PPE Medpro is the company which provided £200m of PPE to the Government in dubious circumstances, of which £122m was faulty. Reports suggest it made £65m profit – but we can’t know for sure. Its finances are a mystery, because it was allowed to file only abridged accounts.
Why? Because under UK law, PPE Medpro counted as a “small” company. The definition of “small” is a relic of a European compromise nearly fifty years ago. It looks at balance sheets and headcounts, not just turnover — meaning a firm could, in theory, book trillions in sales and still be “small.”
That’s absurd. This report sets out a simple fix: require full accounts from firms of real scale, while keeping genuine small and micro businesses out of red tape.
When a £200m company is “small”
Something’s odd about PPE Medpro’s accounts for the year it made £200m from selling PPE to the Government. There’s a balance sheet, but no director’s report and no profit and loss account. We don’t know how much revenue it received, or how much profit it made.
Why?
Because the company classified as “small”.
The intention of the small company exemption is that we shouldn’t be over-regulating small companies. That’s a perfectly rational policy. It is, however, much less rational that a £200m business also qualifies for the exemption.
But PPE Medpro absolutely did qualify, because of the strange way the small company definition works.
That’s an anomaly, but one that’s far from unique to PPE Medpro. Most of the fake companies and tax avoidance scheme promoters we’ve investigated use the same exemption. They’re not breaking the rules – the problem is that the rules are irrational.
The rules
The rules say that a company is “small” if it has any two of the following:
- a turnover of £15m or less
- £7.5m or less on its balance sheet
- 50 employees or less
It’s then not required to prepare audited accounts, or publish a profit and loss (P&L) account, showing its turnover, expenses, tax and profit.
We don’t think many people would describe a £200m turnover as “small”. But it’s the “any two” in the small company rule which is critical. In its 2021 accounts, PPE Medpro had a balance sheet of £5m1, and three employees.2 So PPE Medpro’s large turnover didn’t stop it being small, because it satisfied the other two conditions. Indeed it would have remained “small” even if it had a trillion pounds of revenue..
There are more relaxed rules for “micro” companies, who can file very abbreviated accounts. A company will be a micro-entity if it has any two of the following:
- a turnover of £1m or less
- £500,000 or less on its balance sheet
- 10 employees or less
Again, £1m doesn’t seem very “micro” – and, again, you can still qualify as a “micro” company with a trillion pound turnover, provided the balance sheet and number of employees is small.
The history
How did we end up with such a weird set of conditions for the small company accounts exemption?
Until the early 1980s, all UK companies had to file full accounts with Companies House. The Companies Act 1981, implementing an EU directive, first allowed “small” companies to file abbreviated accounts without a profit and loss account or directors’ report. Later Acts – particularly the Companies Act 2006 and subsequent regulations – progressively relaxed the rules further, introducing micro-entity and abridged accounts. Over the next few years3, requirements were loosened further so that, today, small companies can file “abridged” accounts and micro companies “micro-entity accounts”.4 HMRC still receives the profit and loss accounts for all companies, but Companies House does not.
Prior to Brexit, the UK wasn’t free to create its own rules for when a company could file abridged accounts. We had to adopt the small company definition which originated in Article 11 of the Fourth Company Accounts Directive (now in the EU Accounting Directive). The “two out of three” was a classic EEC/EU compromise from back in 1978, and – like many such compromises – has become badly outdated but is very hard to change.
Back in the 1970s it was reasonable to assume that large businesses had lots of staff and big balance sheets. The modern world of digital and financial companies, globalisation, contractors and intermediaries breaks those assumptions – it’s common to see trading businesses with large revenues but tiny head-counts and light balance sheets. Conversely, we often see financial businesses with large balance sheets but small revenues and head-counts. These kinds of companies are “large” by any sensible definition, but “small” by the actual definition – so they get to file abridged accounts. Only after two years of not being small are full accounts required.
This breaks the basic deal of incorporation: you receive the benefit of limited liability, but in return you disclose the key elements of your business to the world (and, in particular, to your customers and counterparties). It’s self-evidently good for business that (e.g.) someone considering contracting with a firm can immediately see its accounts online. And it’s self-evidently bad for transparency that some companies which are realistically “large” like PPE Medpro, get to shroud their affairs in secrecy.
The Government’s solution
The recent focus on anti-corruption measures prompted the last Government to pass the Economic Crime and Corporate Transparency Act. This requires that all companies have to file a profit and loss account from 2027. The concept of “abridged” accounts is eliminated, and all companies will be required to file their accounts electronically using commercial software (the current simple web-filing option would disappear).
This has caused considerable disquiet for some businesses.
There have been concerns about privacy. Trade bodies have warned that publishing even a summarised P&L could expose margins to customers and larger suppliers and weaken negotiating power. That is unpersuasive – full P&Ls were published prior to 2006, and there’s no evidence this was problematic.
