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.

For accounting periods beginning on or after 6 April 2025, a company is ‘small’ if, in a year, it satisfies any two of the following criteria:

• An annual turnover of £15m or less
• £7.5m or less on its balance sheet
• 50 employees or fewer on average.

For accounting periods beginning on or after 6 April 2025, a company is a ‘micro-entity’ if, in a year, it satisfies any two of the following criteria:

• An annual turnover of no more than £1m
• £500,000 or less on its balance sheet
• 10 employees or fewer on average.

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 (with less information than for a small company) and, as a new requirement, a profit and loss account. However, they will be able to opt out of publishing the profit and loss account on the public register. Companies House, law enforcement and HMRC will still have access to this information to identify and tackle fraud, economic crime and tax evasion.

Micro-entities must also deliver a copy of the auditor’s report on their accounts unless the company is exempt from audit and the directors have taken advantage of that exemption. 

Small companies

Once the new rules are effective, small companies that do not meet the micro-entity threshold will be required to prepare and file a balance sheet, a profit and loss account and an auditor’s report (unless exempt). Small companies were not previously required to file their profit and loss account at Companies House, but this will be mandatory from 1 April 2028. However, as in the case for micro-entities, small companies will be able to opt out of publishing their profit and loss account on the public register.

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 filed at Companies House.

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.

From 1 April 2028, any company claiming an audit exemption will need to give an enhanced statement from their directors on the balance sheet. 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.

Filing accounts by software

The Act lays the foundation for Companies House to require all companies to file accounts in digital format. Companies House has confirmed that, from 1 April 2028, all accounts filings (including dormant accounts) must be filed using commercial software. The Companies House web and paper routes will be closed for accounts filings but will remain open for other statutory filings.

Software-only filing supports the goal of a fully digital filing service and will help to prevent economic crime and bring the UK in line with international best practice.

Miscellaneous

The Government has confirmed that from 1 April 2028 it will limit the number of times a company can shorten its accounting reference period. A company will have to provide a business reason if it wants to shorten its accounting reference period more than once within 5 years. This change is subject to regulations that have yet to be published.

Resources

• The Economic Crime and Corporate Transparency Act 2023
• Government Factsheet: Company accounts
• Changes to Company Law website: Changes to accounts
• Ministerial Written Statement: Companies House Accounts Reforms (9 June 226)
• Companies House guidance: Preparing and filing Companies House accounts