The Government’s intention to reduce still further SMEs' statutory filing requirements in order to reduce red tape is likely to prove to be counter productive by making it harder for small businesses to secure growth funding.
Business Secretary Vince Cable announced recently that the audit threshold for filing accounts at Companies House would rise from the current £5.6 million turnover per annum to £25 million, while exempting micro businesses with up to £1 million turnover from filing their accounts at all. It is estimated by the Government that the change will save SMEs up to £400 million pounds per year.
Martin Williams, Head of External Affairs at Graydon UK, commented; “As the Department for Business, Innovation and Skills seeks to reduce statutory filing requirements, HMRC has announced that it intends to target 50,000 small businesses this year in order to examine the quality of their book keeping. Those found deficient could incur financial penalties of up to £3,000. In effect, HMRC is saying keep good records, while the government appears to be recommending the opposite in the interest of fulfilling its promise to reduce red tape.
“The Government’s intention to relieve SMEs of administrative burdens is to be applauded but in a continuing uncertain funding environment the reality is that even less financial transparency will hold SMEs back, particularly if the economic recovery weakens further.”
According to Martin Williams, during the credit crisis as economic conditions changed rapidly, banks, credit insurers and trade suppliers sought greater financial transparency from SMEs before granting them credit. In many cases, where annual accounts filed at Companies House were suspected of being out of date, lenders began to ask in increasing numbers for up to date monthly management accounts to gain a better understanding of companies financial standing before granting them credit.
Philip King, Chief Executive of the Institute of Credit Management has commented: “As well as bank lending, businesses also extend credit to one another based on the trust that comes from knowing that the company they are lending to is financially viable, and one of the essential proof points is a set of audited accounts. Far from helping small businesses, the move is more likely to damage a company’s access to credit, restricting growth and in fact adding to their costs.”
Martin Williams has added; “Small businesses need to keep a proper ongoing check of their financial situation and should not be tempted to cut financial management corners in what is an essential part of running a business.”
