Technical and Insight
Maximising entrepreneurs’ relief for directors/shareholders

How to maximise entrepreneurs’ relief and reduce your tax bill when establishing a personal company.


How to maximise entrepreneurs’ relief and reduce your tax bill when establishing a personal company.

 

Split business ownership to benefit from increased lifetime limits

Consider sharing the ownership with a spouse or family member to extend the benefit of all individuals’ lifetime limits to cover more of the gain when there is a chance of the company growing and generating high value gains in excess of £10m.

 

Ensure the type, class and percentage of shares you hold qualifies you for ER

From 29 October 2018, to qualify for ER you must hold 5% of share capital and voting rights throughout the relevant period (12 months if sale or cessation was before 29/10/18, or 24 months for cessations or disposals after 29/10/18), and meet condition a. below:

  1. by virtue of that holding, you are beneficially entitled to at least 5% of the profits available for distribution to equity holders and, on a winding up, you would be beneficially entitled to at least 5% of assets available
    or (from 21 December 2018 only) meet alternative condition b. below
  2. in the event of a disposal of the whole of the ordinary share capital of the company, the individual would be beneficially entitled to at least 5% of the proceeds.

 

Alphabet shares may qualify

Without the recently added condition b, holders of alphabet shares, or other shares with varying and insufficient dividend rights, could have been denied ER. However, after the December 2018 Bill Amendment, alphabet shares may continue to qualify for ER, as long as they entitle the holder to at least 5% of sale proceeds in the event the business is sold.

 

Ordinary and preference shares assessed based on the same rights criteria

Whether you hold ordinary shares or preference equity shares is less relevant. It is the rights those shares give that will determine your ER entitlement. There have recently been several cases where the definition of a personal company was challenged by HMRC. The lessons from tribunal hearings were that judges try and adhere to the literal meaning of the terms of the law when ruling on cases when applying the law, although we are yet to see a case involving growth shares.

 

Relaxed conditions for EMI shares

Shares granted via an EMI scheme always qualify for ER as there are no personal company tests to be met. The test of the qualifying period of 24 months does apply, but the holding period includes the period when you held the options. 

 

Nominal value of share capital, not number of shares matters

When you assess whether or not you hold the required 5% of share capital, you need to establish whether the value of nominal capital you hold amounts to at least 5% of the total value of nominal capital issued. The number of shares you hold is not the correct reference point.

 

Indirect shareholdings via a personal company

Your personal company may be a member of a JV or partnership. The disposal of your shares in your company is likely to qualify for ER, if it had at least 5% interest in the trading JV or 5% interest in the income, capital and voting rights of the trading partnership for the relevant period.

 

Optimise business structure from the start

Consider the ownership structure in the context of a potential business disposal right from incorporation, if you can plan this far.  Any subsequent share transfers between individuals may trigger stamp duty and capital gains tax (unless business assets relief is claimed which will defer the gain) and unless occurring between spouses. 

 

Each shareholder will need to qualify for ER in their own right. The required 5% stake must be held outright directly for the relevant individual to qualify. Shares held by associates do not 'increase' ownership stake of a director wishing to claim ER. 

 

Take care when altering the rights attached to shares

Any changes to the rights of the shares may impact entitlement to ER. If, as a result of the recent changes in legislation, the rights need to be changed, for example by amending articles, the 24 month period during which the conditions to qualify for ER must be met will commence from the date of change.

 

Do not lose out when considering the 24 month qualifying period

All three qualifying conditions – (1) personal company, (2) trading company or holding in a trading group, and (3) you must be officer or employee  – must be met for the relevant 24 month period.

 

However, once you meet the personal company condition yourself and qualify for ER, any new shares you acquire will also qualify for ER (even if those newly acquired shares are not held by you for the relevant 24 month period). For example, if the shareholding in your personal trading company is split between you and your spouse, who due to the type of shares does not qualify for ER (for example they are non-voting shares), those shares could be transferred to you. You would qualify for ER on those newly transferred shares, as long as you already qualify for ER on your original shareholding.

 

Manage the impact of dilution

If a new share issue results in a dilution of your holding below the required 5%, and so at the point of a subsequent disposal your company is not your personal company, not all the benefit of ER is lost.

 

The gain on disposal is apportioned between the period up to dilution which is taxed at the ER rate of 10%, and the remainder period from dilution to disposal, which is charged at normal CGT rates. You can also elect to defer payment of ER CGT arising on dilution until the shares are actually sold and you receive the proceeds.

 

Align the ownership of an associated asset and the company for at least three years before you dispose of your shares

Where an asset held outside of the company but used in its business is held jointly but only one of the asset owners qualifies for ER on the sale of company shares, ER on the associated disposal of the asset will be restricted. The asset could be transferred to the director-shareholder but must then be owned and used in the business for at least three years from the date of transfer, otherwise the part transferred later will not qualify for ER. This causes complications if the sale of the shares cannot be sufficiently deferred to allow for the associated asset to meet the three year condition. The rules on ER on associated disposals are complex. Please refer to our guide below.

 

Manage cash carefully

Factor in the impact of any activities that may be considered non-trading. A company with substantial non-trading activities (usually meaning that the business generates 20% of its turnover or assets (depending on type of business) from those activities) is likely to have ER restricted or denied. Non-trading activities may mean activities such as accumulating excessive cash reserves, actively managing deposits to generate investment returns and making loans. However, this is a grey area and your case will be considered on its individual merits. Obtaining ER non-statutory clearance may clarify your specific circumstances.

 

Ensure your status as an officer or employee is not challenged

You should ensure your director or secretary status is reflected on Companies House public record and any resignation aligns with the disposal date of the shares. If you are an employee, your employment status must be evidenced by facts. HMRC may seek witness statements to confirm them.

 

Other available resources

More information on entrepreneurs’ relief, the changes it has undergone and their impacts has been published on our website and in our In Practice magazine. These can be accessed at the following links:

 

In Practice - Update on entrepreneurs’ relief changes

In Practice - It’s not personal – HMRC wins entrepreneurs’ relief case  

In Practice - Tricks and traps of associated disposals

Taxing times for children?

A detailed look at taxation and children.


A detailed look at taxation and children.

 

Subject to some exemptions, a child may have taxable income which is chargeable; however, the child will have full entitlement to personal allowances and reliefs.

 

The rights and obligations of a child with taxable income rest with the child, although his/her representatives are able to act on the child’s behalf under general law.

 

A child is less than 18 years old.

 

In England and Wales the testamentary age is 18, whereas in Scotland it is 12. This is the minimum age people are legally allowed to make a will. There are two exceptions which are:

  • soldier on active duty
  • sailor at sea.

 

In these limited circumstances the child can be any age. These exceptions have been in place since 1918, the year World War 1 came to an end. It was realised that young people can be placed in dangerous situations during the course of active duty, or whilst working at sea, and should have the opportunity to record their wishes.

 

The youngest age a child can work part-time is 13, except children involved in areas such as television, theatre and modelling. A performance licence is required in these circumstances.

 

Children can only start full-time work once they have reached the minimum school leaving age. The specific dates are different for England, Northern Ireland, Scotland and Wales, although the child has to be over 16 years of age.

 

Children and companies

There is no statutory provision prohibiting a child from owning shares. However, some companies will not accept shareholders under the age of 18 years by provision in their articles or terms of issue.

 

The issue to children of shares in the family company was held to be a settlement with the result that dividends were taxable as the parents’ income (Bird v HMRC [Sp C 720]).

