EU proposes abolition of financial reporting for ‘micro’ businesses

The EU Commission has today confirmed proposals which would exempt businesses from financial reporting rules, if they meet two of the following three criteria: a turnover less than €1 million, employ fewer than 10 people, hold a balance sheet total below €500,000.

In short, no more time and money spent preparing annual accounts.

The EU estimates this could save UK EU businesses a much needed £5.5 billion at a time when SMEs are being hard hit by the deteriorating economy.

Subject to approval by the Council of Ministers and the European Parliament, the amendment to the Fourth Council Directive (78/660/EEC – details as a pdf here) is likely to come into force during the first half of 2010.  

It will be down to individual member states to decide how/if they implement the change.

EU Internal Market and Services Commissioner, Charlie McCreevy, said:

This is a real opportunity to make life easier for the EU’s smallest companies. We intend to do whatever we can to encourage maximum take up of this exemption by our Member States.

All this is good news for as many as 3.5 million + what might amount to nearly 1 million UK ‘micro’ businesses, but must be a blow if you happen to be a small accountant.  

Typically businesses with a turnover under €1 million in the UK will have to pay in the region of £1,000 each to accountants for the completion of their annual accounts.

The Institute for Chartered Accountants in England & Wales (ICAEW) commenting on the proposals clearly feels uncomfortable.

On the one hand it wants to protect its members’ interests, while on the other it doesn’t want to be seen to be challenging a potentially huge benefit to hard pressed UK SMEs.

Its chief executive, Michael Izza hedged his bets earlier by saying:

The exemption carries significant cost-saving potential for UK businesses, but … Let us be clear. We are not advocating the elimination for micro-entities of all the accounting obligations included in the Directives; we are encouraging a wide-ranging and inclusive UK debate.

It’ll be interesting to see how the UK government and other interest groups line up on this one.

Let’s hope, however, that large scale EU filibustering doesn’t delay implementation of an amendment which could be so beneficial to so many UK small businesses.

Update: the Federation of Small Businesses welcomed the proposals this afternoon, while hinting they’d expect more useful reporting of accounts would take up some of the slack.  A spokesman said:

We are convinced that the savings made by businesses on their accountancy fees will be ploughed back into more valuable reports about the future growth of the business.