Simpler reporting for smaller businesses could be on the cards

The Government has published a discussion paper on proposals to simplify the financial and company reporting requirements of micro businesses.

The paper, 'Simpler Reporting for Smaller Businesses’, was published last week by the Department for Business, Innovation and Skills (BIS) and the Financial Reporting Council (FRC). It sets out ideas to reduce the amount of reporting micro-entities would be required to undertake.

It is thought that up to 5 million businesses could save a considerably sum as a result of simplifying their accounting obligations, as their accountancy fees would drop significantly.

The proposals include easing the current reporting requirements so that the smallest companies would only need to file a simplified Trading Statement (in place of the current P&L account), a simplified Statement of Position and a simplified Annual Return.

The paper also proposes developing an integrated software package to help small businesses prepare financial information. This could allow managers to gain a better understanding of the trends in their businesses’ performance and help them plan for the future.

According to the Competitiveness Council, a 'micro-entity' is defined as a company with a turnover of less than €500,000 (£440,000), with net assets of less than €250,000 (£220,000) and employing fewer than 10 people.

This definition covers around 60% of all limited companies registered at Companies House, and 3.5m unincorporated business, so these changes could have quite a big impact on the administrative burden carried by the nation's enterprises.

Edward Davey, the minister responsible for Corporate Governance, said:

“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. A new deregulation from EU rules targeted at micro businesses means we now have a chance to deliver these benefits.

“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”.

The paper has been released as an evidence-gathering exercise, and to stimulate discussion. Written responses to the proposals must be provided by the end of October 2011.