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Repay your debts sooner and save money
Order your debts
My advice is straightforward and you will have seen it before, but it is probably one of the easiest ways for individuals and companies to save money. If you have any debts make sure you know which has the highest rate of interest. If you are in a position to repay debt, you should pay off your most expensive loans first. For individuals this is likely to be store cards or credit cards, followed by other unsecured lending to banks in the form of an overdraft.
Even with historically low base rate from the Bank of England, you can pay between 30% and 40% interest a year on store card and credit card purchases.
Maintain minimum payments
For the remainder of your debt, make sure you keep up your minimum payments. Failure to do this may mean additional charges are added to the debt and may affect your credit score.
Check for forgotten accounts
If you have a balance in your PayPal account or your energy supplier you are lending money free of charge. You might be relaxed about this, but while you are paying interest on your own debts you are much better getting the balances transferred to your lenders. Clear out any long term balance from PayPal etc and check your statements from your energy suppliers and any other suppliers to arrange for overpayments to be refunded.
Example
Let’s say you have a balance on your credit card of £200, which you are repaying at £5 a month. The table below shows the total interest you will pay and the time taken to repay the entire balance. At an annual interest rate of 32% (2.34% monthly interest) you will pay nearly £395 in interest on your original purchase of £200 and it will take nearly 10 years to pay the whole balance back. If the annual interest rate rises to 35% you monthly interest would be more than the £5 monthly payment and you would never pay your original £200 off.
| Annual Interest | Total Interest £ | No of months to repay loan |
| 32% | 394.82 | 119 |
| 29% | 259.65 | 92 |
| 20% | 111.85 | 63 |
| 14.9% | 70.75 | 55 |
So – if you happen to have £200 in your PayPal account that you had forgotten about at the same time as a £200 credit card balance, you could transfer the cash, pay off your credit card balance and save yourself between £70 and £395!
Manage your cashflow
Work out how much cash you actually need for your day-to-day needs. It is likely that you are receiving little or no interest on cash in the bank. If you are confident that you have surplus cash, use it to pay down any debts you have – but start with the expensive debt don’t share it out equally between the different debts you have.
For support and advice on restructuring and paying off debt contact Alterledger or visit the website alterledger.com.
Financial Reporting – Strategic Report – Part I
In the excitement of an economic outlook rising like the incoming tide during the last quarter of 2013, together with the ‘silly season’ most of us would probably have missed Statutory Instrument No. 1970 – The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, and off course you would be forgiven for it. This particular statutory instrument made the duty to provide a Strategic Report a part of UK financial reporting legislation.
To most us the update to the Companies Act 2006, Part 15 – Accounts and Reports, will not have any impact, if our our daily task is that of preparing annual statutory financial accounts for approval by the board of directors of a UK incorporated company. This is because under section 414B of the Act, an exemption applies as follows:
* Quotes and references (sections) to the Companies Act 2006 available from Companies House
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
High Income Child Benefit Charge
The High Income Child Benefit Charge (HICBC) is a tax charge which repays part of the child benefit received by high earners earning over £50,000 to a 100% repayment for those earning over £60.000. It applies to child benefit received from 7th January 2013.
Who does it affect?
You may need to pay a tax charge if:
- you have an individual income over £50,000
- and either you or your partner receive Child Benefit or someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.
It doesn’t matter if the child living with you is not your child.
What do you need to do?
If you are affected by the tax charge, you can:
- Stop receiving the Child Benefit (only recommended if you’re adjusted net income is over £60k). Follow this link for how to do this.
- Carry on receiving the benefit and pay any tax charge at the end of the tax year.
How to calculate adjusted net income?
It is important to realise that the income used to calculate the tax charge is your adjusted net income. You can use the calculator on Gov.uk to work out your adjusted income.
How to pay the tax charge
If the tax charge does apply to you, you will need to submit a self-assessment return to HMRC by 31st January following the end of the relevant tax year. Do not rely on HMRC writing to tell you that you need to submit a return as they may not realise you need to. Normal self-assessment penalties apply if returns are late or incorrect.
How much do you need to pay?
The charge is 1% of child benefit received for every £100 of income over £50,000 of adjusted net income. The charge will never be higher than the amount of child benefit received and if the income is over £60,000 the amount paid back to HMRC will be equal to the benefit received.
Rebecca Taylor ACMA
Fake email alerts from HMRC and Companies House
Fake email alerts from Companies House and HMRC have become increasingly sophisticated. There was a time when it was relatively easy to spot a fake email alert but even accountants have been caught out by recent fake email alerts. And it isn’t just Companies House and HMRC. Be careful of emails from banks, other institutions, postal services, voicemail services and even Skype. Previously harmful emails have tried to direct you to a fake website to steal your personal details but these recent emails have attachments which could harm your computer.
