DBT: The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024

On 10 December 2024, the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 were laid before Parliament, together with an Explanatory Memorandum. These Regulations increase the turnover and balance sheet criteria that help determine the size of a company for the purpose of reporting and audit requirements under the Companies Act 2006 (CA 2006) and remove several reporting requirements from the Directors’ Report thar are no longer considered relevant. 

Background to the Regulations

The Government launched a review of non-financial reporting in May 2023 to consider the extent to which non-financial reporting requirements remain fit for purpose. A Call for Evidence was held from May to August 2023 and in March 2024 DBT published a summary of the responses it had received.  A majority of respondents felt that current reporting thresholds for business were no longer appropriate, and respondents also suggested that the Directors’ Report should be streamlined to remove duplication.

The Government announced, in a Written Statement made to Parliament in October 2024, that legislation would be laid by the end of 2024 to remove redundant reporting requirements and raise the monetary size thresholds for micro-entities, small and medium-sized companies, as well as making certain technical fixes to the UK’s audit framework. That Written Statement also said that DBT would launch a consultation in 2025 aimed at simplifying and modernising the UK’s non-financial reporting framework. 

Raising the financial thresholds of the company size definitions

The Regulations increase the turnover and balance sheet total thresholds for determining a company's (and LLPs) size for reporting purposes by approximately 50% as follows:

• Micro-entities and micro-entity LLPs – turnover threshold is increased to not more than £1 million and balance sheet total to not more than £500,000;  
• Small companies and LLPs – turnover threshold is increased to not more than £15 million and balance sheet total to not more than £7.5 million;  
• Small company groups and LLPs – turnover threshold is increased to not more than £15 million net (or £18 million gross) and balance sheet total to not more than £7.5 million net (£9 million gross);
• Medium-sized companies and medium LLPs – turnover threshold is increased to not more than £ £54 million and balance sheet total to not more than £27 million;  
• Medium-sized groups and LLPs – turnover threshold is increased to not more than £54 million net (or £64 million gross) and balance sheet total to not more than £27 million net (or £32 million gross).

A transitional provision applies in respect of these amendments, so that when considering qualification as a particular company or LLP size by reference to a previous financial year, the amendments made by the Regulations are treated as having applied in those previous years. This is so that companies and LLPs can benefit from the new thresholds as soon as possible after the legislation comes into force.

Changes to the Directors’ Report

The Regulations remove the following reporting requirements in the Directors’ Report that duplicate, or have been superseded by, other reporting requirements, or that lead to low-value disclosures: 

• Information about financial instruments: This provision has been superseded by new requirements in international and UK accounting standards that require such information, including how risks of using financial instruments are managed. 
• Information about important events that have occurred since the end of the financial year: This provision has been superseded by accounting standards, which require companies to disclose information about “post balance sheet events”. 
• Information about likely future developments: This provision has been superseded by a requirement in the Strategic Report for companies to provide an annual “fair review” of their business and a “description of principal risks and uncertainties” facing the company. 
• Information about research and development (R&D): This information is also provided under accounting standards and can be expected to feature in companies’ review of their business model under the Strategic Report. 
• Information on branches: Company branches that are subsidiaries of the company have their own separate legal personality and reporting obligations and information on a company’s operational footprint is contained in the annual review of its business in the Strategic Report. 
• Information about engagement with employees: The provisions overlap with material information about employee matters typically included in the Strategic Report, such as within the annual business review and within the ‘Section 172 statement’, which discloses how directors have had regard to employees in their decision-making. 
• Information about engagement with customers and suppliers: This overlapped with the section 172 statement, which requires directors to explain how they had regard to customers and suppliers in their decision-making.
• Information relating to the employment of disabled people: This is addressed more effectively and to a greater extent in more recent anti-discrimination legislation. 

Effective date of the Regulations

The Regulations come into force on 6 April 2025 and will have effect in relation to financial years beginning on or after 6 April 2025.

(The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 and Explanatory Memorandum, 11.12.2024)

FCA: Quarterly Consultation – CP 24/26

On 6 December 2024, the Financial Conduct Authority (FCA) published a consultation paper setting out proposed amendments to parts of the FCA Handbook. Among other things, the FCA is proposing amendments to both the UK Listing Rules (UKLR) and the Disclosure Guidance and Transparency Rules (DTR) so that they refer to the January 2024 edition of the UK Corporate Governance Code (the 2024 Code).

Definition of “the Code” in the FCA Handbook

The definition of “the Code” in the Glossary will be updated to refer to the 2024 Code. UKLR 6.6.6R(3), UKLR 6.6.20R, and UKLR 11.7.7R, which refer to specific provisions of the UK Corporate Governance Code, will be updated and refer to the corresponding provisions in the 2024 Code.

Provision 29 of the 2024 Code 

UKLR 6.6.20R refers to Provision 29 of the 2024 Code which will, when in effect, involve an issuer’s board providing in the annual report a declaration of effectiveness of the material controls as at the balance sheet date. However, the FCA states that issuers should not assume that satisfying this provision equates to compliance with other FCA UKLR and DTR requirements. For example, under UKLR 2.2.1R Listing Principle 1, a listed company must still take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations. 

