Technical and Insight
Accounting and tax treatment of IR35 deductions in the public sector

HMRC’s approach is not popular with everyone. Catch up on our latest advice.


HMRC’s approach is not popular with everyone. Catch up on our latest advice.

 

Recap of the new rules

From April 2017, where a public sector organisation engages an off-payroll worker through their own limited company, that organisation (or the recruitment agency through which the worker is engaged) became responsible for determining whether the rules should apply, and, if so, for paying the right tax and national insurance contributions (NICs).

 

The public sector engager or agency is treated as an employer for the purposes of taxes and class 1 NICs. The amount paid to the worker’s intermediary for the worker’s services is deemed to be a payment of employment income or of earnings for class 1 NICs for that worker.

 

The public sector engager or the agency is liable for secondary class 1 NICs and must deduct tax and NICs from the payments they make to the intermediary in respect of the services of the worker. Therefore the company will only ever receive net income.

 

The person deemed to be the employer for tax purposes is obliged to remit payments to HMRC and to send HMRC information about the payments using real time information.

 

Accounting treatment of the income

ACCA's Technical Advisory helpline has had many calls querying the accounting treatment of the transactions under the new rules. There is currently very little guidance available and all of the accountancy blogs show a high level of confusion and disagreement amongst accountants on exactly how to treat the basic double entries. The main issue is whether or not to show the income in the company accounts as net or gross.

 

The simple route would be to show the income net as many members see this as giving a true and fair view, ie that is the only income that the company actually receives. HMRC have issued some guidance on the taxation treatment and this appears to agree with the net income presentation; however, the advice is far from clear:

 

When you are calculating your company’s turnover, you should deduct the VAT exclusive amount of the invoice, which is the amount from which Income Tax and NICs were deducted at source. Your company accounts should show this deduction to make sure the amount is not taxed twice.

 

The other option is that income should be shown gross before any tax deductions. We consider that this will be the more appropriate treatment. This is because:

  • FRS 102 gives the following definition of turnover:
    The amounts derived from the provision of goods and services after deduction of:

(a) trade discounts;

(b) value added tax; and

(c) any other taxes based on the amounts so derived

 

We do not think that category (c) above is intended to mean taxes deducted due to the Intermediaries rules:

  • Paragraph 8 of schedule 1 The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 states:
    Amounts in respect of items representing assets or income may not be set off against amounts in respect of items representing liabilities or expenditure (as the case may be), or vice versa.
  • FRS 102 states:
    The financial statements shall give a true and fair view of the assets, liabilities, financial position, financial performance and, when required to be presented, cash flows of an entity

 

In our opinion financial statements which do not show the full income as invoiced would not give a true and fair view.

 

Treatment

Where the income is shown gross there will naturally be a debit in the accounting records to be accounted for (representing the tax etc deducted before receipt).  Again there are a number of possible ways of treating this debit.

 

We think that in order to give a true and fair view, the most appropriate treatment would be to include the debit as a profit and loss account item. In the vast majority of cases the most likely treatment will be to reflect this charge as part of wages and salaries costs. This is because, as highlighted below, Chapter 10 Part 2 allows the business to set an amount equivalent to the amount on which tax and NICs were paid at source against the income drawn from the company by the worker.

 

The treatment may not be appropriate, in the unlikely circumstances, where the tax is paid but the director doesn’t withdraw funds. In these cases the treatment could be argued that the tax paid is a tax on the company. Clearly, in the circumstances highlighted the director will need to consider the applicability of the continuing going concern concept.

 

How does this fit in with director’s remuneration/dividends?

HMRC issued notes for agents covering the new regulations which gives an example of how remuneration could be treated:

 

Amount available for the PSC to set against taxes on income drawn from the company

 

Because the new Chapter 10 Part 2 and NICs legislation subjects the fee to the company to tax and NICs, the worker would feel that they are double taxed if they pay income tax and NICs on all the monies subsequently taken out of the company as dividends or employment income. Chapter 10 Part 2 allows the business to set an amount equivalent to the amount on which tax and NICs were paid at source, against the income drawn from the company by the worker; effectively:

  • pay dividends, but do not put them on the client’s tax returns; or
  • put the money through PAYE, but do not tax it.

The following is a HMRC example where the PSC pays the worker a salary that would otherwise have attracted tax and NICs. However, the PSC is able to set against that the amount which has already been subjected to PAYE / NICs, £4129 in our example. The PSC will incur no further PAYE / NICs liability unless the payment to the worker exceeds the level of the net fee received.

 

The PSC can pay the worker up to £49,548 (the DDP, net of tax / NICs) without any further deduction of tax and NICs. The PSC can retain an amount that is not greater than the sum of the net fees less salary / dividend costs without further liability to tax.

 

Let us suppose the PSC receives some other income, say £20000 in that same period:

 

Invoiced amounts (12 x £6000 - fees + £20000)

£92,000

This should be reflected in the company as turnover

£69,548

Less income (12 x £4129 - DDP net of tax/NICS)

(£49,548)

Less tax & NICs deducted by fee-payer (12 x £1871)

 

(the PSC receives relief for employment income, tax and NIC costs)

£22,452

 

£20,000

 

 

HMRC appear to advocate showing the turnover as net of deductions and not gross. Many accountants (including ACCA members) do not agree with this approach.

 

The double entry debate and our solution

As already noted above, there is very little guidance on the actual double entries to account for the transactions. There are various options but because of the way the new rules operate, there are inherent problems and complications as essentially company income is treated for tax purposes as salary.

 

The salary accounting suggestion is as follows:

 

Scenario – a director, working through her own service company, invoices £ 18,000 + VAT for her services to a public sector organisation (PSO).

 

Issue

DR £

CR £

Trade debtors

21,600

 

Sales

 

18,000

VAT

 

3,600

 

 

 

Bank (payment received) – tax/NIC deducted for example £ 4,000

17,600

 

Trade debtors

 

17,600

 

 

 

Treatment of the £4,000 deductions

 

 

 

Directors remuneration

(sales value)

18,000

 

Trade debtors (deduction and tax paid at source)

 

4,000

Director’s loan account

 

14,000

 

 

 

 

 

 

 

 

Further information

We first wrote about these new rules in March 2017.

