Accounts and audit exemption

Company accounts

The Act amends the Companies Act 2006 (CA 2006) to streamline the existing filing framework for small and micro entity companies. The reforms focus on what information is filed at Companies House and not on the underlying obligations for companies to prepare accounts. The reforms will mean that what is filed is closer to what companies have already prepared.

The rationale for these changes is to reduce the risk of deliberate misuse of minimal disclosure options to hide money laundering and other fraudulent activity.

A company is ‘small’ if, in a year, it satisfies any two of the following criteria:

• a turnover of £10.2m or less
• £5.1m or less on its balance sheet
• 50 employees or fewer.

A company is a ‘micro-entity’ if, in a year, it satisfies any two of the following criteria:

• a turnover of £632,000 or less
• £316,000 or less on its balance sheet
• 10 employees or fewer.

Once the relevant provisions of the Act are in force, the filing obligations for small companies and micro-entities will no longer be set out in the same section of the CA 2006. Instead, they will be split into two sections, which aims to make the filing requirements clearer for companies to understand.

Micro-entities

Under the new rules, micro-entities will be required to file a balance sheet and a profit and loss account (unless they are exempt from audit and the directors have taken advantage of that exemption).

Micro-entities will retain the option to not prepare a directors’ report.

Small companies

Small companies that do not meet the micro-entity threshold will be required to file a balance sheet, a profit and loss account and a directors’ report.

The effect of these provisions is to remove the option for companies to file abridged accounts or filleted accounts and will ensure that key information, such as turnover, is available on the public register.

Exemption from audit requirements

The Act introduces a new requirement into the CA 2006 for directors to make a statement when claiming an audit exemption. The statement must confirm the identity of the exemption being relied on and that the company qualifies for that exemption.

The requirement for companies to file an eligibility statement will provide the Registrar with additional evidence to take stronger enforcement action for false audit exemption filings in the future.

Miscellaneous

The Act gives the Secretary of State the power to make regulations enabling the registrar (on application) to:

• withhold from public inspection profit and loss accounts delivered to Companies House by micro-entities and small companies; and
• refrain from disclosing those accounts except in specified circumstances.

The regulations will contain details about who can make an application to the registrar and the grounds on which it can be made.

The Government has also confirmed that further changes are intended to be made using existing legislative powers or powers being passed through the Act, including mandating digital filing, full tagging of financial information in iXBRL format and reducing the number of times a company can shorten its accounting reference period.

Resources

The Economic Crime and Corporate Transparency Act 2023
Government Factsheet: Company accounts