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”

1 INTRODUCTION

1.1 The 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”.

1.2 AAT has 50,0001 Members and 75,0001 Students worldwide.

1.3 AAT 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.

2 OVERVIEW

2.1 AAT is supportive of the drive from both the Government and BIS to reduce the Red Tape burden on all businesses and, in particular, the smallest companies usually described as Micro-entities where the Owner Manager is the primary income generator of 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.

2.2 The 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.

3 RESPONSE TO CONSULTATION QUESTIONS

1 Figures correct as at 31 October 2013 Question 1 Do you agree that the requirement to file an annual return is removed and that the system relies on event driven filing?

3.1 AAT 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 an event. Currently receipt by CH of an annual return is the only means of gathering such information.

3.2 The 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.

3.3 In instances where annual returns continue to be filed the 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 CH requires notification at the time of the event.

3.4 Question 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, a filing date so much as a deadline date by which time that accounts should be filed. As a result, annual accounts are not necessarily filed at specific annual intervals.

3.5 Taking 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 we recommend 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 2 Do you agree that companies should be allowed to simply check and confirm that their information is up to date once a year?

3.6 We 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 3 Do you wish to retain the annual return?

3.7 As 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).

3.8 We further believe that the option to continue to file an Annual Return would still be beneficial for companies with frequent changes in shareholders.

Question 4 Do you agree that the SIC code should be required at incorporation and maintained as part of an annual check?

3.9 Whilst it is understood that the purpose of this code is to facilitate the 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 most appropriate code to allocate.

3.10 The concern expressed in 3.9 is further compounded by the fact that invariably over succeeding years there can be subtle or profound changes in the activities of a company. Often to the extent that after the passage of a number of years, its’ activities are no longer reflected by the SIC code recorded at CH.

3.11 Therefore, for the reasons set out in 3.9 and 3.10, we do not consider the SIC code to be of sufficient value for it to be retained.

Question 5 We 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.

3.12 At 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 6 Do 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?

3.13 We 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 make their registers available, either at their Registered Office or a SAIL.

3.14 Furthermore, we do not believe that such companies should be required to maintain registers, on the basis that to so do is merely an exact duplication 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 7 Should private companies have the option of holding their registers at CH, the same way that they are able to nominate a SAIL?

3.15 See our response to Question 6 (3.13 – 3.14).

Question 8 Should dates of birth be suppressed in part, or in full?

3.16 The 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 develops internal procedures to be able to identify all companies in which any individual has an involvement and to make that information available to the public.

3.17 Whilst the current “Officer” search through Companies House Direct2 goes a long way towards meeting the objective set out in 3.16 on occasions when invoked, it can produce duplicated entries arising from a mismatch of some personal details.

3.18 Mismatching 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.

2 Companies House Direct, http://www.companieshouse.gov.uk/toolsToHelp/chdDirectInfo.shtml 3.19 The requirement to supply a NINO would have an added benefit in that it would also facilitate the passing of information from CH to HMRC.

Question 9 Should the Statement of Capital requirement be changed, as set out above?

3.20 Information 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.

3.21 However, whenever changes are made to the Articles of Association, including changes to allotted and paid up share capital, we believe that a fully revised version of the Articles should be lodged with CH.

3.22 Adopting the above course of action would mean that users of the Companies House Register would no longer have to search the whole file to trace the complete history of amendments.

3.23 Similarly, 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 10 Should the statement of capital on formation requirements be the same as the other statement of capital requirements throughout the Act?

Question 11 Do 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?

3.25 If 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 12 Should we amend S.555 to rely on Articles of Association to provide information on allotment of shares?

3.26 The 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 13 Do you agree that companies with subsidiaries must include a total number of subsidiaries? If not, why?

3.27 We 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.

3.28 However, 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 14 Do you agree that the information must always be included in the accounts?

3.29 We agree that full information concerning subsidiaries is appropriately contained in the accounts.

Question 15 Are there any notices that should not be sent electronically?

3.30 It 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 available then final, and penalty, notices could also be transmitted electronically.

