Small companies filing regime set for change

On 28 February 2022, BEIS published a White Paper on corporate transparency and register reform. This White Paper outlines the government’s plans to enhance the role of Companies House with a view to increasing transparency of UK corporate entities.

At the time of writing, there had been no timetable set for implementation.

Notable reforms proposed

The White Paper proposes the following reforms:

Verification of identity

Companies House will develop a digital identity service to ensure that those individuals who are appointed as directors and persons with significant controls (PSC) as well as those who lodge filings on behalf of entities at Companies House are who they say they are.

This service will link a director or PSC with an authorised identity document and Companies House will only accept their appointment once relevant ID checks have been performed. This will apply to all new and existing directors, PSCs, all directors of legal entities, members of LLPs and general partners of limited partnerships.

It should also be noted that the proposals state that identity verification will apply to agents who file on behalf of entities that are registered at Companies House.

Corporate directors

A ban on corporate directors was originally proposed in The Small Business, Enterprise and Employment Act 2015 once legislation has come into force. However, those provisions have not yet come into effect and hence corporate directors are still permitted.

The White Paper proposes that corporate directors will no longer be permitted, unless a ‘principles based’ exception applies whereby all of the directors in the corporate director are natural persons. Those natural persons will also be subject to the Companies House ID verification.

A corporate entity will only be able to act as a corporate director if it is registered in the UK. There will be different rules that will apply to LLPs or corporate general partners of limited partnerships. The White Paper also proposes that corporate members or corporate general partners must provide details of a natural person within management who must have their ID verified.

Registrar’s querying power

Companies House should be provided with more querying power which will allow them to question information that is sent to them. This will also extend to information which is already on the public register.

The registrar’s power will be discretionary and will be exercised on a risk-based approach. This means that not all information will be queried, but the registrar will target information that appears to be fraudulent, suspicious or which impacts on the integrity of the register.

Filing options for small and micro-entities

The preparation and filing options for small and micro-entities are to be reduced to just two options, being micro-entities and small companies. This means that the option to abridge or ‘fillet’ financial statements will be abolished.

All small companies will therefore need to file a profit and loss account as well as the constituent parts of their financial statements. Hence, a small entity will essentially file what they prepare with no option to ‘fillet’ information out of the financial statements. This equally applies to micro-entities.

Small companies will also file a directors’ report. Micro-entities are currently exempt from the requirement to prepare a directors’ report.

Other

Other notable proposals in the White Paper include:

• An indication that the filing deadlines for public companies and private companies could be reduced in the future once the worldwide pandemic is over. No changes to the filing deadlines are currently planned.
• All accounts filings will be digital with full i-XBRL tagging.
• Additional validation checks will be carried out on financial information delivered to Companies House. These validation checks will be limited to ensure information is coherent and consistent with accounts submitted to other relevant agencies (e.g. HMRC).
• A suggestion is included to close the loophole for unrestricted shortening of accounting periods to align it with that of the limitation for extending an accounting reference date (i.e. once every five years).
• Dormant companies will be required to file an eligibility statement to confirm they are actually dormant.

Category: Accounting and standards