Bribery Act 2010

The Bribery Act 2010 (the Act) applies across the UK and all businesses need to be aware of its requirements which came into effect on 1 July 2011.

The Act introduced a new ‘corporate’ offence of ‘failure of commercial organisations to prevent bribery’. The defence against this offence is to ensure that your business has adequate procedures in place to prevent bribery. To help ensure this we recommend that, once you are familiar with the requirements of the new Act, you undertake a risk assessment for your own business and establish appropriate compliance procedures.

What action should you take?

• familiarise yourself with the guidance issued by the Ministry of Justice
• review the current activities of your business and assess the risk of bribery occurring
• assess the strength of the measures that you currently have in place to prevent bribery
• make any necessary updates to your staff handbooks, for example, your human resources manual
• consider whether specific anti-bribery staff training is required
• consider if changes are needed to other policies and procedures, for example, expenditure approval and monitoring processes
• communicate the changes that you have made to your policies and procedures
• consider if you need to undertake any due diligence procedures.

The Bribery Act 2010

The Act replaces, updates and extends the existing UK law against bribery and corruption. It applies across the UK and all UK businesses and overseas businesses carrying on activities in the UK are affected.

The offences established by the Act are defined very broadly and the Act has significant extra-territorial reach in that it extends to acts or omissions which occur outside of the United Kingdom. Specific details about its jurisdiction can be found in the detailed guidance referred to under ‘Ministry of Justice guidance’ below, as well as in the Act itself.

What is bribery?

Bribery is a broad concept. In supplementary guidance published alongside the Act, it is very generally defined as ‘giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for having already done so. So this could cover seeking to influence a decision-maker by giving some kind of extra benefit to that decision-maker rather than by what can legitimately be offered as part of a tender process.’

The key offences

Under the new Act there are two general offences:

Active Bribery – Section 1 of the Act prohibits offering, promising or giving a financial or other advantage (a bribe) to a person with the intention of influencing a person to perform their duty improperly.

Passive Bribery – Section 2 of the Act prohibits a person from requesting, agreeing to receive or accepting a bribe for a function or activity to be performed improperly.

In addition, there are two further offences that specifically address commercial bribery:

Bribery of foreign public officials (FPO) – Section 6 of the Act prohibits bribery of an FPO with the intention of influencing them in their official capacity and obtaining or retaining business or an advantage in the conduct of business.

Failure of commercial organisations to prevent bribery – Section 7 of the Act introduces a new strict liability offence that will be committed if:

• bribery is committed by a person associated with a relevant commercial organisation
• the person intends to secure a business advantage for the organisation
• the bribery is either an active offence (section 1 of the Act) or bribery of an FPO (section 6 of the Act).

This means that a commercial organisation commits an offence if a person associated with it bribes another person for that organisation’s benefit. This new ‘corporate’ offence is the most significant and controversial change to existing law and it is primarily this new offence that you must now consider and prepare your business for as necessary.

It is important to note however, that the Act also states that there is a defence available for commercial organisations against failing to prevent bribery if they have put in place ‘adequate procedures’ designed to prevent persons associated with them from bribing others on their behalf. The Secretary of State is required by the Act to publish guidance about such procedures.

Senior officers of an organisation can also be held personally liable under the Act for other bribery offences committed by the organisation, ie the active and passive bribery offences as well as the bribery of an FPO, where the offence is proved to have been committed with their ‘consent or connivance’.

‘Senior officer’ is widely defined in the Act to include directors, managers, company secretaries and other similar officers, as well as those purporting to act in such a capacity.

Key definitions and terminology

Inevitably, in order to fully understand the requirements of the new Act it is necessary to be familiar with a number of key definitions.

Relevant commercial organisation

The new corporate offence can be committed by a ‘relevant commercial organisation’, which broadly includes:

• any body which carries on a business and is incorporated under, or is a partnership which is formed under, any UK law, regardless of where it carries on business
• any body corporate or partnership, wherever it is incorporated or formed, which carries on business in the UK.

We will refer to those affected by this corporate offence as ‘businesses’.

Persons associated

The new corporate offence also refers to a person ‘associated’ with a commercial organisation. While there is a not an absolute list of all who could be included, we are told that this is a person who performs services for, or on behalf of, the organisation, regardless of the capacity in which they do so.

Accordingly, this term will be construed broadly and while examples are given of an employee, agent or subsidiary, it could also cover intermediaries, joint venture partners, distributors, contractors and suppliers.

Guidance issued by the Ministry of Justice (see below) acknowledges that the scope of ‘persons associated’ is broad and states that this is so as to ‘embrace the whole range of persons connected to an organisation who might be capable of committing bribery’ on its behalf.

Improper performance

The passive and active bribery offences both refer to the ‘improper performance’ of a function or activity. ‘Improper performance’ covers any act or omission that breaches an expectation that a person will act in good faith, impartially, or in accordance with a position of trust. This is an objective test based on what a reasonable person in the UK would expect in relation to the performance of the relevant activity.

Ministry of Justice guidance

The Act requires the Secretary of State to publish guidance for commercial organisations about procedures that they can put in place to prevent persons associated with them from bribing. This is important guidance in respect of providing a defence against the new ‘corporate offence’.

The Ministry of Justice (MoJ) has issued the following formal, statutory guidance:

• The Bribery Act 2010 – Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010).
• It has also produced non-statutory guidance for small businesses, providing a concise introduction to how they can meet the requirements of the new Act:
• The Bribery Act 2010 – Quick start guide.
• Whilst the guidance is not prescriptive and does not set out an absolute checklist of requirements for businesses to follow, it does aim to clarify the practical requirements of the new legislation. Illustrative case studies, which do not form part of the guidance issued under section 9 of the Act, are also included.

The guidance was published on 30 March 2011. Copies can be located at http://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf.

Defending your business against failing to prevent bribery

As you can see from the new legislation, all businesses will need to pay some attention to the new corporate offence of failing to prevent bribery. How much you will have to do will depend on the bribery risks facing your business.

If a business can show that it had ‘adequate procedures’ in place to prevent bribery then it will have a full defence against the corporate offence. The meaning of ‘adequate procedures’ is not defined in the Act and it is here that the MoJ guidance should be considered.

The guidance requires procedures to be tailored to the individual circumstances of a business, based on an assessment of where the risks lie. Therefore, what counts as ‘adequate’ will depend on the bribery risks faced by a business and its nature, size and complexity.

The MoJ guidance does recognise that the Act is not there to impose the ‘full force’ of criminal law upon well run businesses for an isolated incident of bribery. It also recognises that no business is capable of preventing bribery at all times. The ‘quick start’ guidance for smaller businesses comments that ‘a small or medium-sized business which faces minimal bribery risks will require relatively minimal procedures to mitigate those risks’.

How should you begin to determine the approach needed in your business? The MoJ guidance identifies six guiding principles for businesses wishing to prevent bribery from being committed on their behalf (see the panel below). These principles are not, however, prescriptive.

The six principles that should guide anti-bribery procedures

1. Proportionate procedures: A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.
2. Top-level commitment: The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.
3. Risk assessment: The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.
4. Due diligence: The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.
5. Communication (including training): The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.
6. Monitoring and review: The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.

Other important matters

Corporate hospitality

A potential area of concern under the new Act is the provision and receipt of corporate hospitality, promotional and other such business expenditure and how this might be perceived. While this may not be a significant issue for your business, especially when you consider your own level of such expenditure, it may be an important consideration for others.

The MoJ guidance states ‘Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour. The Government does not intend for the Act to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes.’

The guidance goes on to say ‘It is, however, clear that hospitality and promotional or other similar business expenditure can be employed as bribes.’

Facilitation payments

Facilitation payments, which are payments to induce officials to perform routine functions they are otherwise obligated to perform, are bribes and are therefore illegal under the new Act.

