A recent government White Paper lays out a number of proposed reforms about how companies report financial information to Companies House, which maintains corporate registration details of UK companies and other legal entities and provides information on those entities for the benefit of investors, lenders, regulators and the public. It has been recognised for some time that Companies House needs to be modernised, particularly since in recent years an increasing number of anonymous or fraudulent organisations have used UK company registration details in order to commit money laundering, fraud and identity theft, as well as other abuses. Steven Burgess, Audit Partner, explains some of the proposed reforms, and how they may affect small and medium sized companies (SMEs).
The proposed changes
The measures that Companies House are proposing aim to simplify the framework for filing financial statements for small companies, typically those with a turnover below £25 million and with fewer than 250 employees. This will, they say, make the data more reliable, searchable and useful – however it will mean that many SMEs will need to make significant changes to their filing arrangements for their financial results each year, particularly for small businesses classified as micro-entities (entities meeting 2 out of 3 conditions for turnover less than £632,000, a balance sheet total less than £312,000 and an average number of employees of less than 10).
Filing abridged accounts
If the proposed changes take effect, SMEs will no longer be able to prepare and file abridged or ‘filleted’ accounts. This means that they will be required to file both their profit and loss account and a directors’ report, which, whilst providing greater transparency, may remove some SMEs’ competitive edge as they will be making sensitive data publicly available.
All dormant companies will need to file an eligibility statement with their accounts which will provide the Registrar (of Companies House) with additional evidence to take strong enforcement action if false filings are submitted in the future, for example where a company claims to be dormant but is actually still trading.
Current filing deadlines for statutory accounts are typically 9 months after the end of the reporting year for private companies and 6 months for public companies. The government’s White Paper states that filing deadlines will not be shortened at the moment, but it is likely they will change in the future (and legislation to facilitate this is being introduced) in order to “improve the value of the register and bring us in line with international standards”.
Companies House say that 88% of companies already choose to file digitally, and the new proposals aim to move this to all company accounts. This will make the process more efficient and secure and will bring the UK into line with international best practice.
Presentation of financial data
All financial information will need to be fully iXBRL (inline eXtensible Business Reporting Language) tagged and align the tagging standards with HMRC. iXBRL tagging is already widely used in the USA, China and India and for listed companies, and is regarded as a modern business practice which needs to be adopted by UK companies.
Whilst Companies House needs to keep abreast of advancements in digital technology and international standards and support modern business practices, there is already considerable concern at the wider impact these changes may have for companies who are already struggling to understand and meet regulatory filing requirements. If you need advice or assistance with your company filing, please get in touch by calling 01473 267000, emailing firstname.lastname@example.org or via our website and we will always be happy to help.