Details on the timing and the specific form and content of the profit and loss account that will be delivered to Companies House are pending secondary legislation, expected shortly. Our team at LWA will notify you as soon as confirmation of the effective date is received. In the meantime, please see our latest blog below with information on the new requirements.
What is the Economic Crime and Corporate Transparency Act?
The Economic Crime and Corporate Transparency Act (ECCTA), also known as the Economic Crime Act, is a new and robust piece of legislation, which aims to:
- limit economic crime and manage crypto assets in the UK
- criminalise companies failing to prevent fraud
- empower Companies House with new ‘cleanup’ powers
- strengthen anti-money-laundering measures
- provide law enforcement with proactive intelligence gathering powers.
Through the ECCTA, the government has the authority to instigate significant changes in the preparation and filing of accounts, as well as the procedures for individuals aspiring to become directors or beneficial owners.
As a result of the ECCTA being implemented, all small companies, meeting specific criteria, will now be required to submit a directors' report and a profit and loss account to Companies House. The changes include eliminating the option to file abridged or ‘filleted’ abridged accounts, requiring an eligibility statement for audit exemption claims, and mandating documents to be delivered together.
What is the definition of a ‘small’ company and a ‘micro-entity’?
According to current company law, a company is considered 'small' if it satisfies any two of the following three criteria over a period of two consecutive years:
- turnover of £10.2 million or less
- total assets of £5.1 million or less on its balance sheet
- an average of 50 employees or fewer.
A 'micro-entity' meets any two of the following three criteria:
- turnover of £632,000 or less
- total assets of £316,000 or less on its balance sheet
- an average of ten employees or fewer.
Company law currently requires two out of the three criteria to be met for two consecutive years.
Small company profit and loss filing changes
The government is streamlining the existing filing framework for small and micro-entity companies under the new legislation. Rather than grouping the filing obligations for small companies and micro-entities in the same section of the Companies Act 2006, the ECCTA splits the requirements into two sections. This aims to provide clearer filing requirements for better company understanding.
The current regime allows micro-entities and small companies to file just the balance sheet and related notes to the balance sheet with Companies House. The ECCTA obliges a micro-entity to file its profit and loss account with Companies House; and a small company is required to file both its directors’ report and profit and loss account, hence the ‘full’ accounts will be delivered to Companies House.
The ECCTA includes provisions which allow Companies House to make the profit and loss accounts of small or micro-entities (or parts thereof) unavailable for inspection via the public record. This will enable Companies House to verify that companies are filing the accounts correctly. However, secondary legislation in this respect is needed and so until we know details of what is in this secondary legislation, it is currently uncertain as to whether the profit and loss account of small and micro-entities will be unavailable for inspection and, indeed, what the form and content of the profit and loss account which is to be delivered to Companies House will look like.
Companies House identity verification
The ECCTA introduces requirements for all new and existing registered company directors; people with significant control; and those filing on behalf of companies to have their identity verified. This notable change requires careful preparation for company secretaries. The registration process for "authorised corporate service providers," a role created by the ECCTA, should be straightforward for accountancy firms, already regulated for Anti-Money Laundering, and most of which belong to professional bodies.
Failure to Prevent Fraud: a new corporate offence
The ECCTA will hold organisations accountable if they profit from fraud. This offence applies to companies in all sectors but only if they are large, meeting specific criteria under the standard Companies Act 2006 definition: more than 250 employees, more than £36 million turnover, and more than £18 million in total assets on the balance sheet.
LWA are here to help
If you are a client of LWA, please rest assured that as part of our service filing your accounts on your behalf, we will ensure that you are adhering to the new legislation. If you have any queries about the Economic Crime and Corporate Transparency Act and how your business will be affected, please do not hesitate to contact our team by telephone on 0161 905 1801 in South Manchester or on 01925 830 830 in our Warrington office, or you can email mail@lwaltd.com.
You can also learn more about the ECCTA on Gov.uk here.