Technical and Insight
Changes to Entrepreneurs’ Relief confirmed

The Budget included an announcement about Entrepreneurs’ Relief; keep up-to-date with the latest rules.


The Budget included an announcement about Entrepreneurs’ Relief; make sure you are up to date with the latest rules.

 

The usual pre-Budget rumours were doing the rounds regarding large scale changes to Entrepreneurs’ Relief. Post-Budget there is some relief in the accountancy world as it appears that – for the time being – Entrepreneurs’ Relief is here to stay. But changes were announced which you need to understand before advising your clients further.

 

What has changed?

As detailed in our Budget special issue last month the Chancellor announced two key changes to Entrepreneurs’ Relief which may affect client’s plans. These are:

  • an extension of the qualifying holding period from one year to two years from 6 April 2019
  • a change in the rules regarding the share rights/interests in the company that the claimant needs to hold to qualify.

 

What are the effects on taxpayers?

 

Extension of the qualifying period

This means that taxpayers considering a disposal will need to consider the impact of the change to disposals on or after 6 April 2019.

 

The other effect – also requiring planning – is that taxpayers looking at retirement or changes to their business will need to consider a timetable at least two years in advance of any potential changes.

 

Share rights/interests

The changes amount to a tightening of the rules. At present, in in order to qualify, the shareholder must have held shares which represented 5% of the voting rights.

 

However the new regime, which applies to all disposals after 29 October 2018, includes a further requirement that the individual needs to have had an entitlement to 5% of the distributable profits and the assets available for distribution in a winding-up, in addition to the existing stipulation of 5% of the voting rights.

 

Clearly this is aimed at ensuring that the individual genuinely had an economic interest in the business rather than being part of an arrangement that brought them within the Entrepreneurs’ Relief scheme.

 

Do consider how you will encourage clients to plan ahead. This is especially important where equity changes within the company are being considered. Funding via preference shares may be also complicate things.

 

The good news – transitional relief

Transitional rules will apply where the claimant’s business ceased before 29 October 2018, so that the old one year period will continue to apply to claims on disposals of assets within three years of cessation. The business will need to have been carried on for only one year prior to cessation.

 

Where the claimant’s personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018 the old one year period will continue to apply to disposals of shares within three years of cessation. The company will need to have been a trading company (etc) for only one year prior to cessation.

 

Diversification is the name of the game

The Secret Accountant on…why probate is an exciting and rewarding new opportunity.


The Secret Accountant on…why probate is an exciting and rewarding new opportunity.

 

We are constantly being told that we need to think laterally as technology is taking over our traditional roles as accountants. Well, at long last, we have been provided with the ideal opportunity.


The buzz word is ‘PROBATE’. For years we have been assisting clients, executors and solicitors in complex situations relating to probate, but were unable to provide the complete service from start to finish. Well, now we can. The Legal Services Board has given regulatory approval to ACCA to authorise its members to do this, provided that they complete an intensive course of training and pass an examination to gain the necessary qualification.

 

True, it does mean going ‘back to school’ and sitting an exam but, according to the examiners, the eldest to take the exam so far is 75 years old so there is hope for us all!

 

True, it does mean that you may have to set up a new separate business and all that entails, with new bank accounts, indemnity insurance, VAT registration, designing new letterheads etc. etc.

 

True, it does mean that you will need to devise new advertising strategies and target totally different markets e.g. the local Parish news, undertakers, clubs with a relatively elderly membership.

 

True, we can only provide non-contentious probate services but you will find that most solicitors are in the same boat and, if things get difficult, there are specialists out there to take over. Usually, once the contentious aspects are sorted the specialists are only too willing to pass it back to be finished.

 

True, it is a challenge – but what a rewarding and exciting one. Who is better placed than accountants to provide this service? We deal with figures all day and are used to dealing with HMRC and supporting clients, shouldering the burden of dealing with bureaucracy, form filling, obtaining professional valuations, calculating tax liabilities, completing tax returns, preparing and finalising accounts.

 

What an opportunity to help in any way we can, directly with the bereaved, with other firms of accountants, with solicitors and anyone who needs assistance in this area.

 

What a way to provide continuity to our existing clients and to assist them, their friends and relatives at a time when they are at their most vulnerable, and to keep their trust.

 

It offers so many opportunities, enabling us to not only provide tax planning before but also after death, acquiring new skills, and importantly for small practitioners, to become real specialists. As someone who has already started down this path, I can thoroughly recommend you do the same.

 

There is no doubt that we can provide a good service, charge reasonable but fair fees, make a good return and offer good value for money compared to the competition out there.

 

Talking of competition, for how long have we been complaining that non-qualified accountants are beating us at our own game, charging fees with which we just cannot compete? Well, NOW we have a niche area from which they are totally excluded and the true benefit of being a qualified accountant can be really felt.

 

How to become authorised to provide probate services

Find out more now about probate registration.

 

ACCA has teamed up with Kaplan Altior to provide online training and assessment to allow you to become authorised to provide probate. 

 

The next training sessions (6  x 2 hour sessions (10am-12pm) will take place on 5, 7, 12, 14, 19 and 21 March with assessment on 4 April 2019. Find out more and register now

 

The Secret Accountant practices somewhere in the heart of England.

How HMRC manages dishonest tax agents

HMRC’s Agent Compliance Team seeks to maintain honesty and integrity at the heart of the profession.


HMRC’s Agent Compliance Team seeks to maintain honesty and integrity at the heart of the accountancy profession.

 

What is Agent Compliance Team (ACT)?

 As a part of HMRC’s strategy for businesses and agents, the HMRC Agent Compliance Team was set up in 2012, to assist and identify risks posed by agents. Its main focus is on:

  • working with compliant agents
  • enabling agents to align with HMRC’s compliance strategy
  • maximise ‘upstream’ compliance
  • penalising non-compliant agents
  • reducing the tax gap.

 

Part 3 of Schedule 38 of Finance Act 2012 confers the powers to acquire the tax agents’ working files in specific circumstances with the approval of a tribunal.

 

Who is a tax agent?

The definition of a tax agent is quite wide as per the legislation. 

