Filing shake-up for small companies to go ahead
Small companies will have to file a profit and loss account with Companies House following the passing of the Economic Crime and Corporate Transparency Act last week.
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Hurrah! And if small companies don't like giving away commercial information they are free not to incorporate and not get limited liability.
Why not get them to publish their entire accounting records? After all, if they "don't like giving away commercial information they are free not to incorporate and not get limited liability."
We just need enough to know they are good credit risks thanks very much. What do you do when you take on a new customer?
in most cases the limited liability does not have much effect as in most small businesses personal guarantees are required for any borrowing. Also it is not always the companies choice to incorporate. A lot find that customers will not deal with them unless they are limited and therefore they are forced into going limited.
Also bear in mind that most people do not understand accounts. An employee earning £20,000 a year might see that the company he works for earns £100,000 profit but may not understand that £40,000 of that is tied up in debtors, another proportion in stock and he might have had to invest a large chunk into new assets and some of it goes to reducing debt. If the people that are going to be looking at these figures understood them it would not be so bad. I for one will not be posting my profit and loss as I do not believe that is anyone's business but mine - therefore I will be unincorporating and I think a lot of my clients will if they have a choice. This actually means less visibility because if we choose the sole trader or partnership route we will not be registered anywhere. If we choose the unlimited company route then we will be registered but there will be no figures of any description. If people are committing fraud surely they are going to continue regardless of submitting a profit and loss.
When I take on a new customer I don't get any guarantees so I need to know the credit risk and for that I need a P&L. And as you say when you unincorporate a lot of suppliers won't deal with you as your financial info will not be available. So good luck for the future - you'll need it.
What goes around comes around. The current filings to be fair are a joke there is so little in them.
We will see what detail is required.
There is a big difference commercially from just showing profit after tax (as you always used to when it was in the balance sheet notes), to showing turnover and net, to showing the full level of detail.
This does however mainly seem to be about selling data for credit checks etc which of course is impossible with the current formats. Nothing to do with fraud or commercial arrangements or any of the other guff they come out with.
"currently there is no timetable for the new rules to be rolled out."
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Anyone else considering unincorporating (deincorporating?) I suspect I may have a few clients that ask about it …
P&L for filing: Turnover
Cost of Sales
Admin Expenses
Net profit.
I wonder if that level of detail will meet the new rules...
I've wondered the same or whether they will want a detailed profit and loss account.....time will tell.
Why the need for published accounts at all for companies other than quoted se companies ?
Simple rule for other ltd Co's = a legal requirement to provide anyone dealing with them accounts free of charge by email on request .
Companies house staffing would of course shrink to a fraction of its present carbuncle state
So now people can see exactly how well I'm doing and perhaps use that information against me? I think I'll go back to being a sole trader, it's not like I don't have insurance.
You are getting the advantage of Limited Liability now but keeping it a secret how profitable or otherwise you are. That is just not fair on your suppliers.
How is it not fair? He already has to file his balance sheet - that's evidence of solvency and relevant to the limited liability protection. Having his neighbours know how much he earns is an unnecessary infringement of privacy.
why not? why does my photocopier supplier or my stationery supplier need to know what my profit is?
What business is it of theirs to see your profit and loss account? As long as you're paying them properly why do they need to know any more?
As a manufacturer this reminds me of a few our larger and more aggressive customers, they used to ask for financial information not publicly available "to confirm we were financially stable".
Amazing as their buyers were quick to make comment as to how we could find a bit extra, it will not stop fraud but it will be used to beat up small suppliers who large companies think make too much when the owners take a reasonable draw out.
Restricting companies house information to "subscribers" is a terrible idea. The info should be available at no cost to anyone who feels the need to use it.
My view is that is has never made sense that small companies are required to file accounts when sole traders and partnerships are not. Either all three should file, or none. Also, the current regime is pointless, as there is so little information in filed small and micro accounts as to make them utterly useless. I think the filing requirement for small/micro company accounts should be abolished altogether for these reasons, rather than be extended. With no CH filing requirement, HMRC and shareholders would still get the full accounts, and they would be available to anyone who the company considers appropriate to see them, such as their banks and potential investors.
I don't think that accounts filed for small and micro businesses are "useless". If you are a potential creditor knowing if they've got a £1m positive or £1m negative overall balance sheet surely helps you decide whether to trade with that company or not.
Knowing if a company has late / missing filings is also a good indicator of trouble.
