Changes to Companies Act impact reporting

Changes to the Companies Act 2006 and the Companies (Miscellaneous Reporting) Regulations 2018 mean new company reporting requirements for financial years starting on or after 1 January 2019.

As well as changes for quoted companies to the directors’ remuneration report, qualifying companies will need to provide new statements for: employee engagement, corporate governance, compliance with section 172 Companies Act and engagement with anyone with whom they have business relationships. There are differences in the qualifying criteria for each statement, as detailed below.

Employee engagement

For companies with more than 250 UK employees:

• the employee statement in the Director’s report should now include (in addition to the existing obligation to describe actions taken to consult with employees) a description of how the company has engaged with its UK employees; taken account of their interests and what effect this has had on company’s principal decisions.

Section 172 Companies Act

All large and even many small companies will be required to include a new statement in the Strategic report on how the directors have promoted the success of the company for the benefit of the stakeholders in accordance with Section 172.

This will apply to:

• all large companies ie companies meeting two of:
• turnover above £36m;
  • balance sheet assets above £18m;
  • more than 250 employees.
• any small company which is ineligible to apply the small companies regime;
• any listed or public limited company; and
• any company which is not eligible to be medium sized (eg investment businesses).

This statement should also be available on-line (this now applies to unquoted as well as quoted companies).

The statement should cover how the directors have had regard to the following matters (set out in Section 172):

• the likely consequences of any decision in the long term,
• the interests of the company's employees,
• the need to foster the company's business relationships with suppliers, customers and others,
• the impact of the company's operations on the community and the environment,
• the desirability of the company maintaining a reputation for high standards of business conduct, and
• the need to act fairly as between members of the company.

Corporate governance

Private companies with more than 2,000 employees; and/or a turnover of more than £200m and a balance sheet of more than £2bn:

• will be required to disclose their corporate governance arrangements in their directors’ report and on their website.

The FRC is consulting on six principles which could help companies comply.

Business relationships

Companies that meet two of the following criteria: turnover above £36m; balance sheet assets above £18m; more than 250 employees:

• will be required to include a statement in their Director’s report on how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others and the effect of that regard including on the principal decisions taken by the company.

FRC guidance

The Financial Reporting Council has updated its Guidance on the Strategic Report to reflect these new requirements and to align with the 2018 UK Corporate Governance Code.

All company directors will be committing an offence if they do not include the required information in their directors’ report and/or strategic report.

For further information, please contact Carolyn Brown.