Reporting requirements

Thresholds

How to comply

Section 172 Statement

The requirement to prepare a Section 172 Statement applies to all companies, except those that qualify as medium-sized companies under sections 465 and 467,CA 2006. UK incorporated companies that meet at least two of the following will qualify as a medium-sized company:

• Turnover of £36m or less.

• Balance sheet total of £18m or less.

• 250 employees or less.

Group Treatment: All qualifying companies, including subsidiaries, must meet these reporting requirements. This is the case even where the parent company is required to produce a consolidated “group strategic report” or “group directors’ report”.

If a subsidiary company meets the qualifying conditions and the parent does not, but the parent prepares consolidated group accounts, the parent company must publish a Section 172(1) Statement as part of the group strategic report, as the parent qualifies through the process of consolidation. Note, this does not remove the separate requirement for the subsidiary to report on how its own directors have had regard to publish a Section 172(1) Statement.

If both the parent company and the subsidiary are below the qualifying conditions but, through consolidation, the parent company meets the threshold for preparing a Section 172(1) Statement, the parent company must prepare a Section 172(1) Statement. The subsidiary does not need to because it is below the relevant threshold.

Companies in scope must include a Section 172 Statement in their strategic report setting out how directors have complied with their duty to promote the success of the company for the benefit of its members as a whole, having regard to the matters in s172 (1)(a)-(f) of the Companies Act 2006 (the “s172 Duty”):

• The likely consequences of any decision in the long term.
• The interests of the company's employees.
• The need to foster the company's business relationships with suppliers, customers and others.
• The impact of the company's operations on the community and the environment.
• The desirability of the company maintaining a reputation for high standards of business conduct.
• The need to act fairly as between members of the company.

The Section 172 Statement must be provided in a separately identifiable statement within the strategic report.

The statement must also be made available online by all companies in scope. As unquoted companies are not required to publish their annual report on a website, they must ensure that the Section 172(1) statement is available on a website. This does not need to be the company’s own website – it can be the website of a parent company provided it identifies the company in question.

According to guidance published in November 2018 by the Department for Business, Energy & Industrial Strategy, Companies should include information on some or all the following in their Section 172(1) Statements:

• The issues, factors and stakeholders the directors consider relevant in complying with the s172 Duty and how they have formed that opinion.
• The main methods the directors have used to engage with stakeholders and understand the issues to which they must have regard.
• Information on the effect of that regard on the company’s decisions and strategies during the financial year.
  
  

Statement of engagement with suppliers

Statement of engagement with employees

The requirement to prepare a Statement of engagement with employees applies to UK incorporated companies with more than 250 UK employees.

If the company is a parent company, it is the number of employees in the group and not just the company itself that is used.

Companies in scope must include a Statement of engagement with employees in their directors’ reports, summarising how directors have engaged with employees and taken account of their interests. This expands on the information about employee engagement matters that companies already have to include in their directors’ report.

Statement of corporate governance arrangements

The requirement to prepare a Statement of corporate governance arrangements applies to UK incorporated companies with either:

• More than 2,000 global employees.
  
  
• AS turnover over £200 million globally and a balance sheet total over £2 billion globally.

Premium and standard listed companies which are already required to report on their corporate governance arrangements under DTR (Disclosure Guidance and Transparency Rules) 7.2 are not within scope. Community interest companies and charitable companies are also exempted.

Group Treatment:

The employee threshold and the turnover and balance sheet thresholds should be calculated at an individual company level only. No consolidation across a group is required for these thresholds.

Companies in scope must include a Statement of corporate governance arrangements in the directors’ report, explaining the corporate governance arrangements applied by the company.

The statement must also be published online on a website maintained by or on behalf of the company.

Companies can choose the most appropriate code for them, or none, although if a company does not apply a code, it must explain why that is the case and what corporate governance arrangements have been made. If the company has departed from its chosen code, it must set out the respects in which it did so, and the reasons.

Companies are expected to provide sufficient information to ensure that their corporate governance arrangements are explained.

The Government hopes that the corporate governance principles for large private companies developed by James Wates and a coalition group (the “Wates Principles”) will be widely adopted. There is also the UK Corporate Governance Code, which companies with a premium listing on the London Stock Exchange must comply with. The Financial Reporting Council has announced that this year, the UK Corporate Governance Code will be updated for the first time since 2018.

The requirement to prepare a Section 172 Statement applies to all companies, except those that qualify as medium-sized companies under sections 465 and 467,CA 2006. UK incorporated companies that meet at least two of the following will qualify as a medium-sized company:

• Turnover of £36m or less.

• Balance sheet total of £18m or less.

• 250 employees or less.

Group Treatment: All qualifying companies, including subsidiaries, must meet these reporting requirements. This is the case even where the parent company is required to produce a consolidated “group strategic report” or “group directors’ report”.

