Back to cover page »

FEATURES
Have you seen our new technical website yet?
New platform produces big improvements to technical content on ACCA UK website.

New platform produces big improvements to technical content on ACCA UK website.

In February, ACCA launched its new website for members in the UK. Amongst the biggest changes is how we provide technical content on the site.

Despite awaiting a long overdue makeover, the former website proved very popular, with 49,880 page views alone during January 2014.  This represented an increase of 21,000 on January 2013, with a rolling year to date total for February 2013 to January 2014 of 431,373 compared to 247,894 for the corresponding period in 2013. 

In recent years, the site has become one of the leading free technical resources for ACCA members and now represents one of the leading information resources in the marketplace. 

The new website
The new Technical Advisory website is a modern, up-to-date and continually improving resource for ACCA. It provides ACCA members with up-to-date, topical and relevant information across all disciplines that they are likely to encounter in their business lives – for free.

The website is broken down into four main technical areas:


In addition to the above, the site also contains guidance on:


Guides and Technical Factsheets

These include:

  • Technical Factsheets on a range of matters of importance for ACCA members, such as the market-leading factsheet on the new UK GAAP
  • A range of Guides to which our member firms in practice can take and personalise before sending to their clients.

We hope that the Technical Advisory website will continue its successful march and help to provide ACCA members with value for their membership. It is your website and we welcome any feedback so feel free to contact us and suggest any ways in which you feel that the site can be improved.

The Technical Advisory team at ACCA UK can be contacted on 020 7059 5920 or by email.





HMRC’s alternative dispute resolution offers a simpler way forward
New approach to resolving disputes between HMRC and taxpayers.

New approach to resolving disputes between HMRC and taxpayers. 

HMRC and taxpayers don’t always agree on the amount of tax due, but resolving these disputes doesn’t have to involve the appeals, tribunals and court hearings which can prove so lengthy and costly for both parties. 

Alternative dispute resolution (ADR) gives HMRC and customers the chance to sit down with a neutral third party to work through a case, clarify the issues and reach an outcome which satisfies both sides. 

Collaboration as key
The approach was introduced following the establishment of the Dispute Resolution Unit (DRU) in the summer of 2010. The unit had a remit to improve the handling of tax disputes across the department, and address the length of time it took to resolve them and, as part of this it was tasked with looking at how ADR could apply to tax disputes. This is in line with HMRC’s ‘litigation and settlement strategy’, which highlights the important role which collaboration should play in resolving tax disputes. 

Two pilots were launched in early 2011 – one dealing with individuals and SMEs which involved around 250 cases, and the other focusing on roughly 60 large and complex cases. These pilots became part of HMRC’s day-to-day operations last year. 

Both ADR schemes use a third party who hasn’t been involved in the case before, although that third party differs depending on the case involved. For large and complex cases, HMRC can call on the services of 45 facilitators who have been trained and accredited externally by the Centre for Effective Disputes Resolution organisation. 

These facilitators work in various parts of the HMRC business and the DRU involves them in organising and facilitating the mediation of a dispute when necessary. The scheme for SMEs and individuals, known as SMEi, relies on 25 full-time in-house facilitators. 

The ADR process
ADR facilitation usually takes place in a single day and follows a standard process. Both HMRC and the taxpayer, who will normally be accompanied by their agent / accountant, give an opening statement to each other, before going into private rooms for separate, confidential discussions with the facilitator. 

The facilitator works with each party to explore what might be possible but they do not try to identify solutions. Instead, the ‘magic of mediation’ teases out possible solutions from each party. When a solution presents itself, the facilitator is able to bring the two groups together to confirm the way forward and, potentially, write up an agreement about how each will proceed. Decisions about how to resolve the dispute are made by the HMRC caseworker and the taxpayer, not by the facilitator. They must also be consistent with the law – ADR isn’t about reaching deals, it’s about agreeing a way forward. 

It’s worth stressing that ADR isn’t a cure-all. Some tax charges, such as penalties and interest, are fixed, and as such can’t be negotiated, and ADR is not used in cases where there is an established HMRC policy ‘red line’. If, having thoroughly tested understanding of the relevant facts and the law, one side genuinely cannot move its position then the case may not be resolved through ADR. 

The schemes for both large and complex cases and individuals and SMEs involve a system of ‘triaging’ applications to try to ensure that only disputes which have a chance (however small) of being resolved go into the schemes. Some customers see ADR as another chance to change HMRC’s mind on a ‘red line’, but those applications are likely to fail. 

ADR has, however, proved particularly useful in dealing with VAT and direct tax disputes between HMRC and SMEs and individuals, while the service for large and complex cases has proved particularly effective for VAT and corporation tax. 

While there is the chance that ADR won’t result in an agreement, just by getting HMRC and the taxpayer into the same room, the process can open the lines of communication and enable discussions to move forward on a more constructive basis. 

The success of ADR is borne out by the figures. In the SME and individuals’ scheme, the approach has resolved 80% of the 600 cases put through the facilitation process since the pilot began. A total of 70 cases went through the large and complex scheme in the same period, with 50, or over 71%, successfully resolved. This brought in otherwise outstanding tax revenues of just under £80m. Another £71m of revenue is currently being worked on. 

