As was widely anticipated, the Economic Crime and Corporate Transparency Act 2023 finally received Royal Assent on 26 October.
The Act is intended to tackle economic crime and improve corporate transparency and reforms how companies report information and what information they report, when filing their annual accounts with Companies House.
There will be additional filing responsibilities for small companies and micro entities – however, the reforms create clearer guidelines around what is required from different sized companies.
A key change will be the obligation for small companies to file a profit and loss account and directors’ report at Companies House.
The changes will help modernise the business practices of Companies House; ensuring the companies register is more reliable and accurate; and reducing fraud and error. There is currently no timetable for implementation, however any changes will not affect accounts due from 1 January 2024.
Overview of the changes
- Clearer filing obligations for micro-entities and small companies;
- Small companies to file a profit and loss account and a directors’ report;
- Micro-entities to file a profit and loss account;
- Removal of the option to file abridged accounts;
- Requirement of an eligibility statement for companies claiming an audit exemption; and
- Requirement for documents to be delivered together, in cases where more than one document is filed, including for the filing of accounts.
Obligations for small companies
A company is ‘small’, in a year, if it satisfies any two of the following criteria for two consecutive periods of account:
- Turnover of less than £10.2m;
- £5.1m or less of gross assets on its balance sheet; and
- 50 employees of fewer.
A small company will be required to file its profit and loss account and directors’ report. This will ensure that key information such as turnover is available on the public register. The changes also remove the option for companies to prepare abridged accounts.
Obligations for micro-entities
A company is a ‘micro-entity’, in a year, if it satisfies any two of the following criteria for two consecutive periods of account:
- Turnover of £632,000 or less;
- £316,000 or less of gross assets on its balance sheet; and
- 10 employees or fewer
Micro-entities will be required to prepare a profit and loss account, but not a directors’ report. There will no longer be an option for micro-entities to prepare abridged accounts.
Directors and dormant companies using the audit exemption rules will have to file an exemption statement under the new rules. This should identify the exemption being relied on and confirm the company qualifies for the exemption. These changes are intended to address any abuse of dormant company rules.
Future changes to the Act
The government plans to make future changes including mandating of digital filing; full tagging of financial information in iXBRL format; and a reduction of the number of times a company can shorten its Accounting Reference Period.
How M+A Partners can help
For any queries on the reforms, including how you will report information and the information you will be obliged to report, please get in touch with your usual M+A Partners contact or email email@example.com.