Trade Secretary Stephen Byers today announced a further reduction in regulation which will potentially save small companies up to £180 million each year.

During his speech at the British Chambers of Commerce conference Mr Byers outlined a two-stage approach to raising the threshold below which small companies may dispense with having their annual accounts audited.

Mr Byers said:

"In our modern economy small companies will increasingly be the engine for economic growth and job creation. It is vital that we reduce the bureaucratic burden on businesses so they can invest in the future.

"At present all companies with a turnover of more than £350,000 a year are required by law to have a full audit of their accounts. After discussing this issue with the new Chief Executive of the Small Business Service, David Irwin, I have decided to remove the present statutory requirement for a full audit for all companies with a turnover of up to £4.8 million - the maximum level allowed under EU law. This will be achieved in two stages.

"Subject to Parliamentary approval for financial periods ending after July 31 2000 I will raise the threshold to £1 million. This will bring the benefits to the majority of small companies as soon as possible this year.

"Relieving up to 150,000 small companies from the burden of the statutory audit will have potential savings to small companies of up to £180 million a year - money that can now be invested to take full advantage of Britain's stable economy and culture of enterprise.

"Following this, I intend to raise the threshold to £4.8 million bringing benefits to an additional 75,000 companies. The independent Company Law Review is considering whether, for companies with a turnover of between £1 million and £4.8 million, the audit should be replaced by a lighter, less costly form of assurance. I shall take their final recommendations into account before proposing what, if any, statutory requirement should replace the full audit for companies in that size range.

"The Government is committed to creating the right regulatory environment and Britain is now one of the best places for companies to start, to invest, to grow and expand."

Dormant Companies

Mr Byers has also decided to simplify and reform the law on dormant companies, following a separate consultation last year. In particular, he is removing the requirement for such companies to pass a special resolution each year to gain audit exemption.

Accounting Thresholds

In addition, Mr Byers has decided that the thresholds defining small and medium-sized companies should be increased to the maxima permitted under EU law. But implementation should wait for the final recommendations of the Company Law Review. The Review is proposing a radical change to the accounting requirements for smaller companies reflecting "think small first".

Notes to editors:

Audit exemption

Currently, subject to some exemptions, small companies with a turnover of less than £350,000 are able to opt to dispense with having their accounts audited. The Department issued a consultation document on raising the audit exemption threshold in October 1999. Today's announcement proposes raising this threshold to £1 million now and to £4.8 million in the future, taking into account the final proposals of the Company Law Review.

Subject to Parliamentary approval, the increase to £1 million will apply to financial periods ending after 31 July 2000.

It is estimated that the increase in the threshold to £1 million will enable up to an additional 150,000 companies to take advantage of exemption from audit this year. This would produce a potential saving for business of up to £180 million. The further move to £4.8 million, taking into account the Company Law Review's proposals, would affect up to an additional 75,000 companies.

The Steering Group of the Company Law Review published their latest set of proposals in March 2000. The proposals relating to small company audit consider whether, for companies in the range of £1 million to £4.8 million turnover, the audit should be replaced by a lighter, less costly form of assurance. The Review is due to produce its final recommendations next year.

Dormant companies

Dormant status, as defined at Section 250 of the Companies Act 1985, is designed to distinguish between those companies that are actively trading and those that are not. It allows them to claim exemption from audit. Currently companies must satisfy various criteria to be eligible for dormant status and must file a special resolution at Companies House.

In March 1999 the Department published a consultative document on the legislative framework for dormant companies. It set out a number of proposals to simplify the provisions which apply to dormant companies and sought views on dormant companies which act as agents.

The proposals will:

• remove the need for companies to pass an annual special resolution to gain exemption from audit;
• allow 10% of shareholders in a dormant company to require an audit;
• exclude certain payments to Companies House (such as the annual return fee) from the definition of a "significant accounting transaction" for the purposes of determining dormant status; and,
• require that dormant companies which act as agents disclose this in their annual accounts.

Accounting threshold levels for small and medium-sized companies

Currently companies which meet the criteria for small and medium-sized status may take advantage of the ability to prepare and file abbreviated accounts. The Department also consulted on this in 1999. The Secretary of State will increase these to the maxima allowed under EU law alongside the further increase in the audit threshold, taking into account the Company Law Review's final recommendations on small company accounts The current maximum thresholds allowed under EU law are:

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