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Sports and taxation – paying to compete in the UK
Is it time for HMRC to bow to pressure and amend how it taxes sports stars in the UK?
Sunshine and sport go hand in hand but there has been a dark cloud looming over UK tournament organisers for far too long and it is about time the depression was lifted.

When the great and the good of UK sport ask the government to consider their stance on the taxation of foreign athletes and some of the world’s highest profile stars choose not to perform in the UK, you know there is something seriously wrong.

But what has caused these problems and why is the government so unwilling to help; instead watching from the sidelines as major events consider their future in the UK?

In life we all like certainty but for far too long this has been missing in the HMRC approach to the taxation of non-resident sports stars. This has resulted in a huge backlog of open tax enquiries. No one likes paying tax but when you are faced with paying more than you can earn in the UK there is a fundamental problem. It sounds so far fetched that it could not possibly be true but unfortunately it is and this issue is not going away.

This is not a case of foreign sports stars seeking to avoid paying tax; most have impeccable records of paying their tax when it falls due. Instead it is a fundamental question of how their endorsement income is apportioned and assessed to UK tax. HMRC unilaterally changed the basis on which it assessed non-resident sports stars, and as a result many are now faced with increased amounts of income being brought into the UK income tax net.

Previously HMRC would allow a passive deduction which acknowledged that not all of the sports star’s endorsement income was service related and that a significant proportion is connected to the exploitation of their personal endorsement and image. This is no longer acceptable practice following Andre Agassi’s tax appeal when – without examining his endorsement contracts – the Commissioners decided that his image rights had no value.

In addition HMRC now seeks to apportion on a basis of ‘relevant playing days’ which is universally viewed as unfair because it does not take into account any preparation or training days. Heaven help you if your chosen sport is the marathon where as an elite athlete you will only participate in two events a year and if one is in the UK then 50% of your endorsement income is apportioned to the UK despite having trained for months outside the UK to prepare for the event!

So how much tax are we talking about? Whilst HMRC could not answer this question, despite issuing tax returns to all the elite non resident athletes, we now estimate that £7m is raised. If one of our major annual sporting events were to leave the UK, significantly more would be lost in direct tax than the total amount actually raised across all sports. So why does the DCMS, the Treasury and HMRC simply want to put their heads in the sand and take no action? The answer is simple – they are adopting a short sighted approach based on the fact that no major annual sporting event has left the UK yet and they feel that it would be the wrong time to offer any concession to highly paid sports stars.

This stance would be fully justifiable if it made economic sense and we were not facing the realistic prospect of losing a major sporting event. When Usain Bolt decided not to run in the UK prior to the 2012 Olympics the Treasury would have been hoping for a backlash in the press against his decision. This did not happen and instead he received widespread support and understanding from all quarters. Why would he race in the UK when he was being asked to pay more in tax than he could possibly earn?

On 19 April the Treasury was given yet another reminder about the ongoing problems when the All England Lawn Tennis and Croquet Club called on the government to take action over tax laws which penalised individual sports stars. 

‘What we want is some action,’ said Wimbledon chief executive Ian Ritchie. ‘Nobody has a problem with taxation on prize money but, in individual sports athletes are taxed on their global endorsement income when they come to this country. If Lionel Messi comes here for a Champions League final he doesn’t get taxed on his endorsement income but when Roger Federer or Rafa Nadal come here they do.’

We need a level playing field and the only way to resolve this will be to exclude endorsement income from taxation. The tax loss is negligible because significantly more income tax, corporation tax and VAT is collected from events taking place in the UK.

This would also stop the highly embarrassing knee jerk reactions that we saw when the 2010 Champions League final was taken away from Wembley and only came back this year after Treasury officials had provided the FA with written confirmation that the visiting teams would not be subject to tax.

So as we (at the time of writing) wait anxiously to see what tickets (if any!) we have been allocated in the Olympic ballot, it is worthwhile commenting on the tax exemption granted to the Games.

A tax exemption is required by the IOC as a condition of any bid. Statutory Instrument 2010 no 2913 exempts from UK tax income that would otherwise be chargeable on visiting performers. In practice this means that competitors have a tax exemption during the period from 30 March 2012 to 8 November 2012; 120 days before the opening ceremony of the Olympic Games and 60 days after the closing ceremony of the Paralympic Games. Athletes are exempt from UK tax on payments derived from their participation in an Olympic event and warm-up events in this period. This would include interviews and commentary where it is entirely games related and endorsement income and sponsorship contracts in relation to the participation in the games, including any specific win bonuses.

However, it does not however include non-Olympic events which take place within the relevant period such as Wimbledon or sponsorship/endorsement duties which do not have a connection with the Olympics. These will be taxed in the normal way and be treated as a ‘relevant day’.

Therefore even in relation to something seemingly straightforward, such as a tax exemption for the Olympic Games, it is still possible that Usain Bolt could compete in his events, do a couple of personal appearances on behalf of sponsors on his rest days in the local communities, and be hit by a UK income tax demand. In light of the promised exemptions, this would be hugely controversial. The potential for embarrassment looms large.

Julian Hedley – head of sports and entertainment at Saffery Champness

Why become a charity trustee?
Have you considered the benefits of becoming a trustee of a charity?

There’s an old Chinese curse: may you live in interesting times. Now is certainly an interesting time for charities in the UK as a result of the tensions between funding cuts, David Cameron’s plans for a Big Society and the move to ‘localism’.

Many charities are therefore trying to strengthen themselves by attracting new trustees and this article is intended to convince you that you should be one of them.

So why should you become a trustee at a time when charities are facing so many new challenges? The quick answer is that you should become a trustee precisely because of these challenges.

What could you offer a charity and what’s in it for you?

How the charity benefits
The benefits to a charity include the infusion of new thoughts and ideas from people who are not part of its history and can question things that longer-serving trustees take for granted. Professionally qualified accountants, of course, can be particularly valuable, not least because they are aware of the importance of regulatory compliance and they have the ability to understand and influence an organisation’s financial strategy.

Charities can also benefit from the ‘business’ perspective that accountants can bring but, of course, a charity’s net surplus is nothing like as important as providing services that meet the charity’s objectives and the challenge of defining and measuring these ‘intangible’ outcomes can be considerable.

Many people don’t become trustees until they retire and it doesn’t occur to younger people to apply for trustee vacancies, either because they feel they don’t have enough experience to offer, or because they’re concentrating on their careers or their family lives. These factors mean that a lot of charities are run by older people: the average age of trustees of charities in England and Wales is 57 and two thirds of the trustees are over 50. Indeed, even though 12% of the total population is aged 18-24, only 0.5% of trustees are in this age group. Younger trustees (which, at the moment, probably means anyone under 57!) are therefore in great demand.

However, trustees have very real responsibilities and are required to act in the charity’s best interests without regard to personal gain. As a rule, they cannot be paid or gain any other personal reward for the time they give as trustees (although they can claim expenses in line with the charity’s usual policies) so it won’t make you rich.

How the trustee benefits
What will you get out of it?

You will probably find that the greatest single benefit is being directly involved in the governance of an organisation. The trustee board is equivalent to the main board of a business and trustees are the equivalent of main board directors so you will find yourself gaining a breadth of experience that most younger people don’t get until they’re much older. However, the trustees often have their own day jobs so all the board members are effectively non-executive directors and it is vital to focus on governance and avoid getting bogged down in management.

If a charity has paid staff, they will often be responsible for the charity’s management and administration but the buck stops with the trustees who have the final responsibility for the charity’s strategic planning and development, which includes deciding what can be delegated to staff and what they must do themselves. 

All of which is likely to provide a significant boost to your CV.

