It’s coming: Your profits and turnover on display to the public

Kirsty Young Limited Company, News

Big changes are coming to the way small business limited companies will have to report to Companies House. (For those of you who follow our YouTube channel, Dan gave his thoughts when the plans were originally raised in this video.)

The changes are part of a wider range of measures designed to improve transparency and tackle financial crime. Under current plans, the Companies House listing for your limited company accounts will show your turnover (sales) and profit figures. You will have no choice about this, and the figures will be available for everyone to see.

 

What happens at the moment

Currently, ‘small’ or ‘micro businesses have a few options in terms of the accounts they could submit. Crucially, they do not have to submit their ‘Profit and Loss’ account to Companies House. The accounts you currently submit just need to contain a Balance Sheet (a statement of financial position at a certain date) and sometimes some notes and other information.

At this point in time:

  • Nobody can see how much you’ve sold
  • Nobody can see where you’ve spent your money
  • Nobody can see the profit you made in the year

Occasionally, this can be a double-edged sword, as lenders usually need more information from you to decide if they want to lend to your business. However, you do retain your privacy from a detailed figures point of view.

 

What will happen

Under the new plans, even small and micro businesses will need to submit a Profit and Loss (P&L) report to Companies House. Companies House will do this by removing the option to file ‘Abridged’ accounts. (Companies House have some further information on the changes and the reasons why on their site here.)

This means that your P&L report will be visible to the public. The idea is that this will increase transparency for the vast majority of companies who file accounts with Companies House.

 

The devil’s in the detail?

Precisely what level of detail and what items will have to be included in the profit and loss reporting is yet to be decided, and there is some further legislation required. The minimum expected however would be the top and bottom lines:

  • Turnover (sales)
  • Profit

When this will take effect is unknown – roughly 2 years is the current unofficial timescale. However, from our own conversations with Companies House, they are very much working towards these changes already.

 

We need your help: there is still hope

Whilst the initial legislation has been passed, there is still further legislation to be made, meaning a change is technically possible.

To be fair to Companies House, they have carried out a few consultations. BUT from our understanding of the people being consulted on these changes, the one group that has not truly been represented (in our opinion) is that of the small business owner.

We have made representations to the Federation of Small Business and our local MP on this issue. However, at the Companies House end, there is currently an insufficient body of evidence of the risks and opposition to these measures from small business owners.

So, we need your help to gather this evidence. Please take just a few minutes of your time to complete our super-short survey (we don’t need any of your details, just your opinion).

Click here to complete >>> https://www.heelanassociates.co.uk/risksurvey

Or

Scan the QR code

Defining the risks

We work with small businesses owners every day, particularly with early stage and start-up businesses. These smaller companies form a massive part of the UK economy.

So we are genuinely worried about the significant risks to the small business community of these changes. Our major concerns are:

! A power shift towards larger businesses

For small and/or new business looking to tender work as a supplier, the business looking to work with you will have access to the financial data on your company. This will provide them with invaluable sensitive data, potentially on your margins and your real ‘size’. This will allow them to potentially leverage the known situation against you, particularly in a tender or negotiation scenario.

! New businesses never getting the chance to grow or start

The issue of transparency is certainly a double-edged sword. Many start-ups or new businesses may be seen as too risky or ‘not big enough’ by suppliers and/or customers. The Companies House records will show your financial data at a fixed point in time, and therefore may no longer be relevant. In early-stage businesses, the time frame between your last submission and your current performance could be ‘night and day’.

Given that it is fairly common to incur losses in the early years, we wonder how many small businesses would never get to grow (or even start) as a result, if this data is available.

! Employees and customers being able to make uneducated assumptions on a small business

Bearing in mind the lack of financial business education in the school system, giving open access for customers and employees to profit and loss data could create several challenges. These include:

• Incorrect assumptions about the ability of your business to provide pay rises

• Incorrect assumptions about the profits your company is making vs your costs and charges

• Data being used in a customer dispute

• Potentially (in a very small business) be able to work out what colleagues are paid

• In a micro business, the earnings of potentially public facing figures (say influencers) being publicly visible.

! Incorrect assumptions circulating online

People viewing your financial data online can make uneducated assumptions about your or another small business. This in turn could cause long term reputation damage. Given the widespread use of social media , news can travel fast – whether true or not.

! Pressure on small business owners to consider what figures they are showing online, and delay filing

If these changes are put in place, small business owners will now be very concerned about what performance they want to show online, and when. This could lead to a new pressure to manipulate the data. This could take the form of owners leaning on accountants or other advisors for a certain profit result, or leaving filing late to ensure a certain performance is not shown until a certain point.

 

Why you (and we) need to act now

From a commercial point of view, these changes seem very ‘anti business’ and provide significant challenges for the small business community which is the life blood of the UK economy.

It is worth noting that we are in favour of nearly all of the other changes this bill gives, but the issues of financial data being made public is the major change point that we believe is detrimental.

So, please act now and make sure your voice is heard.

Please take just a few minutes of your time to complete our super-short survey (we don’t need any of your details, just your opinion).

Click here to complete >>> https://www.heelanassociates.co.uk/risksurvey

Or

Scan the QR code

We intend to take this data to the parties involved with making the legislation to ensure the views of small business owners like you are represented.

Anything we’ve missed that you’re worried about?

Ask your accountant – they should be happy to help. If you don’t have an accountant, or feel you are not getting the information you require from your current accountant, we’d love a chat about how we can help.