All companies in the UK (whether they’re trading or not) must file annual accounts with Companies House. Currently, small companies may submit accounts disclosing less information than medium or large companies. However, this is set to change under the Economic Crime and Corporate Transparency Bill, which is currently making its way through Parliament. Read this blog to find out more about what this Bill means for you and your small business.
What is the Economic Crime and Corporate Transparency Bill?
The Economic Crime and Corporate Transparency Bill is designed to improve transparency by making more financial information available and accessible to the public. By doing this, the Bill aims to tackle economic crime. To do this, the Bill proposes various measures which include, but are not limited to:
- reforms to Companies House
- reforms to limited partnerships to prevent abuse
- new powers to seize and recover cryptoassets suspected to be criminal
- general reforms to empower businesses to share information to tackle economic crimes like money laundering and fraud
For more information, read the Government’s factsheet on the Bill.
What does the Bill mean for small companies?
The current situation
Currently, under the Companies Act 2006, small companies and mico-companies can file either full or abridged accounts. Abridged accounts are accounts that omit certain balance sheet items (eg the profit and loss account and/or directors’ report).
The proposed changes
Under the changes proposed by the Bill, the option to file abridged accounts will be fully removed for small companies. While micro-companies won’t have to prepare a directors’ report, they will have to provide a profit and loss account. It is hoped that doing this will help the companies by reducing the complexity of the system, which can be confusing and can lead to costly mistakes. It is also expected that these changes will prevent fraudsters from abusing the abridged accounting exemptions to defraud others (eg potential investors).
Requiring small and micro-companies to file full accounts will mean that they have to file their full profit and loss accounts. By making this information publicly available, the Government hopes to enable creditors and consumers to make better-informed decisions. Previously, the lack of financial details from small and micro-companies may have deterred lenders and creditors from investing in those businesses, as it would have been more difficult to determine their creditworthiness. This in turn would have hindered the growth of such small companies.
More details of profit and loss account filings for small and micro-companies (eg what format they should be in) will be announced by the Government in due course. For more information, read the Government’s factsheet.
Does the Bill introduce other changes relevant to my company?
The Bill introduces various other changes. The most notable ones for companies include:
- requiring accounts to be filed digitally (ie online and not by post)
- requiring accounts to be fully tagged using iXBRL
- removing the option of paper filing for most companies (ie printing the accounts and sending them by post)
- requiring companies relying on an audit exemption to provide an additional statement by the directors on the balance sheet. This should set out and confirm that the exemption is being relied on and that the company meets the exception criteria
- limiting the number of times a company may shorten its accounting reference date
When will these changes come into effect?
As the Economic Crime and Corporate Transparency Bill is currently making its way through Parliament, there is no clear date for when these changes will come into effect. However, more information is expected in the coming months.