ECCTA clarifies accounting reform for businesses turning over less than £15m

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) will introduce some of the biggest changes to Companies House since its formation, looking to reform its role and improve transparency over companies and other legal entities in the UK.

This legislation determines the framework in which the UK’s three registrars of companies (England and Wales, Scotland, and Northern Ireland) must operate and is underpinned by four objectives:

1. To ensure that any person who is required to deliver a document to the registrar does so (and that the requirements for proper delivery are complied with).
2. To ensure that information contained in the register is accurate and that the register contains everything it ought to contain. This reference to ‘the register’ includes any records kept by the registrar under any enactment. 
3. To ensure that records kept by the registrar do not create a false or misleading impression to members of the public.
4. To prevent companies and others from:

• carrying out unlawful activities, or
• facilitating the carrying out by others of unlawful activities

What are the ECCTA reforms?

The ECCTA includes a number of complex reforms that give Companies House greater power than ever before. Implementation began in March 2024 and is due to be fully established by the end of 2026. You can read a summary of the changes here.

More recently, further details have been announced surrounding the changes to filing requirements for limited companies and LLPs from 1 April 2027, which provides long-awaited clarification.

The headline changes include:

• Both small and micro entities will be required to file a profit and loss account.
• Small companies (those with turnover up to £15m) will also have to file a directors’ report and, if applicable, an audit report.
• All accounts must be filed using commercial software.
• An additional audit exemption statement will be required on the balance sheet.
• Limits will be added to how many times a company can shorten its accounting period.

What are the implications of the accounts reform?

As highlighted, the most significant change relates to the additional information that will be required to be filed at Companies House by small and micro entities, especially the profit and loss account.

Some will argue that publishing the profit and loss account on the public record for all limited companies and LLPs is the price of limited liability, however many believe that having such information on the public record will lead to a competitive disadvantage.

What is this legislation for?

In favour of the changes and a core reason for their implementation is the increased transparency that the disclosure will bring and the associated improvement in data quality. The legislation is hoped to ultimately reduce fraudulent activity in the UK.

Having more detailed information on the public record may also support lending decisions made by banks and other funders.

Conversely, there are concerns, not only of a loss of privacy, but of an increased administrative burden being placed on small and micro entities and the potential for an increase in the risk of the public data being misinterpreted. The option to file a simplified version of a company’s full financial statements (abridged accounts) is also being removed.

Overall, there are perceived positives and negatives of the move. Either way, those involved in running or administering small and micro entities need to be aware of these upcoming changes, now.

To discuss how Duncan & Toplis can support you with these changes, please get in touch.