Europe okays micro company accounts reform

The European Union’s financial and economic affairs council agreed a new directive on Tuesday 21 February that allows member states to exempt very small companies from mainstream accounting and financial reporting obligations.

The reforms are part of a Europe-wide drive to ease the administrative burdens on the continent’s smallest companies. The enshrine a new category of "micro company" and enact proposals put forward in March to allow them to file accounts based on simplified profit and loss accounts and balance sheets. The UK government enthusiastically embraced the European proposals as part of its deregulation drive for small business.

A recent BIS consultation document on company law reforms said the UK will look to implement the changes “as soon as possible” following detailed consultation. That makes it an odds-on cert to feature in announcements around the Budget on 21 March, potentially alongside further reform proposals to increase the audit thresholds for mid-size companies and other ideas put forward via the Red Tape Challenge focus on company law.

If and when the EU directive is enacted in the UK, companies will be allowed to apply the simplified reporting regime if they stay below two of the following thresholds:

  • balance sheet total of €350 000 euro
  • Net turnover of €700 000 euro; and
  • average of 10 employees during the financial year.

BIS March 2011 discussion paper ‘Simpler Reporting for the Smallest Businesses’ suggested that the new look reporting package for these firms would include:

  • A simplified, cash-based trading statement to replace the profit and loss account
  • A statement of position
  • A simplified annual return.

Taking account of the latest EU thresholds (50% higher than when the proposals were aired last year), the BIS estimates that around 1.5m micro-enterprises will be excused the need to publish full annual accounts when the reforms are enacted.

Dr Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty gave the new directive a cautious welcome. “The majority of  micro-entities do not trade across national borders, so it makes sense to allow individual member states to decide how they report, allowing them to closer align accounting rules with national laws and tax systems,” he said.

“Reducing the regulatory burden on these businesses where possible is something we strongly support.

“It is, however, paramount that any potential changes to the UK reporting requirements for our smallest businesses do not reduce access to reliable financial information or send misleading signals about the importance of sound financial management.”

The latter part of Sleigh-Johnson’s comments will be more popular with accountants and auditors on AccountingWEB.

Continued...

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dialm4accounts's picture

I'm delighted    3 thanks

dialm4accounts | | Permalink

Far too many small business owners are terrified of accounts and tax and either leave them to the last minute or don't make any use of them when they're completed.

This is at least partly because the UK's accounts and tax system is so complicated that many lay people simply can't understand a set of accounts, far less a tax return.

Anything that simplifies reporting requirements for small businesses in a sensible fashion, I welcome with open arms.

I would like to place on record at this point that I have a lot of respect for Richard Murphy.  I hear where he is coming from but how useful are these accounts if the business owner can't understand them in the first place?

The suggestions put forward by BIS seem to me eminently sensible and I would be right behind them, not least because they propose cash accounting.  Accruals accounting is very subjective and it's far too easy to manipulate a profit figure, but you can't manipulate cash in the bank.  It's either there or it isn't.

M

Accounting is not Compliance

edmolyneux | | Permalink

...but in the minds of many small businesses they are one and the same. The cost of preparing historical annual accounts for compliance purposes has always been seen as a chore and an overhead, and rightly so: it adds no value to the business apart from keeping the owners out of prison...

But if compliance can be automated and commoditised - as the new generation of software providers are seeking to do - it can become a background, incidental activity. This reform moves that worthy goal closer.

So Richard Murphy and BIS are both right - staying on top of their financial affairs is indeed critical to micro business success, and not having to produce over-complicated compliance statements allows businesses to invest more in understanding today's figures and planning for tomorrow's.

Its tax not accounting that should be the priority    6 thanks

agburton | | Permalink

Merge NI, CT and Income tax, greatly simplify capital allowances, abolish all the petty  rules such as personal use charges, disallowing entertaining and memberships, IR35 etc etc. Then worry about accounting!!

Am I going mad    1 thanks

alistairthurlow | | Permalink

I do not understand this article at all.

