Less Paper, More Purpose: Corporate Reporting Overhaul

The Government proposes to refocus the annual report and accounts on investors and creditors. The proposals include replacing the current strategic report requirements with a principles-based framework built around five baseline disclosures: (i) business model; (ii) performance review; (iii) resources and relationships; (iv) company strategy; and (v) principal risks. Explicit requirements to report on environmental matters, employees, social and community matters, human rights, and anti-corruption and anti-bribery would be removed from legislation, although companies would still be expected to address these topics where financially material. The section 172(1) statement would also be removed. As a reminder, the Government has also previously announced that most medium-sized private companies and wholly-owned subsidiaries will be exempt from the requirement to produce a strategic report at all.

As previously announced, the directors' report is to be abolished, but it is worth noting that the streamlined energy and carbon reporting (SECR) disclosures currently required to be included in the directors' report will be retained but moved (and the Government does not intend to prescribe a specific reporting location for SECR disclosures in the annual report). The Government has said that it will consult on changes to SECR and the Energy Savings Opportunity Scheme (ESOS) later in the year, and on climate-related financial disclosures in 2027. The timeline for the possible introduction of sustainability reporting under the UK SRS, or mandatory transition planning, remains uncertain.

In respect of quoted companies, the Government proposes to remove the annual advisory shareholder vote on the directors' remuneration report, however, the triennial binding vote on remuneration policy would be retained. A range of specific disclosure requirements would also be removed, including CEO-to-employee pay ratio reporting, malus and clawback policies, and information on the work of the remuneration committee (although some of these will continue to be covered by the "comply or explain" principles of the UK Corporate Governance Code). However, the Government proposes to retain:

• the annual disclosure of total single remuneration for each director broken down by salary, any bonus, any long-term share award, pension contributions and any other taxable benefits;
• the statement by the Chair of the Remuneration Committee which summarises the key decisions or proposals on directors’ pay contained in the report, including any use of discretion;
• the requirement for companies to disclose performance measures attached to pay awards in the previous year;
• the forward-looking directors’ remuneration policy setting out maximum variable pay outcomes for executive directors based on performance criteria and how these link to company strategy; and
• the performance graph showing CEO pay and Total Shareholder Return in the past ten years.

The Government has also proposed certain modifications to the remuneration report content requirements, including limiting the statement of how remuneration policy is to be applied in the following year to material changes (although this might be removed altogether) and the disclosure of executive director shareholdings (which may be streamlined or removed because it is already publicly available).

As a reminder, AIM companies are not subject to a legally mandated shareholder advisory vote on remuneration, but the QCA Corporate Governance Code recommends one is proposed as a matter of good governance.

The Government proposes that the existing distributable reserves regime would be replaced by a solvency-based regime (which is the type of regime some other countries have). Under this proposal, directors would be required to confirm that a proposed dividend (or other distribution, such as a share buyback) will not affect the company's ability to continue as a going concern. This represents a fundamental change to the Companies Act 2006 distributions framework and would remove the current realised profits calculation. So far, the Government has not provided significant details on these proposals, but English law is unusual in having the distributable reserves regime and so it is expected that this would be a welcome change for companies.

At present there is uncertainty around whether fully virtual general meetings are permitted under English law, and whether the wording of the Companies Act 2006 (particularly, the word "place") requires a physical meeting place. As previously announced, the consultation proposes that the law will be clarified to confirm that a "place" for the purposes of a general meeting includes a virtual location, provided shareholder consent to holding fully virtual meetings is obtained. At present institutional investor bodies have not indicated their support for fully virtual meetings and so we await their response to the proposals.  In any event, virtual only meetings can be expensive and so smaller listed companies may still wish to retain physical meetings. If the proposals go ahead, as well as the required shareholder consent, companies would need to update their articles of association to ensure they were fit for purpose for virtual only meetings.

The Government is interested in understanding if shareholder safeguards would be appropriate when clarifying that "place" can include a fully virtual location. Examples of potential safeguards raised by both companies and investors include supermajority consent from shareholders, reapproval after a set period, and best practice guidance specific to virtual AGMs.

A number of other material points are proposed in the consultation:

• In what we expect to be a welcome change for companies, the electronic communications regime would be overhauled to make e-comms with shareholders the default position, with shareholders still able to opt in to hard copy communications. This removes the existing presumption in favour of postal distribution and reduces the burden on companies.
• The Government proposes to simplify which companies are required to report different types of information and to create a lighter regulatory load for small and medium-sized enterprises (SMEs), including allowing certain medium-sized companies to qualify for an audit exemption.
• Considering which disclosures could be moved to digital platforms and websites so that investors have easier access to data outside of annual reporting cycles, and so that the annual report can be shortened.
• Creating a "very large" company threshold for non-financial reporting obligations, replacing the current patchwork of different thresholds, to make it simpler and clearer.
• Streamlining the audit exemption for wholly-owned subsidiaries with UK parent companies, such that no guarantee is required from the parent company. The Government is also considering whether to extend the ability to use this exemption to non-wholly-owned subsidiaries subject to agreement by all shareholders.
• Introducing a new requirement for companies to notify Companies House of auditor appointments and departures.

Removing detailed financial reporting requirements from the Companies Act 2006 and consolidated into accounting standards. Four main standards would be retained: UK-adopted International Accounting Standards; UK GAAP for large companies; UK GAAP for SMEs; and UK GAAP for micro-entities.

The consultation closes on 30 November 2026 and a consultation outcome is expected within six months of closing. The Government notes that it intends to work with other bodies as part of the process, including the Financial Reporting Council and the Financial Conduct Authority.