 

ACCA's general guidance on public sector and IR 35 suppliers

HMRC’s guidance to Calculating the deemed payment

HMRC’s guidance on  off payroll payments for the contractor (public sector)

 

 

Dividend in vs. distributions in

Looking at 'dividends in vs distributions in' in relation to company law and reporting.


Looking at species in relation to company law and reporting.

 

Where a dividend is declared in cash, but satisfied by a transfer of assets, it is called ‘dividend in specie’. This type of dividend falls under Article 34 of model articles for private companies limited by shares (see Schedule 1, The Companies (Model Articles) Regulations 2008 (SI 2008/3229)).

 

A distribution in specie occurs where a company makes a distribution of an identified non-cash asset, such as without first declaring an amount in cash. Distributions in specie fall under section 845 of Companies Act 2006. Most commonly such assets may be property or machinery or the benefit of a debt. A distribution in specie may also occur if an asset is transferred at below market value (for example, as part of an intra-group reorganisation), where the value of the transferred asset is subsidised partly or in full by the transferring company.

 

Both dividend in specie and distribution in specie must be made in accordance with Part 23 of Companies Act 2006.

 

Distributable reserves

The requirement of distributable reserves applies to both dividend in specie and distributions in specie in accordance with section 845  and section 846  of the CA 2006, by reference to a company’s most recent annual accounts, per section 836(2) of CA 2006.

 

If a company’s distributable reserves are NIL, no distribution is lawful. However, as long as distributable reserves exceed NIL, under section 845 a company can transfer assets, on condition that it receives consideration equal to the book value of the asset. Where the consideration is less than book value the shortfall must be covered by distributable profits.

 

Approval process

The CA 2006 does not specify who shall declare dividends, including dividends in specie. The authority to declare a dividend in specie is likely to be defined in the articles which should be checked to ensure that the company is authorised to pay all or part of a dividend by transferring non-cash assets of equivalent value. Such authority should cover both interim and final dividends. In the absence of express authority, per or similar to article 34, the company must pay all dividends in cash (Wood v Odessa Waterworks Company (1889) 42 Ch D 636), or change the articles.

 

If articles allow payments of dividends in specie, they should also determine who has the authority to declare it (there is no reference in Companies Act regarding this). If the articles are silent on this point, dividends in specie could be declared by the directors, without the permission of shareholders.

 

The generally accepted practice, however, is that final dividend, including dividend in specie, is recommended by directors and declared by members, either at AGM or by way of written ordinary resolution. The value of the dividend declared by members cannot exceed the value recommended by the directors.

 

As the provisions in a company’s articles only apply to dividends, shareholder approval is not required for a distribution in specie (except in limited circumstances, for example, where the transfer amounts to a substantial property transaction under section 190 of the CA 2006). A distribution in specie does not have to be declared.

 

Accounting treatment – timing

FRS 102 fails to make specific reference to dividends or distributions in specie. Distributions and dividends in specie are recognised in the accounts when payment becomes a legal obligation of the entity to pay or the right to receive it.

 

There is no legal obligation to pay interim dividends, even when they have been approved by the directors, as the board can revoke its earlier resolution to pay an interim dividend at any time up to the time of actual payment. Unless steps have been taken to establish a legally binding liability through a deed of an acknowledgement of the liability to pay, interim dividend in specie should only be recognised when the asset is transferred.

 

Final dividend in specie is likely to meet the recognition criteria when it is declared.

 

Value of dividend / distribution in specie

A company making a lawful distribution in specie may consider making the distribution at a value, being:

  • actual consideration to be paid in respect of the transfer (if any)
  • book of the asset (as recorded in the accounts of the company selling the asset or, where the asset is not stated in the accounts at any amount, zero) (section 845(4))
  • market value of the asset.

If an asset is distributed for consideration equal to its book value, section 845 permits the transaction and treats it as a distribution of zero.

 

If an asset is transferred for a consideration of less than its book value, transaction is only allowed if distributable reserves before the transfer are sufficient to offset the net reduction in the reserves equal to the value of the asset transfer less the consideration received. For example the distribution of an asset with a book value of 10k for which the company receives £8k is only allowed if the reserves before the transaction amounted to at least £2k.

 

In a situation where the asset is transferred at book value for no consideration, company reserves before the transfer have to be at least equal to the book value of the asset.

 

Where to report

For companies preparing statement of changes in equity, the amount of dividend or distribution in specie will be shown in that statement.

 

 

 

The potential benefits of open banking

Understand how open banking could benefit you and your clients.


Understand how open banking could benefit you and your clients.

 

What is open banking?

Open banking is part of a piece of European legislation known as the Second Payment Services Directive, or PSD2. This requires banks to open up their data to third parties, designed to boost competition and the variety of products in the banking, credit card, and payments space.

 

Open banking is the UK version of PSD2. The UK's open banking regulations came into effect on 13 January 2018 and force UK banks to open up their data via a set of secure application programming interfaces (APIs). The aim is to improve SME access to finance, including improving the choices available and speed of an SME’s ability to change providers.

 

At the moment, only the UK’s nine largest banks and building societies must make data available through open banking. Other smaller banks and building societies can choose to take part in open banking. Those banks and building societies which currently offer open banking are:

  • Allied Irish Bank
  • Bank of Scotland
  • Barclays
  • Danske
  • Halifax
  • HSBC
  • Lloyds Bank
  • Nationwide
  • NatWest
  • Santander
  • The Royal Bank of Scotland
  • Ulster Bank.

Other banks and building societies which will be joining open banking soon include Bank of Ireland, First Direct and M&S Bank.

 

Benefits

Let’s look at five major benefits of open banking:

 

Easy management

Open banking will allow the individuals that use different banks to see all their bank accounts at the same time, which should make it easier for them to manage their money. As well as being able to see all bank accounts in one place, banks are looking to add value for customers with a range of smart features such as spending analysis and 'balance after bills', which shows how much the customer has left in their current account until payday, once their regular bills have been taken into account. Other features may include savings rule suggestions to customers based on their spending habits.

 

Lending

Open banking will allow access to online income and spending history for the last 12 months, which should make it easier for an individual to take out a loan.

