Technical and Insight
Pensions' auto enrolment – assessing workers
Be prepared for when clients ask you about how to assess their staff's eligibility for auto enrolment.

Be prepared for when clients ask you about how to assess their staff's eligibility for auto-enrolment.

Recent research from The Pensions Regulator indicates that at least 78% of small businesses will be relying on their business advisers for help and advice. And with the first small and micro employers needing to be ready to provide a pension for their workers by the summer of 2015, you can expect to be approached by your clients soon asking for help to meet their statutory automatic enrolment duties.

Under pensions legislation, employers will need to assess their staff to determine if they are eligible for automatic enrolment. It is essential to do this in order to comply with automatic enrolment duties. This is an area where employers may request assistance from their accountants – especially if the accountant is already providing a payroll bureau service.

Initial checks
It is important that accountants do not make assumptions about their clients’ workforce for purposes of auto enrolment. Assessing staff can take some time depending on the size of the business and complexity of the workforce. One of the first tasks, once the staging date is established (preferably using The Pension Regulator’s staging date tool), is to do a ‘quick check’ to ascertain how long a full assessment is likely to take and ensure all the information held about staff is accurate. The Pensions Regulator recommends starting to assess workers several months before the staging date to avoid the risk of non-compliance.

Who is a worker?
What accountants will need to do for automatic enrolment will depend on whether the employee is someone the legislation classifies as a ‘worker’. At first glance, accountants may assume that only employees who are paid through the PAYE system are considered workers. However, the definition of a worker under the legislation is widely drawn and it’s important not to accidentally exclude workers from the auto enrolment process as this contravenes automatic enrolment duties.

When determining who is a worker, employers and accountants should be aware that:

  • a contractual employment relationship does not have to be in writing. To fall within the scope of ‘worker’ the contract can be verbal and the terms implied rather than explicitly stated

  • temporary and part time staff will fall into the category of a worker. In addition, depending on the contractual terms, workers may be those on zero hour contracts and secondees

  • another category of worker is a ‘personal services worker’. Typically, these may appear to be self-employed; however, in certain circumstances they are actually classified as a worker. If an employer expects that person specifically to perform the work, if they cannot sub-contract or send a substitute (unless it’s due to sickness) or if they are not undertaking the work as part of their own business then the employer may need to classify them as a worker

  • in making the judgement as to whether an individual is undertaking the work as part of their own business, the employer should consider factors including whether the employer controls the hours worked, whether tools or facilities are provided, whether employee benefits are provided and whether the employer is financially responsible for faulty work.

Who is a worker – detailed guidance

Show your working
When carrying out the assessment, accountants and their employer clients should exercise ‘reasonable judgement’ in defining workers. The rationale for the decision should be documented, demonstrating the underlying reasons for inclusion or exclusion from the worker category. Should there be reason to suspect non-compliance through failing to classify staff correctly, written evidence of how these decisions were reached may be required by the Regulator.

Types of worker
The types of worker for which the employer will have automatic enrolment duties are:

  • Eligible jobholders: these are workers who are eligible for automatic enrolment and are over 22, who ordinarily work in the UK and who earn above the earnings threshold currently set by the Department for Work and Pensions at £10,000 per annum

  • Non eligible jobholders: these are workers who are not eligible for automatic enrolment but who can choose to opt in. They are aged between 16 and 21, or between state pension age and 74, are ordinarily working in the UK and who earn above the earnings threshold of £5,772 per annum. Essentially they are workers who either meet the £10,000 per year threshold but not the age requirements or who meet the age requirements but not the £10,000 earnings threshold

  • Entitled workers: These workers are entitled to join a pension scheme and are between 16 and 74, who ordinarily work in the UK but whoearn below the earnings threshold of £5,772 per annum.

It should be noted that although the thresholds are quoted in annual terms, the assessment will always use a pro-rata value based on whether the worker is paid weekly, monthly or fortnightly etc. This means that their total earnings in a year are not relevant and they only have to earn over the threshold in one pay period to trigger automatic enrolment.

It should also be noted that the categorisation of worker covers workers wholly or ordinarily working in the UK. For certain employments, this may require further investigation to understand the exact scope of these terms in relation to the employment.

Assessing the workforce – detailed guidance

Ongoing duties
It is important to keep track of the workforce to ensure compliance with their automatic enrolment duties. Workers must be assessed regularly as their contracts, hours, pay and conditions may change. Regular data cleansing and ensuring all staff records are up to date will help ensure workers are assessed correctly and will avoid the risk of non compliance.

Further detailed guidance on assessing workers is available on the TPR website.

ACCA has produced an engagement letter covering auto-enrolment.

Collecting overdue tax through tax codes
From April 2015 HMRC is increasing the amount of overdue tax it can recover through a PAYE tax code.

From April 2015 HMRC is increasing the amount of overdue tax it can recover through a taxpayer's Pay As You Earn (PAYE) tax code.

Before 6 April 2015 HMRC can collect debts of up to £3,000 by adjusting a taxpayer's PAYE code.

This applies if the taxpayer owes money to HMRC and:

  1. the taxpayer is an employee paying tax through PAYE and/or

  2. the taxpayer receives a taxable UK based private pension.

From 6 April 2015 this 'coding out limit' will increase from £3,000 if the taxpayer's PAYE earnings are £30,000 or above. HMRC will apply a sliding scale to the taxpayer's main PAYE income as follows:

Annual PAYE earnings                                     Coding out limits

Up to £29,999.99                                                £3,000

£30,000.00 to £39,999.99                                   £5,000

£40,000.00 to £49,999.99                                   £7,000

£50,000.00 to £59,999.99                                   £9,000

£60,000.00 to £69,999.99                                   £11,000

£70,000.00 to £79,999.99                                   £13,000

£80,000.00 to £89,999.99                                   £15,000

£90,000.00 and above                                        £17,000

The taxpayer will continue to have the option not to have the debt collected through their PAYE tax code. Then the tax would be payable on the normal due dates.

HMRC has details of this change on its website.

Significant changes to employment law
An overview of recent developments surrounding overtime and holiday pay and shared parental leave.

An overview of recent developments surrounding overtime and holiday pay and shared parental leave.

Overtime and holiday pay
An important decision has been released concerning overtime pay and whether it needs to be included in the holiday pay calculation.

The decision was released by the Employment Appeal Tribunal (EAT); the three cases were:

  • Bear Scotland Ltd & others v Mr David Fulton and others

  • Hertel (UK) Ltd vMr K Woods and others

  • Amex Group Ltd v Mr Law and others.

The crux of the case concerned whether regular non-contractual overtime should be included when calculating holiday pay. The decision by the employment tribunal was appealed by the three appellants (Bear Scotland, Hertel (UK) Ltd and Amex Group Ltd) to the EAT on the basis that it contradicted the view set by the Court of Appeal in Tarmac Roadside Holdings v Peacock [1973] ICR 273. In that decision it was concluded that holiday pay does not have to be included in payment for overtime that the employer is not contractually required to provide an employee.

This case has had a number of interested parties, the Secretary of State for Business Innovation and Skills being one of them who was represented at the EAT.

The EAT upheld the earlier tribunals’ decision which has far-reaching effect and means the UK has failed to implement the Working Time Regulations 1998 (the Regulations) properly. The Regulations would need to be amended to include non-contractual overtime in holiday pay.

The other aspect of the case is the retrospective one; some commentators have suggested this could mean that employees affected by this case could make a claim for unlawful deductions as far back as when they first started working for an employer.

It has been recognised that whichever way this decision went it would have been appealed, so it’s a matter of 'watch this space' with an eventual conclusion highly likely to be a European conclusion.

For further details on the case, see our in depth article.

Shared parental leave
As of 1 December 2014 regulations will come into force allowing parents to share parental leave. There are a number of eligibility criteria; however, this is not designed to limit the current rights available.

Mothers will continue to be entitled to 52 weeks' maternity leave and 39 weeks' statutory maternity pay or maternity allowance. Provided the eligibility conditions are met a mother can end her maternity leave early and opt for shared paternity leave and share the balance with her partner.

The key date is 5 April 2015: this will only be available for children born on or after 5 April 2015 or for children placed for adoption on or after this date. There are two tests that need to be passed.

  • Continuity of employment test – the person must have worked for the same employer for at least 26 weeks at the end of the 15th week before the week in which the child is due (or at the week in which an adopter was notified of having been matched with a child or adoption) and is still employed in the first week that shared parental leave is to be taken.

  • Employment and earning test – the person must have worked for at least 26 weeks in the 66 weeks leading up to the due date and have earned above the maternity allowance threshold of £30 a week in 13 of the 66 weeks.

For further details see the guidance available from ACAS.

There is also Shared parental leave: a good practice guide for employers and employees.

Finally the portal also covers shared parental leave.

New ruling on overtime and holiday pay
Court decision likely to have significant impact on how employers calculate holiday pay.

Court decision likely to have significant impact on how employers calculate holiday pay.
The recent decision in Bear Scotland, Hertel (UK) Ltd and Amec Group Ltd v Fulton and others, handed down by the Employment Appeal Tribunal on 4 November 2014, has been widely publicised. It is likely to have considerable cost implications for employers.

