21st Century tax system unveiled

By Ken Maggs, Moore Thompson

HM Revenue & Customs (HMRC) has unveiled its new, ‘digital revolution’ for the tax system that will make paying tax less burdensome and cut red tape for British businesses.

It has also been announced that 1.3 million small businesses will be able to benefit from the system, called Making Tax Digital, without needing to update HMRC quarterly or keep their records digitally.

According to its announcement, Making Tax Digital will allow cash-basis accounting, which means that thousands more business owners will be able to pay tax based on the difference between money they have received and what they have paid out. This means that tradespeople, for example, will pay tax on cash received, rather than on invoices issued.

The new system will also send out prompts and alerts to help business owners get their tax correct and they can use it to get advice on tax reliefs they might otherwise miss. This will also mean greater certainty over tax bills, so businesses will not have to wait until the year-end to find out how much they owe.

According to a statement on HMRC’s site, the decision to exempt the smallest businesses and landlords from digital record-keeping and quarterly updates follows months of constructive engagement with business and agent groups.

The Government is also considering deferring digital record keeping and quarterly updating for a further group of small businesses and will explore options to assist businesses with the transition. Finally the consultation documents confirm that those who cannot go digital will not be required to.

Commenting on the announcement, a spokesman for the Federation of Small Businesses (FSB) said it means that half of the UK’s 5.4 million small businesses will not be affected by quarterly tax reporting. He added that the expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.

 

Posted in Tax

The Accounting framework is changing

The UK’s Financial Reporting Council (FRC) has published five new standards which will form the fundamental basis of new UK Generally Accepted Accounting Practice (UKGAAP).

The Financial Reporting Standard for Smaller Entities (FRSSE) has been withdrawn and small entities and now covered by FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland for accounting periods beginning on or after 1 January 2016.

UKGAAP is keeping itself in line with the rest of Europe and indeed the world with these changes. The new accounting standards are heavily based upon the standards being applied by the UK’s listed companies, International Financial Reporting Standards (IFRS) and means that non-listed entities will closely reflect the financial statements of their listed counterparts.

The five standards follow up from the previously released, FRS 100 Application of Financial Reporting Requirements which sets out the new reporting regime. The new standards are:

  1. FRS 101 Reduced Disclosure Framework available to certain UK IFRS reporters.
  2. FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
  3. FRS 103 Insurance Contracts – requirements and guidance for insurance contracts.
  4. FRS 104 Interim Financial Reporting for entities that apply FRS 102.
  5. FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.

These changes have received mixed response although many companies only need to consider one or two of the above. In some cases the changes have little or no effect whereas others can see a massive difference in some figures.

Changes can often cause some degree of confusion but this has been amplified by the differing introduction dates of these standards. FRS 102 is applicable for periods commencing on or after 1 January 2015 but as stated earlier the FRSSE is not withdrawn until a year later. In theory, two identical companies could produce somewhat different financial statements, where one uses the FRSSE (for its last time) and the other uses the new FRS102.

Further articles will cover the impact of changes.

For future

  1. Micro-entity accounts – improvement or detrimental – HMRC must accept – bankers don’t have to. Related party transactions etc
  2. FRS 102 – fair value accounting – tax effect and reporting

Support for small businesses

By Ken Maggs, Moore Thompson

A number of national business lobby groups have agreed to join forces to give help and advice to businesses in the aftermath of the decision to leave the European Union.

The Confederation of British Industry (CBI), the Institute of Directors (IoD), the British Chambers of Commerce (BCC), the Federation of Small Businesses (FSB) and manufacturers’ body EEF met at a conference last week chaired by Business Secretary Sajid Javid.

Enterprise Nation, the small business network focused mainly on start-ups was not invited, so set up its own meeting on the same day, amid fears that the other group would focus only on big business.

Founder of Enterprise Nation, Emma Jones, who is also a Government business ambassador for the UK Trade & Investment (UKTI) department, said it was vital for small businesses and the self-employed to be able to easily get hold of the information and advice they need during the current period of uncertainty.

Her words were echoed by a spokesman for the FSB, which was represented at both meetings, who said there must be immediate action to ensure economic stability so that small firms can continue to trade.

