UK – Changes to accounts preparation and filing requirements
As well as measures to tackle economic crime, the new Economic Crime and Corporate Transparency Act aims to improve information held on the UK companies register.
Following a lengthy parliamentary process, the Economic Crime and Corporate Transparency Act (ECCTA or the Act) received Royal Assent on 26 October 2023. The Act gives Companies House more powers to tackle economic crime and aims to improve the transparency and accuracy of information on the UK’s company register to support economic growth. Here, we explain the changes to accounts and filing requirements, and outline some of the other measures that will be introduced over the next few years.
Despite having come into force as law, many of the measures within the Act will require secondary legislation (in the form of Regulations) to become effective; this is anticipated to start arriving from early 2024, although initial measures are likely to include some of the changes outside of accounts reform outlined here.
Changes to accounts
The changes to the preparation and filing of accounts are designed to improve the quality and value of financial information on the register. In addition, they aim to make Companies House better able to serve the needs of a 21st-century economy as well as preventing abuse of the corporate framework.
Simplifying filing obligations
Small companies will no longer have the option to prepare and file abridged accounts; instead they will be required to file both their profit and loss account and directors’ report. Micro-entities will also be required to file their profit and loss account, but will continue to have the option not to prepare or file a directors’ report
Provision that profit and loss accounts may not be publicly available
In a significant change to the original Bill, the Act includes a regulatory power that, while small and micro companies will be required to file their profit and loss account, it (or parts of it) may not necessarily be made available for public inspection. How, or in what circumstances, the provision might be applied in practice is still being considered.
Audit exemption statement
When claiming exemption from audit, directors are currently required to include a statement to that effect on the balance sheet. The Act extends this requirement, additionally requiring the statement to identify the exemption being taken and include confirmation that the company is eligible to take the exemption.
Under the Act, authority to require documents to be delivered by electronic means has been transferred to the Registrar and such requirements must be introduced through the Registrar’s rules, paving the way for electronic filing to be introduced more swiftly. The transition to software-only filing is expected to be phased in over the next two to three years.
Company law changes beyond accounts
The Act brings in many other changes, giving Companies House the power to play a greater role in tackling economic crime, alongside measures to improve the transparency and accuracy of information on the register.
These measures include: identity verification checks being introduced for all new and existing registered company directors; greater powers to query information and carry out stronger checks on company names; and more effective investigation and enforcement powers. These are likely to be some of the first measures to be implemented.
Failure to prevent fraud
Finally, but not insignificantly, the Act creates a new Failure to Prevent Fraud offence, aimed at holding companies to account if they profit from fraud committed by their employees. Under the new offence, large companies will be liable where a specified fraud offence is committed by an employee or agent and it did not have reasonable fraud prevention procedures in place.