Technical and Insight
Useful tax elections and claims for 2017-18

A timely reminder heading into self assessment season.


A timely reminder heading into self assessment season.

 

Main residence nomination s222 (5a) Taxation of Chargeable Gains Act 1992 (TCGA 1992)

Taxpayers with two or more residences may choose which property is to be treated as their main residence for capital gains tax purposes by lodging an election under TCGA 1992, s222(5). The election must be made within two years of acquiring a second (or subsequent) residence unless there is a delay in occupation, in which case the date of moving into the residence is the trigger event. Once an election has been made it can be varied at any time and so even where the facts would suggest that a nomination is not necessary, it is prudent to make one to leave the door open for a variation at a later date.

 

Claim to reduce income tax payments on account – SA303

A claim to reduce tax payments on account can be made by a  taxpayer at any time up to 31 January after the end of the tax year concerned if he believes that his tax liability will be lower than the previous year. The taxpayer must make the claim by notice, giving reasons why the payments on account should be reduced. If a taxpayer deliberately makes a claim to reduce the payment on account for the benefit of obtaining a cash flow advantage when he knows that his tax liability for the year would be higher than the amount paid then HMRC reserves the right to charge a penalty.

 

Deed of variation s142 Inheritance Tax Act 1984 (IHTA 1984) and s62 (7) TCGA 1992

If the variation includes a statement that the parties to the variation intend that the provisions of s142(1) Inheritance Tax Act 1984 and s 62(6) Taxation of Chargeable Gains Act 1992 are to take effect for inheritance tax, capital gains tax or both, the variation is treated as if the deceased had made it. In other words, the changes are treated as having been made by the deceased and as having taken effect from the date of death.

 

For a variation to take effect for inheritance tax, capital gains tax or both, it must be made within two years after the death, be in writing and signed by all the beneficiaries who would lose out because of it.

 

Negligible value claim s24 (2) TCGA 1992

Under this legislation a taxpayer who holds an asset which has become of negligible value may make a claim to be treated as though the asset had been sold and then immediately reacquired for an amount equal to its value. When a negligible value claim is made the taxpayer may wish to specify an earlier time, falling in the two previous tax years, at which to treat the deemed disposal as occurring. The taxpayer has to meet all the necessary conditions for the claim at that earlier time as well as at the time of the claim.

 

The effect of crystallising such a 'paper' loss, without actually selling the asset, can often be useful for reducing income tax, corporation tax or capital gains tax.

 

Form 17 (Declaration of beneficial interests in joint property and income)

Income and gains from jointly owned properties are usually taxed equally on spouses (or civil partners) regardless of the actual ownership of the property. Completion and submission of this form specifies a different apportionment for tax purposes (based on actual proportion of ownership), which can be useful where owners are subject to different rates of income tax.

 

Capital losses set off against income tax s131 ITA 2007

Under this section a taxpayer may be able to reduce his Income Tax liability by making a claim to offset losses on disposal of shares acquired by subscription in a qualifying trading company (or following a negligible value claim for such shares), against other income in the current or previous year.

 

Holdover relief claim s165 TCGA and s260 TCGA

Hold-over relief is available under s165 TCGA 1992. The gift must be of ‘business assets’. The transferor and the transferee must claim jointly within five years from transfer. The time limit for claiming gift hold-over relief is five years and ten months from the end of the tax year of disposal.

 

Hold-over relief is also available under s260 TCGA 1994 where the disposal is a chargeable transfer for inheritance tax purposes, but not a potentially exempt transfer. Cases where there is no liability to inheritance tax, because the value transferred is within the zero-rate band, qualify for hold-over relief.

 

Payment of capital gains tax by instalments s281 TCGA 1992

Where hold-over relief is not available, or only partial relief is available, and the asset is:

  • land and buildings
  • shares in unquoted companies
  • shares in a quoted company on which the donor had a controlling interest before the gift…

 

…the taxpayer can make a claim under s281 TCGA 1992 to pay tax in instalments. Also, under s280 TCGA 1992, if any of the consideration is payable more than 18 months after the date of the disposal, the tax due may be paid in instalments. The period over which the instalments are paid would be agreed with HMRC but cannot exceed the lesser of eight years and the point when all of the consideration is paid. The unpaid instalments carry interest.

Ten things you should know about money laundering

A quick recap of money laundering essentials to have in mind during tax return season.


A quick recap of money laundering essentials to have in mind during tax return season.

 

The authoritative guidance by which accountants and their firms may be judged, ultimately, by disciplinary tribunals and the courts of law is issued by Consultative Committee of Accountancy Bodies (CCAB) and can be accessed here.

 

What is a ‘money laundering offence’?

Money laundering – includes all forms of using or possessing criminal property, as well as facilitating the use or possession of criminal property – regardless of how it was obtained.

 

Proceeds of Crime Act 2002 s327 states that a person commits an offence if he: conceals, disguise, converts, transfers or removes ‘criminal property’.

 

What is ‘criminal property’?

Property is defined as any sort of property, wherever it is situated, including money, all forms of property (real, personal and intangible) and things in action. Property is ‘criminal property’ if it constitutes or represents a person’s benefit from criminal conduct AND the alleged offender knows or suspects that it constitutes or represents such benefit.


Examples of the offences that will be caught by anti-money laundering regulations (AMLR) are:

  • tax evasion
  • theft
  • bribery
  • fraud
  • smuggling, including drug trafficking and illegal arms sales.

 

What are an accountancy firm’s compliance responsibilities?

Firms are required to implement in-house systems and controls that meet the requirements of the AML regime. These should include:

  • adoption and continual monitoring and assessment of detailed policies and procedures to manage their own compliance with the Regulations including setting out the practice risk assessment in writing
  • appointment of a Money Laundering Reporting Officer
  • training to relevant employees to ensure awareness of the law and ability to recognise suspicious transactions.

 

Firm have the following duties:

  • the duty to carry out client due diligence (CDD)
  • the duty to report known or suspected involvement in money laundering
  • the responsibility to seek consent to act in respect of actual or possible involvement in money laundering activity
  • the duty not to ‘tip off’

 

What is Client Due Diligence (CDD)?

Client due diligence (CDD) is the procedure whereby a practising accountant takes steps to identify a prospective client, the purpose of which is to ensure that the accountant is able to comply with the dictum ‘Know your client’ (KYC)

 

Accountants should not only know who their clients are but should also understand the nature of their business.

 

CDD checks are made expressly subject to the assessment of risk (please see below how to assess the level of risk). Based on this assessment, the accountant should determine the extent of information that is needed (and, indeed, whether or not they wish to act for the client).  Note that the CCAB acknowledges that no system of checks will ever detect and prevent all money laundering issues but a risk-sensitive approach of this kind will provide a realistic assessment of the risks

 

Simplified or enhanced CDD checks?

 

Simplified CDD

SDD can be applied when a client is low risk, in accordance with the businesses’ risk assessment criteria. CDD measures are still required but the extent and timing may be adjusted to reflect the assessment of low risk, for example in determining what constitutes reasonable verification measures. Ongoing monitoring for unusual or suspicious transactions is still required.

 

Enhanced CDD

Enhanced measures and enhanced ongoing monitoring is required:

  • in any business relationship or transaction with a person established in a high-risk third country
  • where there is a high risk of MLTF
  • if a client or potential client is a political exposed person (PEP), or a family member or known close associate of a PEP
  • if a client has provided false or stolen identification documentation or information
  • if a transaction is complex and unusually large, or there is an unusual pattern of transactions
  • if the transaction or transactions have no apparent economic or legal purpose
  • in any other case which by its nature can present a higher risk of money laundering or terrorist financing.

 

What are the enhanced due diligence measure?

The enhanced due diligence measures must include:

  • as far as reasonably possible, examining the background and purpose of the transaction
  • increasing the degree and nature of monitoring of the business relationship in which the transaction is made to determine whether that transaction or that relationship appears to be suspicious
  • seeking additional independent, reliable sources to verify information provided or made available to the relevant person
  • taking additional measures to understand better the background, ownership and financial situation of the customer, and other parties to the transaction
  • taking further steps to be satisfied that the transaction is consistent with the purpose and intended nature of the business relationship
  • increasing the monitoring of the business relationship, including greater scrutiny of transactions.

Can reliance be placed on CDD carried out by others?

The 2017 Regulations (Part 4 s39) allow an accountant to rely on the CDD checks carried out by another person, such as, for example, the new client’s previous accountant. However, the new accountant must enter into arrangements with the third party which (amongst other things) enable them to obtain from the third party immediately on request copies of any identification and verification data and any other relevant documentation on the identity of the customer, customer’s beneficial owner, or any person acting on behalf of the customer.

 

The new accountant will remain fully accountable in case of any failure of compliance with the CDD requirements. Reliance can only be placed on certain classes of person, namely those that are covered by regulation 8 and Schedule 3 of the Money Laundering Regulations 2017.

 

For how long should CDD records be kept?

CDD records must be retained for a minimum of five years from the end of the business relationship or the date of any occasional transaction which might have been carried out.

 

What are the risk factors that should be considered?

When assessing whether there is a high risk of money laundering or terrorist financing in a particular situation, the following factors should be considered:

 

(a) customer risk factors, including:

  • the business relationship is conducted in unusual circumstances
  • the customer is resident in a geographical area of high risk
  • the customer is a legal person or legal arrangement that is a vehicle for holding personal assets
  • the customer is a company that has nominee shareholders or shares in bearer form
  • the customer is a business that is cash intensive
  • the corporate structure of the customer is unusual or excessively complex given the nature of the company’s business

 

(b) product, service, transaction or delivery channel risk factors, including:

  • the product involves private banking
  • the product or transaction is one which might favour anonymity
  • the situation involves non-face-to-face business relationships or transactions, without certain safeguards, such as electronic signature
  • payments will be received from unknown or unassociated third parties
  • new products and new business practices are involved, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products
  • the service involves the provision of nominee directors, nominee shareholders or shadow directors, or the formation of companies in a third country

 

(c) geographical risk factors, including:

  • countries not having effective systems to counter money laundering or terrorist financing
  • countries having significant levels of corruption or other criminal activity, such as terrorism, money laundering, and the production and supply of illicit drugs
  • countries subject to sanctions, embargoes or similar measures issued by, for example, the European Union or the United Nations
  • countries providing funding or support for terrorism.