3.31 The 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, if CH ensures that it has robust and industry-standard security measures in place to validate information filed electronically, we do not see any reason why all information required by CH could not be lodged electronically.

3.32 Whilst AAT fully supports the on-going move to digitise wherever possible, it is necessary to recognise that, for a variety of reasons, there are some companies who are not able to file electronically. Taking this into account AAT is of the opinion that the ability to file “hard copies” of documents should be retained.

3.33 AAT recently undertook a research project3 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 16 Do you agree that the email address should be made available to other public authorities, specified in law?

3.34 AAT 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 emanate from 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.

3.35 To be effective, there is a clear need for a company to designate a single email address as the “official” statutory communications email-address in order to ensure that official communications reach the intended officer of the company.

3.36 There 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.

3.37 If 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 be introduced.

3 “Micro businesses deterred by digital tax system”, AAT Website, http://www.aat.org.uk/about-aat/press-releases /micro-businesses

Question 17 Are there any other means of electronic communication that CH should explore?

3.38 At 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.

3.39 In due time, further technology developments may open up other opportunities to enable other means of electronic communications to be considered.

Question 18 Do you think companies should be able to supply the Registrar with additional information, such as a website, to display on the public record?

3.40 We consider that records held on file at CH in respect of UK companies should relate purely to statutorily required information. Furthermore, we would be concerned if 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.

3.41 If 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 19 Do you think that CH has the balance between upfront validation and verification and quick and effective remedy right?

3.42 AAT is 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.

3.43 Taking 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.

3.44 In the event of filing irregularities which have serious implications, urgent action, supported by legislation, should be taken by CH, against the officers of the company.

3.45 In 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 register at the earliest opportunity.

3.46 If 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 20 Do you agree that there should be a requirement for the Registered Office to have a link to the company?

3.47 We agree that a company’s Registered Office should have a link to the company.

Question 21 What criteria do you think should be specified to evidence an ‘effective’ Registered Office?

3.48 The 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).

3.49 Alternatively, a company may opt for the Registered Office to be the address of a Director (or a controlling shareholder if not a director).

3.50 We 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.

3.51 Whilst 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.

3.52 Companies 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.

3.53 At the time of filing a notification 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).

3.54 To 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 22 Do you think replacing an ineffective Registered Office address with a Director’s address is a viable approach?

Question 23 Do you agree that the consent to act should be replaced with a simple confirmation that the company holds the consent?

3.56 We believe that the receipt by CH of a notice of appointment of a Director should trigger a notice of the appointment sent by CH to the Director’s home address.

3.57 We further believe that a similar procedure should exist in respect of resignations.

3.58 Additionally, Directors should also be permitted to file their own resignations supported by a reciprocal process whereby notification of an officer’s resignation is sent to the company.

Question 24 Should companies be required to provide evidence of a Director’s appointment, in the event of a dispute?

Question 25 Do you agree that there should be an accelerated strike off process particularly in the event of a company hi-jacking an address?

3.60 It is our understanding that this proposal is trying to address the situation where a fraudulent company hi-jacks the address of an innocent third party. Quite rightly, CH is looking to address the needs of the innocent third party. If this is the case, an accelerated strike off may actually compound the problem through its removal of the offending company from the CH register of companies.

3.61 The accelerated removal process could hamper the ability of those affected to pursue their claims against the errant company and/or its directors. Therefore, we would recommend that CH consider the option of removing the registered address and putting a warning notice in its place.

3.62 As commented in our response to Question 19 (3.42 – 3.46), it is important that users of the Register should be aware of any filing irregularities which could have serious implications as regards the legality of the operations of a company, as well as taking appropriate action against the company or its Directors at the earliest opportunity.

Question 26 Are there any potential consequences of an accelerated strike off process that we should bear in mind?

3.63 As implied in our response to Question 25 (3.60 – 3.62), the main consideration in the striking off process is the protection of the public, in particular creditors of the company, who must have the facility to pursue a company through proper legal processes and not be subjected to expensive, protracted and complex court processes which could be a consequence of an accelerated striking-off.

