Aat Response to the Department of Business, Innovation and Skills Consultation on Company
AAT RESPONSE TO THE DEPARTMENT OF BUSINESS, INNOVATION AND SKILLS CONSULTATION ON “COMPANY FILING REQUIREMENTS, RED TAPE CHALLENGE”
1INTRODUCTION
1.1The Association of Accounting Technicians (AAT) is pleased to take part in this opportunity to comment on the Department of Business, Innovation and Skills’ (BIS) Consultation Paper on “Company Filing Requirements”.
1.2AAT has 50,000[1] Members and 75,0001 Students worldwide.
1.3AAT has over 3,9001 Members in Practice who provide accounts and tax services, including assisting companies to meet their statutory filing obligations, to over 300,000 sole traders, partnerships and limited companies, covering a full range of businesses, particularly for Micro Entities.Consequently we are in a position to provide BIS with firsthand experience of this topic.
2OVERVIEW
2.1AAT is supportiveof the drive from both the Government and BIS to reduce the Red Tape burden on all businesses and, in particular, the smallest companiesusually described as Micro-entities where the Owner Manager is the primary income generatorof the business.This is recognition of the likely fact that an Owner Manager will have limited administration support resources, and will be reliant on external professional assistance to meet statutory requirements for accounting, taxation and Companies House (CH) filing.
2.2The proposals contained within this Consultation Document (condoc) provide a positive step towards reducing burdens and costs for all smaller and medium sized entities.It is also AAT’s belief that this review of filing requirements provides an opportunity to optimise the benefits which can be achieved. With this in mind we suggest that CH requires a change of focus to enable it to concentrate on the validation of information held on the Register as a counterbalance to the reduced filing burdens being offered to companies.
3RESPONSE TO CONSULTATION QUESTIONS
Question 1Do you agree that the requirement to file an annual return is removed and that the system relies on event driven filing?
3.1AAT agrees that the requirement to file an annual return can be removed, but only for companies who are willing to file a notification of change of shareholders at the time of such anevent. Currentlyreceipt by CH of an annual return is the only means of gathering such information.
3.2The change acknowledged in 3.1 would benefit smaller companies whose shareholdings only change occasionally; larger companies with frequent changes could opt to continue to make an annual return.
3.3In instances where annual returns continue to befiledthe information required to be returned could be restricted solely to the disclosure of shareholdings. Our comment is made on the basis that all other changes to information held by CHrequires notification at the time of the event.
3.4Question 5 of the condoc refers to “filing dates” for annual returns and accounts in the context of, potentially, aligning those dates. However, as regards accounts there is not, in fact, afiling dateso much as a deadline dateby which time that accounts should be filed. As a result, annual accounts are not necessarily filed at specific annual intervals.
3.5Taking our observation made in 3.4 into account, aligning the filing of annual returns to the filing of annual accounts could result in annual returns potentially being filed at irregular intervals.To avoid this arising werecommend that in future the filing date for annual returns should be the same as a company’s Accounting Reference Date (ARD). If our suggestion was to be taken up it would provide an opportunity for matching information disclosed in the accounts to that reported in a company’s annual return.
Question 2Do you agree that companies should be allowed to simply check and confirm that their information is up to date once a year?
3.6We agree that an annual confirmation of up to date records provided by companies is adequate, subject to the need to address the filing of details of changes in shareholdings as referred to in our response to Question 1 (3.1 – 3.3).
Question 3Do you wish to retain the annual return?
3.7As observed in our response to Question 1, we consider that companies should continue to have the option to file an annual return of shareholdings (3.1 -3.3).
3.8We further believe that the option to continue to file an Annual Return would still be beneficialfor companies with frequent changes in shareholders.
Question 4Do you agree that the SIC code should be required at incorporation and maintained as part of an annual check?
3.9Whilst it is understood that the purpose of this code is to facilitatethe gathering of statistical information, many companies’ activities do not easily fit the standard code headings (particularly for modern “high-tech” companies). This fact results in arbitrary decisions being taken as to which is the mostappropriate code to allocate.
3.10The concern expressed in 3.9 is further compounded by the fact that invariably over succeeding years there can besubtle or profound changes in the activities of a company. Often tothe extent that after the passage of a number of years, its’ activities are no longer reflected by the SIC code recorded at CH.
3.11Therefore, for the reasons set out in 3.9 and 3.10, we do not considerthe SIC code to be of sufficient value for it to be retained.
Question 5We would welcome views on the impact on companies and on the transparency of the register of aligning filing dates for accounts at both HMRC and CH.
3.12At the present time the ‘natural’ filing date for annual returns has no significance other than being the anniversary date of the company’s formation. As stated in our response to Question 1 (3.4), we recommend that the filing date for annual returns, or confirmation notices, should be the company’s ARD, so as to provide an opportunity for matching information disclosed in the accounts when they are filed. The suggestion would result in no impact on the company as regards what date they file up to, but would be of more benefit to users than the current situation.