 

A ‘tax agent’ is an individual who, in the course of business, assists other persons (‘clients’) with their tax affairs, directly or indirectly. It may include:

  • sole accounting practitioner
  • business advisor
  • partner or employee of an accounting practice, however the practice is constituted
  • tax advisor and tax consultant
  • employee of a bank where that person provides tax advice
  • solicitor giving advice on tax matters
  • valuer providing valuations for tax purposes.

 

Tax agents can be qualified members of a professional body or unqualified accountants.

 

Who are dishonest tax agents and what is dishonest conduct?

There is no definition of ‘dishonesty’ in Schedule 38 of Finance Act 2012; however it follows the normal dictionary meaning and what the tax law says. It is the intention of the adviser that outlines whether they have been dishonest in their dealings or not.

Dishonest conduct means a tax agent has done/not done something with a view to cause a loss of tax revenue while assisting or advising a client.

 

What sort of common errors and risks have been identified by ACT?

As an example, HMRC ACT has indicated the following fundamental common errors and risks they found from agents interventions for CIS subcontractor clients:

  • artificial inflation of CIS refunds by inflating deductions
  • claiming expenses which have already been reimbursed by the main contractor
  • no details of mileage log maintained or claiming home to work travel or claiming actual motoring expenses along with mileage
  • a standard claim for subsistence and travel without any records or expenses details
  • uninformed and unjustifiable claims for use of home as office
  • no consideration to private element of mobile phones cost for its usage
  • claiming a wife’s wages without any description of her role or PAYE scheme. Usually this is set on a non-commercial basis and no record of payments is kept.

 

Businesses are able to claim business expenses if they are incurred ‘wholly and exclusively’ for the business. HMRC has produced guidance for self-employed businesses about what expenses they are able to claim.

 

How does ACT operate?

HMRC agent engagements seek to test and challenge the agents’ understanding of their obligations to their clients, profession and HMRC. They seek to engage with those agents whose client base or tax returns submitted present a risk to HMRC and their clients. They meet agents to check:

  • their pre-return processes
  • their knowledge of and practical understanding of the taxes acts
  • the overall aim is to work with the agent, providing education and encouragement enabling them to improve going forward.

 

What are the penalties for dishonesty?

An individual who engages in dishonest conduct is liable to a penalty from £5,000 to £50,000. In assessing the amount of the penalty, regard must be given to:

  • whether the individual disclosed the dishonest conduct
  • whether that disclosure was prompted or unprompted
  • the quality of that disclosure
  • the quality of the individual’s compliance with any files access notice in connection with the dishonest conduct.

 

Full details are within the legislation.

 

Let property relief fallout from the Budget

Analysis of the CGT situation for LPR changes for landlords.


Analysis of the CGT situation for LPR changes for landlords.

 

In the October Budget, the chancellor announced changes which will impact on landlords’ capital gains tax position (where they are eligible for letting relief) from April 2020. These were:

  • the final period exemption will be reduced from 18 months to nine months. However the final period exemption will remain 36 months for those who move into care and for disabled persons 
  • lettings relief will be available only to those who are in shared occupancy with a tenant.

 

HMRC’s has issued its current guidance and the government will consult on these changes before implementation.

 

The new rules could affect those who have had to relocate for work or have separated from their partner or moved in with a new partner, and who either didn’t want to sell up immediately or were unable to find a buyer. Additionally it could affect landlords and property developers who move into their rental homes for a short-term period before selling so they qualify for lettings relief.

 

What are let property relief rules?

Let property relief can reduce capital gains tax. The following conditions need to be met for the relief to be available:

  • the property must have been used (wholly or partly) as the private residence of the owner(s)
  • the dwelling house in question (or any part of it) must have been let out by the owner(s) as residential property.

 

The let property relief reduces the chargeable gain by the lower of the following three figures:

  1. the main residence relief
  2. the gain attributable to residential letting
  3. the statutory limit of £40,000.

 

The relief applies to gains arising both from a residential letting of the entire residence whilst the owner is not occupying the property and to a partial residential letting whilst the owner is in residence.

 

Where a property, although part of the same building, forms a dwelling-house separate from that which is, or has been, the owner’s dwelling-house, relief will not be available. For example, if a fully self-contained flat with its own access from the road forms part of the property and the owner lives in another part of the property then relief will not be available just because that self-contained flat is let out.

 

As per the explanation provided in HMRC manual CG64716, the following are able to claim let property relief:

  1. Husband and wife

Where husband and wife are joint owners relief of up to £80,000 is potentially available to the couple as each person may be entitled to the relief of up to £40,000.

 

  1. Trustees

Let property relief extends to gains accruing to trustees and qualifying for the main residence exemption (TCGA 1992 s 225).

 

  1. Dependent relatives

The residential lettings exemption may be available where the property qualifies for the main private residence exemption due only to its having been occupied by a dependent relative on or before 5 April 1988.

 

These examples show the impact the proposed changes will have on CGT liability as compared to previous rules.

 

 

AIA – a comprehensive first year allowance

An overview and worked examples of Annual Investment Allowance (AIA).


An overview and worked examples of Annual Investment Allowance (AIA).

 

AIA is effectively a 100% first year allowance for business expenditure on qualifying plant or machinery.

 

The general rule is that qualifying expenditure is:

  • expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity that the person incurring the expenditure carries on, and  as a result of incurring the expenditure the person incurring the expenditure owns the plant or machinery.

 

Plant or machinery covers many assets that a qualifying person may buy for the purposes of his business. Assets not covered by the AIA are land, buildings and cars. Typical examples of plant or machinery include:

  • computers
  • all kinds of office furniture and equipment
  • vans, lorries, trucks, cranes and diggers
  • ‘integral features’ of a building or structure
  • other building fixtures, such as shop fittings, kitchen and bathroom fittings
  • all kinds of business machines
  • tractors, combine harvesters and other agricultural machinery
  • gaming machines, amusement park rides
  • computer aided machinery, including robotic machines
  • wind turbines and fibre optic cabling.

 

‘Qualifying person’ means an individual, a company and a partnership of which all the members are individuals, carrying on a qualifying activity. A qualifying activity includes trades, professions, vocations, ordinary property businesses and employments or offices. Trusts and partnership of which a company is a member do not fall within the definition of a qualifying person.