Do you think that sole traders and partnerships should also file then? Surely the same principle applies in their case?
'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.'
Complete nonsense of course which is pretty much what I have come to expect. Reliable and accurate means Companies House having the powers to take action against the miscreants and ignorant ad the penalties of delinquent behaviour being stern enough to influence the offenders.
Reacting to the Nosy Parker aspect we will move to being an unlimited private company and file no accounts whatsoever.
For the purposes of these new rules, a small company is defined as satisfying two of the following: either having a turnover of over £10.2m or less
This doesnt make sense!
I'm torn on this.
As an outsider, I think it's only fair that you give up some anonymity for the benefits of limited liability.
But as a Director of a micro entity myself, it feels overly invasive.
It's definitely going to make getting a ltd. co. Director mortgage more interesting as the lender is going to have a lot more public information available to start with than they do now.
It does seem entirely pointless. Almost Parkinson’s law in action!. Not to mention that turnover above the VAT threshold of currently £85,000 means most revenues are already disclosed to Government by the vast majority of businesses. At least the audit exemption is not up for grabs. Anyone might think the government doesn’t like private enterprise!
I actually trade as an unlimited company so do not file accounts at Companies House at all but get the advantages of paying CT. Will we see more of this type of company?
Does a group structure work with a LTD company at the top and unlimited company as a subsidiary? No consolidated accounts needed if small enough.
For once I agree with a piece of government legislation. Abridged accounts are pretty useless when it comes to assessing a business. At least having a detailed profit and loss account gives you some handle on how the business is doing. And for those who say "who understands accounts anyway?" - well, I would certainly hope accountants do. I have been asked by clients on quite a few occasions to assess a business based on what is filed at Companies House. Of course, 90% of the time all we see are bare bones balance sheets which reveal precious little.
Who really needs to assess a business that isn't already able to get hold of the information they need?
It used to be the case that audit was the price of limited liability. Now it’s the case that disclosure is the price of limited liability and that seems only fair to me: after all, how can you justify getting something (limited liability) for nothing (no disclosure) as a couple of responses seem to be arguing.
So that only leaves the question of whether current disclosure is sufficient and, arguably, it is given that the benefit of limited liability is more related to solvency than trading. However, as someone long enough in the tooth to remember when there was no modified / abbreviated / filleted filing option, I’ve never personally been convinced that they are fit for purpose.
Back in the day, though, statutory P&Ls only reported sales and PBT and tax charge pretty much. Personally, I would just go back to that although I doubt that’s what HMG have in mind. I get the privacy argument in today’s environment where there are plenty of one man bands trading via limited companies and given the information explosion caused by the internet which wasn’t previously an issue. But I don’t think that should be the prime concern for public policy and is easily swerved in any case: simply take more wages and less dividends if it’s that much of a concern.
Turnover is, however, an important and much needed additional disclosure: how can it not be relevant to know whether you’re dealing with a £10m company, a £1m one or a £100k tiddler? And on which score, I don’t see the strength of the argument that increased disclosures will result in additional pressure from big boy bullies onto their suppliers: if bigco wants to be a bully, that already happens as they simply make full accounts disclosure part of their trading agreement.
The last part of your argument is completely moot, I have a large builder client, tendered for a huge job, they asked to see a copy of the accounts to ensure he was "big enough" to cope with the tender and that the company wasn't on it's [***].
People who have an interest and a need for the accounts will simply ask for them and the director will oblige.
Why does anyone else need to know what I earn?
HMRC get a detailed copy of the PnL.
Any loan facility I may wish to have either via the company or even personally get a copy of a detailed PnL.
I think this is actually another nail in the Ltd Company coffin, they are actively pushing people to going back to being sole trade, the problem with that is much like they convinced themselves MTD would reduce the tax gap, pushing people to sole trade will again have the opposite intended effect and increase the tax gap as it provides people with far more flexibility to take advantage of.
This is just ANOTHER Civil Service bloating bill that ensures the job security of people that have no use and offer nothing in terms of a service to the Tax Payer.
Wondering why this detailed information has to be made public?
Could the P&L just be available to CH / HMRC, but not competitors/suppliers/nosey neighbours?
Calm down everyone!
It won't take much for clever accountants to set up a structure that preserves both limited liability and privacy for the participators. Think management charges, group cross-charges, partnerships with unincorporated entities, etc, etc.
More work for all.
I suppose it was coming, whats the point of filing statutory accounts, without a profit and loss account.