EU proposes small firms to be exempt from lodging accounts

[Robot]

Won't happen,

Increased penalty bands apply to any accounts that are delivered late on or after 1 February 2009, whether they are filed under the Companies Act 1985 or the Companies Act 2006 (any penalties for late submission of accounts under the Companies Act 2006 are for financial years beginning on or after 6 April 2008).

The following table shows these bands:


Length of delay (measured from the date the accounts are due)

Private company Public company
Not more than 1 month
£150 £750
More than 1 month but not more than 3 months
£375 £1,500
More than 3 months but not more than 6 months
£750 £3,000
More than 6 months
£1500 £7,500

don't forget you would also be fined for late submission of accounts/CT600 to HMR&C.

Automatic flat-rate penalties for late Company Tax Returns
If you file your Company Tax Return late, your company or organisation will be charged a flat-rate penalty of £100. HMRC will charge a further £100 penalty if you file your return more than three months late.

If your Company Tax Return is late for three or more accounting periods in a row, the initial flat-rate penalty increases to £500 with a further £500 charged if you file your return more than three months late.

and then they say

Changes to HMRC's failure to notify penalty process

Penalties for not telling HMRC your company or organisation is liable for Corporation Tax are changing from 1 April 2010. The new process will apply for accounting periods ending on or after 31 March 2010.

This guidance will be updated to reflect the changes when they come into effect.

The above is the reason why.

Robot

[philip@wellwoodhoyle]

How can it save each company £1,000 when most companies don't pay that anyway for far more services?

Unless HMRC also water down their requirements for full Company accounts, companies will be charged virtually no less at all - maybe £25 p.a. or so for not having to print and file the abbreviated accounts at Companies House.

I can't see HMRC agreeing as they're currently imposing xbrl format for company accounts so that they can use electronic systems to review contents of accounts etc. If anything, forced use of xbrl will increase the accountancy fees for the smallest companies.

It will be interesting to see how this pans out. I suspect the UK government will simply ignore it and carry on as before. Of course, the right thing to do would be to embrace it and tell HMRC to accept far simpler accounts similar to those generally regarded as acceptable for sole traders and partnerships. But then, of course, minority shareholders and financers, such as banks etc may well insist on full statutory accounts anyway as some already continue to insist on a statutory audit even though most small companies are exempt.
Too many vested interests and third party users of accounts, I'm afraid, which will either block the whole process or delay it for a decade or two.

Of course, the most sensible resolution would be to create a level playing field between small limiteds and unincorporated, so that for most purposes, there was no difference between being a sole trader or being a one man ltd co - i.e. same tax regime so no big benefits from being limited and no legal restrictions so make it legal again for agencies to engage sole traders. Most of the smallest ltds don't want to be limited anyway and are only doing it that way because of no NIC on dividends and their agencies insistence on a ltd co.

[Darren@UptonAccountants]

Small Co Accounts

Accounts will still need preparing for HMRC to calculate the corporation tax.

They could possibly reduce the amount of disclosures or information required at Co House but they're quite basic in any case. Possibly worthwhile for companies that have slightly more complex affairs and are being charged significantly more than contractors by accountants.

[RichardCranium]

If you don't need to lodge accounts, how will the government know which are the small firms?

[Waldorf]

I can't see this working - you will need to prepare accounts to work out what tax you owe etc.

[voodooflux]

Apologies if this has already been posted, just noticed it on the BBC News site...

Small firms 'may be exempt from lodging accounts'
http://news.bbc.co.uk/1/hi/business/8560428.stm

Small companies may be exempted from having to draw up and lodge annual accounts, after MEPs approved changes to European Union rules.

Politicians say the policy will cut red tape and help firms be more competitive in tough economic times.

However, there is no guarantee it will come into force as each EU country must choose whether it adopts the exemption.

Firms would also still have to keep records of their business transactions and their financial position.

Savings

An estimated 75% of companies in the European Union are classed as "micro-entities" - usually small businesses operating in a small region with no activity in other EU nations.

These firms have less than 500,000 euros on their balance sheet, a net turnover of less than 1m euros, and employ an average of 10 or fewer people during a year, would qualify under the proposals.

MEPs argue that if usual reporting requirements were waived this would free up firms from red tape and allow them to grow more quickly and be more competitive.

The European Commission cited a study suggesting that that the average cost of complying with the current requirements of the accounting directives was 1,558 euros.

The Vice President of the Economic and Monetary Affairs Committee and small business champion, Arlene McCarthy MEP, said: "As our small firms struggle to overcome the crisis we are determined to help them by cutting red tape.

"It is vitally important that EU law does not over-burden very small businesses. This exemption means that very small firms will save around £1,000 in accountancy and audit fees."

However the European parliament report said that individual countries should have a free choice of whether or not to exempt such firms "taking account in particular of the situation at national level regarding the number of businesses covered".

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Sounds far too sensible to be implemented in this country, although possibly not too popular with accountants.