Business Secretary pledges to remove the need for audits for SMEs

News Article - 23 March 2011
Category: Business

Business Secretary Vince Cable has pledged to remove the requirement for tens of thousands of small and medium-sized enterprises (SMEs) to file accounts and audits to the taxman.

These latest Government proposals are said to affect as many as 42,000 SMEs which would bring the UK back in line with existing EU rules.

The Government looks set to target further tax exemptions for even smaller businesses, enabling them to submit specific accounts to Companies House which could save the business department as much as £400 million.

Cable said: "It's important that we free small firms up so they can grow and drive the economy. The changes I have announced today mean that small firms will be able to concentrate on growing and taking on more people instead of paperwork."

Reaction from major national institutes was mixed, with some experts believing that removing the requirement of audits of SMEs would not be in the public interest. Meanwhile the Institute of Credit Management believes taking further SMEs away from the audit process will only serve to damage their chances of gaining credit rather than saving them money in the short term.

Businesses receive credit based on trust from banks knowing that their company is financially solvent and capable of repaying its debts. Without the need for a company audit banks will therefore have a limited amount of financial information available to ascertain whether increased credit will do particular SMEs more damage in the long run.

Chris Lewis, head of SME issues at ICAEW, told Accountancy Age that the move wouldn't affect too many SMEs in general, with the current threshold already at organisations with a turnover of £6.5 million and above.

"You are talking about fairly substantial businesses. So raising the threshold further would involve larger businesses with complex transactions so many will continue to voluntarily have it," said Mr Lewis.

Although many small and medium-sized enterprises are unlikely to have to file accounts and audits to the taxman, businesses will be encouraged to maintain a reliable and comprehensive audit trail with instant access to financial information in order to make informed strategic decisions.

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