Accounting Package Selection

Selecting the right accounting package can be difficult, particularly as there are so many packages on the market. Price and functionality vary so widely it can make objective comparisons very difficult without spending a number of days on the selection process. The availability of internet (cloud-based) accounting packages has complicated the selection process.

We have set out below some areas you should consider when making your selection:

Determining your requirements

A decision is required first as to the level of complexity required from a new system.

At the most basic level, you need to decide whether you just want something to replace a spread sheet or cash-book, to handle receipts and payments, or whether a more sophisticated ledger-based system to produce quotes, VAT returns, and monthly accounts would be more appropriate.

You may decide that you need a highly sophisticated system which, as well as doing all of the above, can also handle stock control and job costing and can also integrate with a web site.

Online or in-house?

The next key decision is whether you want to run your accounting functions in-house, or over the internet using a web-based provider. There are advantages and disadvantages either way. For example, an online solution will involve a recurring monthly/quarterly fee for the service whereas an in-house solution may involve a one-off purchase price plus any annual licence and upgrade fees. Another consideration with an online solution is how secure the data is and can it be retrieved in the event the provider “disappears” or goes into administration/receivership?

The growing business

Think about what the business might be doing in say, 12-18 months’ time:

• Will it be going through rapid growth or a change in direction, and need more up to date and more accurate financial information, such as profitability at department or cost centre level?
• Will transaction volumes be rising steeply?
• Will you want to be able to connect your products to your web site and process orders and payments online?

Market sector

Your business may be in a specialist market sector for which there are tailor made systems already available. Talk to us as we have experience of your type of business. Talk to your trade body/trade association or local Chamber of Commerce as they may already produce information to help you, and they may hold events and seminars on this issue.

Cost

Many software vendors now use a subscription based model as opposed to the more traditional one-off licence fee.

Subscription based pricing is usually based on a regular monthly or quarterly fee – which for cash flow purposes may suit some organisations.

However, cost should not be the deciding factor. If you are only willing to spend, say £100, or £10/month, the system will be unlikely to meet all of your needs. This in turn may place constraints on the way the business trades, and subsequently turn out to be a hindrance to expansion. It may also mean that more expenditure and upheaval is required should you need to upgrade to a more expensive system in the future.

Some systems are available in modules or in different bundles – make sure you know exactly what you need.

Your detailed business requirements

A list of your detailed business requirements would be useful when comparing packages. The following pointers need to be considered in the context of your business:

General points

• What is the operating system for your computer network? (There is less of a choice of accounting packages if using a non-Windows platform).
• How many users will require concurrent access (now or in the future)?
• What volume of transactions will you be processing and can the software handle this?
• Can the system produce VAT returns and, if you are on a special VAT scheme, can it cope with this?
• Can orders and payments be taken over the internet and downloaded to the accounting system?
• Will the system let you export data to other packages such as spreadsheets and word processing packages?
• Do you need to access the system off-site from a mobile device or remote PC link?

Your specialist processing requirements

Here is a sample list – you will need to add your own special requirements depending on the nature of your business:

• retentions
• deposits/subscriptions/donations
• discounts – quantity discounts, value discounts and prompt/early-payment discounts
• part-payments/part-receipts/part-delivery
• foreign currency customers and suppliers, and foreign currency fluctuations
• processing adjustments such as bounced cheques, bad debt write-offs, refunds etc
• direct debits/standing orders (receipts and payments) and multiple debit/credit card accounts
• accruals and prepayments
• loans, grants, mortgages, HP agreements and any special payment types and terms
• component stocks and bill of materials
• mixing of service and stock items on an invoice and as separate stock records
• payments to suppliers electronically (via BACS)
• label and mail shot capabilities for customers/suppliers
• ability to create XML formatted transactions (to facilitate electronic transmission to other systems)
• debt factoring/financing (may require specific work rounds)
• data import and data export requirements

Your information and reporting requirements

You need to determine what kind of management and user information is required from the system.

A sample list might include:

• financial reports – trial balance, profit and loss, balance sheet, cash flow and turnover reports
• key ratios and other business metrics
• actual vs budget reports
• work in progress and profit/loss on job or contract
• profit/loss by department, or by cost centre or other levels of analysis
• customer/supplier balances and aged debtors/aged creditors
• statements and invoices

Other points

• How does the system cope if you need to amend a transaction?
• Is there a full audit trail (including details of modified transactions)?
• Does the system produce the information in an acceptable form to you and us (as your accountant) in order to complete all statutory and regulatory financial year-end and fiscal year-end tasks?
• Does the system enable statutory online filing (VAT returns and EC Sales List returns for example)
• Are there adequate security routines to prevent unauthorised access?

