Proposed amendment to the late filing penalty regime
Comments from ACCA
February 2006
ACCA is pleased to respond on the proposal to revise the framework of late filing penalties.
ACCA supports the principle of the late filing penalty regime. We believe it is in the interests of users of accounts for companies to comply with the periods allowed by law for the filing of their annual accounts and agree that proportionate regulatory action on the part of Companies House is justified in order to help ensure that this goal is achieved. We note your comment that the regime has proved very effective in increasing the percentage of accounts that are filed on time.
In the context of the current proposal, the changes likely to be made later this year to the rules governing the periods allowed for delivering annual accounts need to be taken into account. The rationale behind these changes is clearly to make accounting information held on the public record more up-to-date and therefore relevant to users’ needs than it has been. To be consistent with that development, the outcome of the initiative in question should not be to encourage any further delay in filing practice.
We agree that it would be reasonable to engage in a general review of the level of the penalties provided for under the current regime. After 14 years at the current levels, it may be that some companies are learning to live with the penalties set in 1992 and choosing to file late and accepting the financial penalty that goes with it. Some revision of the levels to discourage such conduct would be in order.
But we are not convinced about the merits of the proposal to introduce a new ‘zero rate’ band for those companies which are up to a week late in meeting their deadlines. We consider that ten months (or nine months, as the private company deadline is likely soon to become) is sufficient time for any private company to organise the preparation, approval and publication of its annual accounts. The same applies to the deadlines applicable to public companies. If a substantial number of companies are filing late, then perhaps the emphasis in any remedial action should be on encouraging them to ensure that their accounts are completed earlier than they currently are. To allow a standard period of grace past these deadlines may have the unintended consequence of exacerbating the practice of late completion rather than the reverse.
The reality must also be that, were companies to become aware that the law will allow them an additional week past the statutory filing deadline, that additional week would become the new de facto default period. Those companies which missed even that extended deadline by a few days might well, in due course, come to complain to Companies House about unfair treatment when presented with penalty notices.
Before making any change to the law, we suggest therefore that options currently available should be considered. As we understand it, the Registrar still has a residual discretion under s242A of the Companies Act 1985 to waive any penalty which would otherwise fall due. The issue of the circumstances in which the Registrar may choose not to levy late filing penalties was discussed in the POW Trust case in 2003. We suggest that, if Companies House thinks it may be reasonable not to impose penalties in certain, defined circumstances which are not currently provided for, e.g. where documents have been posted before the filing deadline, then it should consider revising its in-house protocols and incorporating these additional examples into the range of circumstances in which it will be prepared to exercise its right of waiver. It would be fair, though, to notify companies and their advisers of any changes in this area.
An additional alternative to the extension of filing periods would be for Companies House routinely to issue reminders to companies to file their accounts by the permitted deadlines, say one month before the appropriate deadline (where accounts had not already been filed).
In conclusion, therefore, we appreciate that the levying of penalties may be a regular source of contention for Companies House, but are not convinced that allowing companies an extra week free from any threat of penalty would resolve the problem. We consider that the potential of alternative measures should be considered before the proposal as put forward in the consultation note is put into effect.