• Immediate Working Capital
  • Growth, Aquisitions, MBOs
  • No Need for Re-negotiation
  • Instant Cash Flow
  • Saves Management Time
  • Improved Collections Performance
  • Recession-Proof Thinking
  • Practical How To Guides
  • Business Knowledge Bank
  • Fast Track Response
  • Competitive Rates
  • Personal Service

Up to 40,000 SMEs to be Hit by New Accountancy Rules

Date Added: Thu July 30 2009
Up to 40,000 UK SMEs will be affected by new accountancy rules for leasing if proposals in a discussion paper by the International Accountancy Standards Board are adopted.

According to a joint response by the Forum of Private Business (FPB) and the Finance & Leasing Association (FLA), the impact on small businesses has been ignored. Leasing and hire purchase is currently used by around 750,000 UK small businesses, including at least 400,000 companies required by law to prepare financial accounts. Under the Standards Board's proposals all leased equipment – including cars, commercial vehicles, machinery, PCs and photocopiers – would need to be added to firms' balance sheets by even the smallest businesses.
 
The FLA and FPB are calling for a sensible approach that takes account of the costs and benefits to small businesses of including all leased equipment on their balance sheets. These businesses choose leasing because it offers real business benefits, including being secured largely on the asset being financed. In a survey of 728 small and medium enterprises (SMEs) last year by the Open University, two-thirds said that not having to show the value of assets in annual accounts was not relevant or not important when deciding on sources of financing for the acquisition of assets. This begs the question as to whether the rules are too complex for the purpose. The FLA and FPB argue that it is not sensible to apply the same procedures to photocopiers in use in a small manufacturing company and to an aircraft used by one of the world's leading airlines. Therefore, an optional, simplified procedure should be available for all but the largest leases.
 
Stephen Sklaroff, Director General of the FLA, comments: "We are not against leased equipment appearing on balance sheets. But the standard-setters need to follow the European Commission's advice to 'Think Small First' and consider whether the compliance regime is too onerous for small businesses. Surely, we should differentiate between large corporates with millions of pounds of leased equipment and small businesses that rent a fax machine and a photocopier? Britain's businesses will be the catalyst to economic recovery, so we need to give them all the help we can."
 
Phil Orford, Chief Executive of the FPB, said: "Rules and regulations must exist to facilitate best practice and productivity, and not unjustifiably add to the bureaucratic burden faced by entrepreneurs. Leasing is often an effective method of controlling costs, so it would be disappointing if complying with the new rules were made more time-consuming and expensive. Our recent research shows that red tape costs small businesses almost £12 billion per year. Setting a requirement for businesses of all sizes to add leased equipment to their balance sheets would be to ignore issues of scale at a time when small business owners are most in need of a proportional approach."