The Economic Crime and Corporate Transparency Act (‘the Act’) received Royal Assent late last year and has been described as the most significant reform to the registration regime in 150 years.
According to released documentation the Act is focused on new measures to improve transparency of company information and to tackle economic crime. The main elements focus around:
– Digital filing of accounts at Companies House;
– Removal of filleted and abbreviated accounts options;
– Identity verification, and;
– Companies House having greater powers to scrutinise, query or reject information.
Digital Filing
Once the measures are implemented you will no longer be able to file accounts at Companies House by post or by utilising the Companies House Web Filing Service, approved software will be required.
Accounts Options
There will only be two filing options for small businesses; Micro Entity Filing or Small Business Filing.
Your company will be a micro-entity if it has any 2 of the following:
– A turnover of £632,000 or less.
– Total assets of £316,000 or less on its balance sheet – (total assets is the total of fixed and current assets)
– 10 employees or less.
Small Business Filing will require a profit and loss report and directors report to be filed at Companies House in addition to current requirements. Micro Entity Filing will only require a profit and loss report as an addition.
Identity Verification
No longer will limited companies be able to be registered under the current format. Rather, identity verification checks will be required for everyone setting up, running, or controlling a company, with these checks ensuring that all information entered is genuine.
Power to Reject
Uploads to Companies House will, in the future, no longer be automatically accepted and instead subject to greater scrutiny with Companies House using data matching to identify and remove inaccurate information and also sharing data with other government departments and law enforcement agencies.
But what does this mean? And when will it begin affecting your company?
Small businesses should already have been producing ‘full’ accounts for presentation to members, but in the future it will be these full accounts that have to be filed with Companies House. This could mean that your customers and suppliers suddenly have easy access to much more information than they previously had about the trading status of your company.
However, whilst filing a profit and loss account is a requirement of the Act that has been passed into law, what is being talked about less is that the Act includes a regulatory power that enables these profit and loss accounts, or parts of them, to not be made available for public inspection.
Exercise of this power is subject to Regulations being passed by Parliament, but it does suggest that consideration is being given to legitimate concerns regarding the commercial sensitivity and privacy of financial information.
That being said, changes are definitely coming, and with Companies House gaining powers to further scrutinise, cross check, and share your company’s information (regardless on the final decisions regarding public presentation), now is the time to ensure that your full accounts are prepared on a basis that is both regulatory and commercially sound.
The disclosures and narratives within your accounts may well become as important as the main numbers within them, and here at Sowerby we would suggest that now is the time to begin working with your accountant to consider what your accounts should look like in the years to come, less is, on rare occasions, not always more.
The stated aim of the Act is to avoid confusion and costly mistakes, the practical impact is that more information about your company will be available to the market.
Whilst the Act has been passed into law, many measures will be implemented through secondary legislation which is likely to be phased in over several years, with investigative and enforcement powers being the most probable to be put in place first.
This means that there is time to prepare. Sowerby are here to work with you through these coming changes and ensure an end product that you are confident about releasing into the public domain. Please contact us on 01482 888 820 should you wish to discuss this further.
Published by Sowerby Chartered Accountants, January 2024