In the past, an employee’s holiday pay has always been based on his or her basic pay, and in calculating the rate payable the employer only took into account overtime which the employee was contractually required to work. This contrasted with the treatment of casual or agency staff, where holiday pay has always been calculated on the basis of the hours actually worked, or an average of them.

Scope of ruling
There is some uncertainty about the scope of this ruling, but it does seem absolutely clear that it includes only overtime which is intrinsically linked to the employee’s normal role, rather than special or unusual duties different from those s/he normally performs.

However, there is still some uncertainty about exactly which type of overtime is to be included in the calculation.

Hertel concerns only ‘non-guaranteed’ overtime, where the employer was not obliged to offer it, but when required, the claimants had to work it. What is not clear is whether truly voluntary overtime should also be taken into account, even if it is worked very regularly. Langstaff J states clearly that holiday pay should now be ‘comparable to periods of work’ and the general view (including that of ACAS) seems to be that where overtime is regularly worked as a matter of fact, then the averaging exercise should be carried out in the calculation of pay for holidays. There is a further complication in that this ruling only applies to the first four weeks (20 days) of holiday taken in any holiday year, whereas the additional 1.6 weeks (8 days) and any additional contractual entitlement can still be calculated using basic pay only.

Retrospective claims
One major concern for employers is how far back employees might be able to go in claiming unpaid holiday. The court’s decision is quite favourable in that respect, with the judge stating that ‘any series punctuated from the next succeeding series by a gap of more than three months is one in respect of which the passage of time has extinguished the jurisdiction to consider a complaint that it was unpaid’. Since it is taken that the employee takes his or her statutory four weeks first as the year progresses, and then the additional UK holidays of 1.6 weeks, and then any additional leave, then it is likely that claims in respect of the earlier part of the year will be extinguished by at least one three month gap which then breaks the continuity. The likelihood is that the absolute maximum claim that might be available to any employee is in respect of the current holiday year.

What should employers do now?
Employers are asking what they should do in relation to this ruling. The judge gave permission for the parties to appeal, so this will probably not be the end of the story, but pending this there are a number of possibilities. Employers might decide to do nothing, and take the risk of backdated claims, although given the wide publicity accorded to the ruling, employees might be unhappy about that.

On the other hand, they might decide to recognise the ruling by paying the same rate averaging over 12 weeks to include either non-guaranteed overtime only or including all overtime, even if it is voluntary.

Employers could adopt a ‘two tier approach’, paying 20 days at the higher rate and the rest at the basic rate, or keep the same rate for all holiday. In order to minimise exposure in future, employers might seek to review their contracts and amend them to ensure that overtime is truly voluntary, might limit or refuse holidays after periods when a lot of overtime has been worked, or could use agency or bank workers to fill the gaps rather than allowing permanent staff to work overtime. It is to be hoped that Parliament might intervene to clarify the situation, in everyone’s interests!

The full transcript of the case is available.

The authors of this article - Louise Dunford and Toni Trevett at Complete HR Ltd - offer practical advice on HR and employment law issues to small and medium sized businesses of all types

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Trading losses
Ahead of the self-assessment deadline, how can trading losses be utilised for tax purposes?

With the self-assessment deadline fast approaching, this article considers the way in which trading losses may be utilised for tax purposes.

A profitable business will pay tax on its profits but when times are not so good it will need to ensure that any loss relief available is claimed. This will often be of paramount importance for the cash-flow of the business and could mean the difference between survival and failure.

It is therefore important to be aware of the different ways in which trading losses of sole traders and trading partners can be relieved. The following table summarises the reliefs available with links to worked examples and the relevant sections of the relevant tax legislation.

Type of loss

Year of loss

Earlier years

Subsequent years

Trading losses generally.

Against total income from all sources. 
ITA 2007, s64
HMRC Manuals BIM75410 

May be extended to include set off against capital gains once all taxable income extinguished.
TCGA 1992, s261B;
HMRC Manuals

Against total in come from all sources in the preceding tax year.
ITA 2007, s64;
HMRC Manuals BIM75410 

May be extended to include set off against capital gains once all taxable income extinguished.
TCGA 1992, s261B;
HMRC Manuals

Against profits of the same trade.
ITA 2007,s83;
HMRC Manuals

When making a claim under ITA 2007, s64, the taxpayer may claim to set off the losses against either or both tax years.

Trading losses incurred in first four tax years of trade.

Against total income from all sources. 

ITA 2007, s64 

May be extended to include set off against capital gains once all taxable income extinguished.
TCGA 1992, s261B;
HMRC Manuals

Against total in come from all sources in the preceding tax year.

ITA 2007, s64 

May be extended to include set off against capital gains once all taxable income extinguished.
TCGA 1992, s261B;
HMRC Manuals


May be set off against total income in the preceding three tax years, prior to the year of loss on a FIFO basis.
ITA 2007, s72 
HMRC Manuals

not be extended to include capital gains.)

Against profits of the same trade.

ITA 2007, s83;
HMRC Manuals BIM75500

Terminal loss relief (losses arising in final 12 months of trade).

Against profits of the same trade assessable in the final tax year.
ITA 2007, s89;
HMRC Manuals


Unrelieved terminal losses against profits of the same trade assessable in the three preceding tax years on a LIFO basis.
ITA 2007, s89
HMRC Manuals


Unrelieved trading losses of a sole trade on incorporation

Against income (including remuneration, rental income and dividends) from a company to which the business which made the losses is transferred.

ITA 2007, s86;
HMRC Manuals


Against income (including remuneration, rental income and dividends) from a company to which the business which made the losses is transferred.
ITA 2007, s86;
HMRC Manuals

HMRC manuals
HMRC manuals provide useful reference on calculating and utilising trading losses. Access the relevant chapter here.

Mismatch of losses for income tax and class 4 NIC purposes
It is often overlooked that, when trading losses are relieved against sources of income other than trading income, or indeed capital gains, this will cause a mismatch between the amount of losses carried forward for income tax and class 4 national insurance purposes. Where losses are claimed under ITA 2007, s64 or s74 and/or extended by a claim under TCGA 1992, s261B, separate memoranda should be kept of the unutilised losses for income tax and class 4 NIC purposes as the amount of losses available for income tax relief underITA 2007,s83 and for Class 4 NIC under SSBCA 1992, Sch 2, Para 3(3)(4) will differ. See HMRC Manuals NIM24610.

NB: It is also worth noting that same principle applies, but in reverse, where a taxpayer makes a claim for employment losses against general income under ITA 2007, s128 and these are relieved wholly or partially against trading income (which may also be extended to include set off against capital gains under TCGA 1992, s261B).

Time limits for making loss relief claims
In all cases, a claim for loss relief must be made by the one year anniversary of the normal filing date of the tax return for the loss-making year, eg: a claim for 2010/11 losses would need to made by 31 January 2013.

HMRC will accept late claims in certain circumstances 

Restriction on relief for trading losses
Legislation was implemented by Finance Act 2013 to place a limit on certain 'income tax reliefs' that an individual may claim. Trading losses are included within the list of restricted reliefs.

The limit applies with effect from 6 April 2013 to certain reliefs which, prior to 2013/14, had been unrestricted. The new restriction limits the tax relief available on the affected reliefs (which are considered below) to the greater of:

• 25% of the individuals adjusted total income (total income less pension contributions) for the tax year, and

• £50,000.

For further commentary on this, please click here.

Limit on income tax reliefs
Examining how the limit on income tax reliefs from 6 April 2013 (part of Finance Act 2013) will operate.

Legislation was implemented by Finance Act 2013 to place a limit on income tax reliefs from 6 April 2013. Here we look at how this limit will operate.

Finance Act 2013, Schedule 3 imposes a limit on the amount of 'income tax reliefs' that an individual may claim.

The limit applies to certain reliefs which, prior to 2013/14, had been unrestricted. The new restriction limits the tax relief available on the affected reliefs (which are considered below) to the greater of:

  • 25% of the individual's adjusted total income (total income less pension contributions) for the tax year, and

  • £50,000.

Reliefs which are subject to the restriction
The following list summarises the reliefs that are affected by the restriction:

  • trading losses – relief against general income in the tax year of loss or preceding tax year under Income Tax Act (ITA) 2007, s64

  • losses in early years of trade – relief for losses incurred in the first four years of trading against general income of the preceding three tax years under ITA 2007, s72

  • post-cessation trade relief – available for qualifying losses within seven years of the permanent cessation of a trade under ITA 2007, s96

  • interest on certain loans – including to buy an interest in an unquoted trading company or a trading partnership under ITA 2007, Chapter1, Part 8

  • property loss relief against general income and post-cessation property losses – available for losses generated by capital allowances under ITA 2007, s120 and s125 respectively

  • employment loss relief (generally due to excess claims under ITEPA 2003, s336) and former employee’s deduction for liabilities under ITA 2007, s128 and ITEPA 2003, s555 respectively

  • share loss relief on losses subscribed for in an unquoted trading company or holding company of a trading group under ITA 2007, Chapter 6 Part 4. This excludes shares under the enterprise investment scheme (EIS) and the seed enterprise investment scheme (SEIS)

  • losses on deep discount securities under Income Tax (Trading and Other Income) Act (ITTOIA) 2005.

