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Author Archives: Steve Bicknell
Employee Shareholders – will your employees want shares?
The Growth and Infrastructure Act 2013 comes into force on 1st September 2013 and Section 31 makes changes to the Employment Rights Act 1996 inserting section 205A Employee Shareholders.
205A Employee shareholders(1) An individual who is or becomes an employee of a company is an “employee shareholder” if—(a) the company and the individual agree that the individual is to be an employee shareholder,(b) in consideration of that agreement, the company issues or allots to the individual fully paid up shares in the company, or procures the issue or allotment to the individual of fully paid up shares in its parent undertaking, which have a value, on the day of issue or allotment, of no less than £2,000,(c) the company gives the individual a written statement of the particulars of the status of employee shareholder and of the rights which attach to the shares referred to in paragraph (b) (“the employee shares”) (see subsection (5)), and (d) the individual gives no consideration other than by entering into the agreement.(2) An employee who is an employee shareholder does not have—(a) the right to make an application under section 63D (request to undertake study or training),(b) the right to make an application under section 80F (request for flexible working),(c) the right under section 94 not to be unfairly dismissed, or(d) the right under section 135 to a redundancy payment.
Giving up employment rights might not sound like a good idea for employees but there are tax advantages for both the employee and employer:
- Dividends are not subject to PAYE or National Insurance
- Dividends would not be used as Pay in Auto Enrolment
- Capital Gains Tax Allowances should make most gains tax free
- The employer will benefit from cost savings on the sacrificed employment rights
steve@bicknells.net
R&D Tax Credits: Patent Box And Property Embedded Fixtures And Fittings Allowances For Commercial Properties Are Leading Government Policy Aims For UK Firms.
It is little recognised and few know very much about these very valuable and available policies for British companies. I can say this on the basis of the latest statistics published recently showing the takeup of R&D Tax Credits. Although there is improvement, the scheme is still under used and sets the UK among the lower spenders on research and development. I will remind readers that this state of affairs is not down to Government policy in the matter: no, it is the failure of directors and companies to find out and make claims for the three areas of support I set out above.
The challenge remains: what to do about the reluctance of British companies to take advantage of that which is put there for their support? There is a body of support and expertise available to SMEs and LCs. This consists of companies willing and able to work with companies’ own accountants and to represent and interact fully with each of the seven Special R&D Units run by HMRC.
Infrastructure is in place, the schemes for takeup are in place and functioning: it is up to directors to contact us, or contact someone and find a way forward for their firms. They owe this to themselves and to their shareholders and clients.
Everybody has to pay tax but what if HMRC get it wrong?
If you don’t file your tax returns HMRC will assess the amount of tax due but it will probably not be the correct amount. So what can you do to correct the tax payable?
A person can claim overpayment relief to recover overpaid income tax, CGT, Class 4 NIC or corporation tax or to reduce an excessive assessment. A person can claim overpayment relief to recover overpaid bank payroll tax or to reduce an excessive assessment.
This includes amounts paid under a contract settlement.
This is an important ‘relief of last resort’ for taxpayers who have missed all other deadlines and face a tax bill from HMRC, where there is no statutory right to amend the actual legal liability because the relevant time limits have passed.
Special relief is intended as a final and exceptional remedy where it would be unconscionable for HMRC to pursue tax that is legally due. HMRC has a duty to both Parliament and taxpayers generally to collect the tax due under relevant tax law and to ensure the tax system is operated fairly. This means that HMRC cannot simply disregard the time limits for making a self-assessment if it appears that a determination might be excessive. There must be further circumstances which make it unconscionable to recover the full amount due under the determination or not to repay an amount already paid.
Such circumstances might be where a person
- is suffering from a temporary or sporadic illness, including mental illness, and consequently finds it particularly difficult to engage with the tax system
- has not received our notices or other communications for reasons outside their control
- is insolvent. Where the debt is based on determined sums, and the late submitted evidence (or returns) prove that a different amount would have been due if returns had been made in time, we would consider using this relief. Relief would be considered where doing so is fair to other creditors – so the unconscionable element would be that pursuing the amount in the determination would be to the detriment of other creditors.
For a claim to special relief to be successful, it must, among other things, explain why the person considers that it would be unconscionable for HMRC to recover the full amount charged by a determination. Unconscionable means “completely unreasonable” or “unreasonably excessive”. SACM12240
HMRC may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery thereof, and may also, after judgment, further mitigate or entirely remit the penalty. TMA70/S102.
Mitigation will be considered in three circumstances.
- Where some sort of HMRC maladministration, usually delay, has caused or contributed to the size of the penalty – where delay and/or lack of co-operation by the taxpayer have caused the department additional costs that will weigh against mitigation.
- Where to enforce payment of the penalty would cause the taxpayer genuine and absolute hardship.
- Other exceptional circumstances such as the penalty or penalties being wholly disproportionate to the offence – for example a large tax-geared failure penalty under S93(5) following upon very large S93(3) daily penalties for the same offence, or belated information revealing the type of situation set out at EM5212 (“In-built” penalty).