What to look for
These fake email alertss have an attachment which appears to support details in the email message. For example, it could claim to be a customer complaint from Companies House, a missed delivery or a bank transaction. The email address could give you a clue that it is a fake email alert but many now look like they have come from a genuine email address. Some fake emails have footers which have been obviously copied from another email. If you are not expecting an email from the sender, think twice before opening any attachments, particularly .zip files.
Why
These emails are all trying to get you to do one thing: open the attachment. The attachment invariably contains malware or a virus and will either damage your computer, steal your details or even demand a ransom (see an article from the National Crime Agency on Cryptolocker).
Advice
The National Crime Agency provides this advice:
This is a case where prevention is better than cure.
- The public should be aware not to click on any such attachment.
- Antivirus software should be updated, as should operating systems.
- User created files should be backed up routinely and preserved off the network.
- Where a computer becomes infected it should be disconnected from the network, and professional assistance should be sought to clean the computer.
- Various antivirus companies offer remedial software solutions (though they will not restore encrypted files).
Example of fake emails
Follow the links for some examples of fake emails:
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
Life after submitting a tax return
You’ve completed your tax returns, you think you can now breathe a sigh of relief, but can you?
HMRC can inspect any taxpayer’s records under Schedule 36 by FA08, FA09 and FA10. They can check the tax records for:-
Pay as You Earn (PAYE)
Value Added Tax (VAT)
Income Tax (IT)
Capital Gains Tax (CGT)
Corporation Tax (CT)
Insurance Premium Tax (IPT)
Inheritance Tax (IHT)
Stamp Duty Land Tax (SDLT)
Stamp Duty Reserve Tax (SDRT)
Petroleum Revenue Tax (PRT)
Aggregates Levy (AGL)
Climate Change Levy (CCL)
Landfill Tax (LFT) and
Bank Payroll Tax (BPT)
The technical term for the inspection is a Compliance Check. They will check that the tax payer has:-
- Complied with their obligations
- Paid the correct amount of tax and at the right time
- Claimed the correct reliefs and allowances
The inspection
This can be completed by anything from a short telephone call to confirm a single fact, to a detailed investigation of a person’s entire financial affairs over a period of years.
HMRC may undertake checks by either asking for information or documents or by arranging a meeting or visit.
They may:
- Require taxpayers by notice in writing to provide information and produce documents (a “taxpayer notice”)
- Require third parties by notice in writing (for example a supplier or bank) to provide information and produce documents (a “third party notice”)
The caveat being that these requirements are reasonable for the purpose of checking a tax position. The generic term for these types of notice is information notice.
The recipient has the protection of a right of appeal to, or prior approval by, an independent tribunal. There is no right of appeal however where the notice only refers to information or documents that form part of a taxpayer’s statutory records, or any person’s records that relate to:
- The supply of goods and services
- The acquisition of goods from another member state, or
- The importation of goods from outside the European Union (EU) by a business
If the taxpayer is not forthcoming with the information, HMRC may invoke their statutory powers to obtain them.
They may also request assistance with aspects of a tax check from other government departments.
This could include a situation where there is reason to believe that a taxpayer:
- did not notify chargeability to tax
- did not register for VAT if required, or
- is operating in the informal economy
Restrictions on Information Powers
The taxman is not all-powerful; some safeguards have been installed, set out in the law and with guidance so that in carrying out compliance checks
- HMRC’s powers are used reasonably and proportionately
- Taxpayers are clear about when a compliance check begins and ends
- Officers have no right to enter any parts of premises that are used solely as a dwelling, whether to carry out an inspection or to examine documents produced under an information notice. They can, however, enter if invited
- FA09 adds to Sch 36 FA08 a power to inspect all property for the purpose of valuation (for direct taxes purposes). This requires either the taxpayer’s agreement or Tribunal approval
- Unannounced visits will only be made where agreement has been given by an authorised officer
Other safeguards include the fact that officers can’t require certain things to be provided:
- Information relating to the conduct of appeals against HMRC decisions
- Legally privileged information
- Auditors or tax advisers advice to a client about their tax affairs
- Information about a person’s medical or spiritual welfare
- Journalistic material
Time constraints
- Information over six years old can only be included in a notice issued by or with the approval of an authorised officer
- HMRC cannot give a notice in respect of the tax position of a dead person more than four years after the person’s death
The Power to Visit Business Premises and Check Assets and Records
Inspection powers allow an officer of HMRC to enter business premises and inspect the premises, business assets and statutory records.
If an information notice has been issued earlier, the documents required in that notice could be inspected at the same time.
