A bad idea disguised as a business benefit
23 Mar 10
All is not as it seems in an EU move to exempt the smallest companies from filing annual accounts, finds ICAS chief executive Anton Colella
The EU Council of Ministers is to decide on whether to vote through a proposal to exempt the smallest companies – micro entities – from the requirements to file annual accounts. It’s argued this will lead to a reduction in red tape and save these companies €1,169 in compliance costs.
Current estimates suggest around 79 per cent of UK companies would fall within this micro entity definition. Who wouldn’t agree with a cost saving and liberation from tiresome compliance?
All is not as it seems. First, the proposal includes an explicit requirement to maintain adequate accounting records. The tax man will need a profit figure to calculate corporation tax, and companies will have to be able to calculate distributable profits for payment of dividends. So accounts will still need to be prepared.
Second, transparency will suffer if the accounts aren’t filed on public record. Take the common example of a business with a majority of micro entities as clients. Before the financial crisis, it used trade credit insurance to mitigate credit risks. It now finds this cover is a cost that the business struggles to pay and decides to assess the financial health of suppliers itself. How can it manage to do that adequately without seeing accounts filed at Companies House?
The next meeting of the Council of Ministers is in May. Decisions are not taken quickly at the EU and there is no certainty that the micro entities proposal will be discussed at that meeting. That is no bad thing. It allows more time to think through a proposal that, whilst perhaps well-intended, is badly flawed.