Tax policy 'can lead to poor credit rating'

Date: 22nd July 2009

Small business owners are being warned that attempts to save tax can result in a reduced credit rating.

Recent changes to the law have meant that small firms are no longer required to supply full audited accounts every year to Companies House.

Martin Williams, from credit reference agency Graydon UK, explained to This is Money that many business owners have chosen to use this new freedom to "suppress profits in their accounts to pay less tax".

However, he warned that banks and other companies may be wary of businesses that do not supply their full accounts at Companies House, leading to difficulties obtaining credit in the future.

Mr Williams added: "Other bosses take money out of the business to finance their lifestyle, but this may count against them when it comes to their credit rating."

Companies House defines a small business as one which meets two of three criteria.

These are: an annual turnover of £5.6 million or less, a balance sheet total of under £2.8 million and an average number of employees of 50 or fewer.