Government promises less red tape for small businesses. Yes, really.

The Government has accepted almost all of the recommendations of its Small Business Regulatory Taskforce, promising to make life simpler for small and medium-sized businesses. Given the amount of regulation businesses already have to navigate, there is perhaps a certain irony in needing a Government taskforce, a 20-page report and a 20-page Government response to tell us that there is too much administration.

For anyone running an owner-managed business, there will probably be something reassuringly familiar about the findings of the Small Business Regulatory Taskforce.

The problem, it turns out, is not necessarily that businesses object to regulation. Most accept the need for sensible rules covering things like employment, tax, health and safety, financial reporting and consumer protection.

The frustration is rather more straightforward: there is an awful lot of it, it can be difficult to work out what you are actually supposed to do, and different bits of Government have a habit of asking you for the same information more than once.

The Taskforce was established to look at precisely this problem and has now made 15 recommendations. The Government has accepted 14 of them.

So, is the bonfire of red tape finally upon us?

Probably not. But there are some genuinely interesting ideas.

How much regulation is too much regulation?

Before looking at the proposed solutions, it is worth putting the problem into perspective.

Attempts to measure the size of the UK statute book are notoriously difficult, particularly now that legislation is published and continually amended electronically rather than existing as one convenient pile of books.

Historic parliamentary research does, however, give some sense of scale. In particularly legislation-heavy years, the UK has produced thousands of pages of new primary legislation and more than 10,000 pages of secondary legislation in a year.

And then there is tax.

Claims that the UK tax code runs to more than 20,000 pages have circulated for years. Such figures need to be treated carefully because they often derive from professional tax handbooks which contain more than the bare legislation. Nevertheless, anyone tempted to argue that the UK's tax system can comfortably be summarised on the back of an envelope may struggle to find many supporters amongst accountants.

Against that backdrop, the Government has committed to reducing the administrative cost of regulation by 25% during this Parliament.

That is quite an ambition.

“Tell Government Once”

Perhaps the most sensible idea in the report is also the simplest.

If Government already has a piece of information about your business, why should you have to keep giving it to Government?

At the moment, a business might provide overlapping information to Companies House, HMRC, the Office for National Statistics, local authorities and various regulators, potentially formatted differently each time.

The Taskforce's answer is a “Tell Government Once” approach.

Rather than expecting business owners to understand which branch of Government wants which particular version of their information, the aspiration is that Government departments and agencies should become much better at communicating with each other.

It is difficult to argue with the principle.  The more difficult bit, of course, will be making it happen.

The Government has accepted the recommendation and intends to explore a joined-up digital service and produce a roadmap following the next Spending Review.

So, for the moment, perhaps don't throw away your Companies House authentication codes just yet.

A fairly significant Companies House U-turn

There is, however, one immediate and important development for small companies.

Changes introduced under the Economic Crime and Corporate Transparency Act 2023 were due to result in small companies and micro-entities having to file profit and loss information at Companies House from April 2028.

That caused understandable concern amongst owner-managed businesses, both because of the increased public availability of financial information and because businesses already provide financial information to HMRC.

The Government has now paused that part of the reform.

It will instead consider whether the Companies House and HMRC processes can be streamlined in accordance with the new “Tell Government Once” philosophy.

For the moment, smaller businesses will therefore retain the ability to remove, or “fillet”, profit and loss information from the accounts appearing on the public register after April 2028.

That's a meaningful change.

But don't cancel the software subscription

There is an important qualification.

The Government has not abandoned the wider Companies House accounts reforms planned for April 2028.

All UK companies will still be required to file their accounts using commercial software in iXBRL format. Companies House's existing web and paper filing routes for accounts are due to close.

Other reforms, including enhanced statements for companies claiming audit exemption and restrictions on repeatedly shortening accounting reference periods, are also continuing.

In short:

•    Public P&L filing for small companies: paused.
•    Digital accounts filing: very much still happening.
•    Directors are apparently supposed to know what their duties are

Another Taskforce recommendation caught our eye.

The Government accepts that directors, particularly first-time directors and those running smaller businesses, would benefit from clearer information about their legal responsibilities. This may not come as much of a surprise to anyone who advises owner-managed companies.

Becoming a director of a company can be deceptively easy. Understanding the legal consequences is rather less so.

Directors potentially need to understand their duties under the Companies Act 2006, the company's constitution, filing obligations, accounting requirements, employment responsibilities, tax requirements and, if financial difficulties emerge, the point at which duties increasingly need to be considered through the lens of creditors' interests.

The Government therefore intends to look at better guidance, including whether there should be a common framework explaining directors' core responsibilities and whether information can be delivered to directors at the points when they actually need it.

That last point is particularly welcome.

A 40-page guidance document which theoretically contains the answer is not necessarily much help to an owner-manager who does not know that they need to read it in the first place.

Small businesses aren't just smaller big businesses

There is another theme running throughout the report which we think is important.

A business employing 20 people does not generally have a compliance department, in-house lawyer, HR director, tax team and company secretarial function.  Often it has one or two directors who deal with all of those things alongside actually running the business.

The Taskforce's research therefore calls for new regulations to be assessed by reference to the size of the businesses affected, rather than assuming that a requirement which is manageable for a large corporate will also be manageable for an SME.

The Government has accepted that principle.

The Taskforce's research also found that one of the biggest regulatory burdens for SMEs is simply working out what they need to do to comply. Record-keeping was another recurring complaint.

That feels significant.

The answer to regulatory complexity is not always to abolish the rule. Sometimes it is simply to make the rule understandable and make compliance with it straightforward.

What happens next?

A healthy dose of scepticism is probably appropriate.

Quite a lot of what has been announced involves future roadmaps, working groups, digital projects and further reviews. Anyone who has run a business for any length of time will know that a Government announcement promising future simplification does not necessarily mean you should immediately clear the compliance folder from your desk.

But there are reasons for some optimism.

The Government has accepted 14 out of the 15 recommendations, including proposals to:

•    develop the “Tell Government Once” approach;
•    improve and simplify guidance on GOV.UK;
•    reduce duplication in ONS business surveys;
•    develop digital business credentials;
•    give SMEs a clearer route for reporting unnecessarily burdensome regulation;
•    improve guidance for company directors;
•    standardise aspects of public procurement and licensing; and
•    specifically assess the effect of new regulation on SMEs.

The one recommendation rejected was a proposal to remove the annual confirmation statement requirement for certain dormant and non-trading companies. Companies House confirmation statements, and the associated filing fee, are staying.

Our view

For owner-managed businesses, the most encouraging aspect of the report probably isn't any individual proposal.  It is the recognition of a broader problem.

Business owners should be spending their time developing products, winning customers, employing people and growing their businesses. They should not need to become amateur experts in company law, tax, employment law, data protection and regulatory compliance simply because they decided to start a company.

Of course, as lawyers we should perhaps be careful what we wish for.

But even we would struggle to argue that asking an SME to give the same information to three different Government bodies represents a particularly productive use of anybody's time.

Whether the Government can genuinely cut the administrative burden of regulation by 25% remains to be seen.

After several decades spent adding to the rulebook, making it simpler might prove rather more complicated than it sounds.

How Porter Dodson can help

At Porter Dodson, we advise owner-managed and family businesses across the South West and beyond at every stage of their development, from setting up and putting sensible governance arrangements in place through to investment, acquisitions, disposals and succession.

If you would like to discuss how the changing Companies House requirements affect your company, or want help making sure your company's legal and governance arrangements are fit for purpose, please get in touch with David Culshaw or our Corporate & Commercial team.

Please see link here to view  the full text of the government response.