More than 100 thousand UK businesses could save in excess of £600 million in accountancy and administration costs every year under proposals to reduce financial reporting requirements, published by the Department for Business, Innovation and Skills today.

The consultation on Audit Exemptions and Change of Accounting Framework sets out plans to allow more small companies and subsidiaries to decide whether or not to have an audit.

Current EU rules mean that to classify as ‘small’ for accounting purposes, a company must comply with two out of three criteria relating to their turnover, balance sheet total and number of employees. However, to obtain an audit exemption in the UK, small companies must fulfil both the balance sheet and turnover criteria. Under the new proposals, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria, saving them an estimated £206m per year.
The Government is also proposing to introduce legislation in 2012 to exempt most subsidiary companies from mandatory audit, provided their parent is prepared to guarantee their debts. Savings are estimated at £406m per year.

In total, removing this EU gold plating could save UK businesses £612m per year. These moves are part of the Government’s wider focus on cutting red tape and reducing unnecessary burdens on business, in particular addressing the impact of European legislation.

Additionally, following the consultation by the UK Accounting Standards Board on changes to UK Generally Accepted Accounting Principles (UK GAAP), the Government is also seeking views on whether to allow companies which currently prepare accounts under International Financial Reporting Standards (IFRS) more flexibility to change their accounting framework to UK GAAP.

The Minister responsible for Corporate Governance, Edward Davey, said:

“Over time, both the volume and costs of reporting requirements for UK companies have increased, and businesses have stressed to us the need for more flexible and targeted rules. Tackling these problems now will save UK SMEs millions every year and give them more opportunities to expand and grow their business.

“Audit is very valuable for many companies. But the proposals we’ve published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth. So I encourage businesses to read the consultation document and share their views with us.”

In March 2011 the Chancellor and Business Secretary published The Plan for Growth. One of the Plan’s ambitions is to ensure the UK ranks among the best places in Europe to start and grow a business. In order to achieve this, the Government is committed to removing regulatory burdens and improving corporate governance

The consultation launched today covers the whole of the UK and will close on 29 December 2011.

The consultation document, response form and contact details are available at http://www.bis.gov.uk/Consultations/audit-exemptions-and-accounting-framework

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Agreeing payment terms is the single biggest issue worrying SMEs, according to a leading business organisation.

The Institute of Credit Management (ICM) reports that its Payment Terms guide, produced by the ICM for the Department of Business Innovation and Skills (BIS), is proving to be by far the most popular of the ten guides available, with download figures outstripping the others by three to one. More than a quarter of a million guides have been downloaded in total.

The guide provides helpful advice to small businesses on the potential pitfalls of agreeing payment terms and gives tips for best practice. It warns small businesses that making assumptions about terms can be dangerous, and that formally agreeing them beforehand is vital: “Set out and agree payment terms in advance and in writing,” says Philip King, Chief Executive of the ICM.

“It’s better to know what to expect than to leave things to chance and wonder why the money hasn’t arrived later.”

The guide also advises SMEs to be vigilant for any changes to wording in documents from a customer, and provides suggestions for deterring late payment or prompting action from an evasive debtor: ‘Raising a further invoice for interest and late payment charges is an excellent way of gaining your customer’s attention and raising the profile of your outstanding invoices.’

Philip says that the download statistics provide significant insight into the primary concerns of small enterprises: “For a second year running, the Payment Terms guide has seen the highest number of downloads, though this year by an even greater margin.

“Businesses are realising that in today’s uncertain economy, it is even more important to tread carefully and not take unnecessary risks. Having an increased awareness of one’s own payment terms – and the implications of those terms – is one of the best ways that a business can protect itself.”

He added that the ICM was pleased to be able to equip SMEs with the information that they were looking for: “These high download figures suggest that much-needed advice is reaching its target audience, and that is evident across all of the guides in the series, a quarter of a million of which have now been downloaded in total.”

The Payment Terms guide is one of ten titles available in the Managing Cashflow series, which also includes ‘Invoicing’, ‘Chasing Payment’ and ‘When Cash Runs Short’. These can be downloaded from http://www.creditmanagement.org.uk/bisguides.htm

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

The Forum of Private Business is urging the Government to cut taxes for private lenders as well as equity investors in order to boost credit conditions for small businesses.

During yesterday’s speech at the Conservative Party conference the Chancellor, George Osborne, announced a ‘credit easing’ scheme – likely to involve creating bond markets from mixed SME debt packages, reminiscent of the debt trading that sparked the credit crunch and a medium-term strategy at best.

The Forum is calling for further measures to allow alternative lenders to compete with mainstream banks, in addition to a plan to boost equity investment via tax breaks for venture capitalists.

