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The Risk-Based Approach – Risky business for SMEs? – Part I
HMRC (Photo credit: Images_of_Money)
The issue:
Risk-based approaches to manage Compliance Service delivery are undergoing a maturity model evolution.
This per se is not a negative issue, however, do risk-based approaches leave us exposed to more or less compliance risk?
We pose this question because a number of process advances, including technological drivers have over the past few years increased the incidence of the risk-based approach (r)evolution.
As an example, HMRC launched their risk based approach pilot scheme related to business record keeping called ‘Business Records Check‘ a few years ago (2011), only for the initiative to ‘go quiet’ and then suddenly to rear its head again late in 2013.
The facts:
From the HMRC web site, the following information was published:
By extrapolation, HMRC also publish within their background report the following table:
Next steps:
Related articles
Micro Entity Accounts – who can file them?
Micro-entity accounts are a new type of accounts that can be submitted to Companies House. They will provide the smallest companies with the opportunity to prepare and publish simplified financial statements (profit & loss account; and balance sheet) if they wish.
A micro-entity is defined as meeting two of the following criteria:
- Balance sheet total: £316,000
- Net turnover: £632,000
- Average number of employees during the financial year: 10 (or fewer)
Micro Entities are exempt from filing their profit and loss with Companies House.
Business Minister Jo Swinson said:
“Thriving micro-businesses are a vital ingredient for a stronger economy. However, because of their size they don’t always have dedicated finance teams behind them. We therefore need to make sure that they can focus on growing their business – rather than completing unnecessarily detailed paperwork.”
There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.
I don’t think this is going to help much? Micro Businesses still need to file corporation tax returns, deal with PAYE, RTI, VAT, minimum wage, Auto Enrolment Pensions, and a wide range of other requirements
steve@bicknells.net
Are you coding your VAT entries correctly?
When you enter transactions its important to use the right tax code otherwise your VAT returns are likely to either need adjustment or contain errors, but often when entering transactions your software won’t tell you what the codes mean, here is a list of Sage codes:
| T0 | Zero rated transactions |
| T1 | Standard rate |
| T2 | Exempt transactions |
| T4 | Sales of goods to VAT registered customers in EC |
| T5 | Lower rate |
| T7 | Zero-rated purchases of goods from suppliers in EC |
| T8 | Standard-rated purchases of goods from suppliers in EC |
| T9 | Transactions not involving VAT |
| T20 | Sales and purchases of reverse charges |
| T22 | Sales of services to VAT registered customers in EC |
| T23 | Zero-rated purchases of services from suppliers in EC |
| T24 | Standard-rated purchases of services from suppliers in EC |
| T25 | Flat rate accounting scheme, purchase and sale of individual capital items > £2,000 |
There are different rates of VAT, depending on the type of goods or services your business provides. At the moment there are three different rates. They are:
- standard rate – 20 per cent
- reduced rate – 5 per cent
- zero rate – 0 per cent
You can check which rate to use on the HMRC Website http://www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm
UK supplier who aren’t VAT registered would use T9 in Sage.
steve@bicknells.net
No more Class 1NI for Self Employed Entertainers
Following 18 months of extensive engagement with representatives from all fields of the entertainment industry, HMRC published on 15 May 2013 a public consultation document: ‘National Insurance and Self-Employed Entertainers’, which discussed the precise difficulties being caused by the current application of the Regulations. The consultation presented four possible options for simplifying the NICs treatment of entertainers going forwards.
The consultation ran for 12 weeks receiving 11,814 individual responses of which 99.1% supported the option of repealing the Social Security (Categorisation of Earners) Regulations in relation to the entertainers. On 23 October 2013 HMRC published a summary of the consultation responses which included the announcement of the Government’s decision to repeal these Regulations insofar as they relate to entertainers from 6 April 2014 and a first draft of the legislation implementing this.
From 6 April 2014, producers engaging entertainment performance services will not be required to deduct Class 1 NICs contributions from any payments they make to you. This includes additional use payments such as royalties. The engager will make payments to the entertainer gross of tax and NICs and the entertainer must declare these earnings as part of their normal self-employed Self-Assessment return.
Please note that this guidance does not apply if you are an entertainer on an employment contract, and receive a regular salary from your engager with tax and NICs deducted at source under the Pay As You Earn (PAYE) system.