It should be noted that the restriction does not apply to losses generated by the crystallisation of overlap relief.

It is also welcome news for charities that the government dropped its initial proposal to include charitable donations in the list of restricted reliefs.

A further important point to note is that where losses are being set off against capital gains, the restriction does not affect the amount of losses that may be set off against capital gains.

Combination of reliefs
Where a taxpayer has a number of reliefs that are subject to the restriction, the taxpayer may choose the order of set off, for example:

Luke has the following income for 2013-14:

Income from membership in a trading LLP £300,000

Dividends (net) £45,000

Bank interest (net) £16,000

He also has the following relief available:

Personal pension contributions (gross) £50,000

Interest on loan to buy share in LLP £60,000

Current year trading losses from self-employment £30,000


Income from LLP


Dividends (£45,000 x 100/90)


Interest (£16,000 x 100/80)


Total income


Less: Pension contributions


Adjusted net income


Less: reliefs subject to restriction by virtue of ITA 2007 Sch.3:

Interest on loan to buy share in LLP £60,000

Current year trading losses from self-employment £30,000

Total                                                                                £90,000

Relief restricted to greater of:

  • 25% x adjusted net income
    (£320,000 x 25% = £80,000)

  • £50,000

Balance unused: £10,000                                                                                                  -£80,000

Taxable income before personal allowance                                                                   £240,000

The taxpayer may choose to use the loan interest first, as this cannot be carried forward to a later year and carry forward the trading losses against future profits from the same trade.

Transitional rules
The new rules apply for tax years commencing 6 April 2013 onwards. However, transitional rules apply for losses arising after that date which are carried back to the 2012/13 tax years or earlier. If losses are being carried back, eg losses in early years of trade, in these circumstances, then the restriction will apply.

Remittance basis taxpayers
The position becomes more complicated when looking at UK resident, non-domiciled taxpayers who are subject to the remittance basis and subject to the £30,000 or £50,000 remittance basis charge.

If there is insufficient UK and nominated foreign income available to cover the available reliefs, a further amount of foreign income is deemed to be added to give a tax increase equal to the remittance basis charge. This is best illustrated by way of an example:

Jemima has UK income of £2,000,000 and is claiming reliefs subject to the restriction of £600,000. Jemima claims the remittance basis and pays the £30,000 remittance basis levy.

Based on her UK income, without the deemed addition, the reliefs would be restricted to £500,000 (£2,000,000 x 25%) and her income subject to tax would be £1,500,000.

As there are surplus reliefs available, it is necessary to add an amount of deemed income in order to ascertain the amount of reliefs that may be used, as follows:

Remittance basis charge £30,000 grossed up at marginal rate of tax:

£30,000 x 100/45 = £66,667

The amount of adjusted net income on which the restricted reliefs will be based is therefore £2,000,000 + £66,667 = £2,066,667.

Jemima’s restricted reliefs are therefore £2,066,667 x 25% = £516,667, rather than £500,000.

The restriction of reliefs is something that will need to be borne in mind from 2013/14 onwards. However, due to the way in which the restriction operates, the legislation is intended to catch abusive use of reliefs by higher earners.

For further information on the utilisation of personal tax losses, please click here.

For ACCA’s Technical Advisory website, please click here.

Pension changes for frequent movers
The government plans to change the pension rules for workers who leave jobs within two years.

Last month the government announced plans to change the pension rules for workers who leave jobs within two years.

Currently workers who leave their jobs within two years of starting can be given a 'short service refund' of their pension contributions. Usually the person is given the choice as to whether or not the refund should be made, although employers may insist on the refund.

The new proposal is that refunds should only be available for those who have been in schemes for less than 30 days. The government is planning for the changes to take effect from October 2015. These proposals would only affect workplace defined-contribution schemes, not personal pensions or workplace final-salary schemes.

An estimated 20,000 workers a year, who move jobs within two years of service, are currently given a 'short service refund' of their pension contributions. The typical size of a pension pot when the refund is made is between £1,000 and £2,000, of which the employee contributions refunded to the employee is typically around £625.

Business to consumer supplies
The EU place of supply VAT rules will change from 1 January 2015.
The EU place of supply VAT rules will change from 1 January 2015.

The changes impact on business to customer (B2C) supplies including e-services. From 1 January 2015, the place of taxation for certain supplies will be determined by the location of the customer.

To save you having to register for VAT in every EU member state, where you supply broadcasting, telecommunications and e-services, you may opt to use the VAT Mini One Stop Shop online service (VAT MOSS). This will be available on 1 January 2015, but you will be able to register to use it from 20 October 2014.

These are a few of the facts highlighted in the note:
  • if you supply broadcasting, telecommunications and e-services (digital services) services to businesses only (including those who are self-employed) then these changes do not affect you
  • if you are a business supplying digital services to consumers, these changes will affect you, so you need to start planning for them now
  • if you supply digital services to a mix of businesses and consumers, then these changes affect you as far as the supplies to consumers are concerned
  • if your customer does not provide you with a VAT Registration Number (VRN), and you have no other information that suggests that your customer is in business and VAT registered, you can treat this as a B2C supply
  • if you supply consumers through an online store or gateway, and the online store or gateway is acting in its own name, then they will normally be considered to be supplying the consumer. This means that the online store or gateway will be responsible for declaring and paying any VAT due. You will be treated as supplying the store and so will be making a business to business (B2B) supply, rather than a B2C supply. If this is the case, these rule changes do not directly affect you.

Currently intra-EU supplies of BTE services to non-business customers are subject to VAT in the member state where the supplier belongs, from 1 January 2015 the place of supply will change to where the customer belongs.

There will be further changes to the agency legislation to reflect these rules for taxable persons acting in their own name on behalf of another when supplying telecommunication or e-services.

The place of supply rule changes could lead to a digital supplier having to register in each member state where they make supplies and suffer the administrative burden that comes with it: that’s a potential of 28 VAT registrations. The VAT MOSS will be implemented from 1 January 2015, giving the supplier an option of registering in just one member state and accounting for any VAT due to any member states through a single MOSS return.

This should remove the incentive for businesses to locate offshore and level the playing field for all BTE suppliers. The aim is to reduce the administrative burden and associated costs of multiple VAT registrations.

There will be additional changes to the place of supply rules to align with other member states and to close minor loopholes used by certain anti-avoidance schemes.

For further details the ACCA has produced a helpful guide that explores the VAT MOSS and the changes from 1 January 2015.

Capital gains tax – share matching rules
How share identification rules should be followed for a disposal of shares in a company, for CGT purposes.

This worked example looks at the share identification rules that should be followed when there is a disposal of shares in a company, for capital gains tax purposes.

Because one batch of shares or securities of the same class in a company are effectively indistinguishable from another batch, special identification rules are needed to match disposals with multiple acquisitions.

For example, on 1 January 2004, Elsa sells 500 shares in Juniper PLC. She had originally inherited 500 shares in 1996 and bought another 500 on 31 December 2013. How do we know which shares are sold to enable us to calculate the gain? The share identification rules prescribe this for us.

What are the rules?
The capital gains tax regime underwent a substantial revamp in 2008 and the share identification rules formed part of the reforms. The rules are therefore different for disposals occurring on or after 6 April 2008 than they were previously. This article just looks at the rules as they have applied since 6 April 2008.

Disposals of shares on or after 6 April 2008 are to be identified with acquisitions by the same person of shares of the same class in the same company in the following order:

  1. acquisitions on the same day as the disposal

  2. acquisitions within 30 days after the day of disposal (thus countering 'bed and breakfasting')

  3. shares comprised in the 'section 104 holding' (see below)

  4. if the shares disposed of are still not exhausted, shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).

In the above list, 1, 2 and 4 are easy to understand but what about number 3, the section 104 holding?

Section 104 holding
Taxation of Chargeable Gains Act (TCGA) 1992, s104 tells us that:

'Any number of securities of the same class acquired by the same person in the same capacity shall for the purposes of this Act (subject to express provision to the contrary) be regarded as indistinguishable parts of a single asset growing or diminishing on the occasions on which additional securities of the same class are acquired or some of the securities of that class are disposed of.'

This effectively means that all shares, apart from those in 1, 2 and 4 above, are pooled and treated as a single asset. When a proportion of the shares held within the pool are sold, the value of the pool of share is apportioned to determine the base cost of the shares being sold.

Any shares which were held at 1 April 1982 are subject to the 'general re-basing rule', as prescribed by TCGA 1992, s35(4). This means that, for capital gains tax purposes, the shares are treated as having been acquired at their market value as at 1 April 1982 and the actual cost becomes irrelevant. There is an exception to this rule if the client has made a global election by 6 April 1990 for actual cost to apply, in which case, original cost will normally apply.

It should be remembered that indexation no longer applies to disposals made by individuals and trusts.