 

Where businesses spend more than the annual limit, any additional expenditure is dealt with in the normal capital allowances regime, entering either the main rate or special rate pool, where it will attract writing-down allowances at the 18% or 8% rate respectively. AIA is not available:

 

  • on assets not used immediately in the trade
  • in the chargeable period in which the qualifying activity is permanently discontinued
  • on a transaction with a connected person.

 

Budget 2018 Annual Investment Allowance increase

The chancellor announced in the October Budget that from 1 January 2019 the Annual Investment Allowance (AIA) will be increased from £200,000 to £1m for two years.

 

So maximum AIA is as follows:

  • £200,000 on expenditure from 1 January 2016 to 31 December 2018
  • £1,000,000 on expenditure incurred from 1 January 2019 to 31 December 2020
  • £200,000 on expenditure incurred after 1 January 2021.

 

Maximum allowance is proportionately increased or reduced where the chargeable period is more than or less than a year. Transitional rules apply for chargeable periods which straddle the affected dates.

 

The transitional rule operates as follows:

 

Chargeable periods spanning 1 January 2019: The chargeable period is divided into separate ‘notional’ chargeable periods. The first period begins on the first day of the actual chargeable period and ends on 31 December 2018. The second period begins on 1 January 2019 and ends on the last day of the actual period

 

Chargeable periods spanning 1 January 2021: The chargeable period is again divided into separate ‘notional’ chargeable periods. The first period begins on the first day of the actual period and ends on 31 December 2020. The second period begins on 1 January 2021 and ends on the last day of the actual period.

  • The maximum amount of each of the notional periods is then calculated and the sum of the amounts is taken as the maximum amount of the actual chargeable period.
  • In addition, only a maximum of £200,000 of that annual cap can be claimed in relation to expenditure before 1 January 2019.
  • The maximum amount that can be claimed for the period 1 January 2021 to the end of the chargeable period will be the pro-rated amount of the £200,000 cap.

 

Example 1

A Ltd draws up accounts each year to 31 July. In the year ended 31 July 2019 the company can claim up to £200,000 in relation to expenditure in the period to 31 January 2019 and a total up to £666,667 being  5/12 x  £200,00+7/12 x £1,000,000.

 

Example 2

B Ltd draws up accounts each year to 31 July. In the year ended 31 July 2021 the company can claim a maximum of AIA of £533,333 being 5/12 x £1,000,000 +7/12 x £200,000.


However, only £ 116,667 can be claimed for expenditure between 1 January 2021 to 31 July 2021 being 7/12 x £200,000.

 

The following provisions apply to restrict the amount of annual investment allowance further:

  • groups of companies are entitled to only one AIA between them, but the companies can allocate the allowances between them as they think fit
  • companies or groups of companies that are controlled by the same person and are related to one another are entitled to only one AIA
  • if one person carries on two or more qualifying activities, he is entitled to only one AIA for the chargeable periods for those activities which end in the tax year
  • if more than one person carries on the qualifying activities, they are between them entitled to only one AIA for chargeable periods for those activities which end in the tax year.

 

Crackdown on reckless directors

Tougher penalties for directors who dodge debts.


Tougher penalties for directors who dodge debts.

 

Following Royal Assent of Finance Bill 2019/20, the government has announced that directors and other persons involved in tax avoidance, evasion or phoenixism (a minority of directors who deliberately dodge debts by dissolving companies then starting up a near identical business, with a new name) will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.

 

Directors who dissolve companies to avoid paying workers or pensions could face hefty fines or be disqualified from running a business for the first time.

 

The government is also to press ahead with new plans to safeguard workers, pensions and small suppliers when a company goes bust:

  • directors who have dissolved companies to avoid paying workers or pensions could be disqualified or fined by authorities for the first time
  • struggling companies to be given more time to rescue the business and help safeguard jobs
  • boardrooms to explain to shareholders how they can afford to pay dividends alongside capital investment, workers’ rewards and pension schemes.

 

Under the shake-up, directors may face investigation if they try to escape paying a dissolved company’s debts to their own staff and creditors. The Insolvency Service will be able to fine directors or even have them disqualified.

 

Business Minister Kelly Tolhurst said: ‘The UK is a great place to do business with some of the highest standards of corporate governance. While the vast majority of UK companies are run responsibly, some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies. This can’t continue.

 

‘That is why we are upgrading our corporate governance to give new powers to authorities to investigate and hold responsible directors who attempt to shy away from their responsibilities, help protect workers and small suppliers and ensure the UK remains a great place to work, invest and do business.’

 

These measures are being put forward as part of the government’s response to the corporate governance and insolvency consultation, launched in March this year.

 

VAT on vouchers

Are you aware of how the law on VAT and vouchers is changing?


Are you aware of how the law on VAT and vouchers is changing?

 

From 1 January 2019, the UK law on VAT and vouchers is changing due to the deadline enforced by the EU’s Vouchers Directive. The change will affect businesses such as retailers and distributors who issue and redeem vouchers, and also those who buy and sell vouchers.

 

Under current UK VAT legislation, vouchers are either subject to VAT upon issue or when they are redeemed against a supply of goods or services.

 

The UK VAT rules on vouchers are set out in Schedule 10A of the VAT Act 1994. The UK legislation uses the terms ‘face-value vouchers’, ‘retailer vouchers’ and ‘credit vouchers’.

 

However, the EU Directive uses the terms single purpose voucher (‘SPV’) and multi-purpose voucher (‘MPV’) and so the UK will need to align its terms.

 

Single purpose voucher (SPV)

The EU Directive defines an SPV as a voucher that can be redeemed for goods and services that are subject to the same VAT rate.

 

Under the current UK legislation, a voucher that can be used for different goods or services is not a single purpose voucher, even if the underlying supplies are liable to VAT at the same rate. As a result under the current rule, VAT is only due when the voucher is redeemed.

 

Following consultation, new rules will ensure that from 1 January 2019 VAT will be due at the point of sale of an SPV. The final sale of goods or services in exchange for the SPV will not create a tax point for VAT purposes.

 

Because of the change in definition of SPV, many more vouchers will become SPVs meaning that the VAT will be accounted for at an earlier date than at present.

