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How long to keep your records
As a general rule, you should keep your records for a minimum of six years. However,
if you are:
• an employer, you need to keep Pay As You Earn (PAYE) records for 3 years
(in addition to your current year)
• a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS
records for 3 years (in addition to your current year)
• keeping records to complete a personal (non business) tax return, you only need to
keep them for 22 months from the end of the tax year to which they relate.
If you need to keep records for other reasons, for example the Companies’ Act
requires limited companies to keep specific records and you also use those records
for tax purposes, you need to be aware that there may be different time limits for
retaining them. Be careful not to destroy any records you also use for tax purposes
too soon.
niall@odfinancialservice.co.uk
Can I prepare Abbreviated Accounts?
There are 3 sizes of companies to consider when preparing your accounts; small, medium or large. There are thresholds for turnover, balance sheet total (meaning the total of the fixed and current assets) and the average number of employees, which determine whether your company is small or medium-sized. Any companies that do not meet the criteria for small or medium are large companies and will have to prepare and submit full accounts.
A small company can prepare and submit accounts according to special provisions in the Companies Act 2006 and the relevant regulations. This means that they can choose to disclose less information than medium-sized and large companies.
The Thresholds are:
| Test | Small Company | Small Group | Medium Company | Audit Exempt |
| Sales must be below | £6.5 million | £6.5m net or £7.8m gross | £25.9 million | £6.5 million |
| Balance Sheet Total | £3.26 million | £3.26m net or £3.9m gross | £12.9 million | £3.26 million |
| Average no. of employees | 50 | 50 | 250 | 50 |
A small company must meet at least two of the conditions above.
Generally, small company accounts prepared for members include:
- a profit and loss account
- a full balance sheet, signed by a director on behalf of the board and the printed name of that director
- notes to the accounts
- group accounts (if a small parent company chooses to prepare them)
And they should be accompanied by:
- a directors’ report that shows the signature of a secretary or director and their printed name
- an auditors report that includes the printed name of the registered auditor (unless the company qualifies for exemption from audit and takes advantage of that exemption)
For financial years ending on or after 1 October 2012 a small company only needs to qualify as small to be exempt from Audit.
Even if a small company meets these criteria, it must still have its accounts audited if a member or members holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demands it; or – in the case of a company limited by guarantee – 10% of its members in number.
A medium company must meet at least two of the conditions above for medium companies.
Medium-sized accounts must include:
- a profit and loss account
- a balance sheet, showing the printed name and signature of a director
- notes to the accounts
- group accounts (if appropriate)
And should be accompanied by:
- a directors’ report including a business review showing the printed name of the approving secretary or director
- an auditor’s report that includes the name of the registered auditor unless the company is exempt from audit
Medium-sized companies may omit certain information from the business review in their directors’ report (that is, analysis using key performance indicators so far as they relate to non-financial information). Also a medium-sized company which is part of an ineligible group can still take advantage of the exemption from disclosing non-financial key performance indicators in the business review.
Medium-sized companies preparing Companies Act accounts may omit disclosure with respect to compliance with accounting standards and related party transactions from the accounts they send to their members.
Abbreviated accounts of a medium-sized company must include:
- the abbreviated profit and loss account (this must be full if preparing IAS accounts)
- the full balance sheet showing the printed name and signature of a director
- a special auditor’s report showing the printed name of the registered auditor
- the directors’ report showing the printed name of the approving secretary or director
- notes to the accounts
What is a dormant company?
A company is dormant if it has had no ‘significant accounting transactions’ during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records.
When determining whether a company is dormant you can disregard the following transactions:
- payment for shares taken by subscribers to the memorandum of association
- fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns
- payment of a civil penalty for late filing of accounts
How long do I normally have to file my accounts?
The time normally allowed for delivering accounts to Companies House is:
- 9 months from the accounting reference date for a private company
- 6 months from the accounting reference date for a public company
You can submit the following accounts online:
- dormant company accounts
- small full audit exempt accounts
- small audit exempt abbreviated accounts
Failure to deliver accounts on time is a criminal offence.
Further information available from Companies House
steve@bicknells.net
10 things your Finance Director should be doing….
SME’s often mis-understand the purpose of a Finance Director and the value they can bring to a business.
The job of a finance director is not just about producing regular accounts: they can help your company with strategy and development. If you want a small, stable business, then you can settle for a risk-averse book-keeper. But a good FD is key if you are growing your business because FDs develop future financial forecasts and push business growth. [Smarta]
So what should your Finance Director be doing for your business…..
- The FD should be able to look into to future to see what the future financial needs of the business will be
- He/She should negotiate funding facilities to ensure the business can manage its cash flow needs
- The FD should be able to foresee the future tax consequences and risks of decisions
- He/She should help the business to achieve the best possible credit scores
- Identify ways to reduce costs and improve profitability
- Understand the business owners objective and focus the business on achieving those objectives
- Ensure financial and regulatory compliance
- Ensure accurate and timely reporting of management information
- Evaluate growth opportunities
- Apply corporate governance
steve@bicknells.net
Is Greed Good – 12 years on from Enron and Sarbox?
It was December 2001when Enron filed for Chapter 11 bankruptcy.
In just 15 years, Enron grew from nowhere to be America’s seventh largest company, employing 21,000 staff in more than 40 countries.
But the firm’s success turned out to have involved an elaborate scam.
