Less is more: UK Government consults on a new approach to corporate reporting and other company law changes - dentons.com

The UK Government is consulting on potentially far-reaching changes to corporate reporting, both financial and non-financial. Described as a once-in-a-generation opportunity to reset corporate reporting in the UK, the consultation sets out the Government's plan to create a more streamlined and proportional regime. It also includes some other proposals for modernising and reforming company law.

The consultation "Modernising corporate reporting to support long-term economic growth" (the Consultation) builds on changes announced by the Government in October 2025 to legislate as soon as possible to:

exempt most medium-sized companies and wholly-owned subsidiaries from producing a strategic report in the annual report and exempt certain wholly-owned subsidiaries from producing a strategic report where they are covered by the reporting of a UK parent; and

remove the requirement for companies to produce a directors' report, with some provisions to be removed entirely and others relocated elsewhere in the annual report.

Consultation guiding principles

The Consultation is guided by five underlying principles:

clarity of purpose: the purpose of the annual report and accounts should be to provide financially material and decision-useful information to investors and creditors;

the purpose of the annual report and accounts should be to provide financially material and decision-useful information to investors and creditors; flexibility and trust: companies should be trusted to tailor their disclosures to the needs of their investors and creditors;

companies should be trusted to tailor their disclosures to the needs of their investors and creditors; simplicity and coherence: requirements should not be duplicated across legislation, accounting standards and regulatory frameworks;

requirements should not be duplicated across legislation, accounting standards and regulatory frameworks; proportionality: requirements should reflect company size, ownership structure and economic impact, ensuring costs are justified by benefits; and

requirements should reflect company size, ownership structure and economic impact, ensuring costs are justified by benefits; and fit for the future: the framework should be flexible to adapt to a changing world economy and take advantage of the opportunities of digital reporting and emerging technologies.

Based on these principles, the Consultation sets out an extensive range of issues and proposals intended to stimulate a wide-ranging discussion about how reform should be taken forward. Some reforms have the potential to benefit companies across the entire economy, while others will have implications for particular types and size of company. The Government is explicit that it is keen for stakeholders to test and challenge longstanding ideas in this area.

Below is an overview of some of the key areas covered by the Consultation.

The Government intends to rationalise the multiple different company categories, thresholds and exemptions in the Companies Act 2006 (CA 06) that determine reporting, audit and disclosure requirements.

Financial reporting requirements

A proposed new reporting framework would simplify the relationship between company law and accounting standards. Broadly, the CA 06 would set out high-level obligations and identify which reporting standards apply to which type of company.

Four sets of accounting standards (UK-adopted International Accounting Standards, UK GAAP for large companies, UK GAAP for SMEs and UK GAAP for micro-entities) would be the sole source of detailed reporting obligations for each type of company.

Under the proposal for a new SME accounting regime, reporting exemptions given to small companies and small groups would be extended to medium-sized companies and groups. For example, the latter would no longer be required to produce a cash flow statement or consolidated accounts. For all SMEs, the Consultation proposes that:

disclosures made in compliance with the SME standard would be sufficient to meet the requirements of the CA 06 rather than the additional step of requiring the accounts to show a true and fair view; and

the existing audit exemption for small companies would be extended to include all SMEs and the existing subsidiary audit exemption would be reformed and simplified. A new voluntary assurance standard, pitched at a level designed to give lenders confidence in SME accounts, could be created to enable more SMEs to take advantage of the SME audit exemption.

Existing strategic reporting requirements would be replaced with a more principles-based strategic report focused on information that is financially material to investors and creditors.

The suggested baseline for the new form strategic report would cover the company's business model, performance, resources and relationships, strategy and principal risks. The level of detail included under these disclosures would depend on the size and complexity of the business. In other areas where there would no longer be explicit disclosure requirements, companies would be expected to continue to report where these are financially material to their performance or operations.

The Consultation seeks views as to whether the baseline strategic reporting regime should apply to all large private companies, only to a new category of "very large" private companies or potentially only to publicly traded companies.

The Government will consider how UK Sustainability Reporting Standards (UK SRS), which were published for voluntary use in February 2026, should be incorporated into company law. It will take into account a post-implementation review of the CA 06 requirements on climate-related financial disclosures that is due to be completed by spring 2027 and responses to its June 2025 consultation on transition plan reporting.

The Government has confirmed that it does not have any plans to introduce new requirements for reporting companies to obtain assurance over future UK SRS reporting or for other strategic reporting topics.

The Consultation sets out various suggestions as to how corporate governance reporting could be streamlined to focus more on decision-useful information for investors and creditors.

Overarching issues on which the Government seeks views include:

how better use can be made of the UK Corporate Governance Code's flexibility;

whether there is sufficient value in corporate governance reporting for private companies to justify the costs of reporting, or whether the reporting should only be required for very large private or public companies; and

moving corporate governance reporting to the group level.

Other proposals include changes to the definition of corporate governance to make it more readily understandable and to the location of the corporate governance statement.

Simplifying remuneration reporting

For listed companies, there are proposals to simplify directors' remuneration reporting so that it is more focused on financially material, decision-useful information for investors and creditors. Core information, including each director's total remuneration, the remuneration committee chair's statement, the requirement to disclose performance measures and the forward-looking remuneration policy, would remain. However, other disclosures would be streamlined or removed.

There is a proposal to remove the annual advisory shareholder vote on the directors' remuneration report on the basis that shareholders already have a binding vote on remuneration policy every three years.

Corporate reporting in the digital age

The Consultation also discusses further digitisation of corporate reporting, including the electronic formatting of the annual report and accounts, website and portal reporting (as alternatives in some cases to the annual report) and the use of AI in corporate reporting.

Other proposed company law changes

Although the focus of the proposals is on corporate reporting, the Consultation also covers several wider reforms to the CA 06.

Distributions: The Government is proposing a fundamental reform of this area. The current regime, which links a company's ability to pay dividends and make distributions to the concept of "profits available for the purpose", would be replaced with a solvency-based regime. This would require companies to state that the payment of the dividend will not affect the company's ability to continue as a going concern.

The Government is proposing a fundamental reform of this area. The current regime, which links a company's ability to pay dividends and make distributions to the concept of "profits available for the purpose", would be replaced with a solvency-based regime. This would require companies to state that the payment of the dividend will not affect the company's ability to continue as a going concern. Digital shareholder communications: The Government has accepted a recommendation from the Digitisation Taskforce that companies should be able to send documents and other information to shareholders electronically without the need for prior agreement, subject to a shareholder right to opt in to receiving hard copy communications.

The Government has accepted a recommendation from the Digitisation Taskforce that companies should be able to send documents and other information to shareholders electronically without the need for prior agreement, subject to a shareholder right to opt in to receiving hard copy communications. Fully virtual annual general meetings (AGMs): The Government intends to clarify the law in relation to fully virtual AGMs by making clear that the "place" of a company meeting can include virtual locations, where there is shareholder consent.

The Government intends to clarify the law in relation to fully virtual AGMs by making clear that the "place" of a company meeting can include virtual locations, where there is shareholder consent. Auditor notification: Proposals to improve the information available at Companies House on auditor appointment are included in the Consultation.

The Government aims to publish its response within six months of the Consultation closing on 30 November 2026. It will work with the Financial Conduct Authority, the Prudential Regulation Authority and the Financial Reporting Council to ensure holistic reform. This will include engaging closely with the FCA as it conducts its review of the Disclosure, Guidance and Transparency Rules and finalises its policy statement on aligning listed issuers' sustainability disclosures with UK SRS.