In April 2022, the Government published the first part of new legislation that will see widespread reform of Companies House. It has now published draft legislation for the second part of those reforms in its Economic Crime Bill.
The underlying aim of this Bill is to strengthen efforts to tackle money laundering and to improve the quality of financial information held at Companies House. The headline change in this Bill is to how small companies and micro entities will be required to file annual reports and accounts.
The Government defines a micro business as one with a turnover up to £600,000 a year and a small business up to £10.5m. Helpfully, this Bill will allow micro businesses to file just a profit and loss account with the option to continue to prepare a directors’ report should they wish.
Small businesses will, however, no longer have the option to prepare and file abridged accounts. They will be required to file both their profit and loss accounts and directors’ report, removing the option to file ‘filleted’ accounts.
The Bill also looks to reduce the risk of companies falsely claiming the audit exemption. Directors will be required to clearly identify that exemption and confirm they are qualified to take advantage of it.
Perhaps of greater concern will be the increased powers the Bill gives Companies House to reject accounts that appear to contain inconsistencies, that are incomplete, or where the Registrar has doubts that reporting requirements have not been complied with. Accounts that are rejected will be considered as not having been submitted, with companies given 14 days to resolve any problems.
The Bill also paves the way for the Government to require accounts to be digitally tagged, although no time frame is given.
Whilst there can be little doubt that further reform is needed with greater financial transparency welcomed, many small business owners will be asking why the Government is adding further red tape and bureaucracy at this point in time. Business owners could be forgiven for believing that a ‘bonfire’ of red tape was on the way.
The Bill is expected to be given Royal Assent in the spring of 2023.
We are following these changes closely to ensure our company secretarial services continue to comply with the legislation. We will keep our clients informed of any changes affecting them in the coming weeks.