In a letter to HM Treasury in response to the Government’s ‘tax-advantaged venture capital schemes’ the Forum welcomed a proposal increase to 30% tax relief available for equity investors under the Enterprise Investment Scheme (EIS), but also called for tax incentives for private lenders to boost the provision of non-equity finance for small firms.

“The Government is trying to make the right noises by announcing a ‘credit easing’ scheme but doubts remain as to the form it will take and how it will work to free up credit for small businesses,” said the Forum’s Chief Executive, Phil Orford, who is attending the conference in Manchester.

“At best, is a medium-term strategy that will require the creation of small business bond markets in the first place, and there is a concern that the principle of bundling together mixed risk debt for bond trading is what sparked the credit crunch.

“We need to focus not just on incentivising equity investors but on giving private lenders the tax breaks they need to be able to compete in the finance markets dominated by big banks.

“That would be a definite step towards creating the credit conditions small firms need now if they are to create jobs and drive economic growth.”

The not-for-profit Forum is arguing that private funders take real risks by lending to companies that struggle to access bank finance and believes this risk should be rewarded.

The Forum is calling on the Government to adapt the existing EIS to private lenders paying the top rate of tax. We believe the enhanced scheme would work by:

Giving a 20% income tax relief on loans – meaning a loan of £100,000 would effectively cost a lender paying the top rate of tax £80,000.

Reducing to 20% the tax on interest received during the lifetime of a loan – instead of the 50% top tax rate, providing the loan is outstanding after three years.

Providing an additional tax relief if a business fails before the loan is repaid – the lender could claw back up to 50% income tax relief (at the top rate) on money lost if the firm fails, in addition to tax saved when the loan was issued.

Figures from the National Endowment for Science, Technology and the Arts (NESTA), which promotes innovation in the UK, show the importance of tax breaks in encouraging investment.

According to NESTA’s 2009 study tax incentives have a ‘material effect’ on encouraging business angel investing. In all, 80% of investors surveyed had used the EIS at least once and 57% of businesses invested in also made use of it. Further, 24% of investments would not have been made without tax incentives.

The Forum believes that similar incentives should be given to private lenders without delay.

The Forum is calling for tax breaks for private lenders on par with those benefitting equity investors, and in addition to schemes such as credit easing, as part of its Get Britain Trading campaign.

The campaign aims to raise awareness of the contribution of small firms to the UK’s economy and remove the barriers to starting and growing a business.

For more information email getbritaintrading@fpb.org, visit www.fpb.org or call 01565 612 6266.

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The number of business failures is expected to fall by 21.6% from a peak of 26,196 in 2009 to a predicted 20,536 in 2015, according to the latest Industry Watch report by accountants and business advisers BDO LLP. However, the number of business failures will remain above pre-recession levels of 16,431 in 2007, due to the recession having a long tail.

UK businesses are proving resilient to the uncertain global economic climate, with the number of business failures stabilising at a level below most expectations. This suggests that the Bank of England’s policies of keeping interest rates at an all time low of 0.5%, supported by injections of quantitative easing, are trickling through and supporting businesses through the tough economic climate.

BDO’s report identifies a squeeze on UK households’ disposable income as one of the primary reasons behind the slow recovery from the recession. Consumer spending is expected to fall by 0.8% in 2011, caused by the double impact of low earnings growth and high inflation – averaging 4.3% between January and August, more than double the Bank of England’s target rate. This direct pressure on consumers is exacerbated by uncertainty resulting from the US downgrade of growth expectations and the sovereign debt crisis in the Eurozone.

Consequently, consumer-dependent sectors such as retail & wholesale and personal services are likely to be the worst affected. BDO predicts that the number of business failures in retail & wholesale is set to rise by 12.5% to 3,104 in 2011 from 2,759 in 2010, while insolvencies in personal services, such as the hair & beauty and consumer goods repairs, will see an increase of 2.8% to 1,288 in 2011 from 1,252 in 2010.

The uncertain economic climate overseas has also had an impact on the manufacturing sector, which was a key contributor to GDP in 2010. Business failures in the sector will continue to fall in 2011, but will do so at a slower pace than previously anticipated, falling from 1,939 in 2010 to 1,858 in 2011.

The exposure to export markets that bolstered areas such as business services and manufacturing in 2010 – leading to a notable reduction in business failures – has had an adverse impact on these sectors in 2011 as global growth slows. As such, insolvencies in the business services sector are likely to fall only modestly, by 2.2% from 4,463 in 2010 to 4,366 this year. BDO expects business failures in this sector to reach pre-recession levels by 2015.

There are, however, reasons for cautious optimism as manufacturers continue to benefit from a weak sterling maintaining the competitiveness of British exports. This is expected to drive momentum in the sector, with exports expected to grow by 5.3% in 2012. This should result in the number of manufacturing business failures settling below pre-recession levels next year.

