There was big news for freelancers, contractors and micro-businesses (businesses with under ten employees) last week as the European Union’s financial and economic affairs council agreed a directive allowing EU member states to exempt their micro-businesses from certain financial reporting duties.
This meshes nicely with the coalition Government’s aim to reduce regulations for small businesses, and the Office of Tax Simplification today announced some proposals of their own (more information here). The UK is widely expected to adopt the measures in some form come the Budget in March.
According to the EU directive eligible businesses will be those with a balance sheet total of up to €350,000, a net turnover of up to €700,000 and an average of 10 employees during the financial year.
The first thing to say about the proposals is that nobody should be popping champagne corks just yet. Although cutting red tape for small firms is an admirable cause – and one we 100% support – until the reforms are laid out, nobody knows what reporting duties micro-businesses will be exempt from.
It’s also important to point out that the reforms only alleviate micro-businesses’ reporting duties – complete and accurate records will remain a necessity, and a sensible accounting regime will still be required to arrive at key figures all businesses will still have to submit.
HMRC are employing something of a carrot and stick approach here. Reduced reporting duties in this case being the carrot, while the much-maligned Business Record Checks remain a very potent stick. Should you and your business fail to keep accurate records to back up claims you make in your annual accounts, you will still be in line for a fine of up to £3,000 – whether you are eligible for simplified reporting or not.
The same is true of HMRC tax investigations. If your business becomes a target for an investigation, you must have full and complete records to fight your corner.
From an operational point of view, Crunch already submits abbreviated accounts to Companies House. If and when the legislation passes into law in the UK, eligible companies will be given the option to submit simpler-still accounts.
We’ll be keeping our eyes on the proposals to see if they are introduced in a useful form in the UK – if and when they are our clients will be the first to know.