Let us now consider these rules by way of an example:

On 14 January 2014, Mr Monk sells 500 Ordinary £1 shares in Lion PLC. The share were acquired as follows:

Number of shares:

Transaction details:

Base cost:


Bought 8 May 1977 – cost £1,200

Market value as at 1 April 1982 - £2,000 (no global election made)



Bought 6 June 1988 – cost £2,400



Sold 14 January 2014 – Proceeds £10,000


Bought 14 January 2014 – cost £3,000



Bought – 2 February 2014 – cost £3,500


The capital gains tax computation will be as follows:



14 January 2014 Sold 1,200 Lion PLC ordinary shares – Proceeds £8,000


Base cost:

  1. Shares acquired on the same day:
    500 shares – Cost £3,500

  2. Shares acquired within 30 days:
    500 shares – Cost £3,500

  3. 200 from s104 holding:
    200/1,000 x [2,000 + 2,400]

Total cost of disposal





Chargeable gain


Mr Monk would be left with a residual 800 shares in Lion PLC with a base cost of [£2,000 + £2,400 - £880=] £3,520.

Visit the tax section of ACCA’s Technical Advisory Website for further self assessment tips.

SRA accountants' reports – all change
SRA responds on proposals around solicitors' use of accountants' reports and opens a further consultation.

SRA responds on proposals around solicitors' use of accountants' reports and opens a further consultation.

Over recent months ACCA has discussed the proposals to withdraw the requirement for solicitors holding client monies to submit accountants’ reports with the Solicitors Regulation Authority.

This is what the SRA has said:

We will be amending our original proposal to remove the mandatory requirement that all firms must deliver an annual accountant’s report to the SRA. Instead we will:

(a) Introduce an amended version of the requirement for firms to obtain an accountant’s report that exempts a small group of firms where the requirement can no longer be justified by the limited risks posed to client money; and

(b) Require all other firms to obtain an accountant’s report but only qualified reports will need to be delivered to the SRA.

In response to the feedback received we have also made some straightforward amendments to the format of the accountant’s report, removing unnecessary fields such as the requirement to provide a list of partner names (ie information already held by the SRA).

These proposals constitute 'Phase One' of a longer-term strategy and will be implemented through amendments to the Accounts Rules to take effect from 31 October 2014, subject to approval by the Legal Services Board. This means that:

(a) any firms with an accounting period that ends before 31 October 2014 will need to prepare and deliver to us, in the normal way, an accountants's report within six months of the end of the period to which the report relates (or to apply for a waiver to do so, if considered necessary)

(b) any firms with an accounting period that ends on 31 October 2014 or after will be required to deliver only qualified reports within six months of the end of the period to which the report relates

(c) any firms that do only legal aid work and with an accounting period that ends on 31 October 2014 or after will not be required to obtain an accountant’s report.

Phase two will involve further targeting of our requirements through the redefinition of the circumstances in which accountant’s reports need to be qualified. The revised criteria and related amendments to the format of the report will be implemented through changes to the Accounts Rules in April 2015, subject to further consultation.

We will also consider whether there are further categories of firms we can exclude from the requirement to obtain an accountant’s report and consider the requirements imposed by the overseas accounts provisions of the Accounts Rules in light of the risks and impacts involved.

The third and final phase will involve a major review of the Accounts Rules as a whole to be implemented through rule changes in April 2016.

The SRA has now issued a consultation phase two in the work programme. This consultation and supporting documents include amendments to the accountant's report. The consultation is open until 28 January 2015.

Your views wanted
ACCA is working with the SRA on this consultation and we would welcome your observations on this and how the SRA Accounts Rules can be improved in general. Please send your comments to by 10 January.

Private residence relief
With high levels of multiple property ownership, a look at the private residence exemption for CGT purposes.

With the self assessment deadline approaching and with multiple property ownership at a high level, let's look at the private residence exemption for capital gains tax purposes.

Private residence relief applies for capital gains tax purposes if the dwelling house or part of the dwelling house has been the individual’s only or main residence during some period of ownership. If an individual owns more than one property, they may make an election. It is essential that the individual has actually lived in the property at some point and HMRC will often ask for proof of this in the event of an inquiry.

If during the period of ownership the dwelling house or part of the dwelling house has been used exclusively for some other purpose then the relief is reduced. If the property has been the individual’s principal private residence at some point, the last 36 months of ownership will be treated as if it was the individual’s only or main residence even if in fact it was not so used, for tax years up to and including 2013/14.

However, this final period exemption will be reduced from 36 months to 18 months from 6 April 2014.

Let property relief
A further relief may be available where private residence relief is restricted because some or all of the dwelling has been let as residential accommodation (TCGA 1992 s223(4)). It must be noted, however, that let property relief only applies if the property has been the principal private residence of the individual at some point..

A dwelling house which is owned by husband and wife Mr & Mrs Green in the proportion 40% by husband and 60% by wife is sold in March 2014 (contracts exchanged on 14 March and completion on 1 April) for £600,000 net of allowable expenses. The house cost £400,000 including the allowable expenses. The house was purchased in 2004 contracts exchanged on 15 March 2004 and completed on 3 May 2004.

Mr & Mrs Green lived in the house as their principal private residence from 3 May 2004 until 15 March 2007, then let the property to tenants until 31 December 2012; then the property was empty until it was sold.

The capital gains tax position is as follows:  


Total (£)

Mr. Green (£)

Mrs. Green (£)

Sale proceeds








Net gain




Less: Private Residence Relief (3+3/10)




Gain arising by reason of letting




Letting relief, lower of:




1. Private residence relief




2. Gain by reason of letting




3. Statutory amount




Lower of above three is




Chargeable gain




In the above calculations the period qualifying for private residence relief is the period when the house was occupied as a principal private residence plus the last 36 months. The period of ownership is from date of exchange on purchase to date of exchange on sale.

If either Mr or Mrs Green were in business while they were living in the house they may have used part of the house for business purposes such as one room being used as an office. If that room was used exclusively for business purposes then the private residence relief would be restricted, based on period used exclusively for business purpose and say on the size of that room compared to the size of the house. However, if the room was used for business purposes but not exclusively (ie some non-business use and some business use) then there will be no restriction of the private residence relief for this business use.

Husbands and wives or civil partners can elect for property held in their joint names to be held in any proportion if that couple live together. This can be done using HMRC form 17.

Visit the tax section of ACCA’s Technical Advisory Website for further self assessment tips.

Allowability of legal and court costs
We go 'back to basics' as we examine what can be allowed in terms of legal costs.
We go 'back to basics' as we examine what can be allowed in terms of legal costs.

In the course of trading or being in business generally, there will sometimes be incidents that lead to court actions or legal costs. It can be a minefield trying to establish whether or not a cost is deductible for tax purposes. Where it is not clear from the legislation or general principles, there is a host of case law to refer to.

Normal principles
When a business incurs legal fees, or is subject to other associated costs such as damages or penalties linked to court action, normal principles will apply in determining deductibility. The costs will not be allowable if they fail the 'wholly and exclusively' test, if they are capital rather than revenue in nature, or if they are a loss which is not connected with or arises from a trade. Whether the action is successful or not has no bearing on the allowability of the expense.

Legal costs in connection with leases can fall to be treated as revenue or capital expenditure. The general principle is that the initial purchase of a lease will be capital, so costs associated with that will not be deductible (unless there is a disposal of the asset in which case they will form part of the capital gains computation). Renewal of a lease may also involve legal and professional fees, and these will also be capital expenditure, though if the renewal is of a short lease the amount is likely to be small and may be allowed. Generally speaking though, leases aside,it is usually clear whether the transaction in question is of a capital or revenue nature.

The 'wholly and exclusively' test is slightly more difficult as there is perhaps a certain amount of subjectivity, which has led to there being rather a lot of case law in this area. The payment of compensation to a customer for injury would possibly be considered to be wholly and exclusively for the purpose of the trade, but it is not as straightforward as that. Certainly civil damages for injury to third parties caused by the day to day trading operations would be an allowable cost. However, the 1906 case Strong & Co of Romsey v Woodifield involved injury to a customer and a payment for damages that was considered not to be deductible.

Strong & Co of Romsey was a brewing company, and the customer was sleeping in one of their inns when he was injured by a falling chimney. The brewery had to pay him damages but was not allowed a deduction for them in its accounts. Lord Davy said: 'I think that the payment of these damages was not money expended “for the purpose of the trade”. These words are used in other rules, and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with the trade, or is made out of the profits of the trade. It must be made for the purpose of earning the profits.'

Infractions of the law
Fines, penalties, damages and the legal costs associated with them will not be allowed as deductions when the penalties are for infractions of the law. It is considered that in this case they are not a 'commercial loss'.

The amount of confiscation orders are sometimes calculated by reference to the turnover of the business, but this does not mean that they are an allowable deduction from turnover. A confiscation order is a penal measure and so cannot be a deductible amount. Costs incurred in settling an action for a breach of the law will not be allowable, even if the legal action takes place overseas or the breach relates to a jurisdiction other than the UK.

Libel actions
The costs of defending a libel action might be allowable, if, for example they were payable by a publication. However, in the case of Fairrie v Hall (1947) the costs were deemed to be not allowable. Mr Fairrie had to pay damages to Mr Rook in relation to malicious libels. These communications could have damaged Mr Rook's professional reputation and trade, but the High Court held that the expenditure was not laid out wholly and exclusively for the purposes of Mr Fairrie's trade, nor was it a loss connected with or arising out of the trade.

