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Accountants urge rethink on P&L accounts proposal

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Accountants across the profession urged the government to reconsider its plan to broaden the amount of sensitive financial information filed at Companies House.

12th Apr 2022
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Leading financial reporting professionals this week voiced their concerns about the impracticality of government proposals to require small companies to file annual profit and loss accounts with Companies House.

Prompted by an urge to crack down on dirty money and the prevalence of shady shell companies within the UK register, the government brought forward a whitepaper on corporate transparency.

In the fight against economic crime, micro and small companies will lose the right to file abridged or filleted accounts and will have to report profit and loss (P&L) statements. Also:

  • An end to paper filing as all accounts will have to be filed electronically
  • Greater transparency on the identities of company directors
  • Registration of agents filing on behalf of companies.

The Registrar will be given extra powers to query company information, rather than just receiving it in good faith and, in a minor concession to privacy, historical information will be removed from the public record.

In her article on the proposed Company House reforms, Julia Penny explained that some of the measures would benefit the wider economy by helping to tackle fraud and money laundering and protect directors who are now vulnerable to identity theft. But if the P&L requirement is enacted, “the reforms will put on record information that many business owners will find uncomfortable”.

The article was the most controversial item on AccountingWEB during the past month and attracted 14,000 reads and 110 comments from members.

Several AccountingWEB members pointed out that while the proposed reforms added complexity and administrative burdens, combined with a loss of privacy for small organisations and preparers, the most egregious abuses are being committed by larger firms operating within London’s so-called “financial laundromat”.

Philaccountant commented that there was a simpler way to achieve the government’s aims: “Enforce the AML laws properly, globally and start with the big boys at the top.”

Paul Crowley was equally robust: “This will achieve a bit fat zero. Those who comply now will comply, but need to disclose income and cost figures to the entire world. Those who are dubious will continue to file dubious returns. Nothing will change because Companies House will continue to accept any old rubbish.”

Webinar discussion

In response to the controversy, AccountingWEB editor Richard Hattersley hosted an Any Answers Live webinar on Monday 11 April to dig more deeply into what the Companies House proposals mean for accountants.

Webinar panellist Steven Collings, a financial reporting author and lecturer, and audit and technical partner at Leavitt Walmsley Associates, echoed these concerns. “I’m not a fan of this proposal [for small companies to file P&L accounts],” he said.

“If a company files accounts nine months after the year end, are those financial statements meaningful? A company could be reporting a healthy profit and be haemorrhaging profits now for whatever reason.”

Collings pointed out that he was already aware of accountants gaming existing reporting rules by preparing accounts under FRS 102 for clients and FRS 105 accounts for HMRC and banks. “That’s fundamentally wrong,” he noted, adding that for all the insights a detailed profit and loss account revealed, “A P&L doesn’t mean anything about your cash position and ability to pay.”

Dan Heelan from Heelan Associates agreed.  “HMRC already has this information, they can talk to [Companies House]. We don’t need this information out there for all the commercial world to see. For me, that main point is not achieving what it’s meant to,” he said.

Heelan pointed out that the ICAEW was broadly supportive of the aims behind the whitepaper, but had come out in public against the P&L proposal.

The viewing audience reflected what the presenters had seen and heard in other conversations on the subject – with 73% voicing opposition to the P&L reporting proposal and 27% supporting it.

The horse has bolted

Collings summarised his stance: “I’m not saying everything in this whitepaper is complete nonsense. There are some very valid points, but it’s not joined up completely. If they wanted to combat fraud, they’re probably looking in the wrong place. I would look at AML regulations first of all. Once you’ve filed at Companies House, the horse has gone. You’re just shutting the door. I’m not convinced this is going to achieve very much.”

Heelan, meanwhile, noted that the whitepaper was just at the proposal stage. “If we haven’t got a draft bill yet, there’s probably time to make more of these points known. It’s important we get these views in front of the right people.”

For a deeper look at all of the corporate transparency whitepaper, the Any Answers Live webinar with Steve Collings and Dan Heelan is available to view on demand.

Replies (27)

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By Paul Crowley
12th Apr 2022 16:21

At last, ICAEW does something useful.
The P&L achieves nothing on a set of micro accounts
All Micro accounts do is show whether the company is insolvent at the date shown on balance sheet.
The state already has all it needs submitted to HMRC
Lenders have the option to ask for the exact details they want

Why should a tiny company need to put its income figures on public record for everyone and their dogs to read?

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By Beef curtains
12th Apr 2022 17:06

More bullshit from a government with no idea of what to do next.

