PSC register – publication of the final form statutory guidance for companies on the meaning of ‘significant influence and control’
UK companies and limited liability partnerships (“LLPs”) within scope of the PSC regime have, since 6 April 2016, been obliged to keep a PSC register and make it available for inspection (see ‘Background’ for details of the regime). Whilst some of the conditions for being a PSC are able to be objectively ascertained e.g. ownership or control of a company’s shares, the fourth and fifth conditions require PSCs to exercise significant influence or control over the company or LLP (“SIOC”). Legislation requires the Government to issue statutory guidance on the meaning of SIOC.
Draft guidance has been available for some time but the final form guidance for companies and revised draft guidance for LLPs was only published recently (13 May) on Companies House website. There are no substantive changes to the final form guidance for companies. The guidance for LLPs is not yet in final form; it is expected to come into effect on 24 June.
Background - the Small Business, Enterprise and Employment Act 2015 amended the Companies Act 2006 from 6 April 2016 to require details of those individuals who:
- ultimately own or control more than 25 per cent of a UK company’s shares or voting rights; or
- have the right to share in more than 25 per cent of any surplus assets of a UK LLP or who ultimately own or control more than 25 per cent of members’ rights to vote; or
- who otherwise exercise SIOC over the company, LLP or its management
to be included on a register (the “PSC register”). Companies and LLPs are required to keep a register from 6 April 2016 (which must be open for inspection on that date) and from 30 June 2016 PSC information must also be included in companies’ and LLPs’ annual confirmation statements (currently known as annual returns).
Amendments to the preparation and filing of the annual accounts of LLPs
BIS has published final form regulations amending the financial reporting requirements for LLPs and qualifying partnerships (the “Regulations”). The Regulations align the LLP regime with that applicable to companies, reflecting recent changes introduced for companies. The provisions apply to accounting periods starting on or after 1 January 2016 although early adoption for years beginning on or after 1 January 2015 is permitted (provided those accounts have not already been filed). Changes include:
- raising the thresholds which determine when a LLP qualifies as “small” for the purposes of certain accounting and reporting exemptions, and for exemption from audit. For example, the turnover test for qualifying as “small” is increased from £6.5m to £10.2m and the balance sheet test is increased from £3.26m to £5.1m; and
- no longer permitting a LLP to disclose relevant information about related undertakings (for instance, its subsidiaries) in its annual return – such information (where required) will have to be disclosed in the annual accounts.
Impact – the underlying changes to the company reporting regime followed publication of an EU directive, described as not making “significant changes to the fundamentals of the EU financial reporting” regime. The Government’s implementation method maintained the UK’s existing approach to financial reporting except where changes were imposed by the directive or there were perceived benefits to business. The application of the revised company reporting regime to LLPs will maintain the consistency between the two regimes and was broadly supported by respondents to BIS’ consultation. The FRC has published consequential amendments to FRS 105 (the micro- entities regime).
Changes to the audit of company and LLP accounts – 17 June 2016
Final draft regulations have been published intended to implement Directive 2014/56/EU covering the statutory audit of annual accounts and consolidated accounts (the “EU Audit Directive”) and to apply the EU Regulation covering specific requirements regarding statutory audit of PIEs (the “EU Audit Regulation”). PIEs are large EU entities listed on a regulated market, credit institutions and insurance undertakings i.e. public interest entities.
The Statutory Auditors and Third Country Auditors Regulations 2016 (the “UK Regulations”):
- set out responsibilities and enforcement powers of the Financial Reporting Council (the “FRC”);
- place restrictions on the choice of auditors including a framework for mandatory rotation and re-tendering of audit engagements. PIEs will be required to put their audit out to tender at least every 10 years and change their auditor at least every 20 years; and
- set out standards for the conduct of auditors including changes to audit reporting requirements.
Publication of the UK Regulations follows the FRC’s recent changes to audit provisions in the UK corporate governance code and new guidance for audit committees, effective on 17 June 2016 and detailed here.
Impact - all of the changes are intended to take effect for the audit of financial statements for periods beginning on or after 17 June 2016. The changes were generally required to implement the EU Audit Directive or to avoid conflict with the EU Audit Regulation. A summary of how the EU provisions have been transposed is available here. The UK Regulations go beyond the minimum implementation of EU law by applying the relevant provisions of the EU Audit Directive and EU Audit Regulation to LLPs. This is to ensure that the current approach, of making auditors of LLPs subject to the same audit regulatory framework that applies to companies, is maintained.
- Following a discussion paper issued earlier this year, the Government has announced its intention to proceed with a requirement that foreign companies acquiring UK property provide details of their beneficial owners before they are able to buy land. The regime will also be extended to cover foreign companies that already own property. The Government recently considered a range of proposals to enhance the transparency of beneficial ownership of foreign companies which either purchase real property in England and Wales or participate in public contracting with the Government.
- HM Treasury has published a list of 40 countries which have committed to the automatic exchange of information on the ultimate owners of companies.
- The Ministry of Justice has announced an intention to consult on plans to extend the scope of the criminal offence of a corporate ‘failing to prevent’ bribery and tax evasion to other economic crimes.
- The Equality and Human Rights Commission has produced a short guide to help board directors understand what they need to do to “‘know’ and ‘show’ their company respects human rights in practice”. It also details those UK company reporting obligations (e.g. the requirement to provide a strategic report) to which the guide may be applicable.