Penalties

The penalties associated with the Act are significant. On conviction for one of the main bribery offences, an individual may face up to ten years’ imprisonment and/or an unlimited fine. A business faces an unlimited fine.

The senior officers of a business could also be liable to a prison sentence if bribery was perpetrated with their ‘consent or connivance’. Disqualification from acting as a director for a substantial period of time could also arise.

Conclusion

The steps to be taken to prevent bribery will clearly vary from business to business and not all businesses will need to put in place complex procedures to deal with the requirements of the new legislation. The supporting guidance issued by the MoJ emphasises the need for a common sense approach.

A key point noted in ‘quick start’ guidance is that ‘there is a full defence if you can show you had adequate procedures in place to prevent bribery. But you do not need to put bribery prevention procedures in place if there is no risk of bribery on your behalf.’

How can we help

We believe the above summary above will help you understand the implications of the Bribery Act 2010. If you would like to discuss the implications of the new Act for you and your business in more detail please contact us.

Directors’ Responsibilities

The position of director brings both rewards and responsibilities upon an individual.

Whether you are appointed to the Board of the company you work for or you are involved in establishing a new business and take on the role of director you will feel a sense of achievement.

However the office of director should not be accepted lightly. It carries with it a number of duties and responsibilities. We summarise these complex provisions below.

Companies

You can undertake business in the UK as either:

• an unincorporated entity, ie a sole trader or a partnership or
• an incorporated body.

An incorporated business is normally referred to as a company. Although there are limited liability partnerships and unlimited companies the vast majority of companies are limited by shares. This means the liability of shareholders is limited to the value of their share capital (including any unpaid).

A limited company can be a private or public company. A public company must include ‘public’ or ‘plc’ in its name and can offer shares to the public.

The responsibilities and penalties for non compliance of duties are more onerous if you are a director of a public company.

Directors

When you are appointed a director of a company you become an officer with extensive legal responsibilities. For a director of an incorporated body, the Companies Act 2006 sets out a statement of your general duties. This statement codifies the existing ‘common law’ rules and equitable principles relating to the obligations of company directors that have developed over time. Common law had focused on the interests of shareholders. The Companies Act 2006 highlights the connection between what constitutes the good of your company and a consideration of its wider corporate social responsibilities.

The legislation requires that directors act in the interests of their company and not in the interests of any other parties (including shareholders). Even sole director/shareholder companies must consider the implications by not putting their own interests above those of the company.

The aim of the codification of directors’ duties in the Companies Act 2006 is to make the law more consistent and accessible.

The Act outlines seven statutory directors’ duties, which also need to be considered for shadow directors. These are detailed below.

Duty to act within their powers

As a company director, you must act only in accordance with the company’s constitution, and must only exercise your powers for the purposes for which they were conferred.

Duty to promote the success of the company

You must act in such a way that you feel would be most likely to promote the success of the company (ie. its long-term increase in value), for the benefit of its members as a whole. This is often called the ‘enlightened shareholder value’ duty. However, you must also consider a number of other factors, including:

• the likely long-term consequences of any decision
• the interests of company employees
• fostering the company’s business relationships with suppliers, customers and others
• the impact of operations on the community and environment
• maintaining a reputation for high standards of business conduct
• the need to act fairly as between members of the company.

Duty to exercise independent judgment

You have an obligation to exercise independent judgment. This duty is not infringed by acting in accordance with an agreement entered into by the company which restricts the future exercise of discretion by its directors, or by acting in a way which is authorised by the company’s constitution.

Duty to exercise reasonable care, skill and diligence

This duty codifies the common law rule of duty of care and skill, and imposes both ‘subjective’ and ‘objective’ standards. You must exercise reasonable care, skill and diligence using your own general knowledge, skill and experience (subjective), together with the care, skill and diligence which may reasonably be expected of a person who is carrying out the functions of a director (objective). So a director with significant experience must exercise the appropriate level of diligence in executing their duties, in line with their higher level of expertise.

Duty to avoid conflicts of interest

This dictates that, as a director, you must avoid a situation in which you have, or may have, a direct or indirect interest which conflicts, or could conflict, with the interests of the company.

This duty applies in particular to a transaction entered into between you and a third party, in relation to the exploitation of any property, information or opportunity. It does not apply to a conflict of interest which arises in relation to a transaction or arrangement with the company itself.

This clarifies the previous conflict of interest provisions, and makes it easier for directors to enter into transactions with third parties by allowing directors not subject to any conflict on the board to authorise them, as long as certain requirements are met.

Duty not to accept benefits from third parties

Building on the established principle that you must not make a secret profit as a result of being a director, this duty states that you must not accept any benefit from a third party (whether monetary or otherwise) which has been conferred because of the fact that you are a director, or as a consequence of taking, or not taking, a particular action as a director.

This duty applies unless the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

Duty to declare interest in a proposed transaction or arrangement

Any company director who has either a direct or an indirect interest in a proposed transaction or arrangement with the company must declare the ‘nature and extent’ of that interest to the other directors, before the company enters into the transaction or arrangement. A further declaration is required if this information later proves to be, or becomes either incomplete or inaccurate.

The requirement to make a disclosure also applies where directors ‘ought reasonably to be aware’ of any such conflicting interest.

However, the requirement does not apply where the interest cannot reasonably be regarded as likely to give rise to a conflict of interest, or where other directors are already aware (or ‘ought reasonably to be aware’) of the interest.

Enforcement and penalties

The Companies Act states that they will be enforced in the same way as the Common Law, although under Company Law. As a result there are no penalties in the Companies Act 2006 for failing to undertake the above duties correctly.

Enforcement is via an action against the director for breach of duty. Currently such an action can only be brought by:

• the company itself (ie the Board or the members in general meeting) deciding to commence proceedings; or
• a liquidator when the company is in liquidation
• an individual shareholder can take action against a director for breach of duty. This is known as a derivative action and can be taken for any act of omission (involving negligence), default or breach of duty or trust.

Where the company is controlled by the directors these actions are unlikely.

How we can help

You will now be aware that the position of director must not be accepted lightly.

• the law is designed to penalise those who act irresponsibly or incompetently.
• a director who acts honestly and conscientiously should have nothing to fear.

We can provide the professional advice you need to ensure you are in the latter category. Please contact us if you would like more information.

Occupational Pension Schemes: Trustees’ Responsibilities

Many employers offer their staff an opportunity to save for their retirement through an occupational (or company) pension scheme.

Those employees who join the scheme need to have confidence that the scheme is being well run.

The role of pension scheme trustees is very important in ensuring that the scheme is run honestly and efficiently and in the best interests of the members.

We outline in this factsheet the main responsibilities of occupational pension scheme trustees.

Background

The Pensions Act 1995 (the Act) brought about a number of major changes to the way occupational pension schemes are run. The 2004 Pensions Act brought about further change and introduced, in April 2005, The Pensions Regulator (TPR) as the UK regulator of work-based pension schemes.

TPR has an important role in the pension sector. Its objectives, as set out in legislation, are to:

• protect the benefits of members of work-based pension schemes
• protect the benefits of members of personal pension schemes (where there is a direct payment arrangement)
• promote, and to improve understanding of the good administration of work-based pension schemes
• reduce the risk of situations arising which may lead to claims for compensation being payable from the Pension Protection Fund
• maximise employer compliance with employer duties and the employment safeguards introduced by the Pensions Act 2008
• minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pension Act 2014).  This new objective on sustainable growth came into force on 14 July 2014.

TPR has three core powers that underpin its regulatory approach:

• investigating schemes by gathering information that helps them identify and monitor risks
• putting things right where problems have been identified
• acting against avoidance to ensure that employers do not sidestep their pension obligations.

In fulfilling its role, TPR produces important guidance for those involved with pension schemes including trustees as well as auditors and actuaries. This guidance is available from TPR’s website www.thepensionsregulator.gov.uk.

