Changes at Companies House

If you're a small or micro business, the White Paper currently being processed for changes at Companies House will affect you.

Currently SMEs that are incorporated must file accounts within 9 months of the conclusion of their business trading year. They have the option of filing abridged accounts, which although the accounting is easier, are in reality very difficult to correctly authorise and even accountants tend to get this wrong.

The alternative and more commonly used option is to file a filleted set of accounts, which is effectively a full set of accounts with the Profit & Loss account 'filleted' out.

A full set of accounts

This is the first change that will affect SMEs – a full set of accounts, including the profit & loss account will be required. Both abridging and filleting options will be removed. 

There are pros and cons to this. The obvious con is that everyone can see exactly how your company is doing. Profit privacy has been removed.

The pros are that it will make owner/director mortgages much easier to obtain as the lenders will be able to see exactly how healthy the business is. Also credit agencies will get a clearer picture of the company's performance and be better placed to give an accurate credit rating.

Tighter controls on year end

Up until now you could shorten your year end as often as you wanted to, so if your year end was June, you could file at 11 months, in May one year – and in April the next year, so accounts were not comparable, as they were for variable periods. HMRC were happy with this as it meant they got their money and information sooner.

At present you can extend the end of the business year – sometimes used as a strategy to avoid penalties – and this won't change, but a business can only extend the year end once in a five year period.

When the White Paper goes through that 'only once in a five year period' rule will also apply to shortening the year end.

Future changes

Companies House applied to reduce the filing period for company accounts from the current 9 months (after year end) to 6 months, but the Accounting Bodies opposed this and it has currently been shelved, but not removed as a future option.

There is currently no date for any of these changes to be applied, but the likelihood is that it will change around the point that the Corporation Tax changes come in in 2023. 

The rationale

Companies House have a sound reason for making these changes. Post Brexit they want the UK Companies House to be the best regulated, least corrupt, highest quality, safest in the world. Their focus is to reduce economic crime, fraud etc.

Their aim is to attract people to want to register their company in the UK because of its bullet-proof reputation.

What are your options?

As long as you're incorporated, you have no choice – when the changes come in, you will have to comply. Some companies may choose to disincorporate and that's a decision each company must make based on its own situation. Do you need to be incorporated? Do you need the protection of being a limited company? What are the benefits of being limited/not limited?

If people can see what your company is doing that may have an impact on how you draw money. What kind of image do you want to present to the world?

Our advice is to have a chat with your accountant to ensure you make the right decisions for your business.