Consultations have been taking place over the last year or so which could mean significant changes in financial reporting for companies that do not qualify as ‘small’, under current legislation.

These changes are not due to come into effect until 1 January 2015 and, therefore, will impact on accounts prepared to 31 December 2015. However, as the changes will affect comparative figures, those businesses affected will need to ensure that their balance sheets must be compliant with the new framework on 31 December 2013 (if this is their accounting year end).

Are you ready for FRSSME?

This change is not far away so finance directors and accountants should start thinking about the impact as soon as the plans are finalised.

The Financial Reporting Standard for Small and Medium Sized Entities (FRSSME) will replace UK GAAP as we know it. There are a number of significant changes from the current regime in terms of accounting treatments and disclosure requirements. In addition, there may need to be changes to some of the industry specific Statements of Recommended Practice (SORPs) which could further complicate matters.

It is expected that a revised Financial Reporting Standard for Smaller Entities (FRSSE) will be issued for those small businesses that report under that regime.

The consultation process was open until 30 April 2012. Once the proposals have been formally adopted we will of course contact our clients who are likely to be affected to discuss any changes that will impact on them and how best to deal with them.

If you have any questions about the changes, please do not hesitate to contact us.

Taxpayers have to wait almost three times longer to contact HM Revenue & Customs than they did two years ago, it has been revealed.

On average it takes just over four minutes to get through to an adviser on the phone, compared to one minute and 31 seconds in 2010. Shadow Treasury minister Owen Smith, who obtained the figures by tabling parliamentary questions, says they show “chaos and incompetence” in the system.

HMRC’s helpline is automatically answered within a few rings but callers are then given a range of options and often spend time on hold. One in four people apparently hangs up before being connected to an adviser.

Smith commented, “These costly delays are also unacceptable for families, pensioners and businesses trying to give HMRC information to ensure they are paying the right amount of tax or getting the correct level of tax credits.

HMRC ‘working hard to improve’

A HMRC spokeswoman says the department handles 60 million calls a year. “During busy periods, there will be times when customers find it more difficult to get through. We are working hard to improve contact centre service levels and have made good progress. We are managing busy periods better by deploying extra people to deal with short-term increases in demand.”

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HMRC are consulting on changing the rules on hot takeaway food to ensure that all food (with the exception of freshly baked bread) that is above ambient air temperature when provided to the customer, is standard VAT rated.

Currently the rules are complex, because if the food is hot because it has just been cooked, such as freshly baked pies or roasted chicken, these items may in certain circumstances be zero rated for VAT purposes.

This could be a blow to many in the hospitality and leisure industry. We will let you know the outcome of the consultation.

If you have a specific VAT question why not contact our team of VAT specialists.  

Or find out more about our accounting and tax services for those in the hospitality and leisure industry.

The forms P11D, and where appropriate P9D, which report employees and directors benefits and expenses for the year ended 5 April 2012, are due for submission to HMRC by 6 July 2012. The process of gathering the necessary information can take some time, so it is important that this process is not left to the last minute.

Employees pay tax on benefits provided as shown on the P11D, either via a PAYE coding notice adjustment or through the self assessment system. In addition, the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form.

HMRC have issued some guidance as to common errors on the forms in the latest Employer Bulletin. These include the following:

• Not ticking the director box if the employee is a director
• Not including a description or abbreviation where amounts are included in box A, B, L, M or N of the form
• Leaving the cash equivalent box empty
• Failing to report the full gross value of the benefit where it is provided for mixed business and private use
• Not reporting a fuel benefit where one is due.

Click here to read the full HMRC Employer Bulletin

Correct completion of forms P11D can be a complex issue. See more information on our P11D service and how we are able to help you.

If you would like any help with the forms P11D or the calculation of the associated Class 1A National Insurance liability please get in touch with our P11D Team.

Algreta Solutions, trading as ‘Catalyst’, first approached Rouse Partners as a new start up in August 2004. They sell electronic tags to retailers to prevent the theft of clothing and alcohol.

