The end is nigh for annual returns

Some significant reforms have been put forward in a recent BIS consultation document on corporate transparency. But has the government taken its crusade a bit too far, asks Jennifer Adams.

Last month, a post from AIA Accountancy e-News alerted us to government proposals to radically improve company transparency and boost public trust in business. At the time of writing, just over 100 AccountingWEB members had viewed the item, but perhaps more should take an interest, as the BIS paper includes some far-reaching proposals that could have a profound effect on every UK plc and private company.

By focusing on the technical accounting aspects, the AIA document misses some of the most significant company law changes. But a closer reading of the 89-page BIS ‘Transparency and Trust’ document reveals that the continuing campaign to crack down on criminals, terrorists and international money launderers will have a direct effect on ordinary sole director, private limited companies around the country.

Making larger public companies more accountable is the primary focus, but the following measures will be just as significant for private limited companies:

  • Abolish the annual return sent to Companies House
  • Require every company and LLP to maintain a register of beneficial owners (those who control 25% or more of a company)
  • Prohibit the use of corporate directors. Currently companies must have at least one director who is a “natural” person, but the other directors can be companies. According to the BIS, “only 11,600 separate companies have corporate directors on their boards, representing less than 0.5% of all active UK companies”, but it still wants to abolish the practice for transparency reason
  • Require nominee directors to disclose details of their nominator
  • Abolish bearer shares (any existing shares being converted to ordinary shares).
  • Tighten up regulations regarding the disqualification of directors, including a right to compensation for creditors who are victims of a director’s “fraudulent or reckless behaviour”.

As ever, the devil will be in the detail that emerges post-consultation. Some of the proposals...

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Continued...

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Comments

1.2 million    1 thanks

cbp99 | | Permalink

directors disqualified in 2011-12 ???

Chris AAAtax's picture

should be 635    5 thanks

Chris AAAtax | | Permalink

I thought it sounded a bit crazy too - so I had a look at the document and the correct number is 635, not 1,215,635 - quite a difference!!

This mad government    5 thanks

Donald6000 | | Permalink

This government does not know ethically which way to turn. You can now do what you like in terms of inputting into the system in terms of annual returns (which I thought was a perfectly sane and sensible control measure) but if we don't like you, we will arrest you at the airport and smash your key drives.

 

All shot away, welcome to contemporary Britain.

Company members    1 thanks

alan thornton | | Permalink

Am I missing something? Surely if the Annual Return is done away with, there will be no public record of the membership of the company, as share transfers do not have to be reported to Companies House in any other way.

johngroganjga's picture

What is lost with the    6 thanks

johngroganjga | | Permalink

What is lost with the abolition of the annual return is access to shareholder information.  The justification for the abolition that the information on the return is submitted to CH in real time anyway may be right for changes of directors etc. but it is not the case for share transfers.

Then there is to be a new requirement to notify CH of beneficial ownership of shares.

Why over complicate?  Why not just amend the annual return to add details of beneficial owners of shares when they are different from the legal owners.

 

annual returns    1 thanks

ldcldc | | Permalink

We all know they are pointless but the letter sent a few days before its due is the worst piece of drafting ever.  Clients are scared stiff of the potential fro being carted off to the Tower and beheaded !   On a more serious level, most accountants will use a registration agent on formation so the one shareholder ( if no extra shares are issued) will not be recorded at Companies House for at least a year and that upsets banks when they search before opening an account.

fecking idiots    3 thanks

The Black Knight | | Permalink

not a clue have they there.

The real reason is they want to brush under the carpet the huge amount of financial crime, money laundering and tax evasion, false directors etc that is easily spotted at companies house.

That the government have created and failed to deal with.

Crime rates can then fall if only people would stop reporting it.

The only people who can spot this are those with a vested interest in the law being applied namely accountants who are too clever and should be got rid of in the interests of fairness and us all being as thick as each other.

 

who knows    2 thanks

Huw Williams | | Permalink

Whilst the requirement to record beneficial ownership sounds good in theory, how will a company know if the information it is given is right?  Will it be required to ask every shareholder if they are a nominee or just guess which ones should be asked?

pembo's picture

only 635 !!!    2 thanks

pembo | | Permalink

Shows how impotent the whole system is. The number probably should be nearer £1m given the number of shysters out there.The insolvency profession and service really have to get tough with these chancers who basically stick 2 fingers to the whole system.

