During a meeting in Brussels, business ministers from across the EU
agreed that simpler accounting rules were needed to reduce the amount of
red tape for small businesses.

It is thought that the proposals, which include simplifying the
profit and loss account and balance sheet reporting requirements, could
potentially save firms between £150 million and £300 million per year in
reduced administrative costs.

Under the agreement a new category of companies called 'micro-entities' will be introduced.

To be defined as a 'micro-entity' the company must not exceed the
limits of two of the following three criteria: a balance sheet total of
€250,000, a net turnover of €500,000 and an average number of 10
employees during the financial year in question.

Business Minister Ed Davey welcomed the decision, describing small firms as the 'backbone of the British economy.'

'This is a significant step in reducing red tape and a clear signal
that we will take action to stop our smallest companies being held back
by excessive regulation,' he said.

'I believe this shows what can be achieved by a positive and
constructive engagement with the European Union - the first ever
exemption for micro-entities from an existing EU directive. We now need
to build on this breakthrough and I hope that further improvements can
be agreed before the proposal becomes law.'