One of the main issues is the lack of clarity over the way the proposals would be implemented in real life. The BIS says that the burdensome reporting requirements need to be simplified but many accountants claim that this is not the case and since a lot of companies are considered ‘small’ as far as the Companies Act is concerned, and therefore do not need to be audited, what right have they to complain?
The current proposals for simplification are vague and are sitting alongside the OTS’s consultations on the taxation of small businesses.
A micro-business is classed as one with a turnover of less than £440,000, net assets totalling less than £220,000 and a workforce of less than 10 employees. The BIS proposals claim to save small businesses between £250 million and £400 million every year by exempting them from preparing accounts. This is based on a saving of between £60 and £235 for each business.
Instead of producing a profit and loss account, micro firms would produce a simplified trading statement based on receipts and payments, rather than accruals. They would also be required to file a simplified annual return and a statement of position.
Companies House would need to receive the simplified annual return within 12 weeks of the end of a firm’s financial period and this could cause problems for sole traders for generally leave administrative work until the very last minute.
Accountants also claim that it is neither costly nor time consuming to prepare the current abbreviated financial statements, especially as they can be done with automated accounting software, and all these proposals will achieve is to remove transparency from small businesses at a time when they need it most.