Critics call the ideas a government’s “own goal” in the fight against money laundering, tax evasion, and fraud. After bringing up plans that potentially restrict transparency around small business accounts, the government has been accused of watering down efforts to prevent economic crime. It said it was looking at the reporting responsibilities imposed by the UK’s smallest firms in the hopes of lowering the cost and time necessary to compile public accounts to a level of detail that was “only needed for larger enterprises.”
The Business Department Said That The Regulations
The business department said that the regulations, which were initially part of EU laws, were diverting companies’ attention away from development and job creation.
“As we take advantage of Brexit freedoms to regulate in a more appropriate and flexible fashion that works for British firms,” it stated, “this will assist the UK’s companies to flourish while increasing investment.”
Small businesses have been at the center of a number of money laundering, fraud, and tax evasion scandals, opponents say, and the plans risk hurting efforts to tackle economic crime.
“What do we discover when we look at several of the money laundering scandals? Lord Prem Sikka, emeritus professor of accounting at the University of Essex and the University of Sheffield, remarked, “There were a lot of little enterprises, minor organizations, utilized for that purpose.”
“Many are involved in PPE [personal protective equipment]scandals… and many small businesses are utilized as umbrella firms to avoid employment regulations, tax evasion, and avoiding paying national insurance,” he added, referring to firms used by recruitment agencies and companies to cut temporary payroll costs, which are usually charged to workers as fees instead.
According to official estimates, the umbrella company problem costs workers and the government up to £4.5 billion each year in fraud and misappropriation.
Many small businesses already produce the numbers that are reported in company accounts for lenders and HMRC tax inspectors, according to Sikka. Reducing the reporting burden, he asserted, would not result in cost savings.
“Transparency is required to combat illegal money flows, tax evasion, and legal misuse.” If the government opposes it, they aren’t serious about any of their other statements about combating economic crime,” Sikka concluded. “Really, it’s the government’s own aim.”
The government’s ideas will entail redefining what constitutes a micro-business, perhaps allowing more businesses to avoid disclosing comprehensive financial information.
It will also look into the types of reporting requirements for so-called public interest institutions, which include publicly traded enterprises, banks and building societies, and insurance companies, in order to attract high-growth businesses.
The study will also look into whether there are any “unnecessary limitations” on directors getting paid in shares.
“Improving corporate openness while alleviating excessive reporting obligations for small companies is the appropriate path to go,” said Martin McTague, chair of the Federation of Small Businesses (FSB).
However, as the restrictions for small enterprises get more loosened, larger companies’ audit needs may become more stringent. The government also revealed long-rumored intentions to establish a new audit regulator with expanded powers over larger businesses as part of the same statement.
After a string of firm collapses – notably Thomas Cook, BHS, and Carillion – that were partially blamed on auditing flaws, the government has been pressed to speed up audit reforms.
Ministers intend to replace the Financial Reporting Council with a new regulator, the Audit, Reporting and Governance Authority (ARGA), and extend the number of enterprises subject to its jurisdiction, including unlisted companies with more than 750 workers and a revenue of more than £750 million.
ARGA will also be granted the authority to investigate and sanction major corporation directors who fail to meet their responsibilities in terms of corporate reporting and auditing.