1.5 million micro businesses are publishing full accounts

Micro companies want to file extra information at Companies House rather than just a balance sheet

HMRC are are happy to calculate corporation tax on cash based accounts and will dispense with ixbrl for these entities.

However I would add that for most of these types of businesses reconciling the bank is considered overcomplicated never mind drafting the accounts

Paul Scholes's picture

I agree with Ed

Paul Scholes | | Permalink

Sorry Ed I couldn't resist it.

I'm too long in the tooth to need to kick up a fuss about yet another change in legislation that is a potential to threaten my business, after all, without regular changes to legislation we'd be out of business.

Where I do object though is in not thinking through and planning changes properly, leaving gaps and confusion so I'll be interested to hear what the Treasury & HMRC think about it and whether they will accept cash accounting in place of correctly drawn up financial statements.

Ed is right in that, these days his & other systems make accounting pretty routine (they are designed for Jo & Joe Public) and so preparing meaningful figures for financial management as well as tax is no longer rocket science.

M - this is where I disagree with you, if you want to know whether your business is profitable the last thing you look at is a receipts & paymenst account.  I have had lots of clients with money in the bank who could & do, go bust next week and even more sucessful businesses with overdrafts.  With the exception of bad debts, the Profit & Loss account is blind to cashflow.

.

ireallyshouldkn... | | Permalink

I thought the simplified reporting consultation got a big hiding from the profession.  It was illogical, ill thought out and would increase costs as it asked for both cash and accruals based accounting to be used for different purposes.

@homebusinessaccountant - cash accounting is very easy indeed to manipulate and makes a nonsense of proper management reporting.

 

Horses for courses    1 thanks

MBK | | Permalink

For many thousands of small businesses (one man consulting businesses etc) there is absolutely no need for anything other than cash accounting - they lose no meaningful information that way.

But for an "real" business buying or selling on credit and possibly holding stock cash accounting is hopeless.

So our job as professionals is to push those who need it (but only those who need it) towards not going the simplified route.

Much better simplification would be to do away with all the disclosure garbage in limited company accounts so the client sees just what matters - a P&L and balance sheet. That way there is at least a chance they'll understand their business better.

johnjenkins's picture

Yep I don't understand it either

johnjenkins | | Permalink

So we now can't send abbrv accounts to co house or what?

Most micro-business, one man bands know exactly how their business is doing, some aren't even interested in accounts - they see it as a formality. I train my clients to do a simple balance sheet in their heads every 3 months. For larger concerns it is somewhat different, but I find the larger the concern the more the client knows about their business.

How can cash-based accounting work ?

Barkster | | Permalink

What if we all went back to a bit of bartering ?

What does that do to the tax bill under cash-based accounting ?

 

Correct me if I'm mistaken...

RogerMT | | Permalink

...but under the proposals a Ltd Co with a t/o of, say £500000 and a BS of say £50000 would only have to file a cash statement and not have to bother with "proper" accounts, but a sole trader or partnership with the same t/o and BS would have to prepare full accounts in order to complete their SAR?

Does not seem to make a lot of sense to me!

dumbed down

The Black Knight | | Permalink

It is our job to deal with the complexity and help clients understand their accounts.

I do not agree that we should all be dumbed down to the lowest common denominator.

Accounts that are easy to prepare but are of no use is a bit of a pointless excercise.

A cost for no purpose ? Great Idea

Why bother at all ?

A proper appreciation of whether you have made a profit or not , or have assets or liabilities is (believe it or not) quite useful. A whole lot more use than whats the balance at the cash machine.

We could never explain to the powers that created the European economic disaster area as they have their own objectives based on average voter intelligence levels, and have nothing to do with building a successful economy for all of us.

garyturner's picture

Mixed signals

garyturner | | Permalink

One aspect of the BIS proposal last year which caught my eye was that it quantified the potential savings of less red tape for small businesses in financial terms, almost as a proxy for tax relief.

While most small businesses would be happy to save a few hundred pounds a year, if that's the output then it's unlikely to support the desired growth in economic activity which was the over arching aim of the whole initiative.