FA09 incorporates into Schedule 36 inspection powers in respect of the:
- business premises of Involved third parties
- valuation of premises for Income Tax or Corporation Tax
These inspections:
- must only be undertaken where it is reasonably required to establish the tax position and
- will normally be by prior arrangement, the date and time being convenient to the taxpayer
The Power to Visit Business Premises and Check Assets and Records
Inspection powers also allow any officer to enter any premises when they believe the premises are to be used in connection with taxable supplies of goods or taxable acquisition of goods from Member States, and such goods or documents relating to such goods are on the premises.
There is no right of appeal against an inspection but the occupier can refuse entry and prevent the inspection from being completed.
The occupier can be penalised for such obstruction, where the inspection has been approved by a Tribunal.
There may be occasions when a pre-arranged visit will be inappropriate, for example where there is a strong risk that the taxpayer would move the business or remove stock or other assets. In such cases, an unannounced visit may be undertaken subject to prior agreement by an authorised officer.
If a formal statutory approach is needed, and it has not been possible to agree the time of inspection and give written confirmation, the inspection must be approved by a Tribunal and 7 days written notice of the time of the inspection given. The application for approval must be made by, or with the approval of, an authorised officer.
When a Penalty can be charged where a person:
- Fails to comply with an information notice
- Conceals, destroys or otherwise disposes of documents required by an information notice
- Conceals, destroys or otherwise disposes of documents that they have been notified are, or are likely to be, required by an information notice
- Deliberately obstructs an inspection that has been approved by the Tribunal.
- In complying with an information notice provides inaccurate information or produces a document that contains an inaccuracy,
- Fails to comply with a notice requiring contact details of a tax/duty debtor to HMRC.
These rights are covered in sections 38 FA 08 and 09
Types of Penalties
There are four types and amounts of penalty:
- An initial penalty of £300
- A daily penalty of up to £60 for every day that the failure or obstruction continues after the date the initial penalty is assessed
- A tax-related penalty
- A penalty not exceeding £3000 for providing inaccurate information or documents in response to an information notice
A tax-related penalty is in addition to the initial penalty and any daily penalties. The amount of the penalty is decided by the Upper Tribunal having regard to the amount of tax which either has not, or is unlikely to be, paid by that person.
A person is not liable to a penalty if they have a reasonable excuse for:
- Failing to comply with an information notice, or
- Providing inaccurate details or documents, or
- Deliberately obstructing a tribunal approved inspection
If they correct their failure as soon as the excuse ends, the excuse will then be treated as continuing until the correction is made.
Normally, daily penalties will not be assessed after the failure has been remedied.
Record Keeping
Schedule 37 of FA08 amended existing record keeping legislation in respect of PAYE, VAT, IT, CGT and CT, whilst Schedule 50 to FA2009 extends this approach to IPT, SDLT, AGL, CCL, and LFT with BPT being included from 8 April 2010. Following consultation it was accepted that SDRT and PRT did not require separate statutory provisions, whilst IHT will be addressed through guidance.
These provisions are aimed at alignment and clarification.
This approach is designed to be flexible across a range of business and non-business taxpayers.
There are penalties for failure to keep adequate records.
The basic requirements in relation to record keeping have not changed but rules have been aligned on how long records are kept.
niall@odfinancialservice.co.uk
15 ways to improve profitability
Profit is vital to every business, what is the point of being in business if you don’t make a profit?
So here are my tips on how to improve your profitability:
- Weed out loss making products, clients and departments – concentrate on high margin products and services
- Reduce Employment Costs – use Freelancers instead of Permanent Employees where appropriate
- Use Virtual Communication Technology – meetings can be held over the internet with Skype or other systems, it will cut traveling time and costs
- Use Social Media and Networking – marketing can be costly and the results can be hard to measure, use your contacts to generate leads and sales and always ask for referrals
- Increase Productivity – eliminate wasteful and unnecessary processes, I was told it used to take 17 people in the NHS to change a light bulb on a hospital ward (requisitions, approvals, payments, changing the bulb…) the solution to cut wasted processes was to keep a stock of bulbs on the ward
- Negotiate with suppliers – always look at ways to reduce cost including using alternative suppliers
- Understand your clients requirements – the client knows what he wants and what represents value, if you deliver value you will get more business
- Seek add on sales – what other products or services might be useful to your existing clients
- Keep an eye on your competitors – competitor analysis will enable you to understand differences in price, distribution, market and demand
- Find New Markets – use market research to expand into new areas
- Decrease Overheads – analyse all of your overheads including Rent, Rates, Utilities – could you sub-let part or your premises or reduce waste
- Reduce Stock Levels – can you turnover your stock more quickly or buy to order
- Improve your Cash Cycle – reduce slow payment by debtors, invoice promptly and settle disputes quickly
- Invest in Technology – automate processes with ERP systems
- Use Key Performance Indicators – KPI’s help you achieve your goals
steve@bicknells.net
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
Mind the GAAP
Thanks to http://www.freedigitalphotos.net
There are changes afoot and much is being made of ‘FRS 102’ and ‘new UK GAAP’, so in an effort to understand what all the fuss is about, and how it will impact on a small accounting practice with a client base firmly in the SME sector, I have dragged myself off to seminars and scoured t’Internet, and what follows is a brief summary of my understanding to date of these changes.