 

Payments

A ‘payment initiation service’ will allow providers to initiate a payment from an account held with another provider. Open banking should create a cheaper, more effective alternative to make payments. Open banking requires the UK’s big banks to support a new, simpler way of initiating payments bypassing payment gateways like Paypal or Worldpay and card processors like Visa and MasterCard. Because these middlemen take a cut of each transaction, the savings from direct bank payments might be passed along to consumers.

 

Integrated accounting

If explicit permission is given to a regulated app or website for small and medium business, open banking can bring the benefit of integrated accounting and tax services and fast access to capital by giving providers real time access to account information, instead of filing paperwork.

 

Safety

It is claimed that open banking is at least as safe as online banking. However, open banking necessitates that data can move around more freely than before and nefarious types will surely be scheming to get their hands on it. Customers will need to remain highly suspicious of emails, text messages, notifications, or any other correspondence which asks them to click a link or to provide personally identifiable data.

 

 

Keeping track of pensions

Pensions never seem to stand still. From the increase in state age to the growing number of schemes individuals may be enrolled in, clients increasingly have a range of queries for accountants.


Pensions never seem to stand still. From the increase in state age to the growing number of schemes individuals may be enrolled in, clients increasingly have a range of queries for accountants.

 

State pension ages have been undergoing changes since April 2010. These changes have seen the state pension age rise to 65 for women between 2010 and 2018. Following 2018 this will gradually increase further until the state pension age is 68 for both men and women.

 

You can check the state pension age timetables online; you can also calculate how much state pension a person is eligible for and a person can obtain a forecast of their state pension entitlement.

 

The Pension Tracing Service explains how to trace a pension and request a pension forecast. It can also be used to find contact details of various employers and pension scheme administrators.

 

These may be pensions that were related to a current or previous employment or a personal pension scheme which the person is currently making contributions into or for those where contributions ceased to be made some time ago.

 

To trace a workplace pension the following could be contacted:

  1. The employer who was responsible for the pension scheme
  2. The pension scheme administrator (or pension provider); the employer may be able to provide the details
  3. If unable to contact the relevant employer or pension scheme, then the Pension Tracing Service may be helpful.

 

The following information can help the pension scheme administrator trace a particular person’s pension scheme:

  1. Name and address of person
  2. National Insurance number
  3. Date of birth
  4. Name of employer (or previous employer)
  5. Pension scheme plan number
  6. The dates when contributions were made into the scheme.

 

The person may not know all this information, but the more information which can be provided the easier it will be to trace a pension.

 

 

 

Trusts – the key rules and penalties

Don’t forget to register your client’s trust – or else penalties await.


Don’t forget to register your client’s trust – or else penalties await.

 

Following difficulties with trust registration, HMRC have updated the guidance on the penalties for non-compliance. The rules can be complicated, so if you have any clients who use trusts this summary is designed to help you both.

 

Which trusts need to be registered?

You must register any express trust whether your client is a UK resident or a non-UK resident. Simply put, an express trust is an arrangement where there is a clear and expressed intention to create a trust. It is usually created by a written document (a trust deed).

 

Why do HMRC require registration?

You must register a UK resident express trust where there’s tax liability for any of the relevant taxes for any trust income or assets. Relevant taxes are deemed to be:

  • Capital Gains Tax
  • Income Tax
  • Inheritance Tax
  • Land and Buildings Transaction Tax (in Scotland)
  • Stamp Duty Land Tax
  • Stamp Duty Reserve Tax or Stamp Duty.

Note that:

  • you must register a non-UK resident express trust where there’s a tax liability for any of the relevant taxes after the trust receives UK source income or has UK assets
  • you do not need to register a pension scheme that’s been set up as an express trust on the Trust Registration Service if it’s already registered under the Manage and Register Pension Schemes or Pension Schemes Online services
  • many trusts that use gift aid have to register with HMRC even though they do not have a tax liability.  This is because they normally need a UTR in order to claim the tax refund.

 

What are the time limits for registration?

The registration deadlines for each tax a trust might have to pay are shown in the table.

 

Tax

Liability

  Deadline

Capital Gains Tax/
Income Tax

new liability

  5 October

Capital Gains Tax/
Income Tax

existing liability

  31 January

Inheritance Tax with
Capital Gains Tax or Income Tax

new liability

  5 October

Inheritance Tax without
Capital Gains Tax or Income Tax

 n/a

  31 January

Land and Buildings Transaction Tax (in Scotland)

 n/a

  31 January

Stamp Duty Land Tax

 n/a

  31 January

Stamp Duty Reserve Tax or Stamp Duty

 n/a

  31 January

 

Example 1

A trust has a new tax liability for Income Tax in tax year 2017 to 2018. It must be registered by 5 October 2018.

 

Example 2

A trust has a tax liability for Stamp Duty Land Tax in tax year 2017 to 2018. It must be registered by 31 January 2019.

 

Example 3

A trust has a liability for Inheritance Tax, and an existing liability for Capital Gains Tax or Income Tax, in tax year 2017 to 2018. It must be registered by 31 January 2019.

 

How to register

To register a trust, you need to have an agent services account. If you’ve already got one, you need the User ID and password you created when you set up the account. The trust can then be registered online but before you attempt this make sure you have all of the details of the trust and the beneficiaries to hand. 

 

The bad news – penalties for non-compliance

The lead trustee may have to pay a penalty if they do not register the trust before the registration deadlines above. If they do not register or update the information, and cannot show HMRC that they took reasonable steps to do so, the penalties are:

  • £100 for registering up to three months after the deadline
  • £200 for registering between three to six months after the deadline
  • £300 or 5% of the total tax liability in the relevant year (whichever is higher) for registering more than six months after the deadline.

However, the good news is that penalties will not be issued automatically and will be reviewed on a case by case basis.

 

HMRC have also stated that they will take into account that tax year 2017 to 2018 is the first year that trustees and agents have had to meet the new registration obligations.

 

More information

We have produced a number of legal framework factsheets to help you and your clients. Simply email advisory@accaglobal.com to request any of the following:

  • What is a trust? Definitions and examples
  • Different types of trusts – explanations and illustrations
  • Duties of trustees – powers, duties and obligations
  • Taxation of trusts – to include IHT.

 

 

HMRC crack down on abuse of rent-a-room relief

Concerns that original purpose is being abused.


Concerns that original purpose is being abused.

 

The rent-a-room scheme is a relief which provides that the rent received by an individual from a lodger (currently £7,500) can be exempt from income tax.

