New reporting regime for Micro Companies – is it a crazy idea?

A donut store, bakery, fish and chips store and a pet shop

On the 21st February 2012, the European Union defined a new category of company, the ‘micro-entity’. Micro-entities are very small limited liability companies and qualifying partnerships.

Micro companies are those not exceeding two out of three of:
  1. Balance sheet total: £289,415 (€350,000)
  2. Net turnover: £578,830 (€700,000)
  3. Average number of employees during the financial year: 10 (or fewer)
Subject to certain conditions, the Micros Directive permits Member States to relieve micro-entities, from the obligations to:
  •  present “prepayments and accrued income” and “accruals and deferred income”
  •  recognise certain types of “prepayments and accrued income” and “accruals and deferred income”
  •  draw up notes to the accounts
  •  prepare an annual report
  •  publish annual accounts provided the financial data information contained in balance sheet items is filed with a designated competent authority.
The UK Government (Department for Business Innovation and Skills) issued a consultation document ‘Simpler financial reporting for micro-entities: the UK’s proposal to implement the ‘Micros Directive” the consultation period closed on 22nd March 2013.
The Government is seeking to make changes to the Companies Act 2006, and to the accounting regulations made under that Act and under EU law to implement the EU Directive 2012/6/EU of the European Parliament and of the Council (“the Micros Directive”). It would also make comparable changes to the accounting framework for Limited Liability Partnerships.

The ICAEW believes the lack of transparency and dearth of financial data would lead to more rejections of credit to these smaller organisations.

“We have a number of concerns about the suggested changes, as they may result in less transparency and less useful financial information. This, in turn, can over time have a negative impact on market confidence and on micro businesses’ ability to access finance, at least at the margins,” says Dr Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty.

What do you think?

4 thoughts on “New reporting regime for Micro Companies – is it a crazy idea?

  1. I am really unsure what this ‘means’ to small businesses. Seems important and I would like to embrace it – but cannot see the ‘nub’ of the issue.
    Can you clarify further?

    1. Basically the UK and EU think that preparing accounts is burden for small businesses but if the accounts are prepared without accruals and prepayments I don’t think they give a true and fair view and I don’t think lenders will accept them so in my opinion changing the rules is unhelpful

  2. What’s the definition of net turnover? It’s not a term I’ve heard before – ie, what is deducted from turnover to arrive at net turnover (as distinct from gross profit, net profit, profit after tax or any of the usual EBIT variants)?

    My expectation is that most micro businesses will carry on as they are. Removing the paperwork for accruals and prepayments is a drop in the ocean that will barely impact on administration costs – but will rightly lead to suspicion from suppliers, banks and investors.

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