There have also been concerns around cost. This is more persuasive. Companies already prepare full statutory accounts for HMRC every year as part of their CT600 corporation tax return – and most large companies will already do this using commercial software, so uploading to Companies House will simply involve pressing a button. Some small and micro companies will not; so the new rules really would mean more cost and bureaucracy.
It’s therefore easy to understand why there were reports in the press back in July that the Government may be about to scrap the changes. Nothing has happened yet – the regulations are still in place requiring full P&L to be filed by 2027.
The evidence
The conventional economic view is that financial openness promotes more efficient resource allocation – and there are a large number of studies that observed this effect in practice.5
But there’s also a downside. There’s convincing evidence from a pan-EU study, that requiring small companies to disclose financial accounts can (at the margin) reduce their innovation. And a recent study of German firms found that, for very small firms, the costs can exceed the benefit.
This suggests that we shouldn’t be looking for a “one size fits all” solution, but that we should calibrate different levels of reporting to different types of firm. And it’s critical that the administration is as straightforward and frictionless as possible.
A more nuanced solution
The principle is straightforward: if you want limited liability, you owe the public basic transparency. The only carve-out should be for businesses that are genuinely small – not firms turning over hundreds of millions. And even small businesses should provide basic information.
So here’s our proposal: to qualify for exemption from filing full accounts, a company could be required to meet all of a turnover, balance sheet and employee condition. The thresholds could (for example) be set at turnover of £1m, balance sheet of £1m and ten employees. Once a threshold is breached then full accounts should be required immediately, without a year’s grace period. The aim should be that a coffee shop qualifies but the likes of PPE Medpro do not.
And companies that qualify for the exemption should be required to state their turnover and profit (but no other details from their P&L). That should all-but-eliminate compliance cost, but ensure that key financial information is made available.
Finally, the threshold for mandatory audits should also be an “all” test, with (for example) all companies with turnover of £20m, balance sheets of £10m or 60 employees required to obtain audited accounts.6
Photo by Jakub Żerdzicki on Unsplash
Footnotes
Current assets £4.972m and net assets £3.890m – it’s the gross amount that “counts” for this purpose. ↩︎
The thresholds were lower in 2021 than they are today, but even at today’s higher thresholds, PPE Medpro would clearly be “small”. ↩︎
Regulations in 2013 introduced micro‑entity accounts, and regulations in 2016 created the “abridged” preparation option and “filleted” filing choice for small companies. ↩︎
Both with the option of omitting their profit and loss account; an option that’s almost always taken. ↩︎
There’s also evidence that an audit requirement reduces dividends (presumably because companies are required to be more conservative in determining whether they have sufficient profits). ↩︎
It seems fair to raise each of the thresholds above where they are at present. ↩︎
22 responses to “PPE Medpro made £200m but never filed full accounts. The law should change.”
Just another thought – and one any decent forensic accountant would be able to get to the bottom of – but I’ve often wondered if the money paid was paid (incorrectly) directly to the IoM company incorporated with the exact same PPE Medpro Limited name? It would take 10 mins to check the relevant bank accounts.
Not a forensic accountant but just as a Chartered Accountant – I think there are so many errors in their accounts. 2021 to 2022 comparative numbers are totally wrong – Investments even Cash balance is restated from 2021 in 2022 accounts. No of employees in 2021 was 3, but in 2022 previous year no of employees are 0. However the social security was payable for more than a million – I wonder how much was they taking out as salary. Funny part is its Share Capital is just £100 and not even paid up.
What I’m not understanding in all of this is how, in the absence of having a “reference set” of accounts showing sufficient distributable reserves, PPE Medpro was ever able to – legally – pay out anything in the way of dividends to its shareholders?
I don’t think it did. Either the money never got to PPE Medpro, or it paid it all (or almost all of it) out as an expense to person or persons unknown.
Fair enough Dan, that’s a possibility….however, surely then HMRC could deny any kind of tax deduction under the “wholly, necessarily and exclusively” rules? If deemed to be excessive and/ or not fully deduct then the taxable profit would be much higher and HMRC would get a could slice of the proceeds? Any way we can find out how much cash taxes were paid to HMRC by the company?
Although I agree with the thrust of your arguement, your history section where it states “Until 2006, all UK companies had to file full accounts with Companies House.” is not correct. Small companies were able to file “abbreviated accounts” without a profit & loss account and directors report long before 2006, certainly during the 90s and probably in the early 80s when I qualified with ICAEW.
you’re quite right – we’ll tweak this. Thank you!
Never understood why small/micro entity have to maintain 2 sets of accounts (P&L & Balance Sheet).
One for Companies House (normal accounting for assets/depreciation) and one for HMRC (due to 100% 1st year capital allowances).