Agree the lunatics really have taken over. What possible rationale is there for abolishing the AR that still provides a really useful quick snapshot. Trouble is this is as ever is all about the fake economy rather than the real economy of SMEs that we all deal with and that are the bedrock of this country.The powers that be have no interest in them or us just take for granted we'll all be nice compliant puppies that roll over to have our tummies tickled.

Gratified however carrying out a search on George Osbornes family company (Osborne and Little) that contrary to scandolous reports to the contrary in Private Eye appears transparent about their beneficial shareholders. We won't mention the Gideon bit though that might confuse people.

JAADAMS's picture

Error in transferring my text to screen it appears!    1 thanks

JAADAMS | | Permalink

My original article actually read:

The proposals dealing with the disqualification of directors are too detailed to be covered here and the AIA article does give a basic overview, but it is worth reading the section in the BIS document pages 76 to 78 as well. On page 76 there is a table showing the reasons for directors’ disqualification in 2011/2012.

Of the 1,215, 635 were disqualified for ‘Non payment of Crown Debts’. Bearing that in mind, it beggars belief that the government intends to offer all disqualified directors a course so that they may ‘learn from their mistakes’. 

>>> but it made you read the actual BIS document - didnt it

>>> I think I'll have a moan at John!

About time too

roger@century.gg | | Permalink

I live and work in the Channel Islands, who are the regular butt of criticism from high minded Government officials and Ministers aimed at "lack of transparency" here. 

So let me compare these suggestions for UK companies with regulations that apply to the companies I deal with here.

Register of beneficial owners - We are required to identify all beneficial owners prior to and during the administration of a company, and perform sufficient client due diligence (CDD) in each case

Prohibit the use of corporate directors - Jersey has never allowed corporate directors, Guernsey has, but the beneficial ownership of the corporate directors are subject to the same CDD rules as above

Abolish bearer shares. We are not even allowed to administer companies, wherever they may be registered, if there are bearer shares.

Disqualification of directors - although I am not sure that we have legal sanctions, as a registered Corporate Service Provider, I could lose my licence for 'fraudulent or reckless behaviour"

So, United Kingdom, please put your house in order before criticising others, and while you are about it, perhaps persuade United States of America to do the same with Delaware and other less particular States who seem to have complete disregard to corporate governance.

 

johngroganjga's picture

Pointless?    2 thanks

johngroganjga | | Permalink

ldcldc wrote:

We all know they are pointless ...

Really?  Without them ownership of companies would be entirely secret and out of the public domain altogether - especially since the abolition of the requirement to disclose directors' interests in shares in Directors' Reports in company accounts.  

should_be_working's picture

Barmy    3 thanks

should_be_working | | Permalink

Making for more transparency re nominees, etc, I have no problem with, though there should be some exemption available as there was/is, say, for directors home addresses when the ALF nutters were kicking off.

Scrapping the annual return, though, is just barmy. It, perhaps unusually, is not a piece of pointless bureaucracy to satisfy some government tick-box fetishist. It serves a real practical purpose; it can often be the first prompt to update CH details. A good many times we have only learned of a change in shareholders at the AR stage (such changes not having to be filed at CH anyway). Often it provides another prompt for the client to get their backside in gear and get the records ready for the annual accounts.

And this is not an accountant looking to preserve an income stream - by all means combine the AR with the accounts submission; that makes sense.

 

Annual Return    2 thanks

Springfield | | Permalink

Why get rid of a very sensible, relatively straight forward and easy to submit return? It's the one opportunity each year to tell the world at large (if they're interested) the up-to-date basics about your company. Failure to submit on time is in itself a warning sign that all might not be well.

It would be a backward step to get rid of this simple requirement.

 

Bearer Shares    1 thanks

pauljohnston | | Permalink

So how is the registration of such items going to prevent money laundering?

The registration will then be in a company's name and the certificate will be treated as bearer with a STock Transfer Form attached.

Are gold bars now have to have registration details. 

Looks like someone in the GOvt had not alot to do and was scared that his or her job would be axed.

The Annual Return, even in its current form should be left alone.  A simple documen providing base costs.

Christop51's picture

Fixing what is not broken    2 thanks

Christop51 | | Permalink

Yet another gross waste of public funds. Why can't our government servants (masters?) focus on applying what limited resources are available to reducing the ever increasing red tape and the improvement their services to the public?   

John Stokdyk's picture

Apologies for the 1.2m disqualifications! All my fault

John Stokdyk | | Permalink

The article did arrive as Jennifer wrote it, but when working on it very early this morning, I managed to eradicate the space in Jennifer's original copy and thus consigned more than a million innocent directors to the commercial wilderness.

