The Department for Business, Innovation, Science and Trade has commenced a consultation setting out the government’s proposals to modernise the UK’s corporate reporting framework, with the objective of supporting economic growth and strengthening the UK’s international competitiveness.  The consultation runs until midnight on 30 November 2026, with a response expected to be provided by the Government no later than 31 May 2027.

 

The proposals are extensive and far-reaching and the consultation document includes a summary of the proposals which include:

 

• “Clarify who the annual report and accounts are for by reaffirming that they are a document primarily intended for investors and creditors;
• Simplify which companies are required to report different types of information. The Companies Act 2006 contains several different categories of company and a lengthy series of exemptions and exclusions.  The government wishes to simplify this, taking a fresh look at the Act to rationalise the scopes, thresholds and exemptions which determine what disclosures a company must make.  The government is considering how thresholds and exemptions might be changed to take companies out of requirements;
• Create a lighter regulatory load for small and medium-sized enterprises (SMEs), including allowing certain medium-sized companies to qualify for an audit exemption. Building on existing reforms that remove non-financial reporting requirements from SMEs, the government is consulting on creating a reporting framework for SMEs which would allow certain medium-sized companies to claim a wider package of exemptions.  This would include extending the small company audit exemption to certain medium-sized companies;
• Test the merits of non-financial reporting requirements for private companies. The government seeks evidence on the usefulness of mandatory reporting requirements that apply to private companies, noting there is often a close relationship between management and ownership in the context of these companies.  The government is also considering whether to create a new ‘very large’ threshold that could be applied to non-financial reporting requirements;
• Make the UK’s financial reporting law clearer and more coherent. The UK’s financial reporting framework works well, but is overly complex, with some rules contained in the Companies Act 2006 and others in accounting standards.  The government proposes to create a streamlined legislative framework that moves detailed requirements out of the law and into relevant standards.  Under this proposal, the government would also: streamline the range of accounting standards that are available for use by UK companies to four main standards; replace the ‘true and fair presumption’ for micro-entities with an obligation to prepare accounts that comply with the micro-entities standard; and create a new accounting standard for not-for profit entities;
• Replace the complex rules on distributable profits and capital maintenance with a solvency-based regime. This would be used for determining the legality of dividend payments;
• Simplify and streamline the strategic report requirements. We propose to achieve this by removing prescriptive obligations, and enabling companies to explain performance, strategy and governance in a way that reflects the size and nature of their business.  As part of these proposals, the government is also considering which companies should be required to comply with future strategic reporting requirements;
• Simplify Remuneration and Corporate Governance Reporting. The government has taken action to streamline the reporting framework for remuneration, but this consultation goes further.  For instance, we are:
• Considering whether the scope of the existing requirements remains appropriate;
• Considering whether to remove the requirement for an annual vote on the directors’ remuneration report, given that remuneration policy is already subject to a vote on a triennial basis;
• Proposing to remove or simplify certain remuneration reporting requirements that are not working effectively or duplicate other requirements. These requirements include the work of the remuneration committee and CEO-employee pay ratio reporting; and
• Proposing to move corporate governance reporting from company to group level;
• Embrace digital communications. This could be achieved by:
• Testing which disclosures could be moved to digital platforms and websites so that investors have easier access to data outside of annual reporting cycles;
• Seeking views on how to support the electronic tagging of information within annual reports and accounts;
• Clarifying the law to make it clear that annual general meetings can take place virtually where there is shareholder consent; and
• Supporting previously announced plans to make electronic communication with shareholders as the default option, removing the obligation to send annual reports to shareholders by post.”

 

The implications for different types of businesses are then summarised as being:

 

“Smaller companies could benefit from proposals to simplify and clarify financial reporting requirements.

 

Medium-sized companies could benefit from proposals to allow them to claim the wider package of exemptions that currently apply to small companies.  This could include allowing certain medium-sized companies to claim an audit exemption, which could result in significant cost savings for these organisations.

 

Most medium-sized private companies will benefit from the exemption of preparing a strategic report.

 

Larger companies would be likely to benefit from:

• Proposals to simplify strategic reporting requirements;
• Reforms that provide an exemption for subsidiaries where strategic reports are provided at a group level; and
• Proposals to simplify corporate governance and remuneration reporting.

Private companies will wish to consider aspects of the consultation that test the value of non financial and governance reporting in the context of private company financing.  The government has not finalised these proposals, but this consultation provides an opportunity to offer views on how the UK’s corporate reporting requirements should reflect different ownership structures and financing arrangements.”