From 1st October 2013 companies with fewer than 10 employees and a turnover less than £632,000 have been able to submit a simplified Balance Sheet and Profit and Loss Statement to Companies House for their annual accounts. This is the Government’s response to the European Council formally adopting into EU law a set of limited exemptions for micro-entities from the accounting requirements of the 4th and 7th Directives.
What this is meant to achieve is up for debate between accountants. The Government believes this measure will cut bureaucracy and let firms get on with running their businesses and creating jobs. I guess that’s a nice thought in practice, however…
Respondents to the Government’s consultation document noted that unless H.M.R.C. aligned its rules and processes with the exemptions then companies would still have to prepare detailed profit and loss accounts and balance sheets to comply with H.M.R.C’s requirement to submit proper accounts with their corporation tax returns.
In addition it was felt that such abridged information would be not readily acceptable to providers of finance and investors. Which, in my opinion, will inevitably hinder micro-entities (sole proprietors and small businesses) as opposed to helping them run their business? It was also felt through the consultation that there would be either limited or no cost savings for businesses as for the majority of costs incurred in the preparation of accounts would still remain. Once entered into an accounting software package the accounting information can then be easily placed into any statutory format for filing. There will be little savings from the reduced disclosures, if that is one of the Government’s motivations for doing this.
This seems yet another missed opportunity to really cut red tape and truly reduce the costs for small business. It follows on from the over-complicated cash basis of accounting rules which have nothing to recommend them.
For me, there are areas such as the RTI reporting of payroll transactions; iXBRL accounting requirements for corporation tax; and auto enrolment – where there are significant costs for small businesses and, so far, no plans to ameliorate them. There seems to be little recognition of this by the Government. Perhaps there is more work to be done to increase Government’s practical knowledge of the accounting and tax challenges small business owners face. Then we might see effectively targeted cuts to bureaucracy.
I am a partner here at Clifford Towers and particularly enjoy working with small business owners which is why I feel so passionate about this subject. If you are a small business owner, or indeed a sole proprietor = then please do get in touch, I would love to hear from you. (firstname.lastname@example.org; 01788 577 613; @SimonGTowers)
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