New Companies House filing rules risk ‘own goal’ for UK start-ups and SMEs
Thousands of UK small and medium sized enterprises (SMEs) are bracing for sweeping changes to Companies House rules that will force them to disclose detailed profit and loss (P&L) statements from April 2027 – a shift that founders and investors say could hurt competitiveness, innovation and growth.
“This is just making it harder than it already is to start a business”, Seb Wallace, co-founder at Triple Ventures and Further, told City PM, “and there’s just no reason why P&L should be disclosed in a private company”.
Companies house changes
From 1 April 2027, small companies – defined as firms with turnover under £10.2m, balance sheets under £5.1m, and fewer than 50 employees – will lose the right to file abridged accounts.
Instead, they must file full accounts, including income statements, exposing revenues, margins, director salaries and client concentration to public scrutiny.
The move is part of the UK government’s wider transparency overhaul under the ‘economic crime and corporate transparency act’, aimed at clamping down on fraud and shell companies.
But critics say the rules could backfire.
Wallace told City PM the changes could “push (people) into the grey market”, and in some cases, cause some founders to “cease to incorporate” in the UK altogether.
“It’s a misdirected idea, a decision made by people who have obviously never run a business”, he said.
Other investors have also echoed these concerns. Chris Smith, managing partner at Playfair, warned that public revenue disclosure will give large clients outsized leverage on small suppliers.
“Customers will see the percentage of revenue they are contributing to your company providing them with leverage to use against you – ‘well, we can see that we are 60 per cent of your revenues so we’d expect a material discount at renewal'”, he posted on Linkedin.
He also cautioned that competitors will utilise the information to talk down startups and SMEs, which will “stifle innovation if buyers have to favour strong P&L versus the optimal product”.
Entrepreneurs and accountants concerned
The changes have been described as a broad overreach.
“It is then requiring SME limited companies to comply as if you are currently a six million turnover entity”, wrote John Attridge, founder and chief executive of BBX UK.
He added that many small business owners will now be forced to adopt paid accounting software and expose director pay and client relationships publicly.
He also expressed fears over potential HMRC overreach: “In theory, this then leads to HMRC having access to your bank account… and if they suspect you are money laundering… they can without notice or evidence take funds from your account”.
Business leaders have pointed out that a firm’s balance sheet, which is already public, wouldn’t increase transparency. Rather, they have argued that seeing a firm’s revenue number and cost line items is unnecessary, and in some cases, could be hurtful.
As Wallace argued: “They want to deal with fraud and trust, and a balance sheet which is already disclosed does that. Competitors will use it against the person, and customers will use it too”.
UK risks losing ground to Delaware
A growing number of tech founders now warn the rules could push high-growth startups to incorporate abroad.
The Federation of Small Businesses has also criticised the move. “This opens the door wide to competitors snooping on margins and for large companies in supply chains to scrutinise smaller suppliers’ finances. It could give big players an unfair advantage and damage small firms negotiating power”, said national chair Martin McTague.
He added that the changes will “make the system less friendly for small business owners at a time when the UK desperately needs more enterprise and growth”, warning that transparency must not come at the expense of competitiveness.
While Companies House insists the changes are vital to improve data quality and reduce fraud, the startup and small business community is calling for exemptions or revised thresholds to protect the UK’s edge in innovation.
“A decision made by those who have not run a small business before – is the only explanation I can see”, Wallace told City PM.
Companies House has been approached for comment.