The latest reforms, introduced under Pensions Act 2008, have brought about a new requirement on UK employers to automatically enrol all employees in a ‘qualifying auto-enrolment pension scheme’ and to make contributions to that scheme on their behalf. Enrolment may be either in to an occupational pension scheme or a contract based scheme.

Many contract based schemes are group personal pensions where an employer appoints a pension provider, often an insurance company, to run the scheme. The National Employment Savings Trust (NEST) is a government backed pension scheme that employers can use for auto enrolling employees.

Compliance with the new regulations started from 2012 for the largest employers. The deadline for being compliant (an employer’s ‘staging date’) is determined by the number of people in their PAYE scheme and for smaller employers is between 2012 and 2018.

Further information is available at www.tpr.gov.uk/autoenrolment.

Pension scheme classification

Employers can help promote retirement benefits for their employees in a number of ways including:

• occupational schemes
• group personal pension schemes
• stakeholder schemes.

Group personal pension schemes and stakeholder schemes are personal plans in individual member’s names, where the employer simply acts as an administrator. There are no accounting or audit requirements for these types of schemes.

An occupational pension is an arrangement an employer can use to provide benefits for their employees when they leave or retire.

There are two main types of occupational pension scheme in the UK:

• salary-related schemes
• money purchase schemes.

Whatever the type of scheme, it will usually have trustees.

The role of trustees

Most company pension schemes in the UK are set up as trusts. There are two main reasons for this:

• it is necessary in order to gain most of the tax advantages
• it makes sure that the assets of the pension scheme are kept separate from those of the employer.

A trustee is a person or company, acting separately from an employer, who holds assets for the beneficiaries of the pension scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members’ benefits are secure.

In fulfilling their role, trustees must be aware of their legal duties and responsibilities. From April 2006 the law requires trustees to have knowledge and understanding of, amongst other things, the law relating to pensions and trusts, the funding of pension schemes and the investment of scheme assets.

The law also requires trustees to be familiar with:

• certain pension scheme documents including the trust deed and rules
• the statements of investment principles and funding principles.

A code of practice has been issued by TPR explaining what trustees need to do in order to comply with the law in this area. Trustees should arrange appropriate training as soon as they are appointed and should then continue with their learning to keep their knowledge up to date. New trustees have six months from their appointment date to comply with this requirement.

Trustees’ duties and responsibilities

Trustees have a number of very important duties and responsibilities, which include:

• acting impartially, prudently, responsibly and honestly and in the best interests of scheme beneficiaries
• acting in line with the trust deed, scheme rules and the legal framework surrounding pensions.

In addition to these general duties, trustees also have a number of specific duties and tasks that they must carry out. The main tasks are to ensure the following happen.

Contributions

• The employer accurately pays over contributions on time. There are strict rules covering this area.

Financial records and requirements

• The right benefits are paid out on time.
• An annual report is prepared (see annual report below).
• An auditor’s statement is obtained confirming details of the payment of contributions to the scheme and, if required, an audit of the scheme accounts is arranged.

Investment

• The pension fund is properly invested in line with the scheme’s investment principles and relevant law.

Professional advisers

• Suitable professional advisers are appointed as running a pension scheme is complicated and often specialist advice will be needed.

Pension scheme records

• Full and accurate accounting records are kept, which include records of past and present members, transactions into, and out of, the scheme and written records of trustees’ meetings.

Members

• Members and others are provided with information about the scheme and their personal benefits.

Registration, the scheme return and collecting the levy

• TPR is provided with information required by law for the register, that the scheme’s annual return is completed and the annual levy for the scheme is paid.

Related matters

Reporting to TPR

Where a breach of law takes place and it is likely to be materially significant to TPR, trustees and indeed others involved in running the scheme have a legal duty to report the breach to the regulator. Code of practice 01, ‘Reporting breaches of the law’ provides guidance on the factors that should be considered when deciding to make a report.

In addition, trustees also have to notify TPR when particular scheme-related events happen. These are known as ‘notifiable events’, also the subject of a code of practice.

The annual report

The trustees of most schemes must make an annual report available within seven months of the scheme year end. The report usually includes:

• a trustees report, containing legal and administrative information about the scheme
• an investment report
• actuarial information, if applicable
• the audited accounts and audit report.

Trustees’ liability

If something does go wrong with the pension scheme, trustees may be held personally liable for any loss caused as a result of a breach of trust. This could happen when, for example:

• a trustee carried out an act which is not authorised under the trust deed and scheme rules
• a trustee fails to do something that should have been done under the trust deed and scheme rules
• a trustee does not perform one or more of their duties under trust law or pension legislation or does not perform them with sufficient care.

The rules of the pension scheme might protect trustees from personal liability for a loss caused by breach of trust, except where it is due to their own actual fraud. In some cases, the employer may provide indemnity insurance for the trustees.

How we can help

We would be pleased to discuss your role as a company pension scheme trustee in more detail. We are also able to advise on the accounting and audit requirements of your scheme. Please contact us for further information.

Corporation Tax Self Assessment

Key features

The key features are:

• a company is required to pay the tax due in advance of filing a tax return
• a ‘process now, check later’ enquiry regime when the tax return is submitted
• the inclusion in the tax return, and in a single self assessment, of the liabilities of close companies on loans and advances to shareholders and others, and of liabilities under Controlled Foreign Companies legislation
• the requirement for companies to self assess by reference to transfer pricing legislation.

Practical effect of CTSA for companies

Notice to file

Every year, HMRC issue a notice to file to companies. In most cases, the return must be submitted to HMRC within 12 months of the end of the accounting period.

Filing your company tax return online

Companies must file their corporate return online. Their accounts and computations must also be filed in the correct format – inline eXtensible Business Reporting Language (iXBRL).

Unincorporated organisations and charities that don’t need to prepare accounts under the Companies Act can choose to send their accounts in iXBRL or PDF format. However any computations must be sent in iXBRL format.

Penalties

Penalties apply for late submission of the return of £100 if it is up to three months late and £200 if the return is over three months late. Additional tax geared penalties apply when the return is either six or twelve months late. These penalties are 10% of the outstanding tax due on those dates.

Submission of the return

The return required by a Notice to file contains the company’s self assessment, which is final subject to:

• taxpayer amendment
• HMRC correction, or
• HMRC enquiry.

The company has a right to amend a return (for example changing a claim to capital allowances). The company has 12 months from the statutory filing date to amend the return.

HMRC have nine months from the date the return is filed to correct any ‘obvious’ errors in the return (for example an incorrect calculation). This process should be a fairly rare occurrence. In particular the correction of errors does not involve any judgement as to the accuracy of the figures in the return. This is dealt with under the enquiry regime.

Enquiries

Under CTSA, HMRC check returns and has an explicit right to enquire into the completeness and accuracy of any tax return. This right covers all enquiries, from straightforward requests for further information on individual items through to full reviews of a company’s business including examination of the company’s records.

The main features of the rules for enquiries under CTSA are:

• HMRC generally have a fixed period, of 12 months from the date the return is filed, in which to commence an enquiry
• if no enquiry is started within this time limit, the company’s return becomes final – subject to the possibility of an HMRC ‘discovery’
• HMRC will give the company formal notice when an enquiry commences
• HMRC are also required to give formal notice of the completion of an enquiry, and to state their conclusions
• a company may ask the Commissioners to direct HMRC to close an enquiry if there are no reasonable grounds for continuing it.

Discovery assessments

HMRC have the power to make an assessment (a ‘discovery assessment’) if information comes to light after the end of the enquiry period indicating that the self assessment was inadequate as a result of fraudulent or negligent conduct, or of incomplete disclosure.