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By petestar1969
13th Apr 2022 09:23

At least a requirement to file a P&L w0uld discourage sole traders from incorporating when they don't really need to.

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Replying to petestar1969:
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By johnjenkins
13th Apr 2022 13:43

Who decides "if they don't really need to"????????????????

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Replying to petestar1969:
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By Paul Crowley
13th Apr 2022 15:21

There is probably more dubious activity on self employed accounts than on Micro company accounts.
If this is meant to be about control and anticrime then better more activity is exposed to controls than less activity as a direct result of the pointless P &L

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By FrankUW
13th Apr 2022 09:32

A huge improvement would be to only allow approved qualified professionals to upload information on Companies house. Too many business owners and unqualified outfits uploading accounts (and other information) from cloud based software, with limited understanding or care.
ACCA and ICAEW should stand up for the profession and make the qualification more prestigious by working along side the government to allow only qualified professional to submit information to both CH and HMRC.

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Replying to FrankUW:
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By Rgab1947
13th Apr 2022 11:56

I another jurisdiction I worked in CH accounts could only be prepared and submitted by accountants registered with a recognised Institute.

Submissions to their HMRC equivalent could only be submitted by a registered agent not necessarily an accountant or a member of a professional body. However whomever submitted had to show competence in tax (although a low level) to be registered with their HMRC equivalent.

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Should Be Working ... not playing with the car
By should_be_working
13th Apr 2022 09:37

The proposal to publish the P&L is, like so many laws and regulations these days, about Being Seen To Do Something ... regardless of whether it actually achieves its intention. (See also a good proportion of all those pandemic regulations which were clearly only for appearances).

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By DavidAWilks
13th Apr 2022 09:37

As I commented on the webinar it really should be up to Companies House to perform due diligence on those wishing to incorporate a limited company. The proposed registration of agents is yet another layer of responsibilty to be foisted on us. The saying used to be that auditors are watchdogs not bloodhounds. I did not sign up to be an intelligence officer or policeman. Anyone wishing to open a bank account has to jump through hoops (quite correctly) at the instigation of banks. Why cannot the government agencies take on their responsibility in a similar fashion?

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By Jdopus
13th Apr 2022 09:49

They need to accept that for any of these new rules or laws to mean anything, companies house would need to take some responsibility for doing the absolute bare minimum enforcement of existing policies. I feel like a bit of a mug going to the effort to do things properly when I know for a fact that I could put any nonsense on the company register and companies house would accept it.

Exact same issue with the "People with significant control" change, which was supposed to be an anti money laundering measure. This government loves a headline but is not willing to build genuine support and infrastructure behind any of their policies.

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Nefertiti
By Nefertiti
13th Apr 2022 10:00

LOL the usual rubbish from our corrupt government who are very keen on squeezing the small fish like us daily whilst the big boys in Parliament, their cronies and the big Audit firms totally ignore AML rules and bypass them. When will people open their eyes and realise that this government is only ensuring the enslavement of those of us who choose to follow their crappy laws. The rich and famous ALWAYS get a free pass as usual.

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By GDavidson
13th Apr 2022 11:18

I don't understand most of the comments on here. If people want the privilege of limited liability (ie permission to rip off your creditors) then they should be willing to say how profitable or not they are.

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Replying to GDavidson:
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By Rgab1947
13th Apr 2022 11:59

You only need a BS to see if a company is a credit risk.

I can normally figure out if a company is profitable from the balance sheet and notes.

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Replying to GDavidson:
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By Fitzz
13th Apr 2022 13:47

I agree GDavidson. This was once how filing worked and it should be again. Micro companies can have turnover of £632k and yet give zero info on their profitability and be protected against creditors. Many of the arguments made would apply equally to Balance Sheets. "9m is too long to be useful" "non-accountants can't read accounts anyway" "Might raise awkward questions about losses"" "HMRC have the info anyway". But nobody say we shouldn’t publish a balance sheet.

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Replying to Fitzz:
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By farrcorfe
14th Apr 2022 14:10

When I worked abroad the requirement for operating a limited liability company was £50,000 hard cash input into share capital - a case of put up or shut up; other rules in accordance with UK Companies Act. Most non-accountants cannot read a balance sheet filed with Companies House correctly as there is a lot more going on behind the simplistic format required so a P&L would only further confuse

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Replying to GDavidson:
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By Fitzz
13th Apr 2022 13:47

I agree GDavidson. This was once how filing worked and it should be again. Micro companies can have turnover of £632k and yet give zero info on their profitability and be protected against creditors. Many of the arguments made would apply equally to Balance Sheets. "9m is too long to be useful" "non-accountants can't read accounts anyway" "Might raise awkward questions about losses"" "HMRC have the info anyway". But nobody say we shouldn’t publish a balance sheet.