It’s not just about the revenue though. The amount of time and money saved on both sides by avoiding going to tribunal or court is just as big a benefit of the ADR process. On average, HMRC spends just 15 hours resolving disputes through ADR – compared to up to 250 hours if a case goes to First Tier-Tribunal. 

This is particularly significant when you consider the average age of a direct tax dispute entering the SMEi pilot scheme was 23 months. There are, of course, similar benefits for the taxpayers and their agents involved.  

While it may be relatively early days for ADR, the approach has already achieved huge buy-in from HMRC staff members, taxpayers and agents alike, resolving old and difficult cases quickly, at lower cost and in a way that satisfies both parties.  

Find out more about ADR.

 





Accounting in the cloud
When moving to cloud-based accounting software, it’s essential that practices validate the popularity, reliability and financial viability of prospective software solutions.

When moving to cloud-based accounting software, it’s essential that practices validate the popularity, reliability and financial viability of prospective software solutions. 

Today’s accountants face a range of challenges, not least pressure from ever-tightening client budgets. At the same time, the widespread use of mobile and tablet devices has created an expectation for faster responses to queries and problems. 

In turn, many are looking to cloud-based technologies to help deliver a quicker, more consultative service – without negatively impacting on margins. Indeed, according to a recent Censuswide poll, the biggest contributing factors to the sharp rise in take-up of cloud-based, online software amongst practice-based accountants included the opportunity to cut internal overheads such as travel and data input costs (48%). Improving service and increasing client satisfaction – cited by 44% – was also a key objective. 

Providing a point of competitive difference and demand from clients were also major drivers. Crucially, the research also found that, in many cases, the technology was living up to its promise. In fact 42% of practices already using online accounting software cited the greatest benefit as being the opportunity to boost service standards and improve client satisfaction. 

Strategic business model
Accounting has not traditionally been at the forefront of technology change. However, the fact that more than half of UK accountants polled (55%) confirmed that they are either already using or plan to use cloud-based online tools shows growing recognition of the strong business case for the software.  

In particular, with the rise in clients’ use of mobile technologies and the repercussions of the downturn still being felt, the opportunities this technology offers modern practices are extremely important, particularly when it comes to opening up new service lines. 

When a client moves to online accounting technology, it becomes far easier to boost their service levels and provide timely, strategic advice – without having to increase the number of hours spent with clients or physically travelling around. This is especially true for practices that deal with small and micro-businesses. 

The advantages of using cloud software to gain access to real-time information also works in the clients’ favour. For example, in many cases, small business clients often struggle to ensure that they are paid on time and tend to lack the time and visibility needed to manage their cashflow. 

Rather than being supported by their accountant, the important task of maintaining credit control frequently falls to the owner/manager or other non-financial user, as it is too expensive for the accountant to visit them individually to gain regular access to paper files, spreadsheets and software systems. However, if a practice’s client base moves to online accounting software, the accountant can effectively service multiple firms’ credit control needs, without having to leave their desk. 

With more time to act – and more data to act on – accountants become better able to advise clients on how they could improve financial performance. This may include, for instance, working out that the company can afford to recruit the new member of staff it needs or to invest in a new piece of equipment. 

Crucially for practices, the fact that data is stored in the cloud and can be accessed at any time also affords them the flexibility to offer new value-added services that would previously have been too costly to deliver. As such, the practice benefits from potential new revenue streams while the client has greater access to financial support they can trust. 

Finding the right provider
The Censuswide research also showed that some practices are yet to move to the cloud because they are waiting to see if online software takes off industry-wide before making the switch. Others fear that the technology or its supporting infrastructure may fail or not be secure. 

As the pace of change towards online technologies continues to accelerate, those adopting this wait-and-see attitude run the very real risk of getting left behind their competitors. However, those who are worried about the technology itself are right to be cautious about exposing their business and its client base to anything which may prove not to be completely secure or reliable. 

As such, as with any cloud-based technology, it’s essential that practices validate the popularity, reliability and financial viability of any prospective vendor and software solution. This should include finding out about their service provision record and get specific assurances on uptime (the measure of service/software availability and unplanned maintenance), which is less likely to be a risk with larger, established vendors with large customer bases compared with newer or less well-known providers.    

Other worthwhile checks include seeing how active and interactive the provider is with customers and accounting partners on social networks, as well as asking for their personal experiences and views. It is also well worth finding out what technical support the software vendor offers and asking for a trial to get a feel for the product. 

Wowing its customers
In 2010, The Wow Company converted almost all of its clients to online accounting and now manages around 98% online. Despite the tough economic environment, since introducing the technology the company has seen an increase in its average client value. 

Rather than putting up fees, this was achieved through providing new value-added services for its small business client base. Extra services now delivered online include higher-level reporting and project work, with strategic advice on issues such as staff recruitment or tax allowances, for example. 

In embracing an online working strategy as a business model, The Wow Company has realised significant internal efficiencies, streamlined the service it offers to clients and boosted choice by offering new ways to interact. Workflow Max (Xero’s online job, time and invoice management tool) is used for practice management, in conjunction with Practice Ignition, a collaboration platform that enables accountants to maximise engagement and value with their clients on desktop and mobile devices. 