Summary of self assessment process

Example A company prepares accounts for the 12 months ended 31 May 2014 and submits the return by 31 December 2014. Key dates under CTSA are: 01.03.15 Payment of corporation tax 31.05.15 Deadline for filing the return 31.12.15 End of period for HMRC to open enquiry (being 12 months from the date the return was actually filed) On 31 December 2015 the company tax position is finalised subject to HMRC’s right to make a discovery assessment in some circumstances.

Payment of tax

There is a single, fixed due date for payment of corporation tax, nine months and one day after the end of the accounting period (subject to the Quarterly Instalment Payment regime for large companies).

If the payment is late or is not correct, there will be late payment interest on tax paid late and repayment interest on overpayments of tax. These interest payments are tax deductible/taxable.

Credit interest

If a company pays tax before the due date, it receives credit interest on amounts paid early. Any interest received is chargeable to corporation tax.

Loans to shareholders

If a close company makes a loan to a participator (for example most shareholders in unquoted companies), the company must make a payment to HMRC if the loan is not repaid within nine months of the end of the accounting period. The amount of the tax is 25% of the loan. This tax is included within the CTSA system and the company must report loans outstanding to participators in the tax return.

How we can help

Do not hesitate to contact us if you require any further information.

Pensions – Automatic Enrolment

The role of the employer

To encourage more people to save in pension schemes, the government has placed greater responsibility on employers to provide access to pension provision.

Up until 1 October 2012 there was no requirement for an employer to pay employer contributions into a scheme. There was also no requirement for the employee to enter an employer provided scheme.

Most employers were however obliged to designate a registered stakeholder scheme that employees could join. This obligation has been removed due to the advent of automatic enrolment (or auto enrolment).

What is automatic enrolment?

Automatic enrolment places new duties on employers to automatically enrol ‘workers’ into a work based pension scheme. The main duties are:

• assess the types of workers in the business
• provide a qualifying automatic enrolment pension scheme for the relevant workers
• write to most of their workers explaining what automatic enrolment into a workplace pension means for them
• automatically enrol all ‘eligible jobholders’ into the scheme and pay employer contributions
• complete the declaration of compliance and keep records.

Assessing the types of workers in the business

Whether this is an easy or difficult task depends on the type of business. A business which uses the services of casual workers, very young or very old workers will need to spend some time in analysing its workforce. A business which only employs salaried staff will have an easier task.

A ‘worker’ is:

• an employee or
• a person who has a contract to provide work or services personally and is not undertaking the work as part of their own business.

The second category is defined in the same way as a ‘worker’ in employment law. Such people, although not employees, are entitled to core employment rights such as the National Minimum Wage. Individuals in this category include some agency workers and some short-term casual workers.

There are three categories of workers: eligible jobholders; non-eligible jobholders; and entitled workers.

An ‘eligible jobholder’ is a worker who is:

• aged between 22 years and the State Pension Age
• earning over the minimum earnings threshold (£10,000 2014/15 and 2015/16). It is expected that the minimum earnings threshold will be changed in line with the income tax single person’s allowance in future years
• working or ordinarily working in the UK
• not already in a qualifying pension scheme.

Most workers will be eligible jobholders unless the employer already has a qualifying pension scheme. These are the workers for which automatic enrolment will be required.

Other workers (non-eligible jobholders) may have the right to either ‘opt in’ (i.e. join a scheme) and therefore to be treated as eligible jobholders. ‘Entitled workers’ are entitled to join the scheme but there is no requirement on the employer to make employer contributions in respect of these workers.

The categorisation of workers can be difficult in some circumstances. Please contact us if you are unsure of how to assess the types of workers you have.

What is a qualifying automatic enrolment pension scheme?

Employers are able to comply with their new obligations by using an existing qualifying pension scheme, setting up a new scheme or using the government low cost scheme – the National Employment Savings Trust (NEST).

It is important that the pension scheme chosen will deliver good outcomes for the employee’s retirement savings. This may mean that an existing employer’s scheme may not be appropriate as it may have been designed for the needs of higher paid and more senior employees. This may mean that NEST for example may be an appropriate scheme for employees who are not currently entitled to be a member of an existing employer scheme.

To be a qualifying automatic enrolment scheme, a scheme must meet the qualifying criteria and the automatic enrolment criteria.

The main part of the qualifying criteria requires the pension scheme to meet certain minimum standards, which differ according to the type of pension scheme. Most employers will want to offer a defined contribution pension scheme. The minimum requirements for such schemes are a minimum total contribution based on qualifying earnings, of which a specified amount must come from the employer.

To be an automatic enrolment scheme, the scheme must not contain any provisions that:

• prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a ‘jobholder’
• require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the pension scheme.

The second point above means, for example, that the pension scheme has a default fund into which the pension contributions attributable to the jobholder will be invested. The jobholder should however have a choice of other funds if they want.

We may be able to advise you on an appropriate route to take. Please contact us.

When does automatic enrolment apply to an employer?

The law came into force for very large employers on 1 October 2012 but fortunately, the automatic enrolment rules have a staggered implementation by reference to the number of employees.

An employer can precisely work out when the automatic enrolment rules will have to be applied as the implementation date (known as the ‘staging date’) is set by reference to the number of persons in an employer’s PAYE scheme on 1 April 2012. The more employees an employer has on that date, the earlier the staging date.

Examples of staging dates

No. of employees	Staging date
250	1 February 2014
62	1 July 2014
50	1 April 2015

For those with less than 50 employees the earliest start date is 1 June 2015 but the precise date will depend not only on the actual number of employees on 1 April 2012 but also an employer’s PAYE reference number. The earliest date for an employer with up to 30 employees on 1 April 2012 is 1 June 2015 and the latest date is 1 April 2017.

Importantly it doesn’t matter how many employees an employer has on the staging date – there may be considerably more (or less) than on the 1 April. So if you are an employer, look at the number of employees you had on the 1 April to know where you stand.

Employers with less than 50 employees but are part of a larger PAYE scheme

You may be an employer of a company which has less than 50 employees but the company is part of a group of companies and the company has a shared scheme with other employers.

There are special rules for such employers.

An employer can find out the detailed staging date rules from www.thepensionsregulator.gov.uk.

Communicating with your workers

Employers are required to write to all workers (except those aged under 16, or 75 and over) explaining what automatic enrolment into a workplace pension means for them.

There are different information requirements for each category of worker. For an eligible jobholder, the letter must include details of how the employee can opt out of the scheme if they wish. The letter must not, however, encourage the employee to opt out.

The Pensions Regulator has developed a set of letter templates to help you when writing to your workers.

Automatic enrolment of eligible jobholders and payment of contributions

As part of the automatic enrolment process, employers will need to make contributions to the pension scheme for eligible jobholders. In principle, contributions will be due from the staging date but it is possible to postpone automatic enrolment for some or all employees for a period of up to three months. This may, for example, be used to avoid calculation of contributions on part-period earnings.

All businesses will need to contribute at least 3% on the ‘qualifying pensionable earnings’ for eligible jobholders. However, to help employers adjust, compulsory contributions will be phased in, starting at 1% before eventually rising to 3%.

There will also be a total minimum contribution which will need to be paid by employees if the employer does not meet the total minimum contributions. If the employer only pays the employer’s minimum contribution, employees’ contributions will start at 1% of their salary, before eventually rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate.

Period	Duration	Employer minimum	Total minimum contribution
1	Employer’s staging date to 30 September 2017	1%	2%
2	1 October 2017 to 30 September 2018	2%	5%
1 October 2018 onward		3%	8%

What are qualifying pensionable earnings

Earnings cover cash elements of pay including overtime and bonuses (gross) but minimum contributions are not calculated on all the earnings. Contributions will be payable on earnings between the lower threshold of £5,882 (£5,772 for 2014/15) and the higher threshold of £42,385 (£41,865 for 2014/15). The earnings between these amounts are called qualifying earnings. The thresholds are reviewed by the government each tax year.

