Get ready to share your profit and loss numbers with Companies House as you will no longer have the option to file abridged accounts for your small business.
What are abridged accounts?
In simple words, the option to file abridged accounts allows a company to file a reduced version of accounts to the authorities excluding the profit and loss account.
In an effort by the government to crackdown on money laundering and other economic crimes, they are fast-tracking their plans to make significant changes to Companies House by introducing the Economic Crime
(Transparency and Enforcement) Act 2022. This act will allow Companies House to see what assets a company holds and who the owners of the company are. Companies House plans to become a fully digital organisation to apply the new changes. One of the major highlights of these changes is that abridged accounts filing will no longer be an option for micro and small company filings, see what other changes are on the way for small business owners.
What do these changes mean for micro and small companies?
Insufficient insight, no more
Currently micro and small companies can file abridged accounts; data has shown that filing these types of accounts gives little insight into the financial performance of your company, which makes the abridged accounts filing, a very appealing option to those involved in economic crimes. By removing this option, the directors or their agents will be required to file a digitally tagged full set of accounts using iXBRL, these tagged accounts can be easily searched and cross-referenced with HMRC’s data ironing out the discrepancies (if any).
More accuracy in account filing
Historically it has been noticed that the accounts filed with Companies House and HMRC are often inconsistent and incomparable in various aspects, but no more, provided these proposed changes (in all likelihood) are to be implemented.
Identity Verification & More freedom of movement for the Registrar
Directors will be required to verify their identity with Companies House when registering a company or filing their annual accounts, which will have restrictions on corporate directors and officers, to maintain a direct connection to the (human) owner(s) of the company. The registrar will also be able to remove incorrect data with the company receiving potential fines if they are unable to meet these requirements.
Transparency for small businesses in the UK
For small and micro companies, the most significant change will be the increased transparency when filing their annual accounts, however, this is yet to be mentioned in the draft bill. Removing the option to file abridged accounts will mean that all companies will be required to submit a profit and loss account along with a balance sheet. Small limited companies will be required to file a directors’ report, however, micro-companies are still set to retain this exemption. Please click here to find out more about small and micro-companies. Not all is negative about the proposed changes, as the new system will simplify the process leaving only 2 filing options, one each for micro and small companies, instead of the many filing options that one has currently.
What are the pros and cons?
Pros
- Filing company accounts will become much simpler as the same accounts prepare for shareholders will be identical to the accounts that are filed.
- It will also benefit companies seeking credit as credit rating agencies will be able to gather adequate information from Companies House to ensure the micro or small company’s creditworthiness.
- Potentially the biggest benefit will be the reduction in economic crime, this will benefit the economy as there will be a better ability to identify those money laundering or committing fraud. This will also help to protect directors who are currently vulnerable to identity theft.
- Increased checks at the time of forming the company will get rid of the companies with imaginary directors like Donald Duck.
Cons
- Companies will have less privacy with their profit and loss accounts being publicly filed on Companies House.
- Additional documentation requirements while setting up a company.
When will these changes be implemented?
These changes could come into effect at any point, with no official date announced yet, however, the importance of tackling economic crime is high, it is likely that this would be rushed through by the government. So worth keeping this in mind or asking your accountant about this for your company’s next filing.
