The Economic Crime and Corporate Transparency Act: New requirements for small companies
The UK government has passed the Economic Crime and Corporate Transparency Act, which requires small companies to file a profit and loss account with Companies House. This means that small companies and micro entities will soon have to produce a profit and loss account, that will be in the public domain.
For the purposes of the new rules, a small company is defined as having two of the following: a turnover of £10.2m or less, £5.1m or less of assets on its balance sheet, or 50 employees or fewer. A micro entity is defined as having two of the following criteria: a turnover of £632,000 or less, £316,000 or less of assets on its balance sheet, or 10 employees or fewer.
Implications for these filing requirements are:
- Tightened reporting
Small companies and micro entities will now have to file a profit and loss account, with small companies also required to file a director’s report. This ensures that turnover is available on the public register.
- Removal of abridged accounts
The option for companies to prepare abridged accounts has been removed, further enhancing transparency in financial reporting.
The new requirements for profit and loss filing are part of a broader effort to combat fraud. Companies House has been granted new powers to implement identity verification for company directors and people with significant control. These measures aim to create a more reliable and accurate company register while minimising the risk of fraudulent activities.
In addition to the profit and loss filing requirements, directors of companies using audit exemption rules such as dormant companies, will need to provide additional information. This includes a statement to confirm the company qualifies for the exemption.
Opinions have been divided on the new filing requirements. Some argue that the increased disclosure is long overdue for small companies and believe it will increase transparency and accountability in the business world. While others express concerns over commercially sensitive information being publicly available. However, public access to profit and loss accounts is still subject to the secretary of state’s decision.
The passing of the Economic Crime and Corporate Transparency Act is just the first step towards enhancing company reporting. The government plans to mandate digital filing and full tagging of financial information in iXBRL format, as well as limit the number of times a company can shorten its accounting reference period.
In conclusion, the new filing requirements for small companies in the UK will require them to file a profit and loss account with Companies House. While there are differing opinions on whether this is necessary or beneficial, the government hopes that it will lead to a more reliable and accurate companies register.
For further information on the Economic Crime and Corporate Transparency Act, please contact us on 023 8046 1240 or email Gary Brown.