 

This limit is halved if another person is also entitled to the income. For example, where a husband and wife own the property jointly the limit is reduced to £3,750 (£2,125 prior to 2016/17) each. View a recap of the scheme in this article from our December 2017 issue.

 

What are HMRC not happy about?

HMRC are concerned that the original idea behind the relief – to increase the amount of rooms available to rent – was being abused. The relief was introduced in 1992 but over recent years online apps and social media have made it easy for landlords to cash in on the increasing market.

 

In a policy paper released 6 July, HMRC proposed a change to the legislation in the form of an additional test that must be satisfied in order for income to be eligible for rent-a-room relief. The test requires the individual or individuals in receipt of rental income to have shared occupancy of the residence in question for all, or part, of the period of occupation which gives rise to the receipts.

 

Who will the changes affect?

The proposed change will affect ‘opportunistic’ rentals where the owner does not intend to actually be present in the property at the same time as the lodger. So for instance where there was a major event taking place near the property – for instance a football tournament – the owner might let out the house for say two weeks and go on holiday for that complete period. The receipts from the rental would not be eligible for rent-a-room relief as there is no shared occupancy during the period of the rental. The receipts would be eligible for property allowance

 

Where there is an element of shared occupancy HMRC give the following example:

  • an individual rents a room in their main residence to a student during term time. The landlord goes on holiday for a week during the rental period. The receipts would be eligible for rent-a-room relief as there is shared occupancy for part of the period of the rental. The receipts would be eligible for property allowance if rent-a-room relief was not claimed.

 

When will the changes come in?

The measure will have effect on or after the date of Royal Assent to Finance Bill 2018-19 and will have effect for income tax years beginning on or after 6 April 2019.

 

 

Employment benefits

A refresher on the treatment of benefits, form P11D and relevant deadlines.


A refresher on the treatment of benefits, form P11D and relevant deadlines.

 

Employment benefits fall into the following broad categories:

  1. Salary, which is taxed through to payroll when the money paid to the employee is usually monthly or weekly.
  2. Taxable benefits in kind such as a company car, accommodation, loan at a reduced rate of interest and various other items, all of which should be reported on form P11D.
  3. Shares in the employer company (or group) or options to buy such shares in the future. There are various tax schemes made available by HMRC which, if used by the employer, can reduce the tax which would otherwise be payable by the employee.
  4. There are various tax free benefits which can be provided by the employer to the employee. These cover benefits such as health screening, late night taxis, training courses, sports facilities and many more. See the June issue of In Practice for a comprehensive list of these tax free benefits.

 

Form P11D

The employment benefits reported on a form P11D include the following:

  1. Assets transferred from the employer to the employee
  2. Payments made by the employer on behalf of an employee
  3. Vouchers and credit cards made available to the employee
  4. Living accommodation provided by the employer to the employee
  5. Mileage allowance payments not taxed at source
  6. Cars and car fuel provided by the employer for use by the employee
  7. Vans and van fuel provided by the employer tor use by the employee
  8. Interest free and low interest loans provided by the employer to the employee
  9. Private medical treatment or insurance.
  10. Qualifying relocation expenses payments and benefits
  11. Services supplied by the employer to the employee
  12. Assets placed at the employee's disposal.
  13. Other items (such as subscriptions and professional fees)
  14. Expenses payments made on behalf of the employee.

 

Submission deadlines

The employer should submit all P11Ds and one P11D(b) form to HMRC by 6 July following the relevant tax year (for the tax year 2017/18 deadline in 6 July 2018). Form P11D(b) is used to declare the amount of Class 1A NICs the employer is due to pay for the tax year. The form is required if the employer is liable to return any expenses payments or benefits on form(s) P11D. The deadline for giving employees a copy of their form P11D is also 6 July following the end of the tax year.

 

The Class 1A National Insurance Contributions should be paid to HMRC by 22 July (or 19 July if paying by cheque) following the end of the tax year.

 

Employers pay Class 1A National Insurance contributions on all the above except items (b), (c), (e) and (n).

 

The P11D guide for the tax year 2017/18 explains how the taxable benefits listed above are calculated and how these should be entered on form P11D.

 

Further useful guidance from HMRC is in Booklet 480: expenses and Benefits – A Tax Guide and Booklet 490: Employee Travel – A Tax and National Insurance Contributions Guide

 

Employee share schemes

The tax treatment of employee share schemes will depend on whether the scheme is a registered scheme for tax purposes and the type of scheme. View this handy introduction to the various schemes.

Auto-enrolment spot checks

Ensure your clients are not caught out by spot checks.


Ensure your clients are not caught out by spot checks.

 

Spot checks started last month and will be carried out across the country including Essex, Kent, Hertfordshire, Bedfordshire and Cambridgeshire.

 

This is part of the latest in compliance drives from the Pensions Regulator. It follows a series of spot checks carried out over the past 12 months, in London then the North East, Northern Ireland, South Wales, Edinburgh, Glasgow, Greater Manchester, Sheffield and Birmingham.

 

This latest round of spot checks targets employers who are still non-compliant despite penalty action and those suspected of providing false or misleading information to The Pensions Regulator about how they are meeting their automatic enrolment duties.

 

Make sure your clients know what they need to do to meet their on-going duties and that their records are kept up to date.

 

As previously highlighted a healthcare company and its managing director have pleaded guilty to misleading The Pensions Regulator about providing its staff with a workplace pension.

 

Birmingham-based Crest Healthcare and managing director Sheila Aluko admitted recklessly providing false or misleading information to TPR. They also admitted wilfully failing to comply with their automatic enrolment duties and were fined £20,000.

 

 

Employee share scheme-share incentive plans

Share incentive schemes are an effective way of retaining employees in the short to medium term.


Share incentive schemes are an effective way of retaining employees in the short to medium term.

 

In the majority of share option schemes, employees are not allowed to exercise their option until they have been with the company for a minimum period of three years.

 

At present there are four types of approved share schemes. These are:

  • Share Incentive Plans (SIP)
  • Saving Related Share Option Scheme
  • Companies Share Option Plans (CSOP)
  • Enterprise Management Incentives (EMI) Schemes.

The approved shares have a tax and National Insurance Contribution (NIC) advantage. Providing that certain conditions are met the company will be able to award shares to its employees free of tax and NIC.