My apologies to all concerned (especially Jennifer) and I'm sorry if it detracted from the tone and authority of what is a very insightful and important piece. Do keep the comments coming, and we'll compile them for submission to BIS as part of the formal consultation.

George Gretton's picture

If you want the protection afforded by a Limited Liability...    1 thanks

George Gretton | | Permalink

If you want the protection afforded by a Limited Liability...

Company, then be ready to fulfill some basic requirements.

One does not need to trade as a Limited Liability Company - I don't for one. 

So I don't have to file anything anywhere! Nobody will ever find "Codd Relational Analysts" Accounts etc anywhere in the Public Domain, unless I choose to make them available.

I will of course have to submit a summary of the Accounts in my Income Tax Return, but that's fine, unless some HMRC person sells that information to somebody.

Limited Liability Companies were legislated for so as to afford some protection to entrepreneurial types, and/but a host of safeguards were built in ........ that have subsequently, and especially recently, been dismantled, but without restoring Personal Liability. These Dodgy Director Dudes are having their cake and eating it as well!

So we now have this madness by which, as reported here on AW, there's a whole industry devoted to theft and fraud using especially set up "Companies", by the thousand apparently!

EITHER

(1) Can we just do away with Limited Liability Companies, and revert to the Personal Responsibility status quo that existed before whenever it was, or,

(2) Can we get back to the checks and balances situation that was created when the scheme was first legislated, since subject to many, and recently increasingly MAD, amendments.

FORGET Mad David rabbiting on about "sparing us all red tape"! Who in Codd's name has been advising him? 

Give me 30 minutes on TV with him and Jo Swinson to debate this "red tape" fantasy!

Why does is it a "saving" to have to prepare a FURTHER set of "Abbreviated Accounts" for filing when you have already prepared the full set?

At CH why is it a "Saving" to allow Directors to give the Registered Office as their Service Address? There were already Personal Protection steps in place.

Why is it a "Saving" to have withdrawn information about the electronic filers of forms at CH? One now needs a Data Protection Request from a Police Force to find out who files what manure.

Why cannot CH be empowered to flag the absolute fecking (BK) manure that is filed there, such as Professor Graham Stewart's fabricated Service Address, and that's just for starters?  I have a list of "Companies" and "Charities" for further examination!

I could do a few weeks of Application Development work there that would flag for further examination "stupid" sets of accounts, where one of the ratios is absurd - like that Accountancy Recruitment Company with £250k of Directors' Loans hanging around in £400k of Debtors (effective composite entry Debit Directors Loans £250k, Credit P/L £250k, to tidy up HUGE losses) - and all prepared by ICAEW Accountants.

And bring back the Source and Apples Statement! That Recruitment obscenity would have had an interesting time doing the S & A statement with no cash received on the raising of £250k "Share Capital"! The people who originally drafted the legislation obviously understood accounting and accounts, and the story that they tell.

And now we are thinking of doing away with the ANNUAL RETURN? Is the world going utterly BONKERS?

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In summary: there are both honest and decent people out there trading as Limited Liability Company Directors, and also, I increasingly acknowledge, loads and loads of pieces of excrement, only interested in a fast buck at somebody else's expense, as when a LLC is allowed to "go to the wall", at the expense of creditors, who then go to the wall.......

The decent people may grumble about necessary red tape, but will be prepared to live with it.

The benders work assiduously towards making their bending easier, and what is REALLY terrifying is that the Civil Service and successive Governments run with the benders, under the banner of "Avoiding Red Tape"!

What manure, Dave.

Yours, George, Wednesday 21st August 2013, 15:26 BST - gob-smacked, mind-boggled (in the wrong way), absolutely flabbergasted. GIVE ME THAT INTERVIEW!

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Scary annual return letter reminder    1 thanks

Corinnee13 | | Permalink

Yes, I agree it is the most awful worded letter and implies that the client has already missed a deadline but it does usually elicit a reaction - usually to the accountant blaming them for something they have missed! The annual return should be retained as it prompts the director to ensure all his corporate documents are up to date but should be combined with submitting the company accounts. The AR reminder letter could then be combined with the annual accounts filing letter and information would be available 9 months after the year end. To be quite honest most of my clients think the annual return relates to the annual accounts anyway!

If it's not broke lets break it!