Charities can also bring you into direct contact with others from all sorts of different backgrounds, from patrons and celebrities to staff and volunteers to funders and Government to beneficiaries and their carers, who are likely to be very different from those in your ‘normal’ life. You are also likely to gain a sense of personal reward and privilege from being able to make a difference to society, whether your charity works with children, or people with disabilities, or retired greyhounds, or the environment or any of the other purposes for which charities exist.

But don’t expect people in charities to be impressed because your day job has a fancy title or because you’re paid a lot of money: you will have to earn respect by what you contribute to the charity. I have seen finance directors of large international companies shudder when they realise the complexity of the accounts of a charity with a lot of restricted funds and a mixture of outputs that HMRC classifies differently for VAT purposes, and that was before they realised just how much information has to be made public.

However, if you choose a charity whose work interests you, it all becomes worth it when the annual trustees’ report, showing what your charity has achieved is published with your name in it.

Alec Sandison FCCA – charity governance and management specialist

Charity trustees responsibilities

Charity trustees are the governing board of a charity. That position carries with it duties and responsibilities. Trustees have the ultimate responsibility for ensuring that the charity undertakes the activities which it was set up to undertake and that it is solvent. They are responsible for directing the affairs of the charity.

The Charity Commission produce several guides for trustees and for charities looking to appoint a trustee. The basic guidance aimed at potential trustees looks at:


  • what should I do before I become a trustee?
  • trustees and directors - what's the difference?
  • am I eligible to become a trustee?
  • who appoints new trustees?
  • how long does the appointment of a trustee last?
  • can a trustee resign?
  • can trustees delegate their responsibilities?
  • how do trustees make decisions?

Other guidance
It would also be advisable to look at the guidance produced by the Charity Commission for charities.

You can find further information on becoming a trustee and trustee opportunities at the following links:


The future relationship between HMRC and tax agents
HMRC has launched a consultation that looks at the future relationship between it and tax agents. This is an opportunity to influence the way you work with HMRC.

HMRC has launched a consultation that looks at the future relationship between it and tax agents. This is an opportunity to influence the way you work with HMRC.

The consultation recognises that tax agents do not benefit from a business-based relationship with HMRC. It proposes options with the aim of saving time and providing greater certainty for clients. It also highlights the savings to HMRC.

The consultation looks at the concept of self service for enrolment and client online services. It also highlights certain conditions that will need to be considered including security and professional conduct.

As already stated the main thrust of the consultation is to save cost and time for all parties. For agents and their clients this will be achieved via self service and the ability to check transactions. HMRC states that this will allow agents to save time, eliminate error and will allow it to provide greater certainty to its clients. For HMRC, savings are envisaged in work not being duplicated and also in a better and more open working relationship with tax agents.

What is self service?
Currently agents can submit information on behalf of a client and receive correspondence and output as the nominee. It is highlighted in the consultation that this relationship does not recognise the professional nature of their role nor does it benefit from trust or control being placed in the hands of the professional agent. Self service looks at putting agents in a position where they can control and execute a number of basic transactions on behalf of their clients. Examples given include:

  • ability to generate and amend notices of coding and manage end of year reconciliation for those outside of self assessment
  • the facility to see payments and liabilities, for a single client in one presentation of the information
  • online education modules to augment professional training on legislation changes and processes
  • track and trace facilities for paper repayment claims and correspondence
  • the ability to lodge correspondence and returns / forms that are not fully online via an electronic work area.

To allow the development of self service it’s important that good security procedures are in place and the consultation highlights how this may work.

Separately the consultation highlights that standards need to be maintained. It proposes the setting of a minimum level of performance so that agents and customers can be confident of the quality of agent performance. It is recognised that this concept has already caused concern and invites comments. 

This is an opportunity for all tax agents to highlight the benefits of being a professionally qualified accountant, in particular what this means for your clients and for HMRC.

It is a consultation that all accountants who act as tax agents should read.
You will find links to the consultation, be able to view the latest HMRC podcast on the proposals and find out how you can respond on our website (responding to this consultation will constitute CPD for tax agents). 

ACCA would very much like to hear your views too and asks you to send these direct to us at by Sunday 4 September. The deadline for responding to HMRC is Friday 16 September.

Tax and other deadlines
A comprehensive round up of filing and other legislative deadlines.
Deadlines are a fact of business life, and most businesses will be to some extent deadline-driven. Apart from any deadlines imposed by customers or suppliers, businesses also need to be mindful of filing and other legislative requirements.

Limited companies and limited liability partnerships are required to file accounts at Companies House. For accounting periods starting on or after 6 April 2008, private companies have nine months from the year end in which to file accounts with the Registrar. Public companies have six months. Increased late filing penalties have applied from 1 February 2009, so that a private company filing accounts up to one month late will face a penalty of £150. If accounts are filed late in two consecutive years, the amount of the penalty doubles.

From 1 October 2009, there is no longer a 14 day ‘period of grace’ if accounts are rejected by Companies House. So, if a company files very close to the filing deadline date, and those accounts are rejected, the same deadline will still stand, that is to say nine months from the period end. If the amended accounts are not filed by that date, the penalty will be due.

Companies House deadlines are very simple in comparison to the far more complex position with HMRC. In relation to tax, there are filing deadlines, payment deadlines and also deadlines in relation to notifications. The deadlines vary from tax to tax, and the penalties can quickly start to accumulate if a return is filed late, or a payment is not made on time.

There are three key dates in relation to filing self assessment income tax returns. Paper returns have to be filed by 31 October, while online filing has to be done by 31 January following the year of assessment. If any tax due is to be recovered via an amended notice of coding, the return has to be filed by 30 December.

Corporation tax returns have to be filed within 12 months of the end of the accounting period, and P11Ds by 6 July each year. P35s have to be submitted by 19 May each year. The concession (ESC B46) allowing an extra seven days (in effect extending the deadline to 26 May) was withdrawn from 31 March 2011. This withdrawal is because all P35s now have to be filed online (since 6 April 2011), and the concession was to allow for delays in the post. 

Conversely paper VAT returns have to be filed by the end of the month after the return date, while online filers are given an extra seven days. The VAT return filing deadline is extended to two months for tax payers using the annual accounting scheme, but online filers do not get an extra seven days.

Miscellaneous deadlines
Businesses also need to be aware of a few other miscellaneous deadlines:

  • requirement to notify chargeability: 5 October, i.e. six months from the end of the tax year in which the liability arises
  • complete and file form CT41G within three months of a new company starting business activity
  • VAT registration is compulsory if at the end of any given month, taxable supplies for the last 12 months exceed £70,000, or you expect them to exceed £70,000 in the next 30 days
  • tax credit claim renewal: 31 July.

With potentially even more of an impact on businesses than the filing deadlines, it is essential to ensure that tax payment deadlines are also met. Prior to self assessment, a criticism often levelled at HMRC was that the time lapse between earnings and the paying of the associated tax, meant that self employed people might experience cash flow difficulties. Under self assessment, the first payment on account is due on 31 January in the tax year. This will be an estimate, based on the previous year’s tax liability. The second payment on account is due on 31 July following the end of the tax year, and any remaining balance is due the following 31 January.

Corporation tax due should be paid nine months and one day after the end of the accounting period, if the company has profits below £1.5m. Larger companies have to pay their tax in quarterly instalments.

PAYE and class 1 NIC, if paid electronically, are due by the 22nd of each month, or by the 19th if a postal payment. Class 1A NIC is due by 22 July if paid electronically, but by 19 July if the payment is by post.

From 1 April 2010, VAT paid by cheque was only treated as cleared once the cheque had cleared in the HMRC bank account. The payment due date is one month after the return date, but this is extended by seven days if the payment is made electronically.

The result of any missed deadline is usually a penalty. If a self assessment income tax return is filed late, there is a £100 penalty. This is currently capped to the amount of the tax liability, but the cap will disappear for the tax year 2010/11. Thus, even if a repayment is due to the tax payer, a penalty of £100 will be levied if the return is filed late. If it is a partnership return, the penalty will be £100 per partner.