 

Typically a company will establish a UK resident trust and will transfer cash into that trust. Cash will then be used to acquire shares in the company.

 

There are four different ways in which an employee can receive shares under a SIP:

  1. Free shares – an employer can award up to £3,000 worth of shares per annum to participating employees. Awards may be linked to performance, such as the performance of individuals, teams or divisions.
  2. Partnership shares – an employee can buy up to £1,500 worth of partnership shares each year (or up to ten per cent of the income for the tax year if that is less). The shares are bought out of the salary before the deduction of tax and NIC.
  3. Matching shares – an employer can ‘match’ up to two additional free shares for every one partnership share purchased by the employee.
  4. Dividend shares – if an employee receives shares from free, partnership or matching shares the employee can reinvest up to £1,500 per annum of dividend in acquiring new shares.

Before operating the scheme the employer must first obtain HMRC approval. The conditions that have to be met in order to get HMRC approval are:

  • company must be quoted (any market) or not controlled by another company
  • the shares must be ordinary shares but the shares can have limited or no voting rights
  • the employees must be offered shares on similar terms
  • the scheme must be open to all employees (employee with less than 18 months' service can be excluded)
  • employees (together with their associates) must not have a ‘material interest’ in the company. Material interest means that they are not able to control more than 25% of the ordinary share capital.

As highlighted above, for all four types of approved share schemes above there is never a charge to income tax or NIC when the shares are awarded to the employees. The future charge, if any, is dependent on the time held as follows:

  1. Free and matching shares – the employer can introduce a clause into the scheme rule to prohibit the withdrawal of the share within three years. If there is no such clause and the employee calls for the shares within three years there will be an income tax and NIC charge at the market value of the shares at the time they were withdrawn. If the shares are withdrawn between three and five years the income tax charge and NIC will be the lower of market value of the shares on allocation and the market value of the shares at the date of withdrawal. If the shares are withdrawn after more than five years there is no income tax or NIC charge at the date of withdrawal.

  2. Partnership shares – unlike free and matching shares the employer cannot prohibit an employee withdrawing the shares from the plan. As with free and matching shares if the shares have been in the plan for less than three years there will be an income tax charge at market value of the shares at the date of withdrawal. If the shares have been in the plan between three and five years, the income tax will be the lower of the ‘salary sacrificed’ to purchase the share and the market value of the shares at the date of withdrawal. If the shares remain in the plan for at least five years, there is no tax or NIC charge at the date they are withdrawn.

  3. Dividend shares – the dividends used to purchase the shares are tax free (the dividends used to purchase the share are omitted from income tax computation in the year in which they are received). The employer cannot prohibit an employee from withdrawing the share from the plan. If the dividend shares are withdrawn within three years, the dividend originally used to purchase the share becomes taxable in the year the shares are withdrawn. There is no income tax if the shares are withdrawn more than three years after purchase.

 

Capital Gain Tax (CGT) is charged on the difference between the sale proceeds and the value of the shares at the time of withdrawal. So the CGT can be avoided if the shares are sold as soon as they are removed from the trust.

 

 

New funding options for SMEs launched

Barclays reveals new options for SMEs.


Barclays reveals new options for SMEs.

 

The time it takes to arrange funding is one of the most common concerns from SMEs. In response, Barclays has announced initiatives to help SMEs.

 

Barclays doubles unsecured lending limit

Barclays has launched £100,000 unsecured lending – doubling its maximum for unsecured business loans for small and medium-sized enterprises (SMEs) from £50,000 to £100,000.

 

It states this pre-approval move will help SMEs get faster access to finance and seize opportunities they might otherwise miss out on if lending decisions are not made quickly enough. It also means business owners will not have to use their business premises or home as security.

 

Barclays has also introduced a new cashback scheme for flexible asset finance, to encourage businesses to invest in vehicles, equipment, plant and machinery. This is been facilitated by the British Business Bank's ENABLE guarantee programme. SMEs using hire purchase and leasing finance will benefit from 0.25% cashback on the finance of over £10,000. Businesses with up to 250 employees and a turnover of up to c£44m are eligible to apply.

 

 

Filing deadlines for limited companies

Ensure any clients who are limited companies understand their filing deadlines.


Ensure any clients who are limited companies understand their filing deadlines.

 

Private limited companies have filing deadlines for accounts and tax returns.

 

ACTION                                                                 DEADLINE

  • First accounts with Companies House       21 months after date incorporated
  • Annual accounts with Companies House   9 months after year end date
  • File company tax return with HMRC          12 months after end of accounting

Period

  • Pay Corporation Tax or                             9 months and 1 day after Corporation
  • Tell HMRC that no corp tax is payable     Tax accounting period ends

 

The penalties (for private limited companies) for late filing of limited company accounts with Companies House are summarised as follows:

 

            TIME AFTER DEADLINE                          PENALTY

  • Up to 1 month                                               £150
  • 1 to 3 months                                                £375
  • 3 to 6 months                                                £750
  • More than six months                                 £1,500

 

The penalty is doubled if accounts are late two years in a row.

 

Limited companies are required to file a confirmation statement (previously an annual return) with Companies House once a year. The company should receive an email alert or a reminder letter when the confirmation statement is due. The due date is usually a year after either:

  • the date the company was incorporated
  • the date the company filed its previous annual return of confirmation statement.

The company can file the confirmation statement up to 14 days after the due date, with no penalty.

 

Self-assessment tax returns

The deadlines for self-assessment for the year ended 5 April 2018 are as follows:

  • Registering under self-assessment            5 October 2018
  • Filing paper tax return                                31 October 2018 (Wednesday)
  • Filing online tax return                               31 January 2019 (Thursday)
  • Making first payment on account              31 January 2018
  • Making second payment on account         31 July 2018
  • Balance of tax payable                              31 January 2019.

Payments on account as shown above will be due unless:

  • the last self-assessment tax bill was less than £1,000
  • already paid more than 80% of all the tax due (eg via salary and PAYE tax code).