Training

Training for your new system and new procedures is vital for the staff that will be using the system on a day-to-day basis. Do not assume that an experienced user would not benefit from training.

We may be able to provide training for you or help you find appropriate training.

The final choice

• Narrow the selection down to the package(s) that matches your needs most closely.
• If the potential user(s) of the system have not so far been involved, now is the time to get them involved.
• Get an evaluation or trial copy if possible (some software vendors offer a free 30-day trial for example), and also go and see the system in action at a business similar to yours.

Having performed an objective review up until now, the final choice may be more subjective. It will probably be down to look and feel of the system at the end of the day!

Implementation

Whilst the beginning of the financial year is the most logical time to start, this may not be a particularly convenient time for the accounts staff.

You may wish to discuss the timing with us, as we can help in drawing up a list of opening transactions and the opening trial balance at the appropriate time.

Other issues to think about at this stage are:

• customer/supplier/nominal and cost centre/stock/job costing codes
• designing/ordering pre-printed stationery (invoices for example)
• creating records and posting opening transactions (if you already have a system in place it may be possible to import some or all of this data)
• developing periodic processing, authorisation and verification routines
• backup and restore procedures for the accounting data files
• long-term retention of accounting data (minimum of 6 years).

How we can help

We are here to help you with any of the steps involved in choosing and implementing an accounting package. Please contact us for further advice.

Pensions – Tax Reliefs

Types of pension schemes

There are two broad types of pension schemes from which an individual may eventually be in receipt of a pension:

• Occupational schemes
• Personal Pension schemes.

An occupational pension is an arrangement an employer can use to provide benefits for their employees when they leave or retire. The number of occupational pension schemes has declined in recent years in part due to the regulations imposed upon the schemes.

A Personal Pension scheme is a privately funded pension plan but can also be funded by an employer. In many cases the employer may organise the establishment of pension plans for their employees through a Group Personal Pension scheme.

A stakeholder pension is a personal pension plan but has restrictions on the amounts that may be charged by the pension provider (typically a pension company).

We set out below the tax reliefs available to members of a Personal Pension scheme.

It is important that professional advice is sought on pension issues relevant to your personal circumstances.

What are the tax breaks and controls on the tax breaks?

To benefit from tax privileges all pension schemes must be registered with HMRC. For a Personal Pension scheme, registration will be organised by the pension provider.

A Personal Pension scheme allows the member to obtain tax relief on contributions into the scheme and tax free growth of the fund. If an employer contributes into the scheme on behalf of an employee, there is, generally no tax charge on the member and the employer will obtain a deduction from their taxable profits. Self employed and employed individuals can have a Personal Pension.

When the ‘new’ pension regime was introduced from 6 April 2006 no limits were set on either the maximum amount which could be invested in a pension scheme in a year or on the total value within pension funds. However two controls were put in place in 2006 to control the amount of tax relief which was available to the member and the tax free growth in the fund.

Firstly, a lifetime limit was established which set the maximum figure for tax-relieved savings in the fund(s) and has to be considered when key events happen such as when a pension is taken for the first time.

Secondly, an annual allowance sets the maximum amount which can be invested with tax relief into a pension fund. The allowance applies to the combined contributions of an employee and employer. Amounts in excess of this allowance trigger a charge.

There are other longer established restrictions on contributions from members of a Personal Pension scheme (see below).

Key features of Personal Pensions

• Contributions are invested for long-term growth up to the selected retirement age.
• At retirement which may be any time from the age of 55 the accumulated fund is generally turned into retirement benefits – an income and a tax-free lump sum.
• Personal contributions are payable net of basic rate tax relief, leaving the provider to claim the tax back from HMRC.
• Higher and additional rate relief is given as a reduction in the taxpayer’s tax bill. This is normally dealt with by claiming tax relief through the self assessment system.
• Employer contributions are payable gross direct to the pension provider.

Persons eligible

All UK residents may have a Personal Pension. This includes non-taxpayers such as children and non-earning adults. However, they will only be entitled to tax relief on gross contributions of up to £3,600 per annum.

Relief for individuals’ contributions

An individual is entitled to make contributions and receive tax relief on the higher of £3,600 or 100% of earnings in any given tax year. However tax relief will generally be restricted for contributions in excess of the annual allowance.

Methods of giving tax relief

Tax relief on contributions are given at the individual’s marginal rate of tax.