If the tax due by 31 January is not paid by that date, interest will be charged. If the tax is still outstanding at the end of February, a 5% surcharge will also be charged, and an additional 5% if it is still outstanding on 31 July.

The penalties for P35s and P11Ds filed late can quickly build up to a substantial amount. In both cases the penalty is £100 per 50 employees per month or part month. However in both cases the first notice about the penalty will be sent out four months after the deadline, meaning that the penalty could easily reach £400 before the employer realises that a return should have been filed.

From May 2010, penalties for late paid PAYE have changed. The amount of the penalty will vary depending on how many times in the tax year the payment was late, ranging from 1% if there were 2-4 late payments in the year to 4% if there were 11 or 12 late payments. An additional 5% will be levied if a payment remains outstanding for six months, and a further 5% after twelve months.

In common with income tax returns, corporation tax returns will attract a £100 penalty for late filing, but with a further £100 charged if the return is still outstanding after three months. If late filing occurs for three consecutive periods, the £100 fine is increased to £500. 10% of any unpaid corporation tax will be levied as a penalty if the return is filed between 18 and 24 months late, with a further 10% becoming due if the return is more than 24 months late.

Interest will be charged on any late paid corporation tax. Though the good news is that this interest is tax deductible!

Penalties for inaccurate returns are applied as a percentage of the extra tax due when the error is rectified. The percentage will vary from 0-15% for unprompted careless errors, to 50-100% for prompted deliberate concealed errors. Errors are all either prompted or unprompted, and then within those two categories will be classed as ‘careless’, ‘deliberate but not concealed’ or ‘deliberate and concealed’.

From 1 April 2010, these percentages will also be applied to potential lost revenue arising when a company does not inform HMRC that it is liable for corporation tax. HMRC can also charge a penalty of £3000 if a company does not keep proper records, though this will usually only be charged in serious cases.

Late paid VAT penalty percentages also vary depending on whether the default is careless or deliberate, concealed or not and the disclosure is prompted or unprompted. If a taxpayer defaults in the filing of returns, a 12 month default period is triggered, and further defaults within that period will result in a higher penalty. The penalty will range from nothing for the first default, up to 15% for the sixth and subsequent defaults in a surcharge period.

As part of the changes brought in by the 2008 Budget, HMRC introduced a standard limit of four years from the end of the tax year for making claims for repayments of tax. This type of claim usually arises when a taxpayer is entitled to a specific relief that they have not previously claimed.

HMRC also introduced a limit of four years for the department to issue tax assessments (except where a loss of tax has resulted from carelessness or has been done deliberately). The previous limit for claims and assessments for income tax and capital gains tax was five years from the 31 January immediately following the tax year.

For self assessment taxpayers, the new time limits took effect on 1 April 2010.  For individuals outside the self assessment regime, the new time limits for repayment claims take effect on 1 April 2012. This includes people who pay income tax on their earnings through the PAYE system via their employer, or people whose income is below the tax threshold and who therefore do not pay tax.

Taxpayers can appeal against HMRC penalties if they have a ‘reasonable excuse’. HMRC’s interpretation of ‘reasonable excuse’ has been scrutinised and challenged recently in court, but that is another story…

For the latest on reasonable excuse visit our website.

Working together with HMRC
Working Together provides a forum for raising operational issues or problems with HMRC.

Working Together provides a forum for raising operational issues or problems with HMRC, identified by HMRC, ACCA or other representative bodies, either at a national level or through local Working Together groups. 

The Working Together local group meetings take place three to four times a year. At these meetings representatives are able to discuss potential issues and evaluate the progress on issues previously raised. These will be issues that either they have come across in their practice or alternatively issues that have been brought to their attention by other ACCA practitioners.

ACCA has launched a dedicated section on its website for the Working Together initiative. Minutes of meetings received from representatives of local groups have been put onto this website so that other ACCA practitioners can keep up-to-date and forward any issues to their local representative to be raised.

Find your local group on our website now and read the case study below before deciding whether you would like to get involved.

Case study
Jacqueline Cole is a director in Dyke Ruscoe and Hayes Limited – an ACCA practice in Tenbury Wells. Jacqueline has been an ACCA representative on the Worcester and Hereford Working Together group for four years and was first motivated to get involved because of her concerns over HMRC’s operations.

Many practitioners will relate to the frustrations that she faced in interacting with HMRC on a daily basis. By getting involved with her local Working Together group, Jacqueline was making use of the main avenue through which HMRC is prepared to listen to the concerns of local practitioners. It is a way of meeting HMRC staff face to face and being able to apply some pressure where HMRC processes are resulting in problems that affect many practitioners. 

In 2009, HMRC changed the model of the Working Together scheme – instead of local issues being tackled at a local level, issues are now raised locally and then looked at centrally to provide national solutions. HMRC now maintains a central register of issues and the top five resolved issues and the top five open issues are listed in each edition of Working Together – the e-magazine for the scheme. If the representatives from the professional bodies on all the Working Together groups across the country engage fully in the process and raise issues then there is a good chance that HMRC will take action.

Attending Working Together meetings also constitutes verifiable CPD for Jacqueline and regular email updates in between meetings means that she is made aware of new initiatives as they arise such as the Agent Account Manager scheme. Jacqueline believes that the best way to improve matters is to take action so if you are interested in a being an ACCA representative on your local Working Together group, please take a look at the new Working Together section on ACCA’s website and see whether there is any ACCA representation on your group and what would be involved.

The British Accountancy Awards are now open
We are delighted to present the new British Accountancy Awards.

We are delighted to present the new British Accountancy Awards.

These new awards succeed the long-standing Accountancy Age Awards and follow a robust review involving some of the most respected members of the profession convened as a specialist advisory panel.

The British Accountancy Awards, in partnership with ACCA, will bring a renewed focus on the profession in practice, and combine new categories with the most popular awards from our legacy event. In addition the new awards will introduce a host of new categories for regional independent firms as part of our commitment to recognising excellence across the country.

Our panel of experts has helped us design more rigorous criteria and a clearer entry process to help our judges focus on the key issues underpinning practice and professional development.

These are the only awards dedicated to the accountancy profession in practice, rewarding outstanding performance and innovation across the sector, from small local firms to the larger regional, national and global players.

To find the right award for your practice click here and start your entry today

The categories are:


Independent Firm of the Year
North East England

Independent Firm of the Year
North West England

Independent Firm of the Year

Independent Firm of the Year

Independent Firm of the Year
Northern Ireland

Independent Firm of the Year
Midlands, England

Independent Firm of the Year
South West England

Independent Firm of the Year
South East England

Independent Firm of the Year
East England

Independent Firm of the Year
Greater London, England

Independent Firm of the Year
Chosen from the winners
of all the regional categories

Click here for a breakdown of
areas by county

View all criteria

Global Firm of the Year

National Firm of the Year

Mid-Tier Firm of the Year

Training Provider of the Year

Community Award


Tax Award of the Year
Global Firm

Tax Award of the Year
National, Mid-Tier, Independent Firm

Audit Award of the Year
Global Firm

Audit Project of the Year
National, Mid-Tier, Independent Firm


New Accountant of the Year

Accounting Technician of theYear

Training Manager of the Year 

Outstanding Contribution

SUPPLIER AWARDSoftware Product of the Year

Best Employer



FREE entry is available for submissions received by Friday 29 July. For full details on the awards entry process please visit

The final closing date for all entries is Friday 9 September.

Podcasts: HMRC consultation with tax agents
Elsewhere in this issue is a detailed look at HMRC’s consultation with tax agents. Our new podcasts serves as a useful introduction and summary.

