Companies House backs off (for now) ahead of red tape pile-up for SMEs

Proposed changes to the financial details that small businesses have to give HMRC had been causing consternation, but now it seems they have a reprieve.

The new rules were set to kick in from April 2027, though were actually introduced by the previous government under the Economic Crime and Corporate Transparency Act (ECCTA).

At the moment, smaller businesses are able to file “abridged” or simplified annual accounts. The changes would mean they would have to submit detailed profit and loss accounts, which would be publicly available. Accounts would also have to be submitted in a standardised digital format meaning many companies would have to buy new software.

Last week, the new business secretary confirmed the measures will be ditched. However, this is a pause, not a complete U-turn; and the government is still pushing ahead with the majority of its Making Tax Digital (MTD) mandates. 

Companies House reforms: what were they, and what’s caused the turnaround?

The planned changes had been due to impact businesses with a turnover of less than £10.2m, fewer than 50 employees, and balance sheets below £5.1m. 

Thankfully, these companies have escaped the rollout. They will be able to continue filing as usual and will not need to buy commercial digital software. It also means that key financial information like their operating costs and turnover won’t be made public as yet.  

The move comes from business secretary, Jonathan Reynolds, who has listened to mounting concern that the reforms would cause a red tape pile-up for SMEs as well as unwanted costs. This has been deemed enough of an issue that Reynolds has pushed the concerns about fraud to the side instead focussing on growth. 

It also reflects a wider government pledge to cut administrative costs for businesses after dire warnings that UK entrepreneurism is on the slide. In March, new business registrations dropped for the first time since quarterly reporting began. 

While it was the National Insurance Contributions (NICs) and National Minimum Wage hikes that were firmly blamed, there has also been growing discontent about the administrative and compliance burdens that companies face. 

With this move, the government will be hoping to quieten these concerns and boost growth. 

Is this a win or a stay of execution?

It is a win but it is temporary and for a very select group of businesses. The government is still pushing ahead with its Making Tax Digital mandates for sole traders. This means that you will still need to buy accountancy software for April 2026 if you are a sole trader earning more than £50,000. Those earning £30,000 or more get another year on top of this.  

There has also been no roll-back on the proposed changes to ID rulings that came under the ECCTA. This impacts how directors register with Companies House; and includes mandatory ID checks for directors and people with significant control (PSCs), stricter filing restrictions, and financial penalties for non-compliance. 

Jonathan Frost, Director of Global Advisory for EMEA at BioCatch questions how effective this change will be and welcomes the decision to pause on the SME accountancy reform. He shares: “While the ECCTA will require ID verification from this autumn, its actual effectiveness remains unclear, especially for companies controlled by individuals abroad.” 

The reprieve for small businesses, he argues, indicates that the government has recognised this change will stop misuse. “Until Companies House performs know-your-customer checks to the same standard as banks, it will continue to contribute to UK fraud,” he argues.

However, says Meg Ogunsola, Global Director of Entity Management Solutions at Vistra, companies shouldn’t just sit back now. This is a pause, she argues, and “…the ECCTA remains critical in the UK’s fight against fraud”. 

As she argues, the government is trying to balance “protecting and overburdening firms” – especially tricky in a time of high inflation and economic uncertainty. 

But that’s not to say that it will continue on a path of deregulation and so companies need to see this for what it is – a temporary reassessment and not a clear mandate for the future.