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Filing shake-up for small companies to go ahead AccountingWEB - a photo of a magnify glass
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Filing shake-up for small companies to go ahead

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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.

30th Oct 2023
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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. 

Who is affected?

For the purposes of these new rules, a small company is defined as satisfying two of the following: either having a turnover of £10.2m or less, £5.1m or less on its balance sheet, or having 50 employees or fewer. 

As for a micro-entity, the government fact sheet defines these as having two of the following criteria: a turnover of £632,000 or less, £316,000 or less on its balance sheet, or 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 told AccountingWEB: “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. 

Opinions divided on the requirements

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

“Many comments suggest the filing of the profit and loss account for small companies is long overdue given the limited liability afforded to companies,” Steve Collings, audit and technical partner at Leavitt Walmsley Associates, told AccountingWEB. “Conversely, many practitioners and their clients are nervous about this information being placed on the public record for reasons of commercially sensitive information. Some comments have also suggested reverting back to a subscription-based Companies House service in light of this new information which will be available to companies.”

He added: “Clients will need to be notified in advance about these new requirements in law so they are aware that additional financial information is required to be submitted to Companies House.” 

Indeed, 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. 

As a staunch opponent of the reform, Izzi Rosenberg from Harris Rosenberg argued that the reforms are not going to meet its objectives to prevent fraud. "It's completely useless. Anyone who needs to see a profit and loss, lenders and HMRC will get exposure to that and putting it in the public view will not combat fraud."

He also raised concern that it's going to expose small businesses to a "nosey neighbour culture" and puts them at a weak competitive advantage against larger customers.

"You have a lot of small businesses who are solely supplying to a supermarket chain as their main customer. But if they've got access to information on these smaller companies, they can see [how much they contribute towards their] turnover and they can see information about their profit margins, and if they think this supplier has been too profitable, then they're going to start squeezing them," he said.  

While public access is still a concern, it is still up to the secretary of state to decide whether the regulations include whether the profit and loss accounts are available to the public.     

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.

UPDATE: This article was updated to clarify that although the Profit and Loss accounts must be filed the secretary of state may decide that they won’t be available to the public.

Replies (57)

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By lclackett
01st Nov 2023 14:40

If you are not willing to share your P60 with the public then you should not be supporting these changes. It's a gross infringement of privacy, completely unnecessary and exposes small business in particular to being bullied by larger organisations as Izzi points out in the article.

Does anyone recall our governing bodies lobbying for us and business against these changes?

Thanks (7)
Pile of Stones
By Beach Accountancy
01st Nov 2023 16:42

25 years ago companies had to file the p&l account, etc.

The world did not come to an end.

Thanks (5)
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By tricky55
02nd Nov 2023 10:18

Companies may have to file a profit and loss account again? That means that accounts will start to become useful and informative again - about time! I have often wondered if anyone out there makes any significant use of company accounts these days, when the vast majority of companies only have to submit an abbreviated balance sheet with very limited notes, don't require an audit, and even then, many of them don't even bother to file that, because if they fail to file anything, Companies House will remove them from the register and they can then set up a new company and do it all over again!

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By Eric T
02nd Nov 2023 10:24

Precisely. It was always the price a business paid for the privilege of running a business through a limited company. The idea of reduced disclosure only came about in recent times (the 1990s) when submitting full format accounts to Companies House was deemed to be "additional bureaucracy. In reality, of course, it didn't save any extra work at all as full accounts are still required anyway.

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Sarah Douglas - HouseTree Business Ltd
By sarah douglas
02nd Nov 2023 11:32

I suspect many companies may become an unlimited company or go Sole traders again with employees. I do not see an issue with going unlimited if you pay your bills on time. A ltd company can go into liquidation at the drop of a hat and leave people unpaid, so there is absolutely no protection for the suppliers.

I actually think this will seriously discourage new start-ups.

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By Alonicus
02nd Nov 2023 19:58

There is an issue that the protection afforded by limited liability has been massively eroded over recent years.

While I don't condone any form of criminality, there are all kinds of things which fall under corporate negligence, Health & Safety etc where a director can be held personally liable for the actions (or failures) of staff or subcontractors, or even just bad luck. I many cases (even a majority), if a limited company wants to borrow money or rent a premises the directors have to sign personal guarantees.

I haven't seen a good explanation of how publishing a P&L would reduce fraud when Companies House doesn't appear to do any form of basic due diligence or compliance checks right now. Just as an example, I recently discovered a business where the registered address was a block of flats I knew personally had been demolished about three years ago.

So if my neighbours are going to be able to go online and see what I earn, I think it's only fair for HMRC to put everyone's P60's online for public inspection so I can do the same back to them ! After all, it'll deter fraud.... won't it ?

Thanks (1)
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By guido
05th Nov 2023 20:55

Section 468A has been added into the Companies Act by this legislation. It allows the Secretary of State to make Regulations that make provision requiring the registrar, on application or otherwise not to make available for public inspection profit and loss accounts, or parts of them, delivered to the registrar under section 443A (micro-entities), or section 444 (other small companies); or to refrain from disclosing such accounts, or parts of them, except in specified circumstances. It is possible that such regulations could require Companies House to refrain from making a small company’s profit & loss account available for public inspection even though it has been filed.

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