The Government considers that the disclosure requirement should apply to all large commercial organisations, including all large (not just listed) companies and partnerships.
The Government proposes to decide the size of the commercial organisation by reference to a minimum level of turnover and is consulting on what that threshold should be. In line with the Companies Act, total turnover will be defined as the total net turnover of the commercial organisation, being the total amount of revenue derived from all sources, after deduction of trade discounts, value added tax and any other taxes based on the amounts so derived. The turnover threshold of a company will include the turnover of all its subsidiaries.
The consultation contains a frame of reference setting out roughly how many UK registered companies might be subject to the disclosure requirement at different levels. For example, if the threshold was set at £36 million (the threshold for determining the size of a large company under the Companies Act), some 12,259 UK companies might be caught. A threshold of £1 billion would cover just 724 companies. These figures do not include businesses registered overseas and operating directly in the UK, which could also be caught by the legislation.
By comparison, the California Transparency in Supply Chains Act 2010, which imposes a similar disclosure requirement on retail and manufacturing businesses, includes a threshold of US$100 million (approximately £65 million at current exchange rates) linked to worldwide annual gross receipts, among other criteria. The Government does not favour referencing size by number of employees only, as is done in the EU Directive on disclosure of non-financial and diversity information by certain large undertakings and groups (see our update).
In sum, having decided that the disclosure requirement should apply by reference to turnover, the Government seeks views on the following two issues:
- What level of turnover is most appropriate to trigger the disclosure requirement?
- Should there be a higher turnover threshold to start, which would focus only on larger businesses, with a reduction in the threshold to cover more businesses over time?