Xero is used for internal billing and reporting and Xero Workpapers is used for producing year-end and management accounts. Alongside these tools, The Wow Company has introduced RightSignature to e-sign all documents, from contracts and forms to NDAs. 

This signature process, which previously took days or weeks using post or courier, can now be done far quicker – in some cases automatically. As well as contributing to faster turnaround of work, bringing in RightSignature has meant that, apart from the occasional birthday card, no paper leaves the office. This has brought greater security, as well as time and efficiency savings. 

‘Many firms have dipped their toe in the water with online working, but this online-offline mix invariably leads to a split culture,’ says The Wow Company’s director of accountancy Paul Bulpitt. ‘The fact that we do almost everything online in a simple, logical, automated way has brought us real authenticity and credibility with clients. It's a never-ending journey. We’re constantly looking for ways to provide a better service to clients and to use technology to streamline what we do.’  

Gary Turner – managing director, Xero UK

www.xero.com

 





UK SMEs are neglected at the critical growth stage
Local enterprise partnerships not as effective as predecessor, say SMEs in new report.

Local enterprise partnerships not as effective as predecessor, say SMEs in new report. 

Initiatives aimed at helping the UK’s small and medium sized enterprises (SMEs) are failing at the critical growth stage of the business, with incentives loaded largely at the start-up and exit phases of a business’ development, says a new global report commissioned by ACCA and prepared by Delta Economics. 

The Growth Challenge report also revealed that SMEs saw major benefits in the ‘clusters’ of businesses in helping enterprises grow, such as the Old Street Roundabout tech hub in London. 

SMEs, however, pointed out that local enterprise partnerships had had not been as successful in defining their role or ensuring that money could be targeted effectively at entrepreneurs themselves, as their predecessors, regional development agencies, had begun to do before they were replaced in 2010. 

Manos Schizas, ACCA’s senior economic analyst, says: ‘There is no doubt that the UK is fertile ground for entrepreneurial activity. The UK leads the European Union’s top economies in terms of entrepreneurship, with a Total early-stage Entrepreneurial Activity (TEA) of 7.1% – a rate significantly higher than that of France and Germany. Recent initiatives, such as the British Business Bank and the New Enterprise Allowance are geared specifically to helping the UK’s large SME sector, which accounts for 99% of all businesses in the UK. 

‘Support and incentives are also there at the later stages of the SME cycle where the focus is on reinvestment or exit strategies, such as AIM and the Enterprise Investment Scheme to encourage angel investment. 

‘However, SMEs have pointed to a gap in support when it comes to that critical growth stage of the business development journey, when the enterprise is still in its infancy but past the “birth” phase. Particular concerns about this have arisen since the post- 2010 austerity measures have started to affect local, regional and national levels of funding. There was a general concern amongst UK SMEs in our research about the localisation of enterprise policy because local authorities, in particular, did not have a definite focus on business growth, and the lack of transparency in allocation of funding meant that there was some confusion as to whether or not resources were reaching entrepreneurs.’ 

Business clusters
The Growth Challenge research examined enterprise and SME development by interviewing respondents and reviewing the business support literature in nine countries – China, India, Nigeria, South Africa, Singapore, US, UK, Germany, France. A running theme in the research was the importance of business clusters to SMEs.   

Manos Schizas says: ‘In the UK and in other countries clusters were seen as a vital aspect of enterprise growth. SMEs that took part in our research pointed to different clusters – some that have evolved over time (such as Cambridge or Silicon Valley) and others, such as Munich, that have been strongly supported by enterprise policy. What was clear from interviews was that the effects of large numbers of start-ups alongside research institutions, a ready supply of highly qualified individuals with ideas, and of private support businesses (finance, legal and administrative) provide the networks and public and private sector support critical to growth businesses.’ 

‘The UK government, as well as governments in other markets, have the right intentions when it comes to fuelling SME growth. However, government initiatives should be based on the premise that enterprise development is an evolutionary, non-linear process. It doesn’t always follow that a successful start-up has the necessary know-how, finance or opportunities to grow further.’ 

Read the full ACCA report, The Growth Challenge.

 





The divorce games
The Insider on… what happens when business clients divorce.

The Insider on… what happens when business clients divorce. 

Over the past couple of weeks we have had two new lots of clients begin divorce proceedings, and we have been stuck in the middle! 

Last week I literally had to stand in-between a rowing husband and wife and make them both calm down. We were meant to be discussing financial settlement of assets, avoiding the lawyers in an attempt to a) save money, and b) speed things up. 

Over the past few years, since the downturn I think, we have seen more and more clients get divorced – mainly the more well-off ones. Some who have lost money since the downturn, and some who have made money. Both have ended up with the same result however; divorce. 

One case has rumbled one for the best part of four years, and to be honest the only winner to date are the two firms of lawyers involved in the wrangling. 

The most recent couple have made their millions in the past three years, and since that time the writing has been on the wall. I’m not saying money was the cause of the divorce, but having more money than you know what to do with has certainly speeded up the inevitable. 

Our firm has also gained from the clients misfortunes, we have been heavily involved in the financial aspects of the divorce cases, writing reports, carrying out valuations, and more often than not playing agony Aunt to both parties. 

