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Monday, 25 February 2008

The new lecturing season has now started and as always this presents us with an excellent opportunity to hear your concerns and help you address some of the issues many of you are facing.

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Judging by the comments from delegates on February’s tax courses some of you are urgently catching up with recent developments. Mark Morton, head of our tax team, has written a short summary of some key points you may have missed, while you were otherwise occupied in January, which you can download from Tax Issues below. No doubt there will be further announcements (hopefully with the required detail) in the Budget next month. It may interest you to know all of the key Budget announcements will be covered in our Budget 2008 courses running in London, High Wycombe and Leicester in April. More information about this course is included below.

Although the world of audit and accounts has been relatively quiet in comparison we have fielded a number of questions, both on courses and across our technical enquiry service, in relation to charities and the changes in the audit threshold rules. If you have unincorporated charity clients and want to be sure of the latest rules see our update in Audit and Accountancy Issues below.



Nicola Hurley
Director
nicola.hurley@mercia-group.co.uk


New Specialist Course: Budget 2008 - a detailed review of the Budget pronouncements

A quick and efficient way to get up to speed with pronouncements made in the Budget.

The course costs £105 plus VAT per place (25% discount for training group members and free for national members). Book online here or call our enrolments team on 0116 258 1241.

Income shifting - the proposals following the Arctic Systems case

We have received quite a few enquiries for help in this area so we thought we would remind you of this client letter, first advertised in our December newswire.

The letter will help you to keep your clients informed of developments following HMRC’s final defeat in the Arctic Systems case. To ensure that you are fully aware of the issues, the letter is also accompanied by our summary of the draft legislation along with action points you may wish to consider.

The letter costs £39.95 (£35 for members) plus VAT for unlimited usage. To order a copy click here.

Audit and Accountancy Issues

LLPs and the Companies Act 2006

We’ve been keeping you up to date with news of the implementation of the Companies Act 2006 through our monthly newswires and you are no doubt aware of the next key implementation date - 6 April 2008 when the provisions affecting audits, accounts and reports come into effect. But what of limited liability partnerships (LLPs)? Early in 2007 the government consulted on the general approach to applying the new Act to LLPs and in November 2007 a further consultation document was issued which outlined a number of specific policy proposals. The consultation period ended earlier this month, so we should see some draft legislation before too long. The intention is to apply as far as possible the provisions of the 2006 Companies Act to replace the provisions currently applied from the 1985 Act to LLPs.

There are however differences in the detailed implementation timetable. LLPs will have until October 2008 to prepare for the changes in respect of accounts, reports and audit and will have until October 2009 for the main implementation of the Act. That said, the new rules on filing deadlines and penalties will be implemented for the same period as for limited companies (see below, subject to differences in the penalty doubling regime).

Late filing penalties and deadlines

At the time of preparing this month’s newswire the Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008 were still in draft form (find a copy here). The existing penalty scheme for the late filing of accounts was introduced in 1992 and there has been no increase in the level of the fines imposed since then. The draft Regulations set out new and higher penalties. The penalties will also be doubled for late filing in two successive years beginning on or after 6 April 2008. The changes will coincide with the reduction in filing deadlines for for both private and public companies, which become one month shorter, for accounting periods beginning on or after 6 April 2008.

As an example, a private company currently filing accounts up to three months late faces a penalty of £100, which rises to £250 for up to six months late. For accounts filed under the new Companies Act 2006 from 1 February 2009 there will be a £150 penalty for accounts file up to one month late, which rises to £375 for up to three months late and up to £750 for up to six months late.

RSL SORP

Earlier this year the National Housing Federation issued a revised version of the RSL SORP - Accounting by Registered Social Landlords 2008. Changes to the format and the structure of the SORP have been made; Part 2 now contains the recommended practice (in blue text) along with further explanation (in black text). The main areas of technical change cover:

The SORP replaces the 2005 SORP Update and is effective for accounting periods beginning on or after 1 April 2008 although early adoption is allowed.

Charities and the changes in the audit threshold rules

In relation to charities and the changes in the audit threshold rules, we have fielded a number of questions, both on charities courses and across our technical enquiry service, in relation to when the rules apply. In particular, with regard to the ‘2 year rule’ for unincorporated charities, it is worth being aware of the following excerpt from Charity Commission Publication 63a:

“What are the new thresholds for independent examination?

For accounting periods commencing on or after 27 February 2007 unincorporated charities whose gross income is £500,000 or less in the relevant financial year and whose gross assets are £2.8m or less at the end of the year may elect to have an independent examination.

Where gross assets exceed £2.8m, provided gross income is less than £100,000 then unincorporated charities may still elect to have an independent examination.

There is, however, no requirement for independent scrutiny where the gross income for the year in question is £10,000 or less.

The (Charities) 2006 Act also removes the ‘2 year rule’ requirement. This rule related to unincorporated charities and required that, even if the charity’s income (and expenditure) was below the audit threshold in the current year, it must have its accounts audited if its income or expenditure exceeded the independent examination threshold in either of the two preceding financial years. Charities affected by this rule for financial years commencing before 27 February 2007 who wish to seek a dispensation from audit should contact Charity Commission Direct on 0845 300 0218 for further advice.”

