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Micro-business exemption “will cause damage”

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21st Jun 2011
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An overwhelming majority of finance professionals believe the government's proposals to exempt micro-businesses from having to file accounts at Companies House will make it harder for firms to access trade credit.

According to new research from Graydon, the exemption proposals will likely result in suppliers not extending credit to their customers.

The commercial credit referencing agency found that 88% of firms polled would ask customers for alternative financial information in the absence of statutory accounts.

Steve Collings, of Leavitt Walmsley Associates, told AccountingWEB that the filing exemption proposals would pose difficulties, but there would be ways around it: “If companies want credit then clearly the firm providing the credit will want some sort of accounts.”

Around 91% of credit and finance professionals questioned believe that the proposals will make it harder for small businesses to access trade credit.

It also found that 87% of respondents do not believe that the government’s attempt to reduce the administrative burden on SMEs by removing the requirement to file statutory accounts will help drive business growth.

Graydon's Martin Williams, said: “The government has repeatedly overlooked the simple fact that it is not just banks that provide small businesses with credit, but also their suppliers in the form of trade credit. These suppliers are saying that being deprived of access to their customers’ accounts will hinder small businesses in gaining access to credit and finance from their company.

“The availability of funding for SMEs remains a major issue. While banks have access to up-to-the-minute financial information on their customers, it is vital that trade suppliers can also determine the strength of their customers’ finances before they agree to provide them with goods and services.”

The research also found that:

  • 29% would ask customers directly for their year-end accounts
  • 59% would ask for both year-end and monthly management accounts before extending credit to them
  • 8% of businesses would agree to extend credit without having access to the company’s financial information

Last month business minister Ed Davey said the exemption will benefit 1.5m small British companies and could save firms up to £300m a year.

Collings commented: “It’s a stupid concept getting rid of filing accounts because some government departments are saying it is going to save companies an average of £200 per year filing abbreviated accounts, but that’s absolute nonsense.

“If they want to reduce red tape then really they should start with things like health & safety, employment legislation and tax. Focusing on areas such as abbreviated financial statements is probably one of the most pointless exercises I’ve ever heard of in my entire career" Collings said.

Williams added: “This is not the silver bullet the government is looking for to reduce red tape for businesses and actually risks causing not only more damage but more administrative work for SMEs if trade suppliers have to request accounts direct from SMEs themselves.”

Graydon and the Institute of Credit Management (ICM) intend to start a petition of the leading suppliers of goods and services to reverse government thinking on filing exemption proposals.

Philip King, chief executive of the ICM, concluded: “Exempting micro-business from filing accounts is wholly the wrong way of tackling what is a comparatively simple issue: businesses should be prepared to provide more information not less. Without financial information that can be trusted, suppliers will not extend credit to their customers."
 

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
22nd Jun 2011 11:11

Crazy

Full accounts need to be prepared to accompany the CT600. Abbreviated accounts filed at CoHo is a very simple by-product of this process that shouldn't add any real administrative burden whatsoever.  If they have to do something, then just change the filing date to be 12 months, so in line wth the CT600 to help small businesses avoid penalties.

What utter nonsense this is.

But then we all know that already!i

Come on government, talk some sense for once - please?

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By mdcallen
22nd Jun 2011 11:28

ridiculous

cost of filing abbreviated accounts - 10 pieces of paper, 1 envelope and 1 stamp - £1

 

cost of accountant producing information for each major/new supplier with an agreed wording (in the accountant's report) and sufficient covering of the accountant's backside - £100 per supplier?

 

time lost in giving the supplier enough information - 1 week?

 

value of someone in government actually understanding what they are trying to do - priceless!!!

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By Mallock
22nd Jun 2011 11:31

Steve Collings is right

Steve Collings is absolutely correct in saying that this will make no difference to red tape for small companies - real worthwhile reduction in red tape can only come from much bigger changes to H&S legislation, employment legislation and proper tax simplification. Why can't the Government ask people who deal with this stuff every day how to reduce red tape rather than take the advice of people who quite clearly don't have a clue?

