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The Financial Reporting Standard for Smaller Entities (FRSSE) has been withdrawn and small entities and now covered by FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland for accounting periods beginning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 FRS 102 is applicable for periods commencing on or after 1 January 2015 but as stated earlier the FRSSE is not withdrawn until a year later.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”.

 

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.

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.

 

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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Record numbers file self-assessment form online

By Ken Maggs, Moore Thompson

 

A record number of almost 90 per cent of self-assessment taxpayers who filed their return to HM Revenue & Customs (HMRC) by midnight on 31 January did so online, with only 11 per cent sticking to the old paper returns.

 

Some 9.24 million taxpayers completed their self-assessment form via HMRC’s website, meaning that only 1.14 million returns were filed on paper before an earlier deadline. Meanwhile, some 870,000 returns were not received by the deadline, so those who failed to get them in on time will now face financial penalties.

 

However, although taxpayers appear to have embraced the digital return, critics are becoming increasingly concerned abut HMRC’s ambition to “fully digitise” the tax return system, claiming that vulnerable groups will be penalised for not wanting to use the internet.

 

They also predict that the quantity of data sought by the taxman will increase administrative costs and that the trend to push everything online will result in far more tax investigations without necessarily raising extra revenue. These critics also believe that HMRC’s ultimate goal is to obtain highly detailed data, which could result in more frequent and earlier demands for payment.

 

As far as individuals are concerned, the taxman is planning “personal tax accounts”, which are aimed at those whose financial affairs are relatively simple and don’t have an accountant. Meanwhile, small businesses, landlords and the self-employed will have to report information to HMRC quarterly. This plan has gone down badly, with 110,000 small business owners having already petitioned against the change, arguing that quarterly reporting would cost too much time and money.

 

However, HMRC denies that taxpayers will be forced to go digital. In a statement last year entitled Making tax digital: a myth-buster, it said that people who genuinely can’t use digital tools will be offered alternatives, such as nominating someone else to update their information for them.

 

 

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Employers confused over the workplace pension

By Ken Maggs, Moore Thompson

 

Almost half the employers who will have to set up workplace pension schemes for their employees in the next two years are confused about their responsibilities, according to a recent survey by the Federation of Small Businesses (FSB).

 

The business group found that 45 per cent of those polled were unclear about the rules of auto-enrolment and around a quarter were concerned that their business would not be able to cope with the extra cost. Meanwhile, one in four said that they didn’t even know their staging date.

 

The FSB also found that firms were underestimating the costs of implementing auto-enrolment schemes, with small business owners who had yet to set up schemes estimating overall costs to be, on average, £903, which is far less than the £1,436 average in overall costs reported by businesses that have already introduced workplace pensions.

 

As a spokesman for the group pointed out, auto-enrolment for small firms is fast approaching and the sooner small business owns get to grips with what they need to do to comply, the better off they will be.

 

However, The Pensions Regulator (TPR) was insistent that auto-enrolment has been a success so far, with 5.4 million workers having been signed up since 2012. The rules are that all employers, including those who only employ one person, must offer a workplace pension to anyone over the age of 22 and who earns more than £10,000 a year.

 

The Government is currently running a major advertising campaign featuring a 10ft hairy monster called Workie, which is aimed at ensuring that small business owners are aware of the new rules. The FSB said that such a campaign is vital, given that awareness levels are so low. The group also applauded the improved information on the regulator’s website.

 

 

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Personal tax accounts unveiled

By Ken Maggs, Moore Thompson

 

HM Revenue & Customs (HMRC) has gone live with its new system of personal tax accounts ahead of the 31 December deadline of self-assessment filing, in a bid to make the department one of the most digitally advanced tax administrations in the world.

According to the department, the move will mean that UK taxpayers can manage their tax affairs online, as the online personal tax account (PTA) aims to provide a “joined-up view” of taxes and benefits.

By 2020, the new digital accounts will encompass all taxpayers, whether individual or corporate, and from April 2018, businesses, including the self-employed and landlords, will have to update HMRC every quarter if this activity is their main source of income. The obligation to report quarterly will also apply where the money is a secondary source of income worth more than £10,000, and the main income is from employment or from a pension.

