A recent EU directive allows countries to relieve smaller companies of their most exacting accounting and reporting regulations. Individual countries can make their own arrangements for this, and the UK’s Department for Business Innovation and Skills (BIS) has announced that changes will be implemented here as soon as possible. This has been interpreted as a possible topic for the chancellor’s budget of March 21st.
Who Might Benefit
BIS has indicated that around 1.5 million micro-companies in the UK might be included in this aspect of deregulation. These are companies that satisfy at least two of the following requirements: they employ no more than 10 people on average per year; turnover does not exceed £700,000; they have no more than £350 million on the balance sheet.
How the Regulations will Change
For these so-called micro-companies, all the accounts and reports that SMEs are currently required to deliver annually to Companies House will be simplified. For example, a cash based trading statement will replace the profit and loss account. A statement of position will be another requirement, replacing the balance sheet. And the annual return will be much simpler. The reporting burdens on the businesses involved will certainly be less onerous.
Concerns About the Changes
Business leaders are considering whether they are really helpful to small businesses. Some accountants are looking at how much work will be needed to transform records from an accrual to a cash basis, and the time and cost that will be involved. Others are wondering if the new style reports could hinder business growth if potential funders or partners want to undertake due diligence exercises to assess risk.
The management of small businesses is just as dependent on accurate information to inform their decisions as those in larger enterprises. To perform their day-to-day activities, they will still need to know about cash flow, actual and predicted, and to keep tabs on debtors and creditors. As the Institute of Chartered Accountants England and Wales has pointed out in its response to the BIS announcement, ‘the information requirements of management should be the primary driver of business record keeping’.
How helpful is a trading statement that shows turnover but doesn’t show the costs associated with that trading? Year on year comparisons will not be possible. How can you spot escalating costs and other trends that will need to be investigated? How can profit margins be assessed?The records you keep will still need to be comprehensive, even if you are not required to make them all public. Talk to your outsourced bookkeepers for advice.