Date posted: 6th Nov 2023
By Martin Hobson, Partner
Significant changes to small company financial reporting have now been confirmed, and it is important that you are aware of the upcoming changes.
In my last article of 1st February 2023, I warned about changes being proposed by the government to the amount of information small entities have to disclose in their accounts submitted to Companies House, information which is then available for all to see on the public record. Those changes would be the most significant in a generation. This has now been confirmed, with the Economic Crime and Corporate Transparency Act 2023 having gone through all the various stages in Parliament and the House of Lords, achieving Royal Assent on 26th October 2023.
What changes will come into effect?
Many parts of the Act are to be welcomed, including providing Companies House with more powers to clamp down on fraud. An example being that the identity of directors and other people who have significant influence over a company will have to be verified.
The controversial changes surround the level of detail small and micro companies have to provide in their accounts which appear on the public record.
Broadly speaking, small companies are those who have at least two out of three of 1) Turnover no more than £10.2m, 2) Gross assets no more than £5.1m and 3) Average employee numbers of no more than 50.
The changes mean that small companies will now have to file a profit and loss account and a director’s report on the public record, in addition to the currently required balance sheet and supporting notes. This means information such as the turnover and profit of the business will be available for all to see.
Some see this as a positive, providing greater transparency which may help reduce the risk of fraud, but there are significant concerns from others that it could harm small businesses, where information which they would see as commercially sensitive is out of the public domain, particularly for small businesses where it may provide the potential for the personal income of an individual to be assessed by neighbours, friends, customers, suppliers etc.
Micro companies, which broadly speaking have at least two out of three of 1) Turnover less than £632,000, 2) Gross assets less than £316,000 and 3) Average employee numbers of no more than 10, will also have to file a profit and loss account, but will be exempt from having also to include a director’s report.
There is no set date yet for the implementation of the Act, as it requires secondary legislation to be put in place. Further detail is also to be provided yet on exactly what will be required in the additional disclosures. All small and micro companies need to be aware of these changes, get in touch with a member of our team here.
More information on the full Act can be found on the Government website here.