07 March 2023
As a small business owner, you are probably familiar with the annual financial statement filing requirements for small companies. Your accountant may have assured you that certain information won't appear on the company record or is only for management purposes. While these statements are true, they may not be true for much longer.
Presently, small companies are only required to file a balance sheet supported by a limited number of notes. These accounts are available for anyone to view on Companies House, but they may look quite different from the ones propping up your coffee table.
Understanding the New Filing Requirements for Small Companies
However, the government has released a white paper outlining its plan to reform Companies House operations and improve financial transparency (Part Two of the Economic and Corporate Transparency Bill). As a result, small companies will no longer have the option to file "filleted" accounts. Instead, the accounts filed will include a profit and loss account and a director's report.
The Implications of Companies House Reforms on Small Companies
This change will have significant implications for small companies. For instance, let's say your company made £100,000 in profit after tax last year, and you took £80,000 as a dividend. Currently, all that appears on Companies House is your balance sheet, which shows retained earnings moved by £20,000. This provides very little information on the company's financial activities, leaving room for ambiguity.
Under the new regulations, your profit and loss account will be available to everyone, including your suppliers, customers, and staff. This means that everyone will know that your company made £100,000 in profit after tax and will also be able to see your Gross Profit. They will also know therefore that your company issued an £80,000 dividend, with your retained earnings only increasing by £20,000.
If you are a single owner-managed business, this is a considerable amount of information that will now be available for public scrutiny.
Preparing for the Changes: Considerations for Small Business Owners
So, what can you do to prepare for these changes? While the white paper has yet to receive royal assent, the reforms are due to be passed in Spring 2023. As a small business owner, you may wish to consider changing the way in which you are remunerated (bonus vs dividend), particularly given the concurrent changes in dividend rates and allowances, a bonus would mean that a reader could not see details of your personal income.
At Haines Watts, we understand the importance of keeping you informed about these changes, even when the news is not ideal. We are here to help and advise you on the best course of action for your business. Get in touch with us today, and let's work together to ensure your company's financial information is transparent and compliant with the new regulations.