HMRC has launched a consultation that looks at its relationship with tax agents. It recognises that tax agents do not currently benefit from a business-based relationship with HMRC and seeks your views on how that relationship can be developed for mutual benefit.

ACCA has worked closely with HMRC in the development of this consultation and encourages all practitioners to participate. See our detailed article here.

These two podcasts provide you with the background to the consultation and the topics and issues that HRMC would like your feedback on.

ACCA’s research and insights conference – register now
Register now for ACCA’s online Research and Insights Conference on 27 July 2011.

Register now for ACCA’s online Research and Insights Conference, which goes live on Thursday 27 July at 10am with a combination of live and on demand content.

The theme of this year’s virtual conference – The new business environment: opportunities for growth and innovation – reflects an extensive programme of topics important to the future of the accountancy profession in the wake of the global financial upheaval.

In Integrated reporting: a framework for the future Professor Mervyn King, deputy chairman, International Integrated Reporting Committee will give an overview of the principles and scope and how this group of leaders from corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors as well as civil society will rise to the challenge of developing a framework which brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format. The audience will then have the unique opportunity to hear from HRH Prince of Wales on his involvement with Accounting for Sustainability.

Extended audit reporting: presenting the big picture you’ll have the opportunity to find out why there is increasing appetite to extend the scope of auditing to provide users of financial information with a more complete picture. In this session accounting experts at the internationally renowned Maastricht University (MARC) also reveal the results of a study, commissioned by ACCA, on a potential model for extended audit reports. Delegates will have the opportunity to be involved in this session.

This free virtual event can be accessed via any web browser. All content will be available to access on demand until 27 October 2011.

For the full programme information and registration see our website.

Book now for summer CPD
Your guide to CPD events taking place across the UK during the summer.

Online booking is now open. It’s quick and easy, simply go to to register and book.

Alternatively, click here to download a copy of the Directory of Courses for Practitioners 2011

Practitioners’ Seminars
Spring Tax Update including the Budget 2011
29 June, Kingston

Annual Tax Planning Update
30 June, Bristol

26 July, Loughborough

Saturday CPD Conferences
Conference Two

London C      2 July

Birmingham   9 July

Modular Training Programme
5-7 July, London

Close Company Issues

5 July, 09.30 – 13.00, London

Tax for the Self-Employed

5 July, 14.00 – 17.30, London

Common Accounting Problems

6 July, 09.30 – 13.00, London

Accountants and the Law

6 July, 14.00 – 17.30, London

Inheritance Tax Including Trusts

7 July, 09.30 – 13.00, London

Capital Gains Tax Update

7 July, 14.00 – 17.30, London

Summer Update for Practitioners

Taxation Conference
9 July, London

Residential Conference for Practitioners
8-9 July, Crowne Plaza Hotel Birmingham NEC

Guide to Practical Audit Compliance for Partners and Managers
Day One, 10 August, London

Day Two, 11 August, London


Treasury seeks permanent chair and tax director for Office of Tax Simplification
The Treasury has opened the recruitment process for a permanent chair and tax director to lead the Office of Tax Simplification (OTS).

The Treasury has opened the recruitment process for a permanent chair and tax director to lead the Office of Tax Simplification (OTS). They will lead the Office’s work to provide independent advice to the Chancellor on simplifying the UK tax system as it enters its next stage.

The chair’s role is to lead the OTS board meetings and the Office’s engagement with Treasury Ministers. The OTS board shapes the strategy and priorities of the OTS, decides on proposals for its reviews of the tax system and agrees key recommendations in its reports. The position is open to outstanding leaders from a range of backgrounds including commercial, public or voluntary sectors.

The tax director provides the intellectual leadership and guidance for the Office. Applicants must be a leading tax professional with extensive technical understanding of business and personal tax, an appreciation of the operational implications of tax policy change and an understanding of the tradeoffs involved in tax policy making.

The deadline for applications is Friday 1 July 2011. More detailed specifications for each role and details of how to apply can be found at

Statutory residence test and non-UK domiciled individuals
The government is consulting on the statutory residence test and the reform of the taxation of non-domiciled individuals.
The government is consulting on the statutory residence test and the reform of the taxation of non-domiciled individuals, with the consultation period ending on 9 September.

The Treasury have provided an online tool that includes the changes proposed in the consultation document.



Materiality and misstatements evaluation under clarified ISAs
Your guide to ISA (UK and Ireland) 450 ‘Evaluation of misstatements identified during the audit’.

Your guide to ISA (UK and Ireland) 450 ‘Evaluation of misstatements identified during the audit’.

ISA (UK and Ireland) 450 ‘Evaluation of misstatements identified during the audit’ is a new auditing standard issued as part of the International Auditing and Assurance Standards Board’s (IAASB) Clarity Project, as adopted by the UK’s Auditing Practices Board (APB), and is applicable for audits of financial statements ending on or after 15 December 2010.

ISA (UK and Ireland) 450 is derived from the requirements previously included in the old ISA 320 on audit materiality, which has been reviewed under the Clarity Project in order to streamline the requirements and guidance specific to materiality by separating them from those relating to the evaluation of misstatements.

The Clarified ISA (UK and Ireland) 320 ‘Materiality in planning and performing an audit’ addresses the issue of a mechanical and quantitative approach to materiality determination by clarifying that materiality depends on the size and nature of an item, or by a combination of both, considered in light of the particular circumstances of its occurrence.

In addition the standard does not outline a specific methodology, or suggest a formula, that should be applied for the determination of materiality, but introduces guidance on the use of possible benchmarks, such as categories of reported income (like profit before tax, gross profit etc.), or of particularly relevant classes of transactions, account balances or disclosures, that should be corroborated by the exercise of professional judgement in arriving at suitable level(s) of materiality.

As well as requiring the determination of materiality for the financial statements as a whole, and for particular classes of transactions, account balances or disclosures capable of influencing the economic decisions of the users of the accounts, the new ISA (UK and Ireland) 320 introduces the requirement to set ‘performance materiality’ in respect of the overall or specific item level(s).

The concept of performance materiality is not entirely new to audit practice in the UK but with the clarified ISA 320 it becomes codified as a specific obligation for each engagement. Performance materiality is an amount lower than materiality, either overall and/or for specific items, it is used to assess the risks of material misstatement and in designing audit procedures in response to such risks, so that the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality is reduced to an appropriately low level.

Performance materiality is effectively a reduced level of materiality that should prevent the aggregate of individually immaterial misstatements and possible undetected misstatements to cause the financial statements to be materially misstated. How much lower than materiality should performance materiality be, is not prescribed by ISA 320, which stresses that a simple mechanical calculation is not appropriate and that the auditor should exercise professional judgement and base the determination on his/her understanding of the entity, on misstatements identified in previous audits and on expectations in relation to misstatements in the current period. A simple rule-of-thumb percentage of materiality is unlikely to constitute a suitable level of performance materiality.

Materiality is considered at various stages during the audit in planning and performing the engagement, in evaluating the effect of identified and uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report.     

The new ISA (UK and Ireland) 450 significantly expands the requirements in relation to misstatements previously included in the old ISA 320.

In particular under the new standard the auditor is required to accumulate and document all the misstatements identified during the audit, other than those that are clearly trivial. The auditor should document the amount below which misstatements will be regarded as clearly trivial. Clearly trivial does not simply mean not material, but rather of such smaller magnitude than material to be clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances.

The auditor is also required to communicate on a timely basis all misstatements accumulated during the audit to the appropriate level of management and to request management to correct those misstatements. If management refuses to correct some or all of the misstatements communicated, the auditor shall obtain an understanding of the management’s reasons for not making the corrections and shall use such understanding in evaluating whether the financial statements are free from material misstatement.

Before evaluating the effect of uncorrected misstatements, the auditor needs to reassess materiality in accordance with ISA 320 to confirm whether it remains appropriate in the context of the entity’s actual financial results.

