Profit and Loss to be reported for Small Companies

Profit and Loss to be reported for Small Companies

The government has announced it is going ahead with tightening the accounts filing framework for small companies, by making it mandatory to report the profit and loss figures for small companies, but has not yet said when this will be implemented as time needs to be allowed for Companies House to update their systems.

The Economic Crime and Corporate Transparency Act 2023, states that small companies will be required to file a profit and loss account and a directors’ report. This will ensure that key information such as turnover is available on the public register. Companies will no longer be able to file abridged accounts.

The reason behind this is that the more information that companies file, there becomes less risk of deliberate misuse of the minimal disclosure options to hide money laundering and other fraudulent activity. This will also ensure that all companies report sufficient information to determine a company’s size and eligibility to file under size specific regimes, which in turn will improve the value and reliability of the information, according to those who are bringing the new act into force.

Under the new rules, amendments to the small companies filing requirements require the preparation of annual accounts in accordance with section 396 CA 2006.

A company is defined as small if it meets two of the following criteria: turnover of less than £10.2m, £5.1m or less on balance sheet and 50 employees or fewer.

Micro-entities with turnover of less than £632,000, balance sheet of £316,000 and 10 employees or under, will be required to prepare annual accounts in accordance with the requirements of section 396 CA 2006, which requires the preparation of a profit and loss account. They will not have to produce a directors’ report.

There will no longer be an option for micro companies to prepare abridged accounts.

Directors who use the audit exemption rules, including dormant companies, will have to file an exemption statement, identifying the exemption being relied on and to confirm that the company qualifies for the exemption.

This additional statement is intended to act as a deterrent to criminal activity and to provide additional enforcement evidence.

The new rules are also meant to crack down on abuse of dormant company rules.

Evidence from law enforcement agencies shows that some companies file dormant company accounts and claim the dormant audit exemption, despite their bank accounts clearly showing that the company does not meet the definition of a dormant company. The additional statement is intended to act as a deterrent and help Companies House address such offences in the future.

The government plans to make further changes to reporting rules in a future amendment to the Act, including a reduction of the number of times a company can shorten its Accounting Reference Period.