Changes on the horizon - Changes ahead for small companies

Changes on the horizon – more powers to Companies House and a fundamental shift in filing requirements for small and micro entities

The second stage of the Economic Crime and Corporate Transparency (ECCT) Bill was introduced to Parliament in the Autumn and is currently going through Committee stages in the House of Commons. It is expected to receive Royal Asset sometime this Spring.

This forthcoming legislation will fundamentally change the role and purpose of Companies House, giving it significantly more powers to tackle economic crime, with the expressed intent of turning it from passive recipient of data into an active gatekeeper.

The objective is to improve the reliability of data on the UK register of companies and to give the Registrar more ability to stop those who are using UK companies as a vehicle for economic crime. Badged as a ‘simplification’ the Bill will re-shape annual accounts filing requirements for all small and micro-entities, removing completely the option to omit the profit and loss account from the public record and requiring all small companies to file, as a minimum, a profit and loss account, balance sheet and directors’ report. Micro-entities will be required to file their profit and loss account and balance sheet but will continue to have the option not to prepare or file a directors’ report.

There is no confirmed date for introduction of these measures, but past precedent would suggest perhaps 6 months from the date of Royal Assent. It is reported that the changes to the filing requirements are seen as a priority by the government and are therefore likely to be one of the first of the measures of the ECCT Bill to be implemented.

Many small business owners will be dismayed by the prospect of the details of their turnover, gross profit (and margins) and profit being on the public record – accessible to customers, suppliers and competitors alike, so why is this change going to happen?

Simplifying the filing framework is intended to prevent confusion and mistakes and improve the accuracy of information. Under the existing regime there are concerns that companies are using filing options that involve minimal disclosure when they are not eligible to do so, and in doing so are hiding money laundering and other fraudulent activity. There is also a widely held view that companies afforded limited liability protection should make financial information public.

In limited cases it might be appropriate for company owners to consider unincorporating. In a low-risk business the protection offered by limited liability may become outweighed by the flexibility and privacy offered by sole tradership. However, the costs of winding up a company and issues on transfer of assets, staff, and VAT need also to be considered, together with whether existing and future suppliers and customers would be as comfortable dealing with an unincorporated entity.

Contact Us

If you are a small business owner with concerns or further questions about the implementation and impact of these changes, please speak to your contact at James Cowper Kreston.

Fiona Hawkins

Partner

Tel: +44(0)7990 525280 | E: fhawkins@jamescowper.co.uk

The information in this newsletter must not be relied on as giving sufficient advice in any specific case.