The government has been accused of watering down efforts to tackle economic crime after it introduced proposals that could reduce transparency around small business accounts.
He said he was looking at the type of reporting burdens faced by the UK’s smaller businesses in the hope of reducing the cost and time needed to produce public accounts at a level of detail which he said , was “necessary only for large companies”.
The trade department said the requirements, which it said were originally part of EU rules, prevented businesses from focusing on growth and job creation.
“This will help UK businesses grow while boosting investment as we take advantage of Brexit freedoms to regulate in a more proportionate and agile way that works for UK businesses,” he said.
However, critics said the government was overstating the burden on businesses and the proposals risked undermining efforts to tackle economic crime, given that small businesses have been at the heart of a number of money laundering scandals. money, fraud and tax evasion.
“When you look at many money laundering scandals, what do we find? A lot of small businesses, small businesses, are being used for this purpose,” said Lord Prem Sikka, Emeritus Professor of Accountancy at the University of Essex and the University of Sheffield.
“Many are involved in PPE [personal protective equipment] scandals…and many small businesses are used as umbrella corporations, to evade labor law, evade tax and not pay national insurance,” he added, referring to companies used by agencies recruiting agencies and companies to reduce temporary wage costs, which are usually charged as a fee to workers instead.
The umbrella company problem is costing workers and the government up to £4.5billion a year in fraud and embezzlement, according to government-recognized estimates.
Sikka explained that many small businesses already compile the figures which are published in business accounts for lenders and tax officials at HMRC. He asserted that reducing the reporting burden would not result in cost savings.
“To fight illicit financial flows, tax evasion and abuse of rights, we need transparency. If the government opposes it, it does not take seriously any of the other claims it makes regarding the fight against economic crime,” Sikka added. “It’s really a goal of the government.”
The government’s proposals will involve revising the definition of a micro business, which means more companies could be exempted from publishing detailed accounts. It will also look at the type of reporting requirements for so-called public interest entities – which cover publicly traded companies, banks and building societies and insurance companies – in an attempt to attract companies with high growth.
The review will also look at whether there are “unnecessary restrictions” on paying directors in shares.
“Improving big business transparency while easing unnecessary reporting burdens for small businesses is the right direction to take,” said Federation of Small Business (FSB) President Martin McTague.
But as the rules for small businesses are relaxed, larger companies could see their audit requirements increase. As part of the same announcement, the government confirmed long-standing plans to launch a new audit regulator that would have sweeping powers over big business.
The government has come under pressure to speed up reforms in the audit sector, after a string of corporate bankruptcies – including Thomas Cook, BHS and Carillion – which were partly blamed on audit shortcomings.
Ministers plan to replace the Financial Reporting Council with a new regulator, the Audit, Reporting and Governance Authority (ARGA), and to increase the number of companies covered by the regulator, including unlisted companies with more than 750 employees and over £750 million. annual sales.
The ARGA will also be empowered to investigate and fine directors of large companies if they fail to meet their reporting and auditing obligations.