He added that smaller businesses need simple access to the single market, the ability to hire the right people, continued EU funding for key schemes and clarity on the future regulatory framework. His view was supported by Mr Javid, who said the biggest issue raise in the larger meeting was the need to secure continued access to the single market.

However, John Longworth, who resigned as Director-General of the BCC earlier this year, called the single market a “mirage” and said that if it becomes apparent in negotiations that the EU will not do a deal on this, the UK should “just leave”.

 

Charities opposed to the idea of being charged for regulation

By Ken Maggs, Moore Thompson

Charging charities for regulation would not be acceptable, according to a new survey.

The local infrastructure umbrella body Navca surveyed 610 good causes on the topic after the Charity Commission announced a consultation on charging an annual fee for its work.

Navca’s survey found that only nine per cent would be in favour of the move, while three-quarters of those asked, objected.

The question of a proposed fee was one of those asked in Navca’s second voluntary sector annual survey, which asks questions on a range of sector issues.

A total of 77 per cent said they would not be happy about paying a fee to help the commission cover the costs of cuts to its budget – about £8m since 2010.

Neil Cleeveley, chief executive of Navca, said: “The Charity Commission should take note that the introduction of an annual charge is roundly rejected.

“It should work with us to make the case for better public funding of its duty to ensure public confidence in charities.”

Earlier in the year Navca called the proposals a “charity tax” and said they were disappointed the regulator was pushing the idea.

Proposals put forward by the Charity Commission include a fixed fee of £265 for all charities with annual incomes of more than £10,000, or a sliding scale that could mean the largest charities paying £1,500 a year. The regulator estimated this would raise about £23m a year.

Rules on gift aid are to be simplified and made “fit for the 21st century”.

Last week’s Queen’s speech announced a Small Charitable Donations Bill, in a bid to reform the Gift Aid Small Donations Scheme (GASDS).

The scheme, introduced in 2013, allows charities to claim relief on up to £8,000 of small cash donations without the normal paperwork, but it has proved to be far less effective than the Government hoped.

In fact, it was expected that the scheme would raise £135m, but latest figures for 2014/15 put this at just £21m.

Now the new bill aims to make the relief “easier to claim, to allow more charities to benefit”.

One example of this will be to allow smaller charities to claim a 25 per cent bonus from bucket collections or “any donations collected away from their building.”

This will particularly help charities that operate from a small community building.

The new regime will also clarify current rules and reduce the admin burden, again benefiting smaller charities.

“The inclusion of a Small Charitable Donations Bill could be good news for charities, particularly for smaller organisations which have often struggled to unlock the benefits of Gift Aid. This provides a real opportunity to simplify the scheme and make it fit for the 21st century,” said John Low, chief executive of the Charities Aid Foundation.

Andrew O’Brien, of the Charity Finance Group, said: “It is good to see that the government has listened to the sector and recognised the need to get on with reforming the Gift Aid Small Donations Scheme.

“The devil will be in the detail, but the focus on making the scheme easier to claim and, more importantly, opening it up to new charities is particularly welcome.”

Charlotte Ravenscroft, head of policy and public services at NCVO, said: “The small donations scheme is a great idea that’s been sadly hampered by restrictive eligibility rules.”

HMRC has launched a consultation on GASDS. The full consultation can be viewed on the HMRC website and closes on 1 July.

PUTTING A SURE FOOT FORWARD POST BREXIT VOTE

Now the campaign posturing is over, the everyday world now has to deal a new reality even though political poses and media speculation rampage on. It looks as if it will be at least some weeks, before we get much clear direction and a cohesive approach to negotiating any new governmental norms for UK plc.

Business, meanwhile will frankly carry on as usual, though it will undoubtedly face a period of uncertainty and new challenges. The underlying position of many areas in the economy is one of relative confidence, though just modest growth. Brexit should provide new opportunities though and should be seen as a chance to be creative, positive and imaginative.

Any British manager has to be pragmatic often in their approach to business, weighing up rational pros and cons of taking risk, but rarely will they be as expedient and whimsical as the average politician.