Question 6Do you agree that for those companies whose directors and shareholders are the same people, the requirements to make their registers available at their Registered Office or Single Alternative Inspection Location (SAIL) should be removed?
3.13We consider that those companies who opt for the event driven approach to lodging returns with CH, including changes in shareholdings, should not be required to maketheir registers available,either at their Registered Office or a SAIL.
3.14Furthermore, we do not believe that such companies should be required to maintain registers, on the basis that to so do is merely anexactduplication of information that is available from CH.Larger companies are unlikely to opt for the event-driven approach, nevertheless this facility should be available to all companies, not just those whose Directors and Shareholders are the same people.
Question 7Should private companies have the option of holding their registers at CH, the same way that they are able to nominate a SAIL?
3.15See our response to Question 6 (3.13 – 3.14).
Question 8Should dates of birth be suppressed in part, or in full?
3.16The suppression of publicly available information which may facilitate identity theft has to be welcomed. To mitigate the impact of withholding personal data that could be used to identify an individual it is important that CH developsinternal procedures to be able to identify all companies in which any individual has an involvement and to make that information available to the public.
3.17Whilst the current “Officer” search through Companies House Direct[2] goes a long way towards meeting theobjective set out in 3.16 on occasions when invoked, it can produce duplicated entries arising from a mismatch of some personal details.
3.18Mismatching could be avoided if each officer is assigned a unique identifying reference on the occasion of their first appointment to an office holding role. This process could be further enhanced if there was a requirement for officers’ details to include their National Insurance Number (NINO), which should not be published.
3.19The requirement to supply aNINO would have an added benefit in that itwould also facilitate thepassingof information from CH to HMRC.
Question 9Should the Statement of Capital requirement be changed, as set out above?
3.20Information held in the register in respect of authorised share capital is mainly of relevance to existing or potential shareholders. Information recorded on formal returns relating to the capital of a company, and especially in relation to rights attaching to shares, tends to be somewhat abbreviated and needs reference to the Articles of Association for fully reliable detailed information. As a consequence we believe the need to file returns relating to capital could be removed and replaced as commented at 3.13 and 3.14.
3.21However, whenever changes are made to the Articles of Association,including changes to allotted and paid up share capital,we believethat a fully revised version of the Articles should be lodged with CH.
3.22Adopting the above course of actionwould mean that users of the Companies HouseRegister would no longer have to search the whole file to trace the complete history of amendments.
3.23Similarly, as stated in our response to Question 1 (3.3) above, companies should be given the option to provide details of changes in shareholdings in real-time as they occur, filing a full list of shareholdings at that date so that users of the Register have easy access to a complete record.
Question 10Should the statement of capital on formation requirements be the same as the other statement of capital requirements throughout the Act?
3.24See our response to Question 9 (3.20 – 3.23).
Question 11Do you think companies should only have to supply a statement of capital on a specified date if they have not updated their information within the year?
3.25If the Companies House Register does not contain up to date information on an event-driven basis then companies should have to provide a statement of capital on or before a specified date.
Question 12Should we amend S.555 to rely on Articles of Association to provide information on allotment of shares?
3.26The filing of information relating to the allotment of shares provides useful information essential to many users of the Register. If, as stated in our response to Question 9 (3.23), a fully revised version of the Articles of Association is filed on the occasion of any allotment of,or payments for,shares and a full list of shareholders is filed whenever a change occurs there is then no need for an amendment.
Question 13Do you agree that companies with subsidiaries must include a total number of subsidiaries? If not, why?
3.27We cannot see a benefit in companies being required to file a separate report of the total number of subsidiary companies, given that full details will be included in the annual accounts.
3.28However, when companies provide details of their shareholders, those that are companies should be identified by their Registered Number. This would then enable CH to provide a search facility (similar to the current “Officer” search facility) for the provision of details of all shareholdings held by companies on the register and obviate the need for companies to file details of UK subsidiaries.
Question 14Do you agree that the information must always be included in the accounts?
3.29We agree that full information concerning subsidiaries is appropriately contained in the accounts.
Question 15Are there any notices that should not be sent electronically?
3.30It would be reasonable and helpful for CH to continue to produce and send final, and penalty, notices on paper. In addition, where an email is availablethen final, and penalty, notices could also be transmitted electronically.
3.31The primary concern in respect of the electronic filing of information is the need to guarantee the authenticity of the data’s origination. While security measures, such as passwords, can be put in place, they are not necessarily effective. However, ifCH ensures that it has robust and industry-standardsecurity measures in place to validate information filed electronically, we do not seeany reason why all information required by CH couldnot be lodged electronically.
3.32Whilst AAT fully supports the on-going move to digitise wherever possible, it is necessary to recognisethat, for a variety of reasons, there are some companies who are not able to file electronically. Taking this intoaccount AAT is of the opinion that the ability to file “hard copies” of documents should be retained.
3.33AAT recently undertook a research project[3] that identified that Britain’s micro businesses and the self-employed are feeling the effects of a more digital based tax system with 39 per cent saying they feel excluded and lack the resource and understanding to keep up.
