Citation, commencement, interpretation and application

1.-(1) These Regulations may be cited as the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, and come into force on the seventh day after the day on which the Regulations are made.

(2) The amendments made by regulations 2 to 4 of these Regulations apply-

(a)in relation to the financial years of companies and qualifying partnerships beginning on or after 1st January 2017; and

(b)only in relation to-

(i)companies; and

(ii)qualifying partnerships.

(3) In this section, "qualifying partnership" has the meaning given by regulation 3 of the Partnerships (Accounts) Regulations 2008(2).

Amendment of the Companies Act 2006

2.  The Companies Act 2006 is amended by regulations 3 and 4.

Group accounts

3.-(1) In section 384B (companies excluded from being treated as micro-entities)(3), in subsection (2)(a), for "398" substitute "399(4)".

(2) Omit-

(a)section 398 (option to prepare group accounts), and

(b)the heading preceding section 398.

(3) In the heading preceding section 399 (duty to prepare group accounts)(4), omit ": other companies".

(4) In section 399-

(a)omit subsection (1);

(b)in subsection (2), for the first occurrence of "the company" substitute "a company";

(c)for subsection (2A), substitute-

"(2A) A company is exempt from the requirement to prepare group accounts if-

(a)at the end of the financial year, the company-

(i)is subject to the small companies regime, or

(ii)would be subject to the small companies regime but for being a public company, and

(b)is not a member of a group which, at any time during the financial year, has an undertaking falling within subsection (2B) as a member.

(2B) An undertaking falls within this subsection if-

(a)it is established under the law of an EEA State,

(b)it has to prepare accounts in accordance with Directive 2013/34/EU of the European Parliament and of the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings(5), and

(c)it is-

(i)an undertaking which has been designated by an EEA State as a public-interest entity under that Directive,

(ii)an undertaking whose transferable securities are admitted to trading on a regulated market in an EEA State,

(iii)a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council(6), other than one listed in Article 2 of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and investment firms(7), or

(iv)an insurance undertaking within the meaning given by Article 2(1) of Council Directive 91/674/EEC of the European Parliament and of the Council on the annual accounts of insurance undertakings(8)."; and

(d)in subsection (4), omit "to which this section applies but".

(5) In section 471 (meaning of "annual accounts" and related expressions)(9), in subsection (1)(b), for "sections 398 and" substitute "section".

Strategic report

4.  After section 414C (contents of strategic report)(10) insert-

"414CA    Non-financial information statement

(1) A strategic report of a company must include a non-financial information statement if the company was at any time within the financial year to which the report relates-

(a)a traded company(11),

(b)a banking company(12),

(c)an authorised insurance company(13), or

(d)a company carrying on insurance market activity(14).

(2) If the company's strategic report is a group strategic report(15), the non-financial information statement to be included in the report under subsection (1) must be a consolidated statement (a "group non-financial information statement") relating to the undertakings included in the consolidation.

(3) Subsection (1) does not apply if-

(a)the company is subject to the small companies regime in relation to that financial year (see sections 382 to 384), or

(b)the company qualifies as medium-sized in relation to that financial year (see sections 465 to 467).

(4) Subsection (1) does not apply if-

(a)where the company was not a parent company in that financial year, the company had no more than 500 employees in that financial year, or

(b)where the company was a parent company(16) at any time within that financial year, the aggregate number of employees for a group headed by that company in that financial year was no more than 500.

(5) The number of employees means the average number of persons employed by the company in the year, determined as follows-

(a)find for each month in the financial year the number of persons employed under contracts of service by the company in that month (whether throughout the month or not),

(b)add together the monthly totals, and

(c)divide by the number of months in the financial year.

(6) The aggregate number of employees for a group is ascertained by aggregating the relevant figures determined in accordance with subsection (5) for each member of the group.

(7) Subsection (1) does not apply if the company is a subsidiary undertaking(17) at the end of that financial year and is included in-

(a)a group strategic report of a parent undertaking of the company that satisfies the requirements in subsection (8), or

(b)a report that satisfies the requirements in subsection (9).

(8) The requirements in this subsection are that-

(a)the group strategic report relates to undertakings that include the company and its subsidiary undertakings (if any),

(b)the report is prepared for a financial year of the parent undertaking that ends at the same time as, or before the end of, the company's financial year, and

(c)the report includes a group non-financial information statement in respect of all the undertakings included in the consolidation.

(9) The requirements in this subsection are that-

(a)the report is-

(i)a consolidated management report under Article 29 of Directive 2013/34/EU of the European Parliament and of the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings(18), or

(ii)such separate report as is referred to in Article 19a(3) or 29a(3) of that Directive,

(b)the report is the report of a parent undertaking of the company established under the law of an EEA State,

(c)the report relates to undertakings that include the company and its subsidiary undertakings (if any), and

(d)the report includes such information as is required by Article 19a (non-financial statement) or Article 29a (consolidated non-financial statement), as the case may be.

(10) A company to which subsection (1) does not apply may include a non-financial information statement in its strategic report or, as the case may be, a group non-financial information statement in its group strategic report.

414CB    Contents of non-financial information statement

(1) The non-financial information statement must contain information, to the extent necessary for an understanding of the company's development, performance and position and the impact of its activity, relating to, as a minimum-

(a)environmental matters (including the impact of the company's business on the environment),

(b)the company's employees,

(c)social matters,

(d)respect for human rights, and

(e)anti-corruption and anti-bribery matters.

