Do you want your neighbour and friends to know exactly how much you earn?
Or your competitors, employees or customers know what your margins are?
Well, if you are the owner of a small, limited company then new legislation, currently working its way through Parliament, will mean that information about your company turnover and expenses will soon go on the record at Companies House, for all to see – and use as they wish.
At present only companies who meet 2 out of 3 conditions relating to turnover of more than £10.2 Million, Balance Sheet size of more than £5.1 Million or more than 50 employees have to file a profit & loss account at Companies House.
This new legislation, will require a profit & loss account to be filed at Companies House along with the company balance sheet and accounting notes that currently make up the only accounts filing requirements for small companies.
Companies House say “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 information on the register for users”. However, as the legislation has been making its way through Parliament as the ‘Economic Crime and Corporate Transparency Bill’, we can easily work out that the legislation is aimed at thwarting those who seek to hide their criminal activity behind small companies. In the words of Companies House “It will help tackle economic crime and provide more information for the enforcement agencies”.
While this looks like bad news for tax evaders and criminals, who hide their ill-gotten gains behind a limited company, it is also bad news for the small owner managed businesses who prefer to keep their turnover, profit margin, salary and dividend information to themselves. In some ways this proposed legislation is copying the transparency of countries such as Sweden where everybody’s salary is on the public record.
So, if you don’t want to let all and sundry know about your income, what can you do to prevent this from happening?
One option would be to disincorporate and continue to trade as a sole trader or partnership. In theory, all you have to do is to start trading as an unincorporated business and wind down/close your limited company. Or perhaps you may prefer to hide part of your income by disaggregating your business and trading both as an unincorporated business and also through a limited company.
A further option may be to use an unlimited company which still has the status of a company but does not have the requirement to make public its company financial statements. Warning – an unlimited company does lose its limited liability status for its shareholders in the event of liquidation.
Both of these options require a great deal of thought and professional advice regarding the accounting implications, VAT implications and the impact of the tax treatment of goodwill and asset transfers before you take any action.
It should also be noted that the legislation is not all bad news for the small company owner. Whilst their business model can be dissected by their competitors/employees etc. then so can they learn useful information about their competitors – leading to greater efficiencies all round. Transparency is a double edged sword.
Please note that the legislation is only a proposal at the moment and may well be watered down or ditched altogether before it becomes law. However it has been under discussion in parliament for over a year now and, if carried, will probably come onto the statute book by Spring 2024.
If you prefer to keep your financial information to yourself and would like professional advice, get in touch by filling out our contact us form.