The most recent case of clients getting divorced has seen one client Company turn into two new client Companies as husband and wife both look to make their next fortune on their own. And what is slightly surprising is that both husband and wife have chosen to retain the services of our firm for their new businesses. I’m not complaining of course, but I do wonder how long it will last before one asks me about the other. I’m we are not careful we could end up losing both as clients. 

It could prove a challenge for our practice to retain both clients in the long term, but we will be equally professional with both parties and work in their long term interests. Which ultimately can only be a good thing for our firm too. 

The Insider - a partner in a successful accountancy firm – shares their thoughts on some of the more unusual challenges faced by their firm.





FOR YOUR PRACTICE
Free webinar: Accountants discuss how they’re growing their practices

Join us today at 12.15pm to watch a 45 minute panel discussion where accountants will discuss growth opportunities and the role of technology in growing their practices.
Click here to register






Online webinars: monthly tax update
The 2020 Group offers ACCA practitioners a monthly tax update webinar at a specially discounted price.

The 2020 Group offers ACCA practitioners a monthly tax update webinar at a specially discounted price. 

These monthly webinars will give you all you need for an essential tax update in just one hour per month. Gerry Hart will cover all the vital tax issues and will update you thoroughly each month with the emphasis firmly on the practical issues so that action can be taken at the right time. 

Key topics
The monthly webinars cover development from the following core sources: 

  • new legislation
  • HMRC practice and guidelines
  • case law
  • ‘From the tax adviser’s desk’
  • new thinking and forward planning. 

Who should attend?
These webinars are aimed at all fee earners who want to offer practical advice and ensure you are fully up to date with the latest legislation.  

Visit the dedicated 2020 Group webpages to make your bookings now.

Further information is also available from the 2020 Group via email or telephone 0121 314 1234.

 





High quality CPD from ACCA
ACCA UK’s Professional Courses team provides a wide variety of CPD events for practitioners. Book your next event now.

ACCA UK’s Professional Courses team provides a wide variety of CPD events for practitioners. Book your next event now. 

Register and book online  

Saturday CPD Conference Two

  • Accounting for LLPs     
  • Employment Law Update        
  • Finance Bill/Act 2014  
  • UK and EU VAT Update 

Saturday CPD Conference Three

  • Accounting Standards Update
  • Tax Planning for the Family Company 

Please Note: The remaining two sessions have been left open to deal with issues arising during 2014. 

UK Property Taxes Including VAT 
14 May, Isle of Man 

Summer Update: Business Advice Conference 
17 May, London 

Summer Update: Accounting and Auditing Conference
14 June, London 

Trusts, Wills and Inheritance Tax
25 June, Isle of Man 

Summer Update: Taxation Conference
5 July, London 

Residential Conference for Practitioners
11-12 July
Burleigh Court, Loughborough 

Guide to Practical Audit Compliance for Partners and Managers
24-25 September, London 
27-28 November, London 
2-3 December, Manchester 

Practical Guide to ISQC 1 for Partners and Managers
24 June, London
5 November, Manchester
12 December, London

 

Save the Date:

Charity Finance Conference
9 October 2014
Birmingham





World Congress of Accountants
2020 vision in the spotlight of delegates at the WCOA.

2020 vision in the spotlight of delegates at the WCOA. 

The 19th World Congress of Accountants heads to Rome on 10-13 November 2014. Held every four years and organised by IFAC (International Federation of Accountants) this prestigious event brings together accountants from across the world. ACCA will be joined by many other professional bodies at the event, which will take ‘2020 Vision: Learning from the Past, Building the Future’ as its major theme. 

For further information visit the WCOA’s website.





Move your accounting to the cloud with Xero

Xero is loved by more than 250,000 people around the world.

  • Nothing to download or back up
  • Work online, wherever you are
  • See clients’ accounts any time, any place
  • Work and collaborate with clients on a single ledger

Moving your practice to the cloud






TECHNICAL MATTERS
How effective is your engagement letter in practice?
While the Court of Appeal’s ruling on Mehjoo v Harben Barker has provided re-assurance to the profession, what are the implications for your firm’s engagement letters?

While the Court of Appeal’s ruling on Mehjoo v Harben Barker has provided re-assurance to the profession, what are the implications for your firm’s engagement letters? 

The trial judge's decision in Mehjoo v Harben Barker (published in June 2013) caused widespread consternation within the accountancy profession. And that consternation was certainly borne out by the number of Mehjoo related queries that were raised on Lockton's helpline. 

The judge in Mehjoo had decided that an accountant could be obliged to offer advice on technical issues that fell outside his or her sphere of expertise even if that advice was not requested, and that that obligation could arise independently of the accountant's engagement letter if the accountant could be seen to have been offering unsolicited tax advice during the course of the retainer. The judge found in favour of Mr Mehjoo and awarded him circa £1m. 

Harben Barker (HB) appealed the decision and the good news for the profession is that the Court of Appeal has unanimously allowed HB's appeal. 