 

Subject to very limited exceptions, a child under the age of 16 cannot be appointed as director of a company (CA 2006 s157).

 

Gifts to children

If a parent gives an asset to their child then the income arising on that asset (subject to certain exceptions) will be treated as income of the parent and not the child for tax purposes. This would cover assets such as money (earning interest), shares (receiving dividends) and property (receiving rental income). The initial transfer would be subject to capital gains tax as the transfer would be to a connected party and therefore would be deemed to occur at market value, then the income would be treated as the parent’s income until the child reached the age of 18, after which the income would be treated as that of the newly adult son/daughter. However, if the aggregate amount that would otherwise be treated as the parent’s income for that year in relation to any particular child does not exceed £100, then that income is not treated as the parent’s income but is treated as the child’s income.

 

Children can earn up to £100 per annum in interest on money given to them by a parent and that income will be treated as income of the child for tax purposes. If the child gets more than £100 in interest from money given by a parent then the parent will have to pay tax on all the interest if it is above their own Personal Savings Allowance and that parent will need to put the entry on their individual self-assessment tax return.

 

This only applies for transfers between parents and children, so if a grandparent gifts an asset to a grandchild the future income from that asset would be treated as that of the grandchild for tax purposes.

 

Child Trust Funds

A Child Trust Fund (CTF) is a long-term tax-free savings account for children. There is no tax on the income or gains of a CTF. Similarly, there are no tax charges when the fund matures on the child’s 18th birthday. No CTFs can be opened for children born after 2 January 2011. With effect on and after 6 April 2015, all the savings in a CTF can be transferred to a junior ISA for the child in question, with the CTF then being closed.

 

Anyone (including the child) may make payments into the CTF, although there is a limit of £4,368 (£4,260 before 6 April 2019) for any one year (the subscription year). A subscription year is the period from the opening of the account to the child’s next birthday, and each succeeding period of 12 months.

 

Withdrawals from the account are not permitted before the child reaches the age of 18 except in three circumstances as follows:

  • the account provider is allowed to make deductions in respect of management charges and incidental expenses.
  • where the child is terminally ill.
  • where the child dies before reaching 18.

 

Junior ISA (Individual Savings Accounts)

There are two types of Junior ISA:

  • cash Junior ISA
  • stocks and shares Junior ISA.

 

The child can have one or both types of Junior ISA. All income and gains are tax-free.

 

The Junior ISA belongs to the child; the parents or guardians will usually manage the account, although the child can manage the Junior ISA if the child is over 16 years old.  

 

Children and contracts

For a contract to be valid all parties must have the ability to understand the terms and any obligations of that contract. In general children under 18 lack the capacity to enter into a contract unless the contract is for necessities (food and clothing) or education (eg apprenticeship or schooling) or employment and the terms are fair and benefit the child.

 

The law presumes that children under seven years of age do not have the power to enter into a contract. Although a minor between seven and 18 can enter into a contract there is a presumption that they do not understand the implications of entering into the contract. This means that the minor is able to cancel a contract at any time before reaching the age of 18, and for a reasonable period afterwards without valid reason.

MTD vs digital records

An insight into what could be termed as 'digital records' under MTD.


An insight into what could be termed as 'digital records' under MTD.

 

With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold (currently £85,000), you are required to continue to keep digital records and send HMRC your VAT returns using compatible software. You must follow these rules even if your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019. This obligation does not apply if you either:

  • deregister from VAT
  • meet other exemption criteria.

 

VAT taxable turnover is the total value of everything you sell that is not exempt from VAT or outside the scope of VAT.

 

What you need to do now is future proof your processes for MTDfV.

 

What are digital records?

All VAT registered businesses must keep and preserve certain records and accounts. Under Making Tax Digital, some of these records must be kept digitally within functional compatible software. Records that are not required to complete your VAT return do not need to be kept in functional compatible software.

 

You must have a digital record of:

  • your business name
  • the address of your principal place of business
  • your VAT registration number
  • any VAT accounting schemes that you use
  • time of supply - the tax point
  • value of the supply - the net value excluding VAT
  • rate of VAT charged
  • the total output tax you owe on sales
  • the total tax you owe on acquisitions from other EU member states
  • the total tax you are required to pay on behalf of your supplier under a reverse charge procedure
  • the total input tax you are entitled to claim on business purchases
  • the total input tax allowable on acquisitions from other EU member states
  • the total tax that needs to be paid or you are entitled to reclaim following a correction or error adjustment, and
  • any other adjustment allowed or required by VAT rules.

 

This only includes supplies recorded as part of your VAT return. Supplies that do not go on the VAT return do not need to be recorded in functional compatible software. For example intra-group supplies for a VAT group are not covered by these rules.

 

The complete set of digital records to meet the MTD requirements does not all have to be held in one place or in one program. Digital records can be kept in a range of compatible digital formats. Taken together, these form the digital records for the VAT-registered entity.

 

Use of supplier statements

Where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown.

 

Petty cash transactions

Where a business uses petty cash to pay for small value items, these do not need to be individually recorded in the digital records. The business can record the total value and the total input tax allowable. This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry. VAT notice 700/21 gives more information on keeping VAT records.

 

What digital records must be kept for VAT schemes?

 

1          Flat rate scheme

You do not need to keep:

  • a digital record of your purchases unless they are capital expenditure goods on which input tax can be claimed
  • a digital record of the relevant goods used to determine if you need to apply the limited cost business rate.

2          Retail schemes

In addition to the records listed above, if you account for VAT using a retail scheme you must keep a digital record of your Daily Gross Takings (DGT). You are not required to keep a separate record of the supplies that make up your DGT within functional compatible software.

3          Margin schemes

If you do keep a digital record and your software does not allow you to record the VAT on the margin, then you will need to record the supply as either one standard rated supply and one zero rated supply. Alternatively, you can record the sale at one rate and correct the VAT through an adjustment at the end of the period, using the same method HMRC will allow you to use to correct the VAT on a mixed supply.

 

Further MTD deferral for GIANT customers

Due to an ongoing review by the government into VAT simplification in the public sector, HMRC announced on 17 June 2019 a further deferral for GIANT (Government Information and NHS Trust) service users only, who are currently required to submit additional information with their VAT return. HMRC will be writing to the affected businesses later in the summer with a new timetable and with a formal extension.

 

This specific deferral will not be affect other organisations within the ‘deferred group’, which are going to join MTD for the first VAT period starting on or after 1 October 2019.

 

All GIANT customers should continue to submit their VAT returns as they do now.

 

All other elements of the VAT service will continue as planned. MTD was mandated for VAT for the majority of customers from April and will be mandated for deferred customers who do not use the GIANT service from October.

 

You may find more information about MTD within this FAQ and HMRC VAT Notice 700/22.

 

Independent examinations of charity accounts

Charities can benefit from these robust examinations – find out why.


Charities can benefit from these robust examinations – find out why.

 

The Charity Commission highlights that ‘Trustees, and in particular the honorary treasurer, need to know what an independent examination involves before they opt to have an examination in place of an audit. By understanding what is involved, trustees can have their accounting records, trustees’ annual report, accounts and explanations ready to assist the examiner to complete their work in a timely way.’