Shay Bannon, Head of Business Restructuring, BDO LLP, said: “Given the situations in the US and Eurozone, business failures are at a level below that which we might have anticipated, especially given the plethora of negative data. In the longer term, we’re seeing a downward trend – the Industry Watch report predicts a year on year fall from 2012 to 2015.

“There are reasons for optimism despite export markets weakening again this year – we expect inflation to fall back sharply in 2012 and for consumers’ earnings growth to remain constant, giving households greater spending power.

“In addition, although the pound may strengthen against the Euro, there is little chance of a return to the much higher pre-recession exchange rate. This should continue to give UK businesses an opportunity to find growth beyond sluggish domestic markets and we predict 5.3% export growth in 2012.

“The Bank of England’s policies of low interest rates, quantitative easing, together with the HRMC Time To Pay Plan, seem to be equipping businesses with a degree of resilience, despite the difficult economic climate. In particular, we’re seeing that businesses with a turnover of more than £1 million are proving particularly resistant.”

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The latest Insolvency Index from Experian, the global information services company, has revealed that the rate [1] of insolvencies dropped to 0.08 per cent in August, its lowest point since February.

There was a marginal increase when compared to the rate in August last year when 0.07 per cent of the business population became insolvent. The overall financial strength score of businesses in the UK dropped from 81.06 in August 2010 to 79.18 in August this year. However, large companies saw their financial strength score improve from 81.06 to 85.91.

It was also the largest companies that saw insolvencies drop year on year with the rate dropping from 0.14 per cent to 0.09 per cent this year. Businesses employing 11-50 employees performed the worst in August with the highest rate and 0.21 per cent of the business population failing.

In terms of regions, the North East and West Midlands had the highest rate of insolvency in August at 0.11 per cent. Yorkshire and the East Midlands were the most improved going from 0.13 per cent to 0.10 per cent and 0.09 per cent to 0.07 per cent respectively.

The South West was the best performing region with the lowest insolvency rate with 0.06 per cent.

All sectors saw a fall in financial strength score, lead by Utilities companies who saw the biggest drop of all the sectors from 79.62 last year to 76.55 in August 2011. Oil companies remain at the top of the table with the highest score at 80.74 in contrast to Food Retailers still at the bottom with 74.22.

Max Firth, Managing Director of Experian Business Information Services, said: “While insolvency rates in August were the lowest since February 2011, our analysis shows that regional variances continue to underline the importance of closely monitoring the financial health of the suppliers and customers that companies do business with.”

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HM Revenue & Customs (HMRC) has announced an extension of its Business Records Checks programme.

Business Records Checks were piloted earlier this year in eight key areas, and involve checks on the adequacy of small and medium-sized enterprises’ business records.

The pilots found that around 44 per cent of businesses visited had issues with their record-keeping, while around 12 per cent of those visited had seriously inadequate records.

HMRC will be now be extending this activity from mid-September to cover a number of key areas across the UK. As part of this, the number of full-time staff employed on the programme will rise from 30 to 120.

HMRC plans to complete up to 12,000 Business Records Checks by the end of the current financial year, with 20,000 provisionally planned for 2012/13. HMRC is increasing the number of visits, so it can refine the process, before final decisions on a national roll-out are taken in the New Year.

Initially, HMRC will only levy a record-keeping penalty in the most extreme cases of poor record-keeping. In the longer-term, HMRC intends to issue penalties of up to £3,000 for serious inadequacies in record-keeping. HMRC will issue guidance on this, and make a further announcement on when it will happen, in due course.

HMRC’s Director of Local Compliance, Richard Summersgill, said:

“Good record-keeping helps businesses pay the right amount of tax at the right time, thereby potentially avoiding interest and penalties.

“Adequate records give businesses a clear idea of their trading position and profitability, allowing them to make business decisions and adjustments to ensure survival and success. And where a check has shown a business keeps adequate records, it gives HMRC a greater degree of assurance as to the likely accuracy of its tax returns.

“Ultimately, this is about supporting businesses and reducing the tax gap.”

For further information on record-keeping, visit www.hmrc.gov.uk/record-keeping

Late payment legislation designed to help prevent late payment of invoices and unfair payment terms will be introduced a year early, a Government minister has revealed.

During a Commons debate at Whitehall last week, business minister Ed Davey revealed that a consultation into the EU directive will take place this winter, which will then transpose the legislation into UK law in the first half of 2012 – a year earlier than required.

The directive will set standard payment terms at 30 days, and label any terms in excess of 60 days as ‘grossly unfair’. It will also entitle businesses to a statutory interest rate of 8 per cent above the European Central Bank rate for late payments.