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By Ian McTernan CTA
22nd Jun 2011 11:35

Wrong Red Tape

Always been in favour of reducing red tape for businesses, but this is the wrong one!

This will only encourage more people to try and do their own accounts and submit rubbish to HMRC to accompany the CT600, at which point they are rejected and suddenly they decide they need an agent to fix the problem.

Producing these accounts is a good discipline for all businesses no matter how small and shouldn't be removed.

One again Europe comes up trumps in supposedly 'helping' businesses and failing utterly.  They should concentrate on removing the huge steaming piles of employment, health and safety, environmental and other regulations that have driven away so many businesses instead of fiddling while Rome burns..is it any wonder over 1/5th of the working population works in the public sector (not to mention the other 1/5th deriving their jobs from them).

This change is a non-starter, as banks, mortgage companies, etc will still want them and won't lend without them...

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By bobdoney
22nd Jun 2011 11:42

Bonkers is as bonkers does

Which all goes to prove that hardly anyone in government or politics has any idea whatsoever of what it's like to run a small business.

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By Oppco
22nd Jun 2011 11:55

Filing accounts at Companies House

Another example of politicians having no idea of what is happening outside of Whitehall.

From Private Eye today:

Number Crunching:

6,162,000 Public sector workers the government want to move to less beneficial pension schemes

650 Public sector workers (MP's) who will not lose their final salary pension schemes

 

 

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By Sheepy306
22nd Jun 2011 11:57

Positive proposals
Whilst the cost of preparing abbreviated accounts is virtually nothing to accountants, abolishing the filing of them will mean no penalties for late filing, a significant saving to a lot of companies, I'm surprised though that this is being proposed considering how much these penalties raise for UK Plc.

Companies will have to prepare full accounts anyway so why not simply supply these to suppliers and finance companies as and when required, surely these are more informative than abbreviated accounts downloaded from Companies House anyway. The full accounts are signed by directors and accountants as it stands currently so I don't see how accountants will have to do any additional work for reference purposes. It will perhaps mean that directors will have to be more proactive in supplying copies of their accounts if they're serious about getting credit and finance, a good thing in my opinion.

It's a surprising proposal but I welcome it.

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By JW.JAMESWRIGHTANDERSON
22nd Jun 2011 11:59

Filing Date

I am not sure where "Monsoon" got his filing date from for CT600; to the best of my knowledge, this is 9 months after the end of the accounting period and not 12!!.

One could argue that the reason why so many directors and taxpayers are so late when it comes to statutory obligations, is that there is too much lead time. Being issued with a return on 6th April, which is to be filed next January  (some ten months away) will not get an immediate response because there is always the impression that there is enough time to do things. If one had four months on the other hand they would need to ensure that it is given immediate attention or they would need to deal with the consequences of a penalty.

I do however agree  with "Monsoon" that since the abbreviated accounts are a by-product of the full accounts there would be very little savings, if any, should filing not remain mandatory.

Working on the banks to make credit more freely available to micro businesses and a  reduction in National Insurance rates would be a good start!!

James Wright-Anderson

 

 

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By JW.JAMESWRIGHTANDERSON
22nd Jun 2011 11:59

Filing Date

I am not sure where "Monsoon" got his filing date from for CT600; to the best of my knowledge, this is 9 months after the end of the accounting period and not 12!!.

One could argue that the reason why so many directors and taxpayers are so late when it comes to statutory obligations, is that there is too much lead time. Being issued with a return on 6th April, which is to be filed next January  (some ten months away) will not get an immediate response because there is always the impression that there is enough time to do things. If one had four months on the other hand they would need to ensure that it is given immediate attention or they would need to deal with the consequences of a penalty.

I do however agree  with "Monsoon" that since the abbreviated accounts are a by-product of the full accounts there would be very little savings, if any, should filing not remain mandatory.

Working on the banks to make credit more freely available to micro businesses and a  reduction in National Insurance rates would be a good start!!

James Wright-Anderson

 

 

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By philipdc
22nd Jun 2011 12:03

This is a very good idea

Hi its Philip Copeman here from the TurboCASH Accounting Project. The mission of The TurboCASH Project is to help SMEs start and expand their businesses. When evaluating a proposal like this, the put the interests of the users first.

