Cash accounting for small firms is a no-go, says Xero

Accountants may be interested to hear that Xero has called on the coalition to abandon its proposals for simplified statutory reporting for micro-businesses.

Instead, the online accounting software company would like to see accountancy bodies, software providers and banks getting together to develop a technology framework that will help the UK’s small businesses grow.

Xero has already discussed this with some accountancy firms and they agree that there are other ways around the reporting concerns of micro-businesses, without the need for yet more legislation.

Gary Turner, the MD of Zero, pointed out that misleading information could be given to customers if micro-businesses change the way they prepare their annual accounts. And firms need accurate, real-time information if they’re to manage cash flow efficiently in the current economic climate.

Laurence Moore, a director of Prime Chartered Accountants, explained that the proposed ‘statement of position’ would be of limited use to HMRC because it would not contain enough information to reconcile with a trading statement or P&L account. This lack of information could also prove detrimental to a micro-business when it applied for funding.

Another concern raised by Simon Clark of Kingston Smith LLP is that micro-businesses would need to convert their existing records to cash accounting, which could be costly. Furthermore, although businesses start off small, the hope is that they will grow and then have to revert to accruals accounting. This will mean their historic information will be of little use to new trading partners.

60% of all businesses registered at Companies House fall under the category of a small or micro-business; that is one with ten or less employees and a turnover of less than £440,000.

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