3.64 AAT is concerned that an accelerated striking-off timetable could cause difficulties in certain circumstances, for example in the case of smaller companies, where a director is not able to respond to a Striking Off Notice within the proposed required period of two weeks, possibly because of the notice was delivered during a period of extended leave for the officer.

3.65 Taking into account the scenario outlined in 3.64 we believe that a notice period should be in the region of six weeks, certainly no less than a calendar month. Question 27 Are there any other circumstances in which an accelerated strike off process would be appropriate?

3.66 As previously observed in para 3.63, we believe that the striking-off of a company is an administrative process which does not necessarily afford any protection to the public as regards any defects in information filed at CH. We recognise that it would be CH staff themselves who may be better placed to answer this question as they will have more experience of the circumstances where an accelerated strike off may be more appropriate.

Question 28 We would welcome views on the assumptions and estimates used in the costs benefits analysis, particularly where we have not been able to quantify some of the costs and benefits.

3.67 We doubt whether the costs benefits analysis provides any useful purpose to this condoc. While we can understand a wish to attempt to evaluate the monetary impact of implementing the proposals, the objectives of the proposals are, as described by the title, to reduce “Red Tape” for companies, by reducing the burdens on companies, unnecessary regulations, reducing time spent and hassle in meeting filing requirements.

3.68 Furthermore, we believe that many of the bases and assumptions used in the costs benefits analysis are open to challenge in many respects and so the credibility of the conclusions presented is weakened and, as such, run the risk of being a diversion from the real objectives of the proposals.

3.69 For example, in identifying costs or savings of implementation and transition is it realistic to endeavour to allocate existing costs to the various current and proposed filing procedures, or should the evaluation be made on a marginal costs and savings basis only? In particular it is likely that, in broad principle, companies will not incur any additional costs in the course of transition to new filing requirements, any additional workloads being absorbed into existing staff workloads.

3.70 Other more specific examples of arguable aspects of the analysis are:-

1) There is reference to Annual Returns being dealt with by a Director (second paragraph, page 34 of condoc states “We assume that the company director would deal with this issue Annual Returns”), which is very unlikely whatever the size of the company. In large companies it would be a function of a Company Secretarial department and in a small company is likely to be passed to an external agent, such as the company accountant or solicitor, to handle. 2) The costing of a “Corporate Manager or Director” at £19 per hour (second paragraph, page 34 of condoc) is contentious. In that, it fails to take into account the relationship between the market rate annual salary and the number of hours which are actually available to perform productive work (after taking account of holidays, sickness, training, “down” time). In most organisations such available time is unlikely to exceed 1,600 hours based on a standard 37½ hours week. At £19 an hour this cost equates to around £30,000, which must be considerably lower than the market rate for a “Corporate Manager or Director”.

3) A “Corporate Manager or Director” generally does not work fixed hours, rather instead working as many hours as are thought necessary to fulfil their responsibilities. Accepting this fact, the consequences of introducing new filing requirements would have little if any marginal cost implications but would result in either an increased or reduced burden on the individuals concerned.

4) There is no recognition of either direct or indirect overheads in any of the costings of personnel`s time.

5) Where a company uses professional agents to meet its filing responsibilities, it is unrealistic to evaluate the costs of accountants’ services at £23 per hour. Professional charge rates (which include the recovery of the providers’ overheads), are likely to be significantly higher than £23 per hour.

6) There is a costing of the transitional costs for private companies in respect of company registers held at CH based on each company spending twenty minutes to become familiar with the new procedures. In practice there are likely to be no additional time costs due to reliance on external agents.

7) The costs per company of correspondence with CH are negligible and do not merit mention in the costs benefits analysis.

8) Registered Office disputes undoubtedly give rise to significant costs for each case arising but the number of cases is minimal in the context of the total number of companies so that the costs benefits only have an impact on a very limited number of the total population.