I run a small business. In fact the software we develop runs over 110 000 small businesses. We have communitites in 80 countries. The UK Government has always been innovative in its handing of the SME sector and the rest of the world should look to them as an example. All business should have finacial control, but focus on productivity, not reports that are simply filed by bureaucrats.

I understand that if you have  a vested interested in submitting statutory accounts that this looks bad for business, but what  is at stake here is simple - less admin  is good for the SMEs themsleves. Take the savings that they make (probabaly greater than 300 Million)and help your clients to grow their businesses, don't tape them up in unnessary admin.

And while you are down there ...

Stop facilitating them to pay unnecessary software licences when open source software will significant add to their profitability.

 

 

 

 

-- "No one possesses the less because everyone possesses the whole of it. He who receives an idea from me receives it without lessening me, as he who lights his candle at mine receives light without darkening me" - Thomas Jefferson

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By kenny achampong
22nd Jun 2011 12:10

CT600 filing deadline is 12 months by the way

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By simonwwhitt
22nd Jun 2011 12:13

Real Savings

As others have said this crazy suggestion just shows how little politicians understand small business.

If the Government really wants to make a difference here it would abolish the concept of "abbreviated accounts".  These serve no purpose other than to inflate (albeit only marginally) the cost of producing annual accounts.  There is absolutely no reason why all companies should not be required to file the full accounts as submitted to shareholders. 

This would genuinely save the businesses a small amount of money - as well as meaning that the credit reference agencies have a little more information (i.e. a P&L account) with which to produce meaningful references.

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By birdman
22nd Jun 2011 12:15

Filing date and Co House accounts

Firstly, to James Wright-Anderson, CT600 filing deadline is 12 months after end of AP; it's the CT liability that's due within 9 months (plus a day).

I have a couple of clients who tender for Council contracts. It appears that the Council carry out a credit check as part of their deliberations, and because abbreviated accounts were filed the credit checks gave lower points scores than larger competitors, so they lost out in the tenders (this was actually given as a reason, and is not just speculation). Full accounts are now submitted for them, and given as an option (with reasons) for all our client Companies now. It's all very well saying that full accounts can be provided for credit applications, but the rejection can happen before this stage can be reached.

 

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By patricia caputo
22nd Jun 2011 12:15

Filing Date

The filing date for the CT600 is indeed 12 months after the accounting date.

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By Malcolm Veall
22nd Jun 2011 12:53

IS this the extent of the proposals?

The simplification involved when "ministers reached an agreement in Brussels" (AWeb 3.6.11), gives much more flexibility than just not sending a copy of the abbreviateds to CH.

I think that the proposals allow member countries to go much further - from a 26.4.11 letter from Philip Johnson, President of FEE, (Federation of European Accountants), to Hungarian representatives: "The current proposal to allow micro-entities to apply cash based accounting is in our opinion a backwards step"  http://www.fee.be/currentissues/default.asp?content_ref=1382&library_ref=4&category_ref=73

 

In other words, a "reduce the regulatory burden" government could move the goalposts such that a Receipts & Payments is all that is required.  If so a loty of us AWeb correspondents will be seeking alternative careers.

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Locutus of Borg
By Locutus
22nd Jun 2011 13:05

This "saving" will actually cost honest, compliant companies MOR

I'm not going to charging my clients any less for not filing abbreviated accounts.  After all they are just a derivation of the full statutory accounts, which I need to prepare for HMRC anyway.  The cost to me of iXBRL'ing those statutory accounts far, far outweighs the "saving" of not preparing abbreviated accounts.

Clients will suffer from having less access to finance, or delays in access when interested parties have to request copies of the full copies.

But what about Companies House?  Much of their income now comes from the exorbitantly high late filing penalties for accounts, the vast majority of which are micro entities.  I'm sure Companies House won't be downsizing, cutting back final salary pension schemes, etc, so with this loss of income are annual return filing fees going to go back up to £30 or higher to compensate?

