Transition to Software-Only Filing
The enactment of the Economic Crime and Corporate Transparency Act in late 2023 signals a significant overhaul of Companies House reporting procedures. A notable change dictates a shift towards software-only filing, accompanied by comprehensive tagging of financial data in iXBRL format. Although the timeline for this digital transition is still pending finalisation, expectations point to a phased implementation over the next two to three years.
Updates to Submitted Information
The passage of the Economic Crime and Corporate Transparency Act introduces mandatory filing requirements for small companies and micro-entities. Small companies will be obligated to file both a profit and loss account and a director’s report, ensuring the availability of turnover data on the public register. Moreover, the Act eliminates the option for companies to prepare abridged accounts. Companies House is tasked with finalizing the implementation details, subject to government scrutiny. The anticipated electronic filing mandate is expected to drive increased software adoption.
For the new rules, a small company is defined as meeting two of the following criteria: turnover of £10.2 million or less, £5.1 million, or less on its balance sheet, or 50 employees or fewer. Micro-entities, as per the government fact sheet, meet two of the following: a turnover of £632,000 or less, £316,000, or less on its balance sheet, or 10 employees or fewer. While the Bill awaited implementation for several months, a definite timetable for the new rules has yet to be established.
Companies House spokespersons assure that the profit and loss account requirements will be outlined in regulations, with companies receiving fair warning of the altered expectations. Clarity on the requirements will emerge with the issuance of secondary legislation, detailing the form and content of the profit and loss account submitted to Companies House. Additionally, directors of companies using audit exemption rules, including dormant companies, will be required to furnish additional information, such as a statement confirming qualification for the exemption. This shift represents the initial phase, with future government plans encompassing digital filing mandates, full tagging of financial information in iXBRL format, and limitations on the frequency of shortening a company’s accounting reference period.
Pros & Cons Consideration
- Streamlined processes and improved data quality which is particularly beneficial for smaller businesses who are not currently using software.
- Increased availability of public domain data.
- Advantageous for benchmarking, aiding investors in informed decision-making.
Conversely, the disclosure of sensitive financial information presents challenges for certain businesses. While standardised approaches may benefit smaller entities, the balance between these advantages and potential risks varies among businesses.
- Businesses may face hesitancy in publicly disclosing their complete Profit and Loss (P&L) statements due to potential inclusion of sensitive information.
- Increased scrutiny by anyone with access to the public domain.
- May pose a challenge in terms of confidentiality and privacy.
Click here to find out more on Changes to the UK company law.
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