Breach of duty – extending retainer by HB’s past actions
HB raised various arguments as to why the appeal should be allowed but Lord Justice Patten (LJP) concentrated on whether HB had actually breached its duty. Key to LJP’s analysis was that: 

  • HB was a generalist accountant
  • the work HB said it would carry out on behalf of Mr Mehjoo in its engagement letter was that of a generalist accountant
  • HB explained in its engagement letter that it could provide more ‘extensive’ tax advice if requested by Mr Mehjoo
  • Mr Mehjoo never sought further advice
  • the tax advice that HB had historically given was limited to the availability of obvious reliefs rather than the availability of esoteric tax planning opportunities that a high street practice would not be familiar with. 

The judge had determined that as HB had provided Mr Mehjoo with unprompted tax planning advice on various occasions it had impliedly varied the terms of its retainer. LJP accepted that HB had proffered unsolicited advice but drew a distinction as to the type of advice sought. The tax advice HB had failed to give (ie about a bearer share warrant scheme) required the transaction to be reformulated in order to avoid a tax liability. 

This, LJP concluded, was specialist tax advice, which one would not expect a reasonably competent generalist accountant to know. Therefore HB had not breached its duty because: 

  • HB had not varied the terms of its retainer impliedly
  • Mr Mehjoo had not requested specialist tax advice. 

Breach of duty – extending retainer by HB preparing for a meeting
The next question considered was whether HB had extended its retainer via its preparation for a meeting with Mr Mehjoo on 2 October 2004 concerning the sale of his shares in a business he co-owned. The judge had determined that as this meeting was arranged to discuss minimising Mr Mehjoo’s CGT liability it implied a duty to give tax planning advice at the meeting, which included advising on the non-dom status of Mr Mehjoo. 

LJP accepted that CGT mitigation was to be discussed at the meeting but once again differentiated between a generalist and specialist accountant. LJP held that it was sufficient for HB as a generalist account to simply refer to more ‘radical’ tax saving schemes and it was for Mr Mehjoo to request further information as per the terms of HB’s engagement letter. 

In respect of the non-dom status, LJP stated that the shares being sold were UK assets and that a reasonably competent generalist accountant would not be expected to know that there was a tax scheme (ie the bearer share warrant scheme) whereby Mr Mehjoo’s shares could be changed from a UK to a foreign asset. 

Therefore there was no obligation upon HB to advise on Mr Mehjoo’s non-dom status as HB believed that the tax advantages for a non-dom were not available to Mr Mehjoo on the sale of his shares in an English registered company and a ‘competent accountant would not have believed that’ a scheme existed where a UK asset could be changed to a foreign asset to bring about a tax saving. 

Summary
In support of LJP, Lord Justice Lewison referred to the classic expression of a professional's duty in the Midland Bank Trust Co Ltd v Hett Stubbs & Kent case and reiterated the guidance that courts should be wary of imposing duties on professionals ‘which go beyond the scope of what they are requested and undertake to do’. 

The Court of Appeal’s decision confirms that an accountant will not be expected to advise outside of its expertise nor be expected to provide ‘unnecessary advice’. As HB or a reasonably competent generalist accountant would not have known that UK shares could be changed to a foreign asset there was no need to advise on the non-dom status of Mr Mehjoo.    

Ian Peacock – partner (for and on behalf of Bond Dickinson LLP) 

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





Social investment tax relief
Following a consultation last year, Finance Act 2014 introduces a new form of tax relief onto the statute books, called social investment tax relief.

Following a consultation last year, Finance Act 2014 introduces a new form of tax relief onto the statute books, called social investment tax relief.

The legislation is intended to encourage individuals to invest in social enterprises and obtain attractive tax reliefs in doing so.

What is a social enterprise?
Social enterprises are businesses that trade to tackle social problems, improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community.

The term ‘social enterprise’ came about from recognition that in the UK and across the world, there were organisations using the power of business to bring about social and environmental change

Social enterprises should:

  • have a clear social and/or environmental mission set out in their governing documents
  • generate the majority of their income through trade
  • reinvest the majority of their profits
  • be autonomous of state
  • be majority controlled in the interests of the social mission
  • be accountable and transparent.

Examples of social enterprises include The Big Issue, The Eden Project and The Co-operative.

What are the new tax reliefs going to be?
The new tax reliefs will come in the form of income tax relief and capital gains tax reinvestment relief, rather like the enterprise investment scheme (EIS).

Income tax relief – individuals making an eligible investment at any time from 6 April 2014 can deduct 30% of the cost of their investment from their income tax liability for 2014/15 (or the relevant later year in which the investment is made). The minimum period of investment is three years.

Capital gains tax reliefs – if individuals have chargeable gains in 2014-15 (or a later year) they can also defer their capital gains tax (CGT) liability if they invest their gain in a qualifying social investment. Tax will instead be payable when the social investment is sold or redeemed. They also pay no CGT on any gain on the investment itself, but they must pay income tax in the normal way on any dividends or interest on the investment.

Individual investors can invest up to a total of £1,000,000 per tax and can invest in more than one social enterprise. This is independent of any investments under Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) which are subject to their own annual investment limits.

When combined, these tax reliefs can make for an attractive investment from a tax perspective:

Mrs Mills is a wealthy taxpayer who pays income and capital gains tax at the highest rates (i.e. income tax at 45% and capital gains tax at 28%).

