Small Companies P&L Changes: How Does It Affect You?

In a recent turn of events, plans for stricter regulations regarding the reporting of company information to Companies House have been approved, signaling significant changes in how businesses handle their financial data. These adjustments, while not overtly heroic, can be seen as the quiet evolution of accountants into financial superheroes.

31 October 2023
Reading time
Around 4 min

The Economic Crime and Corporate Transparency Act

The passage of the Economic Crime and Corporate Transparency Act is a notable milestone. It mandates that small companies, including micro-entities, are now obliged to file a profit and loss account. Small companies are further required to submit a director's report. This update ensures that turnover information becomes publicly accessible, while also eliminating the option for companies to prepare abridged accounts.

The Impacted Parties

To understand the impact, it's crucial to know who falls under these new rules. For small companies, this includes those with an annual turnover exceeding £10.2 million, a balance sheet total of £5.1 million or less, or a workforce of 50 or fewer employees. Micro-entities, on the other hand, are defined as businesses that meet two of the following criteria: an annual turnover of £632,000 or less, a balance sheet total of £316,000 or less, or fewer than 10 employees.

Though the Bill has been waiting in the wings for months, a clear timeline for implementation is yet to be defined. Companies House has assured that the requirements for a profit and loss account will be articulated in regulations, with companies being informed in advance.

Technology as the Silent Partner

As technology transforms the landscape, accountants play a pivotal role in adapting to these changes. They are like the behind-the-scenes superheroes, using technology to streamline processes and enhance efficiency. Their work ensures that financial data is accurately and securely reported.

Digital Filing and Full Tagging

In the future, the government plans to mandate digital filing and full tagging of financial information in iXBRL format. This advancement is aimed at ensuring more transparent and standardized financial reporting.

Opinions and Divides

Not surprisingly, the changes have stirred up a mix of opinions within the financial community. While some believe that these changes are overdue and necessary, others are concerned about the exposure of sensitive financial data on the public record. The impact on small businesses, particularly in terms of competitiveness, has been a subject of debate.

For companies filing FRS105 standard accounts (designed for micro-entities) and presenting as little data as possible, or Companies filing FRS102 (typically for SMEs) with a abridged balance sheets, our expectation is that more companies will need to file FRS102 style accounts but now with a profit and loss account included as well as a Directors report. This will put a lot more detail on show to the public. For example, tracing dividend payouts will be more easily achievable from public data than it is today.

The Battle Against Fraud

These alterations form part of a broader effort to combat financial fraud. Identity verification for company directors and individuals delivering documents to the registrar is being rolled out. The objective is to create a more reliable and accurate companies register, aligning the information filed at Companies House with what companies have already prepared.

In the realm of corporate reporting, technology and regulation are driving significant changes. While not as dramatic as a comic book hero's exploits, accountants, and financial professionals are quietly stepping into the role of financial superheroes, using technology to protect sensitive data and ensure transparency. It's a new era for accounting, and the future promises even more innovation.

The government said the reforms will “achieve a better balance between greater transparency and minimising burdens on business” while also solving the issue of inaccurate or insufficient information on the companies register. 

“Requiring more information to be filed will reduce the risk of deliberate misuse of minimal disclosure options to hide money laundering and other fraudulent activity. Ensuring all companies report sufficient information to determine a company’s size and eligibility to file under size-specific regimes will improve the value and reliability of the information,” expanded the government factsheet.

Looking for advice?