If we do your payroll, we can help you make these calculations and tell you the deductions from pay and the payments required to the pension scheme.

Declaration of Compliance and keeping records

The Pensions Regulator was established to regulate work-based pensions.

An employer must complete the declaration of compliance within five months of the staging date. In essence the declaration of compliance process requires the employer to:

• confirm the correct auto enrolment procedures have been followed and
• provide various pieces of information such as the number of eligible jobholders enrolled.

Finally, an employer must keep records which will enable them to prove that they have complied with their duties. Keeping accurate records also makes good business sense because it can help an employer to:

• avoid or resolve potential disputes with employees
• help check or reconcile contributions made to the pension scheme.

Pensions Regulator guidance for small businesses

TPR guidance is available for small businesses preparing for automatic enrolment  on their website. http://www.thepensionsregulator.gov.uk/employers/your-step-by-step-guide-to-automatic-enrolment.aspx

Using the guidance employers can follow an 11 step process, each step advising when each task should be completed and and how long it should take. The guidance also includes links to tools and resources to help employers meet their duties.

How we can help

As you can see Pensions automatic enrolment is not a straightforward business. Please do contact us for help and advice. We can help you to manage the road to automatic enrolment and help you to comply with the requirements when you are in automatic enrolment.

Property Investment – Buy to Let

In recent years, the stock market has had its ups and downs. Add to this the serious loss of public confidence in pension funds as a means of saving for the future and it is not surprising that investors have looked elsewhere.

The UK property market, whilst cyclical, has proved over the long-term to be a very successful investment. This has resulted in a massive expansion in the buy to let sector.

Buy to let involves investing in property with the expectation of capital growth with the rental income from tenants covering the mortgage costs and any outgoings.

However, the gross return from buy to let properties – ie the rent received less costs such as letting fees, maintenance, service charges and insurance – is no longer as attractive as it once was. Investors need to take a view on the likelihood of capital appreciation exceeding inflation.

Factors to consider

Do

• think of your investment as medium to long-term
• research the local market
• do your sums carefully
• consider decorating to a high standard to attract tenants quickly.

Don’t

• purchase anything with serious maintenance problems
• think that friends and relatives can look after the letting for you – you’re probably better off with a full management service
• cut corners with tenancy agreements and other legal documentation.

Which property?

Investing in a buy to let property is not the same as buying your own home. You may wish to get an agent to advise you of the local market for rented property. Is there a demand for say, two bedroom flats or four bedroom houses or properties close to schools or transport links? An agent will also be able to advise you of the standard of decoration and furnishings which are expected to get a quick let.

Agents

Letting property can be very time consuming and inconvenient. Tenants will expect a quick solution if the central heating breaks down over the bank holiday weekend! Also do you want to advertise the property yourself and show around prospective tenants? An agent will be able to deal with all of this for you.

Tenancy agreements

This important document will ensure that the legal position is clear.

Taxation

When buying to let, taxation aspects must be considered.

Tax on rental income

Income tax will be payable on the rents received after deducting allowable expenses. Allowable expenses include mortgage interest, repairs, agent’s letting fees and an allowance for furnishings.

Tax on sale

Capital gains tax (CGT) will be payable on the eventual sale of the property. The tax will be charged on the disposal proceeds less the original cost of the property, certain legal costs and any capital improvements made to the property. This gain may be further reduced by any annual exemption available and is then taxed at either 18% or 28% or a combination of the two rates. CGT is payable on 31 January after the end of the tax year in which the gain is made.

Student lettings

Buy to let may make sense if you have children at college or university. It is important that the arrangement is structured correctly. The student should purchase the property (with the parent acting as guarantor on the mortgage). There are several advantages to this arrangement.

Advantages

This is a cost effective way of providing your child with somewhere decent to live.

Rental income on letting spare rooms to other students should be sufficient to cover the mortgage repayments from a cash flow perspective.

As long as the property is the child’s only property it should be exempt from CGT on its eventual sale as it will be regarded as their main residence.

The amount of rental income chargeable to income tax is reduced by a deduction known as ‘rent a room relief’. This is £4,250 each year. In this situation no expenses are tax deductible. Alternatively expenses can be deducted from income under normal letting rules where this is more beneficial.

Furnished holiday lettings

Furnished holiday letting (FHL) is another type of investment that could be considered. This form of letting is short holiday lets as opposed to letting for the residential market.

The favourable tax regime for furnished holiday letting accommodation includes qualifying property located anywhere in the European Economic Area (EEA). In order to qualify for FHL treatment certain conditions have to be met. These include the property being available for letting for at least 210 days in each tax year and being actually be let for 105 days. Provided that there is a genuine intention to meet the actual letting requirement it will be possible to make an election to keep the property as qualifying for up to two years even though the condition may not be satisfied in those years. This will be particularly important to preserve the special CGT treatment of any gain as qualifying for the lower CGT rate of 10% where the conditions for Entrepreneurs’ Relief are satisfied.

Losses arising in an FHL business cannot be set against other income of the taxpayer.  Separate claims would need to be made for UK losses and EEA losses. Each can only be offset against profits of the same or future years in each relevant sector.

FHL property has some advantages but it has other disadvantages which should also be considered.

Advantages

You will be able to take a holiday in your own property, or make it available some of the time to your family or friends. However, care would need to be taken to adjust the level of expenses claimed to reflect this private use.

Generally however the rules for allowable expenditure are more generous.

Disadvantages

Holiday letting will have higher agent’s fees, advertising costs, and maintenance fees (for example more regular cleaning).

Owning a holiday property may be more time consuming than you think and you may find yourself spending your precious holiday sorting out problems.

If you would like any further advice in this area please get in touch.

How we can help

Whilst some generalisations can be made about buy to let properties it is always necessary to tailor any advice to your personal situation. Any plan must take into account your circumstances and aspirations.

Whilst a successful buy to let cannot be guaranteed, professional advice can help to sort out some of the potential problems and structure the investment correctly.

We would be happy to discuss buy to let further with you. Please contact us for more detailed advice.

Charitable Giving

If you are thinking of making a gift to charity, this factsheet summarises how to make tax-effective gifts. You can get tax relief on gifts to UK charities if you give:

• under Gift Aid
• through a Payroll Giving scheme, run by your employer, or
• by making a gift of certain shares or land.

Location of the charity

UK charitable tax reliefs are available to certain organisations which are the equivalent of UK charities and Community Amateur Sports Clubs (CASCs) in the EU, Norway and Iceland.

UK donors are able to receive the same tax reliefs in respect of these donations and legacies that enjoy for donations to UK charities.

The qualifying overseas charities benefit from the same UK tax exemptions and reliefs as UK charities.

Gift Aid

If you pay tax, Gift Aid is a scheme by which you can give a sum of money to charity and the charity can normally reclaim basic rate tax on your gift from HMRC. That increases the value of the gift you make to the charity. So for example, if you give £10 using Gift Aid in 2014/15 that gift is worth £12.50 to the charity.

You can give any amount, large or small, regular or one-off.

If you do not pay tax, you should not use Gift Aid.

How does a gift qualify for Gift Aid?

There are three main conditions. You must:

• make a declaration to the charity that you want your gift to be treated as a Gift Aid donation
• pay at least as much tax as the charities will reclaim on your gifts in the tax year in which you make them (tax credits on dividend income will count towards the tax paid)
• not receive excessive benefits in return for your gift.

Making a declaration

The declaration is the charity’s authority to reclaim tax from HMRC on your gift.

The declaration can be in writing or orally but, usually, the charity will provide a written declaration form.

You do not have to make a declaration with every gift. In order to make a Gift Aid donation you’ll need to make a Gift Aid declaration. The charity will normally ask you to complete a simple form – one form can cover every gift made to the same charity or CASC for whatever period you choose, and can cover gifts you have already made (backdating your claim for up to four years) and/or gifts you may make in the future.