Enron lied about its profits and was accused of a range of shady dealings, including concealing debts so they didn’t show up in the company’s accounts.
Enron was followed by scandals at Global Crossing and WorldCom, John ‘Bernie’ Ebbers co-founded WorldCom and made this statement in his defence
“I know what I don’t know. To this day, I don’t know technology, and I don’t know finance or accounting”
These companies all had the same auditors, Arthur Anderson which was once one of the top 5 accounting firms in the world.
The scandals lead to the creation of The Public Accounting Reform and Investor Protection Act as a result of work done by Senators Sarbanes and Oxley and is general referred to as Sarbox or SOX and applies to US publicly listed companies and their subsidiaries.
Some of the key items in the Act include:
- Auditor Independence (s201,202)
- Audit Partner Rotation (s203)
- Forfeiture of Bonuses (s304)
- Disclosures (s401,409)
- Internal Controls (s404)
- Personal Loans to Executives (s402)
- Whistleblower Protection (s806)
But despite this it failed to prevent the Global Financial Crisis of 2008 .
So is Greed Good?
Common themes in all these scandals were:
- Greed/Personal Ambition
- Attitude of Senior Management
- Failure to report ‘wrong doing’
Tax Avoidance is now in the spot light will that lead to new scandals coming to light?
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
‘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.
How HMRC use IT systems to seek out tax evaders
There is no doubting the resolve of HMRC to track down and prosecute tax evaders.
The Government has committed to spend £917m to tackle tax evasion and raise an additional £7bn each year by 2014/15.
HMRC are using 2,500 staff to tackle avoidance, evasion and fraud, there is also a website to help those who want to declare income https://www.gov.uk/sortmytax
In the search for tax evaders, HMRC have a £45m computer system called Connect which in 2011 delivered £1.4bn in tax revenue and the system is getting bigger and better all the time. According to Accounting Web:
It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.
Last year Connect made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.
In addition HMRC have also identified 200 accountants, lawyers and professionals who advise on tax avoidance structures and its currently unclear how HMRC will be dealing with them and their clients.
It is important to remember that most people pay the correct tax, in fact HMRC calculate that 93% of tax due is paid correctly, its only a small minority who try to evade tax.
steve@bicknells.net
Why have multiple classes of shares?
Businesses tend to start off just having ordinary shares with full voting and dividend rights, however, there are lots of good reasons why you might create multiple share classes:
1. To reward the owners based on their contribution – for example say one owner worked full time and the other only part time – they may want dividends to be based on their efforts whilst still retaining their original voting rights
2. To offer non voting shares to employees
3. Convertable or Redeemable shares might be offered to an investor
4. Preference Shares might have a fixed dividend
Dividends are very tax efficient so its great way to reward the owners for the risk of running a business.
Always seek professional advice before making changes to check for capital gains, settlement and other tax and legal issues, better safe than sorry.
Then before creating additional share classes check your articles of association and change them if necessary, then you will need a resolution to create new share classes, fill the appropriate forms at Companies House and then you are ready to go.
steve@bicknells.net
What steps do you need to follow to form a company?
Years ago you would go to a formation agent and buy an off the shelf company and re-name it but now its much easy to create a company from scratch using a formation agent. There are many agents out there, but you could use http://www.company-wizard.co.uk where you can form a company from £16.99 or you can do it direct with Companies House.
You will need to know:
- The company name (that hasn’t already been used and isn’t restricted)
- The names, addresses and dates of birth for directors and shareholders
- Registered office address
- You will also need to security information for the directors and shareholders (eye colour, mothers maiden name, place of birth)
The company will often be formed within a day, once you know the company registration number you can open a bank account. To do this you will normally need to visit your bank and show them two forms of ID.
HMRC will send form CT41G to the registered company address.
The CT41G form is issued to newly registered companies. This form includes your company’s Unique Taxpayer Reference .You will need it to contact HMRC. It also tells you what you need to do if your company has become ‘active’ and suggests other tax implications your company may need to consider.
HMRC will also ask if you want to appoint an agent (accountant) and this is done with form 64-8.
To register for PAYE you will need to know:
- name, business name, partner’s name, company name (as appropriate)
- business or home address, including postcode (as appropriate)
- business or home telephone number
- a contact email address
- a contact telephone number
- a name and address to send correspondence to
- the date of your first payday or, if earlier, the first date you made payments of expenses and/or provided benefits to your employees
http://www.hmrc.gov.uk/payerti/getting-started/register.htm
Follow this link if you need to register for the Construction Industry Scheme http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=039zI-xtZZw
VAT registration is done on line http://www.hmrc.gov.uk/
steve@bicknells.net
Are you ready for an HMRC Employer Compliance Check?
HMRC check 30,000 UK businesses each year for Employer Compliance Checks, will it be your turn next. HMRC usually find something wrong, lets face it with the best will in the world mistakes happen – HMRC have collected £20.7bn overall in record compliance as shown in this infographic.
Why not ask a CIMA Accountant to check on Status/Employer Compliance matters we can:
- Discuss areas of concern with you
- Prepare new procedures
- Apply for Dispensations
- Help you disclose errors and reduce penalties
- Carry out a Full Risk Assessment & provide Recommendations
You never know you we might even find errors in your favour and be able to get a refund.
steve@bicknells.net
Business Accountant 