Understanding the Economic Crime and Corporate Transparency Act

Key changes to company filings

The Economic Crime and Corporate Transparency Act (ECCTA) became law in October 2023, introducing several reforms to Companies House. Amongst these reforms include the improvement in the quality and transparency of corporate filings. These changes are part of the Government’s efforts to tackle economic crime, including money laundering, and to ensure companies provide more accurate financial data.

What is the purpose of the Act in relation to company filings?

The Act supports economic crime prevention by enhancing the information available on the UK companies register. It simplifies account filing processes and ensures higher quality of the data submitted. These reforms are designed to create a more reliable system for business transactions and lending decisions.

What are the key changes to filing requirements?

No more abridged or filleted accounts

Small companies will no longer be allowed to file abridged or filleted accounts. Instead, they must submit both a profit and loss account and a directors’ report. However, micro-entities will only need to file a profit and loss account, without the obligation to include a directors’ report.

Profit and loss disclosure

Small companies and micro-entities must file profit and loss accounts, it is likely that the Government will allow some of these accounts to remain private, balancing business privacy with the need for transparency.

Audit exemption statement

Companies claiming an audit exemption must provide a statement identifying the specific exemption and confirming eligibility.

Document integrity

Companies House will have new, and increased, powers to verify the accuracy of submitted documents, rejecting those with inconsistencies or inaccuracies.

Electronic filing

The Act streamlines electronic submission, transferring the power to mandate electronic filings from the Government to the Registrar. This is seen as a step towards future digitalisation, although iXBRL formatting is not yet required.

When will changes to filing be implemented?

While the Act is now law, it is yet to be seen when these changes will take effect and whether all key changes will be implemented..

The Act is part of a broader effort to modernise the UK’s corporate filing system, and further changes may come through additional legislation in the coming years.

What were abbreviated accounts?

Abbreviated accounts were simplified financial statements used by small companies to file less detailed information with Companies House, keeping sensitive business data private from competitors and the public. A company qualified as “small” if it met two of the following criteria for two consecutive periods: turnover of £6.5 million or less, a balance sheet total of £3.26 million or less, or 50 employees or fewer (which have since been updated). These accounts only included a basic balance sheet showing assets and liabilities, without the detailed financial data required in full statutory accounts.

However, as of 1 January 2016, the filing of abbreviated accounts was abolished under the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. Small companies now have other options (until the new Economic Crime and Corporate Transparency Act law is implemented), such as filing abridged accounts, which still allow for simplified reporting but with notable changes.

What are abridged accounts?

Abridged accounts are a simplified version of a company’s financial statements that small companies can choose to file. Under the “file what you prepare” model, companies must decide whether to abridge their accounts when preparing them, as the same set of accounts is filed both for members and the public record (with some information potentially excluded).

Companies can abridge either the balance sheet, the profit and loss account, or both. An abridged profit and loss account starts from gross profit, omitting details like turnover and cost of sales. The abridged balance sheet excludes detailed notes on categories like debtors and creditors but still shows total movements on fixed assets.

If a company opts for abridged accounts, its directors must obtain annual approval from all shareholders.

What are filleted accounts?

Filleted accounts are financial statements that small or micro companies can file with Companies House, where certain information, such as the profit and loss account and/or the directors’ report, is excluded. This option is often chosen to minimise the amount of sensitive information publicly available while still complying with filing requirements.

Companies may prepare full, abridged, or micro accounts for their shareholders but choose to file “filleted” accounts with Companies House by omitting the profit and loss account, directors’ report, and, if applicable, the audit report (though some audit information must still be disclosed in the balance sheet notes).

Filleted accounts are seen as a replacement for the previously abolished abbreviated accounts, allowing companies to provide less information on the public record.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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