Membership subscriptions through Gift Aid

You can pay membership subscriptions to a charity through Gift Aid, provided any membership benefits you receive do not exceed certain limits. The current limits on the value of benefits received relative to donations are:

• 25% of the value of the donation, where the donation is less than £100
• £25, where the value of the donation is between £100 and £1,000
• 5% of the value of the donation, where the donation exceeds £1,000

There is an overriding limit on the value of benefits received by a donor in a tax year as a consequence of donations to a charity, which is £2,500.

However, you can disregard free or reduced entry to view any property preserved, maintained, kept or created by a charity in relation to their charitable work.

Fund-raising events

Where you have raised money which has simply been collected from other people, such as on a flag day, and the other people have not made a declaration to the charity that they are taxpayers, the payment is not made under Gift Aid and generally no tax relief is due but see below regarding the introduction of the Gift Aid Small Donations Scheme.

However, if you have been sponsored for an event, and each sponsor has signed a Gift Aid declaration, then the charity can recover the tax on the amounts covered by declarations. Charities may produce sponsorship forms for this.

Higher rate and additional rate taxpayers

If you are a higher/additional rate taxpayer, you can claim tax relief on the difference between the basic rate and higher/additional rate of tax (through your tax return). Relief is given either for the tax year of payment or in some cases it is now possible to elect to receive the benefit of the higher/additional rate tax relief one year earlier than previously.

You should therefore keep a record of payments made under Gift Aid for each tax year.

The time limit for claiming tax relief on Gift Aid donations is four years. This time limit applies to the charity and the individual making the gift.

Tainted donations to charity

Tax relief is denied on donations where one of the main purposes of the donation is to receive a tax advantage for the donor or connected person directly or indirectly from the charity. There is no monetary limit on the amount of the donation which may be caught by these rules.

Gift Aid Small Donations Scheme (GASDS)

Charities can use Charities Online for repayment of tax on other income and claims for top-up payments under the new Gift Aid Small Donations Scheme (GASDS).

Charities and Community Amateur Sports Clubs (CASC) can claim a top-up payment on cash donations of £20 or less without the need to collect Gift Aid declarations. Charities will generally be able to claim on small donations of up to £5,000 per year. Claiming for £5,000 of small donations will result in a repayment of £1,250 for the charity or CASC.

The GASDS is ideal for small cash donations received in collection boxes, bucket collections and during religious services. Charities and CASCs wishing to claim under GASDS will still need to make Gift Aid claims in respect of other donations for which they have a Gift Aid declaration in the same tax year, for example, on regular donations received from supporters. This is called the ‘matching rule’: every £10 of donations claimed under GASDS must be matched with £1 of donations claimed under Gift Aid in the same tax year.

It is proposed to increase the annual donation amount which can be claimed through the Gift Aid Small Donations Scheme to £8,000 which will allow charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments of up to £2,000 a year, with effect from April 2016.

Payroll Giving

A Payroll Giving scheme allows you to give regularly to charity from your pay and get tax relief on your gifts. The scheme requires your employer to set up and run a scheme. You authorise your employer to deduct your gift from your pay. Every month your employer pays it over to a Payroll Giving agency approved by HMRC. The agency then distributes the money to the charity or charities of your choice.

Because your employer deducts your gift from your pay or pension before PAYE is worked out, you pay tax only on the balance. This means that you get your tax relief immediately at your highest rate of tax. (The amount you pay in national insurance contributions is not affected).

Gifts of shares or land

Capital gains tax (CGT)

You are not liable to CGT when you make a gift of assets, such as land or shares, to charity, even if the asset is worth more when you donate it than when you acquired it.

Income tax

You may also get income tax relief for these gifts to charity if they are ‘qualifying investments’. There are two main types of qualifying investments:

• quoted shares and securities
• land and buildings.

Example Alma owns quoted shares with a market value of £10,000 and an original cost to her of £3,000. Alma is a higher rate taxpayer. Alma gives the shares to the charity. The charity will then sell the shares for £10,000 and keep the full sale proceeds. Alma will not have a capital gain arising under CGT. She will be entitled to 40% income tax relief on the value of her gift ie £4,000. Although this sounds a very attractive relief, a comparison should be made of the alternative route of gifting to a charity by selling the investment and giving the net proceeds to charity under Gift Aid. So, if Alma sold the shares, she would make a capital gain of £7,000 before considering any unused annual exemption. If, say, the CGT bill is nil, she could gift the proceeds of £10,000 under Gift Aid. The charity can reclaim tax of £10,000 x 20/80 = £2,500. Alma is entitled to higher rate relief on the gross gift of £2,500 (£10,000 x 100/80 x 40 – 20%). Although Alma has received less tax relief (£4,000 compared to £2,500), the charity will have received £12,500 (£10,000 from Alma and £2,500 from HMRC).

If you would like further advice on this matter, please contact us.

Qualifying investments

In more detail, the following investments qualify for the tax relief:

• shares and securities listed or dealt in on the UK Stock Exchange, including the Alternative Investment Market
• shares or securities listed or dealt in on any overseas recognised stock exchange
• units in an authorised unit trust (AUT)
• shares in a UK open-ended investment company (OEIC)
• holdings in certain foreign collective investment schemes (foreign equivalents of AUTs and OEICs)
• freehold interests in land
• leasehold interests in land where the lease period is for a term of years absolute.

You should always contact the charity to ensure that it can accept the shares or the land. Indeed for land, the charity needs to give you a certificate stating that it has acquired the land.

The charity may be able to help you with the transfer procedure.

How we can help

If you would like to help a charity financially, it makes sense to do this in a tax efficient way. We can provide assistance in determining this for you. Please contact us for more detailed advice.

Employer Supported Childcare

Employer supported childcare, commonly by way of childcare voucher, is for many employers and employees and tax and national insurance efficient perk. We consider the implications of this type of benefit on the employer and employee.

Background

The workplace nurseries exemption was introduced many years ago. This exempts from tax and NIC the provision to an employee of a place in a nursery at the workplace or in a facility wholly or partly financed and managed by the employer.

Whilst these sorts of arrangements are not that common, the later introduction of a limited tax and NIC exemption for employer-contracted childcare and employer-provided childcare vouchers has been very popular with both employers and employees alike.

Salary sacrifice

Many employers use these childcare exemptions as part of salary sacrifice arrangements; for example, the employee gives up pay, which is taxable and NIC-able, in return for childcare vouchers, which are not. This may save tax and NIC for the employee and NIC for the employer. Such arrangements can be attractive; however care needs to be taken when implementing a scheme to ensure that it is set up correctly. Also, for those on low rates of pay, such arrangements may not be appropriate.

How much childcare can be provided tax and NIC free?

This depends on when the employee joined the employer’s scheme. For those who joined the employer’s scheme prior to 6 April 2011 the limit is currently £55 a week.

If the employer-contracted care exceeds £55 per week the excess will be a benefit in kind and subject to Class 1A NIC. However, with vouchers, although any excess is also a benefit in kind it is subject to Class 1 NIC via the payroll. As the tax and NIC issues are complex many employers limit their employees’ potential entitlement to a maximum of the exempt limit (currently £55 a week).

The exempt limit of £55 applies to the full face value, rather than the cost, of providing a childcare voucher, which would normally include an administration fee.

An employee is only entitled to one exempt amount even if care is provided for more than one child but it does not matter that another person may also be entitled to an exempt amount in respect of the same child. As always, there are various conditions to meet but these rules have led to many employers providing such care, particularly childcare vouchers, to their employees.

What about those who join a scheme from 6 April 2011 onwards?

