At the beginning of 2022, the UK Government published the Corporate Transparency and Register Reform White Paper (the “White Paper”). It detailed its final stance on a series of proposed changes to the function of its executive agency, Companies House. These reforms were designed to bolster the quality of financial information on the UK companies register and strengthen the role of Companies House. It promised a transformative impact on how businesses handle their financial reporting.
UK Companies House on the verge of digital transformation
Driven by the Department of Business, Energy and Industrial Strategy (BEIS), the upcoming Companies House reforms intend to ensure that the agency is better equipped to support the needs of a dynamic 21st-century economy, whilst simultaneously reducing the potential for abuse and economic crime.
Following the publication of the Policy Paper, the formal reforms proposal was introduced to the House of Commons on 22 September 2022 with the submission of the second Economic Crime and Corporate Transparency Bill (the “Bill”), focusing on three core themes: the Registrar's powers, the ban on corporate directors, and the enhancement of financial information on the UK companies register.
Within those three themes, the Government is gearing up to roll out a total of 58 reforms categorised in nine key areas:
- Registrar's powers,
- company names,
- identity verification,
- corporate directors,
- third party agents,
- data sharing,
- privacy,
- transparency of ownership, and
- financial information.
The reforms related to financial information are of particular interest to businesses, especially in terms of their impact on iXBRL (Inline Extensible Business Reporting Language) tagging and reporting.
A significant change is an amendment to the Companies Act to emphasise the requirement for companies to prepare and deliver a single set of accounts and the mandatory use of iXBRL for this. The iXBRL digital reporting format brings a host of benefits, as it combines human-readable and machine-readable data, enabling better data accessibility and analysis. Companies will also be required to fully tag their accounts, streamlining the extraction of key information.
Currently, companies who comply with iXBRL in the UK do so in line with the HMRC mandate and have the flexibility to submit their annual reports to HMRC within a 12-month timeframe. However, under the new reforms, all submissions to Companies House will need to be in digital iXBRL format by a proposed timeline of Q1 2025.
This shift effectively brings forward the digital deadline to 9 months for many, representing a bold move towards digitisation. Many will feel the impact from this change, as they will need to adjust their reporting practices to meet the new requirements.
Another major change will be the removal of the option for small companies to prepare and file abridged accounts. Instead, these companies will now be required to file both their profit and loss account and directors’ report. This will eliminate the option to file "filleted" accounts. Micro-entities, although required to file their profit and loss accounts, can choose not to prepare or file a directors’ report.
For dormant companies, the reforms introduce the requirement to file an eligibility statement, providing an additional layer of compliance. The Registrar will also be granted new powers to query and investigate cases that warrant attention.
Hence the Companies House reforms promise to bring about a new era of transparency and digitalisation in financial reporting. The changes are set to reshape the way companies interact with Companies House, particularly in relation to the preparation and filing of their accounts.
What does the iXBRL tagging transition from 12 to 9 months mean for companies? And how can they get ready for it?
While the transition may present challenges for companies that are currently out of scope for HMRC submissions due to their size, revenue or number of employees, it is also an opportunity to embrace the benefits of digital reporting. The use of iXBRL can facilitate easier data extraction, better data analysis and improved compliance, all of which can enhance a company's operational efficiency and financial transparency.
For existing iXBRL filers, the transition also demands a significant shift in company timelines. The move from a 12-month to a 9-month timeframe for digital annual report submissions will require companies to adjust their internal processes and timelines. This could be particularly challenging during the year-end period, when many companies are already dealing with a heightened workload. Companies that have previously relied on offshore teams or junior staff for iXBRL tagging may need to reconsider their approach to ensure they can meet the new deadlines.
To navigate these changes successfully, companies will need to plan ahead and adopt a proactive approach to managing their financial reporting. This could involve appointing a specialist technology and onshore tagging service provider like ARKK, upskilling staff or seeking expert advice to ensure they can meet the new iXBRL requirements. Despite the challenges, those who embrace the changes can look forward to a more efficient and transparent reporting process.
These reforms are a significant step forward in the Government's ongoing mission to enhance corporate transparency and prevent economic crime. By promoting the use of digital technologies, they also align with the wider trend towards digitalisation in the business world. As we await further updates from Companies House, companies across the UK should start preparing for a new era of digital reporting.
Conclusion
In summary, the forthcoming Companies House reforms represent a significant shift in the UK's financial reporting landscape. With iXBRL tagging and digital submissions set to become the norm, businesses need to start preparing for these changes now. While the transition may present challenges, the benefits of improved transparency, efficiency and accessibility promise to make it a worthwhile endeavour.
Find out how ARKK can help you with your iXBRL reporting requirements. Read more on our hassle-free iXBRL reporting solutions.