 

Examiners also need to understand the reporting requirement. We have previously highlighted some of the reporting of matters of material significance concern raised by the Charity Commission – download our factsheet or watch this webinar

 

The CC32 checklist provides guidance to support independent examiners, who must follow:

  • Direction 1: Check whether the charity is eligible to have an independent examination.
  • Direction 2: Check for any conflict of interest that prevents the examiner from carrying out their independent examination.
  • Direction 3: Record your independent examination.
  • Direction 4: Plan the independent examination.
  • Direction 5: Check that accounting records are kept to the required standard.
  • Direction 6: Check that the accounts are consistent with the accounting records.
  • Direction 7: If the accounts are prepared on an accruals basis and one or more related party transactions took place the examiner must check if these were properly disclosed in the notes to the accounts.
  • Direction 8: Check the reasonableness of the significant estimates and judgments and accounting policies used in accounting for the types of fund held and in the preparation of the accounts.
  • Direction 9: The examiner must check whether the trustees have considered the financial circumstances of the charity at the end of the reporting period and, if the accounts are prepared on an accruals basis, check whether the trustees have made an assessment of the charity’s position as a going concern when approving the accounts.

Where accruals accounts are prepared, the examiner must ensure that the disclosures about going concern required by the applicable Statement of Recommended Practice (SORP) are made and that the trustees’ assessment of going concern is reasonable given the available information. In particular the examiner must check if any material uncertainties related to events or conditions that cast significant doubt on the charity’s ability to continue as a going concern are disclosed in the notes to the accounts.

 

Where either receipts and payments or accruals accounts are prepared, the examiner must consider whether the trustees have assessed what invoices, bills and commitments remain outstanding at the end of the reporting period and whether the trustees have identified if they can settle these as and when they fall due.

  • Direction 10: Check the form and content of the accounts.
  • Direction 11: Identify items from the analytical review of the accounts that need to be followed up for further explanation or evidence.
  • Direction 12: Compare the trustees’ annual report with the accounts.
  • Direction 13: Write and sign the independent examination report.

 

Under each of the directions it is highlighted what the examiner ‘must’ do. These are legal requirements, such as under Direction 4: Plan the independent examination, where it is stated that ‘In order to plan the specific examination procedures appropriate to the circumstances of the charity, the examiner must review:

  • the charity’s constitution
  • the way the organisation is controlled and managed
  • whether action has been taken on any previous recommendations for improvement
  • the accounting records and systems
  • the charity’s structure, its funds and how fund balances changed in the year
  • the charity’s activities in the year and spending and the financial risks the charity faces’.

 

The guidance is clear on obligations, stating: ‘In this guidance:

  • “must” means something is a legal or regulatory requirement or duty that the independent examiner must comply with or must follow in the conduct of their examination.
  • “should” means guidance that is good practice which the Commission expects the independent examiner to follow when carrying out their examination.
  • “recommended” or “may” means a recommendation or practice that the Commission believes that independent examiners may find helpful in carrying out their independent examination. The examiner has discretion to exercise their own judgment and follow different practices where they consider that these are more suitable for the charity’s circumstances.’
How to reduce HMRC’s VAT penalties

Reduce confusion around VAT penalties.


VAT penalties can be confusing, but depending on the type of compliance breach they either follow the same penalty regime which applies to direct taxes or a VAT specific penalty regime.

 

Penalties can be issued for:

  1. failure to notify of VAT liability
  2. late filing
  3. HMRC underassessment
  4. inaccuracy: error in making a return
  5. late deregistration
  6. VAT wrongdoing
  7. late EC sales list
  8. SAO (Senior Accounting Officer) penalties
  9. VAT fraud
  10. MTD penalties.

 

HMRC has stated that for MTD that it will have a soft landing period for submission during the first year of MTD. This soft landing relates to submission and digital changes but there are many areas where penalties may apply.

 

VAT penalties are usually based on a percentage of HMRC’s potential lost VAT revenue. To identify the potential lost revenue, HMRC looks at UK VAT payable only.  Any reclaim of non-UK VAT a taxpayer is entitled to is disregarded in establishing the figure of potential lost revenue. Any payments made on account already are also disregarded when establishing the potential lost revenue.

 

Not all defaults are equally penalised. It is good to remember that demonstrating mitigating circumstances behind a VAT breach and cooperating with HMRC is likely to reduce penalties significantly. As are areas that tie into reasonable excuse for issues concerning MTD submissions.

 

Below we are looking at some of the most frequent penalty scenarios and ways to mitigate the levied charges.

 

Failure to notify and late filing

Penalty for failure to notify and late VAT filing depends on whether the default is deliberate or not, and whether the subsequent disclosure made to HMRC is prompted or unprompted. If the disclosure is made in circumstances when HMRC is about to make a discovery, it is considered a prompted disclosure. Penalties may range from 0% to 100% of potential lost VAT revenue. Please see our Feb 2016 in Practice Edition for further details on how this is applied.

 

In addition to standard penalties, surcharges may be levied for any subsequent failure or delay in submitting VAT returns or paying VAT. Surcharges against very small entities are less severe and you need to fall foul of the compliance regime twice before those are going to affect you.

 

The following applies:

 

Default

Turnover more than £150k

Turnover £150k or less

1st

No surcharge for 12 months

No surcharge for 12 months

2nd

No surcharge for 12 months

2%*

3rd

2%*

5%*

4th

5%*

10%**

5th

10%*

15%**

6th

15%*

 


* except if VAT is less than £400 (surcharge will be different); 12 months is counted from the most recent default

** except if VAT due is less than £30; 12 months is counted from the most recent default

 

Surcharges do not apply to late returns if they are NIL returns or there is a VAT repayment owed, VAT payment was made on time or the tax payer had a reasonable excuse.

 

HMRC under-assessments

If no VAT return has been submitted, HMRC may issue a VAT assessment for an estimated VAT amount. If the amount assessed is lower than the correct amount, you must notify HMRC within 30 days. Settling a correct VAT does not amount to such a notification. The penalty for failure to notify of an underassessment may range from 15% to 30% of potential lost revenue.

 

Errors: inaccurate VAT returns

Unless it can be demonstrated that ‘reasonable care’ was taken when completing VAT return, HMRC may impose the following penalties for inaccurate returns.

 

Default

Min penalty – unprompted disclosure

Min penalty –   prompted disclosure

Maximum penalty

Careless (not deliberate and not concealed)

0%

15%

30%

Deliberate but not concealed

20%

35%

70%

Deliberate and concealed

30%

50%

100%

 

VAT wrongdoings

VAT wrongdoings are failure to register for VAT when registration is mandatory and issuing a VAT invoice when not authorised. The amount of penalty depends on whether the wrongdoing is deliberate and concealed or not. The following applies:

 

Wrongdoing

Unprompted disclosure

Prompted disclosure

Non-deliberate

10% to 30%

20% to 30%

Deliberate

20% to 70%

35% to 70%

Deliberate and concealed

30% to 100%

50% to 100%

 

Personal Liability Notice (PLN)

In majority of cases, penalties issued against the entity owing VAT. However, this may sometimes not be possible, particularly with respect to VAT wrongdoings.  

 

Where the wrongdoing is attributable to a deliberate action of a company officer (this includes a shadow director), including for personal gain, or the company becomes insolvent, HMRC may issue a personal liability notice against the company officer personally.

 

In a recently concluded Stanley John Chmiel v HMRC [2018] TC7112 case, a PLN was issued against a director of a construction company, which exceeded the VAT threshold for just over a year in 2011/12 but failed to register for VAT, and subsequently ceased trading in 2016.

 

How to reduce penalties

In case of most VAT breaches, including wrongdoing, you may not be penalised if you show that the following three conditions apply:

  • you have a reasonable excuse – an unexpected, unusual, unforeseeable event that was out of your control (flood, fire etc.)
  • non-compliance was not deliberate
  • you notified HMRC without unreasonable delay.

