No more abridged accounts?!

[Lucan Unlordly]

Name, address, DOB can be worked out with social media presence (happy birthay messages on day of birthday).

That's why I use the wife's birth date

 

[singlemalt]

The reasons to be incorporated become less and less....?

 

[singlemalt]

I'm a small company, and I'd love to see how my competitors are doing. I don't care if they see me.

I think I'm with you on that - on balance, I think I would prefer to be able to see the information in return for opening up my own.

 

[eteb3]

No, your liabilities are borne by your creditors. HMRC may be one of your creditors.

Sure, but HMRC is the creditor that matters to the public, hence public interest in the accounts, and HMRC (ie, taxpayimg public) is the only creditor not able to choose whether to do business with you.

I think the public interest argument stands even if we substitute private creditors for HMRC: commerce will be economically more efficient (so yes, lower margins) with more complete info.

Just think about the reality of limited liability: risk is externalised and profit is internalised. That’s quite a perk (to put it mildly) and people should trade something for it.

 

[singlemalt]

Am I right in thinking you always had to include a P&L, years ago? I'm sure I remember my father's company filing one in the accounts ~30 years ago. And having an audit. It wasn't a big company.

 

[japancool]

If you don't want to show your P&L, you can always de-incorporate and become a sole trader.

 

[NicoJ]

If you don't want to show your P&L, you can always de-incorporate and become a sole trader.

Its not quite as simple as that, but never mind.

Nobody has put forward a convincing argument as to why showing your p&l is a good thing, how it combats fraud (which is supposedly the reason for the measure) or what possible positives there are for putting this information in the public domain.

 

[Gyumri]

Limited liability is an extraordinary privilege: if you go bust, your liabilities are borne by the public (via HMRC), so the public has a right to see your figures.

HMRC may not be a creditor and the public can see the statement of affairs compiled by a liquidator if the company does go bust.

Sure, but HMRC is the creditor that matters to the public,

On the contrary the public has not the slightest interest in whether HMRC is a creditor - in fact it often seems a cause for celebration if it is.

Just think about the reality of limited liability: risk is externalised and profit is internalised.

Risk of doing business remains exactly the same regardless of the P&L.

Northern Rock's P&L was publicly available but went bust quicker than you could say "P&L".

You are confused about the expression "public interest" which has no legitimate interest in seeing the P&L of a private company just as it has no interest in seeing what level of salaries a company is paying to its staff or what rent it is paying for its premises.

 

[eteb3]

Some of those are fair points. But...

Risk of doing business remains exactly the same regardless of the P&L.

1. Assuming that's true for a moment, what's in play is who bears that risk - the owners (who are best placed to control it), or the creditors? Limited liability means that, in an under-capitalised company, it's the creditors.

2. It's not true in practice: insulating owners from the downside makes for moral hazard, i.e., more risk is taken because it's borne by others.

 

[Gyumri]

Some of those are fair points. But...

1. Assuming that's true for a moment, what's in play is who bears that risk - the owners (who are best placed to control it), or the creditors? Limited liability means that, in an under-capitalised company, it's the creditors.

2. It's not true in practice: insulating owners from the downside makes for moral hazard, i.e., more risk is taken because it's borne by others.

Limited liability means that, in an under-capitalised company, it's the creditors.

We're living in a capitalist society where the apportionment of risk is left to the contracting parties to decide.

Nobody has been able to provide one sensible reason why it would be beneficial to society to compel private companies to publish their P&L.

 

[NicoJ]

Northern Rock's P&L was publicly available but went bust quicker than you could say "P&L".

The figures published on Companies House are not verified as accurate. Large companies who are compelled to have an audit can be misleading (Northern Rock as mentioned, Carillion is another that comes to mind).

Rather than this, I wonder if a different angle may be more beneficial. Mandatory training on director duties prior to incorporating a company, making incorporation more difficult (discouraging incorporating for spurious reasons), advance tax payments, independent verification of accounts figures, review of company law and taxation interactions.

Seems more useful than publishing one or two extra sheets to the accounts.

 

[eteb3]

Those are good ideas.

I’m no forensic accountant, but presumably fudging the figures is more obvious if the P&L is there: any deception has to be more elaborate, and also sustained over a longer period. The more elaborate a lie, and the longer it has to be maintained, the easier it is to spot. Also easier to see which companies aren’t real businesses but mere laundry machines.

@NicoJ , would you favour larger companies not filing a P&L either? Why, if so? Personally I can’t see how the size of the company makes a difference: why should a small company have privacy (and granted, greater commercial secrecy) that a larger company does not?

 

[NicoJ]

Those are good ideas.

I’m no forensic accountant, but presumably fudging the figures is more obvious if the P&L is there: any deception has to be more elaborate, and also sustained over a longer period. The more elaborate a lie, and the longer it has to be maintained, the easier it is to spot. Also easier to see which companies aren’t real businesses but mere laundry machines.

@NicoJ , would you favour larger companies not filing a P&L either? Why, if so? Personally I can’t see how the size of the company makes a difference: why should a small company have privacy (and granted, greater commercial secrecy) that a larger company does not?

