Up to 1.5 million small UK firms could benefit from proposed changes to the accounting rules after EU ministers reached a new agreement earlier this week.
During a meeting in Brussels, business ministers from across the EU agreed that simpler accounting rules were needed to reduce the amount of red tape for small businesses.
It is thought that the proposals, which include simplifying the profit and loss account and balance sheet reporting requirements, could potentially save firms between £150 million and £300 million per year in reduced administrative costs.
Under the agreement a new category of companies called ‘micro-entities’ will be introduced.
To be defined as a ‘micro-entity’ the company must not exceed the limits of two of the following three criteria: a balance sheet total of €250,000, a net turnover of €500,000 and an average number of 10 employees during the financial year in question.
Business Minister Ed Davey welcomed the decision, describing small firms as the ‘backbone of the British economy.’
‘This is a significant step in reducing red tape and a clear signal that we will take action to stop our smallest companies being held back by excessive regulation,’ he said.
‘I believe this shows what can be achieved by a positive and constructive engagement with the European Union – the first ever exemption for micro-entities from an existing EU directive. We now need to build on this breakthrough and I hope that further improvements can be agreed before the proposal becomes law.’