 

Further guidance and future developments

Further guidance on anti-money laundering for the accountancy sector can be found on the ACCA website, on Joint Money Laundering Steering Group (JMLSG) website, National Crime Agency (NCA) website and HM Treasury website

 

A specimen of anti-money laundering policies and procedure can be found here.

Tax deductible expenses to include on a landlord’s tax return

Factors to consider when calculating rental expenses.


Factors to consider when calculating rental expenses.

 

Generally, when calculating rental business profits, expenses will be treated as revenue expenditure provided they are incurred wholly and exclusively for the purposes of the business and are not of a capital nature.

 

We analyse below the tax deductibility of some of the commonly incurred expenses in a rental business:

  1. wear and tear allowance/replacement of domestic items
  2. wholly and exclusively - cost of travel to visit the property
  3. professional fees
  4. redecoration costs
  5. finance cost.

 

Wear and tear allowance/replacement of domestic items

Historically landlords who let furnished properties were able to claim a wear and tear allowance. This allowance was scrapped in April 2016. Landlords are now only able to claim tax relief when they purchase furniture for their rental property. 

 

Replacement of domestic items relief is only available for expenses incurred from 6 April 2016 for income tax purposes. The new scheme permits landlords to deduct the actual costs of replacing like-for-like, or nearest modern equivalent:

  • furniture
  • furnishings
  • kitchenware.

 

One of the benefits of the new rules will be that calculating and determining expenses is easier for landlords. They will not have to work out whether their property is furnished enough or whether something is a fixture in order to claim the 10% relief. Landlords with a portfolio including furnished, unfurnished and part-furnished property will also be able to deduct expenses. 

 

However, the initial cost of purchasing domestic items for a dwelling house isn’t a deductible expense so no relief is available for these costs. Relief is only available for the replacement item.

 

Wholly and exclusively – cost of travel to visit the property

From 6 April 2017 if you carry on an unincorporated property business as an individual or in a partnership which is made up of only individuals, you can calculate your car, van or motorcycle expenses using a flat rate for the mileage travelled in connection with your rental properties. You can choose to use this method instead of deducting actual running costs and claiming capital allowances.

 

Approved mileage rates for tax year 2017 to 2018:

Vehicle type

Flat rate for the first 10,000 business miles in the tax year

Flat rate for each business mile over 10,000 miles in the tax year

Cars and goods vehicles

45p per mile

25p per mile

Motorcycles

24p per mile

24p per mile

 

The number of people in the vehicle doesn’t affect the rate.

 

Professional fees

Solicitors' fees incurred to evict tenants or to recover rental income are treated as incurred wholly and exclusively for the purpose of the rental business and as a result are allowable. Management fees/agents’ fees will be fully tax deductible. If the landlord chooses to advertise his property privately, this cost is also allowable.

The cost for preparing rental accounts is an allowable expense; however, the cost of completing the landlord's tax return is not allowed as it is a private expense.

 

Redecoration costs

Ordinarily, the cost of redecorating would be an allowable revenue expense. However, if the work is undertaken as part of an improvement, the entire cost is treated as being capital, including the redecoration.

 

Finance cost

Finance interest payable on loans (including incidental cost of financing) used to buy land or property which is used in the rental business, or on loans to fund repairs, improvements or alterations, is deductible in computing the profits or losses of the rental business regardless of the security given for borrowed funds.  The interest has to meet the ‘wholly and exclusively’ test. However:

 

Changes to interest and other finance charges – 6 April 2017
From 6 April 2017, tax relief on interest paid by landlords of residential properties will be restricted gradually (by 1/4 for each tax year) so that from 6 April 2020, interest will not be an allowable expense in computing the profits of the business, but will attract tax relief at 20%. Landlords will be able to obtain relief as follows:

 

Finance cost allowed in full        Finance cost allowed at basic rate                                           

Year to 5 April 2017             100%                                                    0%

Year to 5 April 2018             75%                                                      25%

Year to 5 April 2019             50%                                                      50%

Year to 5 April 2020             25%                                                      75%

Year to 5 April 2021             0%                                                        100%

 

ACCA has an example of how the changes will affect a basic and a higher rate taxpayer which can be found here.

 

Could your non-resident client be liable to UK capital gains tax?

With the CGT regime tightening for non-residents, ensure you have the latest advice for clients.


With the CGT regime tightening for non-residents, ensure you have the latest advice for clients.

 

The capital gains tax (CGT) regime for non-residents has been noticeably tightened since 2015. An example of this is that leaving the UK for a period of time may have a tax cost which is not limited to residential property landlords. Disposals of shares, art collections or other assets during a period of absence from the UK may not fall outside of UK CGT charge, as might sometimes be assumed.

 

The two most likely scenarios when UK CGT may arise to a non-resident are a disposal of a residential buy-to-let property or a disposal being caught by temporary non-residency rules.

 

HMRC has produced a range of guides on CGT treatment of residential property held by non-residents, including calculation methods, with examples on rebasing and  time apportionment .

 

This article looks at the principle of temporary non-residence rules, affecting assets other than residential property. It also covers residential property gains which arose before the introduction of NRCGT April 2015 rules, for individuals who have been UK resident at some point and whose residency status changed.

 

The rules governing temporary non-residence were revised in 2013. Old or new rules should be now be applied to assess a non-resident’s tax position, depending on whether the year of departure from the UK was from 2013/14 onwards (new rules), or before 2013/14 (old rules).

 

New rules – year of departure after 2013/14

In general terms, someone who left the UK in tax year 2013/14 or after will be regarded as a temporary non-UK resident if in the period of seven years prior to departure they were UK sole resident (only resident in the UK and not anywhere else) for at least four years, and then became non-UK sole resident (for example left the UK) for up to five years (calculated as 60 months from the date the individual becomes non-resident, subject to residence points imposed by double tax treaties, if applicable).

 

If someone becomes non-resident as a result of the application of split year treatment, this is retained for temporary non-residence treatment – gains after becoming non-resident are taxed in the year of return.

 

Delaying the return to the UK, so that the period of non-residence extends beyond five years, may be an important tax planning point, meaning no capital gains tax on return.

 

It is necessary to stress that practical application of the definitions related to temporary non-residence given within FA 2013, Part 4, s110-111, may in some cases produce unexpected results, where the year of departure and period of return may not coincide with the tax year of departure and return, and the five year period of non-residence may not be the same as the period of absence from the UK.

 

Temporary non-residence does not apply to assets acquired after departure, except in limited circumstances (assets transferred between spouses on a no gain no loss basis, assets created by a settlement, or assets on gains relieved under the holdover or rollover relief).

 

Capital gains

The effect of temporary non-residence affects the individual in the year of return to the UK. If any chargeable assets they held at the point of departure are disposed during their period of non-residence, they will be subject to UK’s CGT on their return, at the rates in force in the year of return.

 

Capital losses

The same treatment applies to capital losses realised in the year of temporary non-residence. Losses are allowable in the year of return. This is a relaxation of the previous old regime, when capital losses were restricted (see below).

 

Interaction with foreign tax

Temporary residence provisions take priority over any exemptions from UK tax resulting from a double tax treaty. Any double tax relief is therefore available only as unilateral relief and HMRC offer technical advice on how to claim exemptions under DTR in these circumstances. More information can be found at CG99998 .

 

Who else is affected?

The temporary non-residence rules extend to entities other than individuals such as some non-UK resident companies and some non-resident settlements. A non-UK resident company is affected if it was a close company but for being non-resident and whose members are non-UK resident when the asset is disposed by the company (TCGA92/S13).

 

A gain realised by a non-resident company is chargeable on the individual member of that company in the year of return (example 1). Losses realised by a non-resident company are only allocated to members to the extent they can be relieved against any realised company capital gains. There is no carry forward of the unused part of the loss (example 2).

 

Example 1 per CG26570

Mr Defoe has a 95% interest in Castaway Cruises Limited, a company resident in the Bahamas. He left the UK in June 2019 and is not resident in the UK in either 2020-21 or 2021-22. He resumes UK residence in August 2022. In December 2020 the company disposes of land in Florida and realises a gain. If Mr Defoe had always been resident in the UK, s13 would apply so that the chargeable gain accruing to the company would be computed as if it had been UK resident and 95% of that gain would be treated as accruing to Mr Defoe. The fact that Mr Defoe was not UK resident when the gain accrued to the company will not prevent part of the gain being attributed to him under s13 and charged in the period of his return by virtue of s10A, providing the other conditions necessary for s10A to apply are met.

 

Example 2 per CG26580

Mrs Adams, who has lived in the UK all of her life, leaves the UK on 1 September 2018 to take up a four year contract of employment abroad. She resumes tax residence in the UK on 31 August 2022.

 

Mrs Adams has owned all the shares in a company resident in Jersey for many years. The company owns a portfolio of shares and a number of properties. During Mrs Adams’ period of temporary non-residence the company makes a number of disposals. Gains and losses accrue as follows:

  • 3 May 2019 gain £20,000 (year of assessment 2019-20)
  • 23 October 2019 loss £5,000 (year of assessment 2019-20)
  • 14 July 2020 loss £10,000 (year of assessment 2020-21)
  • 4 September 2021 gain £20,000 (year of assessment 2021-22).

 

Mrs Adams fulfils all of the conditions for s10A to apply (see CG26540). Under s10A(2) all the gains which would have been treated as accruing to Mrs Adams in the period of temporary non-residence years if she had been resident in those years are treated as accruing to her in the period of return. Losses are attributed to her, and s10A applies to them, to the extent that they may be set against gains attributed in the same residence period.

 

Mrs Adams is therefore chargeable in the period of return as follows:

  • net gains of £15,000 (gain £20,000 less loss £5,000) from 2019-20
  • a gain of £20,000 for 2021-22.

 

The total gains chargeable are therefore £35,000. The loss arising in 2020-21 is not allowable because no gains from that residence period (in this case a year) were attributed to her.

