The article below covers further proposed reforms by Companies House, however, there has been speculation on whether these changes will be paused/revoked, so this should be noted. The article will be updated if there are further announcements.
The Economic Crime and Corporate Transparency Act (ECCTA) 2023 was introduced by the UK government in an effort to combat economic crime and enhance corporate transparency. The Act makes reforms in a number of areas, particularly in relation to the role of Companies House, such as requiring identity verification for directors, persons with significant control (PSCs), and LLP members as well as other changes to improve the reliability and security of data held on the register.
Further reforms have been proposed by Companies House to modernise practices and streamline the filing framework for small and micro-entities in order to improve clarity and transparency. These changes have been proposed to take effect for accounts filings made on and after 1 April 2027. However, since they are not considered to be consistent with reducing regulatory burdens for small entities speculation has been rife as to whether the government will pause the rollout.
Software-only accounts filing
Proposals are that from 1 April 2027 all accounts filings, including dormant accounts, will be required to be filed using commercial software only, as opposed to web-based filing or sending paper copies to Companies House. The shift aims to increase efficiency and security, while also providing a cost effective and sustainable way of filing.
Where businesses have used web-based filing or paper submission previously they will need to find alternative routes to file such as obtaining their own compliant software, or identifying an accountant to file on their behalf.
Although these changes will be implemented for accounts filing, web-filing and paper routes will remain open for statutory filings eg confirmation statements.
Filing requirements
To streamline the filing options for small and micro-entities, Companies House has proposed significant amendments which will see information on the public record for the first time for certain businesses.
From 1 April 2027, micro-entities will be a required to file a copy of both their balance sheet and statement of profit and loss with Companies House having previously been exempted from filing the profit and loss account. For small companies, there will be a requirement to file a copy of a directors’ report, balance sheet, and statement of profit and loss with Companies House. Filing the profit and loss account and directors’ report was previously optional for small entities. Where an entity is not exempt from audit the audit report would also need to be filed.
Options to file abridged accounts will also be removed. Abridged accounts have a simpler balance sheet and profit and loss account. Of particular relevance for the profit and loss account, certain line items including turnover may be combined into a single heading ‘gross profit or loss’.
Once these options are removed the turnover line item will be visible and it will be possible to determine a gross margin for all entities. This may not sit comfortably with smaller start-up businesses who may struggle to compete if they are unable to keep certain information private.
The government has increased size thresholds for accounting periods commencing on or after 6 April 2025 which means that more entities will qualify as small or micro-entities. This will still have the advantage of being able to use reduced disclosures under FRS 102, section 1A or FRS 105 (the micro-entities regime) but filing advantages will now be lost.
Statement to claim an audit exemption
The rules surrounding audit exemption can be complex and there are numerous ways in which exemption can be claimed. These include dormancy, small companies exemptions and exemption by parental guarantee. Companies will be required under the reforms to provide an enhanced statement from their directors on the balance sheet if they are claiming any exemption. The statement will need to specify which exemption is being relied upon and confirm that the company qualifies for this.
This will aid transparency and assist the registrar in taking enforcement action where exemptions are used incorrectly, either knowingly or unknowingly. Directors will need to remain vigilant and ensure that they are satisfied that all conditions of an exemption are met. As size thresholds have increased it is likely that more companies will be eligible for audit exemption but the ineligibility rules can be difficult to apply. It is recommended that advice is taken particularly where a company is part of a worldwide group as this may render the entity ineligible for the small company exemption from audit.
Shortening accounting periods
The new reforms proposed will also limit the number of times a company can shorten its accounting period to once every five years, whereas previously accounting periods could be shortened as many times as needed. For companies that wish to shorten their accounting period more regularly, they would be required to provide a business reason for doing so. These changes would clamp down on companies who abuse this provision in order to obtain more time to file accounts. It may seem counter-intuitive but by shortening the accounting period this can buy an extra three months to file accounts as the deadline for filing becomes three months from the date that the application form to shorten the accounting period is received.
The transitional provisions for this amendment are yet to be published and it is unclear what business reasons would be appropriate, but this reform would be in line with the rules regarding the lengthening of accounting periods, which can also only be done once every five years. The business reasons for lengthening are if the company is in administration, if aligning with a subsidiary or parent or if special permission has been given from Companies House.
How we can help
If you’d like to find out more about the impact of these accounts reforms on your business, or to find out more about the upcoming changes to be implemented as part of the ECCTA, please get in touch with Anna Hicks.
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