Reduced financial reporting on the cards for freelancers

Money, News

Good news for freelancers and contractors this week as the Government announced plans to introduce slimmed-down financial reporting rules for micro-businesses.

For the purposes of the legislation, a micro-business is defined as a firm with fewer than ten employees and an annual turnover of £632,000 or less – so all but the wealthiest of freelancers will be included.

According to the Government’s figures there are currently 1.56 million micro-businesses in the UK, and once this new legislation comes into force (no word on exactly when that will be just yet, aside from “as soon as possible”) they will be able to prepare and publish abridged Balance Sheets and Profit & Loss Accounts, in addition to an existing exemption that allows them to forego filing a Profit & Loss account with Companies House.

Business Minister Jo Swinson said:

“Thriving micro-businesses are a vital ingredient for a stronger economy. However, because of their size they don’t always have dedicated finance teams behind them. We therefore need to make sure that they can focus on growing their business – rather than completing unnecessarily detailed paperwork.

The measures announced today are just one of the ways we’re cutting bureaucracy, letting micro-businesses get on with running their enterprises and creating jobs.”

Although Swinson is quick to take credit for the initiative, it’s worth noting this legislation was actually passed down from the EU as the ‘Micros Directive’, and the Government is simply implementing it now (as they legally have to).

The Government doesn’t have the greatest track record when it comes to implementing EU regulations (see the troubled Agency Workers Regulations), and sure enough the ACCA, one of the UK’s leading accountancy bodies, has come out in opposition to their implementation of the Micros Directive. The ACCA claims the new rules will cut red tape “in only the most trivial sense”, due to the fact that generating the exempted reports is only the end product of good financial record-keeping, which is still entirely necessary.

In a rather in-depth appraisal of the cracks in the new rules (PDF), the body asserts:

“The process of filing accounts is in itself insignificant in terms of costs, whereas the process of recording transactions and book-keeping, which produces the relevant information and accounts for most of the cost of preparing financial reports, is an essential discipline for all businesses, large or small, and is outside the scope of the administrative burdens reduction programme.”

So, a legitimate attempt to help small businesses, or another badly thought out legislative quagmire? Time will tell.

Photo by Liz West