During the year ending 5 April 2015, she makes an investment into a social enterprise of £100,000.  Her total income for the year is £300,000 and she has made a capital gain, after her annual exemption, of £100,000.  She elects to roll over the gain against  the social enterprise investment.

The real cost of making the investment is therefore:

Cost of investment                                                        £100,000
Less:

Income tax relief (£10,000 x 30%)                             (30,000)
Capital gains tax held over (£100,000 x 28%)         (28,000)

Cost of investment net of tax reliefs                          £42,000


Provided that the investment is held for at least three years, any capital gain arising on the disposal of the social enterprise investment will be exempt from capital gains tax. The held-over gain will, however, crystallise but there is scope for planning by making piecemeal disposals to realise gains below the level of the annual CGT exemption or to utilise capital losses from elsewhere.

As with EIS and SEIS, there are a number of rules and restrictions attached to the scheme.

For further guidance on the scheme, please click here.

To access the relevant sections of the Finance Bill 2014, please click here.

To access ACCA’s new and improved Technical Advisory website, please click here.





Changes to auditor’s reports
The Financial Reporting Council (FRC) has published various amendments to the wording of auditor’s reports that are immediately applicable.

The Financial Reporting Council (FRC) has published various amendments to the wording of auditor’s reports that are immediately applicable.

The amendments to the illustrative auditor’s reports published by the FRC result from recent developments in UK company law, the UK listing rules and ISAs (UK and Ireland), namely:

a)      the introduction of the Strategic Report in Companies Act 2006
b)     changes in the requirements of the Listing Rules with respect to directors’ remuneration disclosures
c)      various changes to ISA (UK and Ireland) 700 ‘The Independent Auditor’s Report on Financial Statements’.

The developments are discussed and illustrated in FRC’s Bulletin 4 “Recent Developments in Company Law, The Listing Rules and Auditing Standards that affect United Kingdom Auditor’s Reports”, which also include two examples of the modified report.

The Bulletin also discusses the auditor’s responsibilities and duties in respect of the ‘Strategic Report with Supplementary Material’ and the amendment of the Regulations that specify the information to be included in a quoted company’s Directors’ Remuneration Report.

‘The Strategic Report with Supplementary Material’, which a company may provide to its members in place of the company’s full accounts and reports, replaces the previous option under Companies Act 2006 of providing members with a Summary Financial Statement.

The Strategic Report
Companies Act 2006 has been amended to provide for the preparation by all companies, apart from those entitled to small companies’ exemption, of a Strategic Report, whose purpose is that to inform members of the company and help them assess how the directors have performed their duty under section 172 (duty to promote the success of the company) of the Act.

The strategic report provisions are effective for financial years ending on or after 30 September 2013 and ACCA has produced guidance on their application, including on the aspects relevant to charities.

Under section 496 of Companies Act, the auditor must state in his report whether the information given in the strategic report (if any) for the financial year for which the accounts are prepared is consistent with those accounts. This is the same statutory reporting responsibility as that which applies to the Directors’ Report.

When reporting on the strategic report, the auditor should apply the same requirements and application and other explanatory material in ISA 720 Section B - ‘The Auditor’s Statutory Reporting Responsibility In Relation To Directors’ Reports’- to the extent that they are applicable to the strategic report.

Alternatively, under subsection (5)(b) of section 498 of CA 2006, if the directors of a company have taken advantage of the small companies exemption from the requirement to prepare a strategic report and in the auditor’s opinion they were not entitled to do so, the auditor is required to state that fact in the auditor’s report.     

In terms of the implications for the illustrative auditor’s reports in FRC’s Bulletin 2010/2, where the company prepares a strategic report the bullet point relating to the Directors’ Report in the section headed ‘Opinion on other matters prescribed by the Companies Act 2006’ is amended to:

  • ‘The information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.’

This change applies to examples 2 to 11 in Bulletin 2010/2.

Where the directors of a company have claimed exemption from preparing a strategic report and in the auditor’s opinion they were entitled to do so the final bullet point of the auditor’s report is amended as follows:

‘We have nothing to report in respect of the following matters where the Companies

Act 2006 requires us to report to you if, in our opinion:

  • ...
  • the directors were not entitled to prepare the financial statements in accordance with the small companies regime and take advantage of the small companies’ exemption in preparing the directors’ report and take advantage of the small companies exemption from the requirement to prepare a strategic report’.

This change is applicable to example 1 in Bulletin 2010/2.


Changes to listing rules

In December 2013 the Financial Conduct Authority (FCA) deleted two listing rules that required premium listed companies to ensure that their auditors reviewed certain disclosures of directors’ remuneration and to provide in the auditor’s report details of any non-compliance.

As a result of the deletion of the requirements, the corresponding disclosures in the auditor’s report have been removed and that affects illustrative examples 4, 8 and 9 in Bulletin 2010/2. The changes apply to premium listed companies with a financial year ending on or after 30 September 2013 that had not published their annual financial report on or before 13 December 2013.

Changes to ISA (UK and Ireland) 700
The required description of the scope of an audit prescribed by ISA (UK and Ireland) 700 has been changed and the following underlined wording has been added to the penultimate sentence of the description:

‘In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit.

