verify the accuracy of reported income and expenses. Micro businesses may need to ensure that their financial records align with tax regulations.

Financial Transparency: Requiring businesses to file profit and loss accounts enhances financial transparency. This could benefit stakeholders, such as investors, creditors, and the government, by providing a clearer picture of a company's financial health.

Access to Credit: Financial institutions and creditors may use the reported financial information to assess the creditworthiness of micro businesses. This could impact the ease with which these businesses can access loans or credit facilities.

Take advice from your local accountant

James Murray, St Albans based Accountant said:

“While the implementation of the new legislation may take some time, the concerns of local business owners in St Albans are already evident. Navigating through regulatory changes can be complex, and having a reliable source of advice is crucial for businesses to ensure compliance and make informed decisions.”

Visionary Accountants are here to address your questions and provide valuable insights. Whether you are an established small business seeking to adapt to the upcoming changes or an entrepreneur gearing up to start a micro business, our accountants is here to assist you.

Our experienced professionals at Visionary Accountants understand the local business landscape in St Albans and are well-versed in the nuances of financial regulations. We can guide you through the intricacies of the Economic Crime and Corporate Transparency Act, helping you comprehend the specific implications for your business. Feel free to Contact Us if you have any questions.

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Our team of Accounting & Bookkeeping experts will be happy to meet with you to discuss your business requirements. Complete the form below or call 01727 730550 to arrange your FREE initial consultation.

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