 

Old rules – year of departure before 2013-14

Returning individuals who left in 2012-13 or earlier and who were resident or ordinarily resident (per tax legislation in those years) for at least 4 out of 7 tax years immediately before departure are liable to UK CGT in the year of return, if absence did not exceed five complete tax years (not 60 months from the date the individual became non-resident, per new rules).

 

Examples

Gain in the year of return

Anna, who had always been UK resident, left the UK in January 2013 and returned in February 2018. In December 2015 she disposed of shares she held when she left.

Anna was non-resident for less than five complete tax years – 2013-14, 2014-15, 2015-16, 2016-17 (four tax years). She will be charged to UK CGT in the year of return 2017-18.

 

Gain in the intervening year (whilst overseas)

Tom, who had always been UK resident, left the UK in August 2012 and returned in September 2017. He realised chargeable gain in August 2014, during the year when he was overseas.

Tom was non-resident for less than five complete tax years: 2013-14, 2014-15, 2015-16, 2016-17. Tom will be liable to CGT in the year of return 2017-18.

 

EDC D2

If an individual was neither resident nor ordinarily resident in the UK in the 4 out of 7 years before departure, they are outside of temporary non-resident rules (ESC D2), but this concession does not apply to business assets or gains made by trustees and settlors in some circumstances.

 

Split year treatment is ignored for the purposes of assessing whether someone is treated as temporarily non-resident. Gains on worldwide assets realised in the non-resident part of the split year of departure are still taxed in the UK.

 

There is no carry forward of any unrelieved capital losses. Some tax planning points may arise to time the disposals of assets in the same tax year, to maximise loss relief.

 

Temporary non-residence vs deemed domicile for CGT

Someone deemed domicile as a result of new CGT rules introduced in 2017-18 is not taxed to CGT on those gains to which temporary non-residence rules applied.

Where the old temporary non-residence rules apply to year of return of 2017-18, or the new temporary residence rules starts before 8 July 2015, the deemed domicile rules for CGT (resident for 15 out of 20 years of residence) are ignored: there is no remittance basis charge and loss of personal allowance or annual exemption as a result of income tax remittance basis.

 

Tax returns

Net capital gain needs to be shown in box 17 of CGT supplementary pages.

To claim foreign tax relief, page F6 of Foreign supplementary pages needs to be submitted, in addition to GT supplementary pages.

 

Total relief to be claimed needs to be shown in box 39.

 

Details of foreign tax relief need to be given in the white space on page CG3.

 

If the tax return is wrong, who is to blame?

The quick answer is – it’s complicated!


The quick answer is – it’s complicated!

 

The case law involving ‘duty of care’ to clients is extensive and detailed. Rather than wade through all of the historic precedents (anybody remember Donoghue v Stevenson from their studies?) it is more interesting to contrast two recent tax cases involving errors on tax returns. In both of these cases it was accepted that the returns were incorrect but when a penalty was charged the first tier tribunal made different decisions on whose fault it was.

 

The first case is from 2012 – Mr J R Hanson v Revenue & Customs [2012] UKFTT 314 (TC) (26 April 2012). The basic details of the case were that the accountants indicated to the appellant that a form of holdover relief would be available to mitigate the CGT charge on disposal of some assets.

 

The client instructed the accountants to undertake the task of completing the tax return. The accountant accepted in evidence that the appellant was relying on his firm to complete the return correctly.

 

HMRC launched an enquiry into the return and found no relief was available and the taxpayer was liable for further capital gains tax. HMRC also charged a penalty for what it said was a careless inaccuracy in the tax return. The taxpayer appealed against the penalty.

 

The judge in the case ruled:

 

I have no hesitation in finding that there was carelessness on the part of (the accountants). They did not suggest otherwise. The entitlement to relief for CGT purposes in these circumstances was an area that a reasonably competent accountant ought to have been able to advise upon. It is then necessary to consider whether the appellant himself took reasonable care to avoid the inaccuracy.

 

I have come to the conclusion that the appellant did take reasonable care. He instructed an ostensibly reputable firm of accountants who had acted as his accountants for many years. The matters on which he instructed them were ostensibly within their expertise. He had no reason to doubt their competence or their advice that relief was available. They were in possession of all relevant facts. In the circumstances of this case the appellant was entitled to rely on (the accountant’s) advice without himself consulting the legislation or any guidance offered by HMRC.

 

I have found as a fact for the reasons given above that the appellant did take reasonable care to avoid the inaccuracy in his tax return for 2008-09. In those circumstances I cancel HMRC’s decision to impose a penalty and allow the appeal.

 

So, victory for the client and a clear ruling from the judge that the client could rely on the advice of the accountant.

 

Contrast this with the decision in a high profile case decided in July 2016: Blackman [2016] TC 05218

This case involved a professional footballer who had also instructed a firm of accountants to prepare his tax return. Again the tax return had proved to be inaccurate and further tax was payable. HMRC also imposed a penalty due to the client not taking reasonable care to avoid the inaccuracy.

 

The background was that the footballer had been transferred several times during the relevant tax return period but one of the ‘employments’ had been missed off the return. The footballer accepted that this was incorrect but claimed that the penalty was unfair as he was not responsible for the inaccuracy.  All of his financial information was given to his accountants therefore it was they who missed the income from his tax return. He was not a tax professional and so he should not be expected to understand a tax return and could therefore treat the accountants' work as accurate.

 

There were detailed arguments given for and against the appeal but a summary of the main points of the FTT ruling was:

 

Having taken account of the above, we consider that (the footballer) did fail to take reasonable care to avoid the inaccuracy and was therefore careless: 

  1. It is entirely reasonable to expect an individual to know and understand their employment history in a given tax year. There was no evidence in this case that (the footballer) did not know or understand his employment history in the year 2012-13.
  2. (The footballer) would have been expected to identify the error. It was an entirely obvious one to anyone reading the tax return with sufficient care.
  3. The scenario was not complex. This is a self-assessment return of an employed individual, in continuous employment throughout the whole year, and in a single employment at any one time. His tax affairs were correspondingly simple and straightforward. We do not consider that having three consecutive employments in one year amounts to such complexity that (the footballer) could not reasonably have been expected to identify the error.
  4. Although the footballer may have left school at 16, there was no evidence that his level of educational attainment or literacy meant that he was unable to read the tax return himself, and needed the tax return reading out to him.

 

Accordingly, the appeal against the imposition of the penalty is dismissed. Also interesting to note is that, for various legal reasons, the first case decision above was not deemed to be binding on the decision in this second case.

 

So, defeat for the client and the accountants’ role in the matter left open.

 

Two similar cases with very different outcomes! In conclusion you should ensure:

  1. a robust engagement letter is in place which clearly sets out the roles and responsibilities of both the firm and the client. ACCA has recently updated its suite of engagement letters, which you can order now 
  2. the client is made aware of HMRC’s official guidance which amongst other things states:

 

You and your client’s responsibility for penalties

When you are acting on behalf of a client, they still retain responsibility for their returns, calculations and payments. Your authorisation as an agent allows HMRC to deal with you on your client’s behalf, but any liability for penalties for late returns, late payments or any errors on paperwork legally remains with your client.

 

It is important the firm’s quality control policy for approval of accounts and tax returns by the client is clear and documented.

 

ACCA has also produced a factsheet which covers the issue of professional negligence.

 

Finalising clients’ 2017-18 tax returns

You don’t have to burn the midnight oil as tax return season swings into life.


You don’t have to burn the midnight oil as tax return season swings into life.

 

Here we summarise common and quirky issues/errors/omissions that many members have spoken to us about this year.

 

Remember, before you press the ‘file online’ button and heave a sigh of relief, make sure you review the information on the returns for completeness and accuracy.

 

Using HMRC agents’ ITR toolkits

These toolkits provide guidance on areas of error that HMRC frequently sees in returns and set out steps to reduce these. They are designed to:

  • ensure that returns are completed correctly, minimising errors
  • focus on likely errors that HMRC considers key
  • demonstrate reasonable care.

 

The toolkits can be used:

  • as a straightforward checklist
  • to complement or check and refresh your existing processes
  • as a training aid for your staff.

 

There are toolkits for each main area of the return such as capital gains, claiming expenses, rental income etc. 

 

New clients – remember that filing is not possible without a unique tax reference (UTR)

It might be obvious, but a UTR is required to file the return online. If your new client has come from another accountant they will most likely have one. But a start-up may not have registered as self-employed and may have to wait up to ten working days for HMRC to issue a UTR. Ensure they are prepared for this step.

 

Have you checked if your client is claiming child benefit?

Where a client has income over £50,000 there is a specific tax charge (basically a repayment of the benefit). But remember this includes situations where:

  • the client or their partner get child benefit
  • someone else gets child benefit for a child living with them and they contribute at least an equal amount towards the child’s upkeep
  • it doesn’t matter if the child living with the client or in fact is not their own child.

 

The relevant income is the total taxable income before any personal allowances and less things like gift aid. Remember to advise a client that is affected that the options are:

  • stop getting child benefit
  • carry on getting child benefit and pay any tax charge at the end of each tax year.

 

Some tax software includes a ‘nudge’ warning where the income entered exceeds the above but always ensure you confirm the situation if this is the case. Some clients may need to register for a tax return to pay the charge even if they are not self-employed or normally need to fill in a tax return.

 

HMRC has provided a child benefit tax calculator which calculates the high income child benefit tax charge.

  

Is your client’s tax code wrong?

Many clients use the annual tax return to get a tax refund – or make a payment of tax liabilities – because they have multiple sources of income and the tax codes issued do not properly address the correct tax. Where a code is incorrect, the accountant can advise their client to get it corrected directly and not wait for the return to be submitted. Or the accountant can do this for them using the online form 

 

Alternatively the client might wish to check their tax details and codes directly. However note that this particular HMRC service cannot be used by the taxpayer if self assessment is the only way they pay income tax.