This change is required to be made to all of the example auditor’s reports set out in Bulletin 2010/2.

ISA (UK and Ireland) 700 has also been modified to include a number of further disclosures in the auditor’s report of entities that apply the UK Corporate Governance Code.

In particular the auditor is now required to report, by exception, if the board’s statement that the annual report is fair, balanced and understandable is inconsistent with the knowledge acquired by the auditor in the course of performing the audit, or if the matters disclosed in the report from the audit committee do not appropriately address matters communicated by the auditor to the committee.

Additionally, auditors reporting on entities which apply the UK Corporate Governance Code, are now required to explain more about their work in the auditor’s report and specifically need to:

(a)   Describe those assessed risks of material misstatement identified by the auditor that had the greatest effect on:

a. The overall audit strategy;
b. The allocation of resources in the audit;
c. Directing the efforts of the engagement team.

(b)   Provide an explanation of how the auditor applied the concept of materiality in planning and performing the audit; and

(c)   Provide an overview of the scope of the audit, showing how this addressed the risk and materiality considerations.

All of the above changes to ISA (UK and Ireland) 700 are effective for audits of financial statements for periods commencing on or after 1 October 2012.

The modified example 1 auditor’s report, published in Bulletin 4, which applies to a non-publicly traded company preparing financial statements under the FRSSE is reproduced below:

Example 1 – Non-publicly traded company preparing financial statements under the FRSSE.

  • Company qualifies as a small company.
  • Company does not prepare group financial statements.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED
We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, Balance Sheet, [the Cash Flow Statement], the Statement of Total Recognised Gains Losses, [the Reconciliation of Movements in Shareholders’ Funds]] and the related notes. The financial reporting framework that has been applied in their preparation is applicable and the Financial Reporting Standard for Smaller Entities [(Effective April 2008)](United Kingdom Generally Accepted Accounting Practice applicable to Smaller Entities).

Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors[, including ‘‘APB Ethical Standard – Provisions Available for Small Entities (Revised)’’, in the circumstances set out in note [x] to the financial statements].

Scope of the audit of the financial statements

Either:

A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/auditscopeukprivate ] / [set out [on page ...] of the Annual Report].

 Or:

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion the financial statements:

  • give a true and fair view of the state of the company’s affairs as at ........ and of its profit[loss] for the year then ended;
  • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice applicable to Smaller Entities; and
  • have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

  • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
  • the financial statements are not in agreement with the accounting records and returns; or
  • certain disclosures of directors’ remuneration specified by law are not made; or
  • we have not received all the information and explanations we require for our audit; or
  • the directors were not entitled to [prepare the financial statements in accordance with the small companies regime] [and] [take advantage of the small companies’ exemption in preparing the directors’ report] [and] [take advantage of the small companies exemption from the requirement to prepare a strategic report].

 

[Signature]                                                                                                  Address

John Smith (Senior statutory auditor)                                                           Date

for and on behalf of ABC LLP, Statutory Auditor





Automatic enrolment into pension schemes
Help clients to understand the different categories of workers relating to automatic enrolment; namely eligible jobholders, non-eligible jobholders and entitled workers.

Help clients to understand the different categories of workers relating to automatic enrolment; namely eligible jobholders, non-eligible jobholders and entitled workers.

A workplace pension is a way of saving for your retirement that’s arranged by your employer. Other names for workplace pensions are 'occupational', 'works', 'company' or 'work-based' pensions. Most new pension schemes are now 'money purchase' also known as 'defined contribution' or 'DC' schemes. The following information only deals with money purchase scheme. Other schemes are known as defined benefit schemes and are not dealt with here.

Automatic enrolment means that, rather than having to actively choose to join a pension scheme, staffs are put into one by their employer as a matter of course. If they don’t want to be in the pension scheme, they must actively choose to opt out.

Employer’s automatic enrolment duties come into force from a ‘staging date’. The employer can find out their staging date by entering their PAYE reference into this tool.

The employer would need to write to each member of staff individually to tell them how they have personally been affected by automatic enrolment. The information sent to employees is different depending on their rights and the duties the employer has for them.

There are three different categories of workers relating to automatic enrolment: Eligible Jobholders, Non-eligible Jobholders and Entitled Workers.

Eligible jobholders
'Eligible jobholders' is a phrase used for workers who must be automatically enrolled into a workplace pension scheme.

To be an 'eligible jobholder' a worker need to be:

  • aged between 22 years old and state pension age
  • earn more than £10,000 a year
  • work in the UK.

However, if you are self-employed or the sole director of your own company, you will not be automatically enrolled into a workplace pension.

Non-eligible jobholders
'Non-eligible jobholders' is a phrase used for workers who are not eligible for automatic enrolment but can choose to opt in to an automatic enrolment pension scheme. Non-eligible jobholders are either:

  1. Aged between 16 and 74 years of age; and

Are working or ordinarily work in the UK under their contracts; and

Have qualifying earnings payable by the employer which are more than the lower earnings threshold and not more than the earnings trigger for automatic enrolment.

For 2014/2015 the lower earnings threshold is £5,772 per annum, £481 per month, £111 per week. The earnings trigger for automatic enrolment is £10,000 per annum.

