Companies House, at the bidding of the government, has updated its guidance on the need for companies to file a P&L alongside the normal financial statements which are currently required.
Here’s the Companies House website: “Under this new framework, all small companies, including micro-entities (my emphasis), will be required to file their profit and loss accounts. Having key information such as turnover and profit or loss available on the public register will help creditors and consumers make better-informed decisions. It will also improve the value of the information on the register for users.”
And here is the justification for this change, again from the Companies House website:
“As things stand, smaller companies aren’t required to file profit and loss accounts, or the directors’ report. But limited disclosure of information leaves the system open to fraudsters, who can present a false image of a company. And, by disclosing accounts publically (sic) small businesses give creditors and consumers more information to make better-informed decisions.”
Basically, the rationale is that some small companies are presenting false accounting, helping them, amongst other things, hide money away and fraudulently avoid tax. Surely a desire to stop fraudulent activities, including money laundering, is a good thing. Yes, of course it is. The cost of organised fraud to businesses and the public sector in the UK is estimated to be c. £5.9 billion a year.
We applaud the desire to reduce fraud. However, while this specific initiative might seem a good idea on paper, HMRC officials investigating suspected money laundering or fraudulent behaviour already can demand to see a P&L and as part of the Corporation Tax requirements of a business the taxman already receives a copy of the full Profit and Loss account.
But, and it’s a big but, there are unintended consequences here which don’t seem to have been thought through (not like civil servants/politicians, I know…).
Think about it. What this will mean is that your competitors will be able to see your P&L, your margins and other details of your business. Bigger competitors will be able to use this knowledge to eat into your margins and squeeze your company, possibly out of existence. We know that many small businesses work on a very tight shoestring, making small returns as they try to grow. At a time when the government is desperately trying to eke out improvements in the UK’s productivity and economic growth, this does not make sense. Back to the drawing board please!
Callum McKinnon, Accounts Manager, M&S Accountancy and Taxation