9) The conclusions drawn for the Net Present Value for each proposal is based on a ten years period which has no relevance unless there is a presumption that a further review of filing requirements will take place in ten years time,

3.71 We have set out our view, in paragraphs 3.43, 3.51 and 3.77, that CH should put more resources into the validating and policing of information filed on the Register and clearly this will have a cost implication which cannot be measured until detailed procedures are established. However the resulting additional costs could be recovered by a review of filing fees (or the need to introduce an annual “Registration” fee if Annual Returns are abolished). 3.72 The potential savings for companies in fees for external professional agents is probably the main financial benefit to result from a significant reduction in filing requirements.

3.73 Ultimately, preventing or inhibiting the fraudulent use of companies has a very positive, if difficult, immeasurable benefit.

Question 29 Are there any other costs or benefits that should be included in the analyses?

3.74 AAT does not have further comment to make in addition to that made in response to question 28 (paragraphs 3.67 – 3.73)

Question 30 We would welcome views on likely take-up proposals, particularly in relation to company registers and electronic communications.

3.75 AAT is pleased to observe that there do not appear to be any significant disadvantages arising from the condoc’s proposals. We foresee that, in particular, smaller companies are most likely to opt for procedures which ease burdens which they view as having no or little relevance to their business operations.

Do you have any other comments that might aid the consultation process as a whole? Please use this space for any general comments that you may have, comments on the layout of this consultation would also be welcomed.

3.76 AAT is of the view that the primary focus of this document should be, as stated in the condoc’s executive summary, the “creation of regulatory framework - one which allows companies to concentrate on running their businesses rather than having to deal with excessive rules and requirements”.

3.77 Furthermore, any changes arising as a result of this particular consultation should recognise that most breaches of filing requirements do not arise from criminal intentions. Taking this fact into account whilst procedures are required to validate and police information filed, the need to police and take action against the relatively few cases. 4 CONCLUSIONS

4.1 The option of event driven filing will be a positive benefit to businesses where there are infrequent events to be filed. Additionally, this will provide users with more up to date information on a more timely basis and for event driven information there will be less information for users to process.

4.2 In respect of aligning filing dates for accounts at both HMRC and CH (Question 5, paragraph 3.12) we recommended 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. This would be of more benefit to users.

4.3 We also recommended removing the requirement for companies to make their registers available at their Registered Office or SAIL should be available to all companies, not just those companies whose Directors and Shareholders are the same people (Question 6, paragraph 3.13-3.14).

4.4 For the statement of capital we recommended that if 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 11, paragraph 3.25).

4.5 In respect of the disclosure relating to subsidiaries we believe that the full information regarding subsidiaries should be contained in the accounts (Question 13-14, paragraph 3.27-3.29).

4.6 For company email addresses we outlined the argument for CH introducing a Registered email address (paragraph 3.34 - 3.37). Whilst acknowledging that some correspondence such as final and penalty notices should be sent on paper, and where email is available then they could also be transmitted electronically (Question 15, paragraph 3.30 – 3.33).

4.7 On the issue of validation and verification we believe that CH should concentrate its efforts on activities to police the accuracy of information filed and to prosecute filing misdemeanours, and in particular to take strong action where fraud is involved (Question 19, paragraph 3.43).

4.8 Where a fraudulent company has hi-jacked the address of an innocent third party we recommended that CH consider the option of removing the registered address and putting a warning notice in its place (Question 25, paragraph 3.60 – 3.62).

4.9 We made a number of comments regarding the costs and benefits of the proposals (Question 28, paragraphs 3.67 - 3.73) and we acknowledge the difficulties of valuing the benefits of preventing or inhibiting the fraudulent use of companies.

4.10 In summary, AAT welcomes the proposals in this consultation and we would encourage BIS to look at more ways of reducing red tape and the burdens upon businesses, which “will ensure that the UK is one of the best places to start up and run a business” (Paragraph 1 of the condoc). If you have any questions or would like to consult further on this issue then please contact the AAT at: email: [email protected] telephone: 020 7397 3088

FAO. Aleem Islan Association of Accounting Technicians 140 Aldersgate Street London EC1A 4HY