Or

  1. Aged between 16 and 21, or state pension age and 74; and

Are working or ordinarily work in the UK under their contract; and

Have qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for automatic enrolment.

For 2014/2015 the lower earnings threshold is £5,772 per annum, £481 per month, £111 per week. The earnings trigger for automatic enrolment is £10,000 per annum.

The state pension age at April 2014 is 62 for women and 65 for men.

Non-eligible jobholders do not need to be automatically enrolled into a workplace pension. However, they have the right to opt in to an automatic enrolment scheme, if they choose, so an employer still has duties in relation to them.

An employer must give their non-eligible jobholders certain information about opting in to an automatic enrolment scheme and what this means for them.

The employer must give this information to the non-eligible jobholder within six weeks of the later of:

  • The employer’s staging date; or
  • The non-eligible jobholder’s first day of employment.

This requirement does not apply if the employer has previously given this information to the person concerned.

If a non-eligible jobholder chooses to opt in to a pension scheme, they must do so by giving an “opt-in notice”. On receipt of a valid opt-in notice, the employer must enrol the non-eligible jobholder into an automatic enrolment scheme by following the automatic enrolment process. The employer will then need to pay employer contributions to the scheme and deduct contributions from the jobholders pay and pay these to the scheme.

Entitled workers
‘Entitled workers’ is a phrase used for workers who are not eligible for automatic enrolment but can choose to join a pension scheme.

Entitled workers are either:

  1. Aged between 16 and 74; and

Working or ordinarily work in the UK under their contract; and

Have qualifying earnings payable by the employer in the relevant pay reference period but below the earnings trigger for automatic enrolment.

Or

  1. Aged between 16 and 21, or state pension age and 74

Working or ordinarily work in the UK under their contract

Have qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for automatic enrolment.

Entitled workers do not need to be automatically enrolled into a workplace pension. However, they have the right to join a pension scheme, if they choose, so an employer still has duties in relation to them. The pension scheme the employer chooses to use can be a different scheme to the one they may be using for automatic enrolment.

An employer must give their entitled workers certain information about joining a pension scheme and what this means for them.

The employer must give this information to the entitled worker within six weeks of the later of:

  • the employer’s staging date; or
  • the non-eligible jobholder’s first day of employment.

This requirement does not apply if the employer has previously given this information to the person concerned.

If an entitled worker chooses to join a pension scheme, they must do so by giving the employer a “joining notice”. On receipt of a joining notice, the employer must then arrange membership of a scheme for them.

The employer will then need to deduct contributions on behalf of the entitled worker and pay these into the scheme. However, the employer does not have to pay into the scheme themselves, unless they choose to do so, or have chosen a scheme that requires an employer contribution.

Money deducted from pay
A percentage of the workers’ pay will be deducted automatically by the employer every payday. This together with contributions from the employer and the government will be paid into the workers’ pension pot. The employer needs to pay the contributions to the pension scheme within a specified time limit. Contributions must be paid to the pension pot no later than 22nd day (19th if paid by cheque) of the month after the deduction from pay was made.

The money is normally invested within the pension pot by the pension scheme administrators. Sometimes employees have a say into what type of investments the pension pot holds, and sometimes the investments are decided on by the pension scheme administrator.

How much will the contributions be?
The minimum the employer pays into the workers pension pot is 1% of their ‘qualifying earnings’ which will rise to 3% by 2018. The minimum amount that will be deducted from your pay and paid into your pension pot will be 0.8% of your “qualifying earnings” which will rise to 4% by 2018. The government pays into your pension pot 0.2% of your ‘qualifying earnings’ which will rise to 1% by 2018.

Further guidance is available from the Pensions Regulator.





Lifting the veil
Lifting the veil of incorporation is rare in practice; however the courts do permit it, as a recent case illustrates.

Lifting the veil of incorporation is rare in practice; however the courts do permit it, as a recent case illustrates.

Lifting the veil of incorporation is rare in practice; however the courts do permit it when the person or persons are using the incorporation of a company to evade or deliberately frustrate a legal obligation or liability.

Such an occasion occurred in the case of Petrodel Resources Ltd and Others v Prest, which was heard in the Supreme Court. Mr Michael Prest was born in Nigeria and Mrs Yasmin Prest was born in England; both have dual Nigerian and English nationality.  They were married in 1993 and lived in England, although the husband was resident in Monaco from 2001. There was also a second home in Nevis.

The husband owned and controlled a group of oil trading companies, two of which owned seven residential properties in London. In the divorce proceedings, Mrs Prest applied for a lump sum of £30m. She also applied for a declaration that the properties were held by the companies on trust for the husband or that he was beneficially entitled to them.

Mr Prest who was resident outside the court’s jurisdiction offered a package worth a little over £2m. The Family Division judge found that the husband had attempted to conceal the value of his assets, estimated at £37.5m and that his purpose in vesting the legal interest in the properties was wealth protection and avoidance of tax.

The judge held that the properties were effectively his assets in spite of having been owned by the companies. This is a comparatively rare decision, as it contradicts the decision in Salomon v Salomon Ltd [1897] which established the principle of separate corporate identity.

Email Software by Newsweaver