The lack of available finance in the economy has meant that businesses are increasingly looking to their suppliers for credit. 

The result of this for many SME’s is a build of trade debtors (and a wide range of excuses given to their credit controller). With this backdrop, it is fundamental for SME businesses to recognise the early warning signs of debtor problems – for example:

• industry rumours that the debtor is experiencing financial difficulties
• debtor’s sector adversely affected by macro-economic trends (such as those experienced by retailers over the last year)
• payment terms change/payments are missed
• management at the debtor become elusive and do not return calls/other correspondence.

Late invoices should be flagged to senior management as soon as they become overdue. Unless it is an immaterial figure, the account should then be reviewed weekly – the likelihood of collecting an account reduces as each day passes.

In my next blog I will provide some ‘best practice’ guidance on how to manage slow paying accounts.

Julian Dobbin is a partner at Mercer & Hole. The views given in this blog are personal to the author.

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Under the 1985 Companies Act, medium sized groups were exempt from preparing consolidated accounts. This exemption has been abolished in the 2006 Companies Act – effective for accounting periods beginning 6 April 2008.

This means that a time consuming consolidation process needs to be undertaken for a new tranche of companies, causing more accountants in the UK to experience the usual problems with goodwill calculations, intra-group trading, translation differences etc.

As a reminder, the size parameters for medium groups were changed to:

Net turnover - £6.5m to £25.9m
Gross turnover - £7.8m to £31.1m
Net balance sheet - £3.26m to £12.9m
Gross balance sheet - £3.9m to £15.5m

Any businesses which have subsidiaries should review this situation – it can be worth restructuring the group to avoid incurring the time and costs involved in the consolidation procedure.

Paul Maberly is a partner at Mercer & Hole – please click here for contact details.

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Some financial thresholds on charity accounts have been amended for financial years ending on or after 1 April 2009. 

The main changes are:

• A charity is required to send a copy of its accounts and trustees’ annual report to the Charity Commission if its gross income is more than £25,000 (increased from £10,000), (the Charity Commission is likely to introduce some form of sampling for charities with income between £10,000 and £25,000 so that small charities cannot assume that submission of their documents will never be required).
• External scrutiny of the accounts will only be required where a charity has gross income of more than £25,000 (also increased from £10,000).
• Unincorporated charities with income over £250,000 must prepare accrual accounts (increased from £100,000).
• A full audit is now required where:
  • Gross income is more than £500,000 (unchanged).
  • Gross income is more than £250,000 (increased from £100,000) and total assets are more than £3.26 million (increased from £2.8 million).

Comment on changes to charity thresholds in the space provided below, or visit my profile for details of how to contact me. 

Wendy Brambrick is a General Practice Manager and charities and not-for-profit expert at Mercer & Hole. 

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Just as a reminder Companies House has now increased the penalties for late filing of accounts on or after 1 February 2009. It is the actual filing date which is relevant, not the original due date, i.e. accounts which were due before 1 February 2009 will still attract the new penalties if filed on or after that date.

For private companies or LLPs, the penalty for filing up to a month after the due date will be £150 (increased from £100). But the penalty then escalates so that accounts more than six months late incur a penalty of £1,500. Full details can be found on the Companies House website.

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HM Revenue & Customs have announced a change in their interpretation of research and development (“R&D”) allowances available to companies that cease to meet the criteria for small and medium enterprises (“SME”) during an accounting period.

The current position is that a company which is an SME for any part of an accounting period will be treated as an SME throughout that period, irrespective of whether it merges its activities with other companies, or is bought by a large company, at some point during that year.

The Revenue’s announcement effectively reverses this agreed practice.

The Revenue’s view is that, with effect from 1 December 2008, any company ceasing to be an SME, either because it is taken over or merges with another company, will be regarded as a large company throughout that accounting period.

The R&D allowances available to SMEs are generally much more generous than those offered to large companies and it is possible that deferring an agreement by a few days, or changing a company’s year end, might be beneficial.

The criteria for SMEs are as follows:-

• fewer than 500 employees; and either
• annual turnover of less than €100m; or
• total assets below €86m.

Where the company is part of a group, these limits apply to the whole of the group.

If you fear that this may affect you – and would like to discuss both the possible implications and how you might lessen the impact of this change in interpretation – please contact Cathy Corns or me.
 

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Audit and independent examinations

The audit threshold for unincorporated charities has increased!
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Charitable Incorporated Organisations

Did you know incorporated charities have to comply with the requirements of both the Charities Commission and Companies House?

