January 7, 2021 Corporate Transparency and Register Reform – financial information
The Department for Business, Energy & Industrial Strategy has published three follow up consultations to the response to the Corporate Transparency and Register Reform Consultation.
During January, Elemental will provide an overview of each of the three consultations which all close on 3 February 2021.
This first article reviews the consultation on improving the quality and value of financial information on the UK companies register. The government proposals within the consultation build on the theme of the response to the original consultation, rushed out following the release of the FinCEN files, which is to empower Companies House to better fight economic crime by improving the quality of the information on the companies register.
In the original 2019 consultation, the proposals concerning the value of financial information on the companies register received strong support but included a challenge to be more ambitious in the scale of reforms under consideration. The direction of travel seems to be towards a greater level of financial disclosure.
The filing of financial information
A recent government report has shown that the financial information held at Companies House is the most valuable dataset for its customers. The information is used by businesses, financial institutions, civil society groups, academics, journalists and the public at large.
The Government believes there are opportunities to improve the way financial information is filed with, and published by, Companies House.
Specifically, the proposals being consulted upon seek to:
- Deliver efficiencies for filers, users and Companies House by requiring digital submission of accounts in a machine-readable format, bringing the UK into line with global best practice
- Expand the use of tagging standards to make comparison and bulk analysis of accounts simpler
- Simplify the multiple processes for filing financial information across Companies House and HMRC systems, and explore opportunities for filing financial information once with government
- Tackle fraud and error by closing known loopholes in filing requirements and address problems of companies filing the wrong set of accounts
- Improve the quality and value of information on the register by reviewing the timescales for delivering accounts and exploring options to improve how information is displayed
- Require additional information to be submitted with accounts to improve their statistical and analytical value
How information is submitted to Companies House
The first part of the consultation focuses on how accounts are delivered to Companies House and options for progressing towards filing once with government.
In 2019, 99% of company incorporations and 99.5% of confirmation statements were filed digitally at Companies House. However, the figure for accounts was significantly lower at 85%. As 15% of companies are filing paper accounts, this means that the financial information of approximately 475,000 companies cannot be easily shared, analysed, compared or checked for compliance with accounting regulations.
Difficulty analysing or comparing the financial data of these 475,000 companies may deter potential partners, investors and providers of finance.
The Government therefore outlines proposals to require accounts to be delivered digitally and to introduce full tagging of accounts.
The consultation also seeks views on reducing timescales for accounts to be filed from 6 months to 3 months for public companies and from 9 months to 6 months for private companies.
The rationale behind these suggestions is that current filing periods mean that financial information is significantly out of date at the point of receipt.
Shortening the timescales will increase the value of the information and support commercial activity that relies on information on the register.
What information should be filed at Companies House
This part of the consultation outlines the information that is currently required by Companies House and asks whether further information might improve the value of the register.
There is widespread concern about abuse of the financial reporting regime in the UK and the potential impact of inaccurate information on the register being used to inform important business decisions.
Some believe that UK corporate structures can be used to facilitate the laundering of criminal assets and this can be easily hidden by a company that files micro-entity or dormant company accounts as they require minimal financial information to be provided.
The Government is therefore proposing that company directors should confirm the company’s eligibility to file certain types of accounts.
It also seeks views on revising the small company accounts filing options, suggesting that the regimes for filing micro-entity accounts (introduced in 2013) and abridged accounts (introduced in 2015) are not working as intended.
What Companies House does with this information
The final part of the consultation explores what Companies House should do with information it receives in accounts.
It sets out proposals to increase the checking of accounts and asks for views on how financial information could be better displayed on the register.
The consultation proposes a requirement that the accounts filed with the Registrar must be the most detailed set of accounts that have been prepared for the company’s members rather than a ‘fileted’ version.
How Elemental Can Help
The consultation is open until 3 February 2021 and the government expects to respond confirming its plans in 2021. You can respond to the consultation here.
Any reforms will impact both the governance and the financial accounting of all companies in the UK.
Elemental can provide integrated support across both areas to ensure that you are compliant with any new or amended requirements.