 

If a penalty is issued, you may seek to reduce it, if you:

  • ‘tell’ HMRC of VAT breach (30% reduction)
  • ‘help’ establish correct VAT amount (40% reduction)
  • ‘give access to records’ (30% reduction).

 

Demonstrating that a genuine innocent error has occurred may result in significant reduction or cancellation of penalties. However, appealing large or repeated VAT defaults is unlikely to succeed.

 

VAT penalty appeals

An appeal to HMRC is usually the first step to reduce or cancel VAT penalties. If you do not agree with the first HMRC decision, you have 30 days to accept the offer of independent HMRC review, which HMRC must allow, or appeal to a tribunal. If you agree to HMRC’s independent review, you will be unable to take the matter to the tribunal until the review is concluded. HMRC have 45 days to conclude an independent review, although this can be extended if both parties agree. More information about the tribunal process can be found here.

 

One of the grounds for a tribunal appeal could be undue hardship. In M Hodges v HMRC [2015] TC04419 a taxpayer appealed assessed VAT penalties of £394,694. The tribunal allowed a claim of undue hardship: payment would have bankrupted the taxpayer. The tribunal ruled that penalties should be agreed at £7,807.

VAT: Sponsorship, prizes and donations

Sponsorship (VAT Notice 701/41) has been updated for the treatment of mixed sponsorship and donations and the claiming of input tax on the prizes from competitions.


Sponsorship (VAT Notice 701/41) has been updated for the treatment of mixed sponsorship and donations and the claiming of input tax on the prizes from competitions. The notice also contains a section on crowdfunding. HMRC states:

 

‘Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case. For example:

  • where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar
  • where the funder receives goods or services that have a real value associated with them (for example, clothing, tickets, DVDs, film viewings), VAT will be due
  • where the payment is for a combination of the 2 examples, if it’s clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation
  • it might be that the funding takes the form of an investment where the funder is entitled to a financial return such as interest, dividends or profit share – in these cases, any payment due to the funder will not be liable to VAT, unless the arrangement is more by way of a royalty based on a supply of intellectual property or some other benefit – in these circumstances the ‘profit share’ is likely to be consideration for a supply, the reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes.’

 

 

 

Accountants and competition law

The key aspects of competition law and practical suggestions on how accountants can encourage businesses to stay on the right side of the law.


The key aspects of competition law and practical suggestions on how accountants can encourage businesses to stay on the right side of the law.

 

The Competition and Markets Authority (CMA) is an independent, non-ministerial government department. It seeks to enforce competition and consumer law to make markets work well for consumers, businesses and the economy.

 

Competition law promotes fair trading between businesses and outlaws agreements between firms that seek to reduce or avoid competition. The CMA’s chief executive, Andrea Coscelli, recently explained why competition between firms matters: ‘I strongly believe that dynamic competition brings about the most innovative products and services, the widest choice and the best value for money to the benefit of consumers.

 

‘Our focus is, and must remain, ensuring that the operation of markets and businesses allow for the emergence of new, innovative business models and market players, and that consumers get a good deal.’

 

Key issues

Agreements between two or more firms that seek to deprive consumers of the benefits of competition are known as ‘cartels’. Cartels are illegal. They are a form of cheating that rips customers off and ultimately deprives them of a fair deal.

 

The bar for engaging in cartel activity is very low – even one conversation with a competitor where sensitive commercial matters are discussed can be illegal. The consequences for engaging in such conduct are very serious – both for businesses and individuals.

 

Common forms of cartel behaviour are:

  • price fixing
  • bid rigging
  • market sharing
  • exchanging competitively sensitive, commercial information.

 

Price fixing: when businesses agree on what prices – or other price related terms such as credit terms or discounts – to offer customers so that competition with one another is avoided. This can mean higher prices for customers. Also, some businesses may tell retailers they must sell at a certain price. This is known as resale price maintenance and it is anti-competitive.

 

Bid rigging: when two or more competitors work together on bids that they are supposed to be submitting independently. This will generally be to ensure that whoever wins does so at a price that would be higher than the price delivered by a competitive bid or at a lower quality than would otherwise be the case in a competitive tender process.

 

Market sharing: where two or more firms agree, for example, not to go after each other’s customers or decide which territories each business will ‘take’. This can lead to less choice and higher prices. The customers of businesses involved in such activity are likely to end up overpaying or getting a lower quality service as a result.

 

Information exchange: it is illegal for a company to supply or exchange with one or more other firms competitively sensitive information, for example, future plans on prices, bids, customers to target, etc.

 

Knowledge of competition law

But do business people know enough about competition law? Research commissioned by the CMA suggests not:

  • only 57% of those polled know that it is illegal to fix prices and 41% don’t know that attending a meeting where rivals agree prices is illegal
  • over half (59%) don’t know that agreeing to split up and share customers with competitors is illegal
  • just under half (48%) don’t know that bid-rigging is illegal
  • around 6% of businesses have provided competition law training for their staff.

 

There are nonetheless very serious consequences for breaking competition law for both businesses and individuals.

 

Consequences of law breaking

The repercussions of getting caught in a cartel are serious and can include:

  • financial fines of up to 10% of their company or group's turnover
  • director disqualification for up to 15 years
  • lawsuits from those who have suffered harm from law breaking ie third-party damage claims
  • reputational damage
  • in the most serious cartel cases, individuals can face imprisonment of up to five years.

 

Since 2015, the CMA has issued over £150m in fines following investigations into anti-competitive practices.

 

In one case in April 2019, five fit-out firms were fined a total of over £7m for participating in cover bidding. Typically, cover bidding involves companies agreeing with each other to place bids that are deliberately intended to lose the contract, thereby reducing the intensity of competition. This type of illegal behaviour can lead to customers paying an artificially inflated price or receiving poorer quality services. This particularly affected 14 contracts with different customers, including a City law firm and a further education college.

 

Other recent fines include:

  • £2.6m for water tank firms that formed a cartel, agreeing to fix the price of tanks, dividing up customers and rigging bids for contracts
  • £3.4m for two of the main suppliers of bagged charcoal and coal for households in the UK for taking part in market sharing and illegal bid rigging.

 

The CMA sees the enforcement of competition law as central to its purpose and will continue to take robust action where it finds that competition rules have been breached. In May 2019, there were 30 ongoing anti-competitive conduct investigations across a range of sectors from construction to pharmaceutical and estate agents.

 

Cutting the consequences: leniency

The CMA offers a leniency programme for firms and individuals that offer evidence or information about cartels they took part in. Co-operation with the CMA may lead to no penalties or reduced penalties for the firm. It may also lead to protection from criminal prosecution and director disqualification for individuals.

 

Subject to meeting certain conditions, the first business to inform the CMA about a cartel that is not already being investigated may receive:

  • immunity from any fines
  • protection from criminal prosecution for all of its cooperating employees, both current and former, and
  • protection for its current and former directors from director disqualification, provided they cooperate.

 

Firms should therefore contact the CMA as early as possible – only the first to come forward may secure these benefits.

 

A business can still apply for leniency even if they are not the ‘first in’. Depending on how much value the applicant brings to the investigation, they may benefit from a reduction in fines as well as protection for cooperating employees and directors.

 

Coming in for leniency is the only way that a firm can have a reduction in fines they will face. For those firms that come in first, and before the CMA commences an investigation, they may not be fined at all and their employers may not be prosecuted for the criminal cartel offence or have their directors disqualified, provided they co-operate.

