The Economic Crime and Corporate Transparency Bill is currently making its way through the House of Lords.
It aims to combat financial crime, make information on the public registers more transparent, and strengthen the means by which directors are appointed to new companies. It also provides the registrar of companies with extra powers.
The government are concerned about the impact that economic crime, like money laundering, is having in the UK, and are taking steps to try and mitigate this. But are they going about it in the right way when it comes to small companies and micro-entities?
When you incorporate a business, the shareholders lodge certain documents at Companies House, alongside a copy of the entity's financial statements.
Currently small or micro-entities do not have to file the version of the accounts prepared for the shareholders or tax authority. Many small entities lodge filleted accounts, removing the directors' report, and the profit and loss account, to leave only the balance sheet and related notes on the public record. Some submit abridged filleted accounts, containing even less detailed information.
The new Bill requires small entities to prepare full accounts according to the statutory formats, subject to any disclosure requirements, or available exemptions in accounting standards, and to file the profit and loss accounts and a directors' report (micro-entities are exempt here). There will be no option to condense or redact financial statements at all.
There are also indications that the format of the profit and loss account for filing purposes, may be different than the usual format prepared for stakeholders.
For small companies which claim audit exemption, there will also be an additional statement required by the directors, to clarify how the company is eligible to claim the audit exemption.
As expected, opinions are divided on these changes! Some welcome the fact all businesses will have to file their profit and loss account and be more transparent in their dealings with the public. Others think that this is unnecessary and undesirable, as well as an increased administrative burden.
The question of disincorporations has also been bandied around, with accountants suggesting that some clients will become a sole traders or partnerships if the requirement to file a profit and loss account becomes mandatory. Likely to avoid publishing certain commercially sensitive data - "fear of nosey neighbours".
Steve Collings is an author for accountingcpd. To see his courses, click here.
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