The auditor shall then determine whether the uncorrected misstatements are material, individually or in aggregate, having consideration of both the nature and size of the misstatements and of the effect that uncorrected misstatements of prior periods may have on classes of transactions, account balances or disclosures and on the financial statements as a whole.

In respect of uncorrected misstatements, the auditor needs to inform those charged with governance about the effect that the misstatements may have on the auditor’s opinion. The auditor shall also request written representation from management as to why they believe that the effects of uncorrected misstatements are immaterial to the financial statements as a whole. The general letter of representation may contain such statements but it should be supplemented by a list of uncorrected misstatements.

As part of the documentation requirements, all misstatements accumulated and whether they have been corrected need to be recorded. In addition the auditor shall document his conclusion as to whether uncorrected misstatements are material, individually or in aggregate, and the basis for such conclusion.

The documentation requirements about misstatements evaluation can be fulfilled by the use a specific schedule, like the one below, that is derived from the ACCA International Audit Programmes.


Completed by:


Ref: C6

Reviewed by:







Action taken*

Estimated errors / potential errors

Actual errors








Prior year errors



































Current year errors


































































































Total potential adjustment








* A = adjusted, LR = included in letter of representation, T = trivial error

Misstatements below …….. are considered clearly trivial.


  1. The nature and circumstances of the errors above indicate that further material (also in aggregate) errors may exist; or
  2. the total errors identified approach materiality,

... does the audit plan or strategy need to be revised?                                       



Completed by:


Ref: C6

Reviewed by:





The final materiality assessment is  …..…, and the final performance materiality is ............. The maximum potential error in these financial statements is ….…., after having also taken into account unadjusted errors in prior periods amounting to …….. No other errors or combination of errors listed above are of such significance to the financial statements that they would result in a failure of the financial statements to show a true and fair view, and therefore, the errors listed above do not have a material impact on the financial statements. The directors have been advised of those errors marked as ‘LR’ above, and written representations have been asked for their reasons for not reflecting the appropriate adjustments in the financial statements.

____________________________________ Manager/Partner    _____________________ Date

More information about the ACCA International Audit Programmes can be found on our website.

Inheritance tax and philanthropy
The rules on inheritance tax and philanthropy changed in this year’s Budget. Read our summary and find out why HMRC is consulting on this.

Budget 2011 announced the introduction of a new lower rate of inheritance tax on estates where at least 10% of the chargeable amount is left to charity. The rate is fixed at 36%, as opposed to the normal rate of 40%. It is to apply to estates where the date of death occurs on or after 6 April 2012.

Because the benefit of the reduced rate depends upon the charitable legacy being at least 10% of the estate, where the legacy is around 10%, a small difference in the value of the legacy or in the value of the estate could have a much larger impact on the inheritance tax due. There are no plans to introduce a taper or similar mechanism to mitigate this.

The types of recipient of legacies qualifying for the 10% test will follow the existing IHT charity exemption rules:

  • a body that is a charity for UK tax purposes – i.e. a charity or other organisation in the UK, European Union Member State, Iceland or Norway that would be a charity under the law of England and Wales were it located there
  • settled in a trust to be used for charitable purposes only
  • left to a community amateur sports club.

These facts are known. HMRC has issued a consultation document to request comments on the following areas:

  • whether the reduced rate should be limited to the free estate or extended to other components of the estate. An estate can comprise not only the free estate, but also jointly-owned property that passes by survivorship, property in which the deceased had reserved a benefit, trusts in which the deceased had a qualifying life interest and lifetime gifts within the seven years before death
  • practical issues around valuation of assets, types of charitable legacies, claims and avoidance. Under current rules there is little or no tax loss associated with the valuation of an asset that is left to a charity as a specific bequest as it is exempt. The introduction of the 10% rate will change this, as it may affect the tax on the entire estate
  • instruments of variation – notifying charities about legacies. At present, charities monitor bequests by examining wills, which are on public record. Instruments of variation are not available on public record and there is concern that they may be entered into in order to achieve the reduced IHT rate, but the legacy will not be passed on to the charity
  • issues connected with forms which will have to be adapted for the new legislation, guidance and wills. It is important that the rules are straightforward to enable advisers and clients to be advised correctly
  • other issues – mainly applicable to deferred IHT charges. These apply to conditional exemption and woodland relief. Amendments to IHT liability as a result of changes of valuation of shares or land on a subsequent disposal could alter the 10% ratio where the bequest to charity is close to the limit
  • non-domiciled individuals do not pay IHT on overseas property. It would be logical to limit the 10% test to property that is not excluded from IHT
  • the impact of the policy – comments and information about the assumptions made about impacts and level of take up. HMRC would welcome comments about the document.

Replies can be submitted via email at or post to:

‘Consultation on the IHT incentive for charitable legacies’
Rooms G45-G48
100 Parliament Street

The consultation period ends on 31 August.


Tax treatment of staff training costs
Ensure clients account for their staff training costs correctly.

Learning at work is an important way for employees to gain skills relevant to their jobs, fit training into their daily lives and improve their career prospects. Many employers are happy to support their workers’ learning as having a skilled workforce can help boost productivity, training schemes can be designed to suit their needs and sometimes they may get help with the costs.

Exemptions from income tax are available for costs in respect of work-related training and retraining courses. Without these reliefs, the training costs may give rise to taxable employment income, P11D reporting requirements and liabilities to income tax and national insurance contributions.

The key questions are:

  • what exemptions are available?
  • can the employer’s get a deduction for the expenditure?
  • what is the position if costs are borne by the employee?  
  • has recent case law challenged the treatment?

Work-related training
Section 250 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) provides an exemption in respect of the provision for an employee of work-related training or any benefit incidental to such training. The exemption also applies to the reimbursement to an employee of the cost of work-related training or any incidental benefit.

Similarly, exemption is available for the reimbursement of:

  • costs which are incidental to the employee undertaking the training
  • expenses incurred in connection with an examination or other assessment of what the employee has gained from the training
  • the cost of obtaining any qualification, registration or award to which the employee may become entitled.

‘Work-related training’ is defined in s251 ITEPA as a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which:

  • are likely to prove useful to the employee when performing the duties of the employment or a related employment
  • will qualify or better qualify the employee to perform those duties, or to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

A ‘related employment’ is another employment with the same employer, or with a person connected with the employer, which the employee is to hold, has a serious opportunity of holding, or can realistically expect to have a serious opportunity of holding in due course.

In Silva v Charnock (SpC 332) the taxpayer had completed her MBA course and had the fees for it refunded by her new employer. It was held that this was not taxable, as it was reimbursing her for costs exempted under what is now s250 ITEPA.

Retraining courses
Exemption is provided by s311 ITEPA for costs met by an employer for an employee who is about to leave or has left within the previous year, to enable the employee to attend certain courses of re-training intended to help the employee get another job.

If the employee has not left by the time the course starts, he or she must have left within two years after finishing it. The exemption is withdrawn if the employee is re-employed by the same employer in the two years following the end of the course and the employer is then required to advise HMRC within 60 days of this happening.

The retraining course must provide training designed to impart of improve skills or knowledge relevant to, and intended to be used in the course of, gainful employment (or self-employment) of any description and be entirely devoted to the teaching and/or practical application of the skills and knowledge. The course must also last no more than two years.

The qualifying expenses are course attendance fees, travelling expenses (subject to additional conditions set out in s311), examination fees and the cost of essential books.

Allowable expenditure for the employer
A revenue deduction will be available for an employer incurring training costs provided the expenditure is incurred wholly and exclusively for the purpose of the business and it is not capital.