 

Leniency conditions

Firms applying for leniency must:

  • have a solid reason to suspect the existence of the cartel and have a genuine intention to confess
  • provide the CMA with all the relevant information about the cartel – including its own role – and cooperate fully with the CMA’s investigation.

 

To benefit from total immunity from fines, the applicant must not have coerced others to join the cartel. Businesses and individuals should always seek independent legal advice in the first instance. They can also approach the CMA on a confidential no-names basis to find out more about leniency before committing further.

 

Firms considering leniency should also gain advice from their own lawyers.

 

Whistleblowing

Whistleblowing is aimed at individuals who are not participating in a cartel but who have information about one. The CMA can offer a reward of up to £100,000 to an individual who provides assistance as part of its whistleblowing programme. The CMA follows a legal framework to protect people who report wrongdoing and will do everything within its power to protect an individual’s identity if they state that they want to remain anonymous.

 

What you can do to promote best practice

Accountants play an important role to businesses as 'trusted advisers'. They should not try to replace lawyers, but they should know as much about competition law as a firm’s managers and directors ideally should. They can encourage business leaders to plug any dangerous knowledge gaps concerning competition rules:

  • To help assess a client’s risk of breaking competition law, the CMA would advise accountants to encourage their clients to ask a number of questions.
  • Do your client’s leaders and employees recognise what anti-competitive behaviour looks like? If so, how seriously do they take it?
  • Does your client know what the potential penalties are for breaking competition law?
  • Do they have systems in place to deal with competition law risks, appropriate to their size and nature?

 

If the answers to the above questions are mainly ‘no’, you need to point them to CMA guidance and encourage them to seek specialist legal advice.

 

There is a range of CMA quick guides and resources to help businesses better understand competition rules and recognise the risky business behaviours they should avoid.

 

There is a new online reporting form that makes reporting cartels quicker and easier.

 

For more information on what a cartel is, go to: www.gov.uk/stopcartels or call the CMA cartels hotline on 020 3738 6888.

 

GDPR – one year on

Measuring the impact and what to focus on now.


Measuring the impact and what to focus on now.

 

Reflecting on the first year of GDPR, the ICO highlights that ‘the focus for the second year of the GDPR must be beyond baseline compliance – organisations need to shift their focus to accountability with a real evidenced understanding of the risks to individuals in the way they process data and how those risks should be mitigated. Well-supported and resourced DPOs are central to effective accountability.’

 

It highlights that SMEs have faced a number of challenges in becoming GDPR compliant. ACCA recognised these challenges and made available guidance, policies and procedures which could be adapted.

 

In its report the ICO highlight that it will soon be establishing ‘a one-stop shop for SMEs, drawing together the expertise from across our regulatory teams to help us better support those organisations without the capacity or obligation to maintain dedicated in-house compliance resources’.

 

One area which you may wish to consider is certification. This is planned for the autumn when the additional accreditation is expected to be made available via third parties.

 

It also highlights that it undertakes investigations into organisations of all sizes. Many of you will have seen its action against HMRC and the use of voice recognition software with the ICO stating that ‘HMRC failed to give customers sufficient information about how their biometric data would be processed and failed to give them the chance to give or withhold consent. This is a breach of the General Data Protection Regulation.’

 

The ICO has highlighted that it is also ensuring that businesses are registered with it, stating that ‘up to 30 April 2019, we issued over 3,800 [penalty] notices of intent to fine for failure to pay the [data protection] fee’.

 

As a reminder of the fees, charities and organisations with ten or fewer staff – or a maximum turnover of £632,000 – pay a fee of £40, those with staff numbers between 11 and 250 or not exceeding a turnover of £36m pay £60. Large organisations with over 250 staff or with a turnover over £36m pay £2,900.

 

Amendments to FRS 102

Find out what is changing on FRS 102.


Find out what is changing on FRS 102.

 

After consulting earlier in the year on the amendments, FRC issued the changes for multi-employer defined benefit plans. Early adoption is permitted with the amendments effective for accounting periods beginning on or after 1 January 2020.

As highlighted by FRC the change is to ‘respond to a current financial reporting issue regarding where to present the impact of an employer’s transition from defined contribution accounting to defined benefit accounting; it shall be presented in other comprehensive income.’

 

You can view the revision and the FRS 102 standard now.

Tax on income from intangible property

Review the consultation and add your views.


Review the consultation and add your views.

 

The technical consultation on the (draft) Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019 that amends the ‘Offshore Receipts in respect of Intangible Property’ (ORIP) is open for comment until 19 July.

 

The Finance Act introduced the legislation and it came into effect on 6 April 2019.

 

The ORIP legislation imposes income tax on amounts received by persons resident in low tax jurisdictions for intangible property (such as brands, patents and copyrights) where those amounts are referrable to the sale of goods or services in the United Kingdom (UK).

 

There is an exemption from charge for persons who do not have UK sales in a tax year of more than £10m. However, the meaning of a person's UK sales is very widely defined: it includes the person's UK sales combined with that of any person connected to them.

 

The guidance states that ‘UK sales includes amounts that have been received, or to which there is an entitlement, whether of a capital or revenue nature. The amount can be wholly, or in part, and directly, or indirectly, relating to the provision of services, goods or other property constituting UK sales. Note that this will include the revenue from UK sales made by connected persons (as well as those through third party resellers). The measure of the UK sales threshold is the total sales revenues of the group and is not calculated by reference to UK-derived amounts. Connected persons follows the ITTOIA definition in Part 2 Schedule 4 (s993 of ITA07).’ 

 

Read the guidance, legislation and explanatory information

VAT reverse charge on building and construction services

Find out when the reverse change is coming in.


Find out when the reverse change is coming in.

 

As highlighted in the most recent Agent Update, the reverse charge measure on building and construction services comes into effect on 1 October 2019.

 

The key aspects are:

  • it will apply to standard and reduced-rated supplies of building and construction services made to VAT registered business, who in turn also make onward supplies of those building and construction services
  • the scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme, but does not include supplies of staff or workers
  • the legislation introduces the concept of ‘end users’ and ‘intermediary suppliers’. This covers businesses or groups of associated businesses that do not make supplies of building and construction services to third parties and as such are excluded from the scope of the reverse charge if they receive such supplies. Examples include landlords, tenants and property developers.

 

The guidance on invoicing states:

 

Single payment contracts

If the building and construction service you are providing is under a single payment contract, the tax point is the date that the service is performed or completed. However, if you issue a VAT invoice or receive payment before the service is performed or completed, VAT is due on the date of the invoice or receipt of payment (whichever is earlier).

 

If you issue a VAT invoice within 14 days of the service being performed or completed, VAT is due on the date of the invoice.

 

Find more information about tax points in paragraph 15.3 of Notice 700.

 

For invoices issued for specified supplies spanning 1 October 2019 that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

  • before 1 October 2019 - the normal VAT rules will apply and you should charge VAT at the appropriate rate on your supplies
  • on or after 1 October 2019 - the domestic reverse charge will apply.

 

Transitional supplies for authenticated tax receipts or self-billed invoices

For authenticated tax receipts or self-billed invoices the tax point is normally the date the supplier receives payment.

 

The table below explains the transitional arrangements for how the VAT treatment is determined for payments due on any supplies entered into your accounting system before 1 October 2019, but paid on or after 1 October 2019.

