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It’s not uncommon for Directors and Senior Employees to get behind with their expense claims and paperwork, they are busy people trying to build their businesses and sometimes the paperwork gets put to one side.
But lets consider the recent HMRC case against the Directors of RSL (NorthEast) Ltd. Mr White was Director of RSL and he had a company credit card which he used for business and personal expenses, he travelled extensively on company business. Unfortunately RSL became insolvent, so HMRC assessed Mr White on credit card expenses as a benefit in kind.
Mr White appealed on the basis that he had lent the company large amounts of his own money and any credit card expenses were just a reimbursement.
- “Section 203(2) ITEPA does not grant any right to retrospectively make good a benefit. Income tax is an annual tax, and the value of the benefit depends upon what is made good in that tax year.”
- “Any “rewriting” [to reflect the money reimbursed to RSL] would have a retrospective effect on the Company accounts.” HMRC implied that this would not be allowed.
HMRC won the case, but mainly because the accounts were in a terrible shambles!
What can we learn from this?
- Keep good records, don’t put off doing your accounts!
- If you do get behind you do a have a ‘reasonable time to make good’ as noted in HMRC’s manuals http://www.hmrc.gov.uk/manuals/eimanual/EIM21121.htm
If you have not yet filed Annual Accounts for a CIC (Community Interest Company), then please be aware that the process and procedures for filing the Annual Accounts at Companies House is different from normal electronic filings.
Firstly you cannot file electronic Annual Accounts.
Guidance is published here at the Companies House web site (or click the Companies House logo below).
In order to file the Annual Accounts you will need to prepare a form CIC 34 which can be downloaded from the link.
The completed and signed (by a director or company secretary) CIC 34 form, together with a printed copy of the Annual Accounts and a £15 filing fee must be sent to Companies House well in advance of the filing deadline. This is to avoid any late filing penalties, should Companies House reject the initial filing and you need to make any amendments that might be necessary in order to re-file the Annual Accounts.
Companies House officials were not yet able (during April 2015) to provide us with information as to when the electronic filing of CIC Annual Accounts will be possible.
Hence, just like filing Limited Liability Partnership Annual Accounts, the traditional hard copy and postage paid (preferably recorded delivery) or handing in the documents at a Companies House official Contact Centre office location, is still the only way to get the Annual Accounts filing compliance check done, for the time being.
©3resource – 2015
Its time to review your subscription to company information databases!
Companies House is to make all of its digital data available free of charge. This will make the UK the first country to establish a truly open register of business information.
As a result, it will be easier for businesses and members of the public to research and scrutinise the activities and ownership of companies and connected individuals. Last year (2013/14), customers searching the Companies House website spent £8.7 million accessing company information on the register.
Until it becomes free in 2015, you will still have to pay
|Companies House WebCHeck||Charges|
|Company record report||£1|
|Current appointments report||FREE|
|Monitor Service (per company, per year)||FREE|
This change will come into effect from the second quarter of 2015 (April – June).
Limited Liability Partnerships came under closer scrutiny in the Budget 2013. The aim is to target LLPs which use the structure to hide the employment relationship of the partners and those with Corporate partners who divert business profits to the corporate partners in order to avoid tax.
Although the following measures come in to play from 6th April this year, the anti-avoidance measures make it effective from 5th December 2013. This is to prevent partnerships changing their arrangements in order to avoid the new rules.
The two main areas of focus are salaried or fixed profit share partners which is referred to as disguised employment, and profit and loss sharing arrangements within mixed partnerships.
LLP partners with fixed profit share
HMRC believe that many members of an LLP should be taxed as employees, because they don’t see them is true partners.
A new test has been brought in which has three conditions. Where the member tested meets all three conditions then he or she must be treated as an employed salaried member and be brought within the PAYE system with tax and class I NIC applied to any earnings, which had previously been Taxed as profit share.
This also means that if a vehicle is provided for the members use by the partnership this will be taxed as a benefit in kind. As such the member will have to pay tax and NIC and the LLP will have to pay Class 1a NIC on the benefit.
HMRC does actually accept that employment tax rules are imposed on the individual but that in fact the individual has no employment rights. This is because he is not actually an employee for employment law purposes.
The test is as follows. The provision is triggered when all conditions A to C are met:
Condition A: The Member is performing services for the LLP in his capacity as a member of the partnership and it’s reasonable to expect as a result of these arrangements that any amounts paid to him in respect of his services will be wholly or substantially wholly a disguised salary. In other words if his reward package is comparable to that received by an employee, either a fixed salary or a variable bonus based on performance rather than profit share.
Condition B: The Member doesn’t have significant influence over the affairs of the partnership.
Condition C: The Member’s capital contribution to the LLP is less than 25% of the total amount of his disguised salary which would be expected to be paid in the relevant tax year by the LLP in respect of the members performance of services as a member. Normally the relevant time would be the beginning of the new tax year.
These tests must be reviewed each tax year.
Corporate LLP Members
This applies to partnerships who have members which are not subject to UK income tax for example this might be a limited company. The problem here is that HMRC believes these structures are used to avoid tax on a very large scale. Where for example an individual member introduces his Ltd company as a corporate member, and which then receives a profit share that would otherwise have been paid to the individual member. If the Member then has the power to enjoy the fund which had been paid to his company then:
- The individual member will be treated as a salaried member.
- The amount paid to the company will be treated as employment income paid to the individual member.
There are anti-avoidance rules are in place to catch anyone trying to put measures in place to counteract these new rules.
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
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.
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.
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.