HMRC guidance confirms that expenditure on staff training & development is normally allowable and disallowances would be extremely unusual. The guidance can be found in HMRC’s Business Income Manual BIM47080

Costs borne by employees
Where costs have been borne by employees, with no reimbursement from the employer, tax relief may be available under s336 ITEPA. However, the conditions are very strict and relief has been denied to employees making s336 claims in a number of cases (see below).

Relief is only available if the employee is obliged to incur the costs as the holder of the employment and the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

Relevant cases where relief for training costs has been refused to the taxpayer include:

  • Blackwell v Mills (26 TC 468)
  • Humbles v Brooks (40 TC 500)
  • Consultant Psychiatrist v CIR (SpC 557)
  • Snowdon v Charnock (SpC 282)
  • HMRC v Decadt (STC 1103)
  • Perrin v HMRC (SpC 671).

Relief was however allowed in the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843). The Court of Appeal accepted that a deduction for training costs incurred by an NHS specialist registrar should be allowed as the employee was employed on a training contract where training was an intrinsic contractual duty of the employment and any personal benefit was incidental and not therefore did not give rise to a dual purpose of the expenditure.

The Banerjee decision is available in full.

Further information
Guidance from HMRC is available in Booklet 480 Expenses and Benefits – A tax guide

HMRC Employment Income Manual pages EIM01200 onwards.

HMRC National Insurance Manual pages NIM02392 onwards.



Capital allowances for fixtures
With a wider range of fixtures on which allowances can be claimed than ever before, brush up on your knowledge and contribute to HMRC’s consultation.

With a wider range of fixtures on which allowances can be claimed than ever before, brush up on your knowledge and contribute to HMRC’s consultation.

Fixtures are assets which are installed or fixed to a building or land so as to become part of the building or land in property law. When a commercial property is bought, sold or leased, it is important to consider any fixtures within the building as capital allowances implications can arise.

Examples of fixtures are water pipes, electrical wiring, air conditioning, lifts, washbasins, boilers and fitted kitchens. Some common fixtures can qualify as plant or machinery under the normal criteria in the Capital Allowances Act 2001 (CAA).

Since the introduction of capital allowances on integral features of a building in 2008, the range of fixtures on which allowances can be claimed has significantly increased, with expenditure on many items now attracting the annual investment allowance or an annual writing-down allowance at 10%.

Integral features
Since April 2008, the most common types of fixtures fall within a special classification of ‘integral features’ of a building (section 33A CAA 2001):

  • electrical systems (including a lighting systems)
  • hot and cold water systems
  • air conditioning and heating systems
  • lifts and escalators
  • external solar shading.

Expenditure on integral features is allocated to a special rate pool, with writing down allowances available at a rate of 10% per annum (reducing to 8% per annum from April 2012).

Expenditure on integral features counts as qualifying expenditure for the purposes of the annual investment allowance (£100,000 since April 2010, reducing to £25,000 from April 2012). It is often beneficial for taxpayers to allocate the AIA against expenditure in the special rate pool in priority to expenditure in the general pool due to the lower writing-down allowance.

Fixtures legislation
Capital allowances are normally only given to a person who has paid for and owns the asset. A 1984 Court of Appeal decision in Stokes v Costain Property Investments Ltd (57 TC 688) confirmed that the ownership rule limits capital allowances on fixtures to the freeholder of the building. As a result, a tenant who refurbished premises or installed air conditioning or other fixtures was ineligible to claim tax relief, while a landlord incurring similar expenditure would have been eligible.

However, special legislation for fixtures was introduced in 1985 and is now in Chapter 14, Part 2 of CAA 2001. Broadly, this allows allowances to be claimed by a person who incurs expenditure on the provision of a fixture, either on installation or by acquiring an interest in the building or land to which the fixture is attached, provided that allowances do not go to more than one person at the same time. Thus where as tenant has incurred capital expenditure on a fixture, he is treated under the fixtures legislation as ‘owning’ the fixture and may claim allowances.

To prevent double allowances in relation to fixtures, CAA 2001 includes the following provisions:

  • section 62 limits the disposal value in respect of plant and machinery to the qualifying expenditure incurred on its provision
  • section 185 provides that where the current owner has acquired a fixture from a past owner, and that past owner is or has been required to bring the disposal value of that plant or machinery into account, the current owner’s qualifying expenditure shall not exceed the past owner’s disposal value.

The fixtures legislation does not apply to an asset let under a long funding lease.

Incoming lessee
Special provisions enable a lessee who pays a premium that is capital expenditure for a lease of land containing a fixture to claim capital allowances.

Where the following conditions are satisfied:

  • the lessor is entitled to capital allowances on the fixture, or would be if he were in the charge to tax
  • the lessor and lessee are not connected.

…a joint election may be made under section 183 CAA 2001. The effect of this election is to transfer deemed ownership, and thus entitlement to allowances, from the lessor to the incoming lessee.

An election under s183 must be made to HMRC within two years of the date the lease takes effect.

Equipment leases
An equipment lease is an agreement under which a person who does not have an interest in the relevant land incurs capital expenditure on the provision of a fixture and leases it, directly or indirectly, to another person.

As the equipment lessor does not have an interest in the land, they cannot claim allowances and the equipment lessee cannot claim allowances because they have not incurred the expenditure. In such circumstances the lessor and the lessee may jointly elect under section 177 CAA 2001 that the plant and machinery be treated as owned by the lessor. The election is subject to certain conditions set out in ss 178 – 180 CAA 2001.

Disposal value
When a building is sold, there is an inherent difficulty in determining the proportion of the sale price attributable to fixtures. This is in part because valuation is not an exact science and also due to a natural tension between the seller preferring a lower value and purchaser preferring a higher value.

Section 562 CAA 2001 provides that a ‘just and reasonable’ apportionment should be made to determine the part of the sale price of a property attributable to fixtures.

Where agreement cannot be reached, section 563 CAA 2001 provides a statutory mechanism to determine a single value via the First Tier Tax Tribunal.

HMRC acknowledges that sellers and purchasers sometimes neglect to agree a single disposal/acquisition value, resulting in differing values being used by seller and purchaser or expenditure being pooled some years after the fixtures were acquired. Section 8 CAA 2001 currently allows expenditure on fixtures to be pooled at any time, provided the fixture is still owned and used in the business.

HMRC is consulting on changes to address the above issues; see below.

Section 198 election
In practice, sellers and purchasers often take the opportunity to fix the apportionment of the sale price to fixtures under section 198 CAA 2001. This is a joint election that must be made to HMRC within two years of the sale.

The amount apportioned to a fixture may not exceed the:

  • amount that the seller was able to claim allowances on in respect of the fixture
  • sale price of the interest in land
  • premium.

Within the above statutory limits, the taxpayers are free to fix the apportionment to an amount of their choice, even if it as low as £1 or higher than the tax written-down value of the fixture in the hands of the seller. The government has raised concerns that the rules allow retention of allowances by a party which no longer holds the underlying asset and artificial acceleration of allowances on fixtures. See below for proposed changes.

An election under section 198 cannot be made if the anti-avoidance rule in section 197 CAA 2001 applies.

HMRC consultation
HMRC published a consultation document on the capital allowances rules for fixtures on 31 May.

HMRC is consulting on a requirement, announced at Budget 2011, that businesses must pool their expenditure on fixtures in a building within a short period of acquiring a building in order to qualify for allowances. A period of one or two years has been suggested in the document.

The consultation also includes a proposal for a record of agreement of the market value of fixtures which HMRC would require both seller and purchase to submit to HMRC as part of their tax returns, within a similar timescale to that for the mandatory pooling proposal.

Finally, the government has asked for views on:

  • whether s198 elections should be restricted so that the minimum amount that may be fixed as the price of a fixture would be the tax written-down value of the fixture in the hands of the seller; and/or
  • changing the wording of the anti-avoidance provision in s197 CAA 2001 to prevent the acceleration of capital allowances on fixtures by artificial arrangements.