There is no appeal against HMRC’s decision on S102 mitigation and a taxpayer wishing to litigate would need to seek Judicial Review.
steve@bicknells.net
CIMA shows professionals how to do the right thing
The Chartered Institute of Management Accountants (CIMA) has produced an ethical scenario tool to help businesses comply with ethical standards in a volatile and complex business environment.
This follows a recent Chartered Global Management Accountant (CGMA) survey which revealed that nearly 25% of respondents worldwide worked for an organisation that had suffered from a serious reputational failure. This rose to over a third in the UK, which has witnessed a series of corporate crises ranging from LIBOR to tax avoidance and meat scandals. CGMA research last year also highlighted that one in three finance professionals around the world have faced pressure to act unethically.
As CIMA members in practice are committed to upholding a Code of Ethics, the institute has produced this interactive tool to support and guide ethical decision-making. Created with input from members globally, and available to the wider business community, it takes the user through a series of challenges in areas such as conflict of interest, the supply chain, bribery and data protection.
Tanya Barman, CIMA’s Head of Ethics, said:
“Ethical challenges are part of working life, and often there is no perfect answer. But if they are not dealt with appropriately, there may be severe consequences when they come to light – both for the individuals and for the companies they work for.”
“Unfortunately it is still common for employees, be they in finance or in other parts of the business, to face pressure to compromise their ethical standards, and the standards of their company. It is vital to act ethically; to build long-term business success and avoid the shortcuts that can turn into tomorrow’s scandal.”
“Through releasing this tool – to both members and the wider business population – we hope to encourage better working cultures that lend themselves to the ethical standards that most firms subscribe to.”
The tool is available at: www.cimaglobal.com/ethicstool
Are you missing out on money you’re entitled to?
You could be missing out on money that is owed to you:
UK Benefits https://www.gov.uk/benefits-adviser
The benefits adviser checks if you’re eligible to claim:
- Attendance Allowance
- Bereavement Allowance
- Bereavement Payment
- Carer’s Allowance *
- Carer’s Credit
- Child Benefit *
- Child Tax Credit *
- Constant Attendance Allowance
- Disability Living Allowance
- Employment and Support Allowance *
- Guardian’s Allowance
- Housing Benefit *
- Incapacity Benefit
- Income Support *
- Industrial Injuries Disablement Benefit
- Jobseeker’s Allowance *
- Maternity Allowance
- Pension Credit *
- State Pension
- Statutory Adoption Pay
- Statutory Maternity Pay
- Statutory Paternity Pay
- Statutory Sick Pay
- War Widow’s or Widower’s Pension
- Widowed Parents Allowance
- Working Tax Credit *
(*) – For these benefits, you’ll also get an estimate of how much you might get.
Lost Pensions https://www.gov.uk/find-lost-pension
The Pension Service will help you track down any lost pensions, if you’re not retired you might be able to consolidate all your pensions to get a better return.
Unclaimed Assets and Forgotten Funds http://www.unclaimedassets.co.uk/
Assets are considered dormant when contact with the owner is lost – typically due to a name change after marriage or divorce, an unreported change of address or expired postal forwarding order, and incomplete or illegible records.
It’s important to note millions of family members remain unaware they’re entitled to collect unclaimed assets owed deceased relatives, who passed on without leaving updated financial records for their heirs.
The majority of this lost money comes from dormant bank accounts, orphan pensions, unknown windfalls, missing shares and abandoned dividends, forgotten life insurance policies, National Savings Certificates and Premium Bonds which have not been redeemed; but also included is £300 million in unclaimed National Lottery winnings!
Lost Savings and Bank Accounts http://www.mylostaccount.org.uk/
If you think you may have lost touch with your account or savings, this website will guide you through some simple steps to help reunite you with your money. This is a FREE service and is brought to you by the British Bankers’ Association, the Building Societies Association and National Savings and Investments.
steve@bicknells.net
Employer v’s Employee Pension Payments (Net Relevant Earnings)
Currently the maximum pension payments allowed per year are £50,000 this for Employee and Employer payments, however, if your net relevant earnings (NRE) are below £50,000 your personal payments will be capped at the higher of your employment income or £3,600. (Carry Forward may be available)
NRE excludes Dividends and if your personal pension payments exceed the NRE then you will need to declare the over payment on your self assessment return and pay tax on it.
This can be a big issue for company directors-shareholders who often take a large part of their income in dividends.
The solution to this is for the company to make employer contributions. Employer contributions count towards the £50,000 limit but are ignored for the NRE cap.