 

Disclosures and tax reliefs relating to capital gains

Use of reliefs

Ensure that clients are aware of/have claimed relevant capital gains tax reliefs. There have been a number of changes recently so it’s important to refresh your knowledge on the main reliefs available both for the 2017-18 tax return and for future years. Some of them have some devil in the detail; access full guidance here:

 

Business asset roll over relief

Chattels

Trusts

Gift relief

Principal private residence relief – note the changes from 2020 as reported in ACCA's InPractice newsletter

Entrepreneurs’ relief – note the changes from 2019 as reported in ACCA's InPractice newsletter

Incorporation relief

 

Allowances and losses

Ensure that the CGT allowance is utilised and also losses brought forward are claimed where applicable.

 

Disclosures

Remember that the capital gains tax pages need to be completed merely because the client sold or disposed of chargeable assets which were worth more than £45,200,

 

Student loans

Where a client has self-employed income as well as taxed salary income, the student loans repayment is based on both (subject to thresholds). Clients may think that because deductions are taken from their salary this is all that needs to be done. So be careful that the student loans box is completed on the tax return and that the calculations include all relevant income.

 

If your client needs more information on how much they will repay and when this starts, please follow this link to HMRC’s guidance.

 

Charity donations

Clients that make charitable donations may not inform you of these and may be unaware of the available tax relief. Higher rate taxpayers can claim the difference between the rate paid and basic rate on the donation, either:

  • through the self assessment tax return
  • by asking HMRC to amend the tax code – this is now done as part of the personal tax account

 

This is the same system when the tax payer lives in Scotland.

 

Example

A client donates £100 to charity and claims gift aid to make the donation £125. The client pays 40% tax so they can personally claim back £25.00 (£125 x 20%). A client’s tax-free allowance may also increase if they make donations through gift aid and claim married couple’s allowance. If the client fills in a self  assessment tax return, their allowance will be adjusted automatically if it needs to be.

 

Clients can also claim tax relief on gift aid donations made in the current tax year (up to the date of sending the return) if they either:

  • want tax relief before the end of the tax year
  • were a higher rate taxpayer  in a previous year (but are not now).

 

Remember the small ‘print’!  The client cannot claim tax relief early as above if:

  • the tax return deadline is missed (31 January if you file online)
  • the donations don’t qualify for gift aid – the donations from both tax years together must not be more than four times what was paid in tax in the previous year.

 

Make sure the client is keeping proper records of all the charitable donations they are claiming.

 

Taxable benefits

Make sure salaried clients (especially directors) are aware that P11d benefits need to be included on the tax return in most cases. These can easily be left off the tax return as clients assume that because their code has been altered then their disclosure responsibilities are complied with.

 

With the advent of benefits being ‘payrolled’ the client may be confused as to how the benefits are being/will be taxed so it’s even more important to ensure that the tax return is complete.

 

Transfer of personal allowances

Although not strictly a tax return issue, this is a good opportunity to enquire about the income of your client’s spouse or civil partner. They can transfer £1,190 (2017-18) of their personal allowance to the husband, wife or civil partner. This can reduce their tax by up to £238 every tax year. To benefit as a couple, the transferor needs to earn less than their partner and have an income of £11,850 or less. For more details follow this link to HMRC’s guide.

  

For comprehensive guidance on 2017-18 and 2018-19 tax rates and allowances, see ACCA’s 2018 Budget newsletter

 

Claiming business expenses on the 2017-18 tax return

A recap on what can/cannot be claimed.


A recap on what can/cannot be claimed.

 

In general, an expense incurred wholly and exclusively for the purposes of the trade can be claimed while computing taxable profits of the business. Expenses must be for business purposes only and any private use element should never be claimed.

 

Expenses can be categorised in two categories: revenue expenses or capital expenses. Broadly, capital expenses are items bought to keep and use in a business, for example:

  • equipment
  • machinery
  • business vehicles, for example cars, vans, lorries.

 

This distinction is sometimes subjective and HMRC provides a much more detailed analysis in their Business Income Manual and Toolkit.

 

A business can choose to claim expenses based on its actual receipts or it may choose to claim simplified expenses if eligible. Simplified expenses are a way of calculating some business expenses using flat rates instead of working out the actual business costs. There are only certain businesses that can use this type of calculation.

 

Specific types of claimable expenses

The following covers some common but often overlooked areas:


Pre-trading expenses
S57 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), s61 Corporation Tax Act 2009 (CTA 2009) provides relief for expenditure of a revenue nature provided that the expense is:

  • incurred in the seven years preceding the commencement of a trade, profession or vocation, is deducted from profits in the first accounting period; and
  • not allowable as a deduction in computing the profits of the trade, profession or vocation but would have been so allowable if incurred after the trade had commenced.


Expenditure on food or drink for consumption by the trader
The cost of food and drink consumed, and accommodation used, by a trader is not, in general, an expense incurred wholly and exclusively for the purposes of the trade since everyone must eat in order to live, and such costs are therefore usually disallowed. 

However, expenses incurred by a trader on food and drink whilst travelling on business will be allowable where:

  • the business travel is, itself, allowable;
  • the trade is, by its nature, itinerant or involves travel to a place only occasionally visited; and
  • not as part of the trader’s normal pattern of travel for the trade.

 

Where a business trip by a trader necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible.

 

Travel expenses connected with foreign trades
If an individual carries on a trade wholly outside the UK (a foreign trade), a deduction is allowable in calculating the profits of the trade for certain expenditure on travel, board and lodging incurred in connection with that trade, and which would not otherwise be allowable solely due to its failing to meet the 'wholly and exclusively' test. 

If the trader's continuous absence from the UK lasts 60 days or more, the expense of a journey made by his/her spouse or civil partner or by any child of his/hers between a UK location and the location of any of the trades in question, where that journey is made in order to accompany the trader, is also allowed. The deduction is limited to the expenses of two such outward journeys and two return journeys per person per tax year. 

Incidental cost of loan finance statutory deduction in computing the profits of a trade applies to the incidental costs of raising loan finance which would otherwise not be an allowable deduction. Interest payments on a loan taken out for a business purposes are allowable for tax purposes. This includes overdraft interest, providing:

  • the related bank account is a genuine business account;
  • is not used to fund personal expenses.

 

No deduction is allowed for the repayment of the capital part of the loan. No deduction is allowed for interest on overdue tax. There are special rules regarding the incidental costs of raising loan finance for businesses using the cash basis.

Training costs

Under s34 (1) ITTOIA 2005 expenditure is disallowed if it is not incurred wholly and exclusively for the purposes of the business in question. However, the existence of some non-business benefit arising out of expenditure does not cause it to be disallowed if, in fact, the expenditure is incurred exclusively for business purposes.

So, expenditure on the training and development of staff whose relationship with their employer is limited to the employment itself is allowable. However, costs for owners which are incurred in maintaining, updating and developing existing skills while qualified are allowable, because there is a direct link between the expense incurred and income received. The cost incurred in the acquisition of new expertise is not allowed. The cost of any CPD training is also allowable.  For more detailed information please click here


Fees and subscriptions
An annual subscription to a body shown in the list, as approved by HMRC, is allowable.

Accountancy fees
HMRC will not allow a deduction for the cost of preparing an individual’s personal tax return. However, accountancy fees for the preparation of business accounts are allowable expenses.

Website cost
A website that will directly generate sales, subscriptions, advertising or other income will normally be regarded as creating an enduring asset and consideration should be given to treating the costs of developing, designing and publishing the website as capital expenditure. Whilst a revenue deduction would not therefore be allowable, this capital expenditure will generally qualify as expenditure on plant and machinery for capital allowances purposes. Expenditure on initial research and planning, prior to deciding to proceed with the development of a website, is normally allowable as revenue expenditure. The regular update costs of the website are likely to be revenue expenses and so allowable for tax purposes.

Relocation expenses
If the business is not moving to a larger premises such expenses are allowed. However, if the business is moving to a significantly larger location, such that removal costs will be an ‘enduring benefit’ to the trade, the expenses are capital in nature and not allowed. 

Fines and penalties
Penalties/fines for a breach of regulations, or as the result of a prosecution for a trader’s breach of regulations, will not be an allowable expense. However, payments for damages that are compensatory rather than punitive are tax deductible. That includes, for example, damages for defamation payable by a newspaper company, where such claims are ‘a regular and almost unavoidable incident of publishing’. Also, where an employer pays fines that are the liability of an employee, so that the employee is taxable on the payment as employment income, the cost to the employer of paying the fines is allowable in computing his/her trading profits.

Entertaining and gifts
Expenditure on business entertainment or gifts is not allowable as a deduction against profits, even if it is a genuine expense of the trade or business. However, if the total cost of all assets gifted to the same person in the same basis period is not more than £50, and the gift bears the business name, logo or a clear advertisement, and the gift does not include food, drink, or tobacco, it is allowed. The cost of staff entertaining is specifically allowed (ITTOIA 2005 s46).

Pension contributions

A pension contribution by an employer to a registered pension scheme in respect of any employee will be an allowable expense unless there is a non-trade purpose for the payment. 


One situation where all or part of a contribution may not have been paid wholly and exclusively for the purposes of the trade is where the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer, or the contribution is linked to the cessation of a trade. The deduction is for the period of account in which contributions are paid by the employer, and for no other period, unless either the deduction is required to be spread over a number of periods, or the deduction is allowed for an earlier period.

Useful links:

HMRC help sheet 222 – how to calculate your business profits

HMRC guidance for Simplified expenses

Marriage allowance and married couple’s allowance

Taxpayers may be missing out on tax reliefs for 2017-18.


Taxpayers may be missing out on tax reliefs for 2017-18.

 

Let’s examine the rules regarding the different allowances, eligibility and what happens when changes occur. Taxpayers living in the UK are entitled to a personal allowance and – if married or in a civil partnership – may also be able to claim marriage allowance or married couple's allowance too.

 

Main characteristics:

  1. Marriage allowance should not be confused with the married couple’s allowance. So if you are entitled to the married couple’s allowance, you cannot claim marriage allowance as well.
  2. The marriage allowance can be claimed by a married couple or civil partnership where both partners are no more than basic rate taxpayers.
  3. The lower earner can transfer a fixed amount of £1,150 for 2017-18 of marriage allowance to the other.
  4. This allowance can only reduce the recipient’s liability to nil, it cannot create a refund.
  5. If you contact HMRC to stop transferring the allowance to your partner, it will end at start of the next tax year.
  6. If your partner contacts HMRC to stop receiving your allowance, HMRC will backdate the change to the start of the current tax year.
  7. If you get divorced or dissolve your civil partnership, contact HMRC to cancel the allowance. You can have the change applied at the start of the tax year (6 April) you got divorced in – or the start of the next one.

