Accounting red tape cut for smallest UK companies
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Measures to reduce burdensome accounting red tape for micro-businesses have been confirmed today by Business Minister Jo Swinson
Measures to reduce burdensome accounting red tape for micro-businesses have been confirmed today by Business Minister Jo Swinson. In the government response to the consultation on how best to implement the EU’s Micros Directive, published today, the UK’s 1.5 million micro-entities will now become exempt from certain financial reporting requirements.
They are currently subject to the same financial reporting rules as other small companies. However, responses to the consultation, which ran earlier this year, showed that this was an unfair burden for micro-entities relative to their size. As a result of the changes, micro-entities will be able to prepare and publish much reduced financial statements.
They will now be able to draw up an abridged balance sheet and profit and loss account. They will also continue to be exempt from the requirement to file the profit and loss account with Companies House.
Business Minister Jo Swinson said:
Thriving micro-businesses are a vital ingredient for a stronger economy. However, because of their size they don’t always have dedicated finance teams behind them. We therefore need to make sure that they can focus on growing their business - rather than completing unnecessarily detailed paperwork.
The measures announced today are just one of the ways we’re cutting bureaucracy, letting micro-businesses get on with running their enterprises and creating jobs.
The changes will come into force as soon as possible, and will apply to financial years ending on, or after, 30 September 2013 and related accounts filed on, or after, the date on which the changes come into force.
Notes to editors
1.For the government response to the consultation go to Simpler Financial Reporting for Micro-entities: the UK’s Proposal to implement the ‘Micro Directive’.
2.These changes implement Directive 2012/6/EU, the ‘Micros Directive’. This is the first deregulatory EU Directive in which micro-entities are recognised. The UK successfully negotiated exemptions for micro-entities and fully supports efforts to reduce burdens on our smallest companies.
3.Following the adoption of the new Accounting Directive (2013/34/EU), the provisions of the Micros Directive now form Article 36 of the new Directive and remain unchanged.
4.A micro-entity is defined as meeting two of the three following criteria:
- balance sheet total: £316,000
- net turnover: £632,000
- average number of employees during the financial year: 10 (or fewer)
5.There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.
6.The exemptions are optional. It will be for owners and directors of micro-entities to assess the possible effect of reduced disclosures on their company and to decide which form of financial reporting statement – micro, small or full – best meets their company’s needs.
7.The government has decided to implement all aspects of the Micros Exemption apart from the option to:
- remove the requirement to present prepayments and accrued income and accruals and deferred income, and
- exempt micro-entities from the requirement to recognise certain prepayments and accrued income and accruals and deferred income
This will ensure that micro-entities are able to prepare simplified accounts that will not, for example, conflict with requirements for issuing dividends.
8.The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set four ambitions in the ‘Plan for Growth’, published at Budget 2011:
- to create the most competitive tax system in the G20
- to make the UK the best place in Europe to start, finance and grow a business
- to encourage investment and exports as a route to a more balanced economy
- to create a more educated workforce that is the most flexible in Europe.
Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.
9.In June the government reaffirmed its commitment to help small and medium sized businesses succeed. We will launch a strategy in the autumn on what further support government will provide to create a positive environment for businesses to start up and grow