 

Expenses and benefits for employees

The filing deadlines for benefits for employees for the 2017/18 tax year are as follows:

  • P11D forms to HMRC online                     6 July 2018
  • Give employee copy of P11D form           6 July 2018
  •  P11D(b) form to HMRC online                 6 July 2018
  • Pay class 1A NI on benefits                       19 July 2018 (by cheque)
  • Pay class 1A NI on benefits                       22 July 2018 (other payment method)
  • Pay tax and class 1B NI on                        19 October 2018 (by cheque)
    PAYE settlement agreement
  • Pay tax and class 1B NI on                        22 October 2018 (other payment method)
    PAYE settlement agreement                     

 

 

Managing cyber risks and attacks

With the risk of cyber-attacks growing, ensure you have a robust plan in place to minimise any business interruption and reputational damage.


With the risk of cyber-attacks growing, ensure you have a robust plan in place to minimise any business interruption and reputational damage.

 

Recent incidents point to accountants facing an increasing risk of their IT systems being hacked. Deloitte was recently the target of an attack that compromised the emails and plans of some of the firm’s blue-chip clients. So far, six of Deloitte’s clients have been informed that their information was compromised, but an internal review is ongoing.

 

Lines of defence

Accountants’ sensitive data makes them a prime target for hackers looking for data they can then monetise. Firms should split their cyber defences against such attacks between:

  • risk management
  • post-breach damage/crisis management.

 To optimise your cyber risk management, it is vital to run the latest versions of software, in particular browsers and operating systems, and keep them up to date. This can be achieved by taking the following simple steps:

  1. Identify all the software used on your systems – it’s easy to focus on Microsoft, but Adobe, Apache and so on must also be considered.
  2. Monitor the release of new patches from vendors (specifically security patches, rather than feature patches) and apply them as soon as feasible. The software vendor will often assign a criticality that will help you identify the severity of the issue.
  3. Deploy vulnerability scanning to ensure the patches have actually been installed.
  4. It’s also important to train your staff to recognise the warning signs and avoid becoming victim to social engineering and other common cyber-criminal tactics. The following practices may help you to reduce security breaches that relate to human behaviour:
  • create a security policy that clearly outlines your company’s rules regulating the handling of data access and passwords, use of security and monitoring software and so on
  • make your employees aware of risks that their actions can pose to your company’s security, and educate them on how to best handle work in a secure manner
  • apply the principle of least privilege. Deny all data access by default and allow it whenever needed on a case-by-case basis.

 

Speed and accuracy

If you do incur a cyber breach, the speed and accuracy of your response can make all the difference.

 

The more planning your company does before a breach, the better your chances of minimising the business interruption and reputational damage that can ensue. Ensure any PR and comms resource you have plays an integral part in the pre-breach planning process.

 

Following a breach, a company invariably feels a tension between the need to communicate with customers quickly and the need to communicate accurately. To optimise the chances of striking the right balance, it’s vital for a company to involve a range of stakeholders in the pre-breach planning stages. (See ‘Cyber breach planning: building your A-team’ for more analysis of this matter.)

 

This should ensure that the timing and extent of your comms to third parties is a business decision that has factored in the various implications, and not just those of one or two divisions.

 

Typically you can retain customers’ business if they feel that you have communicated with them the cause and effects of the breach quickly, accurately and openly, and have put them first throughout this process.

 

Lockton has produced six posters which can be distributed within your practice or clients to help raise awareness of various risks. View these now

 

For more information, please contact Lockton’s dedicated ACCA team on 0117 9065057 or email ACCAaccountants@uk.lockton.com

 

 

How data encryption works

In our second data security article we look at how encryption works.


Don’t put the security of your – or your clients’ – data at risk.

 

Encryption is a fundamental aspect of information security practice in order to protect sensitive data. Last month we discussed why it is necessary for accountants to encrypt data and outlined ways to achieve this. 

 

How does encryption work?

Manual encryption has been used since Roman times, but the term has become associated with the disguising of information via electronic computers. Encryption is a process basic to cryptology – a science concerned with data communication and storage in secure and usually secret form. It encompasses both cryptography and cryptanalysis.

 

Cryptography is all about hiding the meaning of messages, and a digital signature is part of a scheme designed to do just this, by simulating the security of a handwritten signature in digital form. It can be used with encrypted and unencrypted messages, so a digital signature can authenticate the identity of the sender of a message or the signer of a document, and possibly ensure that the original content of the message or document that has been sent is unchanged.

 

Encryption secures data through protocols such as SSL, SSH, PKI and other digital signatures and certificates:

  • Secure Sockets Layer (SSL) – this is the standard security technology for establishing an encrypted link between a web server and a browser. This link ensures that all data passed between the web server and browsers remain private and integral. SSL is an industry standard and is used by millions of websites in the protection of their online transactions with their customers. 
  • Secure Shell (SSH) – this is a network protocol that allows data to be exchanged using a secure channel between two networked devices. The encryption used by SSH provides confidentiality and integrity of data over an insecure network, such as the internet.
  • Public Key Infrastructure (PKI) – a public key infrastructure supports the distribution and identification of public encryption keys. It enables the users and computers to both securely exchange data over networks such as the internet and verify the identity of the other party. Any form of sensitive data exchanged over the internet is dependent on PKI for security. A certificate is issued by a certified authority to establish the authenticity of the identity of individuals, computers and other entities.
  • Digital signature and certificates – digital and handwritten signatures are very different. Digital signatures use an algorithm to produce two different but mathematically related ‘keys’ for an individual: one public and one private. These are then used to encode (or scramble) and decode data. Messages generated using the private key can be decoded and read by anyone with access to the public key. Similarly, anyone with access to the public key can use it to send a message, but it can only be decoded and read by the holder of the private key. It offers far more inherent security and solves the problem of tampering and impersonation in digital communications. It can provide the added assurances of evidence to source, identity and status of an electronic document, transaction or message. A digital signature provides an informed consent acknowledgement from the signatory.

 

Ignorance is not an excuse

In the current world, when technology has taken precedence over all our daily routines, accountants cannot hide behind a lack of knowledge about upcoming changes. It could be an expensive mistake to avoid digital security issues.

 

Use our online resources to help establish and tailor your own practice policies and browse our courses to expand your industry knowledge.

 

 

 

The unique challenges of being based at home

The Secret Accountant presents a tongue in cheek look at the challenges of working from home.


The Secret Accountant presents a tongue in cheek look at the challenges of working from home.