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By tedbuck
13th Apr 2022 12:52

Filing the P7L account will serve no purpose but to disclose to competitors how profitable a company is. That seems to be unreasonable to me - people are entitled to a certain amount of confidentiality. The Government isn't too keen on exposing its activities and how it wastes our money on useless civil servants and incompetent HMRC and like organizations.
Companies House doesn't understand what it gets as some of the accounts they hold on file are utter rubbish but fail to put a 0 on a form they will spot immediately.

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By David Gordon FCCA
13th Apr 2022 13:36

the point in the discussions which took place before micro and B/Sheet only filing was introduced is:

with micro companies it is easy for large customers to pressure, and they did so do, one or two man businesses over trade terms.
Fat Contractor Ltd can see from the account the extent Tiny Tim depends on him and squeeze the supplier.
It is simple and it happened regularly. (I started in accountancy in 1961). It was in fact as much a bullying element as the scourge of late payment.
On a number of occasions I watched it cause misery.

Logically, HMRC which has has access to the figures, and expertise in this matter, is the first port of call when investigating perceived general naughtiness in accounts.

to add another unwanted layer to the UK civil service cake, when said service is unable to do that which it is already authorised to do, is barmy.

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By tonyaustin
13th Apr 2022 13:45

I remember when all limited companies had to file audited accounts with P&L, Balance Sheet and notes. It was never a major problem for the business (just a nuisance being checked on and an additional expense) and good work for accountants. If a business wants limited liability then anyone doing or intending to do business with it should be able to see what profit it makes, how it makes it and what it does with it. They should also be able to see who controls it on a day to day basis, i.e. the directors. There is no compulsion for a business to incorporate. If the business owners want secrecy, they can be sole traders or partnerships.

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By johnjenkins
13th Apr 2022 13:46

It would appear that Government/HMRC have decided to do away with making things simple (3 line accounts) and will now begin to want the most detailed of information via CH and MTD. Good luck with that.

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By David Gordon FCCA
13th Apr 2022 13:47

Petestar1969 & FrankUW
1)
Often the reason for having a sole trader incorporate are: Tax with Ni does not have to be paid until one knows what the actual liability is. A major consideration in variable trades.
2)
It puts a fence between the person and, often, the larger organisation being dealt with.

FrankUW
Sadly the whole trend of Govt action has been to make filing, computation, all sorts, "User Friendly"
Actually this means, passing work previously done by the Civil Service, over to the taxpayer.
Hence the ultimate fiction that fees for ITR cannot be claimed as an expense by the taxpayer, because the Return is designed for the taxpayer to Do-it-yourself.
To do as you suggest would negate this whole Treasury inspired fib.

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By paul.benny
13th Apr 2022 13:51

Folks understandably criticise CH for accepting any old rubbish. The white paper says

Quote:
Companies House will no longer be a passive administrator of company information but will become a much more active gatekeeper over company creation and custodian of more reliable information on the register.

We can quite justifiably ask whether CH will have the resources and capability to do this but the intention is clearly there.

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Replying to paul.benny:
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By johnjenkins
13th Apr 2022 14:06

I'm just wondering (only wondering) if Companies House will be taking over the MTD part of non VAT registered business. This will mean that HMRC are seriously thinking about QU for the smaller business.

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By moneymanager
13th Apr 2022 15:25

" If people want the privilege of limited liability (ie permission to rip off your creditors) then they should be willing to say how profitable or not they are."

says GDavison,

but do filed accounts, for any organisation, actually do that, no, they only indicate how profitable they WERE, over the last two years, how many perfectly profitable businesses have been toasted by enforced closure for protracted periods? Making current decsions soleley on the strength of filed accounts is akin to driving by solely looking in the rear view mirror.

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Replying to moneymanager:
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By Fitzz
14th Apr 2022 15:16

So let's not have a Balance Sheet then? It's just as out of date. Perhaps we shouldn't file anything at all, and have limited liability to anybody that wants it?

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By Keith Gibbons
13th Apr 2022 17:01

Feels like painting a fortification a pretty colour when the enemy already have a motorway sized tunnel under the wall

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By tanyajackson
14th Apr 2022 12:42

The man steering the country and the man holding his handbag have just been fined for breaking their own bloody laws.
If those two cXXXwombles, agree to publish all their own personal financial information in the daily rag, I will publish my full accounts and peg all my dirty laundry up and down the street like bunting.
Until then nlnn .

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