What will drive up economic activity and performance among small businesses is better operational reporting, and there's a risk - correctly identified by Nigel Sleigh-Johnson - that this will be overlooked in favour of the lower hanging fruit of trimming compulsory reporting requirements. 

  • “It is, however, paramount that any potential changes to the UK reporting requirements for our smallest businesses do not reduce access to reliable financial information or send misleading signals about the importance of sound financial management.”

 

 

Gary Turner
Managing Director, Xero
@garyturner

Also...

RogerMT | | Permalink

...if you don't prepare ful accounts how on earth are you supposed to know what your BS value is - one of the three criteria for determining whether or not you qualify for cash reporting?

keithas's picture

@homebusinessaccountant

keithas | | Permalink

"you can't manipulate cash in the bank.  It's either there or it isn't."

That's so sweet. I know so many ways; you're making me feel old and world-weary.

don't be silly

The Black Knight | | Permalink

RogerMT wrote:

...if you don't prepare ful accounts how on earth are you supposed to know what your BS value is - one of the three criteria for determining whether or not you qualify for cash reporting?

Just make the number fit ! that's what accountants are for ! LOL

How would anyone checking know any different either. ha ha

Some firms have been using these methods for years anyway.

Poor article- no detail available on what this entails yet.    1 thanks

Charles Nolan | | Permalink

The EU (via their parliament) threw out the cash accounting proposal last year.

As I understand it, this is an amended version which does not allow cash accounting but merely means that micro entities dont have to prepare full accrual accounts. I cant even see HMRC agreeing to this. There was no chance of them agreeing to cash accounting.

Bureaucrats? A plague on their crops!

bryce.weir | | Permalink

I learned my accounting skills in the mid 60's before the advent of columnar accounts.

When accounts were presented to the clients in that old A3 landscape style, income on one side expenditure on the other: assets on one side liabilities on the other, clients had no problems at all in understanding their accounts.

I'm not sure what drove the market down the columnar route, it certainly wasn't the typewriter manufacturers.

But that single event prefaced a whole series of changes driven by computerisation.  Whilst this promised all, it actually had restricted delivery in terms of user understanding of accounts.

The problem actually lies therefore in presentation which does not aid understanding.  If we could but recapture that "moment".

Doing away with the need to produce accounts is just a bureaucrats answer to a problem he cannot solve.

For many, many businesses, ongoing periodic accounts are essential to the management of those businesses.  Cash, as said above, does not always mean profit.

How will businesses now establish credibility to seek loans?  The banks are criticised for starving SMEs of essential working capital.  Changing systems like this will merely encourage their intransigence.

 

I can't see HMRC being too    1 thanks

Mallock | | Permalink

I can't see HMRC being too happy with accounts prepared on a cash basis when manipulation could be rife. 

How do we get from accounts prepared on the accruals basis to the cash basis without creating large holes in the integrity of the figures.

Most small professional practices will also pay much less tax for a year or so when UITF40 is binned and we just ignore WIP. How does a business grow from Micro Business accounting into full accrual accounting - a real problem I reckon.

Sorry but I don't see this as an improvement, I see it as a potential nightmare with HMRC demanding something that the taxpayer and his accountant (if he still has one) no longer have details of. It reminds me of a partner in a firm I used to work for who would demand that staff just use the clients' figures and don't go looking too closely, to keep the cost of the accounts down. However when he had a tax enquiry on such clients he would blow his top and demand to know why every expense hadn't been analysed and transferred or added back if necessary - you can't have your cake and eat it! (not that we told him that)

IMHO all accounts should be prepared under the same basic rules and principles.

My guess is that clients want    2 thanks

nickja | | Permalink

My guess is that clients want accountants to give them a simple profit and loss account they can understand - perhaps a summary that shows how tax return entries come from - and to alert them to imminent problems, eg cash flow problems arising from overstocking or excess debtors, for which balance sheet details would be needed, whether or not they are presented to clients as balance sheets.

 

But, being accountants, we know best and provide full accounts, including accountants' reports that are utterly meaningless to most small clients and designed only to cover our rears.   And we too often fail to point up imminent problems.

