Portsmouth, UK – BUSINESSES are urging Companies House to reconsider its plans to make public profit and loss reports mandatory for all limited companies.
Through its new Economic Crime and Corporate Transparency Bill, which has been making its way through parliament since September 2022, Companies House is changing some of the ways that it operates and how companies file reports.
One of the key changes that has been most highly scrutinised by business owners is the changes to profit and loss requirements.
Currently, small or micro businesses do not have to submit their profit and loss accounts to Companies House and are only required to file a Balance Sheet – a statement of financial position at a certain date.
This means that the public cannot see how much a company has made, what it has spent its money on or how much it is selling.
Although this Bill has been brought in to reportedly increase transparency for potential creditors and consumers, many business owners feel the change could be bad for business across the board.
Accountancy firm, Heelan Associates works with mainly small businesses and has released a survey that has revealed that the majority of business owners are against the new changes.
Almost all of the respondents (91%) feel that showing their profit and loss reports is not a fair price to pay for limited liability.
One respondent said: “I don’t want my name, home address – as I’m a small business with no separate office – and my profit/loss, which gives a reasonable estimate of my income/general wealth, displayed as public record for god knows who to look at it. As well as unwanted strangers/disgruntled customers seeing it, relatives and friends could also access which causes uncomfortable conversations potentially. Only HMRC and companies need access to this information. Nobody else.”
The majority of the respondents (93%) feel that sharing this information would lead to customers making assumptions about the company’s financial position which could be damaging to its growth or reputation.
Managing Director of Heelan Associates, Dan Heelan said: “The profit and loss statements are just a snapshot of the financial position at one point in time – they are not representative of how the company is performing overall. When a potential customer is deciding between two competing companies, they may choose based off of these reports, however unrepresentative they are. The problem is that not everyone knows how to read the information so they will make uninformed decisions.”
74% of respondents believe that larger companies will have a competitive advantage due to the changes, with customers choosing higher-earning companies over smaller firms.
One person felt it could stunt their business’ growth, writing: “Trading with or for public sector organisations, as we do currently, will be subject to preference towards larger ‘more established/perceived as less riskier’ medium to large firms – reducing competitiveness and reducing opportunities for growth.”
When asked how they suggest Companies House reduce the impact of these risks, many respondents expressed that the plans should be scrapped altogether, with one person saying: “I’m not sure of what benefit making the P&L to the public will have. So it is difficult to say how the P&L could be presented in a manner to meet the ‘more transparent’ requirement while mitigating risk of business to micro companies moving forward. More transparent of what and for what purposes exactly?”
Others said that Companies House should keep a log of everyone who accesses the P&L accounts with the reason for doing so, make it an optional disclosure or keep the reports behind a paywall.
Heelan Associates plans to present the results of this survey to Companies House in a bid to urge them to reconsider these plans to avoid the risks it could have on small businesses.
- Hope McKellar PR