Company accounts reform: What it means for farm businesses

Farm businesses trading as a limited company are likely to be affected by reforms to the way they prepare and file their accounts.

The government is pushing forward with plans to introduce new requirements as part of an Economic Crime and Corporate Transparency Bill.

There is some concern that the more relaxed account-filing options currently available to small companies make it harder to spot potential fraud.

See also: How farmers can prepare for basis period tax reforms

Although the bulk of farms tend to operate as either a sole trader or partnership, a significant number are run as companies, particularly larger enterprises and some joint ventures.

Many of these would still qualify as a “small company”, which HMRC defines as one that meets at least two of three conditions.

The business must:

• have a turnover of less than £10.2m,
• a balance sheet total less than £5.1m
• or employ fewer than 50 people.

Martyn Dobinson, partner at accountant Saffery Champness, says while there is little that can be done to prepare for the changes, farmers need to understand that there is likely to be new legislation.

More information required

Traditionally, small companies have been able to choose to disclose less information than medium or large ones, but this is set to change.

“Small companies will no longer have the option to prepare and file ‘abridged’ or ‘filleted’ accounts,” he says.

“This means that they would be required to file accounts that include a profit and loss account and directors’ report.

“Previously this information would have been prepared by the company, but was not required to be filed and was therefore not available to the public.”

Martyn says another change is that where a company is seeking an exemption from the requirement to have accounts audited because they are categorised as a small company, directors will be required to make a statement confirming that the company qualifies for such an exemption.

The aim is to reduce the risk that businesses falsely claim an audit exemption to which they are not entitled.

Document rejections

He says the bill also aims to give Companies House greater powers to maintain the integrity of the register.

“These will include the power to reject documents that contain inconsistencies, or appear incomplete and, where this happens, they will be considered not to have been delivered.

“It’s also proposed to introduce changes to how accounts are submitted electronically in the future.”

The main mistakes that might result in documents being rejected are likely to be around disclosures required under the financial reporting standards being missing or inconsistencies in the information presented in the profit and loss or balance sheet.

“There are often issues with numbers not adding up,” Martyn says.

It is expected that the Bill will receive Royal Assent this summer, but there is no timeline yet for when the changes might become effective.