Working closely with the three business owners from the outset we were able to advise them at every step – from the cradle through to their eventual sale of the business in 2012.

The Challenge

Any new business will face its biggest challenges in its first 3 years and Algreta Solutions were no different. After all, they had entered a market with significant financial barriers to entry, fraught with established competition and in a environment of fast paced technological development.

The Rouse approach

Rouse Partners provided the support services to help Algreta run the business on a day to day level and provided the advisory services to develop a long term strategic plan to grow the business.

We built a very close relationship with the owners based on trust and shared vision for the business. In fact, Algreta even chose their first office to be located in our business centre at our Beaconsfield office which, at the time we let out as shared office space.

The outcome

Innovation and expansion to new international markets created the perfect platform for growth and in 2011 over 200,000,000 of their tags were used by retailers and clients included Tesco, Arcadia and Sainsbury’s. They had reached their goal in becoming a dominant force in the retail security tagging market in the UK and Europe.

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Growth and rising profits

With the company’s profits rising 63% a year, from an annualised £789,000 in 2008 to £3.4m in 2011, they were recognised and listed in the 2012 Sunday Times Profit Track 100. A league table which ranks Britain’s private companies with the fastest-growing profits. Companies within this league table were described by the Sunday Times as “role models for others that want to pursue growth”.

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In February 2012, they achieved their ultimate goal when the business was sold to LF Europe Limited, part of the Li & Fung group of companies for an undisclosed consideration. Again, we were able to offer our support, and provided a corporate finance service throughout the sale to help them achieve the best possible result. We liaised with legal and accounting firms in the UK and Hong Kong to manage the process with the Directors and keep it on track.

The acquiring firm, Li & Fung is a global consumer goods sourcing, logistics and distribution company, headquartered in Hong Kong and operating in more than 40 countries worldwide. Catalyst will now become part of a group which is one of the world’s biggest suppliers of goods to retailers with a sourcing network of over 15,000.

Paul Clarke Managing Director and major share holder of Catalyst said, “We have worked with Rouse Partners LLP since we started the company in 2004. At every level, be it tax advice, audit reviews, payroll or in this case working with Leighton Bower on the company sale, they were always first class and extremely professional in their approach. I have, over the years, been contacted by many other firms offering to me the services that Rouse supplied my company (Catalyst) but never would I consider making a change – why would I – Rouse deliver on what they say and over the years I have just developed an unshakable confidence in their ability. So when it came to sale of the company, using Leighton and his team at Rouse was the natural choice. I am happy to say they did not let us down – we are extremely happy with their performance and the eventual outcome”.

Commenting on the transaction, Leighton Bower from Rouse Partners said, “To have the opportunity to advise Paul Clarke and Peter Dowse on their final part of their journey from cradle to trade sale was a privilege. Made even more smoother by the experienced team at Pitmans of Adam Downey and Mark Metcalfe. Dealing with a seasoned purchaser based in Hong Kong created complex deal structures and cultural styles that had to be overcome, resulting in the need to draw upon the collective experience of the professional adviser team. It was immensely satisfying to see the culmination of many years hard work for Paul and Peter, in what is a tough and competitive industry”.

According to the latest statistics issued by the Office of National Statistics: ‘The unemployment rate was 8.3% of the economically active population, down 0.1 on the quarter. There were 2.65 million unemployed people, down 35,000 on the quarter. This is the first quarterly fall in unemployment since the three months to May 2011.’

Dr Neil Bentley, CBI Deputy Director-General, said:

‘It’s good news that 53,000 more people are in work now than three months ago, which shows that the private sector is gradually regaining confidence to hire.’

‘While this is the best jobs news we’ve had in a year, the Government must step up its welfare reform programme. Worryingly, over a third of those unemployed have been out of work for more than 12 months.’

‘With youth jobless numbers still stubbornly high, helping young people find jobs must remain a joint priority for businesses and government.’