An individual may obtain tax relief on contributions made to a Personal Pension in one of two ways:

• a net of basic rate tax contribution is paid by the member with higher rate relief claimed through the self assessment system
• a net of basic rate tax contribution is paid by an employer to the scheme. The contribution is deducted from net pay of the employee. Higher rate relief is claimed through the self assessment system.

In both cases the basic rate is claimed back from HMRC by the pension provider.

A more effective route for an employee may be to enter a salary sacrifice arrangement with an employer. The employer will make a gross contribution to the pension provider and the employee’s gross salary is reduced. This will give the employer full income tax relief (by reducing PAYE) but also reducing National Insurance Contributions.

There are special rules if contributions are made to a retirement annuity contract. (These are old schemes started before the introduction of personal pensions).

The annual allowance

The level of the annual allowance is £40,000 for 2015/16 but in order to determine whether the allowance has been exceeded a pension input period needs to be determined for the scheme.  A pension input period does not have to be the same as the tax year. In addition, each scheme can have a different pension input period, so special care is required in this area.

Any contributions in excess of the £40,000 annual allowance are potentially charged to tax on the individual as their top slice of income. Contributions include contributions made by an employer.

The stated purpose of the charging regime is to discourage pension saving in tax registered pensions beyond the annual allowance. It is expected that most individuals and employers will actively seek to reduce pension saving below the annual allowance, rather than fall within the charging regime.

The rate of charge

The charge is levied on the excess above the annual allowance at the appropriate rate in respect of the total pension savings. There is no blanket exemption from this charge in the year that benefits are taken. There are, however, exemptions from the charge in the case of serious ill health as well as death.

The appropriate rate will broadly be the top rate of income tax that you pay on your income.

Example Anthony, who is employed, has taxable income of £120,000 in 2014/15. He makes personal pension contributions of £50,000 net in 2014/15. He has made similar contributions in the previous three tax years. The charge will be: Gross pension contribution £62,500 Less annual allowance (£40,000) Excess £22,500 taxable at 40% = £9,000 Anthony will have had tax relief on his pension contributions of £25,000 (£62,500 x 40%) and now effectively has £9,000 clawed back. The tax adjustments will be made as part of the self assessment tax return process.

Carry forward of unused annual allowance

To allow for individuals who may have a significant amount of pension savings in a tax year but smaller amounts in other tax years, a carry forward of unused annual allowance is available.

The carry forward rules apply if the individual’s pension savings exceed the annual allowance for the tax year (i.e. £40,000). The annual allowance for the current tax year is to be treated as increased by the amount of the unused annual allowance from the previous three tax years.

Unused annual allowance carried forward is the amount by which the annual allowance for that tax year exceeded the total pension savings for that tax year.

This effectively means that the unused annual allowance of up to £40,000 per year from 2014/15 (previously £50,000) can be carried forward for the next three years.

Importantly no carry forward is available in relation to a tax year preceding the current year unless the individual was a member of a registered pension scheme at some time during that tax year.

An amount of the excess for an earlier tax year is to be used before that for a later tax year.

As the annual allowance has been far higher than £50,000 before 2011/12 when the new rules were introduced, when looking at whether there is unused annual allowance to bring forward from 2008/09, 2009/10 and 2010/11, the annual allowance for those years is deemed to have been £50,000.

Example Bob is a self employed builder. In the previous three years Bob has made contributions of £30,000, £20,000 and £30,000 to his pension scheme. As he has not used all of the £40,000 (2013/14 and prior years £50,000) annual allowance in earlier years, he has £60,000 unused annual allowance that he can carry forward to 2015/16. Together with his current year annual allowance of £40,000, this means that Bob can make a contribution of £100,000 in 2015/16 without having to pay any extra tax charge.

The lifetime limit

The lifetime limit sets the maximum figure for tax-relieved savings in the fund remains at  £1.25 million for 2015/16.

If the value of the scheme(s) exceeds the limit when benefits are drawn from the scheme there is a tax charge of 55% of the excess if taken as a lump sum and 25% if taken as a pension.

The Chancellor has announced that for the tax year 2016/17 onwards the lifetime allowance will be reduced to £1 million. It will then be indexed annually in line with CPI from 6 April 2018.

Accessing your pension

In Budget 2014, George Osborne announced ‘pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want’. Some of changes have already taken effect but the big changes will come into effect on 6 April 2015 for individuals who have money purchase pension funds.

The tax consequences of the changes are contained in the Taxation of Pensions Bill which is currently going through Parliament.

Under the current system, there is some flexibility in accessing a pension fund from the age of 55:

• tax free lump sum of 25% of fund value
• purchase of an annuity with the remaining fund, or
• income drawdown.

For income drawdown there are limits, in most cases, on how much people can draw each year.

