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...

Register and log into AccountingWEB.co.uk for more details of these proposals. AccountingWEB will submit a summary of comments and suggestions to BIS on your behalf.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

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.

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)

Of all the tax and company    1 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!!

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 ...

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 !!