Currently individuals can offset their entire income against income tax reliefs, and as a result pay no income tax at all. However, in The Budget 2012 it was announced that from 6 April 2013 there will be limits to the amount of income tax relief individuals can claim.

What is changing?

The cap being brought in will apply only to reliefs which are currently unlimited and will be set at 25 per cent of income (or £50,000, whichever is greater). In other words, for someone with income of below £200,000, £50,000 will be the larger figure. For someone with income above this, 25% of their income will be larger.

That means an individual with an income of £4 million will still be able to give £1 million to charity – or offset £1 million of income against their business losses – and still get full tax relief for that £1 million. Of course individuals who want to give more than 25%, or £50,000, of their income to charity will still be able to do so from their taxed income.

A consultation document on the detail of the policy, including the implications for philanthropic giving, will be published in the summer. Draft legislation will be published for consultation later this year.

What tax reliefs does this apply to?

The principal reliefs affected are loss reliefs that can be claimed against total income, qualifying loan interest relief and reliefs for charitable giving. There will also be a number of smaller reliefs which are currently uncapped that will be affected.

But the good news is the following will not be affected:

• Structural credits that acknowledge double taxation such as foreign and dividend tax credits and notional tax on life insurance gains;
• Reliefs that are already capped such as pension tax relief, front-end Enterprise and Seed Enterprise Investment Scheme income tax relief, Venture Capital Trusts and the Cultural Gift Scheme;
• Computational reliefs which determine only how income from a particular source is calculated.
• The new business investment incentive for resident non-domiciled individuals, as this does not apply as a relief against total income but rather relieves income that would not otherwise be brought to the UK and so would not be taxable in the UK anyway.
• Other avenues of relief, such as carrying losses forwards or back against profits of the same trade are not affected. For an example, consider an individual who has a total income of £250,000 under the new definition, who claims qualifying loan interest relief of £40,000 and relief for a donation of shares, valued at £25,000, to charity, and has invested £50,000 under the Enterprise Investment Scheme (EIS). As the total uncapped relief claim exceeds £50,000, a cap of 25% of income will apply. This means the total allowable uncapped relief will be £62,500. The investment of £50,000 under the EIS will be unaffected.

Why is it changing?

The Government remains committed to the principle that people investing in businesses and donating to charity should benefit from tax reliefs. However, some individuals on very high incomes have used reliefs to pay little or no tax, sometimes year after year. This Government believes it is not right that taxpayers with very high incomes should, year on year, pay little or no tax as a result of unlimited reliefs.

Other countries already restrict tax reliefs. For example the US caps the income tax relief available for charitable donations, and there is a presumption that all taxpayers should contribute to Government costs. In the US, it is not possible to reduce income tax bills to zero by making donations to charity, as is currently possible in the UK.

How will this affect UK charities?

The cap will not impact on the tax reclaimed by charities under the Gift Aid scheme. However, the grossed up donation (that is the donation made by the donor plus the tax reclaimed by charities) will be taken into account when assessing whether an individual donor has reached the cap. If the cap has been reached the donor will receive no tax relief on the grossed up donation above the cap and, as now, the donor will need to have paid enough tax to cover the tax repaid to the charity.

We can help

If you have any questions on how the new tax relief caps might affect you or your organisation please contact Manju Ghosh, our Senior Tax Manager on 01494 675321 or manju.ghosh@rousepartners.co.uk

HMRC is again urging anyone who has still not done their 2010/11 tax return to send it online before the end of April, or be charged daily penalties from 1 May.

Anyone whose Self Assessment return is more than three months late will now be charged a further £10 penalty for each day it remains outstanding, up to a maximum of 90 days. This is on top of the £100 late-filing penalty they have already received.

May Day call for tax returns

This means people who file their 2010/11 return online on or after 1 May will be liable to daily penalties, as the deadline for these was 31 January. Daily penalties for paper returns began on 1 February, as paper returns were due by the earlier deadline of 31 October.