The limit on the amount of exempt income associated with childcare vouchers and employer-contracted childcare for employees joining an employer’s scheme will be restricted in cases where an employee’s earnings and taxable benefits are liable to tax at the higher or additional rate.

Anyone already in a scheme before 6 April 2011 is not affected by these changes as long as they remain within the same scheme.

What do employers have to do?

To identify the rate of tax an individual employee pays in any one tax year, an employer needs to carry out a ‘basic earnings assessment’ for any employee who joins an employer-provided childcare scheme on or after 6 April 2011.

Employers who offer or provide employer childcare are required, at the beginning of the relevant tax year, to estimate the ‘employment income amount’ that the employee is likely to receive during that year.

This is basically the contractual salary and benefits package (not discretionary bonuses or overtime) less the personal allowance if appropriate.

Employers must keep a record of the basic earnings assessment. These records do not need to be sent to HMRC but must be available for inspection by HMRC if required.

The employer must re estimate the ‘employment income amount’ for each tax year.

What is the position for the employee?

For 2015/16, the personal allowance for most employees is £10,600 and the basic rate limit will be £31,785, a combined figure of £42,385. The higher rate limit is £150,000.

If the level of estimated earnings and taxable benefits is equal to or below the equivalent of the sum of personal allowances and the basic rate limit for the year (£42,385 as explained above), the employee will be entitled to relief on £55 exempt income for each qualifying week.

If the level of estimated earnings and taxable benefits exceed the equivalent of the sum of personal allowances and the basic rate limit for the year (£42,385 as above) but falls below the limit at which tax becomes payable at the 45% rate limit for the year (currently £150,000), the employee is entitled to relief on £28 exempt income for each qualifying week.

If the level of estimated earnings and taxable benefits exceed the equivalent of the additional tax rate limit for the year (currently £150,000), the employee is entitled to relief on £25 exempt income for each qualifying week.

Similar rules apply for NIC purposes.

As the employer has to estimate the employee’s tax position each year, the amount of exempt income they can receive may change throughout their period of employment.

New starters

The rules are modified where employees join the scheme part way through a tax year. In that case, the earnings review has to be carried out at the point of joining. Basically, the joining employee’s salary and taxable benefits need to be pro-rated upwards to estimate the notional annual earnings figure for the employee.

Gaps in payment

An employee can ask to stop receiving childcare vouchers temporarily whilst staying in the employer’s scheme; for example, if an employee only works during school term time and doesn’t need the vouchers during the school holidays. Basically, as long as the gap in providing the vouchers doesn’t exceed 12 months the employee can still be classed as an existing member of the employer’s scheme.

This also applies to employees who are on maternity leave, sick leave and those who wish to take a career break, provided that the total length of absence does not exceed 12 months.

Further information

HMRC have provided many questions and answers on their website to help both employees and employers and these can be viewed at https://www.gov.uk/government/publications/employer-supported-childcare 

New Tax-Free Childcare scheme

In 2013, the Government announced new tax incentives for childcare . Following consultation on the design and operation of the scheme, the Government has announced improvements.

The relief will be 20% of the costs of childcare up to a total of childcare costs of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child. All children under 12 within the first year of the scheme will be eligible.. The scheme is expected to be launched in autumn 2015 and we will keep you informed of developments.To qualify for Tax-Free Childcare all parents in the household must:

• meet a minimum income level based on working eight hours per week at the National Minimum Wage (around £50 a week at current rates)
• each earn less than £150,000 a year, and
• not already be receiving support through Tax Credits or Universal Credit.

Self-employed

Self-employed parents will be able to get support with childcare costs in the Tax-Free Childcare scheme, unlike the current employer supported childcare scheme. To support newly self-employed parents, the Government is introducing a ‘start-up’ period. During this period a newly self-employed parent will not have to earn the minimum income level.

The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.

Online account

It is proposed that parents register with the Government and open an online account. The scheme will be delivered by HMRC in partnership with National Savings and Investments, the scheme’s account provider. The Government will then ‘top up’ payments into this account at a rate of 20p for every 80p that families pay in.

How we can help

If you would like to discuss setting up a childcare scheme in further detail, please do not hesitate to contact us.

Fraud and How to Spot It – Ten Step Guide

Major corporate frauds and collapses hit the headlines from time to time and many of these were high profile and the amounts involved quite spectacular.

With the current pressures we are still facing from the economic slowdown, difficulties in renewing finance, the challenge of achieving targets, even simply paying suppliers bills and it becomes easy to see that the risk of fraud for all sizes of businesses has increased significantly.

The issues associated with well publicised frauds may seem far removed from your business but the simple truth is that fraud can affect businesses of all sizes. Whether you employ a small team or a significant workforce, this factsheet considers how you can increase your awareness of the factors that indicate fraud. It also sets out the defences that you can implement to minimise the risk within your business.

It couldn’t happen here

It is easy to think that fraud is something that ‘couldn’t or wouldn’t happen here’. However while large businesses have the resources to implement what they hope are effective systems of internal control to prevent fraud, smaller and medium-sized businesses often have to rely on a small team of people who they trust. No doubt you can think of a handful of key employees who you couldn’t imagine being without! On so many occasions employers have said “do you know he/she (the fraudster) was my most trusted employee”.

A key difficulty faced by smaller businesses is the lack of options to segregate duties. Individuals have to fulfil a number of roles and this can lead to increased opportunity and scope to commit fraud, and for some, the temptation can be too great.

Areas where fraud can occur

While the precise nature of any fraud will be specific to the nature of the business and the opportunities afforded to a potential fraudster, there are a number of common areas where fraud can occur.

Employees abusing their position

Most fraud impacts on the profit and loss account, where either expenses are overstated or income understated. Frauds here could range from a few pounds of fiddled expenses, where no one checks supporting documentation or reviews whether the claim made is reasonable, to more significant frauds. These could involve the setting up of fictitious suppliers and the production of bogus invoices, or an employee who approves purchases working in collusion with a supplier.

Positions could also be abused where a business requests tenders. Here there is a risk of ‘kickbacks’ where the individuals involved in the tender process accept bribes or sweeteners from potential suppliers. This could result in inefficient contracts being signed perhaps for dubious quality goods.

The individual amounts involved in these types of fraud may not be large, so they go unnoticed for some time. However as time progresses the amounts involved can become significant. Many fraudsters gain in confidence and the figures involved escalate as they become ‘greedy’. Of course large scale frauds are more likely to be discovered and greed often plays a part in the identification and capture of fraudsters.

Nevertheless the time taken to detect fraud is vital. It may make all the difference to cashflow as fraud drains a business of resources that it needs to grow.

Suppliers taking advantage

Where a business has few or weak checking procedures and controls, a supplier may recognise this fact and take advantage. For example fewer items may actually be delivered than those included on the delivery note. Invoices may include higher quantities or prices than those delivered and agreed.

This highlights the importance of checking both delivery notes and invoices and following up any discrepancies promptly.

Other risk areas

Theft of confidential information such as client or customer lists or intellectual property such as an industrial process could cause a business untold problems if these are stolen by disgruntled employees. There have even been examples of these being copied onto an iPod!

Information could also be vulnerable to attack from outside. Advances in technological developments mean that all businesses connected to the internet need to consider the risks associated with this. The same advances in technology sometimes lead us to believe that the computer is always right, so fewer manual checks are completed generally within the organisation as a result.

Certain types of organisation are at greater risk of fraud, for example those that are cash based can be more vulnerable due to the difficulties in implementing effective controls over cash. Similarly businesses that deal in attractive consumer goods are at increased risk.

Examples

J F Bogus & Sons

You might think that this could never happen to you but if your trusted bookkeeper presents you with an invoice and a cheque to sign, just how hard do you look at the invoice? The amount might be relatively small and is of course supported by an invoice. You have to sign the cheque in a hurry as you won’t be in tomorrow and it’s 5.15pm. Your bookkeeper will fill the payee line in before the cheque is sent out.

