Posted by ashleyphillips - July 24, 2024 12:18 pm The end of Profit and Loss protection?

The Economic Crime and Corporate Transparency Act received Royal Assent and accordingly became law in October 2023. The second part of the Government’s attack on economic crime, following the Economic Crime (Transparency and Enforcement) Act which came into force in March 2022, this Act is aimed at ensuring a greater level and quality of financial information is reported.

Amongst other things, the Act delivers specific reforms that will enable Companies House to ensure that the information it accepts for publishing on the public register is of sufficient quality, which will incorporate changes to the preparation and filing of statutory accounts with Companies House.

Many of the intentions of the Act will be delivered by secondary legislation once the specifics have been determined and some will likely take a number of years to be fully implemented. The reforms to accounting and filing requirements are likely to be some which come in within the latter implementation phases, with early measures to be implemented most likely focussing on Companies House investigation and enforcement authorities.

However, once the changes to accounting and filing requirements do come in, they will be significant to a number of businesses.

The Act removes the option for small companies to file abridged accounts and also requires both small and micro entities to file their Profit and Loss Accounts within their financial statements. Additionally small companies will be required to file a Directors’ Report. This will bring to an end the current option of submitting ‘filleted’ accounts.

The requirement to file the Profit and Loss account will be a significant concern for many small businesses, as previous exemptions were in place for the legitimate purposes of commercial sensitivity and privacy of information. Concerns regarding the abuse of the exemptions, such as companies utilising the small or micro entity regimes when they don’t meet the criteria, have led Government to prioritise transparency over commercial sensitivity.

However, there is still hope for a common sense approach that will ensure transparency with Companies House whilst protecting the sensitive nature of corporate financial information. Regulatory powers exist within the Act which would enable parts or all of the Profit and Loss Accounts submitted to the Registrar to not be made available for public inspection. The passing of Parliamentary Regulations would be required to exercise these powers and the potential scope of any such regulations is yet to be fully considered.

We will continue to look out for any further developments on the future of the Profit and Loss Account protection.

Should you require any further advice then please contact your local MFW office where our teams will be pleased to help.