HomeAMLNew proposals for small firms' accounts 'will facilitate economic crime'

New proposals for small firms’ accounts ‘will facilitate economic crime’

New Government proposals which could reduce transparency around small firms’ accounts will lead to an increase in economic crime, including money laundering, according to a leading academic.

A Whitehall review of small firms’ reporting responsibilities proposed reducing the cost of having to produce accounts to a level “only needed for larger companies”, it said.

The existing requirements, which are part of EU rules, were said to distract firms from focusing on growth and job creation.

However, critics say this potential move risks weakening efforts to combat economic crime, since small firms can also be connected to instances of money laundering, fraud and tax evasion.

‘Lots’ of small firms used for money laundering

Lord Prem Sikka, Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, criticised the proposal.

He said: “When you look at many of the scandals involving money laundering, what do we find? Lots of small businesses, small companies, used for that purpose.

“Many small companies are used as umbrella companies, to evade employment law, evade tax, and not pay national insurance”, he added.

This was in reference to firms used by recruitment agencies and companies to cut temporary payroll costs, which are usually charged as fees to the workers instead.

Government urged to prioritise transparency

“To fight illicit financial flows, tax avoidance and abuse of law, we need transparency.

“If the government are opposing that, they are not serious about any of the other claims they are making about fighting economic crime”, Sikka explained to the Guardian.

On top of that, many small firms already compile the figures that are published in company accounts for lenders and tax officials at HMRC, so reducing the reporting burden will not result in cost savings, he concluded.

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