If you engage the services of entertainers
From 6 April 2014, you will not be required to operate Class 1 NICs for the entertainers you engage. If you are currently deducting employees’ Class 1 NICs from the payments you make to your entertainers (including additional use payments such as royalties), and paying the respective employers’ Class 1 NICs on these payments, you should continue to do so up until 5 April 2014. From 6 April 2014 however you should cease to do this.
The changes will be of interest to all national broadcasters, film companies, theatre managers, independent production companies, their representative bodies and agents in the Film & TV Production Industries, Equity, individual entertainers, companies engaging entertainers, and any other interested parties.
See HMRC Brief 35/13 for more details
steve@bicknells.net
Loan Notes – A Seller’s Dilemma
When you sell your company your buyer may wish to pay part in cash and part in loan notes to be paid off from future profits. The Loan Notes are known as Qualifying Corporate Bonds (QCB’s), the dilemma is whether to claim Entrepreneurs Tax at 10% now or pay full Capital Gains Tax later.
To obtain Entrepreneurs’ Relief on a disposal of the shares (the “old asset”) at the time of the exchange, the individual may make an election for the gain not to be deferred by TCGA92/S116 (10). The effect of an election is that the gain is brought into charge at the time of the exchange so that Entrepreneurs’ Relief can be claimed in order to benefit from the 10% rate – TCGA92/S169R (2).
In the absence of an election the gain is deferred and will be charged to CGT when it accrues under TCGA92/S116 (10) (b). It would be unusual for the qualifying conditions for Entrepreneurs’ Relief to be met at the later date when the gain comes into charge.
An election under this section, like the claim for Entrepreneurs’ Relief, must be made on or before the first anniversary of the 31 January following the tax year in which the relevant transaction takes place – TCGA92/S169R (4).
So would you claim the Entrepreneurs Tax Relief and pay 10% now or possibly pay 28% later?
You could try selling your shares in stages but that might not suit either you or your buyer?
steve@bicknells.net
New case clarifies the meaning of insolvency
When a company becomes insolvent there can be serious consequences:
- An increased risk of personal claims and Directors disqualification
- Winding up petitions
- Disposal of assets will be void once a winding up petition has been made
- Banks and Lenders will enforce their security
- Termination of contracts with customers and suppliers
- Transactions entered into within the previous 2 years can be reviewed and reversed
There are two tests for corporate insolvency:
- the cash-flow test: is the company currently, or will it in the future, be unable to pay its debts as and when they fall due for payment?
- the balance sheet test: is the value of the company’s assets less than the amount of its liabilities, taking into account as-yet uncertain and future liabilities?
If the evidence proves that the answer to either of these questions is yes on balance of probabilities, then the company is deemed insolvent under English law.http://www.out-law.com/en/topics/financial-services/restructuring/corporate-insolvency-the-basics/
On the 9th May 2013 the Supreme Court ruled in the case of:
BNY Corporate Trustee Services Ltd & Ors v Eurosail-UK 2007- 3BL plc & 2 other cases [2013] UKSC 28
Lord Walker acknowledged the uncertainty that is inherent in the (Balance Sheet) test, commenting that: “it is still very far from an exact test, and the burden of proof must be on the party which asserts balance-sheet insolvency.” It will, therefore, not simply be a matter of looking at a company’s statutory balance sheet at a given moment in time as there may be relevant assets and liabilities not contained in that document. However, nor will it involve a rather more complex assessment of whether the debtor has reached the point of no return.
Further comments on the case:
It is of course true that a snapshot of a company’s balance sheet is not conclusive as to its commercial and economic viability, and to make every company in this position vulnerable to a winding-up or administration order would be unfair and uncommercial.
The Supreme Court’s decision should therefore be welcomed for clarifying that the two tests are mutually exclusive and both represent different ways of analysing whether a company is insolvent. The judgment does leave some issues unresolved, for example the correct methodology for discounting future liabilities and the timing of the accrual of future and contingent liabilities.
steve@bicknells.net
Will Temp Agencies avoid Auto Enrolment by using Postponement?
- Large employers (with 250 or more workers), have started automatically enrolling their workers and will continue to February 2014 (some employers may choose to start earlier)
- Medium employers (50 – 249 workers) will have to start automatically enrolling their workersfrom April 2014 to April 2015
- Small employers (49 workers or less) will have to start automatically enrolling their workers from June 2015 to April 2017
- New employers (established after April 2012) will have to start automatically enrolling their workers from May 2017 to February 2018
- Employers who chose to use Defined Benefit or Hybrid Schemes can delay their staging date until 30 September 2017
You can postpone the start of Auto Enrolment for up to 3 months and then re-test for eligibility using this method could mean that Temporary Staff Agencies could avoid Auto Enrolment for their temps. This also means that many agencies will use NEST because other pension schemes will not want to sign them up as they many not actually receive any contributions.
