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Better, Not Simpler, Reporting Needed for Micro Businesses

Sarah Bean - Monday 07.06.17, 17:17pm

The UK Government should abandon proposals to simplify statutory reporting for the smallest businesses and instead encourage accountancy bodies, banks and software companies to collaborate to develop a more cohesive technology framework which helps Britain’s small businesses to prosper, according to online accounting software company Xero.

Xero and the accountancy firms it has consulted believe that there are other ways to address any reporting concerns that the UK’s smallest businesses – 60% of UK businesses registered at Companies House - may have, without requiring yet more legislation.

This follows the discussion paper ‘Simpler reporting for the Smallest Businesses’, which is now being considered by UK Government. Published by the Department for Business, Innovation and Skills and the Financial Reporting Council, the document aims to stimulate discussion around whether the burden and complexity of existing reporting requirements on micro and small businesses is too onerous and therefore needs to be changed.

Xero’s UK Managing Director, Gary Turner, comments: “While it’s commendable that the government recognises the role that small businesses can play in reviving the economy, we don’t believe the proposed changes highlighted in the paper would deliver more than superficial benefit and instead, could even be detrimental. For instance, by changing the basis on which micro businesses prepare their accounts could result in misleading information being supplied to customers and trading partners.

“Also, the proposals would make it even more difficult for banks to use annual reports to assess lending risk. What businesses and their stakeholders need is better reporting, not a further simplification. In the current economic climate accurate and real-time information is even more important for managing cash flow and returning to growth.”

“Rather than papering over the cracks, we think it’s time for the Government to push accountancy bodies, banks and software companies to work together to provide a new generation of better integrated services that help the millions of small business owners in the UK to manage and run their businesses better. Many UK small businesses fly blind because their systems and processes are disconnected, antiquated and cumbersome.  By all means, look at how small businesses can be better supported, but some of the suggestions are like taking a sledgehammer to crack the wrong nut.”

Mr Turner’s views are echoed by Laurence Moore, Director of Prime Chartered Accountants: “The outline suggestions set out in the document are an over-simplification. For instance, the suggestion of a ‘statement of position’ would not have the information required to reconcile with either a profit & loss account or trading statement, & therefore are of limited use to HMRC, for trading partners and banks to assess risk, or to micro businesses themselves.”

Maria Clark, Partner, Kingston Smith LLP, adds: “The Balance Sheet has always been paramount to a micro-business to gain an understanding of performance, and to put the trading of the business into context. Micro-businesses should, and will, continue to record their transactions in the normal way, but under the proposed regime they would have to convert their underlying records from a traditional accruals basis to a cash basis, which seems an unnecessary, and costly, task.

The cost of transition should also be taken into consideration for a growing business. They will begin as a micro-business but over time will mature and then have to change their accounting basis – they will have no useable historic information from their time reporting under the proposed simplified method to provide to new trading partners.”

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