Opening up small company reporting

Companies House are working on detailed changes that will require small and micro sized companies to file information about their turnover and profits at Companies House.

Once filed, this data will be available to anyone searching affected companies’ records at Companies House.

At present, smaller companies can file abridged accounts that do not include a director’s report or a detailed profit and loss account.

What is a “micro” or “small” company?

Companies House define these as:

A company is ‘small’ if, in a year, it satisfies any 2 of the following criteria:

  • a turnover of £10.2 million or less
  • £5.1 million or less on its balance sheet
  • 50 employees or fewer

A company is a ‘micro-entity’ if, in a year, it satisfies any 2 of the following criteria:

  • a turnover of £632,000 or less
  • £316,000 or less on its balance sheet
  • 10 employees or fewer

When will this filing change occur?

The requirement to file the additional information will require secondary legislation. The process has started and could become law at any time in the next two years.

And to be clear, small companies will need to file a profit and loss account and a directors’ report, micro-entities to file a profit and loss account.

The option to file abridged accounts will be removed for both.

At present, there is no definition of the detailed information on trading that will be required. It could be limited to turnover and net profit, or it could include more detailed filing of direct costs and overheads.

 

For everyone’s eyes

The impact for small companies, who are used to protecting their turnover, trading margins and overheads (including salary details) from the public gaze, could be challenging.

For example:

  • competitors could work out your trading margins and undercut you,
  • it may bias buyers (your prospects) towards companies that have a larger, well established trading base,
  • your profit and loss data could be used against you in a trading dispute,
  • for micro companies that are basically “one-person bands” it may be possible to work out how much the business owner is being paid.

Of all the changes Companies House are presently considering, this is the one change that could prejudice the trading position of smaller incorporated businesses.

We await the fine print that will clarify exactly what needs to be filed, and from when as soon as the details secondary legislation is published. Meantime, if you have concerns about this future change in corporate transparency, please call.

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