 

Surely the debate shouldn't be about simplification to the point where whatever is produced is potentially meaningless as a business tool but tailoring our product to make it as useful as possible to our clients.    Throwing out accruals accounting would deny that usefulness.

 

Before anyone proposes it, this is not about preserving accountants' income, it's about preserving the information that enables accountants to help their clients.

 

Will result in further diminution of standards....

Trevor Scott | | Permalink

....both in terms of accounting standards and standard of record keeping among small businesses.

The EU, and the UK Government, don’t understand that simplification means sweeping away existing laws and regulations as opposed to introducing more; even a new directive, which is obviously intended to be applied differently in various countries.

Shouldn’t expect much more from people who dislike accountability, double entry book-keeping or auditors.

 

Limited liability comes with

Tim 59 | | Permalink

Limited liability comes with a responsibility, to provide clear financial information to those that would advance credit. The complexities of operating any business in the UK large or micro, with the governments current obsession with regulation and penalties is contrary to the argument that small business should be absolved from maintaining meaningful books and records and filing public information. If the cost is too great, then do not form a limited company and enjoy the protection afforded.

From experience generally competent successful businesses maintain accounting records and the cost of converting thes records into financial statements and tax returns at period end is small, incomparision to the fines and penalties for errors and omissions.  The clients that complain, do not retain records, are usually struggling with cashflow and probably should not be allowed to run a business.

The suggestion the micro businesses should be taxed on a cashbook basis is embarrassing. Removing the concept of matching income to expenditure and being subject to tax  dependent on your credit or payment policy would be conceptually flawed.

Uk taxation has become overly complex. A proprietor of a small business would not have been capable of preparing a tax return in the past  and is certainly not capable of preparing one now.By reference to the MPs expense scandal, it is obvious that even well educated members of society are easily confused by even the most rudimentry rules as to what is or is not allowable. The only glimmer of hope is that they were able to understand how to flip properties for CGT purposes.

It has become clear over the years that the responsibility and cost of tax revenue compliance, computation and collection has been forced down onto the general public and business. Not only this but maternity pay, student loans, visa status, and in the future pension administration has been dumped on the employer.Once allied to excessive fines and penalties the uninformed (due to the complexity and inconsistency in tax legislation) have been forced to engage the services of accountants. As a economy this is inefficient and expensive. HMRC can now force costs onto the taxpayer, rather like IBRXL, at a whim for some economist to play with some figures until the next fad. The problem is not the cost of the annual accounts but the forced adoption of HMRC's and other govermental responsibilites.

As an accountant the risk, due to the complexity of legislation and potential penalties  is fast approaching the point where reward is no longer commensurate. As a body it is time to excert some resistance. HMRC is now dependent on the goodwill and compliance of accountants, may be we should consider reminding HMRC. What would be the impact of  all accountants with holding the filing web submissions (with their clients consent) until  30 days before the deadline?

A radical solution may be to have a flat rate turnover tax for micro businesses. This is the approach adopted in Brazil. It removes capital allowance computations, questions of allowable non allowable items.The only business records would merely be a sales day book.This would then be allied to large fines and penalties for unrecorded sales bourne by supplier and customer alike.

 

 

 

 

 

 

 

 

petersaxton's picture

This has got to be dreamed up by fools

petersaxton | | Permalink

Client: My draft accounts for cash purposes shows a profit £50,000. My year end is next month. How can I not pay tax?

Accountant: Buy something with cash - stock, fixed assets, pay expenses in advance.

The numbers will be bigger next year but same Q & A.

cfield's picture

Why bother with accounts at all then?

cfield | | Permalink

It would be better not to produce accounts at all than come up with the sort of rubbish proposed in the BIS consultation last year.

Could we as professional accountants really descend to preparing P&L accounts on a cash flow basis, knowing full well that the profit figure was totally wrong? It would be a betrayal to ourselves, the client and the profession.

Most serious businesses want to know what their profit was based on proper accounting techniques anyway, not the mickey-mouse format advocated by BIS. Their banks certainly would too.

