Cornwall LivingIssue #123
Transparency at the house
New partner at RRL Cornwall, Josh Stevens, offers a cursory insight into the changes on the horizon for small limited companies.
Currently small companies meeting two of the following requirements – an annual turnover of less than £10.2m, a balance sheet total that is no more than £5.1 million, or employing less than 50 people – can take advantage of the ability to file filleted or abridged accounts, allowing them to reduce the amount of detail in their annual submission to Companies House.
One of the main elements that will be subject to change will be the profit and loss account, and related notes. Many would think of a company’s profit and loss information as being sensitive information that they would not like in the public domain. However, under these changes this information will now be made publicly available.
A planned overhaul of filing requirements at Companies House, with a view to increasing transparency in annual filings, means that shortened forms of accounts submitted to Companies House will no longer be acceptable and all companies will have to file a profit and loss account as well as a balance sheet.
Micro-entities meeting two of the following criteria – an annual turnover of less than £632,000, £316,000 or less on the balance sheet, or employing less than 10 people – will retain the exemption from filing a directors’ report outlining the financial state of the company. But small companies now have to file one, which at the moment is not currently required.
Many shareholders in limited companies have historically relied on the ability to file reduced information at Companies House (using abridged or filleted accounts), reducing the amount of information available to the public.
These changes have largely gone unnoticed but are sizeable alterations and will impact upon a huge number of businesses structured as limited companies. For some, they will raise the question as to whether shareholders want to continue trading as a limited company, and should be a further consideration for those who are considering trading as a limited company.
Why the changes?
These changes have been announced as part of the Economic Crime Bill, with the government looking to tackle global economic crime, improve corporate transparency and drive confidence in the UK economy.
Evidence has suggested that filleted and micro-entity filing is of little value as it does not contain sufficient information to give a true and fair view of the financial position of a company. It is also very simple to file micro-entity accounts at Companies House, regardless of whether the company is eligible to do so. This has also meant that historically micro-entity companies have been attractive to fraudsters.
The increase in information available at Companies House will also make it easier for creditors and stakeholders to make informed decisions when reviewing company information.
Other changes
Dormant companies will be required to file an eligibility statement. Anyone setting up, running, owning or controlling a company in the UK will need to verify their identity with Companies House or have registered their identity with an anti-money laundering supervised third party agent.
Companies House will have increased authority to investigate and challenge suspicious information and inform security agencies of potential wrongdoing, and only entities registered in the UK will be eligible for corporate directorships, meaning that company agents from overseas will no longer be able to create companies in the UK.
As Companies House aims to become fully digital, companies will have to file digitally tagged accounts, using the Inline eXtensible Business Reporting Language (iXBRL) format – a type of computer language. Companies House will reject accounts that are not in this format. Currently, accounts have to be filed in this way at HM Revenue & Customs, and therefore for most companies this will not be a significant issue.
At this stage, filing deadlines (currently nine months after the year end for private limited companies) are not due to be shortened, however, legislation will be introduced to facilitate future changes.
Whilst there is no confirmed date for the introduction of these changes, and it could be some time until they are introduced, we would encourage company directors and shareholders to discuss any potential implications with their accountant.
RRL