North East Acco... | | Permalink

BIS does not have a clue!

sparkey999's picture

Filing dates

sparkey999 | | Permalink

The system in Ireland works well in that the annual return is filed with the annual accounts. Bit different in terms of the Annual Return Date being the key to determining when the return and accounts must be filed but most companies refile to ensure the return and accounts are afforded the maximum 9 months period after the year end to file at Companies Registration Office.

Personally I think the return and accounts should be filed together making it one assignment/compliance filing each year. But I think 9 months is too long. 6 months should be sufficient.

Most companies have March year ends I would guess which can overload the workflow for accountants in November to January each year when SA returns are also on the agenda at that time of year.

But from a company perspective, 6 months is more than enough!! Directors need to get their act together more I feel and understand the responsibility of their position and their duty to members but more importantly to creditors in the current climate.

Annual Returns

Hayter | | Permalink

No doubt the sudden interest in scrapping this previously inoffensive document, has been generated by the searching of various companies which hide ownership, the principal reason for which is tax avoidance/evasion. Of course this will include Osborne & Little and Stemcor among many others. Owned of course by the duplicitous and temporary occupants of SW1A 0AA.

target setting and communist results

The Black Knight | | Permalink

North East Accountant wrote:

BIS does not have a clue!

Oh they do they just see the world differently.

The government set departments figures like, lower crime rates or full company accounts filing compliance.

it is then the civil servants job to achieve those targets.

This is easily done by by reducing the reporting or noticing of errors etc. Reduce the filing of useful information and crime will be less easy to spot by annoying accountants.

This is why companies house view reports of non compliance with the companies act and other fraudulent activity as a nuisance and spend more on avoiding taking any action at all.

the BIS 's largest investigation into organised crime and long firm fraud seems to have been caused by two investigative journalists from the Daily Mirror who no doubt used the information at companies house to track down the alleged perpetrators (Anthoula and Demitris Bains and others due to stand trial in January 2014)

Bet they could do without all that work as it must have really stuffed up their targets and it has taken them years (how slow could they go)

their response - lets try and avoid this happening again.

Just look at all the changes we have had over the last 15 years what was their result and who benefited (it certainly wasn't the taxpayer or the voter unless you were a sponger or a criminal)

George Gretton's picture

Hello NWA, Sparkey and Hayter; Hail Kindred Spirits!

George Gretton | | Permalink

Hello NWA, Sparkey and Hayter; Hail Kindred Spirits!

Taking things in order:

I think that the BIS DOES have a clue; it's in cahoots with the Benders systematically dismantling the safeguards to do with Limited Liability Companies, while leaving personal protection at its Ludicrously Low Level.

If there is no COST to Transgression, then Transgress away if you are bent! That's the way those people are!

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And what a good point about going for six months rather than nine! Procrastination is the thief of time.

Of course the vast majority of responsible Companies have finalized their accounts by then!

(Why is AW using a US "English" spell-checker, rather than a UK English one?)

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I have to note that I sent Simpleton Simon of The IBD an very urine-taking email last week.

I noted that the 2012 Annual Accounts are due for filing at the end of September, and I said how much I anticipate enjoying their contents, and falling off my chair with mirth. I have padded the surrounding floor to soften my descent.

I also told him that he would one day (hopefully) soon be getting the phone call / knock on the door from an Unnamed Statutory Authority that is "Investigating Mr Gretton's complaints of fraud".

I separately suggested to said Statutory Agency that it had better get in there before the end of September, when the 2012 Accounts are filed (or not, of course). I said that I would be making a HUGE noise at that point, seeing what gems of absurdity would be included.

On this occasion of my emailing him SS has declined to reply so far, notwithstanding that he got back from annual leave on Monday 19th. But perhaps it's just in his "Pending" folder in Outlook.

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And yes, how much I agree with the concept of a Duty to Creditors as well as to Members!

So often the greatest creditor will be Statutory, especially HMRC. 

In my bogus and Trading-While-Insolvent "Recruitment Agency" case, with £250k of Loans to Directors in £400k of Debtors, HMRC was the greatest creditor, at £155k; I told HMRC that there was a problem, but they do not seem to have acted. What a surprise!

But it's the other creditors that may bite the dust when HJ and AJOL bite the dust.

Yours, George, Thursday 22nd August 2013, 10:18 BST

P.S. On the child protection front,I went to a MAGNIFICENT Pakistani Wedding Reception yesterday, and say next to an originally Pakistani (and before that Iranian) neighbour that that I have known for 30 years.