 

What is marriage allowance?

Marriage allowance was introduced from 2015-16. Subject to certain conditions an individual may transfer part of his/her personal allowance to a spouse or civil partner. The transferable amount is:

  1. for the tax year 2015-16 is £1,060 and
  2. for the tax year 2016-17 and subsequent tax years is 10% of the amount of the personal allowance for the tax year to which the reduction relates. If the transferable amount so calculated would not be a multiple of £10 it is rounded up to the nearest amount which is a multiple of £10.

 

Relief is given to the transferee spouse/partner by means of a reduction in what would otherwise be the transferee’s income tax liability equal to tax at the basic rate for the year on the transferred amount.

 

Conditions for transferor to meet

  1. The transferor is married to, or in a civil partnership with, the same person when the election is made and for at least part of the tax year in question
  2. The transferor is entitled to the personal allowance for the year
  3. The transferor would not be liable to income tax at the higher or additional rate or the dividend upper or additional rate (assuming that the marriage allowance election was successful). The allowance is still available if the transferor didn’t earn anything at all in the tax year.
  4. Transferors who are non-UK residents need to be eligible for a personal allowance.


Conditions for transferee to meet

  1. The transferee is married to, or in a civil partnership with, a person who has made a marriage allowance election which is in force for the tax year in question
  2. The transferee is not liable for that year to income tax at the higher or additional rate or the dividend upper or additional rate
  3. The transferee is UK resident for the year or, if non-UK resident, is eligible for personal allowances
  4. Neither the transferee nor the transferee’s spouse or civil partner makes a claim to married couple’s allowance for the year.

 

Taxpayers can backdate their claim to include any tax year since 5 April 2015 that they were eligible for marriage allowance. So while preparing the tax return for 2017-18, taxpayers can claim for 2015-16 marriage allowance transfer if they have not done already so.

 

Election for marriage allowance

The election must be made by the transferor no later than four years after the end of the tax year to which it relates. Provided the transferor conditions are met the election, once made, continues for each subsequent tax year unless:

  1. it is made after the end of the tax year to which it relates, in which case it has effect for that one year only; or
  2. it is withdrawn by notice given by the individual by whom it was made; or
  3. the transferor’s spouse or civil partner does not obtain a tax reduction in respect of a tax year for which an election is in force, in which case it ceases to have effect for subsequent tax years, although the person can make further elections.

 

Example – 2017-18 tax year

A married woman receives taxable income of £9,000 in 2017-18 from self -employment and she has no other taxable income. Her husband has employment income of £43,000 and no other taxable income. They are not eligible for married couple’s allowance. The wife has elected for ‘marriage allowance’ to transfer part of her personal allowance to her husband.

 

Husband

Employment income                                                             43,000

Less personal allowance                                                      11,500

 Taxable income                                                                   31,500

Tax due          £32,000 @ 20%                                              6,300

Less transferable tax allowance £1,150 @ 20%                      230

Tax due                                                                                 6,070                       

Wife

Self-employment income                                                      9,000

Less personal allowance                                                     11,500

Less transferred tax allowance                           1,150       10,350

 

Taxable income nil as income lower than Personal Allowance    nil                        

 

Tax saving

If the personal allowance was not transferred then the husband would pay tax of (£31,500 at 20%) £6,300. Therefore the couple have saved £230 in tax by transferring part of the wife’s personal allowance.

 

You can read HMRC’s further guidance on this matter.

 

What is married couple’s allowance?

Married couple’s allowance is available to any married couple where at least one spouse was born before 6 April 1935. Entitlement to married couple’s allowance is extended to same-sex couples who are civil partners under the Civil Partnership Act 2004 if at least one partner was born before 6 April 1935. Unlike the age-related personal allowance the age reference to 1935 does not normally change from tax year to tax year.

 

For marriages before 5 December 2005, the husband’s income is used to work out married couple’s allowance. For marriage and civil partnerships after this date, it’s the income of the highest earner.

 

Married couple’s allowance applies as a reduction in the claimant’s income tax liability. The reduction is 10% of the amount of the allowance. This tax reduction (like other tax reductions) is restricted to the extent that it would otherwise exceed the individual’s remaining tax liability after making all prior reductions.

 

The couple should be living together during the tax year. It is possible that when an elderly taxpayer moves into a care home the couple may become separated for tax purposes and the married couple’s allowance may no longer be available.

 

For the 2018 to 2019 tax year, it could cut your tax bill by between £336 and £869.50 a year. HMRC's calculator can be used to work out how much the claim can be worth.

 

What are the rules in the year of marriage or death?

Year of marriage

Where the marriage or civil partnership is entered into during the tax year (and in that year the person had not previously been entitled to the married couple’s allowance), the allowance is reduced by one-twelfth for each ‘fiscal month’ of the tax year ending before the date of the marriage or civil partnership.

 

For example, if marriage occurred on 3 October 2017, there would be five fiscal months (five months from 6 April 2017 to 5 September 2017) up to 3 October 2017. The reduction in the allowance is computed after applying any necessary restriction by reference to the income limit.

 

Year of death

Where either the husband or wife – or either civil partner – dies in a tax year then the married couple’s allowance is available as if the marriage or civil partnership had continued until the end of that tax year. There is no reduction in the married couple’s allowance in the year of death.

 

The ‘higher married couple’s allowance’ and ‘income limits’ are as follows:

 

Tax year

Basic married couple’s allowance

Maximum married couple’s allowance

Income limit

2018-19

£3,360

£8,695

£28,900

2017-18

£3,260

£8,445

£28,000

2016-17

£3,220

£8,355

£27,700

2015-16

£3,220

£8,445

£28,000

 

The ‘higher married couple’s allowance’ is available where the claimant or his wife is at any time in the tax year aged 75 or over, or would have been but for his or her death in that year. In recent years this would apply as if one of the spouses was born on 5 April 1935 that person would be 80 years old on 5 April 2015.

 

Where the claimant’s adjusted net income exceeds the income limit, the maximum allowance is reduced by one-half of the excess, except that it cannot be reduced to less than the basic married couple’s allowance (ie the married couple’s allowance is reduced by £1 for every £2 of income over this limit).

 

Example – 2017-18 tax year

Mr A is a married man, born on 1 February 1934. He has a net income of £33,000 for 2017-18 and no dividend income or savings income. He and his wife were married before 5 December 2005 and they were living together for the 2017-18 tax year.

 

Net income                                                                                                    33,000

Less personal allowance                                                                               11,500

Taxable income                                                                                             21,500

Tax payable at 20% on £21,500                                                                     4,300

Less married couple’s allowance £5,945 @ 10%                                              595

Tax payable                                                                                                     3,705

 

Workings to calculate £5,705 figure above

Maximum married couple’s allowance                                                            8,445

As income is over income limit of £28,000

Excess of net income over income limit

(£33,000 - £28,000) = £5,000

Maximum allowance reduced by half of excess £5,000/2                             2,500

Reduced married couple’s allowance                                                           5,945           

 

You can read HMRC’s guidance on this matter.

 

The Scottish rate of tax

A recap on who, what and when to help with 2017-18 SA tax returns.


A recap on who, what and when to help with 2017-18 SA tax returns.

 

Scottish income tax is paid if the taxpayer lives in Scotland. It’s paid to the Scottish government. This sounds straightforward but the devil is in the detail.

 

Who pays Scottish income tax?

For most, the issue will be quite straightforward in that you pay Scottish income tax if you live in Scotland. However, there are some other factors to consider.

 

You may also pay Scottish income tax if you:

  • move to or from Scotland – Scottish Income Tax applies if you move to Scotland and live there for more than half the tax year. HMRC must be informed of the new address of the move to or from Scotland. Otherwise tax may be paid at the wrong rate. The new rate payable will be backdated to the start of the tax year (6 April) of the move. The tax taken from wages or pension will be adjusted automatically so the correct amount is payable across the whole year.
  • live in a home in Scotland and one elsewhere in the UK, for example for work.

 

This is where the details get complicated. The main home is usually where the taxpayer lives and spends most of their time. It doesn’t matter whether they own it, rent it or live in it for free. But to complicate matters, the main home may be the home where less time is actually spent if that’s where:

  • most of their possessions are
  • the family lives, if married or in a civil partnership
  • the person is  registered for things like a bank account, GP or car insurance
  • the taxpayer is a member of clubs or societies.

 

An example of this is if you live away because of your work, for example a lorry driver, an offshore worker or in the armed forces. The taxpayer should contact HMRC to change which home counts as your main one.

 

Doubts about which is the main home?

HMRC has detailed information about working out which is the main home, including issues like students, mobile workers, no permanent residence, traveling etc

 

What are the tax rates?

The tax rates for 2017-18 and 2018-19 are as follows:

 

2017-18 tax year

 

Band

Taxable income

Scottish tax rate

Personal allowance

Up to £11,500

0%

Basic rate

£11,501 to £43,000

20%

Higher rate

£43,001 to £150,000

40%

Additional rate

over £150,000

45%

 

2018-19 tax year

Band

Taxable income

Scottish tax rate

Personal allowance

Up to £11,850

0%

Starter rate

£11,850 to £13,850

19%

Basic rate

£13,851 to £24,000

20%

Intermediate rate

£24,001 to £43,430

21%

Higher rate

£43,431 to £150,000

41%

Top rate

over £150,000

46%

 

 

Scottish income tax applies to your wages, pension and most other taxable income. You’ll pay the same tax as the rest of the UK on dividends and savings interest.

The table shows the rates payable in each band if you have a standard personal allowance. You don’t get a personal allowance if top rate tax is payable. This means that currently the allowance is zero if the income is £123,700 or above.