 

Date entered in customer’s accounting system

Date payment made

VAT treatment

Before 1 Oct 2019

On or before 31 Dec 2019

Normal VAT rules

Before 1 Oct 2019

On or after 1 January 2020

Domestic reverse charge

On or after 1 Oct 2019

On or after 1 Oct 2019

Domestic reverse charge

Retention payments

The tax point for the retention element of the contract is delayed until payment is received or a VAT invoice has been issued for it (whichever is earlier).

 

The treatment of VAT for retention payments is covered in the main What a tax point is section.

 

Further information on the scope of the reverse charge and how it will operate can be found in this guidance note

Pension drawdown – allowances

The MPAA in summary.


The MPAA in summary.

 

Where taxpayers have accessed a pension, the amount they can pay into a pension and still get tax relief is the Money Purchase Annual Allowance (or MPAA) which for the tax year 2019-20 is £4,000. Where it’s exceeded it should be entered on the SA return and appropriate tax paid. The MPAA runs from:

  • the day after the pension was flexibly accessed to the end of the tax year, or
  • the whole of the tax year if flexibly accessed in a previous tax year.

 

Unused allowances from previous tax years can’t be used to reduce the amounts paid above the MPAA. Where the MPAA has been exceeded, calculate:

  1. The alternative chargeable amount.
  2. The default chargeable amount.

 

View further guidance now

 

Off-payroll working: have your say

Feedback from members and next steps.


Feedback from members and next steps.

 

In his 2018 Budget the Chancellor announced plans to roll out the public sector off-payroll working rules to the private sector. Mirroring the rules introduced to the public sector in 2017, the legislation would place the liability for deciding a worker’s employment status for tax with the end client.

 

In June, with member input, ACCA submitted our response to HMRC’s latest consultation on new rules for off-payroll working. Concerns raised included:

 

  • ACCA members using off-payroll workers were concerned about the continued availability of highly skilled workers for short-term, flexible projects.
  • Meanwhile, 96% of members that identified as off-payroll workers said they would have to increase their fee if an employment status determination required PAYE taxes to be deducted at source.

 

ACCA’s response recommended a delay till 2021, to ensure businesses have time to develop staff training and internal infrastructure; this is particularly important at a time when many businesses’ resources have already been stretched to cover contingency planning arising from Brexit uncertainty, changes to business reporting systems and resourcing pressures.

 

The survey remains open and ACCA will continue to use your feedback to brief policymakers and influencers as the legislation emerges over the summer. Please share your opinions.

Post-cessation expenses

A close look at post-cessation expenses claims can save traders money.


A close look at post-cessation expenses claims can save traders money.

 

Post-cessation receipts are taxable income of the person when they receive them, similarly relief may be available for post-cessation expenses. To make a successful claim for an allowable post-cessation expense:

  1. the trade must have ceased, and
  2. the expense would have been deductible in calculating the trading profits ie they still meet the wholly and exclusively test and be revenue in nature in order to qualify for relief.

 

HMRC clearly states that a business ends when it ‘permanently ceases to carry on a trade’. A mere decision to wind down or dispose of the business does not of itself amount to a permanent discontinuance if trading activity in fact continues after the decision (J & R O’Kane & Co v CIR).

 

If a trade ceased and then later restarts the same activities in scale and nature to the old one, it is a question of whether a new trade (albeit doing the same thing) has commenced or whether the existing trade has restarted. BIM80565.

 

How to claim relief for post-cessation expenses

Post-cessation expenses incurred by those subject to income tax can be (claimed in the following order):

  • deducted from post-cessation receipts arising in the same period
  • as losses which can be set against total income
  • as losses which can be deducted from chargeable gains
  • carried forward to be deducted against future post-cessation receipts from the same trade.

 

Key facts when claiming general expenses against post-cessation receipts

  1. The cessation expenses itself are not allowable costs, because they would not have been incurred had the trade continued. The rules are similar for both income tax and corporation tax.
  2. Methods used to prepare the tax computations prior to the cessation continue to apply to the post-cessation receipts and expenses ie cash basis or using mileage rates for vehicle costs instead of actual expenses.
  3. Specific rules apply for these expenses and are not covered within the s255 ITTOIA
    1. employer pension contributions;
    2. site restoration costs where land has been used for mineral extraction;
    3. Lloyd’s underwriters; and
    4. companies in compulsory liquidation which accepted bank deposits.
  1. For traders within the charge to income tax, general post-cessation expenses cannot be set against receipts that are linked to specific post-cessation expenses, such as insurance recoveries, debts paid after cessation.

Key facts when claiming specific expenses against net income and capital gains

Relief is available for post-cessation expenses against total income and/or chargeable gains if:

  • the person makes a ‘qualifying payment’ (see BIM90110), or
  • a ‘qualifying event’ occurs in relation to the debt owed to the person.

 

The above ‘qualifying payment’ or ‘qualifying event’ must happen within seven years of the date of the cessation. A similar relief is available for post-cessation property expenses.

 

A ‘qualifying payment’ includes the payments made:

  • to remedy defective work done, goods supplied or services provided
  • as damages for defective work done, goods supplied or services provided
  • for legal or professional costs incurred in connection with a claim that the work done, goods supplied or services provided were defective
  • to insure against such defective work or the associated legal and professional costs, or
  • to collect debts that were owed to the trader prior to the cessation of trade.

 

A ‘qualifying event’ relates to trade debts which only prove to be irrecoverable after the date of cessation and applies if:

  • an unpaid debt was included in the calculation of trading profits prior to cessation; and
  • the person is still entitled to receive the payment of that debt (ie it has not been assigned); and either
    • the debt proves to be bad; or
    • the debt is released as part of a statutory insolvency arrangement.

 

Restriction on the amount of the claim

ITA 2007 section 24A places a restriction on how much of the above amounts can be set against the net income of the tax year in which they are paid. The set off against income tax is subject to the £50k or 25% of adjusted total income cap. Once the net income is utilised to claim the post-cessation expenses, the excess can be set against capital gains of the same year. Anything remained unclaimed can be carried forward to use against future post-cessation receipts.

 

The relief is also restricted by the amount of any debts owed by the trader that were unpaid at the date of cessation. If an unpaid debt restricted the amount of relief in an earlier tax year, it is not allowed in a later year either. If an outstanding debt, which restricted relief for an earlier qualifying payment, is subsequently paid to the creditor, then the payment of the debt is a ‘qualifying payment’ which can be relieved.

 

There is prohibition on double counting of the claim, which means post-cessation trade relief is not available for an amount for which relief is given, or is available, under any other provision of the Income Tax Acts.

 

Anti-avoidance rule denies relief for any payment or event that is made in connection with a ‘relevant tax avoidance arrangement’. (ITA 2007, s. 96- 101)

 

Deadline for claiming post-cessation expenses

The relief must be claimed by the first anniversary of the 31 January self-assessment deadline for the tax year in which the qualifying payment or event occurred. For example, if a qualifying payment is made in 2017-18, relief must be claimed by 31 January 2020.

 

Post-cessation expenses which do not fall into the above categories

If the person incurs post-cessation expenses which do not fall into the categories of ‘qualifying payments’ or ‘qualifying events’, the only method of relief (after deducting them from post-cessation receipts) is to carry them forward to set against future post-cessation profits of the same trade (see BIM90000).

Reimbursement or disbursement

Knowing the difference is important in getting the right VAT treatment.


Knowing the difference is important in getting the right VAT treatment.

 

The difference between reimbursement and disbursement is significant from the VAT point of view as reimbursements are subject to VAT, while disbursements are outside the scope of VAT. 

 

If a business is trading very close to the VAT registration threshold, an incorrect classification of expenses could mean that the VAT registration threshold is breached sooner than anticipated.

