Until last week, small companies and micro entities (known as SME’s) were expecting a mandatory requirement to file their profit and loss accounts with Companies House (CH) from April 2027. The good news is that this will no longer be the case, but that does not mean that the law change will not be brought in at a future date.
What are small companies and micro entities
In essence a small company is a private company that has a turnover of not more than £15 million, a balance sheet total not more than £7.5 million, or 50 or fewer employees.
A micro-entity is the smallest category of private limited companies or LLPs, that has a turnover of less than £632,000, a balance sheet total of less than £316,000, or less than 10 employees.
Both types of company currently benefit from simplified filing rules with Companies House, preparing only a basic balance sheet.
Companies House announcement
CH have now said that the timeline for SME’s to file their full profit and loss accounts with Companies House has been paused following stakeholder concerns. The news was revealed last week in an update to the “Filing your Companies House accounts” guidance on gov.uk and confirmed that the changes to accounts filing will not now be introduced in April 2027.
However, CH did not promise to abandon the proposed changes but have said that they will now review the proposed reforms with their final decision expected later this year. They’ve also promised to give companies a minimum of 21 months’ notice of any proposed changes in future.
What were the plans?
The requirement for SME’s to file full P&L accounts was one of the flagship initiatives in the Economic Crime and Corporate Transparency Act, as part of new powers handed to the registrar to improve corporate transparency. The reasoning for the new filing requirements for SME’s was to make more financial information available to the public. In essence the proposals were:
- Micro entities will be required to file a copy of their balance sheet and profit and loss account, but with no directors’ report needed
- Small companies would have had to file a copy of the balance sheet, directors’ report, auditor’s report (unless exempt) and profit and loss account to the registrar.
Will the proposed changes ever come in?
Prior to CH’s recent announcement, doubt had been cast on the P&L shake-up a few days earlier when a source close to the business secretary Jonathan Reynolds informed the Financial Times that “this would not happen”. A spokesperson for the Department for Business and Trade stopped short of confirming the U-turn, but the undertones were clear. “This government is committed to avoiding undue burdens on businesses as part of our Plan for Change,” the spokesperson said.
The government had initially introduced the Economic Crime and Corporate Transparency Act to combat financial crime and fraud. However, Jonathan Reynolds appears to now take the view that it was unfair to tarnish all small and micro entities with that brush as only a very tiny minority of companies are set up with the deliberate intention of carrying out unorthodox practices.
So, to cite the filing of profit and loss accounts and directors’ reports as being a mechanism to combat financial fraud and money laundering appears to be now considered by Mr Reynolds, as somewhat over the top and is the principal reason why he has paused this requirement citing it as being disproportionate.
What do the experts think?
Many experts, including many accountants believe that all companies should file their full P&L accounts for transparency reasons and cite ‘limited liability’ as being the price to pay for filing full accounts. Others think there is little advantage in a small or micro-entity filing full accounts as already required for large companies, as the shares in these smaller entities are not publicly traded.
Other experts believe that SME’s, which include many high-tech start-up companies, would be exposed to the danger of commercially sensitive information being put into the public domain, a huge risk for this type of innovative businesses.
I’ll end this section with a couple of quotes from accountants. Paul Crowley said: “It would be serving zero purpose, just putting the little traders’ income into the public domain.” Also, Oliver Pettin said. “If you’re a sole director company, your next-door neighbour could simply look at Companies House and know your income. Hopefully this bit of legislation ends up where it belongs, in the bin.”
Accountant’s view
This appears to have all the makings of yet another climb-down or U-turn (you pick!) by our current bunch of bean counters at the Treasury and is a further example of them proposing a change without thinking through the full ramifications of the suggested changes.
A colleague said to me when the plans were first published. “The planned change is like using a massive and expensive sledgehammer to crack a very small hypothetical nut, as well as saddling tiny companies with additional and unnecessary costs.”
I must admit that I wholeheartedly agree with my colleague.
