The exact timeline for implementation of this is still unclear but practitioners should be preparing for any impact this may have on small and micro entity clients as follows:
- Small companies will be required to file both their profit and loss account and directors’ report, thereby also removing the option of filing so-called ‘filleted’ accounts.
- Micro-entities will similarly be required to file their profit and loss account but will continue to have the option not to prepare or file a directors’ report.
Further down the line it is also likely that paper accounts may no longer be acceptable to the registrar.
Directors claiming audit exemption including dormant companies
To reduce the risk that entities are falsely claiming exemption from audit, directors will be required to identify the exemption being taken and confirm that the company qualifies for it by completing an audit exemption statement that will include dormant companies.
Advising small and micro clients of the changes
Whilst some company directors may be ambivalent to whether information on profits, losses, staff costs, profit margins and overheads are disclosed as a matter of public record, others will be alert to the fact that competitors may seek to gain advantage by understanding where a company’s pain points may lie.
There is also the issue of privacy to consider whereby for sole director-shareholders it will become easily apparent what a company’s owners take home pay looks like. This alone is likely to disgruntle business owners and careful communication to clients in advance of the measures coming into force is recommended.
Unincorporating existing companies
Practitioners may wish to discuss the implications of unincorporating existing companies, particularly in the light of the ever-diminishing dividend allowances available to director shareholders. In a low-risk business, the flexibility and privacy offered by a sole tradership may become more compelling than the security of limited liability.
Existing suppliers and customers would need to be considered as to whether they would be comfortable dealing with an unincorporated entity as well as the costs of winding a company up and issues on transfer such as assets, staff and VAT.
Further resources on the Economic Crime Bill and company filing requirements