Nevertheless, there are undoubtedly stormy squalls ahead. We are not yet out of the EU. Most party leaders have not resigned or been booted out quite yet (despite the media averring otherwise) though no doubt there are rocky paths ahead. And the perceived tide of immigration is not now being stopped at the White Cliffs.

But where though does all this leave us so far as our staff is concerned? Let’s consider the position.

Various “Remain” proponents suggested that a Brexit would threaten the fundamentals of employment law and see the removal of workers’ rights.

Tosh.

Although not as unilaterally “protective” of UK’s position as they may have been a few years back when John Major had negotiated an opt out of the Social Chapter, only for Tony Blair to give it away, there are strong reasons why significant changes in labour legislation is unlikely. These include:

  • Various UK employment laws pre-date our membership of the EEC and subsequently the EU.

UK actually has an historic foundation of fair treatment of employees and protection of rights at work, perhaps not as liberal as some might like, but good examples are the Equal Pay Act, which dates to 1970, some while before UK’s accession to the EEC in February 1973, and a good part of our Discrimination law too.

  • More recent EU employment laws are well-embedded into UK’s legislative framework and would take complex and time-consuming re-enactment to remove them.

This would be counter-productive, but for the most part, there is little demand to do so.

  • In various cases the UK has gone beyond EU minimum statutory requirement, so we are unlikely to back-track.

A good example of this is the provision for statutory holidays. This is 4 weeks in EU law, but 5.6 weeks in UK law, as we have gold plated the EU minimum provision. Can anyone seriously see the government risking the loss of popularity by taking away holiday? Of course not.

The UK government is currently consulting on various legislative proposals and has been over a long period. These are for a more liberal approach, not a less liberal one. Among other things they include restrictive covenants (trade restraints) which are seen in some circles as stifling enterprise.

  • There is no great clamour to dilute existing legislation. Of course there is a range of views, but in general, employers are not looking for weaker regulation, have grown to accept the benefits of fairer employment legislation and recognise the benefits of managing diversity and an engaged and motivated workforce. Most HR professional too would probably argue we’ve got thing about right, albeit a bit bureaucratic and perhaps occasionally lacking in justice.
  • Although there could still be a few changes, these may well be limited to such areas as ensuring zero hours contracts are not pernicious and removing VAT on the wage element of labour providers’ invoices, which non-registered businesses, such as banks, cannot currently reclaim.

So if employment law is not going to be a nightmare, what other human resource issues may still arise and what can you do about them?

Writing to all members individually on the day of the referendum result, Peter Cheese, CEO of the Chartered Institute of Personnel and Development (CIPD) praised the UK’s labour market for its flexibility and urged the government to consider this in any renegotiations. “The UK’s flexible labour market already strikes the right balance between providing flexibility for employers and employment rights for workers,” he said.

“Our flexible labour market enables employers to access or bring in skilled and unskilled workers from outside the UK to help support business growth and address labour shortages in our public services. It is important that this is not forgotten in any reform of the immigration system.”

So what should you be doing about immediate issues that might be facing you as an employer?

  • Unsettled staff

In many areas there has been a significant reaction to the result of the referendum, ranging from strong resentment to fear. Most people are uncertain as to what will happen next and when and this is likely to continue for quite some months, possibly several years.

You could therefore have an excellent opportunity to issue reassurance to all your staff that it will be business as usual at least for the foreseeable future. There are just a few sectors that may look to make changes quickly and will already have contingency plans for this. These include international finance and banking and construction, particularly large capital projects.

There are currently 3 million EU citizens already in the UK and they will probably be granted indefinite leave to remain. The Leave campaign has not called for them to be deported, but there are no guarantees at this stage, although the Vienna Convention states that rights previously acquired (e.g. residency) are not lost.

Whist it is said that you, “can’t make a silk purse out of a sow’s ear”, there are in fact many positives and exciting opportunities ahead that can be made into genuine virtues. We have not lost our ingenuity, initiative and hard work overnight.

  • Labour supply

Although an initial survey done last week by CIPD concluded that there was no immediate appetite for recruitment post Brexit vote, this may return quickly. In the mid-term though, business may find some disruption to their normal labour supply as there could be skill shortages in some areas.