Costs associated with getting out of a normal trading contract will be allowable, including payments to compel a director to withdraw a legal action against a company (G. Scammell & Nephew Ltd v Rowles (1939)). When a business incurs costs in defending a charge of breach of contract, the costs will be deductible if the business is defending trade assets but will naturally not be an allowable deduction if the case is to defend a personal reputation. Similarly the costs of litigating a trade dispute are allowable while those relating to a private dispute - even if between two traders - are not.

The case quoted above, Strong & Co of Romsey v Woodifield, is over a hundred years old, but there are still cases heard today that deal with the types of issues mentioned in this article. Take, for example, the 2014 case P McMahon v HMRC, which dealt with the costs of defending an action by a former employer. Mr McMahon left his employment with Quantica plc and became self employed in the same field. The company later commenced proceedings against him, claiming that he had breached an agreement not to contact or canvass any of his former employer's clients. Mr McMahon agreed to pay £100,000 in settlement of Quantica's claim. He then claimed the £100,000 plus associated legal costs on his tax return. HMRC rejected the claim on the basis that the expenditure had not been wholly and exclusively incurred for the purpose of Mr McMahon's business.

The first-tier tribunal dismissed Mr McMahon's appeal and held that the expenditure had a dual purpose and that one of the purposes had arisen out of Mr McMahon's employment contract. Therefore the expenditure was not wholly and exclusively for the purpose of the business and could not be an allowable deduction.

Basic principles
The basic principles that apply when looking at the allowability of an expense, in particular the wholly and exclusively test and the capital/revenue distinction, must also be considered when deciding whether a legal or penalty or court cost can be a deduction for tax purposes. Luckily, when the particular nuances of a specific transaction defy easy decisions, there is a plethora of court cases to refer to, and the case law should hopefully provide guidance to confused business owners.

ACCA's website includes a section that details many useful tax cases on a variety of topics.
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Rental expenses
60 seconds on some of the common tax issues on rental expenditure.

60 seconds on some of the common tax issues on rental expenditure.

The general rule when calculating rental business profits is that 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.

Expenditure incurred before a property is first let out
The tax deductibility of expenditure incurred before a property is first let out depends on whether it is capital or revenue in nature. Repairs to reinstate a worn asset will usually qualify as revenue expenditure, but where a property is purchased and is not in a fit state for use in the business until the repairs have been undertaken; that expenditure is likely to be capital. Guidance on whether the cost of repairing an asset acquired in poor repair is capital or revenue can be found in the contrasting cases of The Law Shipping Co Ltd v CIR and Odeon Associated Theatres Ltd v Jones.

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 they would have to have repaired before they could use it. This was capital expenditure and as a result not allowable in calculating the trading profit. In Odeon, the company was able to operate the cinemas for a number of years before they carried out the repairs and also the price paid was not reduced to reflect the state of repair. The expenditure was found to be allowable revenue expense.

Expenditure for water rates, council tax etc paid by the landlord before tenants moved in is treated as pre-letting expenditure and as a result allowable.

Wear and tear allowance
If the property is let furnished, the landlord is able to claim a wear and tear allowance. This is 10% of the 'net' rent and covers plant and machinery that a landlord would normally provide in a furnished accommodation, such as furniture, fridges, carpets and curtains. 'Net' rent is the total rent for the year, less any expenses paid by the landlord that would normally be borne by the tenant, for example utility bills.

Wholly and exclusively - cost of travel to visit the property
Revenue expenses are allowable deduction against rental income only if they are incurred wholly and exclusively for the purpose of letting. Where expenditure has a dual private and business purpose, unless the business element can be clearly distinguished then the whole of the expenditure will be disallowed for tax purposes.

While reasonable costs for inspection visits are usually allowable, if the trip is mainly for private purposes and it is not possible to separate this private element from the business portion, then none of the cost is deductible.

Legal 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.

Cost of replacing furniture, fixtures and fittings
The cost of replacing like with like is an allowable revenue expense, However, if the replacement represents an improvement of the original asset, the cost is not allowable. The expense will remain allowable if the improvement results from changes in technology over time.

So, if a new kitchen is fitted that performs the same job as the original kitchen, the cost is allowable. However, if it the kitchen has been upgraded and/or designed to increase functionality (such as increase storage space) the cost is not allowed.

The cost of a new boiler is usually allowable (even if it is more efficient than the previous boiler due to the improvement of technology over time). However, if the boiler is used to service the increased space area of a house that has been extended none of the cost is allowed as the expenditure is treated as capital.

Landlord's Energy Savings Allowance (LESA)
Ordinarily the cost of installing new insulation would be considered an improvement and therefore treated as a capital cost. However, under the Landlord’s Energy Saving Allowance, the cost of certain energy-saving items in let residential property is an allowable deduction against the rent received, provided the expenditure is incurred before 6 April 2015. Energy-saving items include: loft insulation, cavity wall insulation, solid wall insulation, draught proofing, hot water system insulation, floor insulation. This is subject to a maximum of £1,500 per dwelling.

Expenditure may need to be apportioned, for example, where a landlord installs energy-saving items in a building that only partly comprises let residential property, or a building containing more than one dwelling. In these circumstances, a just and reasonable apportionment of the expenditure must be made between all the properties which benefit from the energy-saving item.

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.

If a property is let for short periods in a tax year, or only part of it is let throughout a tax year (or both), the interest charged on a qualifying loan on that property has to be split between the rental business use and the private or non-business use. The split is done in whatever way produces a fair and reasonable business deduction, taking account of both the proportion of business use and the length of business use. The interest does not have to be split if the landlord is genuinely trying to let the property but it is empty because they have not been able to find a tenant. In this case, the interest will meet the 'wholly and exclusively' test.

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

Data protection advice for accountants
Legal and compliance risks that accounting firms should consider when processing clients' confidential data.

This article explores some of the Data Protection Act legal and compliance risks that accounting firms face when processing clients' confidential data.

Between 2011 and 2013 there was a 145% increase in penalty notices issued by the UK regulator [ICO]. A PricewaterhouseCoopers study found 60% of small businesses have had an information security breach in 2014.

Many accounting firms are moving their data systems to cloud solutions and rely on the data security infrastructure offered by the cloud provider; however, recent high profile information breaches from large organisations such as Amazon and Google have made accounting firms rethink using cloud. Larger companies can afford a more secure, sophisticated, protected cloud platform, but smaller companies will consider cost over security or compliance which makes them a target for determined hackers.

In addition to having an IT support company you can consult data protection experts for extra peace of mind; they can review and advise on your company's data infrastructure to reduce the chance of a data breach and how to reduce your financial and legal liability should an attack occur.

Here are some questions your business should consider to determine your data risk.

Do I have obligations as an accountant under the Data Protection Act?
Yes, as data controllers you have responsibilities under the Data Protection Act when processing your client’s personal data. The ICO expects you to meet all eight principles of the DPA irrespective of the size of your company.

Can I outsource my responsibilities as a data controller to a third party?
You cannot pass all of your responsibility to a third party if you use personal data as a data controller. As an accountant, you will generally have discretion in which third parties you choose to assist with processing your client’s records; however, the responsibility will remain the data controller's and any data breaches will be the liability of the accountant if he or she is classed as a data controller under the Data Protection Act.

Will I have liabilities if data stored on the cloud is breached or misused?
As data controllers the responsibilities of how your data is managed is solely your responsibility. Therefore the accountant needs to ensure due diligence is applied when choosing a cloud platform to backup or store your data. The key considerations are:

  1. Encryption security

  2. Location of the data centre servers. It cannot be assumed that transferring your data to a third party cloud provider takes away your responsibility of the security of where and how the data lies within the cloud.

What are the chances of enforcement if a breach does occur?
The ICO is to become more proactive in pursuing action against smaller companies going forward even when no complaint has been raised. A tougher regulatory environment is currently being implemented for 2015/2016. So far the ICO has levied fines for data breaches and we expect this activity to increase with the changes under the new regulation. A major factor in assessing your risks depends on whether any of your activities is likely to trigger a complaint.

Will using encryption technologies provide adequate protection?
The term encryption is widely misused. In order to maintain compliance with the Data Protection Act, the encryption needs to be a relevant benchmark such as FIPS 140-2 certified compliant. The data generally needs to be stored in an EU data centre and you (as the data controller) need to maintain control of the encryption key.

What proactive steps can I take to protect my data?
Undertaking a data security review now could highlight present failings or weak spots which would cause significant problems or breaches under DPA when the regulations come into effect. The regulations, including the means and reasons for processing of data, must be implemented into an enterprise's operation by design and by default. This involves appropriate technical and organisational measures.

Identifying how your data is treated in your business will put you in an advanced position to not only comply with the regulation but protect your business.

About the author
This article has been written by JMS Secure Data, which has over 15 years’ experience within IT data security development and operates primarily in the accounting sector. We work with accountants to provide solutions to be compliant under the Data Protection Act (DPA) by encryption, data backup and secure cloud.

This article does not constitute legal advice and if you have any concerns regarding data protection then please contact us.

If you would like to discuss any data security issues for your business please contact us.

Ignore FATCA at your peril
FATCA is important: it is going to affect our business lives and we have no choice but to accommodate it.

FATCA is important: it is going to affect our business lives and we have no choice but to accommodate it.

It is an American piece of legislation, the Foreign Account Tax Compliance Act, which seeks to target the accounts of American citizens overseas. Even if you have no American clients, you will still be affected.