 

On 12 December 2018 the Scottish government announced the following income tax rates and bands for 2019-20 in the Scottish Budget 2019-20.  These will be considered by the Scottish Parliament, and an agreed Scottish Rate Resolution will set the Scottish income tax rates and bands for the tax year 2019-20:

 

 

Bands

Band name

Rate

Over £12,500-£14,549

Starter Rate

19%

Over £14,549-£24,944

Scottish Basic Rate

20%

Over £24,944-£43,430

Intermediate Rate

21%

Over £43,430-£150,000

Higher Rate

41%

Above £150,000

Top Rate

46%

 

How is Scottish income tax paid?

If you’re employed or get a pension, your tax code will start with an ‘S’. This tells your employer or pension provider to deduct tax at the Scottish rate. Your tax code will be S1185L (2018-19) if you pay Scottish income tax and get the standard Personal Allowance.

 

If you fill in an online Self Assessment tax return, there’s a box for you to tell HMRC that you pay Scottish income tax.

Directors’ loan account – a big issue for tax returns

Correct disclosure of DLA entries is vital.


Correct disclosure of DLA entries is vital.

 

Directors’ loan account (DLA) adjustments are a constant theme in the accounts of SME companies. Members are often faced with the task of analysing SME transactions and explaining which credits should/should not go to the DLA. This is a particular problem in the tax return season when it comes to declaring/identifying dividends.

 

Often the directors/shareholders are rather keen to process entries which appear to benefit them but they do not understand the real implications. The directors of SMEs, mainly due to the size of the business, necessarily tend to concentrate on day to day activities and pay less attention to accounting and tax matters. 

 

This often results in HMRC and the client having conflicting views. An example of their interest in this subject is a first tier tribunal victory for HMRC where an appeal against PAYE/NIC was dismissed. This is a case which demonstrates that HMRC are looking at the entries in DLAs and that they can/will assess tax when they see it as applicable.

 

Briefly the facts of the case were:

The appellant company is an SME which their own accountant described at the tribunal as ‘the appellant is a small business and is conducted very informally between the shareholder directors’. (Does this ring any bells for members?)

 

One of the directors had loaned the company a substantial amount of money a few years ago. This was on an informal basis and so it was not clear whether there was a loan agreement or if the loan was interest bearing.

 

The tribunal heard that it had been ‘agreed’ that on 30 September annually his loan account was to be credited with an annual salary of £16,000. By 30 September 2013 eight such sums had been so credited. HMRC carried out an employer’s record inspection and was told that:

  • the director was paid £16,000 at the end of each trading year but that the amount was credited to the loan account
  • no payments had in fact been made to him and accordingly, it was the appellant’s understanding that no PAYE or NICs were due by in respect of the sums credited.

 

The tribunal heard that on 2 January 2014 the appellant’s representative confirmed that the sums credited to the DLA had been voted upon but as they had not been paid it was proposed that in the 2013 corporation tax accounts all sums credited (£128,000) would be reversed by way of prior year adjustment (PYA). That adjustment was included in the 2013 accounts and provided to HMRC on 30 June 2014.

 

The appellant also told the tribunal that the entries were made ‘for good housekeeping reasons’, and were accrued by way of an ‘aide memoir’. It was claimed that the PYA undertaken in the 2013 annual accounts was simply to reverse out the accrual which was never really intended.

 

HMRC took the view that the annual sums had been accrued and any attempt to reverse the accrual by PYA or otherwise was ineffective and that the PAYE and NICs remained due. The company appealed against this.

 

The outcome of the tribunal was that PAYE/NIC was due on the entries and that it was not possible to avoid them by a prior year adjustment. The appeal by the company was dismissed.

 

Clearly the directors of this SME were not aware of the potential dangers that an ‘informal’ approach to their records might bring. 

 

The points arising during the tribunal are very interesting and are useful to members when advising their clients on similar issues:

 

PAYE/NIC on deemed salary:

  • any salary, wages or fees obtained by an employee (or director) if it is in money or money's worth, that constitutes an emolument of the employment, is chargeable to income tax
  • the amount received by an employee (or office holder) will be taken to be the sum net of tax and the PAYE and NIC obligations will sit on top of the sum retained by the employee
  • the provisions of section 8 Social Security Contributions (Transfer of Functions) Act 1999 and regulation 80 Income Tax (Pay As You Earn) Regulations 2003 provide HMRC with the power to collect PAYE tax and NICs where it appears to them that there has been under payment by an employer.

 

Other issues:

  • by reference to the provisions of the Companies Act 2006 (ss393 and 454) HMRC contended that the accounts had been prepared on a true and fair view and that any attempt by the appellant to restate the accounts by way of the prior year adjustment was incorrect
  • there was limited evidence available to the tribunal
  • the entries credited to the loan account indicated the director was content for the cash to be continued to be used in the business and had he chosen to do so he could have called in the loan or otherwise enforced the debt he was owed by the company
  • the PYA did not appear to have been done properly and in any case although the director sought to absolve the company of its liability to him, he could not absolve it of its liability to HMRC
  • if the appellant had wanted to escape the charge to income tax under PAYE and the charge to NICs he needed to have indicated that he did not consider the annual fees payable to him in advance of each trading year end, before the vote for accruals in his favour and before the entries in the company.

 

HMRC has updated its directors’ loan account toolkit for 2017-18 which gives its guidance for agents (including a checklist). For more details on HMRC’s toolkits see our separate article in this newsletter. 

 

HMRC also has guidance relating to overdrawn loan accounts

HMRC free checklists help agents reduce tax return errors

Do you use any of HMRC’s agent toolkits?


Do you use any of HMRC’s agent toolkits?

 

HMRC has around 20 toolkits – which are free – for agents to download and use. 

 

They are a free online resource to help you avoid the most common errors that HMRC sees in tax returns filed by agents. Each toolkit is reviewed and updated at least annually to make sure they reflect any changes arising from the relevant finance acts and other issues.

 

The toolkits have been created with input from agents and their representatives, including the Compliance Reform Forum. However, the content is based on HMRC’s view of how tax law should be applied.

 

A selection of the most recently updated toolkits relevant to the self-assessment season are:

 

Each toolkit has a checklist which the agent can download and fill in to help in the tax return completion process. This will help to identify the key issues to address with links to further online guidance and information on each area. For instance:

 

 

HMRC acknowledges that agents and advisers play an important role in helping their clients to get their tax returns right. These toolkits are designed to help reduce errors, demonstrate reasonable care and file timely and accurate tax returns. For more information on how HMRC sees penalties and reasonable care follow this link to HMRCs ‘Penalties – an overview for agents and advisers’ where you can see a full list of toolkits.  HMRC tells us that the most popular is on property rental. HMRC would like to hear about your experience of using the toolkits to help develop and prioritise future changes and improvements.

 

HMRC is also interested in your views of any recent interactions you may have had with the department. Send HMRC your feedback

 

 

 

Self assessment exclusions

There are ongoing problems with HMRC’s self assessment tax calculator.


There are ongoing problems with HMRC’s self assessment tax calculator.

 

HMRC is working to resolve these but the exclusion list is still being updated. This is to reflect fixes made, new issues resulting from those fixes and updated guidance. 

 

Where a return can’t be filed for one of the reasons listed and providing that a paper return is filed before 31 January HMRC accepts that the taxpayer had a reasonable excuse for filing a paper return after the 31 October deadline.

 

The exclusions include:

  • Scottish taxpayer issues
  • dividend income issues
  • income from property and transfer of some of their PA.

 

See the latest exclusions now

 

Pre-letting expenses

How and when pre-letting expenses can be claimed.


How and when pre-letting expenses can be claimed.

 

Profits from UK land or property are treated, for tax purposes, as arising from a business. The broad scheme is that rental business profits are computed using the same principles as for trades (ITTOIA 2005, s272). Expenses are allowable if they are incurred ‘wholly and exclusively’ for the rental business.

 

When does the letting business begin?

The date a rental business begins is a question of fact that depends on the nature of the rental business. Normally a rental business will begin when the customer first enters into a transaction that exploits their land or property in a way which gives rise to a receipt of some kind.

 

The start date can be important because it can affect the amount of expenditure allowable in calculating rental business profits. Some expenditure incurred before the business begins may not be allowable but some may be allowable under special rules, if so, the deduction is given in computing the profits of the business in the first year.

 

What expenditure is allowable?

Allowable revenue expenditure incurred before the rental business begins can be relieved under the ICTA88/s401 or ITTOIA05/s57, provisions for pre-trading expenditure.

 

Relief is only due if the expenditure:

  • is incurred wholly and exclusively for the purposes of the rental business
  • is not capital expenditure
  • is incurred within a period of seven years before the date the rental business is started, and
  • is not otherwise allowable as a deduction for tax purposes, and
  • would have been allowed as a deduction if it had been incurred after the rental business started.

 

Thus, for example, council tax on a property could be allowable under the above rules if it is due before the property is first let, provided the property was acquired solely for the purposes of the rental business. However, the relief is not allowable if the council tax was paid on the taxpayer’s own private residence before the property was let (as it would be the taxpayer’s own expense).

 

Qualifying pre-letting expenditure is treated as incurred on the day on which the taxpayer first carries on their rental business. So, any repairs carried out before the letting starts can still be deducted from the first year’s gross rents.

 

For more detailed guidance on pre-trading expenditure follow this link

 

Capital or revenue - two contrasting court cases

Pre-letting expenses have been challenged successfully by HMRC in Law Shipping Co Ltd v CIR 12 TC 62. Pre-letting expenses were disallowed on the key point that a ship was bought in a defective state and could not be used until the repairs had been undertaken.

This can be contrasted with the expenditure in Odeon Associated Theatres Ltd v Jones 48 TC 257, where the dilapidated state of cinemas was due to the accumulation of repairs in wartime (and just after) when building work was not permitted to be carried out. The courts allowed the deduction.

 

Although both companies purchased assets in poor condition, there were key differences between the two cases:

  • in Law Shipping, the company acquired a ship in poor condition that had to be repaired before they could use it. This was capital expenditure on acquiring a working asset
  • in Odeon, the company was able to operate the cinemas for a number of years before they carried out the repairs. Furthermore, the price paid was not reduced to reflect the state of repair. The expenditure was found to be on repairs and, therefore, allowable.