 

HMRC defines ‘disbursements’ as ‘a payment made to suppliers on behalf of your customers’.

 

‘To treat a payment as a disbursement all of the following must apply:

  • you paid the supplier on your client’s behalf and acted as the agent of your client
  • your client received, used or had the benefit of the goods or services you paid for on their behalf
  • it was your client’s responsibility to pay for the goods or services, not yours
  • you had permission from your client to make the payment
  • your client knew that the goods or services were from another supplier, not from you
  • you show the costs separately on your invoice
  • you pass on the exact amount of each cost to your client when you invoice them
  • the goods and services you paid for are in addition to the cost of your own services.’

 

An example of disbursement would be a solicitor paying the stamp duty land tax (SDLT) on behalf of his client. This is clearly a client’s expense, as SDLT is the buyer’s responsibility not the solicitor’s. This is undoubtedly a disbursement.

An example of reimbursement would be the cost of travel, stationery or other ‘out of pocket expenses’ added by a consultant on top of his ‘hourly consultancy fee charge’. From HMRC’s point of view, those extra costs are reimbursements and as a result VAT should be added to them as they represent costs that the business incurs itself and are not disbursements.

The key consideration is whether the expense belongs to the supplier’s customer, rather than the supplier.

 

Court cases

In Brabners LLP v The Commissioners for Her Majesty’s Revenue & Customs, [2017] UKFTT 666 (TC), the First-tier Tribunal considered whether electronic property search fees should be treated as part of overall client bills (and thus subject to VAT), or represented disbursements (outside the scope of VAT).

 

It was found that because the solicitors were using the information as ‘part and parcel’ of its overall service, the search fees should not be treated as disbursements.

 

The solicitors were not simply acting as a middle man to collect the search fee from the client; they used the results as part of their advice to clients. HMRC has confirmed that VAT would not be chargeable by either the search company or the solicitor if they passed it on “without analysis or comment”. However, if the firm provides advice or makes a report on the basis of the search, HMRC’s view is that the fee will form part of the charges for its services.

 

However, a distinction should be drawn between this case and Barratt, Goff and Tomlinson (A firm) v HMRC (Law Society Intervening  [2011] UKFTT 71 (TC), a case which was referred to in the Brabners judgement above. In Barratt, the obtaining of medical records was a disbursement because the solicitor could only obtain the documents with the client’s consent, and the client was considered as the ‘owner’ of the information within the document. The solicitor was ‘merely an intermediary used to facilitate payment'. 

 

In the case of Ellon Car Clinic Ltd [2017] (TC5813)  the First-tier Tribunal considered whether a garage which had subcontracted MOT tests to an MOT approved centre had acted as agent for the car owners, or whether output tax was due on the full fee charged by the garage to their clients.

 

Facts of the case

The company was not licensed to carry out MOT tests on customers’ vehicles, so subcontracted these tests to other garages, paying between £40 and £54.95 per test. It charged its customers a standard fee of £49.95 (no VAT), which HMRC assessed as being subject to 20% VAT. The company did not itemise the test fees as a separate entry on its sales invoices.

 

HMRC assessed output tax on the full fee, on the basis that the invoices did not meet the conditions of a disbursement.

 

However, the judge found that every customer knew that the company could not supply an MOT test. Even if the terms of the invoice did not show the involvement of the second garage, an agency arrangement was evident and the supply was clearly between the testing garage and the customer.

 

This was a partial victory for the company, as it was found that the only taxable element of the supply in relation to the MOT tests was the element which exceeded the amount actually paid. No output tax was due on deals where the company made a loss.

 

Please note that HMRC has now updated their guidance in order for garages to understand how to avoid the trap of being treated as principals.

 

Making tax digital (MTD) and disbursements

No changes have been made to the VAT rules other than those that relate to record keeping and filing.

 

The information submitted to HMRC contains the same nine boxes as before.

 

The current filing and payment deadlines for VAT are the same as before.

Mitigating serious vulnerabilities in Windows software

NCSC and HMRC highlighting of ‘serious vulnerabilities’ in the Windows RDP service has became public.


NCSC and HMRC have highlighted that ‘serious vulnerabilities’ in the Windows RDP service recently became public.

 

These are referred to as Bluekeep, affecting older versions of Windows (not 8 and 10).  Microsoft has issued urgent updates for affected systems, unusually including updates for Windows XP systems as they previously did for the WannaCry threat. 

 

The NCSC highlighted over one million systems were still vulnerable in its weekly threat report. It is essential to install updates to your operating systems and software regularly.  This can ensure that criminals are unable to identify and exploit old and vulnerable versions of RDP. 

 

There are a number of defences that can be employed to use RDP safely, such as connecting to your office via a Virtual Private Network (VPN) first, which has other security benefits when working away from the office. 

 

NCSC provide detailed guidance for IT teams on the use and configuration of VPNs

 

Factors behind the Professional Indemnity Insurance (PII) shift

Is your PII cost rising? Find out why.


Is your PII cost rising? Find out why.

 

For many years, premium rates for small accountancy firms have remained stable. The static market has been favourable for policyholders, with costs staying low and plenty of competition making arranging competitive cover relatively straightforward. Growth has continued, despite a lack of overall profitability for PII insurers.

 

Practitioners may have noticed, however, that the market has hardened in the last 18 months, with premiums rising on average between 5%-10% (but in some cases by as much as 300%). In more extreme cases insurers are declining to offer terms altogether. This has led to complications for some businesses in securing cover and doing so at affordable prices.

 

Market: context

How, then, did this market shift come about?

 

A catalyst of late has been the intervention of Lloyd’s of London who initiated a market-wide profitability review in 2018. This drew attention to the lowered financial performance of PII underwriting, in part due to increased claim payments and the higher costs in defending those claims, with non-US PII shown to be the second least profitable class of insurance at Lloyd’s.

 

Further general factors, such as the tragic events of Grenfell Tower, global natural disasters and the withdrawal of certain Managing General Agents (MGAs) from the market, have reduced capacity and encouraged insurers to scrutinise their liabilities.

 

The consequence? Less PII business is being written as loss ratios are addressed.  This can be bad news for those firms who have poor claims experience or that insurers perceive to carry out higher risk activities such as corporate finance, tax mitigation or overseas work.

 

Brexit impact

Certain types of business have always been preferable for insurers. It is common knowledge that many insurers prefer UK based business, typically being wary of overseas operations.

 

Unsurprisingly, with Brexit looming on the horizon, insurers have taken note. A post-Brexit situation involves higher risk for insurers, with the defence of claims for overseas clients involving different tax laws that may require the support of hired legal specialists.

 

The road ahead

Practitioners may rightfully be contemplating what proactive steps they can take to avoid complications in securing PII and managing their policies and ways of working.

 

In our next article, we will address this subject in full. Increased attention to activities, such as the improvement of renewal presentations to provide insight into their practices, will help firms to navigate the hardening market and to acquire the insurance they require at rates they can afford.

 

Catherine Davies – ACCA Relationship Manager and

Abigail Newman – Senior Account Handler

 

If you have any questions, please contact Catherine Davis or Abigail Newman, Lockton Companies LLP

 

0117 9065057

 

ACCAaccountants@uk.lockton.com

 

NEWS
WATCH - Glenn Collins picks his highlights from this month's issue


Top tip for July
 

WATCH: In our 'top tip for July' Alastair Barlow shares insights into how his firm understands and uses data to benefit client relationships.


In our 'top tip for June' Alastair Barlow shares insights into how his firm understands and uses data to benefit client relationships.