 

Warning: the following text is the product of the secret accountant’s imagination and any resemblance to reality, of which there may be many, may not be a matter of coincidence.

 

Consider the following extract from the client engagement letter:

 

32.    Phone calls: Due to the high volume of calls received by my office, and in order to serve you better, please choose from one of the following voicemail options:

Press 1 – if you wish to book an appointment to see me in the flesh. Our recent client satisfaction survey has revealed that this was the least rewarding enterprise ever undertaken by the clients

Press 2 – to transfer the call to the living room just in case I’m watching EastEnders

Press 3 – to transfer the call to my bedroom if I’m sleeping. However, please read clause 33 below before proceeding

Press 4 – to transfer the call to the House of Lords, where I get all the ideas to respond to Revenue’s consultations on such matters as IR35.

Press 5 - to make a complaint. We take complaints very seriously and have introduced an automated call recording service which, while it may take several hours, is very efficient in terms of accurately recording your complaint verbatim, with appropriate sound effects.
Client satisfaction is at the heart of our practice. To ensure your time on the phone remains entertaining, we change the music every week. Further, for those struggling to find the appropriate vocabulary to make a complaint, please note we have a standard list of mildly abusive phrases to choose from, which can be obtained from our office free of cost. For more advanced cases, please contact my assistant who specialises in producing highly effective bespoke phrases tailored to suit your individual needs. However, this service is subject to a separate engagement and payment of a fee.

33.    Our charges: I generally charge £42+VAT for getting out of bed; depending on weather conditions additional surcharge may apply.

34.    Ethics: We follow ethics in letter and spirit. To explain it in plain English, if you were to leave £100 extra in your account in error, a bit of artificial intelligence embedded in our software means that your account will always be kept neat and tidy and any excess will be neatly transferred out to the practitioner’s drawings account.

35.    Client money: Given the enormity of the tax liability on high net-worth individuals, we have researched the science of giving and have developed schemes for those pursuing philanthropy. Please contact my secretary for advice. As a matter of minor detail we accept donations in cash, cheques, crypto-currencies, and in kind (such as jewellery, expensive watches etc.)

36.    Personal visits: In response to constant queries being received from clients, it’s clarified that those driving to my office in the UK in a car registered in France DO NOT need to remove the steering wheel and fix it on the other side, after crossing the border.

 

The Secret Accountant practises in an undisclosed location in the heart of the UK.

 

 

GDPR wasn’t such a big deal – or was it?

If GDPR remains an issue for you or your clients, Bob Edwards FCCA has some advice.


If GDPR remains an issue for you or your clients, Bob Edwards FCCA has some advice.

 

The new Regulation came into force on 25 May and the world didn’t come to an end. Bob Edwards FCCA of Landmark and his partners at GDPR Auditing Ltd share some thoughts on that and what has happened since.

 

Can we all now breathe a sigh of relief and get back to business as usual? The day job – dealing with clients’ affairs – is the important stuff and as far as we can tell the GDPR is just one more raft of red tape to be side-lined. Is this a realistic reaction to the advent of GDPR?

 

UK businesses tend to make light of legislation that takes them away from their core activity of surviving while also making money. Accountants are no different in this respect. The difference, of course, is that as an accountant you are almost certainly handling the personal data of clients and in the case of payroll functions the personal data of clients’ employees.

 

Ask yourself these questions:

  • do you think GDPR doesn’t apply to you?
  • are your clients asking you about your compliance status, and if not when are they likely to?
  • what will happen if a client asks you to confirm that you are GDPR compliant and you cannot give that assurance?
  • as a regulated professional, shouldn’t you be legal and above board with all relevant legislation?
  • will your professional body support you, endorse your lack of compliance, if you are potentially breaking the law?
  • will your professional indemnity insurers cover the downtime risks of serious data breaches if your personal data management falls outside the standards set by the GDPR?

And then consider the following:

  • the GDPR applies to every business that manages the personal data of other individuals
  • sooner or later one of your clients (probably one of your larger clients) will need confirmation that you are compliant in order to complete their compliance with the GDPR. If you can’t provide that confirmation you will likely lose their business
  • in our opinion any regulated professional not compliant with GDPR will be in breach of their obligation to maintain professional standards as well as breaking the law
  • you should be in contact with your PI insurers to clarify cover for GDPR breach risks. If you are not compliant it is difficult to see how these risks could be covered. If so any damages claimed by clients whose personal data you have put at risk may have to come out of your pocket
  • as an accountant, operating outside of the GDPR might be seen as potentially negligent; moreover, acting as a data processor without the relevant legal agreements could be viewed as grossly negligent and against the law
  • regardless of whether your client is requesting a GDPR controller processor agreement, surely you should be taking the lead as a professional and advising your clients accordingly?

As an accountant you are almost invariably a data processor, and your clients are data controllers - don’t hang them out to dry, do the right thing, become GDPR compliant, help them through the process, take the lead, and use it as a business opportunity.

 

Landmark and GDPR Auditing can provide options for you. Take a look at our workbook solution now and find out how easy it can be to ensure your practice becomes GDPR compliant.

 

 

 

NEWS
This month's highlights:


News and tools for you

Find out about ACCA firms and individuals in line for recognition, MTD for VAT engagement letters, the SMP of the future, what changes to the ACCA qualification mean for you and ACCA's new audit monitoring committee.


Recognition beckons for ACCA firms and members

 

Making Tax Digital (MTD) for VAT engagement letters

 

Short survey - the SMP of the future

 

Audit monitoring committee

 

Webinar - our qualification is changing; what you need to know

 

 

Recognition beckons for ACCA firms and members

ACCA-registered firms and members are both well represented on the recently announced shortlists for the Accounting Excellence Awards and British Accountancy Awards. Many congratulations if you are or your practice is short-listed for the awards, taking place on 20 September and 26 September respectively. ACCA will be hosting a table at each ceremony and we look forward to engaging with – and celebrating the success of – as many of you as possible!

 

Making Tax Digital (MTD) for VAT engagement letters

The joint professional bodies’ working party (comprising AAT, ACCA, ATT, CIOT and STEP) has agreed to provide an updated schedule to the engagement letters in relation to MTD for VAT and will issue an update after its next meeting on 10 September. In the meantime, please contact advisory@accaglobal.com if you have any queries.