Pinsent Masons blogged:
Agency workers are different from other workers and so present particular challenges. Many are seeking work for only a short period. Many will register with a number of different agencies and will, in fact, only be ’employed’ by a particular agency for a short period. The auto-enrolment obligation applies to all workers who meet the age and earnings thresholds, but there are options which may assist those employing high churn groups of workers.
Employers can make workers wait up to three calendar months before enrolling them into a pension scheme. If the worker has left by the end of that three-month period, then there is no need to provide that worker with a pension.
If you do postpone, make sure you follow the rules otherwise there could be harsh penalties under the Pension Act 2008 Section 45
Offences of failing to comply(1)An offence is committed by an employer who wilfully fails to comply with—
(a)the duty under section 3(2) (automatic enrolment),
(b)the duty under section 5(2) (automatic re-enrolment), or
(c)the duty under section 7(3) (jobholder’s right to opt in).
(2)A person guilty of an offence under this section is liable—
(a)on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or both;
(b)on summary conviction to a fine not exceeding the statutory maximum.
steve@bicknells.net
VAT Simplified Invoices
HMRC have released an update this month to their notice on Keeping VAT records. One of these changes relates to VAT simplified invoices which were introduced earlier this year as part of the simplification and harmonisation of VAT rules in the EU. Previously only retailers were exempt from providing full VAT invoices to unregistered businesses.
However the changes mean that any business issuing VAT invoices for £250 or less (including VAT) can issue simplified invoices.
What to include in a simplified invoice:
Your name, address and VAT registration number
The time of supply (date)
A description which identifies the goods or services supplied
The each VAT rate charged, the amount of VAT charged.
How does a simplified invoice differ from a full VAT invoice:
In addition, a full VAT invoice must include:
A sequential number based on one or more series which uniquely identify the document
The date of issue (if different from the time of supply)
The name and address of the person to whom the goods or services are supplied
For each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency
The gross total amount payable, excluding VAT, expressed in any currency
The rate of any cash discount offered
The total amount of VAT chargeable, expressed in sterling
The unit price
The reason for any zero rate of exemption.
VAT invoices over £250
If issuing VAT invoices over £250, a full invoice must still be issued or a modified VAT invoice showing VAT inclusive rather VAT exclusive values.
Rebecca Taylor ACMA
If you’re in health care the tax man is coming
The latest HMRC Task Force has been named as ‘The Health and Wellbeing Tax Plan’.
If you work in a health and wellbeing profession such as:
- physical therapy – eg physiotherapist, chiropractor, chiropodist, osteopath, occupational therapist
- alternative medicine or therapy – eg homeopathy, acupuncture, nutritional therapy, reflexology, nutrition
- other therapy – eg psychology, speech therapy, arts therapy
You have until 31st December 2013 to notify HMRC and any unpaid tax has to be paid by 6th April 2014.
Health and wellbeing tax plan helpline
Telephone: 0845 600 4507
From outside the UK: +44 1792 657 324
Monday to Friday, 8am to 6:30pm
Marian Wilson, Head of HMRC Campaigns, said:
“I urge health and wellbeing professionals to take advantage of our quick and straightforward way of bringing their tax affairs up to date. Help, advice and support is available.
“After the opportunity closes on 6 April, HMRC will use information it holds from third parties and regulatory bodies to identify people who have not paid what they owe. Penalties – or even criminal prosecution – could follow.”
Do you have anything to declare? HMRC can go back 6 years
steve@bicknells.net
Self Employed Tax Allowances
Basically when you are self employed you spend money on 3 types of expense:
1. Capital Expenditure – Equipment & Vehicles
2. Business Expenditure – stock, wages, premises
3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses
In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.
For example, you could claim capital allowances on your car, if you use your car partly for private and partly for business you simply disallow a % for private use.
On other assets there is an Annual Investment Allowance which is currently £250,000 per year from January 2013.
For most business that will cover all their capital expenditure, but there are further allowances available too.
With regard to private expenditure, there are tax reliefs available for working from home
http://www.hmrc.gov.uk/incometax/relief-household.htm
If you have to spend money on tools or specialist clothing for your job you may be entitled to either:
- tax relief for the actual amounts you spend
- a ‘flat rate deduction’
http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm
steve@bicknells.net
Business Accountant 