More transparency for business disclosure rules

Disclosures are crucial for corporations who want to gain the trust of more business partners and customers. When companies aren’t transparent about their operations and responsibilities, the public is likely to lose confidence in them and takes their support elsewhere – as do investors.

In the world of corporate finance, disclosure means releasing all the relevant information about a business to the public, whether the data is positive or negative. This includes all the facts and figures, procedures, dates, and developments that can influence investor or consumer decisions.

Even smaller businesses may be legally required to publish certain details. After dozens of major companies collapsing has dented the trust of the British people in recent years, the UK government is planning to reinforce the UK disclosure regulations in an attempt to restore faith in the market.

This blog explores what this means for small companies, and how you can prepare for the changes.

What counts as a small company or micro-entity?

The size of your company accounts depends on three factors: your annual turnover, the average number of employees, and the balance sheet total (including both current assets and fixed assets).

To qualify as either a micro-entity or small company, your business must not exceed at least two of the three thresholds. Both were previously able to submit abridged balance sheets to Companies House, with less information than the balance sheets they provide for members and shareholders.

When you run a limited company, your financial information will be available to the public. Small companies and micro-entities aren’t currently required to file profit and loss accounts, so less information is available – often as little as their current assets and liabilities, and total fixed assets.

However, this will soon change when Companies House upgrades its rules. The February whitepaper Corporate Transparency and Register Reform suggests that the government will make it compulsory for all micro-entities and small companies to file their profit and loss accounts for everyone to see.

How are business disclosure rules changing?

As mentioned, the key changes are that small companies will no longer be able to submit abridged accounts, and must now submit a director’s report. Both micro-entities and small companies will also have to file full profit and loss accounts. This information will now be available to competitors, employees, customers, family, and any other parties with an interest in the company’s profitability.

While these reforms haven’t been written into law yet, they are likely to be within the next year. With the aim of improving company ownership transparency and preventing fraud, the whitepaper also proposes the following actions:

• Requiring companies to maintain full records of shareholders (updated annually)
• Providing the names of any regulated markets the company is listed on
• Submitting fully labelled, machine-readable digital accounts to iXBRL (Inline Extensible Business Reporting Language) standard
• Removing the options for abridged or ‘filleted’ accounts to reduce fraud and genuine errors
• Enhancing validation checks on accounts and information to improve the register’s integrity
• Making verified Companies House accounts mandatory, with identity verification for all directors and persons with significant control (PSCs)

The government is aware that there is potential for criminal misuse of the system for reporting accounts, which is why they want to streamline the process to make it as simple as possible for both businesses filing the information and those accessing it to inform their own business decisions.

Their proposed reforms will boost confidence in the integrity of businesses by improving the accuracy of their financial data. In the future, the whitepaper suggests exploring the new approach of filing everything once a year with the government, rather than filing different parts with different departments at varying times. This would be more efficient for all parties, reducing inconsistencies.

What does your business need to do?

Though the extended filing regulations won’t come into effect for a while yet, they should inform your decisions when making changes to an existing business or setting up a new company. When they do become law, there is likely to be a transition period to give companies time to comply.

If your business isn’t compliant with the new requirements by the end of the transition period, your company could face civil penalties or even criminal sanctions. If company directors fail to register with Companies House and verify their identities, they will also be committing a criminal offence.

You can find current guidance for Companies House accounts online, but it may be worth consulting a professional accountant if you have any uncertainties about your company’s liabilities. It’s also a good idea to get ahead with implementing a digital accounting system, if you haven’t done so yet.

Accurate disclosure is the key to staying on top of financial reporting regulations while protecting your company’s reputation, tracking your progress, and giving yourself an edge over less transparent competitors. If your company could benefit from expert advice and assistance with preparing and filing digital accounts, get in touch with GBAC, accountants in Barnsley, today on 01226 298 298 or at info@gbac.co.uk.