Proposed new rules are set to save small and medium-sized enterprises (SMEs) millions in reporting and accountancy fees, according to the government.

Proposed new rules are set to save small and medium-sized enterprises (SMEs) millions in reporting and accountancy fees, according to the government.

The consultation on the report, Audit Exemptions and Change of Accounting Framework, reveals plans to allow many small businesses the ability to decide whether or not to have an audit, which costs an average of £10,000 to perform, as the government moves forward with its plans to cut red tape for SMEs.

Edward Davey, minister for corporate governance, explains: 'Audit is very valuable for many companies. But the proposals we've published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth.'

Under current EU rules for companies to be classified as small for accounting purposes, they must satisfy two out of three criteria including: no more than 50 employees; a balance sheet of no more than £3.26 million and have a turnover not in excess of £5.6 million.

However, within the UK, for businesses to be recognised as small for accounting purposes, and obtain an audit exemption, they must fulfil both the balance sheet and turnover criteria meaning that UK rules reach further than continental counterparts.

Under the new proposals laid out, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria. According to a statement, the reforms could save them £206 million a year.

Additionally the government is also proposing to introduce new measures in next year that would mean most subsidiary companies are exempt from mandatory audit, as long as their parent company is prepared to guarantee their debts. This new legislation is said to produce savings of £406 million a year.

If ratified, the proposals are set to save SMEs in excess of £600 million in unwanted fees.

The consultation on the framework opens today and will run until 29 December 2011.

See also: Guidance to reduce red tape