 

Multi-Purpose Voucher (MPV)

The EU Directive defines an MPV as a voucher that is not an SPV.

 

This is a voucher that can be used to pay for goods and services that are subject to different rates of VAT (such as standard, reduced or zero rate). As the VAT cannot be determined at the time of sale of the voucher, the sale of an MPV will not be subject to VAT at the time of sale.

 

The final sale of goods or services to the consumer in exchange for the voucher will be the point at which VAT will be declared by the supplier.

 

Vouchers will include gift cards and gift tokens, simple book tokens, gift vouchers, and electronic vouchers purchased from specialist businesses. The changes do not apply to discount vouchers or money-off tokens.

 

To determine whether they will be affected by this change, businesses should review which goods or services can be purchased with vouchers.

 

The sale of MPVs by an intermediary in their own name will no longer be treated as a supply for VAT purposes. This means that the intermediary will no longer be able to issue a VAT invoice for such a sale and will not be able to recover input tax in relation to the supply of the voucher.

 

Is your organisation trading or non-trading for tax purposes?

Updated guidance from HMRC on active, non-active and dormant statuses.


Updated guidance from HMRC on active, non-active and dormant statuses.

 

HMRC has recently updated its guidance on being ‘active’, trading and non-trading, and being dormant for new or existing companies and organisations.  

 

Active, trading and non-trading – what’s the difference?

It is important you fully understand the different categories before advising clients, especially when considering the tax registration implications. 

 

What is active for corporation tax purposes?

Generally a company or organisation is considered to be active for corporation tax purposes when it is, for example:

  • carrying on a business activity such as a trade or professional activity
  • buying and selling goods with a view to making a profit or surplus
  • providing services
  • earning interest
  • managing investments
  • receiving any other income.

 

Note that this definition of being active for corporation tax purposes is not necessarily the same as that used by:

  • HMRC in relation to other tax areas such as VAT
  •  other government agencies such as Companies House.

 

It may also not match definitions used by issuers of accounting standards such as the Financial reporting Council.

 

When does trading or non-trading affect things?

There are a number of circumstances (some rather complicated) where HMRC would generally consider a company or organisation not to be active for corporation tax purposes.

  1. If it has not yet engaged in any business activity (business activity means carrying on a trade or profession, or buying and selling goods or services with a view to making a profit or surplus). This means that a newly-formed company or organisation may not be active for corporation tax purposes (as per above definition) but it may still carry out activities (known as ‘pre-trading activities’) or incur costs (known as ‘pre-trading expenditure’) without HMRC deeming that it has started trading. HMRC gives the following examples of such activities that are not considered trading. These are however fairly limited and include 1) preliminary activities such as writing a business plan or negotiating contracts and 2) preliminary expenditure such as incurring costs with a view to deciding whether to start a business
  2. When the company or organisation has previously traded but has stopped trading (HMRC sees this as dormant).

 

What does dormant for Corporation Tax mean?

For corporation tax purposes, HMRC views a dormant company as a company that’s not active, not liable for corporation tax or not within the charge to corporation tax. A dormant company can be, for example:

  • a new company that’s not yet trading
  • an ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
  • a company that will never be trading because it has been formed to own an asset such as land or intellectual property
  • an existing company that has been – but is not currently – trading
  • a company that’s no longer trading and destined to be removed from the companies register.

 

What about clubs and unincorporated organisations?

HMRC may treat your club or unincorporated organisation as dormant for corporation tax purposes if it’s active but the following conditions both apply:

  • the organisation’s annual corporation tax liability must not be expected to exceed £100
  • the club or organisation is run exclusively for the benefit of its members.

 

For each year of dormancy the organisation must not have any:

  • allowable trading losses for which it may want to claim relief
  • assets it’s likely to dispose of, which would give rise to a chargeable gain
  • interest or annual payments to pay out from which tax is deductible and payable to HMRC.

 

HMRC will write to the organisation proposing to make it dormant. It will not send a ‘Notice to deliver a company tax return’ and it will review this at least every five years. HMRC may also apply this treatment to a flat management company.

HMRC will not treat an organisation as dormant if it is a:

  • privately owned club run by the members as a commercial enterprise for personal profit
  • housing association or a registered social landlord (as designated in the Housing Act 1986)
  • trade association
  • thrift fund
  • holiday club
  • friendly society
  • company which is a subsidiary of, or is wholly owned by, a charity.

 

What must happen if an entity is active?

A company must tell HMRC within three months of starting their tax accounting period if it is within the charge of corporation tax and is now active. The best way to register is to use HMRC’s online registration service. However it can also register for corporation tax in writing. The letter must include:

  • the company’s name and registration number
  • the date the company’s accounting period started
  • the date to which the company intends to prepare accounts
  • the company’s principal place of business
  • the nature of the business being carried out by the company
  • the name and home address of each director of the company
  • if the company has taken over another business, the name and address of the former business and also the name and address of the person from whom the business was acquired
  • if the company is a member of a group of companies, the name and registered office address of the parent company
  • if the company has been obliged to comply with the Income Tax (Pay as You Earn) Regulations 2003, the date on which that obligation first arose.

 

The letter must be:

  • signed by a company director or company secretary
  • include a declaration that the information is correct and complete to the best of their knowledge.

 

The letter should be sent to:

 

Corporation Tax Services
HM Revenue and Customs
BX9 1AX
United Kingdom

 

Unincorporated organisations such as clubs, societies and associations must also tell HMRC if they become active. This should be in writing to the address above.

 

Penalties for non-registration with HMRC

If after 1 April 2010, you don’t tell HMRC that your company or organisation is liable for corporation tax, the penalty is based on the amount of tax that’s unpaid or that your company or organisation is liable for. This is called the potential lost revenue or PLR.

 

In addition, if the company or organisation has corporation tax to pay but doesn’t receive a ‘Notice to deliver a company tax return’ from HMRC, it must still tell HMRC it’s liable for corporation tax within 12 months of the end of the corporation tax accounting period. If it does not, the company or organisation may be charged a penalty. HMRC calls this a ‘failure to notify’ penalty.

Making the intangible fixed assets regime more competitive and manageable

New tax breaks for goodwill (involving intellectual property) and de-grouping charges.


New tax breaks for goodwill (involving intellectual property) and de-grouping charges.