The full text of CC63a is available from the Charity Commission in html format at http://www.charity-commission.gov.uk/publications/cc63a.asp or in pdf format at http://www.charity-commission.gov.uk/Library/publications/pdfs/cc63atext.pdf

Technical manuals update

Money Laundering and Practice Assurance Compliance Manuals

If you subscribe to these manuals you should have received updated CDs last month, dated January 2008 and December 2007 respectively. We were pleased to announce news of a complimentary biannual newsletter to support our Practice Assurance manual with the update, which will also include feedback from our own practice assurance review visits. The newsletters will be available to manual subscribers via our website, so look out for news of the first edition towards the end of May this year.

Other manuals

Updates to our audit and audit exemption manuals and pensions and solicitors specialist assignment manuals are being currently being finalised and we are also working on updates to our FSA manuals. You can keep up to date with the latest version of our manuals on our website at http://www.mercia-group.co.uk/technical_manuals/updates.htm

Tax Issues

A summary of key points by Mark Morton

Whilst many of you were busy burning the midnight oil throughout December and January, a number of important changes were announced, many of them adding detail to the Pre-Budget Report announcements and many of them fundamental to your clients. If you were a real cynic, might suggest that HMRC deliberately released these documents at the busiest time of the year in the hope that many accountants would not have time to read them!

To help you catch up here is a brief summary of the important announcements and matters that need to be considered before April 2008, together with references for where you can find more information. To read the summary click here.

Illegal working changes

From 29 February 2008 the Immigration, Asylum and Nationality Act 2006 increased the civil penalty imposed on an employer to a maximum of £10,000 for every illegal worker employed in the UK. It also introduced a new criminal offence of knowingly employing an illegal worker, with a maximum penalty of two years in prison or an unlimited fine.

An employer can avoid both a civil penalty and committing a criminal offence by checking, on recruitment, that workers have a right to work in the UK but to obtain this protection the employer must make the checks before the worker starts work.

There are two lists of acceptable documents for checking identity, similar to the lists which employers have used since 1997. List A contains items such as a British passport which will have no time limits on working in the UK. List B sets out a list of documents which carry restrictions on the amount of time individuals will be able to spend in the UK. A significant change is that employers will have to carry out annual checks for those workers whose documents appear on List B, such as work permit holders.

For more information, see www.bia.homeoffice.gov.uk/employers

Class 4 National Insurance contributions (NICs) Refunds and Repayment Supplement

HMRC have announced that NICO have reviewed their refund procedures for Class 4 NICs and has concluded that, between 19 April 1993 and 28 June 2005, some refunds were issued without the Repayment Supplement that was due on them. If you act on behalf of someone who made a claim between these dates, Repayment Supplement may be due. For further details visit www.hmrc.gov.uk/nic/cl4-refunds-repayment.htm

Money laundering changes

HMRC have announced the level of the annual fee to be paid by businesses registered with HMRC under the Money Laundering Regulations 2007. The fee for 2008/09 will be £95 per premises.

In addition, HMRC have announced their intention to introduce a register of external accountants and tax advisers (who are not already supervised) for the purpose of supervising their compliance with the Money Laundering Regulations 2007.

www.hmrc.gov.uk/mlr/latest-news.htm

Openness and Early Dialogue update

Towards the end of last year, HMRC announced that they were conducting a trial of a new approach to enquiry work, known as Openness and Early Dialogue. Helpfully, they didn't say in which areas of the country this trial was running!

Teams currently involved in these trials are based in Bedford, Birmingham, Bradford, Ipswich, Manchester, Scotland, Shipley, South East and North West England, South Wales, Somerset and Stoke. These are limited trials and will not involve all cases in these areas.

www.hmrc.gov.uk/ctsa/openness-early-dialogue-enquiries.htm

Charities - Opportunity to recover VAT on investment management fees

There would appear to be a major opportunity for charities to recover VAT on investment management fees. It is understood that HMRC may be about to announce a change of policy following an appeal by The Nuffield Foundation that VAT incurred on its investment management fees is recoverable where investment income is used to support its taxable business activities in line with The Church of England Children's Society case.

The amount potentially recoverable will depend on whether investment income subsidises taxable business activities and the extent of those activities. Any charity that believes it may benefit from this should look to submit immediate retrospective claims.

More VAT news

If you would like to read more about recent tax investigation and VAT developments, please click here for this month's IVC news round-up.

Office Gossip and Idle Chat!

Love is in the air...

Congratulations go to Sarah Jones (one of our receptionists) and Susie French (A&A lecturer) who both received proposals of marriage (and accepted them). By the way neither proposal happened on Valentine’s Day.

Welcome to Pat Nown - a new lecturer

At the end of January we welcomed Pat Nown to our tax lecturing team. Some of you may already have met her on courses as she has been busy presenting throughout February.

Pat worked for many years with FTC Kaplan where she was Tax Product Director for the Midlands. She has lectured both for exam based training and for the profession in general as well as being involved in technical writing.

In her spare time she is Honorary Treasurer to her local Rugby Club, where she can be found behind the bar as well as in front of it! Pat has 2 children Tom (13 1/2) and Ellie (12, going on 16) and also enjoys holidays and wine.

The answer to this month’s puzzle is: He likes Tax Guides more than Client Briefings is the INCORRECT statement