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Extended exemptions for certain medium-sized companies

With the accounting environment currently buzzing with talk of deregulation, the new Companies Act 2006 and lower compliance costs, the European Commission have also joined the band-wagon.
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This blog follows on from my last post.

As companies move between SME accounting thresholds, the reporting structure and contents of financial statements changes.
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The European Commission have recently published some documentation that is aimed to significantly simplify the business environment that EU companies face. They revolve around reducing reporting and auditing requirements for SMEs, simplifying disclosure requirements, and convergence. Continue Reading...

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There are some important changes to the Construction Industry Scheme (CIS) starting this month:- Continue Reading...

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Companies pay corporation tax at 20% on the first £300,000, right? Wrong! A company pays at 20% of the first £300,000 divided equally between it and its associates.

Companies are associated where:

·         one of the companies has control of the other, or

·         both of the companies are under the control of the same person(s).

A person controls a company if he is entitled to >50% of:

·         the share capital, or votes;

·         the distributions to shareholders;

·         the assets on winding up (this includes loan creditors).

The problem is that when looking at control you have to take account of a person’s associates. These are:

·         spouse (includes separated, but not divorced) and civil partner

·         parents, grand parents and remoter forebear

·         brother or sister, including half siblings (but not step, aunts, uncles or cousins)

·         partner (as in a business partnership)

·         settlements and will trust associates; - trustees are associated where the individual, or any living or dead relative is or was the settler; and where the individual is interested in a settlement, then beneficiaries, remainder men and trustees are associates.

Under self-assessment it is your responsibility to make sure your company pays the right amount of tax.

So – are you sure you know all your company’s associates?

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Draft regulations published by BERR (did you know this is the new name for the DTI?) have outlined increases in the size criteria for audit exemption. These are proposed to be effective for financial years beginning on or after 6 April 2008

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Below is a brief update on the Arctic Systems case from Lisa Spearman, Mercer & Hole Partner and Tax Plus Blog contributor.

An announcement has been widely expected and commented on in this and other blogs following on from the Revenue’s defeat in the House of Lords. This is a case of the dog that didn’t bark or at least not yet.

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The Chancellor of the Exchequer, Alistair Darling, will be presenting his 2007 Pre-Budget Report and the outcome of the Comprehensive Spending Review on the afternoon of Tuesday 9th October.

I will post details of important announcements here shortly after the end of his speech.

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With the increase in company fraud involving the lodging of forged statutory forms with companies house it is now important that every company considers using internet filing to ensure it keeps its statutory details up to date and “safe”.

Applying for internet filing is straight forward. Go to Continue Reading...

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When completing the audit of one of my clients this week we noticed that the company’s registered office address had mysteriously changed. 

My surprised client had never heard of the address some 50 miles away. We obtained a copy of the signed form 287 from companies house and it became apparent that the director’s signature had been forged

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The House of Lords issued their judgement in the case of Jones v Garnett (also known as the “Arctic Systems Ltd” case) on 25 July 2007. To much rejoicing the case was decided in favour of Mr and Mrs Jones. However, the Revenue is a bad loser.

On 26 July a written Ministerial statement was issued by the Exchequer Secretary to the Treasury, announcing the intention to change the law.

Using the standard “the Government is committed to maintaining fairness in the tax system” statement the Government now believes it needs to do something to “ensure that there is greater clarity in the law regarding its position on the tax treatment of income splitting”. Actually, in my opinion, the law is now clear – it may not say what the Revenue wants it to, but that is unfortunate (for them) rather than unclear.

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The long awaited decision on Arctic Systems

This all seems to have been going on for so long you may need reminding of what all the fuss is about; so

- Mr and Mrs Jones ran a small IT company of which Mr Jones was the sole director. They each owned one share in the company took a small salary and extracted the majority of their required funds by way of dividend. These, of course, were paid in line with the shareholdings, on a 50:50 basis.

Nothing out of the ordinary there so what was the problem? It seems to be that Mr Jones paid tax at higher rates and Mrs Jones did not. HM Revenue & Customs (HMRC) argued that the settlements legislation should apply to the dividends paid to Mrs Jones such that they should actually be taxed (at the higher rate) on Mr Jones.

The Special Commissioners and the High Court (April 2005) agreed with HMRC, however the Court of Appeal (December 2005) rejected HMRC’s argument.

The result of all this is that there has been significant doubt about the correct tax treatment and obligations to report income and dividends in such circumstances.

The House of Lords unanimously decided in favour of the taxpayer. The key issue appears to be that an ordinary share is not “wholly … a right to income” and therefore the dividends are not caught by the settlements legislation.

