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An estimated 11,000 UK medium-sized businesses could benefit to the tune of £8 million a year as result of changes to accounting rules.
An estimated 11,000 UK medium-sized businesses could benefit to the tune of £8 million a year as result of changes to accounting rules announced by government today (1 September 2014).
The measures, which bring the EU’s new Accounting Directive into UK law, mean that companies can prepare and file simpler, less detailed accounts with Companies House. These documents currently include the balance sheet, the profit and loss account and the notes to their financial statements.
The actual level of detail they prepare and submit depends on their size as a business. This is decided by reference to 3 thresholds: the average number of employees; balance sheet total; and net turnover at the balance sheet date.
The UK government has proposed that it uses the upper limits for these categories when determining if a business is classified as ‘small.’ This will see 11,000 companies, for accounting purposes, move from being medium to small-sized companies. This will allow them the opportunity to save time and money as their reporting needs to be less detailed.
Announcing the launch of a consultation document on the proposals, Business Minister Jo Swinson said:
Any measures that cut red tape and allow more flexibility for financial reporting are a step in the right direction. All our companies should be concentrating on growing their business, not spending their time filling out paperwork for their financial accounts if they really don’t have to.
Danielle Stewart OBE, Company and Commercial Red Tape Challenge Champion and Head of Financial Reporting at Baker Tilly said:
The new Accounting Directive offers a wonderful opportunity to consolidate and streamline existing legislation on financial reporting. The proposed approach to implementation takes advantage of the small company exemptions made available within the directive in order to reduce unnecessary burdens on business, whilst at the same time protecting the integrity of the UK’s accounting framework.
The proposals in the consultation document are in line with the government’s promise, made in the Red Tape Challenge, to reduce the overall burden of regulation. This is particularly important because all UK companies are required to prepare annual accounts, so the positive impact of the reductions is far reaching.
I do hope that a wide range of respondents will take part in the consultation process, to ensure that the responses are fully representative of UK companies themselves as well as their advisors in the accountancy profession.
The UK is required to bring the Accounting Directive into UK law no later than 20 July 2015. However, government proposes to take up the option permitting that the changes may first apply to financial years beginning on or after 1 January 2016. Government will consult on whether companies should be able to apply the new regulations ahead of this date.
Notes for editors
- The consultation document can be found at ‘UK Implementation of the EU Accounting Directive’,
- In June 2013, the EU adopted a new Accounting Directive – “EU Directive 2013/34/EU” on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings. Chapters 1 to 9 of the Accounting Directive provide the legal foundations upon which the UK’s financial reporting framework is built.
- This new directive consolidates, modernises, and updates the previous directives governing this area of regulation.
- Under the proposals, a company would be classified as ‘small’, for accounting purposes, if they did not exceed at least 2 of the following:
- balance sheet of £5,100,000
- net turnover of £10,200,000
- average number of employees of 50