The attached link is useful article on this subject
steve@bicknells.net
Confidence Accounting for Businesses
Andy Haldane (Executive Director for Financial Stability at the Bank of England) has recently been working with Long Finance/ACCA/CISI on a new method of accounting – Confidence Accounting.
http://www.accaglobal.com/content/dam/acca/global/PDF-technical/corporate-governance/tech-af-cap.pdf
In a world of Confidence Accounting, the end results of audits would be presentations of distributions for major
entries in the profit and loss, balance sheet and cash flow statements. Accountants would present uncertainties
as ranges to investors and managers, rather than as discrete numbers: ‘the balance sheet of Company X is
worth £Y, plus or minus £Z, and we are 95% confident that it falls within this range’. Auditors would verify these
ranges. This would move auditing towards ‘measurement science’, in line with the way most laboratories report
measurements. Audited accounts would be presented in a probabilistic manner, showing ranges. Over time,
investors could evaluate an audit firm on the basis of how closely historic accounts fell within the stated ranges.
Such evaluations might conclude that firms were too lax or too strict. Clients would be able to make their own
decisions about audit quality on the basis of historic evidence rather than having to rely on assertions of quality.
This sounds like a good approach to me, especially for larger businesses where lots of assumptions are taken in preparing the accounts.
Economic prosperity requires businesses to be financially robust and that requires sound financial reporting, this could definitely play a key role in achieving that.
steve@bicknells.net
‘Bean counter’ view of accountants is holding back entrepreneurs
Some entrepreneurs and small businesses may be holding themselves back by refusing to share information with their accountants who they sometimes regard as little more than “bean counters”, according to a new study.
There is a tendency for UK businesses, to make decisions without adequate financial information or analysis, there is often poor cash flow management and time and opportunities are being wasted because some owner-managers don’t want anyone else to know their business, it concludes.
The report, funded by the Chartered Institute of Management Accountants (CIMA) and compiled by Dr Michael Lucas of the Open University along with Professor Malcolm Prowle and Glynn Lowth, from Nottingham Business School, part of Nottingham Trent University urges accountants to improve their image by refuting bean counter accusations and promoting themselves in business partnering roles.
“Given the importance of financial issues and the increasing need for enterprises to operate economically, efficiently, effectively, efficaciously and ethically, management accounting has potentially a crucial role to play in improving the quality of planning, control and decision-making,” says the CIMA report called Management Accounting Practices of UK SME’s.
The authors also call for further research into the way small and medium-sized enterprises (SMEs) reach critical decisions and into the psychological profile of executives, particularly owner managers.
Dr Lucas said: “While most business owners are good at using accounting services for monitoring cash flow and costs they do not always appreciate that management accountants can add a great deal to decision making in the management of the business. Accountants were sometimes regarded as little more than bean counters, rather than potentially having a business partnering role where they can advise and improve efficiency
“Some entrepreneurs, in particular, are reluctant to employ management accountants, expressing a desire to maintain control and have exclusive access to information they consider sensitive.This could lead to higher costs in terms of management time which is turn can put constraints in time spend in growing the business.”
The report says its exploratory findings give important insights which should inform the development of further large-scale survey research into whether accounting tools were used and, if not, why not.
These tools include: Product costing; budgets for planning and control; standard costing variance analysis; cost-volume-profit analysis; responsibility centres; capital expenditure appraisal techniques; working capital measures; and strategic management accounting.
Dr Lucas is Senior Lecturer in Accounting at the Open University Business School, Professor Prowle is professor of business performance at Nottingham Business School and Mr Lowth, who is a former President of CIMA, is a visiting fellow at the Nottingham business school.
The Cash Cycle – What is it? what is your Cycle? How can you improve it?
As the saying goes, Sales are Vanity, Profit is Sanity and Cash is King. The Cash Cycle also known as the Working Capital Cycle helps you to quickly understand how much cash you need to run your business.
Here is a great example from Steve Grice for an average business
| Average time to collect payment from customers | 60 days | Add |
| Average days sales held in stock | 25 days | Add |
| Average days taken to pay suppliers | 35 days | Subtract |
| Cash cycle | 50 days |
http://stevegrice.wordpress.com/2012/02/06/working-capital-cycle/
Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html
This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.
Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.
CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf
But Credit Management may not be enough on its own, perhaps Invoice Finance might help?
Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.
- Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
- Invoice Discounting is ideal if you have an annual turnover above £500,000
- Invoice discounting is suitable for business with an established credit control department.
- Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
- Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.
If your business sells to end customers you might consider Card Processing Advances.
You must be masterful. Managing cash flow is a skill and only a firm grip on the cash conversion process will yield
results.
steve@bicknells.net
Tax Advantages of a Classic Car
A classic car is one where:
- the age of the car at the end of the year of assessment is 15 years or more and
- the market value of the car for the year is £15,000
I found a 1968 Jaguar MkII for sale for £15,000 on
http://www.classiccarsforsale.co.uk/classic-car-page/165880/1968-jaguar-mkii/
The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.
The Mark 2 is also well known as the car driven by fictional TV detective Inspector Morse played by John Thaw
http://en.wikipedia.org/wiki/Jaguar_Mark_2
Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280
As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.
steve@bicknells.net
Business Accountant 