What has American legislation to do with us?
The legislation requires payments of income from the US to suffer withholding tax at a punitive rate of 30% unless it is made to a registered person. It is not just American legislation; as a result of the UK-US intergovernmental agreement it was introduced into UK legislation by section 222 Finance Act 2013 and supporting legislation. As already stated, even if you have no American clients, you will still be affected.

Your practice
All UK entities are subject to the UK rules, and they will be asked for their FATCA status, together with the usual money-laundering and client identification processes when dealing with financial institutions, and will need to be familiar with the detailed requirements.

You must appoint a reporting person who will carry the responsibility for reporting, identifying and recording US persons and payments to or for them. This is not as easy as it may seem; suppose your clients form a trust for their grandson. His father’s employer sends him to America to work for a few years. He will have permission to work in the US (green card) and his family and any trust distributions will come within the FATCA provisions.

You must review your practice and identify your practice for any Financial Institutions (FIs) and register them for a Global Intermediaries Identification Number (GIIN).

Make any necessary changes to your:

  • engagement letters – it is important that these set out clearly the scope of your work. If you are acting for a trust or other FI, you must make it clear whether or not you are assuming responsibility for any FATCA work for them. You should also make it clear that the client is responsible for informing you of any change to their FATCA status or American connections. The letter must also deal with data protection issues as it may be necessary for you to share details of the client’s FATCA status and GIIN with other financial institutions and make reports to HMRC

  • client acceptance: the usual know-your-client information will need to be supplemented by enquiries as to whether the client has any US connections. You are required to ensure that you have current ID for each client and must consider how this can be monitored. Changes of circumstance may impact upon the FATCA status. Members or their employees must carry out an annual check as part of the accounts or tax return work

  • Client identification guidance is determined by US indicia which include:

  1. US citizenship or lawful permanent resident (green card) status

  2. A US birthplace

  3. A US address

  4. Standard instructions to transfer funds to an account in the US

  5. A ‘care of’ address in the US

  6. A power of attorney granted to a person in the US.

These are not conclusive evidence that an account is owned by a US person, but mean that it must be given closer scrutiny.

Having established whether you have US clients, the acceptance and monitoring systems must be updated on a regular basis. You should also realise that if you have a computer searchable database, its integrity could be examined in compliance checks.

If there is no computer database, paper records such as copy passports etc. must be maintained, but unlike the money laundering records, should constantly be maintained up to date.

Reporting the actual payments should be considered when the UK reporting process has been established. Staff training on FATCA, as with anti-money laundering, will be essential.

Further detailed advice from ACCA will be available shortly.

Outlook for the insurance market
What does the future hold for insurance premiums, including professional indemnity?

What does the future hold for insurance premiums, including professional indemnity? 

With 2014 coming to a close, attention for businesses often turns to the next financial year, targets, budgets, and strategic plans for growth. For many the cost of insurance – particularly professional indemnity – is a significant concern and we are often asked for our thoughts on market movements/trends and anticipated pricing. 

Over the last two years we have seen many bodies and organisations undertake broad benchmarking exercises amongst associations or other groupings  to determine a mean average rate/cost of insurance. While there is some merit in this – to establish whether premiums are rising/falling or stagnating – the rate applied varies and is wholly dependent on the risk presented. 

Each risk is evaluated on its own merits and underwriters consider a wide range of  factors when agreeing terms; these can include exposures to past liabilities, activities undertaken, contracts and terms of engagement which limit liability, trending/propensity to claim amongst niche buying areas, changing legislation, rate of growth, financial risk management, attitude to risk management in the wider sense including adoption  of mechanisms to limit exposure, claims/loss history, quality assurance and a myriad other factors in keeping with their own actuarial loss modelling. 

In short, comparing the premium of business A with business B is far from an ideal comparison. 

So what does the future hold?
It is impossible to forecast, but looking to the re-insurance market we can gauge, barring major catalysts, a general outlook for the short term. 

Re-insurance is insurance that is purchased by an insurance company (the cedent) from one or more other insurance companies (the re-insurer). Re-insurance rates are the main driver of market rates and re-insurance capacity is the main driver of market capacity. 

The extent of re-insurance capacity determines how much an insurer has to offer to the insurance market and the cost of this is obviously a determining factor in the cost of premiums for UK businesses/consumers. 

At present, re-insurance buyers are seeing the lowest cost of underwriting capital in a generation. In the past year, re-insurers have taken significant steps to incorporate more of the $59bn of alternative capital that has entered the re-insurance industry into their offerings to cedents. 

The UK market is currently at the bottom of a soft cycle – the longest and most prolonged in history. 

Key facts to consider: 

  • general insurance premiums continue to fall in many lines and at best are stagnating
  • claims costs are increasing and the propensity  to pursue claims increases
  • a recession is generally a period of increased claims (including fraudulent) activity. In 2013 there was £1.3bn of fraudulent claims – an 18% increase on the 2012 value
  • ‘liability’ (including professional indemnity) was the UK insurance industry's worst-performing line in 2013, generating an industry-wide underwriting loss of £826m, according to ABI statistics (published 23 September 14). This underwriting loss was the largest for more than 30 years. 

By contrast, property insurance was the most profitable line. The industry made a collective underwriting profit of £930m, despite the weather claims that hit at the end of the year. 

Also profitable were accident insurance, with an underwriting profit of £16m and health insurance, with an underwriting profit of £271m. Overall, the industry made an underwriting profit of £1.4bn. 

Short-term outlook
While we cannot forecast anything with a degree of certainty we believe that barring a major world event/ catastrophe (or series thereof), or a localised issue such as the failure of a significant insurer, the insurance market will not shift to any great extent for the next 12-24 months. 

Insurers will, however, reconsider their position in certain lines (and niche/trades areas) which are proving to be unprofitable. The change in approach to the UK PII market by carriers such as RSA, Aviva, WRB, and others is testament to this. 

As a broad guide – based on current observed trends and market appetite, including certain insurers exiting from sections of the market – we anticipate the following to be a theme for the next 12 months in the professions arena: 

Modest hardening rates:

  • accountants (tax planning)
  • solicitors (conveyancing)-excluding new entrants
  • quasi-legal (non-SRA) eg will writers
  • independent financial advisers
  • surveying and valuing mortgage brokers insurance brokers 

Reducing/stagnating rates

  • accountants (non-tax planning)
  • solicitors (non-conveyancing)
  • media and technology
  • IT consultancy
  • renewables
  • management consultancy
  • miscellaneous consultancy. 

As stressed, risks are evaluated on their individual merits so if you have any queries or concerns please speak with your insurance adviser. 

Chris Lennon – head of Lockton Companies LLP 

Lockton Companies LLP is ACCA’s recommended broker for Professional Indemnity insurance. For information, please contact Lockton on 0117 906 5057.

Financial statements for colleges
Updated guidance for colleges and auditors in preparing financial statements for colleges.

The updated guidance in the 2013/14 finance record provides direction to colleges and auditors in preparing financial statements for colleges.

The changes are: 

  • Table 1-I&E, Line 13 - Surplus/(deficit) on asset disposals: this entry can now take negative entries so as to allow losses to be recorded. The acceptable range of values is (85,000,000) to 85,000,000.
  • Schedule 1b-SFA and EFA, Line 5 - Total funding from Skills Funding Agency: The formula used to generate this value has been amended so as to include SFA Traineeships (Line 3b) and ensure that the correct figure is carried through to Schedule 1a and onwards to Table 1.

Colleges should ensure that they use the latest version of the finance record when they submit their accounts information by 31 December 2014. 

More information

Academies’ reporting
Academy trusts must submit their audited accounts and auditor’s management letter to the EFA by 31 December.

Academy trusts must submit their audited accounts and auditor’s management letter to the Education Funding Agency (EFA) for the accounting period ending 31 August 2014 by 31 December 2014.

The accounts directive has been updated and now includes the following:

  • Note 28 on pensions and similar obligations to include enhanced disclosures reflecting the latest valuation of the Teachers' Pension Scheme (TPS)
  • guidance on  submitting academy trusts' financial statements, along with a short online form, to the Education Funding Agency (EFA).

The following has been extracted from the guidance relating to Note 28:

  • Academy trusts that have already approved their financial statements:
    It is for each board of trustees to decide whether to amend their financial statements and enhance their disclosures in note 28. EFA has published this addendum to provide trusts with the opportunity to enhance this note if it is practical and feasible for them to do so.
    Where the accounting officer and chair of the board of trustees have signed off the audited financial statements, but the independent auditor sign-off has yet to happen, trusts are encouraged to update note 28 while informing their auditors of the change. This should not result in any additional audit work or testing by the auditor.
  • Are academy trusts’ financial statements misleading without this text?
    Trusts’ financial statements that do not include the latest wording under note 28 will not be misleading. Note 28, insofar as it relates to the TPS, does not affect any balances in the financial statements, is not material by value or nature, and the pension liabilities are not allocated to specific employers.
    The original wording identifies the valuation report in summer 2014, but without any detail. EFA has published this addendum to provide trusts with the opportunity to enhance their disclosures. The use of notes in financial statements is intended to provide more information to potential users of financial statements: the amended note 28 does so by reflecting the latest TPS valuation and the future impact on academy trusts as employers.