This represents a resounding success for taxpayers and gives them back the right properly to plan their affairs in companies and partnerships.

If you were waiting for this judgement to instigate any planning or indeed need help on amending returns for earlier years, please contact any member of our tax team

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After the media reports that around a million people are paying the wrong amount of tax this may not be the perfect time for HMRC to propose they are given an automatic right to collect unpaid (in their opinion!) tax by various measures including offset from other tax credits or repayments; direct from bank accounts; or by set off from salary - all without the need for any court order. Apparently, they say, this will reduce collection costs and bring forward payment dates. I have to say I believe that statement is accurate. I do also have to say that without a hearing you – the taxpayer – will have no right to defend your position.

Are HMRC always correct in the amounts of tax they request? Patently not, but if the tax is forcibly extracted from you how hard will it actually be to get it back? I accept that legally possession is not really 9/10ths of the law but in practise possession is, even if only temporarily, 100% entitlement! HMRC say that they will employ their powers responsibly; I am tempted to point out that they would say that or they may not get them.

Just imagine Continue Reading...

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I have previously ‘blogged’ about the impact of the new Act.

I read the article below with interest earlier this week.  It seems as though Directors are now obligated to have regard to several 'corporate social responsibility' aspects, including the likely

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The new Companies Act, which comes into force later this year, changes the strict ruling on when a filing deadline ends. Under the Companies Act 1985, a company’s filing deadline was strictly 10 months (private co) 7 months (public co) after its year end so that for a private company with a 28 February year end the latest filing date was 28 December (and not the 31 December). Many companies (and accountants) assumed that it was the end of the tenth month by which they had to file with Companies House and this led to the Registrar of Companies imposing numerous penalties.

Under the new rules if your year end is the end of a month then the filing deadline becomes the end of the relevant month either 6 or 9 months later. Good news if your year end is February, April, June, September or November.

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With the audit turnover threshold at £5.6M many companies no longer need a statutory audit.

However, many still choose to so as they see the annual scrutiny by qualified accountants as a good housekeeping measure which also provides them with financial statements that are perceived even more reliable by the shareholders, banks and other lenders and all other interested parties.

You, the “owners” of Owner Managed Businesses (OMB's), often see an audit as an evasive, costly and time consuming process which adds little to day to day running of the business, however you want more than the “box standard” accounts preparation approach. Many OMB’s qualifying for audit exemption, simply have their accounts prepared, from the books and records, without any further work being undertaken by an accountant, who may themselves not even be qualified. In my experience, such accounts are often unreliable and miss required disclosures.

So what should you do if you want more than accounts preparation but less than a full blown audit ? Well firstly if you appoint a Registered Auditor to do your accounts preparation then they are bound by certain ethical guidelines and will undertake the work in accordance with guidance published by their professional body. However, if this work solely is undertaken, they will still not issue an opinion or conclusion on the accounts.

An alternative “half way house” is the Assurance Service that ICAEW members can provide. Such a service will include some independent work on the accounts to improve their credibility. Typically such work will include more “comparison” work and will involve more detailed discussions with the directors. Any necessary further work would be tailored to the company itself. The Chartered Accountants’ Assurance Report is worded to express a conclusion of the accounts, based on the work procedures.

Many Chartered Accountancy practises feel that in order to achieve their ethical standards that an Assurance Report is the minimum report that should be given and, in any case, they already complete the work that is required to issue one anyway when preparing any set of statutory accounts.

Is this a way for the qualified accountants to differentiate themselves from the unqualified accountants ?

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The new Financial Reporting Standard for Smaller Entities is effective for periods commencing from 1 January 2007. The majority of changes are un-spectacular, though many accountants were keen to see the ASB’s stance on accounting for share schemes.

Fortunately for many accountancy firm’s (and their clients), it has been decided that the notional cost of share schemes does not need to be calculated and included in the profit & loss account. As a compromise, the details of each share scheme will need to be disclosed in the notes to the accounts. This is a welcome move by the ASB <http://www.iasb.co.uk/> as it saves a significant amount of time and confusion for smaller firms.

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I was interested to note that Gary Neville gave the thumbs up to the accountancy profession in a recent interview to the BBC ;

"Footballers think they need agents - but it's not the case…..Players need good advice and good accountants - but they don't need people taking hundreds of thousands of pounds …..."

See the full article on http://news.bbc.co.uk/sport1/hi/football/6367425.stm

A new spokesman for the Institute perhaps?

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