Updating references to the 2024 Code guidance in the UKLR 

UKLR 6.6.6R(3) requires a listed company in the commercial companies category and the closed-ended investment funds category (via UKLR 11.4.1R) to include in their annual financial report a statement by the directors on: 

• the appropriateness of adopting the going concern basis of accounting (containing the information set out in Provision 30 of the Code); and 
• their assessment of the prospects of the company (containing the information set out in Provision 31 of the Code). 

Currently the statement must be prepared in accordance with the ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ published by the FRC in September 2014. However, in response to the FRC’s new 2024 Code guidance and statement that this Code guidance is not intended to be prescriptive, the FCA proposes to remove the reference to preparing the statement in accordance with that 2014 Guidance but will add a note to remind issuers that the FRC publishes guidance on the Code on its website. 

Clarification for closed-ended investment funds

The FCA notes that closed-ended investment funds disclose against either the current 2018 Corporate Governance Code or the AIC Code and that the latter differs from the 2018 Corporate Governance Code in places as some elements of that may not be relevant to investment funds due to their different organisational structures. The FCA also notes that the AIC issued a new edition of the AIC Code in August 2024, which includes further variances from the 2024 Code. To recognise that differences exist between the UK Corporate Governance Code and the AIC Code, the FCA proposes introducing a new note in UKLR 11.7.7R to clarify the flexibility that exists currently and that will continue for closed-ended investment companies.

Updating references to the Code guidance in the DTRs

In response to the FRC’s new 2024 Code guidance and the FRC’s statement that it is not intended to be prescriptive, the FCA plans to delete the reference to paragraph 63 of the ‘Guidance on Board Effectiveness’ in both DTR 7.1.7G and DTR 7.2.8G and add a note to highlight that the FRC publishes guidance on the Code on its website. 

Implementation and proposed transitional provisions for the UKLR and DTRs 

While the FCA hopes to make the proposed changes to the Handbook as soon as possible and to implement the changes from the day after the final rules are made, it is proposing to introduce certain transitional provisions for the UKLR and DTR to clarify which edition of the UK Corporate Governance Code is relevant to a specific provision of the UKLR or the DTR. 

In relation to the UKLR, where a company listed in the commercial companies category or the closed-ended funds category has an accounting period: 

• beginning before 1 January 2025, it must apply the 2018 Code; 
• beginning on or after the FCA’s proposed changes come into effect, it must apply the 2024 Code; 
• beginning on or after 1 January 2025, but before the FCA’s proposed changes come into effect, it can apply the 2024 Code (with the exception of Provision 29, where Provision 29 of the 2018 Code would continue to apply) or it could continue to apply the 2018 Code; 
• beginning on or after the FCA’s proposed changes come into effect but before 1 January 2026, it can continue to report against Provision 29 of the 2018 Code. 

The FCA also proposes to include guidance so that where a company chooses not to apply the 2024 Code, it would expect the company to disclose this fact in the relevant statement contained in their annual report. 

In relation to the DTR, the FCA proposes transitional provisions so that:

• for issuers with an accounting period beginning before 1 January 2025, references to the Code are to the 2018 Code; 
• for issuers with an accounting period beginning on or after 1 January 2025, but before the Handbook changes come into effect, references to the Code may be read as either the 2018 Code or the 2024 Code; 
• for issuers with an accounting period beginning on or after the date the Handbook changes come onto effect, references to the Code are to the 2024 Code.

(FCA, Quarterly Consultation – CP 24/26, 06.12.2024)

DBT: The Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025 - Draft

On 6 December 2024, the Department of Business and Trade (DBT) published in draft the Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025 and a related explanatory memorandum.

The draft regulations have two main purposes:

• to expand the category of individuals who can apply to Companies House to have their information protected in a case where it may be disclosed under the Register of Overseas Entities (ROE) regime; and 
• to allow trust information on the ROE that is currently restricted from public inspection to be accessed by application, subject to meeting certain requirements.

Part 2 of the draft regulations expands the ROE protection regime by enabling anyone whose information could be published or disclosed by the Registrar under the ROE to make an application for protection. Currently, a protection application could only be made by a registrable beneficial owner or managing officer if they, or anyone they live with, would be at serious risk of intimidation or violence if the information about them is published. These provisions are expected to come into force on 28 February 2025 if the draft regulations are approved by Parliament.

Part 3 of the draft regulations provides a mechanism by which anyone can apply to the Registrar for disclosure of trust information although applicants have to demonstrate they have a legitimate interest, set out in regulation 4(3)(f), if they want to make a bulk application or if the information relates to minors. Currently, the only information displayed publicly on the register in relation to a trust is the name of the registrable beneficial owner who is a trustee. However, the Registrar can disclose trust information to other public bodies such as HMRC and law enforcement agencies. During the passage of the Economic Crime and Corporate Transparency Act 2023, the Government introduced a regulation making power to make information on trusts available to individuals on application and this is the purpose of Part 3 of the draft regulations. These provisions are expected to come into force on 31 August 2025 if the draft regulations are approved.

(DBT, The Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025 – Draft and Explanatory Memorandum,06.12.2024