You can respond to the consultation here.

We would also like to hear your comments on the proposals and ask that you send these to

The consultation ends on 31 August 2011.

Research and development credits
An update on responses to a recent consultation on R&D tax credits and what happens next.

On 10 June HM Treasury published a summary of responses to the consultation on research and development (R&D) tax credits, which ran from November 2010 to February 2011. The document also includes the government’s recommendation for further consultation.

Since the consultation closed, a number of announcements on reforms to the R&D tax credit schemes were made in Budget 2011. These include increases to deduction rate under the SME scheme from 175% to 200% from 1 April 2011 and to 225% from 1 April 2012.

The further consultation section of the document covers additional proposals including a move from the current superdeduction relief to an ‘above the line’ credit system. It is intended that draft legislation to implement further changes to the R&D schemes will be published in the autumn.

The government is now asking for views on the following questions:

  1. What difference, if any, to levels of R&D investment in the UK would a move from the current superdeduction to an ‘above the line’ credit against tax make, if the level of benefit to the company, in terms of reduced cost of R&D, remained broadly the same?

  2. What tax treatment would allow loss-making companies to account for the credit above the line? Given the potential complexity of offsetting the tax credit against other taxes apart from CT, would loss-makers need the credit to be payable if there was insufficient CT cover?

  3. If a payable credit was introduced for loss-making companies, should the benefit be less than that available to profitable companies, to recognise the value to the loss-makers of being able to utilise the credit immediately?

  4. Are there additional issues around added complexity to the schemes that should be considered?

  5. The majority of respondents in favour of the change were large companies. What separate compliance and complexity issues would arise if the SME scheme also moved to an ‘above the line’ credit system?

  6. Should the relief for qualifying indirect activities be retained? Does it provide significant benefit to companies currently claiming QIA costs?

  7. Would either the certification process or joint election process (or an alternative process) be effective in delivering the intended certainty for both contractor and subcontractor to allow the subcontractor to claim the large company credit?

  8. Are there any particular safeguards that companies think would be effective but not add significantly to compliance burdens to ensure the removal of the PAYE/NICs cap on the payable credit is not abused?

  9. Would companies welcome reform of the ‘going concern’ definition so that it more closely matched that used for the EIS/VCT schemes?

How to respond
The government will welcome comments or evidence to support the assessment of the impacts of the changes under consultation. The closing date for the further consultation is 2 September 2011.

Comment should be sent to ACCA would also like to receive your comments and asks that you send these to





Consulting on FRED 45
Have you responded to the Accounting Standards Board’s consultation on FRED 45?

In March the Accounting Standards Board issued FRED 45 and requests comments on all aspects of the proposals by 31 July.

FRED 45 (Financial Reporting Standard for Public Benefit Entity standard (FRSPBE)) sets out proposals on specific financial reporting requirements to be applied by public benefit entities (PBEs).

It is required as the proposed changes to standards including the recent draft Financial Reporting Standard for medium sized entities (FRSME) do not address the accounting for some transactions and circumstances that are common for PBEs. There is a risk of conflicting and inconsistent interpretation arising if – for example – the FRSME was applied to PBEs, because they have different objectives, funding and ownership from for-profit entities. FRED 45 has been developed to address these issues and provide specific financial reporting requirements for PBEs in addition to those set out in the draft FRSME.

The consultation proposes that the new standard will be effective at the same time as the FRSME, which under current proposals would apply for annual reporting periods beginning on or after 1 July 2013.

FRED 45 defines a public benefit entity (PBE) as ‘an entity whose primary objective is to provide goods or services for the general public, community or social benefit and where any entity is provided with a view to supporting the entity's primary objectives rather than with a view to providing a financial return to equity providers, shareholders or members’.

It is proposed that entities shall apply this standard for accounting periods beginning on or after 1 July 2013. Early adoption is permitted, except that entities which prepare their financial statements in accordance with a SORP shall follow the requirements of that SORP, rather than this standard, for accounting periods before the effective date.

FRED 45 considers:

  • concessionary loans, being loans made or received between a PBE and a third party at below the prevailing market rate of interest which are not repayable on demand
  • property held for the provision of social benefits
  • entity combinations, which involve a whole entity or parts of an entity combining with another entity which either meets the definition and criteria of a merger or is in substance a gift
  • impairment of assets sets out the requirements for determining both fair value less cost to sell where the use of an asset is restricted and value in use for assets held by public benefit entities for their service potential rather than to generate cash flows
  • funding commitments and when a liability is recognised where it has made a commitment that it will provide resources to another party
  • incoming resources from non-exchange transactions such as donations
  • consequential amendment which will in effect reinstate the requirements of FRS 30 ‘Heritage Assets’ into the FRSME.

Further details relating to FRED 45 can be found online.

You can also view comments by the Charity Commission on reporting changes and also common errors.


HMRC’s latest targeted campaigns
HMRC has pre-announced its next series of campaigns for 2011/12.

HMRC has pre-announced its next series of campaigns for 2011/12.

They are targeted at:

  • private tutors and coaches – a large and diverse group that could include sports coaching, private exam tuition and lifestyle coaches
  • e-markets – ‘this will cover those who are using e-market places to buy and sell goods as a trade or business and who fail to pay the tax owed. People who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign’
  • a trade – this will build on HMRC’s Plumbers Tax Safe Plan and give an opportunity to another group of trades people to come forward and declare unpaid tax.

For each of the above the main focus seems to be similar to the recent Plumbers Tax Safe Plan; hidden income.

The campaigns work by targeting a population, encouraging them to voluntarily disclose hidden income and to pay over the tax they owe backed up by the threat of higher penalties or prosecution if they try to hide.

Clearly care will be needed when considering the proposed campaigns. For example the basics question is an individual trading?

The badges of trade article in this magazine give a useful starting point to this question. 

Next campaign
The next campaign, due to start in the next few weeks, is described as a VAT initiative. This will clearly focus on ‘individuals and businesses who are trading above the VAT threshold but who have not yet registered for VAT’ or who have not paid over the correct amount of VAT.

Businesses close to the registration limit or where desegregation could be questioned should review their compliance.

You may find the following of use to send to clients who are close to the threshold: Guide to vat registration 

When the rules are announced they will be made available on our website.

Existing campaigns and campaigns timetable

VAT initiative – starting June/July 2011
To start in 2011/12 – private tutors and coaches, e-markets and a trade

Existing campaigns

Trades - plumbing Industry - Plumbers Tax Safe Plan (PTSP) started 2011 disclosure by 31 August

Considering criminal cases
Professionals campaigns – Medics Tax Health Plan (THP): started 2010 
Offshore Campaign – New disclosure Facility (NDO): start 2009
Offshore Disclosure Facility (ODF): start 2007

Further details at

Badges of trade
Badges of trade is a simple concept but despite its simplicity it causes many taxpayers problems, clearly indicated by the plethora of case law.

Badges of trade is a simple concept but despite its simplicity it causes many taxpayers problems, clearly indicated by the plethora of case law.

The first tier tribunal decision Dr K M A Manzur v Commissioners for HMRC TC/2010/174 [2010] UKFTT 580 (TC) highlights the importance in applying the simple concept.It looked at the whether a trade is being carried out.

The basis of the concept
How do you establish whether a person is carrying on a trade? 

In 1955 a report by the Royal Commission on the taxation of profits and income reviewed case law and identified six badges of trade. This was the starting point and as you can imagine there has been some development in the area supplemented by case law. HMRC now lists nine badges of trade:

  • profit seeking motive
  • the number of transactions
  • the nature of the asset
  • existence of similar trading transactions or interests
  • changes to the asset
  • the way the sale was carried out
  • the source of finance
  • interval of time between purchase and sale
  • method of acquisition.