Can you imagine what would happen on Dragons Den if somebody told Banatyne, Meaden, et al, their accounts would be based on this model? They would rip them to shreds, and so would any other sensible investor.

In fact, you could say that the Government and the EU are aiding and abetting false accounting - a criminal offence! For example, you could determine your "profit" by asking a customer not to pay until the following month, or simply delay paying a supplier invoice. So much for the poster who thinks cash accounting cannot be manipulated.

I know they want to reduce burdens on business, but they are barking up the wrong tree. Accounts are only a burden if the client has to do them personally, and then would be a burden no matter how simple you try to make them. After all, how many clients want to spend long hours poring over bank statements and invoices?

Most business owners see book-keeping as a drain on their time. That's why they employ other people to do it. And rightly so, as they should be focusing on building the business, not wasting their precious time on admin chores. But if you employ someone to do something, you expect them to do a proper  job, not come up with this sort of rubbish.

One more point - I never understood why the BIS considered filing the Annual Return to be a major burden. It only usually takes 5 minutes. Their proposal seems to make it much more complicated. I just wonder whether they even know what the Annual Return is, as they appear to think it is something to do with the accounts.

Chris

Who uses accounts?

bryce.weir | | Permalink

I think the 2 submissions which followed mine have extended the debate into the ground we should be looking at.

The "doing away with the need for accounts" proposal from the bEUROcrats is but one small bit of the equation.

It is being seen as if the only need for producing accounts is for a bureaucratic need at Companies House.

But, accounts are needed for:

  • management
  • HMRC
  • potential lenders
  • potential suppliers
  • credit rating agencies
  • potential buyers of that business
  • analysis & advice in case of cash/business viability problems

Will the suggested format of accounting:

  • A simplified, cash-based trading statement to replace the profit and loss account
  • A statement of position
  • A simplified annual return 

fully satisfy these needs?

 

 

petersaxton's picture

Who is suggesting these "accounts"?

petersaxton | | Permalink

Do they have any training or experience in preparing accounts?

Are we confusing apples and pears?

mackembill | | Permalink

I am not yet sure that the EU simplification means that we get the BIS cash accounts.

My understanding is that we still require a balance sheet and profit and loss account - including stock and material accruals and prepayments in the trading account.

What disappears is the vast realm of notes which most small companies never file, nor do management care about. 

I wait to read the detailed text of the directive with interest and see how BIS reacts.

Dont forget that this is the start of a domino effect as it will have an impact on FRSSE, future of UK GAAP etc In addition of course there is the tax implication to address.

Hopefully we can concentrate on producing meaningful accounts and management information which the client values.

DMGbus's picture

Full accounts instead of Abbreviated - rogue accountants

DMGbus | | Permalink

In my opinion it is a certain number of bad accountants breaching client confidentiality who are responsible for a minority of small companies filing full accounts at Companies House instead of Abbreviated Accountants.   May be these rogue (fully qualified) accountants (*) either don't give clients the choice or give them the choice at an extra fee.

(*) Two cases of "rogue accountants" I identified last year when doing company searches - it seemed standard for most of their small company clients to be filing full accounts.   In each case I believe that the firms of rogue accountants were ACCA or ACA qualified (qualifications irrelevant here to achieving good service for clients - actions like client confidentiality breach speak louder that a "badge").

I welcome deregulation, but not so sure about cash accounting with the anomalies that could arise.

As it happens a lot of the unnecessary regulation is ordered by accounting bodies (some foolish ACA and ACCA firms seemingly lack backbone so they include non-statutory nonsesense such as contents pages and company information pages not required by law it seems - such firms perhaps wish to be seen to obey their ruling bodies recommending the inclusion of the unnecessary garbage).

 

Bob Harper's picture

automated and commoditised

Bob Harper | | Permalink

@Ed - are your plans to  automate compliance within FreeAgent so that the technology takes the credit/value for handling this obligation rather than the accountant?

Bob

I would think that a    1 thanks

Fred Smith | | Permalink

I would think that a simplification of the tax regime would be far more beneficial to SME owners.

johnjenkins's picture

After being trained

johnjenkins | | Permalink

as an Accountant 47 years agoI don't think I could prepare Accounts in any other way. The idea of cash accounts really doesn't make any sense. All it tells you is what you had in and what you paid out. I would presume a copy of the bank statements would suffice.

