Government considers relaxing accounting rules for UK's smallest businesses

The micro business exemption for filing full company accounts could be widened under new government plans aimed at reducing regulatory burdens on small limited companies.

As part of a wider review of the UK's corporate reporting and audit regime, the Department for Business, Energy and Industry Strategy (BEIS) announced it will look at the rules for small firms.

It said it will update the definition of micro-enterprises which it described as "the relic of an EU directive".

The current accounting rules, BEIS added, "could be forcing too many of Britain’s smallest businesses to spend time and money preparing accounts to a level of detail only needed for larger companies, distracting them from focusing on growth and creating jobs".

The department said it will also "consider the reporting requirements on smaller public interest entities to help attract high-growth firms, and review whether there are unnecessary restrictions on remunerating directors in shares".

Under current rules, a limited company is defined as a micro-entity if it has any two of the following:

• a turnover of £632,000 or less

• £316,000 or less on its balance sheet

• 10 employees or less

Micro-entities can prepare simpler accounts and send only a balance sheet with less information to Companies House.

The plans have been criticised by some experts. Lord Prem Sikka, emeritus professor of accounting at the University of Essex and the University of Sheffield, told the Guardian that the proposals could weaken efforts to deal with economic crime.

"When you look at many of the scandals involving money laundering, what do we find? Lots of small businesses, small companies, used for that purpose," he said.

"Many are implicated in PPE [personal protective equipment] scandals…and many small companies are used as umbrella companies, to evade employment law, evade tax, and not pay national insurance."