Further penalties of at least £300 (or 5 per cent of the tax due, if that is more) will be issued for returns that are 6 and 12 months late.

We can help

If you have any questions about your tax return or meeting these deadlines, please contact our Tax Team who will be able to assist you.

The government has accepted the Low Pay Commission’s recommendations for National Minimum Wage rates from 1 October 2012.

From 1 October 2012:

• the adult minimum wage rate will increase from £6.08 to £6.19 an hour
• the youth development rate will remain at £4.98 an hour
• the 16-17 year old rate will remain at £3.68 an hour and
• the apprentice rate will increase from £2.60 to £2.65 an hour.

The Chair of the Low Pay Commission David Norgrove said:

‘Our recommendations this year are, as ever, based on extensive economic evidence and take account of the prospects for the UK economy. Although the economy is forecast to grow through 2012 and 2013, the expected pace of growth is uncertain and is likely to be low. We believe our recommendations for October 2012 balance the needs of low-paid workers against the challenges facing businesses, particularly small businesses.’

HMRC have updated their guidance on Gift Aid declarations and have developed a new checklist of the minimum information to be included in a declaration if a charity decides to create and use its own declaration form.

What are Gift Aid declarations?

Gift Aid is a UK tax incentive that enables tax-effective giving by individuals to charities in the UK. Before your charity or Community Amateur Sports Club (CASC) can claim tax back on a donation made by an individual, you must obtain a Gift Aid declaration from that individual – the donor.

The declaration must contain certain information about the donor and show that your charity or CASC has advised the donor that they will need to pay at least as much UK Income Tax and/or Capital Gains Tax for the year of donation as your charity or CASC, and any other charities and CASCs they donate to, will reclaim on their donation.

HM Revenue & Customs (HMRC) may ask to see the declarations so your charity must keep these records to support your Gift Aid repayment claims. It is important to remember that every donation included in a claim must be supported by a Gift Aid declaration.

Gift Aid declarations – what has changed?

The previous guidance stated that the four-year time limit for making claims also applied to the retention of records. This is incorrect – records need to be kept for at least six years.

HMRC have apologised for this error and realise that charities may have relied on this guidance, and may have already destroyed some records over four years old. However, if records for this period have been destroyed based on previous guidance, HMRC will not penalise charities for not having the full six years’ worth of records, if they ask to see them. For those charities that have kept records for between four and six years, these records do now need to be retained for the full six-year retention period.

Below are the minimum requirements for a Gift Aid declaration and for sponsored events declarations:

Checklist ‐ minimum requirement for a Gift Aid declaration

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ü Name of charity or CASC

ü Amount of donation

ü Donor initials and surname

ü House name/number and postcode

ü Date

ü Statement or tick box confirming the amount should be treated as a Gift Aid donation

ü Does declaration cover present/ future/ past donation(s)?

ü Does declaration include a confirmation donor was given explanation that they must have paid enough Income Tax and/or Capital Gains Tax to cover the amount that all charities and CASCs they donate to will reclaim for that tax year? Council tax and VAT do not count and the donor understands the charity will reclaim 25p of tax on every £1 that they have given (28p on every pound given for donations up to 5 April 2008)

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Checklist – minimum requirement for sponsored events declarations

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ü Name of Charity or CASC

ü Sponsor’s name ‐ as a minimum initial and last name

ü Sponsor’s home address ‐ as a minimum the house number/name and postcode

ü Amount collected

ü Date collected

ü A tick box to have the amount treated as a Gift Aid donation

ü Date when the sums collected were handed over to your charity or CASC

ü Does declaration include a confirmation sponsor was given explanation that they must have paid enough Income and/or Capital Gains Tax to cover the amount that all charities and CASCs they donate to will reclaim for that tax year? Council Tax and VAT do not count and the sponsor understands the charity will reclaim 25p of tax on every £1 that they have given

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