 

The following factors should be considered:

  1. Whether the purchase price is substantially lower in order to reflect the poor state of the asset. Is there any evidence in, for example, the contract for the sale of the asset or in negotiations leading up to the contract that the purchase price was substantially less because of the dilapidated state of the asset?
  1. Whether the expenditure merely reflects the reduced value of an asset due to normal wear and tear (for example, between normal maintenance cycles)?

  2. Whether the asset could be used shortly after acquisition without being repaired?
  1. Whether there is a sound commercial accountancy principle for the expenditure to be charged as revenue or capital. For example, has the asset been improved or just restored to its original state? HMRC does accept that the use of more modern materials or better technology does not by itself constitute capital expenditure (see Business Income Manual at BIM46920 to 25)?
  1. Whether abnormally heavy repairs expenditure is incurred on an asset shortly after the change of ownership?
Why we recommend setting up your ASA now

HMRC’s step by step guide to Agent Services Account.


HMRC’s step by step guide to Agent Services Account.

 

While you will not be able to use the new services account at this stage, it is worthwhile setting the account up in advance. HMRC has issued step-by-step guidance to support agents. In the guidance it is clear that you shouldn’t set clients up for MTD unless you have compatible software and they are ready. The guidance states:

  • to submit VAT returns on behalf of clients under Making Tax Digital, agents need a new Agent Services Account (ASA)
  • you may already have a new ASA if you’ve signed up for the Trust Registration Service (TRS) or signed clients up for the MTD for Income Tax Pilot. You do not need to create a new one for MTD for VAT
  • be prepared – once a client is signed up to MTD their returns MUST be submitted using MTD compatible software, so don’t sign up your clients unless they are ready
  • business that pay by direct debit must sign up at least 15 working days before they need to submit to allow the payment to be taken.

 

Step 1 – creating an Agent Services Account (ASA)

Before signing clients up to MTD you must first create an Agent Services Account (ASA), which is currently only used for the TRS, MTD VAT and MTD Income Tax. You will use your current Government Gateway (GG) ID to create your ASA, and as part of signing up will receive new credentials. It is these new credentials that you will use to access MTD services. You will still need your current GG IDs to access other HMRC online services.

 

Step 2 – linking existing agent/client relationships

Once the ASA is created, you can use the service to link existing authorised client relationships. Once each client is linked, you will see an ‘Account linked’ message. This process requires you to input your current GG IDs so that we can identify the relationship already exists. All the clients that exist under a specific GG ID are linked to the ASA (if you have multiple GG accounts you may need to repeat this step to link all of your clients). It’s important to note that the client list cannot be viewed from within the ASA.

 

Step 3 – authorise MTD compatible software

Before signing a client up to MTD you must make sure you have compatible software

Help your clients find international success

Could any of your clients benefit from expanding into, or increasing their sales in, overseas markets?


Could any of your clients benefit from expanding into, or increasing their sales in, overseas markets?

 

All over the UK, businesses are selling their services and products to customers around the world; yet there are still hundreds of firms that could export but don’t, or could export more. Could any of your clients benefit from expanding into, or increasing their sales in, overseas markets?

 

UK companies have a proud history of doing business overseas, and we certainly punch above our exporting weight compared to much of the rest of the world. However, we are also punching well below our potential.

 

Companies that export are more profitable, create more jobs and are more productive and yet there are still businesses across the UK, including I imagine many of your clients, that are not taking full advantage of these opportunities. Why is that? There are many potential factors, but one is almost certainly lack of available finance and insurance to support their international activities.

 

Even if companies have a great idea or product, they may find that they lack the working capital to take on a big export contract or would find their cashflow restricted were they to take one on, meaning that they might have to turn away other business. Or they might not be willing to take on the risks of selling overseas.

 

You can help your clients overcome these challenges and find success overseas by directing them to UK Export Finance (UKEF).

 

What is UKEF?

UKEF is the UK’s export credit agency and a government department, and our mission is to ensure that no viable UK export fails for lack of finance or insurance from the private sector.

 

We help companies of all sizes and from all sectors through a network of export finance managers across the UK who work with companies to check if they are getting the right export finance support and to help them bridge any gaps.

 

How can we help you and your clients?

By guiding your clients towards the wide range of support that UKEF can offer, you can help support their business growth and cultivate a stronger relationship with them. UKEF can help your clients:

  • win export contracts by providing attractive financing terms
  • fulfil orders by supporting working capital loans or contract bonds
  • get paid by insuring against buyer default.

 

One such company was the Falkirk-based bus manufacturer Alexander Dennis, which received a bank guarantee from UKEF on a 1 billion Mexican peso (£44m) contract to export 90 low-emission buses to Mexico City.

 

To an example of an SME, we recently helped Manchester-based children’s clothing company Leisurewear International nearly double its turnover in a single year thanks to support from UKEF’s working capital scheme for exports to North Africa, Ukraine and China.

 

This deal was secured through our new bank partnership signed with five major high-street banks, which allows SMEs to access millions of pounds of government support in mere moments, just by talking to their bank manager.

 

How to access UKEF’s support

If you would like more information on how your firm can work with UKEF to get export finance support for your clients head to www.gov.uk/ukef/partners

 

Alternatively, you could direct your clients to great.gov.uk/get-finance where they can find out if they are eligible for UKEF support.

 

David Priestley – head of EFM managers and business group operations, UK Export Finance

Tax authorities must recognise the risks in implementing digital tax collection tools

New report from ACCA examines technology tools and the future of tax administration.


New report from ACCA examines technology tools and the future of tax administration.

 

Tax administrations have always looked to the latest technological developments to assist in the task of effectively collecting taxes from the population. The current shift in the digitalisation of the global economy is an opportunity presented to national tax collectors to make a change in the efficiency of their processes.

 

Just as the digital tools can benefit tax administrations, the development and implementation of technological innovation in the private sector is a constant race to improve performance. According to its most recent report: Technology tools and the future of tax administration, ACCA urges tax administrators to manage the risk of imposing restrictive technological requirements on taxpayers. At the extreme regulatory constraints could deprive businesses of the opportunity to exploit the most economically efficient technology, stifling competition and even growth.

 

Tax authorities face the additional burden that their systems must work for every taxpayer in a stable and predictable fashion. As a matter of sheer practicality, tax systems cannot evolve constantly as businesses do. A single central authority will implement a single central system, which must balance the needs of every taxpayer and will by its nature change infrequently in discrete steps.

 

ACCA’s head of business and tax law, Jason Piper, says: ‘Businesses operate independently, and each will tailor its digital tools to match its own circumstances. The constant cycle of technological change means no two businesses will implement identical solutions. Tax authorities may see a benefit in imposing a standardised system which drags the least innovative business into the digital net. However, there is a risk that enforcing these changes will in some cases do more harm than good if they compromise other businesses’ ability to explore all benefits offered by digital tools.’

 

‘While most businesses have some level of technological awareness and use technology to an extent, many are by no means fully exploiting the potential benefits of these new tools. There are huge differences around the globe, with some economies “leapfrogging” ahead to mobile communications technology, completely bypassing the fixed infrastructure relied upon in more mature economies. ‘Many programmes of tax automation and digitalisation are based on evidence that the population as a whole “uses technology”. However, this may not map across to businesses. Even where the owners have bought a computer or smartphone, if a business does not have integrated systems or the national legal or commercial environment has yet to evolve, there will be a limit to the efficiencies tax administrations can exploit,' concludes Jason.

Improving the practising certificate application process

Useful advice for anyone considering applying for a PC.


 Useful advice for anyone considering applying for a PC.

 

On 1 January 2019 ACCA will launch a new way for members training towards an ACCA practising certificate (PC) or an ACCA practising certificate and audit qualification to record their experience.

 

Currently members must obtain a period of relevant experience and complete a Practising Certificate Training Record (PCTR) in order to be eligible for a PC. With effect from next year members who have not commenced their PCTR must meet the Practising Certificate Experience Requirements which will require members to document their experience within the Practising Certificate Experience Forms (PCEF).

 

ACCA has robust practising certificate requirements and this will continue with the launch of PCEF. The launch of PCEF will not dilute the rigour with which we evaluate members for a PC as the minimum competence level of PCEF remains at a challenging level.

 

PCEF has been designed following feedback from members. Using a framework and process that is similar to the student Practical Experience Requirements allows a smoother progression from student to practising member and a consistent user experience.

 

But what does it mean for members currently completing the PCTR? Members will not be able to combine both the PCTR and the PCEF – they will need to complete a single document (either PCTR or PCEF) to evidence their complete period of relevant experience. The Practising Certificate Experience Requirements state that all completed PCTRs need to be submitted and approved by ACCA by 31 December 2020. After this date only the PCEF will be accepted.

 

Similar to PCTR, PCEF will require evidence of performance in relation to a range of experience. The existing PCTR elements of competence have been revised and these are now arranged into different areas (mandatory, optional and audit). The PCEF itself will be in three parts:

  • Part 1 includes the overall PCEF guidance together with the mandatory areas, the principal review and the time summary
  • Part 2 contains the optional areas
  • Part 3 relates to the audit area.

 

A member training towards a practising certificate would be expected to complete Part 1 and Part 2, whereas a member training towards a practising certificate and audit qualification would complete all parts.

 

Members will need to complete statements of achievement documenting experience gained in relation to these areas. These statements must be reviewed and achievement confirmed by the member’s training principal. Members can complete these statements of achievement at any point during their training towards a PC. In addition to the statements of achievement, members must also undertake six monthly reviews with their training principal. These should be recorded in the principal review section of PCEF. There is also a time summary which must be completed on a six-monthly basis.

 

What about members who want to obtain the audit qualification? In order for members to obtain an ACCA practising certificate and audit qualification, they must meet specific exam requirements.

 

From September 2018 Strategic Professional replaced the previous Professional level exams. Members wanting to apply for an ACCA practising certificate and audit qualification must therefore pass the UK or Irish variants of Strategic Business Reporting and Advanced Audit and Assurance. Members were previously required to have passed the UK or Irish variants of P2 Corporate Reporting and P7 Advanced Audit and Assurance.  

