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Opposition grows at FAB against Companies House filing shake-up

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The requirement for small companies to file a profit and loss account came up against overwhelming opposition from the attendees at the Festival of Accounting & Bookkeeping.

13th Mar 2024
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Steve Collings opened day one of the Festival of Accounting & Bookkeeping (FAB) in a crowded session at Birmingham’s NEC by summarising the current situation of the Companies House reforms, in particular the looming requirement for small companies to file profit and loss accounts. 

FAB attendees oppose reforms

The requirements have proved to have divided the accounting community, but when asked who supported the idea of filing profit and loss accounts, the majority of attendees at the session opposed the proposals. 

Collings also expressed scepticism about the proposals, citing concerns about the need to have commercially sensitive information made public. 

He called the idea of forcing small companies to file P&L accounts “flawed”. He added: “The vast majority of clients are not fraudsters, they aren’t people or drug traffickers, and they don’t finance terrorism. We’re taught as chartered accountants that these are not the sort of clients we should be campaigning for on your list of clients.” 

As part of the Companies House reforms, the government is requiring small companies and micro-entities to file a profit and loss account and a balance sheet, as well as notes to the financial statement and a director report. 

Collings said the idea is that if you’re a limited company, and you’ve got limited liability, your company – as long as you’re not doing anything like wrongful trading or ripping off creditors – is protected by limited liability. “So the price you pay for that is full transparency,” he said. 

“The idea behind filing the full account is so that the registrar of companies and their technical team can be certain that the entity has played the relevant exemptions correctly. 

“So for example, if you play an audit exemption, they have done so correctly if they have prepared the accounts under FRS 105. They have done so correctly, because at the moment, the registrar could only see two out of the three criteria. When you don’t file your P&L account they don’t get to see the sales.”

Reacting to the majority of the attendees opposing the reforms, Collings said that nothing has been confirmed about whether the registrar will go down the route of having the P&L filed, but it’s not on public record. “If that does happen, you’re going to see some rhapsodising in that you’re going to see some that are completely against the idea of that. But from a practitioner level, I can’t see how making a small or micro company file that email account directors report is going to combat fraud.”

Next steps

So while practitioners await the secondary legislation to fully understand the finer details of the proposals, and whether the government is set to go ahead with the public record aspect of the reform, Collings encouraged the attendees to advise clients of what potentially could be coming down the line. 

“At my firm, we have told clients that these are rumblings that are going on because there are some that would hit the roof if they knew their P&L was going to get filed without being told. So planting that seed in your clients’ heads now sooner rather than later is one of the key things you can do, because we don’t know when the secondary legislation is going to get published.”

He also emphasised the need for accountants to understand the registrar’s decision on why the reforms are going ahead and that it’s not the practitioner that made the decision. 

Anticipating the outcry from clients saying “We don’t pay you for this”, Collings said: “It’s just making sure that we take action to damage limitation ourselves while toeing the line at the same time.”

Concluding the session, Collings said: “I think our jobs are hard enough sometimes, without [requirements like the filing of P&L accounts for small companies] putting us under more pressure than we are now. 

“So going forward, if you haven’t planted that seed with your client, then I would recommend planting that seed now. Let them explore, calm them down and then by the time it comes in, everybody’s [relatively] happy.”

Don’t miss out on day two of the Festival of Accounting & Bookkeeping at the NEC, Birmingham. Book your FREE ticket today.

Replies (15)

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By GHarr497688
13th Mar 2024 14:04

When I first went into Accountancy all P&L and Balance sheet items were disclosed and no issues arose. If you don't want to show you Accounts don't be Limited - it's that easy. A business , person or entity dealing with a Limited or LLP is at some risk so they have a right to check the detail of who they are associating with by looking at the Accounts so they can decide if they want to work with this business. A sole trade or partnership on the other hand are staking everything they own to do business.

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Replying to GHarr497688:
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By FactChecker
13th Mar 2024 20:16

100% to all that, and Amen.

I expect the rules will still allow for 'protection of information' in certain limited scenarios (basically where there is a definable potential threat to the personal security of one or more Directors) ... but for those who just like the confidentiality aspect, it comes at a price.

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Replying to FactChecker:
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By Paul Crowley
14th Mar 2024 18:53

Disagree
The rules were set up when a company had investors and those investors wanted information on the operation of the business by the directors, being different people. ALL Company accounts were audited, Size was irrelevant.
Modern Micro companies need none of that nonsense, most are just one man operated with wife sharing the profits. Wives were taxed as an appendage to their husbands. The husband received a Wife's Earned Income Relief.

