Abolition of financial reporting for SMEs: an opportunity

Alex Bellinger outlines EU proposals that will see the abolition of reporting requirements for SME’s with (2 from 3) turnover of less than €1 million, assets of less than €500K, less than 10 employees.  The idea is to reduce the administrative burden placed upon what the EU calls ‘micro-entities.’ The proposals are not binding on EU states which kind of defeats the object of the exercise even though the EU estimates total savings of £5.5 billion for UK businesses. Alex also cherry picks the response from Michael Izza, CEO of ICAEW:

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.

On face value, I’m not convinced Izza has much to worry about. UK tax reporting requirements are such that it is difficult to see how you can get away without having a set of numbers put together. Even if the revenue extends reporting concessions, it will likely stop far short of the €1 million threshold. However, opening the door in this way creates an opportunity for software vendors to take over (most of) the job. In the past, accounts programs have been…just that. Designed for internal use. then we have accounts production systems of the kind Digita, MYOB IRIS and Sage sell that turn the trial balance into formatted accounts that can then be used for tax calculation purposes. The landscape still looks mostly that way both in the UK and US.

The emergence of FreeAgentCentral in the UK and Outright in the US suggest a different story. Both vendors offer functionality that steps in the direction of tax compliance. Neither can safely say they provide a way to dispense with the services of professional accountants but they *can* and I stress *can* take a lot of the legwork out of the process of accounts preparation and tax filing. If the UK government validates the new proposal then I would expect that to act as an encouragement to the software industry. The real trick will be convincing professionals to change their way of working so that they concentrate on value add. Some are making that change. The vast majority are not. Professionals still cling to the mystique involved with double entry andf the errors clients make as a reason for perptuating existing and outdated services. Those software vendors that make the client love what he/she gets will have a different view. But then as the saying goes: the market will decide.

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Tagged as: Tax preparation