SME red tape: Plans to slash ???

From Monday 3 October 2022, the UK government has changed the ‘small’ company threshold, which is expected to remove 40,000 businesses from certain reporting regulations. Since January 2016, a company qualifies as ‘small’ in the year that it does not exceed two or more of the following:

Annual turnover:                                   £10.2m

Gross Assets:                                             £5.1m

Average number of employees:                 50

To qualify as small, the company or group must meet the criteria for two consecutive financial years.

As part of the much promised post Brexit ‘dividend’, from 3 October 2022 the average number of employees will be increased from 50 to 500. The government plans to consult on extending this to businesses with up to 1,000 employees once the impact of the recent change has been reviewed.

This is likely to enable more SME businesses to qualify as ‘small’ and hence take advantage of various financial administrative relaxations, including:

• Statutory accounting:
  • Preparing simpler annual accounts (by being eligible to follow reduced disclosure accounting standard FRS102 1a),
  • Filing reduced disclosure (filleted and abridged) accounts on the public record at Companies House,
  • Exemption from groups having to prepare consolidated accounts,
• Exemption from requiring a statutory audit,
• If you are a personal service company, larger end customers will be exempt from applying off-payroll working rules to your income,
• More expected, including:
  • Major reforms to GDPR data protection rules,
  • Exemptions from transfer pricing rules.

However, this rule change applies to new legislation only, not existing legislation. And as, at the time of writing, there has not been any new legislation relating to the above ‘financial administration’ requirements, it is currently meaningless.

If you are unsure if you will be affected or would like further information, please contact your usual Whitings contact.