By Andy Castle, Allica Bank's relationship manager for the North East.
The government recently announced an increase in company size thresholds. There are currently four company sizes; micro-entity, small business, medium sized business and large business.
The category your business falls into will determine what information you need to file when completing your accounts with more detailed information required from larger businesses.
The aim of the change from the government is to increase the thresholds at which a business moves up from one category to the next, thus streamlining the reporting requirements for these businesses. The government estimates that this change will benefit around 132,000 businesses, reducing the admin burden and exempting SMEs from statutory audit requirements.
So, what’s changed and what impact will it have on businesses in the North East?
According to the North East Evidence Hub there are more than 155,000 businesses across the region, of which 99.9% are SMEs and sole traders. So, for many businesses in the area, the change of company thresholds will be a welcome one, meaning less onerous reporting.
In particular, the new rules could mean your business no longer needs to submit a Director’s Report. Other information that previously needed to be reported but for many will now be unnecessary includes details around employee engagement, regulatory breaches, and engagement with suppliers and customers.
With a poll last year indicating that SME owners need to spend up to four hours per day on company admin, anything that helps reduce, simplify and streamline the regulatory and reporting burden for SMEs will be welcomed. In that sense, the new company thresholds are a step forward.
These changes are a baby step, however. In and of themselves they aren’t going to help tackle the bigger challenge of helping SMEs to invest for the future, innovate and create new workforce skills. In my role as a business adviser in the region, I speak with business leaders and entrepreneurs every day who are hungry to innovate, but often held back by burdensome admin, a lack of access to expertise, and poor savings rates which make it harder to grow.
There is another side to this however, which may mean some businesses continue to disclose more information anyway. For businesses considering growth and potentially attracting investment, transparency can bring many advantages.
Non-financial reporting obligations, particularly the Directors Report and Strategic Report, can help give investors more confidence to invest in early stage companies, while also supporting owner accountability. So, despite the change, some businesses focused on growth may consider continuing to include a wide range of information in company reports and accounts.
It’s good that businesses can now make this choice for themselves. This means businesses can develop a level of reporting that matches their strategy, rather than spending time on something that doesn’t.
So, on balance the changes to company thresholds should be welcomed, but alone they should be seen as just a tiny step of a much bigger journey toward further support for business and innovation in the North East.