Government must stop the SME accounting tug-of-war

ACCORDING TO the Department for Business, Innovation and Skills, small businesses should be delighted with some great news straight from the EU in Brussels.

Given a new fancy label of micro-entities, small businesses will no longer have to produce complicated accounts for Companies House.

The new rules allow them to file a simplified balance sheet, which supposedly eases the existing rules for the profit-and-loss account and balance sheet reporting requirements.

It may be just me but I thought this rule already existed for small companies: they currently only have to file a balance sheet plus notes to the accounts with Companies House.

Did nobody tell business minister Edward Davey? Apparently, he thinks this will save 1.5 million small businesses between £150m to £300m a year in reduced administrative costs. So that’s a saving of at least £100 per business.

What a load of twaddle. I would love to know how those figures were calculated: fabulous creative accounting.

While it would be unreasonable for me to expect Davey to know all of the detail of company accounts reporting, I don’t think it is unreasonable to expect him to check his facts with his team of experts before he announces: “This is a significant step in reducing red tape and a clear signal that we will take action to stop our smallest companies being held back by excessive regulation.” A statement made with little reference to reality.

Of course, all of this is in response to the 2011 Budget announcement of reducing the red tape of administration placed upon small businesses.

What about HM Revenue & Customs? I wonder if Mr Davey has spoken about this with David Gauke, who has ministerial responsibility for HMRC.

Small businesses still need to file full accounts at HMRC and the announcement from Brussels seems to do little to change this. How on Earth can one penny be saved in filing an abbreviated version of a still-required full version of accounts?

In fact, HMRC increased the filing burden in April this year when it introduced the need for all accounts to be filed with them electronically in iXBRL format.

So even if the quoted saving of £150m to £300m a year were true, I wonder how much of that has been consumed in HMRC’s increased filing requirements?

Then there is the HMRC Records Checks scheme. Not only has HMRC increased the filing burden, it has announced a programme of random visits to check the records of some 50,000 small businesses, threatening large fines for businesses that do not comply with its record-keeping standards.

How does this sit with cutting the red tape? If Davey and Gauke cannot marry up their independent objectives, just what hope do small businesses have?

Come on chaps: get your act together. Give the micro-entities (I hate that title) of tomorrow a chance to prosper.

Elaine Clark is managing director of online accountancy practice CheapAccounting.co.uk

Her Twitter account is @cheapaccounting