The big 4 auditor who was involved with Carillion did not spot the fraud, which involved discounting and forward led profits. Its unlikely that a P&L will indicate fraud on face value.

A PLC is a public company so their stakeholders are the public. That is why they have to file full accounts. A small private company has no public interest (or minimal) hence the exemption. There is also a massive threshold as to when a company becomes 'large' so again would almost certainly have more public exposure and therefore more interest.

It is an interesting question and to be fair I'm not swayed either way. A company must present its accounts to its shareholders which is fair. Do the full accounts also need to be on record anywhere? I don't really see a compelling reason.

 

[NicoJ]

I may be a jaded old fogey, but I think our government often looks the wrong way with how they legislate. MTD, MTDITSA and now this were all lauded as solutions to reduce fraud. Not one of them has or will do that. What it has done (and presumably will do) is increase penalties and revenue streams for the government whilst simultaneously reducing the capacity and knowledge of HMRC and Companies House. It puts us all at a disadvantage that most of us don't realise.

 

[Gyumri]

. Assuming that's true for a moment, what's in play is who bears that risk - the owners (who are best placed to control it), or the creditors

A company is run for the benefit of its shareholders but the courts have stated that the interests of creditors only intrude to displace that fact at the point where the company is or about to become insolvent. Then the interests of creditors take precedence.

. It's not true in practice: insulating owners from the downside makes for moral hazard, i.e., more risk is taken because it's borne by others.

The purpose of limited liability is to insulate owners from losses. Without that protection nobody would invest.

Mandatory training on director duties prior to incorporating a company,

Not another training quango please. There are enough solicitors and accountants to give advice to directors about their duties. I agree however that to get a driving licence it should be mandatory to take an eye test.

why should a small company have privacy (and granted, greater commercial secrecy) that a larger company does not?

Because one is private and one is a Plc?

 

[NicoJ]

@Gyumri but you are not compelled to use the services of either a solicitor nor an accountant. Blindly incorporating a company for £10 (or whatever it is now) then treating it as a sole trade is far too common. Some people face the consequences of doing just that. Many more do not.

 

[japancool]

Because one is private and one is a Plc?

Not all private companies are small.

 

[Gyumri]

you are not compelled to use the services of either a solicitor nor an accountant. Blindly incorporating a company for £10 (or whatever it is now) then treating it as a sole trade is far too common

The law may be an ass but it assumes that everybody knows the law and their legal duties whether as a director or as the proverbial man sitting on the Clapham omnibus.

If somebody is blindly incorporating a company and signing documents which is beyond their capabilities, then ignorance of the law is no defence.

It's the same with investing where all you have to do is tick a box to confirm that you are a "sophisticated investor" as many people did when investing in FTX.

It presumably had published its P&L for all to see.

 

[singlemalt]

Does anyone know when this new filing regime comes in?

 

[MyAccountantOnline]

Does anyone know when this new filing regime comes in?

I'm not aware that timescales have been announced yet. I assume it'll be after the legislation which will set out the detail and format of the P&L.

 

[japancool]

I'm not aware that timescales have been announced yet. I assume it'll be after the legislation which will set out the detail and format of the P&L.

Assuming the government lasts that long.

 

[eteb3]

The purpose of limited liability is to insulate owners from losses. Without that protection nobody would invest.

There are around 4000 unlimited companies active in the UK, and coming on for 400,000 unincorporated partnerships. What you mean is, investors wouldn't make such risky bets.

You can say you think there's an overall economic benefit from the greater risks taken overall; you can't say no one takes the downside risk. And since it's the creditors who do, it seems fair dinkum to me that they have more complete information.

Personally I think we should make it easier to form LPs: owner-manager takes the risk, non-manager investors are insulated. But that's a collective investment scheme under FSMA, so not a realistic option.

 

[Gyumri]

you can't say no one takes the downside risk. And since it's the creditors who do,

Shareholders take the risk of investing and starting a company but have Ltd liability protection for doing so. Creditors take a risk in dealing with a company but also have protection because in the event of a company failing they get paid from the assets before the shareholders see a penny who may get nothing at all.

The P&L contains personal information about what staff or directors are receiving as salaries and what other expenses a company has incurred but simply because it may show a history of profit or loss doesn't really inform a supplier whether they should be taking a risk in dealing with the company.

It is also open to any supplier to request a copy of the P&L if it is really that important but I have never heard of any supplier asking for such information!

Unincorporated companies such as social clubs means nothing, as a supplier would then be looking for payment from the individuals who have contracted to purchase goods and is unrelated to this thread about a P&L

 

[eteb3]

Unincorporated companies

I said and meant unincorporated partnerships (in distinction to LLPs). Profitmaking businesses with unlimited liability

The relevance is that if you don’t want to share your financials, you should learn to live with full liability for your business decisions.

Your points about personal (rather than commercial) privacy are well taken.

 

[eteb3]

PS the creditor protection you’ve just mentioned is incompatible with the limited liability for investors that you extolled earlier. it’s exactly zero sum: a loss that doesn’t fall on a limited shareholder falls on the creditor.