 

 

Alistair Barlow's Tip Tip

 

 

Sign up for a Sage summer roadshow!

Unlock the value of your software and fine tune your onboarding to MTD with Sage and HMRC.


Unlock the value of your software and fine tune your onboarding to Making Tax Digital with Sage and HMRC at these free events.

 

Sage are coming to a town near you across 13 dates in June and July, bringing Sage experts, HMRC and their award-winning partners to help you drive efficiencies in your practice. This event is also CPD certified, so you can claim back those valuable hours.

 

Attended a Sage Roadshow before?

Be the first to hear about what’s happening ahead of the first peak in Making Tax Digital and new changes that are being introduced to the setup of your Agent Services Account. There are also some exciting new releases from Sage that will help you be more efficient.

 

Never attended a Sage Roadshow?

Join us for informative sessions to help you get the most from your software, keep ahead of changes and deliver more value to clients.

 

Register your free place here.

 

Agenda

  • Session 1 MTD onboarding made easier
  • Session 2 Unlock the value in your Sage Business Cloud software
  • Session 3 Shoebox to tax return with our integrated Final Accounts and Taxation online solutions
  • Session 4 Discover how Sage and our partners can empower you to provide data insight with Cascade dashboard reporting and Castaway forecasting apps
  • Session 5 Expert panel Join Sage experts, HMRC and an accountant in practice to tackle your burning questions
  • Lunch and networking 1pm to 2pm

Dedicated afternoon session for you to invite your Sage 50cloud clients (2.15pm-3.45pm)

There is also a Sage University Live workshop specifically designed for your clients who use Sage 50cloud Accounts and do their own VAT submissions. At the session, your clients will discover hints and tips and learn about best practice on submitting their first MTD VAT Returns. Please note, you will need to register both events if you wish to attend this session.

  • Session 6 (optional) MTD made easier for Sage 50cloud business users. 
Summer CPD and training

ACCA's Professional Courses provide the widest range of CPD events tailored to the needs of practitioners.


All Professional Courses events are open to both ACCA members and non-members. Please feel free to share details of the events below with your colleagues.

 

SATURDAY CPD CONFERENCES FOR PRACTITIONERS

Find full details in the dedicated flyer

 

Saturday CPD conference two

Sheffield, 29 June

London, 06 July

 

Saturday CPD conference three

London, 28 September (fully booked)

Glasgow, 05 October

Birmingham, 12 October

Bristol, 19 October

Swansea, 02 November

London, 09 November

Manchester, 16 November

Sheffield, 30 November

London, 07 December

 

 

AUTUMN UPDATE FOR PRACTITIONERS

 

Accounting and auditing conference

02 November, London

 

Taxation conference

14 December, London

 

CPD: 7 CPD units per conference, or attend three to gain 21 units.

 

Fees:

1 conference                        £159 

2 conferences                      £147 per conference/delegate

3 or more conferences        £133 per conference/delegate

 

PRACTICE WORKSHOPS

 

Guide to practical audit compliance for partners and managers

1-2 October, London

13-14 November, Manchester

17-18 December, London

 

CPD: 14 units

Fee: £510. Book your place up to 60 days before the start date of the workshop and pay the discounted fee of £459 per person.

 

Practical guide to ISQC 1 for partners and managers

4 December, London

 

CPD: 7 Units

Fee: £298. Book place up to 60 days before the start of the workshop and pay the discounted fee of £277 per person.

 

 

ONE DAY COURSES

 

General tax update for accountants

Leeds, 8 October

Birmingham, 11 October

Bristol, 18 October

Newcastle, 6 November

Cardiff, 26 November

Norwich, 28 November

Bournemouth, 3 December

London, 11 December

 

Accounting standards update

Newcastle, 9 October

Nottingham, 10 October

Bournemouth, 15 October

Cardiff, 17 October

Norwich, 29 October

Leeds, 7 November

Bristol, 27 November

London, 12 December

 

Fee: £226 per person

Book up to three calendar months before the start date and pay just £205 per person.

 

 

Residential Conference for Practitioners

21-23 November, Chester
CPD units: 21
Fee: Book your place by 22 August and pay the discounted price of £699 per person. Please note: bookings made after this date will be charged at the full price of £744 per person.

 

 

 

ISLE OF MAN SEMINARS FOR PRACTITIONERS

 

Acting for high net worth Individuals

9 July, Douglas

 

Anti-money laundering and fraud update

12 September, Douglas

 

Managing and developing a profitable practice

15 October, Douglas

 

Business tax planning

19 November, Douglas

 

Accounting and auditing refresher

5 December, Douglas

 

Timings: 4–7pm

CPD: 3 units

 

Fees:

1–4 seminars £78 per seminar

5–13 seminars £61 per seminar/delegate

14 or more seminars £57 per seminar/delegate

 

ISLE OF MAN ONE DAY COURSES

 

Accounting standards update

30 October

 

UK and IOM tax update

10 December

 

CPD: 7 units

Fee*

Book your place on this event up to 90 days before the start date and pay the discounted price of £205 per person. Bookings made after this date will be charged at the full price of £226, per person.

 

CPD WEBINARS IN PARTNERSHIP WITH 2020 INNOVATION
ACCA Members receive a 50% discount with code 19ACCA*50 on 2020 webinars and can book these separately or as a block booking using our discounted ‘Subscription Packages’. Notes, slides and webinar recordings are made available where applicable to all registered participants. Visit the dedicated 2020 Innovation/ACCA webpage

Accounting Excellence Awards: ACCA connections

Find out which ACCA firms and individuals have been short-listed at this year's Accounting Excellence Awards.


Congratulations to the following firms who have been short-listed across various categories at the Accounting Excellence Awards 2019:

  • Clear House Accountants
  • flinder
  • Farnell Clarke
  • Inspire
  • Pell Artists.

 

Meanwhile, Daniel Crowther is short-listed for Practice Pioneer of the Year and Nathan Keeley for Software Pioneer of the Year.

 

The very best of luck to everyone and we hope we are celebrating some successes on 12 September!

Great news regarding apprenticeships funding

The government has unveiled changes which mean apprenticeships are now even better value.


The government has implemented new apprenticeship funding policy changes. This means that apprenticeships are even better value and can save you even more money.

 

What you need to know as a small business

  • The government now pays 95% of apprenticeship training costs. This means you only have to invest 5% of the apprenticeship training cost. And with our Accounting Technician Level 4 apprenticeship band now at £8000, you would only have to pay £400 to train a Technician. Or £1050 to train a Professional Accountant with our Level 7 apprenticeship.
  • You can also receive a funding transfer from a big levy-paying business to facilitate your apprenticeship training needs. A big business can now transfer up to 25% of their annual apprenticeship funds straight to you.

 

So if you’re one of the businesses that tell us they're finding recruitment difficult and training costs are escalating, and that it’s hard to find the right people with the right skills, apprenticeships are a simple and effective solution for you. They are an easy and low-cost way for you to recruit fresh talent and upskill your existing employees. Apprenticeships are so flexible and cost effective - more and more businesses are switching onto what is essentially free training to fill your skills gap.

So why not boost your talent and your business with our funded apprenticeships? Browse our apprenticeship materials on LinkedIn for easy access to learn more.

 

Alternatively don't hesitate to give us a call by clicking here and we’d be delighted to talk to you about what the funding changes means and how apprenticeships can benefit your business. world of apprenticeships.

 

Digital intelligence hub

ACCA’s resources for data and technology learning in one location.