It therefore may be a good idea to fill any management gaps you have now and make sure you have the team you require for the next few years.

What’s more you shouldn’t put all your eggs in one basket when it comes to your supply of staff. Use several agencies, labour suppliers, or consultancies to attract staff. Consider using apprenticeships as a good route to recruit and grow your future stars internally. Develop feeder links with local schools, colleges or universities.

  • Fixed and variable term contracts

If you do think that you are likely to be faced with greater turmoil in your business over the next few years, you may want to consider alternatives to standard terms and conditions of employment, or a mix of terms that will give you more flexibility.

Zero hours terms have received a mixed response over the last few years, often for political reasons, but independent research shows the majority of those on them do actually favour the adaptability. The excesses of zero hours can, of course, be removed by having minimum hours over a given time period, rather than none at all. There are other alternatives too, such as fixed term contracts that might be used for staff working on defined projects.

  • Pay what you can afford

When it comes to pay reviews and structure in the future, businesses perhaps need to budget more carefully. If markets are going to be more volatile, or new ventures and greater diversity are sought, then sales might fluctuate too. That makes it harder to cover your wages bill.

Think about protecting basic pay and then rewarding staff when both collective and individual targets are reached. Pay bonuses retrospectively, only when global, divisional, team and individual goals are collectively achieved, though be scrupulously fair how you set them.

  • Manage Diversity

Many firms will consider reviewing their markets and mix of provision of their products and services post referendum. That is common-sense to avoid over-exposure in areas that may decline and to secure new opportunities in areas of expansion.

Just as a business manages its marketing mix, so too it should do the same with its employment mix. Make sure you are truly an equal opportunities employer, getting the best for talent of all types, yet ensure you recruit individuals with the competencies you require in mind and favour multi-skilling or at least develop such abilities.

  • Productivity

Last, but not least, the UK has a particularly poor record when it comes to productivity. It has been said that it take us until Friday afternoon each week to produce what a Belgian does by Thursday evening.

We need to up our game.

We have a once-in-a-generation opportunity to do better and we need to seize the initiative. This means ensuring we run lean and effective businesses, with lean and fully engaged workforces. The starting point is measuring productivity and then setting out how you can improve this reasonably, rationally, inclusively and imaginatively.

And, despite everything, if your business is now facing redundancies, remember your legal obligation to consult early, fairly, transparently and genuinely.

______

 

© David S Dixon, July 2016.

Further information at: www.personnel-matters.co.uk

Guidance on new personal savings allowance

The taxman has published a Policy Paper on the new Personal Savings Allowance (PSA) for individuals, which will mean that from tomorrow (April 6) basic rate taxpayers can receive up to £1,000 of savings and higher rate taxpayers up to £500 of savings income without any tax being due. In addition, as of tomorrow, banks, building societies and NS&I will cease to deduct tax from account interest they pay to customers.

It is estimated that around 18 million savers will benefit from an annual tax reduction of, on average, £25 a year on their savings income and that around 95 per cent of taxpayers will not pay any tax at all on it.

However, around one million individuals are expected to still have tax to pay on their savings income, most of whom will be additional rate taxpayers or individuals with higher than average savings.

The Policy Paper also outlines that income from an individual savings account (ISA) and income that qualifies for the 0 per cent starting rate for savings at section 12 of ITA, will not use up any part of an individual’s savings allowance.

However, income that is within an individual’s savings allowance will still count towards their basic or higher rate limits and may therefore affect the level of savings allowance they are entitled to, as well as the rate of tax that is due on any savings income they receive in excess of this allowance.

Because deposit-takers, building societies and NS&I will no longer be required to deduct sums representing income tax from account interest they pay to customers, people who are unlikely to have tax to pay on their bank or building society interest will no longer have to register with their account provider to have this interest paid without deduction.

 

Red tape stifling entrepreneurship

Business Secretary Sajid Javid has announced that the Government is to launch a consultation into whether employment rules preventing employees from starting up their own business after leaving a job are “stifling British entrepreneurship”.

