Small businesses need to prepare for changes to the way accounts are filed and the information that will soon be publicly available at Companies House.
Small businesses and micro entities have long been able to file abridged or filleted accounts with Companies House, with profit and loss statements removed from public records. But, under the Economic Crime and Corporate Transparency Bill, which achieved royal assent on the 26 October, that is soon to change.
The Bill includes a series of significant reforms designed to improve the quality and value of financial information on the UK companies register, combat economic crime, whilst supporting growth in the UK, and has already seen reporting thresholds change (read our article ‘Company size thresholds to rise’ here).
The Government believes that the minimal information small and micro entities can disclose has the ‘potential to appeal to fraudsters wishing to present a false image of the company’. It is all but impossible to understand the financial health of a business from the financial information currently filed by many small businesses and micro entities.
What is changing?
Under the Government’s new framework, all businesses irrespective of size will be required to file profit and loss accounts.
It will make it easier for customers and creditors to understand the financial performance of companies they choose to do business with. It will also provide credit agencies with greater information to better determine the creditworthiness of businesses and their directors.
Given that businesses already create profit and loss accounts it is not expected to add any additional cost to businesses. Directors should, however, note that it will be theoretically possible to determine the earnings of directors from profit and loss accounts.
The way accounts are filed is also changing.
Most notably, accounts will need to be filed electronically and fully tagged using iXBRL. iXBRL is a coding language that effectively allows accounts to be read by both machines and people and is done automatically by most accounting software packages.
Businesses will no longer be able to file paper accounts, meaning that some very small companies will need the help of an accountant to prepare and file their accounts.
The Government has, perhaps frustratingly, not put a firm date on when this change will happen, saying that legislation is currently working its way through Parliament. It will, however, take effect irrespective of whether we have a change of government.
If you have any questions surrounding the preparation and filing of accounts, please do get in touch.