We almost came to blows as regards whether child sexual abuse is more profligate in his culture or mine!

But it was wonderful to talk to somebody who recognises the scale of he problem in his community, as I do in mine.

===

Of all the tax and company    2 thanks

taxguru | | Permalink

Of all the tax and company law compliance, annual return is the easiest one requiring just a few minutes to complete; the downside being a £13 payment. In a virtual world what with virtual offices, telephone answering, paypal, nominee directors, paid registered office etc this is perhaps one document with some authenticity that potential investors, creditors, job-seekers, and in fact the entire stakeholder community could rely on. Don't scrap it.

Abolition of the Annual Return and Transparency of Shareholdings

Mike Kerr | | Permalink

A welcome proposal - nominally reducing the administrative burden of the smaller company. A central searchable database register makes total sense - based on regularly updated data. But as far as imagining that setting a 25% limit on disclosable shareholdings would achieve transparency is naive  in the extreme! 4 shareholders transfer 1/25th of their holding to Jack the Lad and off they go again!!

George Gretton's picture

,,, the administrative burden of the smaller Company....

George Gretton | | Permalink

,,, the administrative burden of the smaller Company....

Hello Mike, I previously missed the reference to a central searchable database of shareholdings - all I observe is that when I checked out two Chinese Companies I got Chapter and Verse on changes in shareholdings, and there will be more Chinese Limited Liabilities Companies than there are UK equivalent.

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But are your middle names Dave and Jo?

Do your sleep and wakeful dreams involve pouring petrol on mountains of red tape and igniting said heap, barely noticing what else is being destroyed, such as accountability?

If individuals want to avoid (note my careful choice of word) the Possibility of Personal Liability on the Possible Financial Failure of their business by incorporating their business in the form of a Limited Liability Company, then if they are decent and honest and intelligent people they will willingly accept that checks and balances have to be put in place and maintained so that the whole system does not become a Codd-send for frauds and charlatans and worse.

Well, see what an optimist I am. The whole tense of my rant is wrong. It has so become, precisely.

So let's seek and aim to restore the systems of checks and balances on the individuals that control Limited Liability Companies, so that a modicum of plain common sense is reintroduced into the status quo.

We need a really good extraction exercise here of crania ex recta.

Yours, George, Saturday (Yippee!) 24th August 2013, 09:23 BST

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transparency and opaque reporting

david5541 | | Permalink

its safe to say the bigger the company(or PLC) such transprency rules will just lead to more  lack of reporting by the big boys who can tick all the boxes through opaque reportage, as they do already with a large number of audited entities.

 

so the rules will just lead to more rule avoidance and planning and the beating over the head of/increase in SMES compliance obligations.

Corporate directors.

mikewhit | | Permalink

Can "corporate directors" be disqualified - if not, why not ?!

And could the "taint" be transferred back to their directors ...

George Gretton's picture

Spot on, Mike; make INDIVIDUALS responsible...

George Gretton | | Permalink

Spot on, Mike; make INDIVIDUALS responsible...

and indeed let taint and malodour be associated with their true human being sources and origins.

A Company is neither Good not Bad; those are human rather than Corporate attributes.

Its real and shadow directors are the ones that are at the heart of this issue.

Some such real directors may soon find themselves downsizing on the personal front, when they end up having to settle their combined £250,000 DEBT TO the Company that they own, and of which they are directors, with a small d.

Yours, a bit ratty today, George, Monday 9th September 2013, 10:35 BST

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YES it's a bloody nuisance

The Black Knight | | Permalink

George Gretton wrote:

---(Why is AW using a US "English" spell-checker, rather than a UK English one?)

---

===

It's a bloody nuisance! come on A web !!

 

George Gretton's picture

And while we are on the subject of spell-checking......    1 thanks

George Gretton | | Permalink

And while we are on the subject of spell-checking......

..... it currently, in this thread environment, tells me when something aint spelt right, with a wiggly red underline, but when I (at least) right click on the mis-spelt word, I am not offered any alternative spelling, but just the option to "Paste" something. So I can never add new words.

And it's a pretty cheapo illiterate checker, that does not, for instance, understand the use of an apostrophe in bog standard circumstances, as I learned to use it in my Philosophy Tutorials with Gareth Evans and John McDowell.

But in contrast spell checking when in the Private Mail system is fine - I assume that that is in my case Google based.

So why are threads treated differently?

Yours, George, Monday 9th September, 11:41 BST

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