Ultimately, your year end figures just don’t look quite right and subsequent investigations identify missing invoices and eventually, that the bookkeeper has been making these cheques payable to himself.

Sporting life!

Stock controls were put to the test in the sportswear and equipment business that showed up too many discrepancies between computerised stock and that actually counted at the year end. The differences could not be explained and eventually surveillance was used to monitor the warehouse.

Revealing footage showed the cleaners adding various bats, balls and kit to the bin bags full of rubbish removed each evening!

Businesses that are growing rapidly may also be more susceptible to fraud. When both company resources and directors personally are stretched to capacity, it is even more difficult to maintain an overview. Indicators of fraud may go unnoticed.

Does anyone know where Sid is?

Imagine the surprise a director of a local manufacturing company had when he handed out the payslips to his workforce and two were left over! His financial controller, who had never missed handing these out previously, had been taken ill and could not come into work. Subsequent investigations revealed that for some time, this much trusted staff member had created fictitious employees and had been paying the wages into his own bank account.

Ten step guide to preventing and detecting fraud

Given the wide range of fraud that could be committed, what steps can you take to minimise the risk of fraud being perpetrated within your organisation? Consider our top ten tips for detecting and preventing fraud.

1. Begin by recruiting the right people to work in your organisation. Make sure that you check out references properly and ensure that any temporary staff are also vetted, particularly if they are to work in key areas.
2. Ensure that you have a clear policy that fraud will not be tolerated within the organisation and ensure that this is communicated to all staff.
3. Consider which areas of your organisation could be at risk, then plan and implement appropriate defences. Target the areas where most of your revenue comes from and where most of your costs lie. Develop some simple systems of internal control to defend these areas. Effective controls include:

   –  segregating duties
   –  supervision and review
   –  arithmetical checks
   –  accounting comparisons
   –  authorisation and approval
   –  physical controls and counts

4. Wherever possible don’t have only one person who is responsible for controlling an entire area of the business. This in particular includes the accounting function but will also include other key areas. For example ordering goods, stock control and despatch in a business where stocks include attractive consumer goods.
5. Always retain a degree of control over the key accounting functions of your business. Don’t pre-sign blank cheques other than in exceptional circumstances and ensure that the corresponding invoices are presented with the cheques.
6. Be on the lookout for unusual requests from staff involved in the accounting function.
7. Watch out for employees who are overly protective of their role – they may have something to hide. Similarly watch out for disaffected employees, who might be bearing a grudge or those whose circumstances change for the worse or inexplicably for the better!
8. Watch out for notable changes in cashflow when an employee is away from the office, on holiday for example. Similarly be aware of employees who never take their holiday. These could both be indicators of fraud, something we see when we look back retrospectively.
9. Prepare budgets and monthly management accounts and compare these against your actual results so that you are aware of variances. Taking prompt investigative action where variances arise could make all the difference by closing the window of opportunity afforded to fraudsters.
10. Where a fraudster is caught, make sure that appropriate action is taken and learn from the experience.

Winning the battle against fraud

While the most devious of fraudsters might go unnoticed for some time, many fraudsters are ordinary individuals who see an opportunity. The frauds that they commit are quite simple in nature.

The implementation of some simple checks within a business can make it much more difficult for a fraudster to take advantage. The results could be startling – preventing a fraud of £100 each week equates to around £5,000 leaving a business over a year. Operating at a 20% margin would mean generating £25,000 of turnover to compensate for this.

How we can help

If you would like to discuss any of the issues raised in this factsheet please do contact us.

Data Security – Data Protection Act

Many businesses are totally reliant on the data stored on their PCs, laptops, networks, mobile devices and in the cloud. Some of this data is likely to contain either personal information and/or confidential company information.

Here we look at some of the key compliance issues surrounding data protection and the Data Protection Act (the Act).

Most businesses process personal data to a greater or lesser degree. If this is the case, compliance with the Act is required unless one of the exemptions applies (see below).

Complying with the Act includes a notification process, handling data according to the principles of data protection and dealing with subject access requests.

In the UK, the Information Commissioner (ICO) is responsible for the public Data Protection Register and for enforcing the Data Protection Act.

Summary of the principles of the Data Protection Act

1. Personal data must be fairly and lawfully processed;
2. Personal data must be processed for limited purposes;
3. Personal data must be adequate and not excessive;
4. Personal data must be accurate and up to date;
5. Personal data must be kept no longer than necessary;
6. Personal data must be processed in line with the data subjects’ rights;
7. Personal data must be secure;
8. Personal data must not be transferred to countries outside the European Economic Area (EEA) without adequate protection.

Exemptions

There are 5 main categories of exemption –

• organisations that process personal data only for:
  –  staff administration (including payroll)
  –  advertising, marketing and public relations (in connection with their own business activity) and
  –  accounts and records
• some not-for-profit organisations
• organisations that process personal data only for maintaining a public register
• organisations that do not process personal information on computer and
• individuals who process personal data only for domestic purposes.

There are a number of more specific exemptions. However, most companies find the exemptions are too narrow, and opt to notify (see below).

Notification

Notification is the method by which a company’s usage of personal data is added to the public Data Protection register maintained by the ICO. The process starts by completing the notification documentation (available from www.ico.gov.uk) and sending this back with the annual notification fee (currently £35 for the small business).

Notification needs to be performed annually (even if there are no changes).

N.B. Be wary of organisations who say they represent the ICO and who charge more than the standard £35 fee.

Subject Access Request (SAR)

Individuals have rights under the Act to find out whether you are processing their personal data, and to provide them with a copy of the data which is stored about them.

Most SARs must be responded to within 40 days.

An individual has the right to ask you to:

• correct or delete information about them which is inaccurate;
• stop processing their personal data for direct marketing purposes;

• stop processing their data completely or in a particular way (depending upon the circumstances)

A fee can be levied for dealing with an SAR – but only up to £10 (except for health or education records).

If a fee is levied, the access request does not have to be complied with until the fee has been received.

Secondly, the Act makes it clear that the SAR must contain enough information to validate that the person making the request is the individual to whom the personal data relates. So it may be necessary and is legitimate to ask for further identification from the originator of the SAR.

Data security

The Act says there should be security that is appropriate to:

• the nature of the information in question;
• the harm that might result from its improper use, or from its accidental loss or destruction.

The Act does not define “appropriate” – but it does say that “an assessment of the appropriate security measures in a particular case should consider technological developments and the costs involved”.

So, there a number of key areas to concentrate on –

Management and organisational measures

Someone in the organisation should be given overall responsibility for data security.

Staff

Staff need to understand the importance of protecting personal data, that they are familiar with the organisation’s security policy, and that they put security procedures into practice.

Physical security

Technical security measures to protect computerised information are of obvious importance. However, many security incidents relate to the theft or loss of equipment, or to the disposal of old equipment and old printouts.

Computer security

As well as a comprehensive backup regime, appropriate access controls and mechanisms need to be in place. Websites in particular need sophisticated security measures in place.

As well as the Data Protection Act there are various other Acts and regulations which have a bearing on data security. These include:

• Privacy and Electronic Communications Regulations (PECR) 2003 – which cover ‘Spam’ and mass-marketing mail shots. Regulations under the PECR are also issued from time to time. For example, regulations on the use of cookies on websites.
• Copyright Design and Patents Act – amended 2002 to cover software theft.
• There may be other IT standards and regulations applicable to your business sector. For example, companies processing credit card transactions need to ensure compliance with the Payment Card Industry Data Security Standards (PCI DSS).

How we can help

We can provide help in the following areas:

• performing a security/information audit
• training staff in security principles and procedures
• notification
• advising on appropriate procedures to ensure compliance with regulations applicable to the type of organisation.

Please do not hesitate to contact us if we can be of further assistance.