The UK limits may be lower than the EU limits..

ringi | | Permalink

It is very possible for the UK law to require "proper" accounts for companies of a smaller size then the EU law does.   Likewise the “cash statement” may have to have more details of none cash items for larger companies.

The SAR rules may also change….

Personally I would like to see a rule that says something like, that a “cash statement” is OK, if the result is within 10% of the turnover or £5K whichever is largest, of what full accounts will show, and will correct it’s self the next year.

RogerMT wrote:

...but under the proposals a Ltd Co with a t/o of, say £500000 and a BS of say £50000 would only have to file a cash statement and not have to bother with "proper" accounts, but a sole trader or partnership with the same t/o and BS would have to prepare full accounts in order to complete their SAR?

Does not seem to make a lot of sense to me!

Do you include the balance on a “pay as you go” mobile phone at

ringi | | Permalink

Do you include the balance on a “pay as you go” mobile phone at present?....

If not, you are not doing full accrual accounts…..

So what other simplifications can be done while still keeping the accounts meaningful for calculation of tax.    (I don’t believe most small company accounts are useful for management as they are so out of date by the time they are completed.)

More and more credit providers these days are just going on the taxable profit figure, as it is the one number that a company will not try to inflate!  (I have seen a few mortgage providers asking for account or copies of tax returns.)

 

silicondale's picture

Tax simplification    2 thanks

silicondale | | Permalink

Fred - I quite agree with you. I have a micro-company which I have been running for 18 years. Apart from the first couple of years, when an accountant helped me set up my systems, I have been doing my annual accounts with no problems. Doing abbreviated accounts in recent years is even easier. Tax, on the other hand, is taxing. Although now below the threshold for compulsory VAT registration it is still beneficial for me to stay VAT registered as all my business is B2B - and I can reclaim VAT on purchases. But it's a nuisance to have to deal with VAT - it seems such a pointless tax, most of the time just circulating the same money from client to contractor to subcontractor...  

The most taxing part of all though, is the HMRC online forms. Why do they have to use such an obscure set of security options in their PDF files? Last year was tricky. This year was a nightmare because of bugs in their system, and the forms didn't work properly. I know I could use third-party software for this, but that costs money - and learning how to use it costs time. And I really do not want to have to know anything about iXBRL. All I want to do is to run my business., and pay the "right amount" of tax. I do my bookkeeping on Excel, and it would take me perhaps 15 minutes each year to use this to calculate the tax payable. If accounts simplification is matched by simplification in tax and in the tax return forms, I'm for it. But simplification seems to be anathema to HMRC.

As for cash accounting - no problem at all as far as I can see. Not being an accountant, I can actually understand it better than accounts which seem to contain a lot of numbers that have no real-world meaning. Cash in, cash out - that I can follow. Depreciation? While I know that after 3 or 4 years my computer has little or no value in the accounts - if it's still running, and doing a decent job, then it has value to my business. Putting a number on that value is irrelevant. Accruals also have no real significance. What matters to the company is the cash. If I do a couple of days work after Christmas that I don't invoice until 4th January, that is supposedly 'work in progress' in the year-end accounts. But totally meaningless to anybody but an accountant. I can see the point with bigger businesses, but not for micro companies.

 

dialm4accounts's picture

Tax needs simplification too

dialm4accounts | | Permalink

I agree wholeheartedly with the posters who say the UK's tax system also needs simplification.

Both accounts and tax in the UK are far too complicated and I think this is a step in the right direction.

I still think cash is harder to manipulate than profit, though I realise this might sound incredibly innocent :-)

M

petersaxton's picture

" I have been doing my annual

petersaxton | | Permalink

" I have been doing my annual accounts with no problems."

 

I'm sure you can do your annual accounts with no problems.

 

Getting them right may be harder!

