United Kingdom: Reform of the UK Corporate Reporting Framework

In brief

On 7 September 2026, the UK Government’s Department for Business, Innovation, Science and Trade published a consultation on creating a more streamlined and proportionate corporate reporting framework (“Consultation”). Notably, this includes a replacement of the existing distributions regime with a solvency-based test. 

Baker McKenzie has also published a Governance Bite specifically focused on the impact of the proposals for UK listed companies (click here for access).

These are proposals only and do not alter companies’ current legal reporting or audit obligations. Any changes will depend on the outcome of the consultation and the detail of any implementing legislation.

Government proposals on corporate reporting framework

Consultation context

The Consultation forms part of the Government's Modernising Corporate Reporting programme. It expands the previous review of non-financial reporting to cover the annual report and accounts (ARA) as a whole and follows the Government's decision not to proceed with its earlier proposals top reform audit and corporate governance requirements. 

The programme aims to simplify reporting, rationalise thresholds and exemptions, remove duplication and strengthen the UK's international competitiveness. The Government estimates that the wider programme could save businesses more than GBP 450 million annually, once fully implemented. 

The Consultation represents the most significant review of the UK corporate reporting framework in many years. While many proposals are deregulatory in nature, some could result in fundamental changes to long-established company law concepts, including the rules governing distributions and capital maintenance.

Solvency-based regime for distributions

One of the most significant company-law proposals in the Consultation is to replace the existing distributable profits and capital maintenance-based regime with a solvency-based test for determining the lawfulness of distributions and other corporate actions that currently depend on the availability of distributable profits (such as share buybacks). Under the proposal, the directors would instead be required to state that the payment of the distribution would not affect the company's ability to continue as a going concern. This would represent a fundamental shift in the framework governing distributions by UK companies. While the change could simplify the existing regime, the design of the solvency test, the evidence required to support it and the related responsibilities of directors would require careful consideration.

For many companies, particularly those undertaking the payment of regular dividends, group reorganisations, share buybacks and other transactions that rely on distributable profits, this could represent one of the most consequential reforms under consideration.

Other main proposals of the Consultation

1. Clarifying the purpose of the ARA

Clarify that the purpose of the ARA is to provide financially material, decision-useful information to existing and potential investors and creditors. This reframing is intended to underpin the wider reforms and address concerns that annual reports have become increasingly lengthy and seek to meet the needs of too many different audiences.

2. Rationalising the reporting framework, thresholds and exemptions

Simplify the overall reporting framework by rationalising the size thresholds and exemptions that determine when reporting obligations apply to companies. The Consultation proposes a more coherent and proportionate approach across the existing micro, small, medium-sized and large company categories, and would introduce a new “very large” company category to consolidate certain non-financial reporting requirements applicable to the largest companies.

3. Making financial reporting clearer

Move towards a more proportionate financial reporting regime to reduce the complexity of, and duplication in, the current framework. The UK's financial reporting requirements are currently split between the Companies Act 2006 (and related secondary legislation) and accounting standards. To simplify the framework and make reporting requirements easier to identify, the Consultation proposes:

• Making accounting standards the principal source of detailed financial reporting requirements;
• Streamlining the existing accounting standards into four main standards;
• Replacing the micro-entity "true and fair view" requirement with an obligation to comply with the applicable micro-entity accounting standard; and
• Developing a new accounting standard for not-for-profit entities.

4. Reviewing non-financial reporting for private companies

Refocus non-financial disclosures on information that is genuinely material and decision-useful, rather than retaining prescriptive requirements that may generate generic or duplicative disclosures. As part of this, the Government is considering whether the existing non-financial reporting requirements to which private companies are subject remain useful and proportionate, particularly if management and ownership are closely connected.

The Consultation also proposes the adoption of a new “very large” company category for certain non-financial reporting requirements, consolidating a number of existing reporting thresholds that apply to the largest companies.

5. Corporate governance and remuneration reporting

Simplify strategic, governance and remuneration reporting to remove duplication, reduce unnecessary content and improve clarity for both preparers and users.

In respect of the strategic report, the Consultation proposes to replace prescriptive disclosure requirements with a core set of baseline reporting requirements covering a company’s business model, performance, resources and relationships, strategy, and principal risks.

The Consultation also proposes to simplify remuneration- and corporate governance-related reporting by:

• Removing the annual shareholder vote on the directors’ remuneration report (while retaining the triennial vote on remuneration policy);
• Removing CEO-employee pay ratio reporting; and
• Moving certain corporate governance reporting requirements from individual company level to group level.

6. Audit exemption

Consider extending the current audit exemption beyond small companies to include certain medium-sized companies, broadening the scope of the current exemption. To support this change, the Government is also considering introducing a voluntary assurance standard for SMEs, which could provide lenders and other users of SME accounts with an alternative form of assurance while allowing more companies to benefit from the exemption.

This is likely to be one of the more debated proposals, as any reduction in compliance costs will need to be balanced against the value of independent assurance and the potential impact on companies’ ability to access finance.

7. Digital-first communications

Embed a digital-first approach to corporate reporting and shareholder communications. The Consultation proposes to:

• Consider whether certain disclosures could be moved to company websites or other digital platforms to give investors easier access to data;
• Expand the electronic tagging of ARA information;
• Clarify the law to allow virtual annual general meetings where shareholders consent;
• Move away from lengthy PDF annual reports towards more accessible digital information sources; and
• Make electronic communication with shareholders the default (rather than hard-copy).

• A proposed exemption for wholly-owned subsidiaries from preparing their own strategic report where they are covered by a UK parent’s reporting;
• A proposed exemption for most medium-sized private companies and groups from preparing a strategic report;
• The proposed removal of the directors’ report, with certain disclosures currently contained within it (such as energy emissions and supplier payment reporting, the statement about disclosure to the auditors, etc.) being moved elsewhere in the annual report; and
• In respect of financial years beginning on or after 6 April 2025, an approximately 50% increase in the statutory annual turnover and balance sheet thresholds for micro, small and medium-sized companies.

Business considerations

If implemented, the proposals could affect businesses differently depending on their size and reporting profile.

• Small companies: could benefit from simpler and clearer financial reporting requirements and, if applicable, reduced compliance burdens.
• Medium-sized companies: could gain access to wider reporting exemptions and, potentially, an audit exemption. Most medium-sized private companies may also benefit from the proposed exemption from the obligation to prepare a strategic report.
• Large companies: could see a reduction in reporting obligations through less prescriptive strategic, governance and remuneration-reporting requirements, wider group-level reporting and simplified reporting requirements for subsidiaries.
• Very large companies: could become subject to a consolidated reporting threshold for certain non-financial reporting requirements, although the precise threshold and requirements remain to be determined.

Companies should consider not only whether the proposals would reduce compliance costs and reporting burdens but also whether information that may cease to be legally required remains important to shareholders, lenders, investors and other stakeholders. In particular, the proposed solvency-based distributions regime would represent a significant change for companies undertaking dividends, capital reorganisations and other transactions that currently depend on the identification and availability of distributable profits.

• Submitting a response via the online survey (accessible here); or
• If there are issues accessing the online survey, emailing their response to mcr.review@businessandtrade.gov.uk

We will continue to monitor developments and provide updates as further details emerge.

While many of the proposals are aimed at reducing compliance costs and simplifying reporting obligations, the Consultation also raises important questions regarding investor protection, transparency and the role of corporate reporting. The outcome of the Consultation could significantly influence the future direction of UK corporate reporting and company law.

Rebecca Gilmore, Associate, and Trish Shah, Legal Consultant, have contributed to this legal update.