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Replying to Paul Crowley:
David Ross
By davidross
15th Mar 2024 10:53

I had completely forgotten about "Wife's Earned Income Allowance."

How times change!

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Replying to FactChecker:
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By ann12
15th Mar 2024 11:00

Agree 100% - the cost of the protection of information but also the cost of doing full company accounts with notes. All comes at a price that a lot of small businesses cannot always afford. Already additional cost to payroll for pension reporting, extra cost for company pension contribution, rise in hourly rates (even if staff are on a fixed salary they will ask for a rise otherwise their qualifications are not realised when the basic hourly rate goes up to £11.44). Our rates will also rise due to this and it goes on. All additional costs when a lot of businesses are struggling to survive. So many changes from HMRC - wonder what they will actually implement and when!

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Replying to GHarr497688:
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By Paul Crowley
14th Mar 2024 18:43

Different times
And if you remember correctly ALL companies had an audit: That audit was completely worthless as the only work done was to get a bank letter if the company was a little one.
No audit regulation or quality standards existed.
The good news was that only qualified accountants could prepare the useless audit opinions.
Bring back one factor then bring it all back.

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Replying to Paul Crowley:
David Ross
By davidross
15th Mar 2024 10:56

Yes I remember having to go to a Chartered or Certified accountant, who would make a little fuss about accruing for telephone to prove their worth.

Well done, Maggie, for all that de-regulation. This said, I think that showing a Profit and Loss is a fair exchange for the privilege of Limited Liability.

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Replying to Paul Crowley:
Pile of Stones
By Beach Accountancy
15th Mar 2024 15:30

When I worked for a sole practitioner in the early 90's I used to prepare the accounts in the morning and then audit them in the afternoon.

Funnily enough I never found an issue...

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Replying to GHarr497688:
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By johnjenkins
15th Mar 2024 12:28

You could say the same about 3 line accounts. It's amazing how things change for the better, then revert back to previous. Looking forward to pen and pencil.

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By Paul Crowley
14th Mar 2024 18:38

P&L filing for Micro companies is likely to get Micky Mouse accounts filed at companies house, bur sensible accounts filed at HMRC
And nobody will know or care.

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By Mr_awol
15th Mar 2024 12:57

With the increasing use of personal guarantees etc even that limited liability that some feel 'comes at a price' doesnt actually, umm, come at all.

Most advisors i speak to are against this snoopers' charter which wont actually bring any benefits but could well drive down prices and stiffle growth for many smaller businesses.

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By Mallock
15th Mar 2024 15:38

The problem with small companies is that nosey neighbours and others will be able to look up the accounts and see what the company is making. HMRC hinted that one of the positives from having this requirement was that neighbours and others could shop the company to HMRC if they believed the lifestyle of the individual(s) didn't reflect the profit shown in the accounts: that's not the kind of society I want to live in.
When small businesses tend to be local, these rules will mean that many other local people will know how much they are making. How will we all react when we quote a fee to a prospective client and he tells us that with what we are making we can shave a good bit off the quote.
I think this has the makings of others being able to judge whether they think someone is making too much in their opinion and possibly damage businesses.
I don't see that the requirement for a published P&L A/C achieves anything positive.

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Replying to Mallock:
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By johnjenkins
15th Mar 2024 16:22

Sneaky Snoopers.

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By JamesDS
15th Mar 2024 17:11

As usual, the government's reaction to poor practice is not to better police and punish the poor practice, but to harshly penalise everyone else. The actual criminals meanwhile move onto the next thing.

As usual, the "nothing to fear if you've nothing to hide" brigade support it unquestioningly.

Freedoms are continually eroded and no-one was left to speak for you, because they came for me last week and you let it happen.

The default reaction to any potential tightening of any rules should be "no, why?", followed by a serious analysis where we carefully follow the not-patented "how do I get effed by this" methodology.

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By Rgab1947
18th Mar 2024 10:32

I cannot agree with filing P&L for micro accounts. It serves no purpose as that is not where the money laundering goes on (Its the banks!). Or should I say as micro accounts it can only be peanuts if at all.

Its using a sledge hammer to hit an ant whilst ignoring the elephant in the room.

Yes it will affect micro businesses negatively. Snoopers are but one. I would check on the profitability of a firm if wishing to contract with them and certainly will use that to get the price down. Competitors off course will make hay. Envy rules in the UK so HMRC will likely get flooded with spurious "tip off's"

The requirement for P&L for micro accounts its daft on an intellectual level and please, "20 years ago we did that", silly argument.

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