The UK’s 1.5m micro-businesses are to be exempt from certain financial reporting requirements following a government consultation on implementing a new EU directive aimed at reducing the regulatory burden for very small entities according to Harris & Co chartered accountants Northampton the specialist small business accountants.
The new rules apply to an entity which can meet two out of three criteria: a balance sheet total of £316,000; net turnover of up to £632,000, and up to 10 employees.
These ‘micro entities’ will now be able to prepare and publish much reduced financial statements, including 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.
However, the government has decided against exempting micro-entities from the requirement to recognise certain prepayments and accrued income and accruals and deferred income, saying that this will ensure they are able to prepare simplified accounts that will not, for example, conflict with requirements for issuing dividends.
The changes 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, which the Department for Business, Innovation and Skills (BIS) says will be as soon as possible.
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 exemptions are optional, and BIS says 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.
Dr Nigel Sleigh-Johnson, head of ICAEW’s financial reporting faculty, said:
‘It is critical that each micro business carefully considers the options available and assesses the practical impact any changes might have on the business. Management needs to ask themselves whether there are risks involved in reducing the financial information they make available to finance providers and other stakeholders and in no longer having easy access to key performance indicators critical to efficient management of the business. What is appropriate will differ from business to business.’