If a subsidiary company meets the qualifying conditions and the parent does not, but the parent prepares consolidated group accounts, the parent company must publish a Section 172(1) Statement as part of the group strategic report, as the parent qualifies through the process of consolidation. Note, this does not remove the separate requirement for the subsidiary to report on how its own directors have had regard to publish a Section 172(1) Statement.

If both the parent company and the subsidiary are below the qualifying conditions but, through consolidation, the parent company meets the threshold for preparing a Section 172(1) Statement, the parent company must prepare a Section 172(1) Statement. The subsidiary does not need to because it is below the relevant threshold.

Companies in scope must include a Section 172 Statement in their strategic report setting out how directors have complied with their duty to promote the success of the company for the benefit of its members as a whole, having regard to the matters in s172 (1)(a)-(f) of the Companies Act 2006 (the “s172 Duty”):

• The likely consequences of any decision in the long term.
• The interests of the company's employees.
• The need to foster the company's business relationships with suppliers, customers and others.
• The impact of the company's operations on the community and the environment.
• The desirability of the company maintaining a reputation for high standards of business conduct.
• The need to act fairly as between members of the company.

The Section 172 Statement must be provided in a separately identifiable statement within the strategic report.

The statement must also be made available online by all companies in scope. As unquoted companies are not required to publish their annual report on a website, they must ensure that the Section 172(1) statement is available on a website. This does not need to be the company’s own website – it can be the website of a parent company provided it identifies the company in question.

According to guidance published in November 2018 by the Department for Business, Energy & Industrial Strategy, Companies should include information on some or all the following in their Section 172(1) Statements:

• The issues, factors and stakeholders the directors consider relevant in complying with the s172 Duty and how they have formed that opinion.
• The main methods the directors have used to engage with stakeholders and understand the issues to which they must have regard.
• Information on the effect of that regard on the company’s decisions and strategies during the financial year.
  
  

Same as above.

Companies in scope must include a Statement of engagement with suppliers, customers and others in their directors’ reports, summarising how directors have engaged with suppliers, customers and others in a business relationship with the company.

The purpose of this additional requirement is to ensure that directors report on how they have complied with this aspect of the s172 Duty in respect of matters that are not of sufficient strategic importance to be included in the strategic report that year.

The requirement to prepare a Statement of engagement with employees applies to UK incorporated companies with more than 250 UK employees.

If the company is a parent company, it is the number of employees in the group and not just the company itself that is used.

Group Treatment: same as above.

Companies in scope must include a Statement of engagement with employees in their directors’ reports, summarising how directors have engaged with employees and taken account of their interests. This expands on the information about employee engagement matters that companies already have to include in their directors’ report.

Again, the purpose of this additional requirement is to ensure that directors report on how they have complied with this aspect of the s172 Duty in respect of matters that are not of sufficient strategic importance to be included in the strategic report that year.

The requirement to prepare a Statement of corporate governance arrangements applies to UK incorporated companies with either:

• More than 2,000 global employees.
  
  
• AS turnover over £200 million globally and a balance sheet total over £2 billion globally.

Premium and standard listed companies which are already required to report on their corporate governance arrangements under DTR (Disclosure Guidance and Transparency Rules) 7.2 are not within scope. Community interest companies and charitable companies are also exempted.

Group Treatment:

The employee threshold and the turnover and balance sheet thresholds should be calculated at an individual company level only. No consolidation across a group is required for these thresholds.

Every company meeting the qualifying thresholds on its own must comply with the new reporting requirement, including subsidiaries. This includes both subsidiaries of listed companies required to meet the UK Corporate Governance Code and subsidiaries of parent companies which prepare a consolidated group directors’ report. The UK subsidiary of a listed overseas parent which applies an overseas code must also prepare a corporate governance statement.

Companies in scope must include a Statement of corporate governance arrangements in the directors’ report, explaining the corporate governance arrangements applied by the company.

The statement must also be published online on a website maintained by or on behalf of the company.

Companies can choose the most appropriate code for them, or none, although if a company does not apply a code, it must explain why that is the case and what corporate governance arrangements have been made. If the company has departed from its chosen code, it must set out the respects in which it did so, and the reasons.

Companies are expected to provide sufficient information to ensure that their corporate governance arrangements are explained.

The Government hopes that the corporate governance principles for large private companies developed by James Wates and a coalition group (the “Wates Principles”) will be widely adopted. There is also the UK Corporate Governance Code, which companies with a premium listing on the London Stock Exchange must comply with. The Financial Reporting Council has announced that this year, the UK Corporate Governance Code will be updated for the first time since 2018.

Companies can also choose a foreign corporate governance code if appropriate.