(2) The information must include-

(a)a brief description of the company's business model,

(b)a description of the policies pursued by the company in relation to the matters mentioned in subsection (1)(a) to (e) and any due diligence processes implemented by the company in pursuance of those policies,

(c)a description of the outcome of those policies,

(d)a description of the principal risks relating to the matters mentioned in subsection (1)(a) to (e) arising in connection with the company's operations and, where relevant and proportionate-

(i)a description of its business relationships, products and services which are likely to cause adverse impacts in those areas of risk, and

(ii)a description of how it manages the principal risks, and

(e)a description of the non-financial key performance indicators relevant to the company's business.

(3) In subsection (2)(e), "key performance indicators" means factors by reference to which the development, performance or position of the company's business, or the impact of the company's activity, can be measured effectively.

(4) If the company does not pursue policies in relation to one or more of the matters mentioned in subsection (1)(a) to (e), the statement must provide a clear and reasoned explanation for the company's not doing so.

(5) The statement must, where appropriate, include references to, and additional explanations of, amounts included in the company's annual accounts.

(6) If information required by subsections (1) to (5) to be included in the statement is published by the company by means of a national, EU-based or international reporting framework, the statement must specify the framework or frameworks used, instead of including that information.

(7) If a non-financial information statement complies with subsections (1) to (6), the strategic report of which it is part is to be treated as complying with the requirements in-

(a)section 414C(4)(b),

(b)section 414C(7), except as it relates to community issues,

(c)section 414C(8)(b), and

(d)section 414C(12), so far as relating to the provisions mentioned in paragraphs (a) to (c).

(8) In relation to a group non-financial information statement, this section has effect as if the references to the company were references to the undertakings included in the consolidation.

(9) Nothing in this section requires the disclosure of information about impending developments or matters in the course of negotiation if the disclosure would, in the opinion of the directors, be seriously prejudicial to the commercial interests of the company, provided that the non-disclosure does not prevent a fair and balanced understanding of the company's development, performance or position or the impact of the company's activity.".

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations implement Article 1(1) and (3) of Directive 2014/95/EU of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (OJ No L 330, 15.11.14, p1). Article 1(1) inserts Article 19a, and Article 1(3) inserts Article 29a, into Directive 2013/34/EU of the European Parliament and of the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (OJ No L 34, 11.12.2014, p1) ("the Accounting Directive").

These Regulations also make some amendments with respect to the transposition of Article 23(1) of the Accounting Directive.

The Accounting Directive applies only to certain types of undertaking, which have limited liability. Regulation 1 restricts the effect of the amendments to the Companies Act 2006 (c. 46) ("the 2006 Act") to companies and qualifying partnerships. The word ‘company' has the meaning given by section 1 of the 2006 Act, being a company formed or registered under that Act. Qualifying partnerships are defined in regulation 3 of the Partnerships (Accounts) Regulations 2008 (S.I. 2008/569). The amendments made to the 2006 Act by these Regulations apply to qualifying partnerships by virtue of S.I. 2008/569.

Regulation 3 concerns the transposition of Article 23(1) of the Accounting Directive, to ensure that the parent company of a small group cannot benefit from an exemption from the requirement to produce group accounts if a member of the group is established under the law of an EEA state and is one of the types of entities listed in newly inserted section 399(2B).

Regulation 4 inserts new sections 414CA and 414CB into the 2006 Act. By section 414A of the 2006 Act, the directors of a company must produce a strategic report for each financial year, while the directors of a company which is a parent company producing group accounts must produce a group strategic report (which is a consolidated report relating to all the undertakings included in the consolidated accounts). Section 414C sets out the required content of a strategic report.

Inserted section 414CA requires companies and groups of a certain type (i.e. those listed in subsection (1) of that section), which are not small or medium-sized, and which have more than 500 employees in a financial year, to produce a non-financial statement as part of their strategic report. The requirement to produce a non-financial statement does not apply to a company which is a subsidiary undertaking if that company and its subsidiary undertakings (if any) are included in a group strategic report which complies with the requirements in subsection (8), or in a consolidated management report of an EEA undertaking which complies with the requirements in subsection (9).

Inserted section 414CB sets out the requirements for the contents of the non-financial information statement. The statement must include such information as is necessary for an understanding of the company's development, performance and position and the impact of the company's activity, and must include information relating to certain matters. Some information requirements can be fulfilled by the company publishing the information by means of a national, EU-based or international reporting framework (see subsection (6)). Compliance with section 414CB(1) to (6) is deemed to fulfil some of the requirements for non-financial information contained in section 414C (see subsection (7)). Information about impending developments or matters in the course of negotiation which would, in the opinion of the directors, be seriously prejudicial to the commercial interests of the company can in certain circumstances be withheld (see subsection (9)).

A transposition note is available alongside this instrument at www.legislation.gov.uk.

A full regulatory impact assessment of the effect that this instrument will have on the costs of business and the voluntary sector is available from the Business Frameworks and Regional Growth Fund Directorate, Department for Business, Energy and Industrial Strategy, 1 Victoria Street, London SW1H OET or from www.gov.uk/beis, and is also available alongside this instrument at www.legislation.gov.uk.