View Note 28

SmarterPay – direct debits and direct credits just got easier

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Welcome to your new look In Practice
A brief explanation about the changes to In Practice.
A brief explanation about the changes to In Practice.

As you can see, In Practice has received a makeover. We have retained the same mix of high quality content designed to keep practitioners informed of the latest news and technical developments facing them, while refreshing the look and feel of the publication.

This new format is fully mobile-responsive, allowing you to view it on your desktop PC, tablet or mobile phone. The font size has been increased, making the articles easier to read and the presentation of the cover page in particular much easier to scan.

Other features we know readers appreciate continue, such as the ability to share an article you particularly like via social media (Twitter or LinkedIn) and the option to 'print all' if you prefer reading a paper version (look for the button at the bottom of the cover page).

We hope you will continue to enjoy reading In Practice and welcome any feedback you may have; please email

Awards success for ACCA members
ACCA practitioners and firms are celebrating success at the British Accountancy Awards.
ACCA practitioners and firms are celebrating success at the British Accountancy Awards.

Held at The Brewery, London, on Tuesday 25 November, the Awards recognise the very best the practice sector has to offer. Organised by Accountancy Age (and supported by ACCA) a total of 25 awards were made, ranging from PwC (crowned 'global firm of the year') to Stark Main & Co (crowned 'independent firm of the year').

Practitioner of the Year
ACCA was delighted to see Anita Brook, managing director of Accounts Assist and member of ACCA UK's Practitioners' Network Panel, named the UK's Practitioner of the Year. In assessing her nomination the judges commented: 'Impressive stuff from Anita – she has risen from a less than easy background to become a high achiever, using her expertise at home and in farther reaches.'

Accounts Assist is an award-winning firm of Chartered Certified Accountants, specialising in accountancy and taxation services for small businesses, freelancers, contractors and consultants. The firm has offices in Central London, Silverstone and Coventry.

Training Team of the Year
This award, sponsored by ACCA, was picked up by Reeves, a firm which practices in London and the South East and was praised by the judges who were '...most impressed with the safe environment created for trainees to practice'.

Independent Firm of the Year - Wales
Competition was strong in Wales, with two Chartered Certified Accountants firms making the short-list. Green & Co took the honours with the judges applauding '...the way Green & Co approach dealing with client issues from a limited resource base'. 

Accountancy Practice Start-up Award
Within the category for some of the country's newest firms, having made the short-list in 2013 Savoir Faire Accounting triumphed in 2014 for what the judges described as '...showing clarity of vision – especially in working bilingually to serve its French clients. We were also impressed with their care for staff and clients'.

ACCA warmly congratulates all our winners, who are shown below accepting their awards.

For further information, see the awards website.

Anita Brook (pictured with host Sandy Toksvig)

Reeves (pictured receiving their award from Sarah Hathaway, head of ACCA UK, in the centre)

Green & Co

Savoir Faire Accounting's Caroline Cole receives the firm's award

2015 UK/Irish practising certificate renewals
The 2015 renewal process is now underway.

The 2015 renewal process is now underway.

If you hold a practising certificate (and/or insolvency licence) valid in the UK or Ireland you can renew it online now.

How to renew online

For individuals:
To renew online, simply log into your myACCA account – you will need your ACCA membership number and passcode to access this service. If you do not have your passcode you can request help here.

For firms:
Firms’ renewals can also be submitted online. If you are the nominated contact partner/director you can renew by logging into myACCA using your firm’s ACCA reference number and passcode. This will be different from your own passcode. If you do not have your firm’s passcode you can contact Authorisation for help.

How to pay
There’s no need to provide payment straight away when submitting your renewals online – simply select the ‘invoice’ option when completing your renewal and we’ll send you an invoice for the fee. That way, you will have submitted your renewal and can then pay the fees at any time before 31 December using the payment method most convenient to you. Please don’t leave your renewal until the last minute – you can submit online now.

Further information
Before submitting your renewal online please read the guidance on our website here.

If you require any assistance with your renewals please contact Authorisation at or 0141 534 4175.

Tell us what you think of ACCA
Complete the 2014 ACCA member satisfaction survey now.

Complete the 2014 ACCA member satisfaction survey now.

Complete the 2014 ACCA member satisfaction survey now - your opportunity to tell us what you think of your ACCA member experience, both what we do well and what we need to improve.

Feedback from this survey steers our thinking and actions and directly impacts on the improvements we make, so please make your voice heard.

The survey should take no more than 10-15 minutes of your time, and will be open until Friday 5 December 2014. We would like to assure you that all individual responses will remain confidential. To thank you for your time, all completed responses will be entered into a prize draw to win an iPad.​

We very much appreciate you taking time to give us your views.

Open for booking:

There are a limited number of places available on the CPD events listed below. 

26 Nov, Newcastle, £195
09 Dec, Norwich, £195
11 Dec (09.30-16.30), Leeds, £195

02 Dec (09.30-16.30), Nottingham, £195

(Both in London; £110 per course)
04 Dec (09.30-13.00)
UK GAAP Reporting Options From 2015

04 Dec (14.00-17.30)
Tax Implications of Adopting New UK GAAP

10-11 Dec, London, £398

12 Dec, London, £235

13 Dec, London, £135

Online via ACCA's Online Booking System 
Download and complete the booking form

EU Accounting Directive – consultation results
A summary of members' responses to our consultation on the EU Accounting Directive.

A summary of members' responses to our consultation on the EU Accounting Directive.

The responses submitted by members to the ACCA’s survey on the proposed implementation of the EU Accounting Directive show some interesting results.

In October ACCA conducted a survey of its members in respect of some key issues relating to the proposed implementation of the EU Accounting Directive in the UK, which is outlined in two parallel consultations run by the Department for Business, Innovation and Skills (BIS) and the Financial Reporting Council (FRC). Some of the questions in the survey were also administered to delegates attending certain ACCA CPD events.

ACCA is grateful to the members who took part in the survey, as your input has helped us shape our responses to the respective consultations.

The responses submitted yielded some interesting results and arguments in support or opposition to the proposals and can be analysed as follows:

Small companies thresholds
The government’s proposal to adopt the maximum small company thresholds allowed by the Directive (ie £10.2m turnover and £5.1m balance sheet total), to include as many companies as possible in the small company regime, did not receive the outright support of the majority of respondents.

In fact, while half of the respondents supported the proposal, almost 40% opposed it. Supporters of the proposal often cited reduction of the burden of regulation and cost savings relating to the production of statutory financial information as reasons for their position.

The sizeable share of respondents opposing the proposal frequently mentioned that the additional entities that would qualify as small under the increased thresholds could not be considered as small, both in terms of public perception and in terms of the relatively large number of stakeholders interested in such entities (for instance non-manager-owners, employees, suppliers, finance providers etc). Many respondents opposing the proposal also expressed concern that the financial reporting requirements placed on the additional entities qualifying as small would be insufficient to meet the information requirements of stakeholders willing to transact with the entity. 

The concerns voiced by the opponents of the maximum increase of the thresholds cannot be summarily dismissed as they reflect the reality of many entities classified as medium under the current rules, especially in light of the reduced disclosure framework that will be applicable to the financial statements of small companies. The FRC also acknowledges in its consultation document that entities with more complex affairs, but qualifying as small, are likely to need additional disclosures to those required as a minimum for their financial statements to provide a true and fair view.

Notes to small company’s accounts
In respect of the government’s proposal that the notes to the accounts of a small company should include both the eight mandatory and the five optional disclosures allowed under the Directive, the large majority of respondents (78%) agreed that the inclusion of the five optional disclosures is important to a proper understanding of a small company’s financial statements.

The respondents opposing the inclusion of one or more of the five optional notes (16% of the total) indicated that the related party transactions note would be the most relevant of the optional ones.

The majority of respondents also indicated that the requirement for the five optional notes should be included in accounting standards rather than regulations, with many respondents believing that inclusion in accounting standards would allow a more comprehensive and explanatory drafting of the rules.

Preparation of abbreviated accounts for members
The government’s proposal to allow small companies the option of preparing abbreviated accounts to be circulated to members in place of full accounts was one of the questions where the opinion of the respondents was most divided.

In particular, 49% of respondents supported the proposal while 45% opposed it.

With opinions almost equally split, those in support of the proposal tended to agree with the government’s rationale that, for small companies where there is no separation between ownership and management, producing full accounts would not be necessary.

Opponents of the proposal point out that the interests of minority shareholders might be endangered, by providing them with limited financial information, if the option given is not subject to the agreement of all the directors and shareholders of the company and not just of a majority of them. Many respondents also point out that is unclear whether the abbreviated accounts produced would be sufficient to determine the tax position of the company and whether additional information or full accounts should be produced for such purposes, effectively nullifying the benefits of producing abbreviated accounts.

Micro-entities directors’ report 
The proposal to relieve companies qualifying as micro-entities from the obligation to prepare a directors’ report met with the agreement of 75% of respondents, while 20% of them were not in favour.

Comments received from the respondents highlighted that, while the value of information included in the directors’ report of a micro-entity is limited, removing the requirement to produce such a report is unlikely to result in any tangible benefit or cost for the reporting entity, as the cost of producing a director’s report for a micro-entity is effectively marginal.