 

Following a review and consultation in early 2018, in Budget 2018 the chancellor announced changes to tax relief which are designed to make the intangible fixed assets regime more competitive and manageable. The relief will apply from April 2019.

 

You may recall the Finance Act 2015, when the government introduced a restriction to the IFA regime denying relief for ‘relevant assets’, which include goodwill and those assets that would typically be subsumed within, or closely associated with, the business goodwill. Until 2015, many small companies had taken advantage of the tax deductibility of the amortisation of goodwill.

 

The government made these changes as it saw the deductions for amortisation of goodwill as an expensive relief. It also wanted to remove a tax incentive to structure an acquisition of a business as a trade and asset (including goodwill) purchase rather than a share purchase.

 

So the good news is that tax relief for goodwill is making a limited ‘comeback’ as the chancellor’s announcement involves targeted relief for the cost of goodwill – the amount paid for a business that exceeds the fair value of its individual assets and liabilities – in the acquisition of businesses with eligible intellectual property. 

 

The details announced are still rather vague, with the government’s response to the consultation stating:

 

Proposal

It is difficult to precisely measure the contribution of IP assets to goodwill arising on a business acquisition. By its nature, goodwill is a residual value that cannot be attached to identifiable assets.

 

The government therefore proposes to introduce a proxy for the contribution of IP assets to goodwill, by allowing relief for goodwill by reference to the value of the eligible IP in the acquired business.

 

Specifically, the government proposes to allow relief for the cost of acquired goodwill up to the fair value of the eligible IP in the acquired business.

 

For example, company A acquires the business of company B for £100 million. At the time of acquisition, company A accounts for the cost as £20 million of eligible IP assets, £50 million of tangible capital assets, and £30 million of goodwill. The new relief would provide relief for the amortisation of £20 million of that goodwill.

 

The government proposes that, for the purpose of the new relief, the categories of IP that are eligible should broadly correspond to the existing definition of IP in the Part 8 rules at section 712(3), including: 

  • patents,
  • registered trade marks,
  • registered designs, and
  • copyright or design rights.

 

The leading proposal is that the rate at which relief is given will continue to be based on accounting amortisation and impairment debits, subject to an optional election for fixed rate relief at 4% per annum. However, the amount of goodwill that qualifies for relief will be capped at the fair value of eligible IP or the total value of goodwill, whichever is lower.

 

The government does not intend to re-instate relief for customer-related intangibles. These are identifiable assets in their own right, so their value is not derived from other identifiable IP assets.

 

The details about the exact commencement are also rather vague – the responses document states that ‘Following a brief consultation, the government will therefore seek to introduce legislation for these changes through government amendment to the Finance Bill 2018/19’.

 

De-grouping charges – what are the changes?

In addition, with effect from 7 November 2018, the government will reform the de-grouping charge rules, which apply when a group sells a company that owns intangible.

 

Currently part 8 of CTA 2009, they allow groups of companies to transfer assets between companies in the group without incurring a tax charge or realising a tax deduction. This is known as ‘tax neutral’ treatment.

 

However, the rules contain an anti-avoidance provision, known as a de-grouping charge, which crystallises a tax charge or deduction if a company that has received an asset on a tax neutral basis leaves the group within six years of the transfer. Part 8 will be amended so that a de-grouping charge will no longer arise in situations in which a company leaves a group as a result of a share disposal that qualifies for the substantial shareholding exemption.

 

The government intends the amended clause to remove an obstacle to commercially-motivated merger and acquisition activity. It also aligns the Part 8 de-grouping rules with the equivalent provisions in the chargeable gains code.

 

The Finance Bill 2018/19 is scheduled to introduce legislation to give effect to the de-grouping changes from 7 November 2018.

Off payroll rules set to target the private sector

IR35 to be rolled out to the private sector.


IR35 to be rolled out to the private sector.

 

In October’s Budget the chancellor revealed the ‘worst kept’ secret that the current IR35 rules which apply for public sector contracts are to be rolled out to the private sector from April 2020.

 

This will mean that the ‘employer’ will be responsible for assessing the contractor’s employment status and potentially must deduct tax from the contractor’s pay, as well as paying employers’ NICs.

 

HMRC estimates the original reforms have raised £550m in income tax and NICs in its first year. It is also happy that ‘evidence suggests compliance has improved since the reform was introduced in 2017’.

 

Uncertain times ahead?

It’s important to remember that behind the headline there is still a lot of uncertainty:

  • the revised IR35 rules will not apply where the contractor engaging business is ‘small’. But helpfully HMRC does not define what it means by small. Presumably this will be left until after the consultations have finished
  • in order to determine the status of the individual, HMRC has developed the Check Employment Status for Tax (CEST). But as we all know this tool is subjective and has been subject to criticism and various tribunal cases in the past. Under the Freedom of Information Rules HMRC released a summary of its own testing on CEST which revealed that in 2 of the 24 cases, CEST returned a different decision to the First-tier Tribunal, which HMRC did not appeal.

 

Because of the clear problems with the existing CEST HMRC has stated that it will continue to work with stakeholders to improve further CEST and guidance before the reforms comes into effect.

 

Potential effects of the changes

  • the employer may not have the time or the knowledge to make a proper assessment and so contractors may be incorrectly treated as IR35
  • currently there is no formal right of appeal to the assessment decision so contractors have little ‘right of reply’
  • many large companies rely on sub-contractors so making early arrangements to implement the new rules is essential, with an inevitable increase in costs to them
  • it may lead to contractors abandoning limited companies as a business vehicle which will mean tax and compliance issues for them.

 

Further information

A further consultation on the detailed operation of the reform will be published in the coming months. This consultation will inform the draft Finance Bill legislation, which is expected to be published in summer 2019.

 

Full details of the budget announcement can be found here.

 

ACCAs guidance for members with clients who operate in the Public Sector is here.

 

ACCAs technical insight into the history and definition of IR35 is here.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insolvency creditor rules to change

Government announces crackdown to minimise possible tax abuse.


Government announces crackdown to minimise possible tax abuse.

 

In Budget 2018 the government announced that from 6 April 2020 it will change the insolvency rules. Now, when a business enters insolvency, more of the taxes such as VAT and PAYE/NIC which have been collected by the company will be accessible by the government rather than being distributed to other creditors.

 

The government estimates that these moves will produce an extra £185m in taxes for the exchequer.

 

Why are the changes being made?

Currently, when a company becomes insolvent, the order of distribution for assets from that company is set by law. This means that a range of creditors have a higher priority claim on the assets of an insolvent company than the government does. So in many cases taxes such as VAT and employee payroll deductions, which have already been collected, go to these creditors rather than to the state.

 

The rules will remain unchanged for taxes owed by the business such as corporation tax, and HMRC will remain below other preferential creditors, such as the Redundancy Payment Services.

 

The order of set off and the effects of the changes will then be:

 

Type of Creditor and rank

Examples

Average debt recovered (current)

Average debt recovered (from 2020)

Insolvency Practitioners

Those who receive fees for administering the distribution of assets to creditors.

As charged

As charged

Preferential Creditors

Claims by the Redundancy Payment Service (RPS) and Financial Services Compensation Scheme (FSCS) on behalf of employees and customers (to statutory limits). From 2020, HMRC will become a secondary preferential creditor for taxes held on behalf of employees and customers

83%

existing preferential creditors;

 

14% for HMRC

Secured Creditors (Holders of Floating Charges)

Financial institutions and other lenders who secure credit against variable assets such as stocks, raw materials or cash.

36%

Less than 36%

Unsecured Creditors

All remaining creditors, including HMRC, suppliers, contractors, landlords and customers.

4%

Less than 4%

Shareholders

Any remaining assets.

N/A

N/A

 

Will the changes deter the banks from lending?

The government does not think the changes will have any effect on a company’s funding relationship with banks, because:

  • financial institutions will remain above HMRC in the creditor hierarchy for fixed charges they hold over assets
  • the debts they will no longer recover are a very small fraction of total lending.
Critical considerations around professional indemnity insurance

When did you last review your PII cover?


When did you last review your PII cover?

 

The Professional Indemnity Insurance (PII) market is changing and it is becoming increasingly difficult, and expensive, to obtain appropriate cover.

 

You need to have a considered approach to PII. Lockton can answer the why, the what, the how and the when for accountants.

 

Why

Aside from any good reasons of risk transfer, consumer protection and corporate governance, it is critical that PII is effected in accordance with the regulatory requirements of your professional body.

 

What

Critically, the PII effected must be provided by an approved insurer and be compliant with the regulatory requirements of the professional body – ACCA, ICAEW or FCA. For efficiency you must ensure that the primary policy wording is on a civil liability basis (not negligence only). You need to address whether the policy covers fraud, both first and third party?

 

How and when

Be timely in considering your options. A reputable and experienced insurance broker can assist you from the start – either from first effecting cover or from its renewal. Points to consider include:

  • start the process in good time – increasingly important as the market ‘hardens’ (ie. underwriters become more selective and increase premiums)
  • enable your broker to help underwriters understand your business, past, present and future
  • make full disclosure in accordance with The Insurance Act 2015
  • disclose any claims matters or issues which may give rise to a claim. Provide insight into ‘lessons learned’
  • be comfortable with the adequacy of the limit of indemnity and with the accepted level of self-insurance (excess)
  • discuss need for additional covers to address broader business exposures (eg. cyber liability).

 

Effecting professional indemnity insurance on the correct basis is a business critical consideration for any accountant. It is important that your broker provides professional and independent advice to support you in making a considered decision timeously regarding an appropriate insurer, policy wording, limit of indemnity and self-insured excess.

 

Lockton is always available to provide considered opinion and guidance on all the risks facing your business. Find out more now

 

The life cycle of a professional negligence claim

Advice from Lockton on how to handle a negligence claim.


Advice from Lockton on how to handle a negligence claim.

 

If a client brings a claim against you for professional negligence, it can seem daunting and stressful to resolve. Your insurance broker is there to guide you through the process, help alleviate the angst surrounding a claim and support you to achieve the best possible outcome.

 

While no two claims are exactly the same, you and your broker will carry out four typical phases when processing a claim: identifying, notifying, qualifying and satisfying.

 

Identify

If you do become aware of a claim made against you relating to your services, or you become aware of a circumstance that could lead to a claim, you should contact your broker straight away. The best way to create a smooth claims process for yourself, and often to avoid claims in the first place, is by keeping thorough records of all your dealings with clients, from verbal advice through to documentation. Having your client contact on file makes it much easier for insurers to get the information they need.

 

Regular, open communication with your insurer, broker and solicitor is key, so that if claims do arise, they are familiar with your business and in turn you are familiar with the steps involved to reach a simple, swift and cost-effective resolution. Simply notifying the relevant parties of a circumstance will not necessarily harm your risk profile or lead to higher premiums at the next renewal, whereas a claim that has been notified late could become difficult and costly to resolve if it has escalated over time.

 

Awareness and early notification should be embedded in your working practices. An open workplace culture where employees feel they can come forward with concerns or potential issues, rather than ignoring the issue or trying to manage it themselves, will help your business in the long run. Encouraging full disclosure at a very early stage allows all parties involved to identify the extent of the issue and work towards a resolution.

 

If your relationship with the claimant is strong and remains generally amicable, the most important thing is to maintain that goodwill as best you can throughout the process. If the relationship has completely broken down, it can make the claims process more difficult, although we will do everything we can to assist.

 

Notify

After you have reported the claim to your broker, they will appoint a claims advocate who will notify your insurer and send them your policy details. Insurers will request further claim details to establish a fuller picture of the events and parties involved. Sometimes, they will also ask to hear your perspective on the case, whether you think you do have any liability, and how much a potential loss could be, a process that your claims advocate will guide you through.

 

Qualify

Following notification you are often advised not to communicate with the client without the prior agreement of the insurer. The insurer will usually check any communication before asking you to send it or in many cases they will draft the response for you.

 

If your claim is particularly large or complex, an external or panel solicitor is usually brought in, and both your broker and the insurer will provide them with the information they need to handle your case and after this they will communicate directly with you. If the claim is smaller, your insurer will generally manage it in-house, and your broker will aid them with responses. 

 

At this stage, you might receive a pre-action protocol letter, in which case you should consult your broker and solicitor on how to proceed. Many claims are resolved without needing to progress to dispute resolution or litigation, so depending on its size and severity, it is possible to end the claim process here.

 

Satisfy

Depending on the nature of the claim and on how far the claimant plans to pursue it, the claim could enter a negotiation phase. This usually takes the form of an Alternative Dispute Resolution (ADR), a means of resolving disputes outside of the courts. It is highly likely that a mediation or negotiation of your claim will take place here first, and will only be taken to court as a last resort.

 

In extreme cases, litigation is the next stage when pre-action protocols and ADRs are unsuccessful. Thankfully this situation is fairly rare, since taking claims to trial is both costly and time-consuming, with no guarantee of success.

 

While claims are rarely welcome news, they are always something to learn from. Thorough, open working practices can eliminate the risk of claims in the first place, and if one should arise, they present an opportunity to fine-tune these practices and ensure that, with the right safeguards in place, the same situation is not likely to occur again. Contact your insurance broker to find out how best to manage your exposures and prevent your business from professional indemnity risks.

 

 

DIT launches new investment support directory

Do you help overseas companies locate or expand in the UK?


Do you help overseas companies locate or expand in the UK?

 

The Department for International Trade (DIT) has launched an opportunity for UK firms to join a new directory of private sector providers aimed at supporting foreign investors to set up or expand in the UK.

 

Membership of the UK Investment Support Directory is free and provides a great opportunity for businesses looking to further expand their network as well as increase their visibility to foreign investors across international markets.

 

The Directory aims to provide investors with a diverse range of UK businesses that have experience assisting overseas companies to locate or expand in the UK. It will simplify the link between investors and experienced UK businesses to ensure necessary support can be easily found when it is needed and will highlight the expertise of the UK’s service sector to investors across the globe.

 

The Directory will be made up of a number of service sectors throughout the UK including accountants. 

 

Businesses interested in applying will need to complete and submit this application form, which lists the criteria they will need to meet including two examples of their previous experience in aiding foreign investors in setting up or expanding in the UK.

 

Applications will close at 11:59pm on Monday 17 December. Businesses to find out if they have been accepted in early 2019 and the new Directory will be launched in spring 2019.

The implications of Brexit - provisional guidance for auditors

Guidance for auditors ahead of the UK Parliament's vote on Brexit.


Brexit implications - provisional guidance for auditors

At the FRC Brexit stakeholder meeting on 7 November, BEIS has confirmed that the UK will apply the third country provisions for audit post-Brexit irrespective of whether there is a deal or not; this is now settled and not subject to further negotiation as part of the withdrawal agreement. BEIS has laid SIs on the basis of a no deal with a transition period to allow for orderly negotiation on adequacy / reciprocity under the third country provisions but it’s not clear whether the same will be the case in the EU 27; in the case of Ireland as you will see below, there is likely to be a cliff edge. As things stand, applications cannot be made for third country auditor status until the UK becomes a third country so a potential cliff edge on 29 March; the focus of this has primarily been in regard to listed entity auditors but this will impact on SMPs in the Irish / NI (UK) context. 

 

Ireland

ACCA’s recognition as a Recognised Accountancy Body should continue post-Brexit and this was again confirmed in the call with IAASA on 7 November but there remains a lack of clarity on some of the practicalities. For example, members / firms based in the UK with Irish audit registration will lose registration even if they had achieved the audit qualification meeting the Irish examination and experience requirements; the advice received by IAASA brings in a residency test which is not included in the EU directives / Irish Companies Act. Also IAASA was clear that the long standing UK / Irish mutual recognition of each jurisdictions’ audit qualification will end as UK will be a third country - it may be that the Irish government is taking this hard line as a result of pressure from the EU. FRC, on the other hand, is keen to retain the long standing arrangement that predates any EU requirements and was primarily based on a competence test, but acknowledges the risk that this may no longer be possible.

 

More generally both FRC and IAASA have asked that we alert our members of the worst case scenario – loss of authorisation and the need to apply as third country auditors (and associated aptitude test). 

 

For audit firms, some planning will be necessary. For example opening a practice in Ireland seems a simple solution; however, IAASA has indicated that a 'letter box' practice in Dublin is unlikely to suffice. IAASA is drawing comparison to the financial services sector where firms relocating to Dublin actually have to have a permanent presence and to also locate senior management in that Dublin office. An alternative solution is to accelerate all audit sign off to pre March 2019 and hope that a pragmatic solution is reached by the politicians in time for the next audit. UK firms may also decide to link up with Irish resident audit firms; find a list of such ACCA firms. 

 

If your firm is impacted, please email supportingpractitioners@accaglobal.com so we can keep you updated and support you.

HMRC Talking Points – self assessment special edition

Sign up for Talking Points webinars to support you throughout the self assessment period.


Talking Points – Self Assessment Special Edition

Here is a forward look at Talking Points webinars to support you throughout the Self Assessment period. To get more information about the webinar content and save your place, simply choose the date you can attend by clicking on your chosen link.

Submission of SA returns affected by exclusions:

Tuesday 27 November – 11am to midday          

Th‌ur‌sd‌ay 1‌7 Ja‌nu‌ary – 11a‌m t‌o mi‌dd‌ay


How to show self-employed business expenses on your tax return:

Thursday 6 December – midday to 1pm             

Thursday 3 January – 1pm to 2pm

Tu‌es‌da‌y 8 Ja‌nu‌ary – 2p‌m t‌o 3p‌m


Income from property for individual landlords – changes introduced by Finance Act 2, 2017:

We‌dn‌esd‌ay 1‌2 De‌ce‌mb‌er – 1‌1a‌m to 12.15pm           

We‌dn‌esd‌ay 1‌6 Ja‌nu‌ary – 1‌1a‌m to 12.15pm          

We‌dn‌esd‌ay 1‌6 Ja‌nu‌ary – 2p‌m to 3.15pm


Income from property for individual landlords – common themes in relation to deductions and reliefs:                           

We‌dn‌esd‌ay 1‌9 De‌ce‌mb‌er – 1‌1a‌m to 12.15pm     

We‌dn‌esd‌ay 1‌9 De‌ce‌mb‌er – 2p‌m to 3.15pm

We‌dn‌esd‌ay 2‌3 Ja‌nu‌ary – 11a‌m t‌o 12.15pm             

We‌dn‌esd‌ay 2‌3 Ja‌nu‌ary – 2p‌m to 3.15pm


Capital Allowances and Vehicles:

We‌dn‌esd‌ay 9 Ja‌nu‌ary – 11a‌m t‌o mi‌dd‌ay      

We‌dn‌esd‌ay 9 Ja‌nu‌ary – 1p‌m t‌o 2p‌m


Basis Periods – looking at commencement years, changes to accounting date and overlapping periods:

Th‌ur‌sd‌ay 2‌4 Ja‌nu‌ary – 11a‌m t‌o mi‌dd‌ay      

We‌dn‌esd‌ay 3‌0 Ja‌nu‌ary – 11a‌m t‌o mi‌dd‌ay


Trade Losses:

Th‌ur‌sd‌ay 2‌4 Ja‌nu‌ary – 1p‌m t‌o 2p‌m

We‌dn‌esd‌ay 3‌0 Ja‌nu‌ary – 1p‌m t‌o 2p‌m

NEWS
Your guide to this month's highlights:


News and tools for you

Find out about last minute 2018 CPD opportunities, the Accounting Excellence Practice Insight Report, new research into the public's views on audit and more...


Last minute opportunities to complete your 2018 CPD

New research reveals 48% of public believe auditors 'could prevent company failures'

Accounting Excellence Practice Insight Report 2018

Advanced Diploma in International Taxation

Update courses in UK tax, GAAP and IFRS

Policy Matters

Event - Future of Financial Reporting 2019

 

Last minute opportunities to complete your 2018 CPD

Don’t leave it too late to complete your 2018 CPD requirements! Book one of our ACCA UK Professional Courses events in December, including:

 

Half-day practice seminars 

Anti-money laundering - refresher and update

13 December (09:30–13:00)

 

Ethics, values and culture - the accountant's role as trusted adviser

13 December (14:00–17:30)

 

CPD: 4 units per seminar

Fee: £110 per seminar (Book both seminars and save £30 by paying £190)

 

Practice workshops 

Guide to practical audit compliance for partners and managers 

 

This two-day workshop has been designed to help participants prepare their practices for ACCA audit monitoring visits. The most common causes of unsatisfactory monitoring visit outcomes will be identified and discussed during the workshop. Participants will learn how to undertake audits and to record audit work in a manner consistent with the requirements of Auditing Standards and which will consequently meet monitoring visit requirements. The workshop will involve case study examples and is suitable for partners and also managers in public practice.

  • 4−5 December, London OR 11−12 December, Manchester

CPD: 14 units | Fee: £495.

 

 

New research reveals 48% of public believe auditors 'could prevent company failures'

A survey of 1,000 members of the general public by ACCA has revealed auditors are expected to play a crucial role in company safeguarding.

  • 48% of the UK public believe it is auditors who are responsible for avoiding company failures
  • 41% expect auditors to always detect and report any fraud
  • 65% believe audit should evolve to prevent company failures.

Find out more about these survey findings and ACCA’s response

 

 

Accounting Excellence Practice Insight Report 2018

Following the success enjoyed by several ACCA members and their firms at the Accounting Excellence Awards in September, AccountingWEB Head of Insight John Stokdyk presents the findings of analysis behind the winning entries, including a look at how the profession is coping in an age of accelerating change. Browse the report now

 

 

Advanced Diploma in International Taxation

Our Advanced Diploma in International Taxation (ADIT) has been designed by an academic board of world-leading experts to help you stand out from the crowd. Register now to prepare for the June exam.

 

 

Update courses in UK tax, GAAP and IFRS

You could benefit from our partnership with accountingcpd.net by taking one of their update courses in UK tax, GAAP and IFRS.

 

 

Policy Matters

Browse our bi-monthly newsletter to catch up on ACCA’s recent engagement with government and those involved in creating legislation and policies for business. Highlights include our successful visits to the Labour and Conservative party conferences, attendance at the China International Import Expo and the launch of a higher education commission report.

 

Event: Future of Financial Reporting 2019
The British Accounting and Finance Association Financial Accounting and Reporting Special Interest Group Invites you to attend a one-day symposium on The Future of Financial Reporting 2019: Current Developments in Financial Reporting (Private and Public Sectors) at ACCA's HQ at The Adelphi in London on 11 January 2019. Find out more and register your place now

 

 

 

Future proof your practice roadshows

We've seen some fantastic insights at our first roadshows. Book now for our remaining events.


We kicked off our series of roadshows designed to help practitioners 'future proof your practice' in Chelmsford on Monday. Fantastic insights included:

  • digital is about much more than 'just' software - it's about providing a first class service to clients
  • with millennials set to represent 75% of the workforce by 2025, adopting digital tools and processes will be critical going forward
  • 38% of attendees rated their practice as just 26-40% ready for a digital future.

Can you afford to miss out on hearing these and many others next month? There's still time to secure your free place at our remaining roadshows.

 

They will benefit anyone who works in a small or medium-sized practice – from those who have recently entered the profession to partners and directors – by providing real insight into how your firm can transition into a fully digital practice that embraces technology and is fit for the future. 

 

Attendance is free but places are limited; reserve yours now

 

Look out for our video highlights here and on LinkedIn after the final roadshow. We will also highlight some of the key tips and lessons learned from the roadshows early in 2019.

 

Special offers from app partners

At our digital roadshows, Xero and their app partners have a number of limited offers for practitioners.


Throughout our digital roadshows we are being joined by Xero and a selection of their app partners – including Hubdoc, Receipt Bank, Practice Ignition, GoCardless, FUTRLI and Fluidly – will are exhibiting, giving you a chance to get a feel for what their technology can help you and your clients achieve.

 

Many of these have introduced special offers for ACCA members. But hurry, these are all for a limited period only! Find out more and select the right apps for your practice.

Maximising your ACCA membership

We have pulled together some of our latest benefits of ACCA membership in one handy guide.


We’ve been talking with practitioners across the country and in response to some of the common questions we get asked, have pulled together some of our current – and latest – benefits of ACCA membership in one handy guide. Browse this now