Economic recovery ‘jeopardised’ by simpler SME reporting

CREDIT MANAGEMENT EXPERTS have attacked proposals to slash financial reporting requirements for SMEs, saying the move would hurt Britain’s economic recovery.

The Institute of Credit Management and credit referencing agency Graydon said plans to exempt micro-businesses from filing accounts “will seriously hamper” growth.

Small businesses potentially in line for a lighter reporting load include those with an annual turnover of less than £440,000, net assets of less than £220,000 and fewer than ten employees.

The Financial Reporting Council and the Department for Business, Innovation and Skills hope cutting regulatory red tape will liberate companies, helping up to five million save cash and time spent filing accounts.

Under the proposals, the smallest companies would only need to prepare a simplified trading statement, statement of position and annual return. This is to replace current requirements to provide a full profit and loss account.

However, an ICM poll of 8,000 members showed without accounts available through Companies House or a credit reference agency, a significant proportion would think twice before approving a relatively small order.

More than one-third (37%) would insist on cash in advance, while 48% would ask for additional financial data and 15% would trade regardless.

Graydon marketing director Gordon Skaljak said: “Few businesses would risk extending finance to another without first reviewing that business’s financials, even in a benign economic environment. This is not the silver bullet the government is looking for to reduce red tape for businesses.”

An FRC spokesman said the regulator is “genuinely interested in examining ways to help micro-entities grow most effectively” and signalled awareness of credit issue.

However, banks may feel relaxed reducing reporting requirements for SMEs, as the British Bankers’ Association recently told Accountancy Age raising the statutory audit threshold for small businesses would not worry members.

Assistant director Brian Capon said: “Banks these days hold much more information on companies than they did several years ago and this is generally enough to make a judgement.”

Working accounts are normally sufficient to form a view of companies’ financial position, Capon observed.

BIS minister Ed Davey (pictured) said paring back “unnecessary regulatory burdens” can give micro-entities “the freedom to innovate and grow”, concluding: “A new deregulation from European Union rules targeted at micro-businesses means we now have a chance to deliver these benefits.”

Stakeholders have until 30 October to respond to the consultation, which is running alongside the Office of Tax Simplification’s discussion document on ways to simplify taxation for the smallest businesses.

Related reading

Life Belt with Computer Folders