"What matters to the company is the cash. If I do a couple of days work after Christmas that I don't invoice until 4th January, that is supposedly 'work in progress' in the year-end accounts. But totally meaningless to anybody but an accountant.

And HMRC! Many businesses think that by invoicing after the year end they will reduce their tax bill. This new idea would actually make it legal. Is it really the case that a company with a £50k profit approaching the year end should be able to reduce their tax bill by buying stock for £30k? What about paying all their suppliers before the year end rather than early in the new year? What will the suppliers think about that if they have the same year end?

 

petersaxton's picture

Cash or profit

petersaxton | | Permalink

homebusinessaccountant wrote:

I still think cash is harder to manipulate than profit, though I realise this might sound incredibly innocent :-)

M

You can reduce your cash balance by making a payment but you need to incur an expense to reduce your profit.

Think of the effect of making a payment for next year's expense a few days before the year end.

Am I missing something here

Cruncher Alan | | Permalink

We are getting another tier of "simplification" that we have to monitor so that we prepare the right accounts for that client for that year. If we prepare the wrong accounts, are we going to have unhappy clients because we prepared the "expensive version". Are we expected to charge less for simplified accounts. This is not simplification but a further burden on us and our clients that can only lead to further confusion.

There are quite a few accountants who would qualify for the cash basis. Is anyoine going to try to tell me that this cannot be manipulated, especially by accountants.

Could be an opportunity for a new Cash Planning Consultancy.

I cannot see HMRC being very happy with this. Small businesses rushing to incorporate to get the benefit of a lower Corporation Tax Rate AND adjusting their cash to suit the amount of tax they want to pay.

Bah humbug!

petersaxton's picture

Gordon Brown

petersaxton | | Permalink

This reminds me of Gordon Brown and the 0% company rate band.

After messing everything up in various ways for a few years they reverted to what it was before the idiot tinkered with it.

sluglet's picture

And what about iXBRL ?

sluglet | | Permalink

After we've all spent good money upgrading systems and software companies have had sleepless nights getting things ready on time the government is now thinking about introducing a totally new format for small company accounts??

Paul Scholes's picture

Making compliance easier

Paul Scholes | | Permalink

Mainly as a result of automation, many more people & businesses complete & file their own accounts, SA tax returns, VAT returns etc these days than they did 20 years ago and it is logical and probably wise to think that this will continue.

This has certainly been the case with my client base and I see no mileage in encouraging a client to use me to do something that they are perfectly capable of doing themselves, perhaps with some training & support.

Eventually facilities such as those provided by Ed (FreeaAgent) and Gary (Xero) above will enable thier users' "books" to liaise directly with HMRC thus making the middle wo/man accountant substantially redundant.  Despite some accountants laughing at this suggestion 10 years ago it's already happening with PAYE & VAT and so the logical step is to go the whole hog and do year end submissions as well.

The proposals (however they turn out) will I'm sure seek to move this on my making submissions simpler, even if the businesses still want/need to prepare meaningful numbers for their (and the banks') purposes.

From my point of view, I welcome it, as it means I can reduce the boring compliance side and develop more judgmental services for clients.

Eh?

smallbeancounter | | Permalink

Eh?

A simplified, cash-based trading statement to replace the profit and loss account

A statement of position

A simplified annual return

 

Sounds like EXTRA work for a small company which already prepares P&L and Balance Sheet for its own purposes and/or the bank.

Other points not mentioned here

plgriffiths | | Permalink

Not only can cash accounts be massively manipulated, no-one has mentioned other aspects of the proposals which could include all these companies having 31 March year ends and filing within 3 months was it? Another January looms.

Absolute nonsense, there are lots of other areas where proper deregulation could be more effective for small businesses.

 

I don't see any meaningful long term problem

ringi | | Permalink

But unless tax rates change a lot year on year the tax just gets paid the next year, so I don't see any meaningful long term problem.

Quote:

You can reduce your cash balance by making a payment but you need to incur an expense to reduce your profit.

Think of the effect of making a payment for next year's expense a few days before the year end.

petersaxton's picture

No it doesn't

petersaxton | | Permalink

The tax doesn't get paid the next year because even more payments will be made early to reduce the tax charge next year.

