By Annie Makoff Financial accounting and reportingWill company size thresholds actually simplify and reduce SMEs’ admin burden?11 Apr 2024 New government proposals attempt to reduce the administrative burden on SMEs. Accountants discuss whether they’ll work.Company size is decided by monetary thresholds. New government proposals include lifting these thresholds by 50% in an attempt to reduce the administrative burden on SMEs and to simplify non-financial reporting requirements.Under the proposals, 132,000 UK businesses will have their business category reclassified as either a medium or small business or a micro-entity. As SMEs and micro enterprises are exempt from statutory audit requirements, large numbers of reclassified businesses will benefit from the exemption. They’ll also benefit from simpler filing requirements such as FRS 105 for micro entities and FRS 102 1A for small businesses.The new proposals also include removing duplicate EU reporting requirements and enabling businesses to share annual reports in digital format.The new UK company size thresholds are expected to take effect on or after October 2024:Where two out of three apply:MicroSmallMediumLargeOldNewOldNewOldNewOldNewAnnual turnoverNot more than £632kNot more than £1mNot more than £10.2mNot more than £15mNot more than £36mNot more than £54m£36m+£54m+Balance sheet totalNot more than £316kNot more than £500kNot more than £5.1mNot more than £7.5mNot more than £18mNot more than £27m£18m+£27m+Av. no. of employeesNot more than 10Not more than 50Not more than 250251+The government say the changes will ‘spare’ businesses from ‘burdensome form-filling and non-financial reporting requirements’ and estimate £150m per year in savings for SMEs.So what do accountants and corporate finance specialists think? How effective is the proposed legislation likely to be in reducing administrative burden and will it actually simplify reporting for SMEs and micro entities?A sensible idea with unintended consequencesStuart Brown, Director, Head of Technical Compliance, Duncan & TopisThe plans are sensible in many ways. They’ll reduce the regulatory burden on thousands of companies, especially as current thresholds were due to inflationary increases in financial metrics. But there may well be unintended consequences. For example, it may be harder for a company to obtain finance if its financial statements have not been audited. Or, if they are no longer calculating carbon emissions they may no longer appear committed to ESG matters.The proposed changes also need to be considered alongside other incoming regulatory changes such as the far-reaching changes to Companies House which will include the verification of directors or persons with significant control. And changes around companies needing to submit profit and loss accounts.Verdict: The changes to company size thresholds, although sensible, may result in unintended consequences.We need a full overhaul to relieve the admin burdenStuart Crook, Partner, WellersI have always believed that company size thresholds should rise in line with inflation. Revisiting them every so often doesn’t make any sense and doesn’t consider the wider effects of the economy on a business. These thresholds are primarily based on company size and revenue figures, which can be artificially magnified by inflation.A more robust system would consider this regularly rather than on political whims. Accounts can also be audited for several reasons that have nothing to do with these thresholds, including if they are using bank facilities, for example. If a company is approaching the next threshold, then typically they will be aware of the necessary upcoming audit anyway, so in this instance, the changes won’t make much of a difference.The devil will be in the detail with these proposals. Post-Brexit administrative burdens have been amplified to the extreme due to poor planning by the government pre-Brexit. But now, there have been no details released.Small businesses are already well over capacity with the administrative burdens put on them. They are juggling new legislation in all aspects of running their business from the Economic Crime Bill and anti-money laundering to changes to pensions and the national living wage, health and safety, and trading regulations.Therefore, any removal of admin at this stage wouldn’t be lightening the load on small businesses, it would simply be taking them back to the even keel they were dealing with pre-Brexit. To actually lighten the load, a full overhaul would need to happen.Verdict: The threshold changes are necessary but won’t lighten the admin load – a full overhaul needs to happen instead.Changes are baby steps towards bigger challengesGareth Anderson, Corporate Finance Specialist and Head of Business Management, Allica BankThese size threshold changes are merely a baby step that won’t tackle the bigger challenges facing SMEs. Anything that helps reduce, simplify and streamline the regulatory and reporting burden for SMEs is welcome, but they really require help investing for the future, innovating and creating new workforce skills.Non-financial reporting obligations aren’t a bad thing either. I’d also argue that if we want to encourage more private investment into SMEs, providing visibility and transparency – particularly through the Directors Report and Strategic Report – is a good thing. They can give investors more confidence to invest in early-stage companies, while also supporting owner accountability.Verdict: On balance the changes should be welcomed, but alone they should be seen as just a tiny step of a much bigger journey.Would you like to contribute to future articles like this one? If so, please get in touch with Annie Makoff-Clark at [email protected]. Annie Makoff is a freelance journalist and editor.