Shame can’t just send HMRC one to Companies House. Save a load of admin/learning etc…
The threshold stated as those that increased for accounting periods beginning on or after 06 April 2025. Back then it was sales £10.2M, assets £5.1M and employees unchanged at 50. Worse still, an audit is only required if these limits are breached for 2 consecutive years (unless it was the first year).
I find it very hard to understand how a company could have £200M sales and still have assets < £5.1M, especially if profits were £65M. The company held no stocks and withdrew all the profits in the same year. Therefore there must be doubt the company was even small.
An indicator of profit might be the £913k+ Tax & Soc. Sec creditor which, assuming all Corp Tax implies a pre-tax profit of approx £4.5 mln.
How the supposed £200 mln passed through PPE Medpro (if at all as there was suggestion of being a consortium which might suggest that not all did) is a mystery
I’m sure PPE Medpro is the tip of the iceberg for these types of behaviours.
And then there’s the many entities that don’t even bother filing…
Companies House badly needs enforcement teeth!
Probably worth noting the small and micro definitions have been varied over the years (increasing financial metrics) with micro becoming a thing once the definition of small became so large! The current values quoted are relatively new
Given the length of time between the end of an accounting period and the accounts filing deadline, last minute filing and deliberate late filing for minimal penalty the notion that filing a PNL for a micro or small company is commercially essential is exaggerated. If the PNL is on file and available for statutory investigation and compliance then good. HMRC get this information already but don’t seem to examine and follow up much at the small micro/small company level. Would any other agency actually do anything if the PNL was on file but not publically available?
As someone who previously had Inland Revenue experience of examining accounts I consider that there should be a requirement to submit to Companies House full copies of prepared accounts.
Without full accounts a lot can be ‘hidden’.
In this day and age I doubt very much that, other than a very few, HMRC gives even a cursory glance to accounts submitted to them.
Also I disagree with the compliance cost argument. Once accounts have been prepared and signed, how difficult and costly can it be to take a pdf copy of them for submission to Companies House?
There is absolutely no justification for the exemption from filing a P&L account. Indeed in many instances it is in the interests of the small company to do so as the information on profitability enables credit reference agencies to see a better picture of the business and thus to give a better credit reference score. It also means that users of the accounts do not need to waste time raking for the P&L when they have a legitimate need for it – eg when the business is applying for credit. Furthermore this is a deregulatory step since all of the rules around small/ micro company accounts filing do not alter the Companies Acts requirement to produce a full set of accounts ( including P&L) for shareholders. So small companies end up producing at least two different sets of accounts – one for filing and one for shareholders. Accountants tend to push small companies towards this without considering the significant downsides of doing so. I speak as a director of small companies and also as a major user of small company accounts.
There is absolutely no justification for the exemption from filing a P&L account. Indeed in many instances it is in the interests of the small company to do so as the information on profitability enables credit reference agencies to see a better picture of the business and thus to give a better credit reference score. It also means that users of the accounts do not need to waste time raking for the P&L when they have a legitimate need for it – eg when the business is applying for credit. Furthermore this is a deregulatory step since all of the rules around small/ micro company accounts filing do not alter the Companies Acts requirement to produce a full set of accounts ( including P&L) for shareholders. So small companies end up producing at least two different sets of accounts – one for filing and one for shareholders. Accountants tend to push small companies towards this without considering the significant downsides of doing so. I speak as a director of small companies and also as a major user of small company accounts.
Micro entity accounts submission is very useful for one-person companies where declaring your income to the nosey next door neighbour is something you’d like to avoid…
Don’t forget that the limit tests are measured over 2 consecutive years, so if a company qualifies one year, but exceeds the limits the year after, they are still entitled to the exemption.
I’d favour a return to full publication and audit irrespective of size – there’s no need to incorporate if the business is genuinely small, as the LLP structure provides similar protection from creditors Obut not the tax advantages of Ltd)
There’s the added complication of the smoothing provisions in CA2006. When determining the size of a company, most of the rules apply with a year’s lag: the first year you breach the criteria, the rules don’t kick in. This is deliberate, to prevent companies on the threshold having to constantly flip between categories. But it does mean rapidly-growing companies may not need to file full accounts and obtain an audit until quite some time after they first breach the criteria.
Hi Dan – completely agree the thrust of your article. Just one small point. I think ‘PPE Medpro therefore only met one out of the three conditions, and so qualified as “small”’ would probably read better as ‘PPE Medpro therefore only failed to meet one out of the three conditions…’ or ‘PPE Medpro therefore met two out of the three conditions…’.
On a related note, it’ll be interesting to see how much of the £122m the DHSC is in fact able to recover.
thanks!
It is not possible to conclude from the information in the public domain that the company ‘absolutely did qualify’ for an audit exemption. The company has circa £540k of ‘investments’. If that number includes any subsidiary entities, one would have to consider the group picture when determining eligibility.