The current Economic Crime and Corporate Transparency Bill looks at a variety of issues but one of those which is likely to cause the most concern for Directors of small companies is the mandatory filing of a Profit and Loss Account as part of the annual Financial Statements submission to Companies House.
Every Limited company has to file accounts with Companies House each year and these are available for free online to anyone who wishes to search for these documents. However, for small companies, which are companies who satisfy at least two of the following criteria:
- Annual turnover less than £10.2m;
- Gross assets less than £5.1m;
- Less than 50 employees,
there has been an exemption available to not file the company Profit and Loss account or any associated notes. These ‘filleted’ accounts do not disclose annual profits, Director’s earnings or dividends declared each year. Such reduced disclosure accounts have been extremely popular with owners of SMEs for some time, even pre dating the current accounting standards when abbreviated accounts could be submitted.
With the proposed measures, much more information would be available for public consumption. The drafted bill even includes very small companies currently taking account of Micro Entity provisions. Whilst increased transparency appears to be the motivation here it does call into question the ultimate impact of any new law. HMRC already receive full accounts as part of a company’s annual tax submissions, so the Government already has sight of much more information than a general user of the Companies House website. Add to that Making Tax Digital requirements, already rolled out for VAT and scheduled to be expanded to income tax and ultimately corporation tax, HMRC have never had so much access to small companies’ financial records.
On the plus side, these measures should mean that credit agencies will have more data in order to refine credit ratings. This can be important if business are granting credit to customers and require an accurate picture of financial stability. The ability to check a customer’s financial performance as well as financial position will be a useful tool for many businesses if these measures are enacted into law.