First published in The Herald on 15 October, 2007.
The persistence of late filing of accounts remains one of life’s great mysteries for accountants. Why businessmen and businesses – who, in every other field, will squeeze a penny till it squeaks – are content to pay substantial fines to Companies House is a perennial puzzle.
Yet the practice continues. And clearly it is every bit as frustrating for Companies House. The Complaints Adjudicator said in his report covering 2005/6: “It is disappointing that, nearly 15 years after the introduction of penalties, as many as 10% of all companies – which means nearly 200,000 – are at any time in default.
“The late filing penalty regime was meant to act as a tough tool to encourage timely filing. It seems that many companies regard the penalty as just another business expense. Changes in behaviour are required.”
Accountants, too, have gone out of their way to encourage timely filing. We are not alone at French Duncan in having instituted systems which give a progressive series of alerts and reminders.
Three months before accounts need to be lodged, partners are issued with a list of clients on whose behalf action needs to be taken. In general terms, more than half of these will usually be well up to date. Those who are not are pro-actively targeted.
The following month there are reminders and again the next month. Any sensible accountant can do what we do. They know the client year end and the date the books have to be in. It’s not rocket science.
Most clients respond timeously when they are reminded. But, as Companies House suggests, there are always the backsliders. I have one client who has two companies and every year he gets the £500 fine for both. I have suggested to him that he might want to pay me the £1000 instead, but still the delays go on.
The fact is that there is no excuse for late submission. Companies have 10 months from their year end to get their accounts in. New legislation is about to reduce this period, and I am 100% behind that. You simply cannot be running a business properly if you have to wait 10 months to find out how it is doing.
We try to encourage clients to do quarterly management accounts, to give them an ongoing snapshot of how the enterprise is faring. This also acts as an early warning system for accountants, who can identify and suggest remedies for potential problems.
Some companies, of course, are quite happy to go to the wire on the 10-month grace period, even though their accounts may be ready shortly after their year end. Once accounts are filed, of course, they enter into the public domain, and some directors are quite happy to shield their activities from their competitors for as long as possible.
In extreme cases, some companies who have had a bad year and do not particularly want others to know about it will take the fine for six months. By that time, the next year’s accounts are ready and they are submitted together, in an attempt to fuzz the edges of the true picture.
There is a strong case to be made that activities of this kind are possible because the current range of fines is too low. For one month it is £100, for three months it’s £250 and for six months it’s £500 – so, technically, a company could have its next set of accounts ready and lodged and only incur a £500 fine.
It would be interesting to find out from Companies House if the 200,000 late filers are the same companies every year. I would expect that 50% would be incorrigible recidivists.
Maybe minds would be sharpened if the scale of fines rose sharply for persistent offenders.
It might also be in the interests of good governance if the Procurator Fiscal’s office, which pursues offenders on behalf of Companies House, were better resourced in order to allow it to take action much earlier.
Much heavier penalties and the threat of decisive action might not only encourage the lackadaisical, but might also curb the activities of companies of doubtful provenance who are strangers to the concept of timely and accurate filing.
As far as accountants are concerned, they must continue to assist, encourage and harry if necessary to make sure that the system works as it should. After all, it’s in everyone’s interests.
Robert Kerr is Managing Partner of French Duncan, Chartered Accountants
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