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By ireallyshouldknowthisbut
22nd Jun 2011 13:47

to P Copeman

To Philip Copeman - the point you (and presumably the government minister) dont seem to understand is that abbreviated accounts do not  actualy cost anything to produce. Its a 5 minute job. What costs the money is preparing the underlying accounts of the business in what ever format they may be needed in order to work out the profit and dividends etc. This is the main cost.

Whilst it may sound like howls of protest from vested interests is actually derision from not understanding the process. They just fall out of the other work and get printed out and stuffed in an envelope.  If your accountant really charges £200 extra just for this then I think you are being taken for a ride. 

Now if the government said that small limited companies did not have to provide anything other than a P&L and balance sheet to HMRC in what ever format they liked (and so junking the whole iXBRL project) then that would represent a genuine saving in time and cost of prehaps £50 or even £100 or so per company.   That is to say putting the data you would need to prepare anyway into a statutory format, adding notes etc etc probably takes 30-60 minutes for ther average small end limited company with iXBRL.

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By The Black Knight
22nd Jun 2011 13:57

Companies house penalties drive the accounts production

Unless you abolish the need for micro companies to pay tax, then accounts will be needed for taxation purposes, which should comply with the companies act (not that HMRC will ever notice if they don't) the production of abbreviated accounts is of no extra expense at all (some firms may charge a small amount extra for this service but we do not).

I cannot see how this will save any money whatsoever for micro companies.

In fact it is the companies house penalties that drive the need to prepare the accounts in a timely fashion, you can be as late with HMRC as you like, and perhaps never pay any tax. I can see this being quite expensive in lost taxation too.

both HMRC and companies house quite happily accept substandard accounts that frequently have Tax issues too, When will they learn that non compliant accounts are a really good indicator that the tax is wrong too.

The government have noticed that this, non payment of taxes and accounts that do not comply with the companies act is a problem, and the simplest way of getting rid of the problem is to pretend that it does not exist.

Get rid of the evidence.= no need to file accounts on the public record.

 

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By Malcolm Veall
22nd Jun 2011 14:25

Companies Act Accounts

Kalden,

The point of the EU relaxation is not that accounts will not need filing at Companies House, but that micro-entities will not need to prepare accounts that comply with Companies Acts/GAAP - the extent that this requirement is relaxed will depend on the individual countries.  Maybe HMRC will argue that GAAP accounts are needed for corp tax but they may be arguing with a de-regulating government.

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By The Black Knight
22nd Jun 2011 15:25

perhaps our days are numbered then.

We will just have to watch the trains crash,

This would avoid the need for honest tax payers to pay more tax than the dishonest and get rid of the problem of accountants.

Every one could adopt the pick a number approach that is available under self assesment. It does seem to be highly effective from what we have seen in action.

They forgets we play an important role in making sure the correct amount of tax is paid.

We do seem to be going backwards for the sake of something to change.

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By Malcolm Veall
22nd Jun 2011 16:30

Receipts & Payments

The argument would be that receipts & payments, (if properly recorded), rather than GAAP would only change the tax payable between years, over the life of the micro-entity the total Receipts less Payments would equal the profits.

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By The Black Knight
22nd Jun 2011 17:50

I agree

But are we going to prepare management accounts then convert them back to noddy accounts, how does that help anyone figure out whether they are doing alright or not ? There are at last some reasonably sensible accounting rules that form sort of a conceptual framework why do we need to start again because politicians can't do the maths.

 

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By Marlowe52
22nd Jun 2011 17:59

Of course micro-businesses need accounts - but, sadly, they have

I have been running micro-businesses for years now.  And I agree with the majority of comments in this discussion. Production of the abbreviated accounts is not a burden.  I use a standard accounting package to produce my accounts and I need these accounts - not just for compliance with HMRC requirements - but actually to run my businesses.

The point about bank and trade credit is a good one but, sadly, for many of us, reality is not quite like that these days.  I have not been able to borrow money from the bank AT ALL since well before the crash of 2008.

Truth is, it makes no difference whatsoever that the businesses are profitable, have positive cash flow and healthy balance sheets.  Credit depends entireley on the credit scores of the Directors. And since many, many serial entrepreneurs (like myself) who have not yet made our first million, have appalling credit scores, we continue to struggle for working capital both from banks and suppliers.  (It is only a matter of time, by the way, before I make my first million.  Like all serial entrepreneurs I know this to be true!).

