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Despite the European Commission's decision to ease the financial reporting burden on small companies, limited company contractors seem unlikely to see their monthly fees drop any time soon. Accountancy experts have mixed views on the impact the changes will have on the market.

Simpler accounting for small companies

The new proposals, if adopted in the UK, will allow 'micro-entities' to provide simpler accounts that their larger counterparts. Historically, policy makers have struggled to differentiate between the reporting obligations of small, and larger companies.

In the UK, this would include a much simpler Profit & Loss Account and Balance Sheet, and companies would only have to submit the Balance Sheet to a 'one stop shop' authority (most likely HMRC), rather than to Companies House as well.

A 'micro entity', for this purpose, is defined as one with under 10 employees, total assets of up to 350,000 Euro, and net turnover not exceeding 700,000 Euros.

We asked three leading contractor accountants how they viewed the amended directives, and if the cost of contractor accounting would likely fall if the proposals are adopted by the UK Government:

Contractors shouldn't expect a reduction in accountancy fees

Clare Rickman from InTouch Accounting told us that the EU changes are more likely to affect mainstream small companies rather than contractors:

"These proposals would simplify the reporting requirements for smaller UK limited companies, should the UK chose to adopt them, although the current requirements for bookkeeping and record keeping would remain as they are so most contractors won't notice any difference except the format of the accounts they see at year end.

"Contractor companies shouldn't therefore expect to see a huge reduction in accountancy fees as the bulk of the work carried out by contractor specialists focuses not on the format of the accounts but on their preparation, and the regulatory tasks necessary throughout the year in regard to various UK taxes.

"The impact of these proposals will most benefit non-contractor focused companies who use high street accountants, who will no doubt be pleased with the reduced reporting burden should they be implemented and who should see their fees reduced as a result."

A "vital boost for small businesses"

Emily Coltman, Chief Accountant for FreeAgent - which provides an online accounting system designed for freelancers and small businesses - said:

"This new EU directive is great news and, if it is implemented by the UK Government, it would be a vital boost for small businesses and freelancers across the whole country.

"Many micro-business owners are terrified of tax and accounts because they find them confusing. The UK system can leave people baffled or uncertain about exactly what they should be doing with their accounts or tax return - and, as a result, they end up leaving their bookkeeping and tax calculations until the last minute.

"Simplifying the system would remove a lot of this confusion and would also enable small business owners and freelancers to focus on the thing that's most important to them: actually running their business. More than a million micro-businesses across the UK could benefit from this, which would be hugely beneficial for the economy."

Current system will be "thrown into disarray"

In contrast, Derek Kelly, MD of ClearSky Accounting, says that these changes are more likely to complicate the existing system, by introducing separate requirements for small companies:

"The current practice of preparing and producing company accounts, company tax returns and the personal tax returns for directors is a well established process. In terms of contractors, many specialist firms of accountants have developed to provide a comprehensive solution. Changing the system for 'small' companies only adds further complexity into the already over complicated UK tax system.

"It is not that no accounts will be required to be submitted to HMRC. All that is being proposed is that accounts will be prepared differently. However, the requirement to provide a trading statement, an annual return, details of shareholders funds, fixed assets etc will still require the need for accountants.

"A businessman cannot be expected to complete all of these himself, and get them right or incur penalties from the tax authorities.

"We already have the concept of abbreviated accounts in the UK for smaller entities. A further change will not reduce costs for small businesses. All that will happen is that a system that currently works well will be thrown into disarray and a new systems introduced that provides no significant savings for either the company, the accountancy profession or the tax authorities.

"The EU would be better placed looking at fiscal policy rather than meddling in changes to administration simply for the sake of it."