There may be a point when it's not possible but I still think there's a lot of scope to reduce tax for several years.

Accountants are not really part of this debate    3 thanks

Adrian Pearson | | Permalink

Sorry to say it folks but the accountancy profession is not relevant to this debate. All of the above hand-wringing and exasperation is therefore a waste of everyone's time, I'm afraid.

Times are changing, and the time is quickly coming when we will cease to have a practical function in the compliance process - merely an oversight/advisory one (if we position ourselves properly).

The old order:

Client's Numbers > Accountant's Numbers > Authorities

The new world will be:

Client's Numbers > Authorities

The train has already left the station on this. It was initially powered by the new breed of online accounting software and has now been given a turbo-boost by this coming deregulation.

Accountants still have a valuable role to play, of course, but that role will become one of applying a "stethoscope" to the client's records and then diagnosing and helping to improve their financial health and soundness. The client will pay for this service as it provides real value to them. They will not pay for compliance work, simply because they will be able to complete the process themselves.

Just saying :)

Paul Scholes's picture

Spot on Adrian - but it will still take time

Paul Scholes | | Permalink

As I said yesterday, this has been creeping up on us for years but although (given our nature) many accountants live in denial of such changes, it also has to be said that so do many non-accountants and so, whilst many people & businesses will be capable of (and enabled to), create their own submissions, many of the "old school" will still want their accountants to handle it for them, for some time to come.

The next IT literate generation will be different, most of my new, younger, clients handle far more themselves than their older contemporaries.

petersaxton's picture

That's strange

petersaxton | | Permalink

Many clients have had accounting software for years and they still need accountants.

Most cloud software is not of as good quality as desktop software yet. Cloud software shouldn't make any difference to the functionality of the software so there shouldn't be any improvement. 

"They will not pay for compliance work, simply because they will be able to complete the process themselves."

That's not my experience. My clients can't produce statutory accounts and tax computations and I don't think that will change. It would appear that the people who want these "simplified accounts" don't have any understanding of accounts and tax.

petersaxton's picture

Online software

petersaxton | | Permalink

Most online software I have seen has massive flaws. When I point it out I get told: "We are working on correcting that in a future version."

I wonder what would happen if you went into a cake shop and tried one of their cakes and it was disgusting. How many would you buy if they told you they were working on improving the taste of their cakes in a future version?

Paul Scholes's picture

Peter it's coming    3 thanks

Paul Scholes | | Permalink

Yes people have had accounting software for years (doesn't matter whether it's ondesk or online) but only recently has it stated to be enabled to talk directly to the authorities.

You say that your clients can't produce statutory accounts but that's today and, to be blunt, that's because they are your clients.  Many of my clients, even the micro-micro ones produce a P&L & Balance Sheet that's pretty close to what I submit and this has just taken a bit of coaching by us in showing them how to provide for depreciation and other entries traditionally down to us.

So the next bit is "statutory accounts" and if the simplification merely means they can leave out the fluffy, deferred tax, contingent liability, related party type notes and (as is bound to be the case eventually accounts profit = tax profit) then, Bob's your uncle, all I'd do would be to give their numbers the once over and they push the button (just like we do now for many of their VAT returns).

In effect therefore you are proving the counter argument, it's accountants that are perhaps the barrier in not letting clients in on the realities of accounting.  That's OK until a client meets a mate down the pub who submits his/her own accounts to the government each year.

As to online accounting, you are obviously very unlucky or maybe just sniffy?  The system I use is loved by clients, most of which wouldn't have a clue how to use Sage or QuickBooks but then these again are the systems favoured by some accountants.

Give it a year or two and it will be 65M years ago, all over again.

 

 

Could cost small accountancy firms £1 billion per year?!

Adrian Pearson | | Permalink

I've just written an analysis of this, from the costs/savings perspective:

http://www.topaccountants.com/blog/2012/2/24/new-deregulation-to-cost-sm...

Came up with a very scary £1 billion per year hit to the profession. Surely I must be missing something or have my numbers wrong?

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