Out-Law News 2 min. read

Simpler financial reporting requirements for small companies proposed


As many as five million small businesses could benefit from simpler financial reporting requirements, according to recently published Government proposals.

Businesses covered by the proposals, in a jointly published discussion paper (21-page / 115KB PDF) from the Department for Business (BIS) and the Financial Reporting Council (FRC), would only have to submit a simplified trading statement instead of the current profit and loss account, along with a simplified statement of position and a streamlined annual return.

Small businesses could then also use this simplified information to also prepare their annual tax returns, the paper suggests.

The paper also recommends the introduction of an integrated software package that would enable small businesses to prepare required financial information more efficiently.

The resulting reduction in regulatory and administrative obligations could save small businesses as much as £400m in account preparation costs per year, the paper claims.

Current UK law requires all companies to prepare full financial statements and file annual returns at companies house and all except some small companies also have to file financial information at Companies House.

The new regime would apply to all incorporated and unincorporated businesses who meet the European Commission's definition of a 'micro-entity', the paper says.

Micro-entities are companies with an annual turnover of less than €500,000 or net assets of less than €250,000 which employ fewer than 10 people.

In the paper, BIS notes that this definition would capture approximately 60% of companies currently registered at Companies House as well as around 3.5 million unincorporated businesses.
The paper is "not a statement of official Government policy" but aims to "stimulate discussion and gather evidence" following arguments from small and medium-sized businesses that the current reporting regime is onerous and costly and adds little value for money.

The paper sets out one possible approach in the form of a simplified Trading Statement, a Statement of Position instead of a balance sheet and simplified annual return.

The Statement of Position would only require reporting on shareholding funds, long and short-term debtors and creditors, cash, loans and any major assets. The annual return would as a minimum require companies to include the information needed to prove its eligibility as a micro-entity.

"Reducing unnecessary regulatory burdens on the smallest businesses can give them the freedom to innovate and grow – which ultimately benefits the entire economy and is absolutely central to the Coalition's vision for Britain," said Edward Davey, the minister responsible for corporate governance, in a statement.

"The financial reporting regime must also serve the users of the information published by companies - whether they are customers, banks or government agencies. So we look forward to receiving responses to our proposals from a broad range of interested parties in the coming months."

Similar work is currently being undertaken by both the European Commission and the Office of Tax Simplification, the discussion paper notes.

BIS requests feedback by 30 October 2011, and will consult on any issues it decides to pursue further after reviewing the responses.

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