Profit seeking motive
It is clear that having an intention to make a profit can indicate a trading activity, however by itself it is not enough. In the case Salt v Chamber – Ch D 1979, 53 TC 143; [1979] STC 750, a research consultant made a loss on the Stock Exchange after trying to forecast the market over several years and 200 transactions. This was not seen as a trade and capital in nature. It was concluded that share trading by a private individual can never have the badges of trade pinned to it. These transactions are subject to capital gains tax.

In another case, Rutledge v CIR – CS 1929, 14 TC 490, the taxpayer was on a business trip to Germany and purchased 1m toilet rolls. On returning to the UK the sole consignment of toilet rolls was sold to one individual for a profit. The profit made on this large quantity single purchase and resale item was ‘an adventure in the nature of trade’. The case was decided on the fact that the purchase was not made for own use or investment purposes.

The number of transactions
A single transaction can amount to a trading activity; it is more indicative if there are repeated and systematic transactions. This was clearly displayed in the case Pickford v Quirke – CA 1927, 13 TC 251.A syndicate purchased a cotton-spinning mill with the intention of using it in a trade, however, on purchase of the mill it was in a worse state than first anticipated. The syndicate then decided to strip the mill of its assets and sell it piecemeal, making a profit. This was repeated a number of times with a number of mills. Due to the repeated nature of the transactions it was held that the profits were trading profits and taxable as such.

The nature of the asset
This principle is more difficult to explain, it looks at the asset, problems arise when assets are bought either as:

  • an investments that has the ability to generate income
  • personal assets
  • some assets used by a trade such as plant and machinery.

An important case in this area was Marson v Morton – Ch D 1986, 59 TC 381; [1986] STC 463; [1986] 1 WLR 1343. This was where land was purchased with the intention to hold it as an investment. No income was generated by the land, however, it did have planning permission. The land was sold later following an unsolicited offer. As the transaction was far removed from the taxpayers normal activity (potato merchant) and was similar to an investment, it was not a trading profit. The transaction was not an adventure in the nature of a trade.

Another case Wisdom v Chamberlain – CA 1968, 45 TC 92; [1969] 1 WLR 275; [1969] 1 All ER 332, looked at the principle 'pride of possession' assets that generate no income. A taxpayer purchased two large quantities of silver bullion to counter the effects of the devaluation of the pound. The purchase was made following advice and was partly financed by loan. As the purchase was done on a short term basis in order to realise profit. There was an adventure in the nature of trade and was therefore assessed as trading profit.

Existence of similar trading transactions or interests
This is best demonstrated in the case CIR v  Fraser [1942] 24TC498. In this case the taxpayer was a woodcutter who bought a consignment of whisky in bond. He subsequently sold the whisky through an agent at a profit. Within the decision the judge stated:

'The purchaser of a large quantity of a quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade… Most important of all, the actual dealings of the respondent with the whisky were exactly of the kind that take place in ordinary trade.'

Changes to the asset
It is important to take note of any changes or modifications made to an asset that may make it more marketable. In the case Cape Brandy Syndicate v CIR – CA 1921, 12 TC 358; [1921] 2 KB 403, members of a wine syndicate joined in a separate syndicate to purchase brandy from South Africa. Some was shipped to the East with the remainder being sent to London to be blended with French Brandy, re-casked and sold at a profit. The taxpayer tried to argue that the transaction was of a capital nature from the sale of an investment. It was held that a trade or business was carried on and was assessable as a trading profit.

The way the sale was carried out
HMRC states in its guidance that is always a pointer if a transaction follows that of a 'undisputed trade'. The case CIR v Livingston and Others 11TC538, involved three unconnected individuals that together bought a cargo vessel.  The vessel was converted into a steam-drifter and sold for a profit. The purchase was the first vessel the three individuals bought. An assessment was raised on the profit which was upheld as a trading profit. Within the decision the judge stated:

'I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, ”in the nature of “trade”, is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made.'

The source of finance
Determining the source of finance is important when deciding whether a trade is carried on. Finance taken out to purchase an asset, in the first instance may indicate that to repay the debt the asset would have to be sold.

This was demonstrated in the Wisdom v Chamberlain – CA 1968, 45 TC 92; [1969] 1 WLR 275; [1969] 1 All ER 332 mentioned above.

Interval of time between purchase and sale
The length of time an asset is held is an important indicator of trade. The longer the period of ownership the greater the chance of it been seen as an investment rather than a trade. HMRC also looks at the intention, if you can demonstrate an intention it could indicate the tax treatment. The two key cases on this are Wisdom v Chamberlain – CA 1968, 45 TC 92; [1969] 1 WLR 275; [1969] 1 All ER 332 and Marson v Morton – Ch D 1986, 59 TC 381; [1986] STC 463; [1986] 1 WLR 1343 both mentioned above.

Method of acquisition
Finally, it is important to look at how an asset is acquired. If it is inherited or gifted it is a good indication that a trade is not being carried, although this is not always the case. An asset acquire at a market could indicate that it has either been purchased for a trade or an investment.

The case Taylor v Good – CA 1974, 49 TC 277; [1974] STC 148; [1974] 1 WLR 556; [1974] 1 All ER 1137 concerned a taxpayer who purchased a house with the intention of using it as a family home. The taxpayer's partner did not approve the house and refused to move in, which forced the taxpayer to sell the house immediately. The purchaser genuinely had the intention of not buying the property for a profit motive. As the sale was a short period of time after purchase it was still not deemed to be a trade. Within the decision the judge stated:

'Even if the house was purchased with no thought of trading, I do not see why an intention to trade could not be formed later. What is bought or otherwise acquired (for example, under a will) with no thought of trading cannot thereby acquire an immunity so that, however filled with the desire and intention of trading the owner may later become, it can never be said that any transaction by him with the property constitutes trading. For the taxpayer a non-trading inception may be a valuable asset: but it is no palladium. The proposition that an initial intention not to trade may be displaced by a subsequent intention, in the course of the ownership of the property in question, is, I think, sufficiently established….'

This is only a summary of the badges of trade and leading tax cases. As in all cases, each situation must be judged on its own merit.

Links to the cases including the first tier tribunal decision on Dr K M A Manzur v Commissioners for HMRC can be found in the Tax Cases area of our website.


Review of HMRC’s powers, deterrents and safeguards
On 7 June HMRC published an updated summary of legislation arising from the review of HMRC powers, deterrents and safeguards.
On 7 June HMRC published an updated summary of legislation arising from the review of HMRC powers, deterrents and safeguards.

The summary lists the legislation that has been enacted and the date it comes into effect. It is divided into the following sections:
  • criminal investigation powers
  • compliance checks (main taxes)
  • compliance checks (other HMRC taxes and duties)
  • compliance checks (excise)
  • penalties for tax errors
  • penalties for failure to notify and VAT and excise wrongdoing
  • publishing details of deliberate tax defaulters
  • penalties (offshore non-compliance)
  • penalties for late returns, late payments and interest
  • implementation of penalties for late returns, late payments and interest
  • payments, repayments and debt
  • HMRC charter.

Removing 'red tape'
Have you seen the Cabinet Office's 'red tape' website?
Have you seen the Cabinet Office's 'red tape' website?

It maintains a website of regulations and highlights those that are open for comments. Some affect all business sectors, while others apply to specific businesses or industries. In both cases it is your view on where red tape can be removed that the government wants.

The regulatory areas common to all businesses that are being reviewed are health and safety, environment, equalities, pensions, company law and employment.

In addition the following sectors or industries are all being listed:

  • manufacturing
  • healthy living and social care
  • media and creative services (from 7 July)
  • utilities and energy (from 21 July).
The message from the government is: 'You tell us what’s working and what’s NOT, what can be simplified and what can be scrapped'.

You can view the red tape website here.