Question 16Do you agree that the email address should be made available to other public authorities, specified in law?
3.34AAT does not see a problem in CH providing other public authorities with email addresses if they are to be used appropriately, with adequate safeguards in place, but such information should not be distributed more widely. However, it must be borne in mind that electronic filing may emanatefrom a number of sources in any company or its agents, so that email addresses derived from emails containing information for filing, may not be relevant to the company concerned or to specifically named individuals and may cause confusion.
3.35To be effective, there is a clear need for a company to designate a single email address as the “official” statutory communications email-addressin order to ensure that official communications reach the intended officer of the company.
3.36There is an argument for a company to have a “Registered email address.” Such a device would redress the balance of directors being able to use a “service address”. We also foresee that there could be commercial and legal benefits to creditors, investors and customers of the company, who could “serve” emails upon the company in a legally robust way to advise the company of impending legal action.
3.37If our suggestion is adopted such emails could act as a permanent record that the petitioner had sought redress prior to taking legal action. In making our observation we accept that it would require additional legislation (in addition to s.86 Companies Act 2006) to enable this change to beintroduced.
Question 17Are there any other means of electronic communication that CH should explore?
3.38At this point in time in the development of everyday use of technology, we consider that it is desirable for CH to encourage the electronic filing, but to limit that to email communications, although it could be a natural development for the use of “cloud” technology to be explored.
3.39In due time, further technology developments may open up other opportunities to enable other means of electronic communications to be considered.
Question 18Do you think companies should be able to supply the Registrar with additional information, such as a website, to display on the public record?
3.40We consider that records held on file at CH in respect of UK companies should relate purely to statutorily required information. Furthermore, we would be concernedif companies were given the opportunity to upload more extraneous information. The role of the CH Register is to act as a repository for statutory data in respect of UK companies.
3.41If companies are permitted to upload a link to a website on public record which could be motivated by commercial objectives, then it may not have the same veracity as other material on file. Without the facility for Companies House to monitor such submissions, this may reduce the perceived value of the CH register.
Question 19Do you think that CH has the balance between upfront validation and verification and quick and effective remedy right?
3.42AATis of the opinion that the matter of validation and verification of filed information is of the utmost importance. Visitors to the CH website have, and are entitled to have, high expectations as to the veracity of data held on CH site.
3.43Taking the above into account we believe that CH should concentrate its efforts on activities to validate and police the accuracy of information filed and to prosecute filing misdemeanours, and in particular to take strong action where fraud is involved.
3.44In the event of filing irregularities which have seriousimplications, urgent action, supported by legislation, should be taken by CH,against the officers of the company.
3.45In addition to the above a further important action that could be adopted is that of posting a warning notice that CH has a concern over the veracity of data displayed in respect of a company on its registerat the earliest opportunity.
3.46If our suggestion in 3.45 was to be adopted it would be necessary for there to be a clear advanced warning of CH intended action to the company in question to enable it to have access to a fast-track right of appeal or to address the areas of concern that CH has with the veracity of data pertaining to that company.
Question 20Do you agree that there should be a requirement for the Registered Office to have a link to the company?
3.47We agree that a company’s Registered Office should have a link to the company.
Question 21What criteria do you think should be specified to evidence an ‘effective’ Registered Office?
3.48The Registered Office could be sited at the main place of business, or the offices from where the administration of the company is carried out (such as the company’s accountants, auditors or solicitors).
3.49Alternatively, a company may opt for the Registered Office to be the address of a Director (or a controlling shareholder if not a director).
3.50We do not consider that it would be either in the interest of third parties or appropriate to permit companies to hide behind a Registered Office address that is linked to a “service office” address. The granting of such a privilege could, potentially, hinder due process such as the serving of legal documents.
3.51Whilst evidence of an “effective” Registered Office is a prerequisite there are difficulties in validating information filed at the time of incorporation and in the ensuing period of non-trading. With this in mind, we would suggest that the CH Register should clearly identify dormant companies separately from trading companies.
3.52Companies moving either in or out of a state of dormancy should statutorily be required to file notifications of commencement or cessation of trade with a short time-bound timeframe.
3.53At the time of filing anotification of commencement to trade, evidence of the “effective” Registered Office should also lodged with CH. In the absence of appropriate evidence, or while dormant,a statutorily backed default position should exist requiring that the Registered Office would be deemed to be situated at the address of a Director (or controlling shareholder).
3.54To aid our suggested deeming action a statutory provision should be introduced to require that at all times one officer of a company should be designated to be the Senior Responsible Officer (SRO). As part of such a provision, in the absence of an “effective” Registered Office”, the SRO’s address would be listed as the service address.
Question 22Do you think replacing an ineffective Registered Office address with a Director’s address is a viable approach?
3.55See our response to Question 21 (3.48 – 3.54).
Question 23Do you agree that the consent to act should be replaced with a simple confirmation that the company holds the consent?
3.56We believe that the receipt by CH of a notice of appointment of a Director should trigger a notice of the appointment sent byCH to the Director’s home address.