Audit exemption
The government’s intention of leaving the audit exemption thresholds at the current level, ie not increasing them in line with the proposed thresholds for the small company regime, also almost split the opinion of the respondents equally, with 49% in favour and 45% against the proposal.

Many respondents supporting the proposal to leave the limits unchanged expressed concern that increasing the scope of audit exemption to sizeable companies would increase risk for the stakeholders of such entities, and for the economy in general, without generating a corresponding comparable benefit if the latter is limited to avoiding the cost of an audit.

On the other hand, respondents considered it necessary that the audit exemption thresholds should be aligned to those relating to the small company regime in order to avoid possible confusion and unnecessary complication of the reporting requirements. Some respondents also pointed out that if entities were deemed suitable to benefit from a reduced disclosure and presentation framework there would be a discrepancy in subjecting them to the external scrutiny of an audit.

Financial reporting standard for micro-entities
The introduction of a new financial reporting standard for micro-entities based on the recognition and measurement requirements of FRS 102 received the support of the vast majority of respondents, 73% of the total, while 25% of them would not agree with introducing a new standard.

Those who disagreed with the proposal mainly believed that the change of standards would increase complexity in reporting for micro-entities rather than aiming at its simplification.

Small entities
The proposal to withdraw the FRSSE and to bring small companies within the scope of FRS 102, with limited disclosures and reduced presentation requirements, was approved by 76% of respondents and opposed by 20% of them.

The results probably reflect the fact that respondents are averse to having two sets of standards, one for small entities and one for larger entities, which are inconsistent in many aspects and may create discrepancies in financial information for broadly similar entities.

Those opposed to withdrawing the FRSSE pointed out that smaller entities may be forced to adopt standards that may be too complex or too costly for them or their professional advisers to manage.

Overall the results of the survey show general support for the government’s decisions regarding the implementation of the EU Accounting Directive, although there is a substantial level of disapproval in respect of the adoption of the maximum increase for the small company regime thresholds and about the misalignment between such thresholds and those for audit exemption. Equally the intention of allowing small companies to prepare abbreviated accounts for members is likely to create some degree of controversy.

Guidance on the financial reporting requirements and options applicable from 1 January 2015 and on those likely to apply from 1 January 2016, arising from the proposed changes included in the BIS and FRC consultations, is available on ACCA's website.

Supporting our members in practice
In response to member demand we have created a hub on our website which highlights relevant support and resources for practitioners.

In response to member demand we have created a hub on our website which highlights relevant support and resources for practitioners.

This new hub provides easy access to a range of resources including:

  • technical advice which includes ‘how to’ guides and technical factsheets

  • events and resources to help you achieve your CPD requirements

  • useful information on ACCA’s certificates and licences.

We also understand members’ concerns about unqualified accountants and the damage they do to business and the wider economy, as well as the detrimental impact they have on the accountancy profession.

In response – and working in conjunction with our practitioners – we have created an information leaflet which promotes the use of qualified accountants.

Next time you are meeting with a prospective new client, why not consider using this leaflet to help differentiate yourself and your practice? It contains four key messages which can help elevate the service you can provide.

Of course you may want to share these with existing clients too as a useful reminder about the benefits of working with you.

We really value your feedback on your experiences with ACCA and are committed to listening and acting on your feedback.

Visit our new hub for members in practice now

Government needs to put stability ahead of headlines
ACCA offers advice to the Chancellor ahead of December’s Autumn Statement.

ACCA offers advice to the Chancellor ahead of December’s Autumn Statement.

The Chancellor should concentrate on putting stability ahead of headline grabbing tax breaks when delivering his final Autumn Statement of this parliament, advises ACCA.

Chas Roy-Chowdhury, ACCA head of taxation at ACCA, offers comment on the following issues:

Export incentives for SMEs
'Tax breaks for certain industries have brought benefits for those able to take advantage of them, such as the tax break for creative industries and R&D for SMEs in recent budgets. They may well have played a part in bringing the economy back to growth, but what we need now is stability. Within the confines of EU competition law we ought to consider offering a form of R&D style credit for SMEs which export.'

Tax stability
'We should ensure we do not get tax shocks, but that changes are thought through and properly exposed. We have an extremely complicated tax system and further tinkering to aid one industry or another will just add to this further. The best thing for the economy would be a period of stability to help businesses plan for the future. It would also allow HMRC and the Office of Tax Simplification to do much needed work on making the system easier for everyone.

'Without certainty, neither governments nor taxpayers can effectively budget or plan for their future actions. ACCA believes that certainty is a key requirement for proper operation of a “good” tax system but that this is an area in which systems in many jurisdictions fall short. Many tax systems call upon taxpayers to self-assess their liability to tax, yet the legislation may make it impossible for taxpayers to establish their liability accurately under the law. For businesses, certainty is key to confident decision making. Plans based on incomplete assumptions introduce risk. Uncertainty about prospective tax receipts is equally concerning for government.'

Stamp duty
'Although a period of stability is needed there are changes the government can make without complicating matters. The easiest would be for the government to finally give in to calls to reform stamp duty. Scotland recently announced an end to the slab nature of this tax when they assume control in 2016 so now would be the perfect opportunity for the Chancellor to consider reform but in a way which recognises property inflation and the different property price profile in the rest of the UK.'

Income tax and national insurance
'As we have said above we need to ensure that the complexity of taxation and specifically Income Tax is addressed. We should firstly ensure that both Income Tax and National Insurance stay aligned rather than the huge divergence which has currently opened up. As an example, say in a future year Income Tax started at £12,500, that should also be the starting point for National Insurance. We should also look to stop taxing at a rate of effectively 60% for those earning over £100,000 who lose the personal allowance. The withdrawal of the personal allowance was meant to be a temporary measure. If it is not restored then a much longer tapered withdrawal should be implemented.'

Changes to the ACCA Rulebook 2015
Find out what will change in ACCA's Rulebook in 2015.

Find out what will change in ACCA's Rulebook in 2015.

Following last year’s substantial review of the ACCA Rulebook, fewer changes have needed to be considered during 2014. Nevertheless, each year, changes to the ACCA Rulebook arise out of Council policy decisions, changes to legislation, lead regulator requirements, and the need to clarify existing regulations.

The ACCA Rulebook would usually be updated once a year. However, during 2014, interim changes were made to the Designated Professional Body Regulations (in April) and the Regulatory Board and Committee Regulations (in September). These concerned, respectively, changes in consumer credit regulation and a restructuring of ACCA’s own regulatory oversight arrangements. These interim changes were reflected in the online version of the ACCA Rulebook prior to them taking effect.

The regulations
Some of the changes to ACCA’s regulations are reflected in more than one set of regulations. These changes:

  • include a definition of ‘Chairman’ in the Authorisation Regulations, Complaints and Disciplinary Regulations (CDRs), Appeal Regulations and Interim Orders Regulations

  • clarify the definition of ‘order’ in both the CDRs and Appeal Regulations, which in turn clarify the provisions concerning the effective dates of orders

  • include a slip rule in both the Appeal Regulations and Health Regulations, providing consistency with the other regulations.

Other changes that have been made are specific to individual sets of regulations. These changes are set out below.

Membership Regulations
There has only been one change to this set of regulations. This sets out that the period within which a student is required to complete all the ACCA Professional level examinations. Each Professional level examination pass will be valid for seven years.

Global Practising Regulations
Changes to the Annexes to the Global Practising Regulations include widening the requirement to demonstrate recent audit experience by removing the wording that specifically relates the requirement to applications more than two years after the relevant audit experience was gained or a certificate was previously held (Annexes 1, 2 and 3).

Authorisation Regulations
Regulation 5 has been amended to allow ACCA to apply for an Interim Order at any time before a decision is made by the Admissions and Licensing Committee (consistent with CDR 4(3)). For similar reasons of consistency, regulation 6 now includes a specific provision to allow the Admissions and Licensing Committee to reconstitute itself as an Interim Orders Committee. It also provides an ‘avoidance of doubt’ provision to clarify that documents do not have to be re-served simply because a case has been adjourned.

The Authorisation Regulations provide regulatory assessors with powers to impose conditions on certificates. In the past, these decisions were not published, as only the Admissions and Licensing Committee had the power to order publicity. For the 2015 Rulebook the Authorisation Regulations now include a provision that allows regulatory assessors’ decisions and reasons to be published, subject to any directions given by the assessor. Such publicity is not avoided by the relevant person relinquishing his or her certificate before the assessor’s decision is made.

Complaints and Disciplinary Regulations
Changes to the CDRs include:

  • allowing ACCA greater flexibility to amend allegations (up until the time a notice of hearing is served)

  • simplifying and clarifying the provisions relating to admissions by the relevant person at a hearing

  • allowing necessary sanctions to be imposed on former members, former affiliates and former registered students, regarding future applications for readmission.

Interim Orders Regulations
The changes to the Interim Orders Regulations include removing a cross-application provision (regulation 3), which is, in fact, more clearly expressed in Appendix 1 to the Regulatory Board and Committee Regulations. The regulations have also been amended to give the Interim Orders Committee a specific power to adjourn a hearing. 

View the current version of the ACCARulebook on ACCA’s website at: