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Simpler reporting for the smallest businesses
If you own, assist, advise or have a business relationship with a micro entity you should look at the discussion papers highlighted below. ACCA would also like to receive your comments and answers to the discussion points raised. Please send your comments to advisory@uk.accaglobal.com
In August 2011 the Financial Reporting Council (FRC) and the Department for Business Innovation and Skills (BIS) issued a discussion paper on 'Simpler Reporting for the Smallest Businesses'. Written responses to the discussion paper should be provided by 30 October 2011. The discussion paper has been published to stimulate debate and gather evidence, to help the Government decide, with the Office of Tax Simplification (OTS), whether to take forward further work in this area. Should the Government decide to take forward any of the ideas in the discussion paper, it would consult further in the usual way, including preparation of an impact assessment.
The proposals in the discussion paper are to stimulate debate. They are dependent on agreement being reached in the EU on the future of the Fourth Directive - this is still not certain. The proposals also go further than those EU proposals in that they would not require a true and fair view to be shown and would allow companies to report on a cash accounting basis.
The discussion paper contains the following main point:
1. 'Micro-entities' being defined as companies that trade for profit and do not exceed two of the following criteria:
(a) A net turnover of Euro 500,000 (£440,000)
(b) A balance sheet of Euro 250,000 (£220,000)
(c ) Average of 10 employees during the financial year.
2. Small companies are currently required to produce annually financial statements that show a true and fair view (they may choose to file abbreviated financial statements) and an annual return. It is proposed to require micro-companies to prepare the following financial information instead:
(a) A simplified trading statement
This would be in place of the current Profit and Loss account. This would be prepared on a cash accounting basis and therefore remove the need for accruals, prepayments, stocks and depreciation.
(b) A statement of position
This would be in place of and simpler than the current Balance Sheet.
(c ) An annual return
At a minimum this would identify the ultimate owners of the company and the basis on which a company asserts its entitlement to "Micro-Company" status
(by reporting the average number of employees during the past year together with the financial information required).
3. It proposes Micro-Companies might be required to
(i) File annual returns within 12 weeks of the end of the financial period; and/or
(ii) Standardise the reporting year.
4. It may be possible for micro-companies to use the simplified trading statement as the basis for their annual tax return. Accounts depreciation might be simplified to match capital allowance rates used in the tax system.
The FRC/BIS discussion paper can be found here.
The Office of Tax Simplification is currently consulting on proposals to simplify taxation for the smallest businesses and is due to report recommendations to Ministers ahead of the Budget 2012.
In July 2011 the Office of Tax Simplification (OFS) issued a discussion paper entitled A Simpler Income Tax for the Smallest Businesses. The main purpose of this paper is to set out possible options for the simplified system for small unincorporated businesses. The closing date for responses is 7 October 2011.