 

Short survey - the SMP of the future

Please spare a few minutes to complete a survey for the Edinburgh Group, a coalition of ACCA and 15 other accountancy bodies representing over 900,000 accountants.  The Edinburgh Group is studying the SMP of the future and we would love to have your insights. Could you please consider completing the survey or asking two of your colleagues to complete the survey? Specifically, we are looking for an early career professional and an experienced professional to participate. The survey is open until 15 August.

 

Audit monitoring committee 

Under the terms of the Delegation Agreement, by which the Financial Reporting Council (FRC) delegates to ACCA certain tasks in relation to statutory audit work, ACCA is required to:

 

'….have a committee which has responsibility for discharging the function of audit monitoring - including reviewing the results of audit inspections, in particular those which result in an unsatisfactory grade and for ensuring that inspections are carried out to a consistent standard.'

 

To fulfil this requirement, ACCA is creating a new committee which will have the title of Audit Monitoring Committee (AMC). The purpose and function of the AMC will be limited to those specified in the Delegation Agreement: it will not, for example, have the power to withdraw, suspend or impose conditions on a certificate – although it could recommend that a case is referred to the Admissions and Licensing Committee to consider exercising those powers.

 

The results of certain audit monitoring visits will be referred each month to the AMC, which will consider each case on the basis of the monitoring visit report prepared by ACCA and related documents, the firm’s action plan produced in response to the visit report and a preliminary risk assessment carried out by the Monitoring department. The AMC will determine the outcome of the monitoring visit, the timing of the next visit and whether any additional action appears necessary. The firms concerned will then be notified accordingly.

 

Because the meetings will not be oral hearings, the ACCA member(s) will not be present or represented, nor will an ACCA case presenter be in attendance.  In addition, there will be no advance publicity of the cases referred to the AMC and its decisions will not be published. For those visits not referred to the AMC, ACCA will notify the firm of the outcome and follow-up once it has received and assessed the firm’s action plan and any other outstanding matters from the visit have been resolved.

 

ACCA believes that the introduction of an independent review earlier in the monitoring process will demonstrate that the existing monitoring arrangements are consistently applied and effective in upholding appropriate standards of audit work. Therefore, although the AMC has been formed in response to an FRC requirement, in view of the objective and following engagement with the Irish Auditing and Accounting Supervisory Authority, it has been agreed that the arrangements will also apply to firms with Irish audit registration.

 

Webinar - our qualification is changing; what you need to know

On Friday 3 August we hosted a webinar which provided an update on ACCA's priorities for members in the UK, focusing on changes to the ACCA qualification and the benefits to students, members and employers. Over 1000 members registered in advance, but if you missed this, you can watch on demand; simply register now to access a recording of the webinar.

 

 

 

Interim changes to the ACCA Rulebook

A summary of changes introduced to ACCA’s Rulebook on 1 July 2018.


A summary of changes introduced to ACCA’s Rulebook on 1 July 2018.

 

A number of interim changes were introduced to the ACCA Rulebook, taking effect from 1 July 2018.

 

The Rulebook is divided into three sections: 

  • Section 1 carries the Royal Charter and Bye-laws, to which there are no interim changes
  • Section 2 carries the Regulations, covering membership of ACCA, practising and licensing arrangements, and regulatory and disciplinary matters. Commentary on the changes is set out below
  • Section 3 carries the Code of Ethics and Conduct. There are no interim changes to section 3.

 

Section 2 - Regulations

 

Annexes to the Global Practising Regulations:

Annex 3 of the Global Practising Regulations (GPRs) has been removed to reflect that the Institute of Certified Public Accountants of Cyprus (ICPAC) no longer requires ACCA members in practice to hold ACCA practising certificates. In Cyprus, ACCA members were not previously permitted to provide public practice services including audit services unless they were members of ICPAC and had obtained its relevant practising certificate. Now, applicants may achieve ICPAC authorisation without having to obtain an ACCA practising certificate, provided they have met ICPAC’s eligibility requirements.

 

Appendix 3 to Annex 1 of the GPRs has also been amended to remove an ambiguity concerning eligibility for an audit qualification for one of the Channel Islands or the Isle of Man. The regulation that has been removed is that ‘The member shall have passed such local equivalents of the Association’s examinations as the Admissions and Licensing Committee shall from time to time specify as acceptable'. According to local legislation (in each location), the deletion of this regulation is appropriate, and it will remove the risk of inconsistency in the way that applications are treated.

 

Implementation of the Insurance Distribution Directive:

The implementation of the Insurance Distribution Directive (IDD) in the UK and Ireland requires amendments to the Designated Professional Body Regulations (DPBRs) and the Irish Investment Business Regulations (IIBRs) respectively. ACCA has worked closely with the Financial Conduct Authority and the Central Bank of Ireland to identify the necessary changes. ACCA has also taken the opportunity to streamline the DPBRs.

 

Although the DPBRs now include further restrictions concerning insurance distribution (including the requirement for firms to meet the definition of ancillary insurance intermediaries), the greatest impact of IDD implementation is in Ireland. Most firms currently authorised for investment business by ACCA under the Investment Intermediaries Act and the IIBRs will cease to need authorisation, as implementation of the IDD will remove insurance business from the scope of the Act. Practices wishing to advise on or arrange insurance products will need to seek registration directly with the Central Bank of Ireland. (ACCA will continue to authorise firms in respect of investment products that are not written under an insurance contract.)

 

There is a single consequential change to Annex 2 to the GPRs to remove a reference to insurance mediation in Ireland.

 

View the ACCA Rulebook now

 

 

 

 

Benefit from our new business guides

ACCA has refreshed its range of free practitioner guides and checklists to help practitioners and your clients.


ACCA has refreshed its range of free practitioner guides and checklists to help practitioners and your clients.

 

There are over 160 guides for 2018 and many others available from earlier years for research purposes. The guides are regularly updated so that members will always have access to current information.

 

We encourage you to use these within your practice. They can be shared with staff and are also designed to be shared with clients for both educational and marketing purposes.

 

We have responded to your feedback and re-structured how these guides are presented on our website; simply browse the list of business topics.

 

 

Within any category, search for the type of publication you require – for example by entering ‘International trade and guide’ the search results will return:

 

Follow this link for a summary of the full range of technical resources available for our practitioners.