As part of the investigation, firms will be asked their views on ‘non-compete clauses’, amongst other employment-related issues. The results will contribute to the Government’s Innovation Plan, which focuses on promoting high tech business and advanced manufacturing.

Non-compete clauses are often written into employment contracts and can prevent people from competing against their former employer or working for a competitor. The clause stipulates a set period of time during which the former employee cannot do this, which can last for up to nine months. Anyone breaking the terms of this clause can be taken to court.

As Mr Javid pointed out, such clauses can hinder enterprising start-ups and can hold back productivity. However, legal experts are concerned that if non-compete clauses were removed entirely from contracts, then staff could potentially take contacts or intellectual property from their employer to a direct rival.

One employment lawyer commented that if the clauses were abolished, the former employer could suffer significantly, as they will have invested a lot of time and money in the employee who could just go off with the employer’s expertise and compete with them. He added that the current restrictions are aimed at giving the employer a reasonable amount of time to ring-fence their business and protect themselves.

However, Mr Javid seems determined to take action to “break down any barriers that are curbing innovation and entrepreneurship” and is backed by Emma Jones of Enterprise Nation, which is partnering with the Government to support entrepreneurship. She said she welcomed the consultation, as entrepreneurial individuals need to be able to ease out of employment into self-employment and employment contracts should reflect this ability.

 

Business leasing highest in seven years

By Ken Maggs, Moore Thompson

Business owners are increasingly using leasing to fund their expansion, with the use of leases having jumped 12 per cent last year to its highest level in seven years, up to a value of £29.1bn over the year, £26bn higher than in 2014.

According to the Finance & Leasing Association, firms took out leases on a variety of assets, such as new vehicle fleets, IT systems and office equipment last year, with industry insiders saying that this formed part of the trend for small businesses to turn to non-bank lending to grow.

A spokesman for a business finance firm said that the Bank of England’s recent credit conditions survey suggests that loans to fund merger and acquisition deals have crowded out lending to small and medium-sized enterprises (SMEs). This may support the migration of SMEs to leasing firms rather than banks for finance.

He added that because asset finance allows businesses to borrow the cost of capital investment up front and spread the cost of repayment across fixed monthly payments, businesses can clarify their budgets and contain costs.

However, a recent report from Judge Business School’s Cambridge Centre for Alternative Finance suggests that the growth of alternative finance is slowing. According to its report, entitled Pushing Boundaries, although the alternative finance market grew by 161 per cent in 2014 on 2013, in 2015 the growth was only half that amount at 84 per cent, with £3.2bn of loans, investments and donations made.

This still represents strong growth in the sector, which is expected to continue, but it is likely that the number of funding platforms will fall, as the current number of about 100 has been described as ‘unsustainable’.

 

 

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APNs help taxman net £2bn – tax avoidance

By Ken Maggs, Moore Thompson

HM Revenue & Customs (HMRC) has been able to collect over £2bn from tax avoidance schemes since a rule change was brought in that made it easier to collect disputed amounts upfront direct from bank accounts.

The Finance Act 2014 introduced accelerated payment notices (APNs), which allow the taxman to collect cash direct from taxpayers’ accounts without having to wait until often lengthy investigation tax affairs have been concluded.

HMRC sends out more than 3,000 APNs every month and has issued more than 41,000 since they were introduced. By the end of this year, the taxman expects to have issued around 64,000, bringing in £5.5bn in payments by March 2020. Once a taxpayer receives such a notice, he or she has 90 days to pay the amount HMRC believes they owe.

Commenting on the publication of the figure, David Gauke, Financial Secretary to the Treasury pointed out that HMRC already wins the vast majority of cases that go to court and now HMRC has more than £2bn from tax avoiders who would otherwise have benefited from the cash while they were being investigated.

However, last month HMRC was forced to retract thousands of APNs and agreed it would repay tens of thousands of pounds to as many as 2,000 IT and banking professionals who were involved in Isle of Man-based schemes after acknowledging that the department had failed to meet all the conditions requiring full payment of tax owed.

HMRC admitted that the APNs should not have been issued in this case because although the arrangements were notified to the tax department, they were not ‘notifiable’ to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime.

 

 

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Posted in Tax