 

[N-UPS]

If HMRC is the most important creditor at risk as some are saying, what will having P&L figures enable them to do? Tell you to cease trading?

If this is used for giving credit, I suspect it will favor more established companies, the big will get bigger, moat to entry will become wider. Capitalism end day accelerator .

 

[Scalloway]

If HMRC is the most important creditor at risk as some are saying, what will having P&L figures enable them to do? Tell you to cease trading?

HMRC receive a detailed P&L with the Corporation Tax return. This will make no odds to them.

 

[Red Wood]

If HMRC is the most important creditor at risk as some are saying, what will having P&L figures enable them to do? Tell you to cease trading?

If this is used for giving credit, I suspect it will favor more established companies, the big will get bigger, moat to entry will become wider. Capitalism end day accelerator .

I think this is an excellent summary of possible long term effects.

 

[N-UPS]

I just read the bulletin again.

"Improving transparency and having better quality information will make it easier to spot fraud when it happens, and will also help to support business growth."

"Under the new measures, the option for abridged accounts will be removed. Having fewer filing options will help to avoid confusion and reduce costly mistakes."

"Under this new framework, all small companies, including micro-entities, will be required to file their profit and loss accounts. "

blah blah blah

For clarity, I dont mind submitting anything to Companies house or HMRC - they are large trustworthy organisations that have safety nets and complaints resolution / data security protocol.

If I'm reading this right the PL accounts will be going on the public record.

I wonder if the personal security ramifications of making PL accounts (particularly profit) fully public have been considered.

Small companies with say one director that are profitable - first arbitrage by larger companies crushing the smaller guys with their efficiencies. (I view this as bad - big companies have worse track records with their interactions with the tax man, and often staff treatment) - and ultimately people round here have been taken hostage in their own home till accounts are drained. There is no back up on a board of multiple people, private security, secure offices etc.

What exactly is the advantage that balances this risk.

I'm caught between feeling privacy is important, and wanting crime to be reduced. I note that in Progressive Sweden you can find anyone's tax and earnings online.

 

[eteb3]

I'm just reading through the Economic Crime etc Act 2023. The changes are huge, across the piece, especially about tightening up the register of members.

But on abridged accounts, section 56 of the new Act inserts a new section 468A into the Companies Act, empowering the Secretary of State to make regulations prohibiting the registrar from publishing the PNL of micro and small companies: they'd still have to be submitted, but they won't be public.

The scope of SoS's powers here are wide, but it looks like a company may have to apply to the Registrar for the exemption, and the Registrar may have discretion to grant or deny the application. But we'll have to see what the regs look like - my guess is those will be made before the 2023 Act comes into force.

 

[N-UPS]

I'm just reading through the Economic Crime etc Act 2023. The changes are huge, across the piece, especially about tightening up the register of members.

But on abridged accounts, section 56 of the new Act inserts a new section 468A into the Companies Act, empowering the Secretary of State to make regulations prohibiting the registrar from publishing the PNL of micro and small companies: they'd still have to be submitted, but they won't be public.

The scope of SoS's powers here are wide, but it looks like a company may have to apply to the Registrar for the exemption, and the Registrar may have discretion to grant or deny the application. But we'll have to see what the regs look like - my guess is those will be made before the 2023 Act comes into force.

This is a great catch.

I'll copy the section below for record.

If I'm reading it right, there will be provision for reclusal of the particulars (P&L) from being made public, but only on request and for a reason - but we don't know what reasons they have in mind yet. I can think of privacy, security and protection of trade secrets (IE when a business is atomically small - imports posters or something and shows good P&L, bigger company gets a program to sweep the accounts for targets to imitate).



(1)The Companies Act 2006 is amended as follows.

(2)After section 468 insert—

“468AUse or disclosure of profit and loss accounts for certain companies​

(1)The Secretary of State may by regulations make provision requiring the registrar, on application or otherwise—

(a)not to make available for public inspection profit and loss accounts, or parts of them, delivered to the registrar under—

• section 443A (micro-entities), or
• section 444 (other small companies);

(b)to refrain from disclosing such accounts, or parts of them, except in specified circumstances.

(2)Regulations under subsection (1) which provide for the making of an application may make provision as to—

(a)who may make an application;

(b)the grounds on which an application may be made;

(c)the information to be included in and documents to accompany an application;

(d)the notice to be given of an application and of its outcome;

(e)how an application is to be determined;

(f)the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.

(3)Provision under subsection (2)(e) or (f) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.

(4)The circumstances that may be specified under subsection (1)(b) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.

(5)Regulations under subsection (1)(b) may not require the registrar to refrain from disclosing information under section 1110F (general powers of disclosure by the registrar).

(6)Regulations under this section may in particular confer a discretion on the registrar.

(7)Regulations under this section are subject to affirmative resolution procedure.”

(3)In section 1087 (material not available for public inspection), in subsection (1), after paragraph (bb) insert—

“(bba)the following—

(i)any application or other document delivered to the registrar under regulations under section 468A (regulations protecting profit and loss accounts for certain companies);

(ii)any information which regulations under section 468A require not to be made available for public inspection;”.