 

Further information in relation to the specific exam requirements of the ACCA practising certificate and audit qualification is available on our website

 

What next? We are in the process of finalising our additional resources to assist members and training principals in relation to these changes. These will include:

  • guidance notes explaining each of the areas
  • comprehensive examples of completed statements of achievement
  • a series of bite-sized webinars explaining the different aspects of PCEF
  • a training principal guidance pack
  • a transition guide.

 

These will go live on 1 January 2019 and will be included in the recently launched practising certificates and licences section of our website.

 

We will also be running various live Q&A sessions and look forward to bringing you more news on these changes in the coming months.

 

Stefan Pegram – head of licensing, ACCA

 

 

 

 

Where there’s a will there’s a way…

Guidance from Lockton on how to insure probate work.


Guidance from Lockton on how to insure probate work.

 

Many accountants now include probate activities in the professional service offerings to their clients. Although regarded as very complementary to tax planning, estate management and wealth management, probate is nevertheless seen by insurers as a diversification for an accountancy practice and must be disclosed to insurers so that appropriate professional indemnity cover can be put into place.

 

Professional indemnity insurers will require confirmation that probate practitioners have achieved (and maintain) competence and qualifications to undertake probate activities. ACCA provides guidance, support and relevant skills training, with the next round of online training and assessment beginning in March.

 

Lockton guides practitioners on how best to insure this new exposure. If all partners/directors are qualified to undertake probate activities and if the probate work represents less than 20% of the total income of the firm, the practice can usually extend its current professional indemnity policy to cover this diversification.

 

However, if the probate work represents a more significant percentage of the total income and/or is undertaken by only a limited number of qualified individuals in the firm, then businesses often form a separate limited company to carry out the probate work. In most cases we are able to cover this additional company under the existing professional indemnity policy.

 

Consideration must be given to the requisite limit of indemnity for the probate work. ACCA regulations require a minimum of £100,000 for any one claim limit of indemnity. Anyone engaged in probate activities must also assess the maximum exposure of any single client and/or estate so insuring that the limit of indemnity is adequate in the event of negligent advice or failure to act.  

 

Lockton is on hand to discuss the parameters of cover and the appropriateness of the limit of indemnity for your business – call 0117 906 5057, email ACCAaccountants@uk.lockton.com  or visit our website for more information.

 

Catherine Davis – ACCA relationship manager, Lockton Companies LLP

 

 

Professional fees and subscriptions

Claims by individuals for income tax relief.


Claims by individuals for income tax relief. 

 

Tax relief can be claimed on fees or subscriptions paid to approved professional organisations where an individual must have membership to do their job or it’s helpful for their work. 

 

The claims are under sections 343 and 344 ITEPA 2003 and in the Employment Income Manual EM 32915 it is stated that a deduction may not be given in respect of:

  • a fee or contribution not included in List 3
  • an annual subscription to a body that has not been approved by the board
  • an entrance fee or a life membership subscription
  • a fee, contribution or subscription borne by the employer, unless the payment by him is treated as earnings.

 

List 3 contains a large number of bodies and is regularly updated with additions and removals.

 

The guidance also states that ‘normally it will be apparent from the nature of the person’s employment whether the fee or contribution is paid as a statutory condition of exercising the employment, or whether membership of the approved body to which the annual subscription is paid is relevant to the employment. Where membership does not seem directly relevant you should consider whether the nature of the duties is such that a deduction is nevertheless allowable.’  

 

It is also stated that ‘Time should not be spent in making enquiries regarding the relevance of a subscription unless membership of the body appears to be quite unrelated to the employment'.

ACCA responds to reviews of the audit market

ACCA has welcomed the publication of findings from two major reviews of the UK audit market.


ACCA has welcomed this week’s publication of findings from two major reviews of the UK audit market: the Competition and Markets Authority’s Statutory audit services market study and the Kingman Independent Review of the Financial Reporting Council; and the announcement of a further Brydon Review into UK Audit Standards.

 

Andrew Gambier, head of audit and assurance at ACCA, said:“Audit has immense value to business and the wider economy by supporting trust and confidence in companies’ financial statements and therefore the effectiveness of capital markets in raising capital.  In the wake of several recent high-profile corporate failures, however, it is clear that the profession needs to change.

 

“It’s important that any discussion of improvements to the system, legislation and regulation is focused primarily on improving audit quality, and ACCA will use this as the central premise against which to evaluate the proposals outlined in the respective reviews.

 

“Another important consideration for any prospective solutions is what those within the audit profession frequently refer to as an ‘expectation gap’; whereby discussions about the future of audit and role and responsibility of the profession are hard and often unsuccessful because there is no general consensus of what an audit can, should and does achieve.  Recent ACCA research has shown that this gap has broadened, and recommends that the profession acts proactively to address the public’s concern.

 

“While the urgent pace of the CMA review helps to reduce uncertainty within the profession, it does raise concerns about the breadth of evidence used to justify the proposed changes.

 

“ACCA is concerned that there is not enough evidence demonstrating a positive impact on audit quality from the proposals for joint audits or separation of audit and consulting within firms. These proposals risk generating unintended consequences – such as confusion over roles and responsibilities and greater barriers for audit teams in accessing expertise on complex issues – without alleviating the original issue. As a result, this could exacerbate the expectation gap further.

 

“We support the CMA’s proposal to increase the accountability of audit committees.

“ACCA also supports the general direction of the overarching regulatory framework being proposed by Sir John Kingman. We are reviewing the recommendations in detail over the coming weeks, but certainly welcome such changes as introducing a statutory levy – which provides more security along with greater independence; and the responsibility for approval and registration of audit firms conducting Public Interest Entity audits – this will further focus the regulator’s role and remit in this area.

 

“With multiple concurrent reviews into the sector, it’s important that there is one final set of conclusions which incorporates a holistic review of the system, an understanding – and addressing of – the expectation gap as it stands, and due consideration of all recommendations to date. The Brydon Review could potentially be well placed to fill this role.

 

“Further to the above initial thoughts, ACCA is considering all proposals in more detail over the coming weeks. We look forward to working with the CMA, Kingman Review, BEIS Select Committee, Brydon Review and others into the New Year on the most workable solutions for improving audit quality.”

NEWS
Your guide to this month's highlights:


News and tools for you

Find out about questions to ask your IT provider, making the most of your membership, our practical guide to apprenticeships and update courses in UK tax, GAAP and IFRS.


Questions to ask your IT provider

Making the most of your membership

ACCA's practical guide to apprenticeships

Advanced Diploma in International Taxation

Update courses in UK tax, GAAP and IFRS

Free webinar: Avoid the pitfalls on SRA reporting

2020 technology survey

 

Questions to ask your IT provider

ACCA and HMRC have collaborated on two guides containing questions to ask your IT provider when undertaking business with them. You can also share these with your clients. Find out more now

 

 

ACCA’s practical guide to apprenticeships
From funding and contracts to off-the-job training and further study, this is what you need to know about apprenticeships. They represent a highly cost-effective way for you to recruit and develop ambitious new talent to help you realise your business ambitions. Apprenticeships also have the added benefits of being able to offer high quality training, on-the-job experience and local employment opportunities. Apprenticeships can be complex so we have developed this guide that includes all the practicalities you need to consider if you are interested in taking advantage of the government’s funding to grow your own talent. 
 

 

Making the most of your membership

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

 

 

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.

 

 

Free webinar: Avoid the pitfalls on SRA reporting (7 February)

This webinar will cover the SRA's future policy reforms, new accounts rules (including guidance and implementation), key client money risks that are a priority (such as banking facilities, investment fraud), and quality of accountant's reports. Register your place now.

 

 

2020 technology survey

The 2020 technology survey is intended to be the most comprehensive and wide ranging analysis of the technology used by accounting firms today, both large and small. By completing this survey, you will receive a full copy of the results at no charge, providing valuable insights never available before, into the technology used by accountancy practices across the country.

Special offers from app partners

Hurry - if you want to benefit from these special offiers from Xero and a range of app partners!


At our digital roadshows this autumn, many of you were able to talk with Xero and a selection of their app partners – including Hubdoc, Receipt Bank, Practice Ignition, GoCardless, FUTRLI and Fluidly – and learn about how these apps can transform elements of your business.

 

Many of these app partners have made available 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.

Become authorised to provide probate services

We've partnered with Kaplan Altior to provide convenient, cost-effective training to conduct probate.


As part of our commitment to help small and medium sized practices broaden the range of services they provide clients, we are pleased to be able to offer you the opportunity to become authorised to undertake non-contentious probate work.

 

We have partnered with Kaplan Altior, which is providing a cost effective online training and examination solution. During 2018 a number of members have already become authorised and early feedback suggests this is already making a tangible difference to relationships with some clients.

 

Kaplan Altior's tailored solution for ACCA members costs just £550 (+VAT) per person for the online training and £215 (+VAT) per person for assessment and is open to anyone who holds an ACCA practising certificate. The next round of training and assessment takes place as follows:

  • Training: 6 x 2-hour sessions (10am-12pm) 5 March, 7 March, 12 March, 14 March, 19 March, 21 March
  • Assessment: 4 April 2019.

The comprehensive training will cover all the key aspects of probate, including: validity of wills; intestacy; analysis of a will; inheritance tax; obtaining a grant; oaths; IHT forms; duties/powers of PRs; administration of the estate; completing the administration; and estate accounts.

 

Register now for the course and assessment

 

Free support
If you are looking for support on how to integrate probate into your practice, request our free probate factsheets by emailing supportingpractitioners@accaglobal.com, including in the subject line 'probate factsheets'.

 

You can also listen to a recorded webinar, Understanding the probate process in the UK

 

ACCA's probate registration procedures include links to forms and FAQs.

 

If you have any other queries, please email supportingpractitioners@accaglobal.com

Demonstrate your excellence in Xero

Your firm can now benefit from free access to Xero Advisor Certification.


Does your practice use Xero? Thanks to the Memorandum of Understanding we signed with Xero this summer, your firm can now benefit from free access to Xero Advisor Certification.

 

Completing the Xero Certification Equivalency Course is a great step towards gaining an extremely solid understanding of all things cloud accounting and of Xero. It’s also great for employability because demand for these skills has never been greater both at bookkeeping and accounting practices and at more than 300,000 subscribers across the UK.

 

Access this benefit now (use promo code ACCAX12m).