On 9 December 2020, the government launched a consultation regarding improving the quality of financial information submitted and held on UK companies at Companies House. The government hopes to improve the information available to the public and others within the information kept by Companies House. This is to help clamp down on fraud, increase corporate transparency and give businesses greater confidence.
Under proposals, new director appointments will not be shown at Companies House until their identity has been verified. It is proposed to give the registrar at Companies House more powers with increased powers to query, investigate and remove false or inaccurate information. See other blog.
There is also consideration of implementing a ban on corporate directorships.
The article covers three main areas.
How information is submitted to Companies House
File once with government
The proposed approach is a ‘file once with government’ rather than with separate government agencies e.g. HMRC and Companies House. Companies could file their accounts through one central government portal and other government departments could extract the information they need from that central source. Alternatively, centrally filed information could be sent electronically to the necessary department. This latter approach aims to reduce the red tape on companies but still increase the efficiency of government agencies in regulating, monitoring and preventing fraudulent activity.
Digital format and tagging
Mandatory digital filing of the financial statements is being considered. In 2019, 15% of companies filed their Financial Statements in paper format. The financial information of these companies therefore could not easily be shared, analysed or compared without further digitally capturing those Financial Statements once received at Companies House. Requiring digital filing would be an important step towards achieving that. Companies House received around 7,000kg of paper each month in 2019-20. The paper was scanned and put on the public record, but in picture format only.
The government is proposing that all Financial Statements filed at Companies House are in digital format. Since 2016, for Corporation Tax purposes, companies have had to send tagged Financial Statements and Corporation Tax computations using inline Extensible Business Reporting Language (iXBRL) format has part of their mandatory filing with H M Revenue & Customs.
Companies House also plan to check more tags than it does now. This should means that more checks will be performed on the Financial Statements when they are being initially filed. Financial Statements that not meet the required standard would be rejected.
Reducing filing deadlines
The consultation notes that most companies file their Financial Statements digitally already. Companies House therefore propose to reduce the filing deadline. The filing deadlines could be reduced, from nine months, to six months for private companies.
As accountants who prepare and file the Financial Statements, we could question why just because Financial Statements are filed digitally, rather than by paper, that this automatically justifies a three month reduction in the filing deadline. Filing Financial Statements is a relatively quick process. However, requesting and receiving accounting information from clients and preparing the Financial Statements takes much longer.
According to the government, allowing companies 9 months to file their Financial Statements means that financial information is significantly out of date that once they are filed. This is why the government is consulting on shortening the filing deadlines. Where there is a public interest in the filed information then this point would be valid.
What information should be filed at Companies House
Maximising the value and integrity of accounts information
There is a concern that companies deliberately file financial information under the wrong regime in order to disclose less information than is actually required e.g. filing dormant accounts when the company is actually trading or filing simpler FRS 105 Accounts for micro entities rather than fuller FRS 102 Accounts for larger companies. The government is therefore proposing to change the rules so that Financial Statements must include a declaration of eligibility that is signed by all the directors, setting out the three key threshold conditions (i.e. turnover, balance sheet and number of employees) to be disclosed by all companies.
The director(s) will also need to confirm that the company meets the required threshold conditions to file under the filing regime actually used. In the case of dormant accounts, the declaration would include a confirmation statement that the company has not traded in the year and meets the criteria to file dormant accounts. Making a false declaration will be an offence which could result in fines, criminal sanctions or director disqualification.
The Registrar, at Companies House, will no longer have to accept documents for filing if they do not appear to be compliant with legal requirements.
Companies House are considering plans to introduce validation checks to ensure the required threshold conditions match the requirements for the filing regime adopted.
Small company accounts filing options
Since the abolition of the ‘abbreviated accounts’ regime several years ago, small companies have had more choice and flexibility as to what they currently file at Companies House. They can file full accounts or ‘filleted’ accounts. These include the Balance Sheet of the company and related notes. Small companies do not have to file a Profits and Loss Account, amount from this statement or related notes. The most commonly filed accounts for very small companies are filleted accounts as they include the minimum amount of information required for Companies House. Since the introduction of the significantly reduced disclosure and filing micro-entities regime, and for obvious years, this has been adopted by many micro-entities. The information on the register for micro-entities is very limited. This may deters lenders from providing credit. However, just because the information on the public record at Companies House is reduced does not stop the directors of the company providing more detailed information to potential lenders.
The government is asking whether the micro-entity regime is being used incorrectly and whether the lack of information filed under the micro-entities and small companies regimes was failing to protect people dealing with them. Options being considered include requiring all companies to file a Profit and Loss Account, and whether any existing filing requirements under the small or micro-entity regimes could be discarded. Companies House suggests that directors of companies may not understand the three key eligibility criteria or are confused by the range of filing options available.
The government is to consider the filing options that are made available for small entities with a view to reducing the number of options and at the same time increasing the value of filed accounts and financial information.
What Companies House does with this information
Changing and clarifying filing requirements:
There is a proposal to require the accounts filed with Companies House to be the most detailed set of accounts prepared for the company’s members.
Greater checks on financial information
While acknowledging that it is not the Registrar’s job to be an ‘all-purpose auditor’ of all the financial statements filed each year, the consultation recognises that Companies House may be able to perform some limited additional checks to support a more reliable register overall. This could include ensuring the information provided is coherent and complete for a company of the relevant size or type, and that it is consistent with accounts submitted to other relevant agencies.
Displaying key information on the register
Finally, the consultation asks which elements of financial information it would be most useful to see on the company overview page. Potential information could include key metrics such as profit or number of employees.
The consultation is open for comment until 3 February 2021. The government has said that it will confirm its plans later in 2021.