Where anyone has got the idea that "banks have access to up-to-the-minute financial information on their customers" from I have no idea!

Our friendly bank wrote to us some years ago and told us they were replacing our bank manager with a 'Relationship Management Team' (a euphamism for a call centre if you are not familiar with the term).  When I asked who I would now send copies of my quarterly cashflow forecasts and interim quarterly accounts to I was told 'this would no longer be necessary'.  i.e. the banks couldn't care less about my accounts let alone my export revenues - the Relationship Management Team initially couldn't even access our business Euro account!.  I doubt they even look at my published accounts at Companies House. 

Apparently we would need a turnover of £6 million before we warrant a real bank manager - a little bigger than the government's threshold for micro-businesses!

 

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Locutus of Borg
By Locutus
22nd Jun 2011 18:04

My opinion on what we need

1.  Keep the existing requirement to file accounts at Companies House (full or abbreviated, whatever the company chooses);

2.  Scrap iXBRL and update the CT600 with a couple of extra pages, along the lines of the self employed pages on the SA return.  File the return by internet, attaching .pdf copy of the accounts;

3.  Roll back a lot of the needless health & safety legislation and employment law nonsense, which is the real time wasters for a lot of SMEs;

4.  Of course, simplify the tax system.

 

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By mikewhit
22nd Jun 2011 20:44

Managed burden

If they wanted to reduce the burden on some businesspeople, they could reinstate Managed Service Companies, which before the effective abolition, were outsourcing the accounts and admin from the small businesses / consultancies concerned, and ensuring that CT etc was paid correctly and in a timely manner, surely good things for all concerned, even for HMRC.

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By Nigel Hughes
22nd Jun 2011 21:10

What a great discussion this is with lots of strands to it

Firstly Steve is of course right that abbreviated accounts (or not) are trivial in the overall bureaucratic scheme of things. 'Elf'n'safety, data protection, CRB, PAYE year end procedures and the whole arcane tax system clearly score much higher on the red tape ometer.

Secondly (Malcolm and I have discussed this in the past) sooner or later CoHo (I like that!), HMRC and the software providers will get their act together and your and my Sage, Intuit or whatever system, will talk to HMRC and CoHo, so the production of statutory accounts will become less relevant - but it may take some time.

Thirdly to talk about SMEs' access to credit being dependent on their year end accounts does not really ring true. Whether, like our serial entrepreneur in search of his first million, or the vast majority of the SME audit files which I review, where the finance comes from family sources, or where there is cash in the bank, asking the bank for money in a start up situation has never really been a good move and it certainly does not depend on how your statutory accounts look. I remember being told by the bank manager who gave me credit to start my business that "We're backing the man, not the business plan" only to be told by someone much wiser than me "No Nigel, He's backing the equity in your house."

So abolishing the need for micro-businesses to file accounts is unlikely to be a game changer. From my own perspective, it would save me a certain amount of hassle, but nothing I can't cope with, it would be de-regulatory, which has to be a step in the right direction, and the point made about the abolition of unnecessary late filing fees, has to be a good one.

The trouble is that all of this calls into question the need for all businesses to keep decent accounts. This underpins the credibility of the whole economy and, of course the concept of a fair tax system. Careful Nigel, with the use of that word "fair".

The real irony is that most of this is caused by the politicians themselves. With the implementation of CA 2006 they had the opportunity to vastly simplify the format of accounts for SMEs. They even had a pretty good suggested model deriving from the company law review committee's suggested formats. But they ignored it, and basically stuck with unnecessarily complex disclosures which date from 1948, 1929 or, for all I know, the 18th century. Why do we need the separate disclosure of loans repayable by instalments after more than 5 years? There are loads of other examples, but don't get me started.

If we had simple accounts, we could spend more time on advice to clients and less time on compliance, and we would not find ourselves the victim of a slur which implies that we are the root of unnecessary bureaucracy, rather than the politicians who are the real culprits.

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