Small companies will soon need to be aware of profit and loss account changes thanks to new rules from Companies House.
The Economic and Corporate Transparency Act means tighter regulations for small firms, including micro-entities. And the changes mean companies will also need to provide a director’s report, which means turnover must be made publicly available.
There is no timetable for the implementation of the regulations and it could take some time for Companies House to make the necessary provisions. But it’s better to be aware as the new laws have received Royal Assent.
What do the changes mean?
The changes will affect companies in different ways, depending on their classification. Either way, if they meet any of the following criteria, they will need to file their profit and loss account with Companies House once the rules are implemented. It will mean abridged accounts will no longer be acceptable.
Small companies are defined as meeting two criteria:
- Turnover of £10.2 million, £5.1 million, or less on its balance sheet, or;
- 10 employees or fewer
Micro-entities are characterised by the following two criteria:
- Turnover of £632,000 or less or £316,000 or less on their balance sheet, or;
- 10 employees or fewer
When will the measures become law?
As mentioned, the timeline before the law changes is not clear at the moment. Companies House says that it will give businesses plenty of notice before the rules are enforced.
Once the measures are implemented, there will also be changes for directors of companies using ‘audit exemption rules’, such as dormant companies. They will be required to provide additional information, including a statement confirming the company’s eligibility for the exemption.
All these changes are part of future plans to make digital filing and full tagging of financial information in iXBRL format. The frequency with which companies can shorten their accounting reference period will also be reduced.
Why are the changes being made?
The Economic Crime and Corporate Transparency Bill has been making its way through Parliament since last September. Along with the Economic Crime (Transparency and Enforcement) Act – which passed law in March 2022 – the changes are being made to tackle money laundering and other illegal activities.
While that is welcome, it will mean more regulations to tackle for the majority of honest directors. Some argue that exposing such financial information could result in unfair scrutiny of small companies and disadvantages when dealing with larger customers.
Whether the profit and loss accounts will be made public is still to be decided by the government.
How we can help
While clamping down on illicit practices is welcome, it does mean many company directors face an increase in regulations. As a result, it will mean more time away from working on your business.
Even though the regulations are not being enforced (no one knows any timescale) it will be another complex task.
We will be closely watching developments and when Companies House releases a timeline, which we expect is unlikely to be imminent. Either way, we will be helping our clients stay within the law.
If you would like to discuss your company’s requirements, we’d be delighted to have a no obligation chat with you. Simply go to our contact page or fill in the form below.