Meanwhile, in the ‘back office’, the department will bring together all the information it holds on a taxpayer into one system, including data from employers, banks, building societies and other government departments. This will eventually lead to the demise of the annual tax return for most taxpayers and so the current system of self-assessment, introduced in 1996 and now largely online, will wither away.

As a spokesman for the department pointed out, because self-assessment for individuals and small firms will work through digital tax accounts, there will be no need for them to send in annual tax returns.

However, the obligation for taxpayers to inform the department of taxable income or to provide information relating to that income will not change, where HMRC does not have the data from another source. As the spokesman said, they will still have to confirm their information is correct and make sure that the right tax is paid.

 

 

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Employers cautious over pay rises next year

By Ken Maggs, Moore Thompson

As 2015 draws to a close, a study by the Confederation of British Industry (CBI) shows that bosses plan to keep hiring staff next year but could limit pay rises in anticipation of the new national living wage and apprenticeship levy.

According to the business group’s annual employment outlook, some firms are also thinking about price hikes or recruitment freezes to offset the higher labour costs the new wage and levy are expected to bring.

The survey found that almost half the business owners polled anticipated that the new levy would be “costly and bureaucratic”, although it was conducted before Chancellor George Osborne confirmed in his Autumn Statement that it would be set at 0.5 per cent of an employer’s payroll only if the annual wage bill of the firm was more than £3m.

According to the CBI, the employers surveyed had expressed support for the aims of the levy and for funding it but some had concerns that the Government merely wanted to hit targets for a quantity of apprenticeships rather than focussing on quality.

Meanwhile, just over 40 per cent of respondents said they expected their workforce to be larger by the end of 2016 and more than 50 per cent said they intended to increase pay in line with the retail prices index (RPI) measure of inflation, which was 1.1 per cent last month.

When asked about the national living wage, which will increase the minimum hourly rate for workers aged 25 or older to £7.20 from £6.70, a small percentage thought they would have to raise prices to offset it and almost 30 per cent said they would be employing fewer people because of it.

However, the effect will be more pronounced in the hospitality industry, which traditionally relies on lower paid staff. More than 50 per cent of employers in this sector anticipated having to raise prices and almost 30 per cent said they would employ fewer people.

 

 

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Submissions invited on Charities Bill amid fears for the independence of good cause

By Ken Maggs, Moore Thompson

The charity sector has been asked for its views on provisions in the Charities (Protection and Social Investment) Bill as it reaches committee stage in the House of Commons.

MPs last week passed a second reading of the proposed changes and have passed it to committee stage in the House of Commons.

The parliamentary website urges those with “relevant expertise and experience or a special interest” in the bill to submit their response.

The bill would give extra powers to the Charity Commission, including a controversial power to give official warnings to charities.

Shadow minister Anna Turley told Parliament this would risk threatening the independence of charities.

She said the main fear was that the powers would be used for issues of “relatively low concern”.

“There are no objections in principle to giving the Charity Commission the power to give warnings to a charity, but the current drafting raises some concerns within the sector,” she said.

Another provision would be enabling the Charity Commission to automatically disqualify from trusteeship those with convictions for sexual offences, money laundering or terrorism offences. It would also give charities the ability to make social investments.

Turley said: “We think it is absolutely right that charities have the freedom to dispose of their assets in the way that they see fit.”

Conservative MP Wendy Morton called for the bill to “ensure that smaller charities are not disproportionately affected by any bureaucracy or too much legislation”.

“It does not matter whether a charity is small or large: charities have so much to give to our country, society and communities, and I will do all I can to ensure that they get the support they deserve,” she said.

But the minister for civil society, Rob Wilson, said the bill “seeks to achieve a balance” and dismissed concerns of an overly powerful Charity Commission.

He said: “The new Commission powers need to be broad enough to make them useful. If they are too narrow they would be impractical and go unused or would leave loopholes to be exploited by the unscrupulous.”

The committee is expected to hold its first meeting on Tuesday 15 December.

The deadline for submissions from charities is Thursday 7 January, when the committee will finish and report the bill back to MPs.

 

 

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