If you can put further flesh on these bones or correct misunderstanding then please feel free to comment.
First a little terminology:
- “IFRS Foundation”: an independent, not-for-profit private sector organisation.
- “IASB”: International Accounting Standards Board is the independent standard-setting body of the IFRS Foundation.
- “IFRS”: International Financial Reporting Standards which are designed to be global standard so that company accounts are understandable and comparable across international boundaries.
- “IFRIC”: International Financial Reporting Standards Interpretations are the official interpretations of IFRSs.
- “IAS”: International Accounting Standards are international financial reporting standards that were created by the predecessor body of the IASB and form part of the body of IFRS requirements.
- “SIC”: the official interpretations of the IASs.
- “IFRS for SMEs”: a self-contained standard of 230 pages, designed to meet the needs and capabilities of small and medium sized enterprises (SMEs) and includes simplified language and fewer disclosure requirements (expect to be aligned with FRS 102 in due course).
- “SMEIG”: SME Implementation Group is an advisory body to the IASB, is providing recommendations to the IASB in connection with IFRS for SMEs.
- “Small Company”: organisations with up to £6.5m turnover, £3.26m assets, and 50 employees (to be revised to £10m turnover etc. under new EU directive).
- “Micro Company”: companies with up to £632k turnover, £316k assets, and 10 employees.
- “UK GAAP”: Generally Accepted Accounting Practice in the UK is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom.
- “ASB”: UK Accounting Standards Board which is the body responsible for publishing accounting standards and other guidance.
- “FRS”: Financial Reporting Standard.
- “SSAP”: Statements of Standard Accounting Practice.
- “UITF”: Urgent Issues Task Force of the UK Accounting Standards Board (now disbanded).
- “SORP”: Statement of Recommended Practice for charity accounts and reports.
- “New UK GAAP”: new reporting standards applicable from 1st January 2015 (latest) comprising
- “FRS 100”: Application of Financial Reporting Requirements which sets out the overall reporting framework.
- “FRS 101”: Reduced Disclosure Framework which permits disclosure exemptions from the requirements of EU-adopted IFRSs for certain qualifying entities.
- “FRS 102”: the Financial Reporting Standard applicable in the UK and ROI which replaces all existing FRSs, SSAPs and UITF Abstracts.
- “FRS 103”: the Financial Reporting Standard for insurance companies.
- “FRSSE”: the Financial Reporting Standard for small company accounts includes reduced reporting requirements (anticipate this may be phased out in due course).
Phew! so which standard do I use?
Listed company consolidated accounts: must use IFRS
Listed company parent/ subsidiary accounts: either IFRS or UK GAAP (FRS 102)
Other companies: either IFRS or UK GAAP (FRS 102)
Small (& micro) companies: either above or IFRS for SMEs or FRSSE
Charities: must use UK GAAP (FRS 102 or FRSSE) and the new Charities SORP
So in particular, what is FRS 102?
- for medium and large companies is similar to IFRS but reduced disclosure requirements
- allows ‘amortised cost’ or ‘fair value’ methods of valuation except equities held which which must be at fair value
- investment properties should be valued at far value via the P&L where possible but depreciated costs allowable if fair value involves undue cost or effort
- allows goodwill to be amortised rather than applying impairment method
- no ‘indefinite life’ option for goodwill
- other intangibles to be recognised separately from goodwill
- greater regulation of hedge accounting such as forward currency contracts
- option to use IAS 39 (which outlines the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items)
- deferred tax to be provided on revaluations
- government grants can be recognised immediately or accrued and matched with costs
- holiday pay entitlement must be accrued where holiday not taken
- disclosure of total lease commitment (i.e. note on operating lease liability)
- cash flow statement required
- reduced reporting for small companies which will no longer be required to include a director’s report, analysis of income
New EU Directive
From 1st September 2013 micro companies can report a greatly simplified balance sheet (and P&L) and are not required to provide notes and analysis on most balance sheet items, but must still include details of directors’ loans.
HM Revenue & Customs
All the above deal with reporting for public record; there are no changes on reporting requirements to HMRC at this time, so from a parochial point of view, is this going to make any real difference?
Paul Driscoll is a Chartered Management Accountant, a director of Central Accounting Limited, Cura Business Consulting Limited, Hudman Limited, and AJ Tensile Fabrications Limited, and is a board level adviser to a variety of other businesses.
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