According to Davey, late payments are affecting businesses of all sizes, he said: “Late payment is not exclusive to any sector or to any style of business. Although I sympathise with those who say that this is big business abusing its power, an awful lot of payment is between small businesses. The majority of contracts that any small business has are with other small businesses. We should not say that it is just a big business problem against small businesses, because the issue is about more than bully-boy tactics. Research shows that of the moneys owed by large businesses, around 40 per cent is overdue compared with 30 per cent for small businesses. The problem therefore affects businesses of all sizes.”

The announcement follows figures released by the Federation of Small Businesses (FSB) in July, which found that 73 per cent of businesses had paid late in the last 12 months. Commenting at the time, John Walker, national chairman of the FSB said:

“In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff. We need to see all businesses ensuring that they make payments on time if the private sector is to get on with the job in hand of strengthening the recovery.”

The Forum of Private Business is urging all small suppliers who have suffered to come forward and anonymously name and shame offending businesses.

“Late payment destroys companies, yet it is often seen as normal practice by big supermarkets and other companies, which believe it is acceptable to create lines of credit at the expense of their smaller suppliers. We certainly do not,” said the Forum’s Head of Campaigns, Jane Bennett.

The Government must do more to support small businesses, the Federation of Small Businesses (FSB) will tell the Liberal Democrat Autumn Conference this week.

In response to recent economic data, which has highlighted sluggish growth and accelerating unemployment, the FSB is launching its ‘Real-Life Entrepreneurs’ campaign.

The FSB believes that it is those that have taken a risk and started their own business that will be responsible for boosting growth and employment opportunities that will help the economy to get back on track, but that unnecessary obstacles stand in their way.

The campaign focuses around six steps, that the FSB believes the Government could take that would make a real difference. These steps include increasing routes to finance, improving cash flow, simplifying business taxes and adopting a new approach to regulation.

Commenting, John Walker, National Chairman, Federation of Small Businesses, said:

“The economy has stalled and as the impact of the public sector cuts continue to bite, the Government needs the UK’s small businesses – those Real-Life EntrepreneursTM that have taken a risk to set up in business – to pick up the slack. But, for this to happen we need to see a strong plan for growth put in place.

“While the culture of celebrity entrepreneurs will have spurred people into starting a business, more needs to be done to make doing so more accessible to more people. We are calling on the Business Secretary to listen to the Real-Life Entrepreneurs that have told us their problems and to make changes that address their needs. Not only will this help them to grow their businesses, but it will also help other people realise that they can go it alone and become one of these important Real-Life EntrepreneursTM.”

The Institute of Credit Management (ICM) and the Minister of State for Business and Enterprise Mark Prisk have published their monthly ‘tip’ for small businesses to better manage their cashflow.

“Watch out for any wording in documents from your customer that changes the agreed payment terms. If you accept their order, you might also be accepting their changed payment terms.”

The cashflow ‘tips’ are derived from the series of Managing Cashflow Guides published by the ICM for BIS that have to date been downloaded more than 245,000 times.

For further information, log on to http://www.creditmanagement.org.uk/bisguides.htm

Business owners in the UK are spreading themselves too thinly by taking on so many different roles within their own company, according to new research by invoice finance specialist Bibby Financial Services.

The findings paint a picture of the modern business owner as an extreme multi-tasker who spends more than half their time chasing payments, securing finance on top of the day-to-day running of their firms, and taking on more and more responsibilities as the downturn has resulted in many firms operating with fewer staff.

Business owners are well aware that wearing a range of different hats is par for the course, but the findings of the survey highlight the full extent to which many have to take on extra roles.

Some of the more surprising findings include 65 per cent are taking on cleaning duties around the office, 63 per cent find themselves in charge of the stationery order and even 39 per cent say they have to make deliveries or collections.

The survey also found that 82 per cent of business owners are taking on the responsibility of dealing with suppliers themselves, 62 per cent are busy trying to secure finance for their business, 63 per cent are chasing payments from customers and 58 per cent are pursuing new business leads or opportunities in addition to their ‘day-to-day’ roles.

Edward Rimmer, UK chief executive for Bibby Financial Services which works with 4,000 businesses, says: “Working closely with so many business owners across the UK, we understand the pressures that managing directors are under, and that they often have to take on many different roles in order to make their business a success.

“The research really highlights just how demanding running a business can be and that some MDs may be taking on too much. It is, however, a concern that many owners are spending so much time chasing payments, dealing with suppliers and securing funding, in addition to their many duties.

“People go into business because they have a passion for something and a good idea, but it is easy to underestimate how many different roles need to be taken on.

“For many small and medium-sized enterprises cash really is king and ensuring finances and cash flow are in order has to be a priority, which might mean outsourcing those tasks to specialist organisations if they are not a strength of the business owner, such as chasing payment from suppliers. There is a real danger that some firms will suffer if the MDs continue to shoulder all the responsibility for the operations of their business.”