Saturday, 15 August 2015

Companies House failure to devolve a workable system for small companies accounts and returns.

A slightly dry topic but nonetheless a very important one.

We have a mound of evidence showing that you cannot believe the accounts and returns that are filed with CH for small businesses. These are the official accounts and returns that people like you use to judge an investment opportunity on platforms like Crowdcube.

This comes about because of the very lax systems we have in the UK. Small companies with turnovers of less than £6.5m are not required to audit accounts and they can present their own 'version' of their balance sheet with no need for a P&L. Most companies on Crowdcube come into this small company bracket.

Who checks this information is correct? Simple answer is no one. It works on the deterrent model in that directors know fines are applicable if they get it wrong but they also know that the chances of being found out are very very small.

The errors are not always, or indeed maybe rarely, due to fraud. The forms for example for AR01and SH01 are not straight forward if you are not used to dealing with them. The facts are that a large number of filings are incorrect and people are now using these to make investment decisions.

By way of example, a firm that raised capital on Bank to the Future, which we have featured here, has just filed its Annual Return. Datemy Ltd's AR01 shows a number of new shareholders with a large number of new issued shares. So there must have been a filing of the SH01 for new share allotments? No  - nothing. This SH01 filing is a legal requirement under the Companies Act 2006. As far as we can tell the issued share capital is still all owned by the founder and amounts to £1000.So what exactly do these new shareholders own? Do they really exist? Certainly two of the names on the list are employees of Bank to the Future, so they are real people. Who knows.

There are plenty more cases. Clearly CH are struggling with staffing levels and are simply not covering these filings; hoping the deterrent will work. Accountancy blog sites confirm this view - its a mess. It didnt really matter before the Crowd were invited to invest in penny shares - something heavily backed by the Government. CH need to up their game and come up with a new system that works for small businesses and crowd investors.

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