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Is it the end for the Annual Return?

There is a long standing requirement under UK company law for every company to complete an annual return and submit it to Companies House. It ensures that at one point, each year, every company confirms that the basic information held on the register is accurate and up to date. These details include the business address, type, names of directors and information about shareholders and shares. There are now more than 3 million companies on the register.

The revenue generated by submission fees and late-filing penalties make up the substantial part of the funding of Companies House. Failure to file an annual return is an offence, for which there are almost a thousand prosecutions each year.

Companies House reforms - download the podcastThe Government has completed a public consultation on changes to these filing requirements. The consultation makes proposals for three alternatives.

  1. Remove the requirement to complete an annual return but require each company to confirm, at least annually, that the information held on the register is correct.
  2. Remove the obligation to complete an annual return and rely on event driven filing.
  3. Retain the annual return.

If the requirement to complete an annual return is dropped companies will still have a legal obligation to give notification of relevant changes in a timely manner and verify their registered details once a year. Companies House will develop systems to remind companies of their obligations and failure to comply will still be prosecuted as a criminal offence.

Those who support the abolition of the annual return insist that it will remove an unnecessary administrative burden, especially for small companies. Eighty per cent of registered companies have two directors or fewer and five shareholders or fewer and for the majority of these companies registered information rarely changes. 

It would also reduce unnecessary administration by stopping duplication of filing requirements. For example, it will only be necessary to confirm the appointment of a new director shortly after it has happened by submitting an ‘Appointment of Director’ form.

There may also be some small costs savings as there will no longer be a filing fee, although this would represent a significant drop in income for Companies House and will have to be recouped in some other form. There would also be savings for those companies that pay agents to file on their behalf.

However, the abolition of the annual return could bring with it some considerable downsides.

Without the annual reminder to update their details in this official manner it is likely that this obligation will become less of a priority and will thus be let slip in many cases. This could quickly result in officially registered details being regarded as unreliable.

When organisations are deciding whether to work with or associate themselves with a specific company, they need to be able to make an informed decision. These decisions are most often based on the information held by Companies House so it is vital that the details are accurate and up to date.

Maintaining an accurate register of companies is also a part of the Government’s responsibility, under international agreements, to ensure ‘transparency and trust’ in the way that business in the UK is conducted. Although EU law does not insist upon an annual return, just an up to date register, the current regime underpins the UK’s highly effective credit rating system and enhances the country’s reputation as a good place to do business.

The annual return is also the only vehicle used by the Government to keep data about Standard Industrial Codes (SICs) up to date. These are important for giving an overview of business activity and widely used for official Government statistics. Presumably this information would still need to be acquired by some other means.

BIS are expecting to publish the response to the consultation mid to late March. Any changes regarding the Annual Return would be covered by primary legislation and require amendments to the Companies Act 2006 before they could be implemented.



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