Time to reveal all
When 1st January 2026 comes around, your accounting information will need to have some additions before it’s submitted to Companies House in any accounting period that starts on or after this date.
This applies to small companies and micro entities and your business qualifies as a small company under the Companies Act, when two out these three criteria are met in an accounting period:
- A turnover under £15 M
- Gross assets under £7.5 M
- Fewer than 50 employees
A company can apply micro entity accounting under the Companies Act, when two out of these three criteria are met in an accounting period:
A turnover under £1M
Gross assets under £500k
Fewer than 10 employees
Related party transactions
The first change is that, if you trade with other companies where you are a director or key management or with companies where close family members are on the board of directors or in key management roles, you must detail the transactions in your company accounts. These are known as related party transactions.
Currently small companies do not need to disclose related party transactions unless the transaction is not conducted under normal market conditions.
In future the accounts to be submitted to Companies House will require a full profit and loss statement, your company finances need to be much more transparent.
Is your business viable?
The second change is that small companies and micro entities will be required to include a summary on how the directors reached their conclusion on the company being a going concern. This can include their profitability, cash flows, liquidity position, available borrowing facilities or other sources of financing.
The amount of information provided should be proportionate to the uncertainties to which the company is exposed and to its financial and liquidity position. A company facing greater uncertainty and with less financial headroom may need to provide more detail than one without such challenges.
If you want to continue to trade you’ll need to provide evidence that you have the financial wherewithal to do so. This may include directors loans, work that is in the pipeline, future contracts, etc.
When there are material uncertainties that may cast significant doubt upon the company’s ability to continue to adopt the going concern basis of accounting, the financial statements must show them.
While this may seem like big brother is watching you, it is a good strategy to ensure companies take action before they’re faced with bankruptcy or being wound up. The requirement to provide this information is a catalyst to a constructive discussion with your accountant.
Positive action is likely to rescue at least some small enterprises before they reach the brink.