An annuity is taxable income in the year of receipt. Similarly any monies received from the income drawdown fund are taxable income in the year of receipt.

From 6 April 2015, the ability to take a tax free lump sum and a lifetime annuity remain but some of the current restrictions on a lifetime annuity will be removed to allow more choice on the type of annuity taken out.

The rules involving drawdown will change. There will be total freedom to access a pension fund from the age of 55. Access to the fund will be achieved in one of two ways:

• allocation of a pension fund (or part of a pension fund) into a ‘flexi-access drawdown account’ from which any amount can be taken over whatever period the person decides
• taking a single or series of lump sums from a pension fund (known as an ‘uncrystallised funds pension lump sum’).

When an allocation of funds into a flexi-access account is made the member typically will take the opportunity of taking a tax free lump sum from the fund (as under current rules).

The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt.

Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum.

The tax effect will be:

• 25% is tax free
• the remainder is taxable as income.

Further flexibility for annuity holders

The Chancellor announced just before the Budget a new flexibility for people who have already purchased an annuity. From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity for a capital sum.

Individuals will then have the freedom to take that capital as a lump sum, or place it into drawdown to use the proceeds more gradually. Income tax at the individual’s marginal rate will be payable in the year of access to the proceeds.

The proposal will not give the annuity holder the right to sell their annuity back to their original provider. The government has begun a consultation on the measures that are needed to establish a market to buy and sell annuities and who should be permitted to purchase the annuity income.

Pensions – changes to tax relief for pension contributions

The Government is alive to the possibility of people taking advantage of the new flexibilities by ‘recycling’ their earned income into pensions and then immediately taking out amounts from their pension funds. Without further controls being put into place an individual would obtain tax relief on the pension contributions but only be taxed on 75% of the funds immediately withdrawn.

Currently an ‘annual allowance’ sets the maximum amount of tax efficient contributions. The annual allowance is £40,000 (but there may be more allowance available if the maximum allowance has not been utilised in the previous years).

Under the  rules from 6 April 2015, the annual allowance for contributions to money purchase schemes will be reduced to £10,000 in certain scenarios. There will be no carry forward of any of the £10,000 to a later year if it is not used in the year.

The main scenarios in which the reduced annual allowance is triggered is if:

• any income is taken from a flexi-access drawdown account, or
• an uncrystallised funds pension lump sum is received.

However just taking a tax-free lump sum when funds are transferred into a flexi-access account will not trigger the £10,000 rule.

How we can help

This information sheet provides general information on the making of pension provision. Please contact us for more detailed advice if you are interested in making provision for a pension.

Money Laundering and the Proceeds of Crime

There are tough rules to crack down on money laundering and the proceeds of crime. These rules affect a wide range of people and we consider how your organisation may be affected.

Money laundering – a definition

Most of us imagine money launderers to be criminals involved in drug trafficking or terrorism or to be someone like Al Capone. However legislation, in the last decade, has expanded significantly the definition of what we might have traditionally considered as money laundering. While the general principles remain; money laundering involves turning the proceeds of crime into apparently ‘innocent’ funds with no obvious link to their criminal origins, what has changed is that the definition now includes the proceeds of any criminal offence, regardless of the amount involved.

The rules

The key pieces of legislation are:

• the Proceeds of Crime Act 2002 (The Act) as amended by the Serious Organised Crime and Police Act 2005, and
• the Money Laundering Regulations 2007 (The 2007 Regulations).

The Act

The Act re-defines money laundering and the money laundering offences, and creates new mechanisms for investigating and recovering the proceeds of crime. The Act also revises and consolidates the requirement for those affected to report knowledge, suspicion or reasonable grounds to suspect money laundering. See the panel below for some of the more technical terms of the Act.

The 2007 Regulations

The 2007 Regulations contain the detailed procedural requirements for those affected by the legislation. The 2007 Regulations came into force on 15 December 2007.

Proceeds of Crime Act – technical terms Under the Act, someone is engaged in money laundering if they: conceal, disguise, convert, transfer or remove (from the United Kingdom) criminal property enter into or become concerned in an arrangement which they know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person or acquire, use or have possession of criminal property. Property is criminal property if it: constitutes a person’s benefit in whole or in part (including pecuniary and proprietary benefit) from criminal conduct or represents such a benefit directly or indirectly, in whole or in part and the alleged offender knows or suspects that it constitutes or represents such a benefit.

Who is caught by the legislation?

Certain businesses have been affected by anti-money laundering rules for some time, for example, banks and other financial institutions. These businesses have been required to put in place specific arrangements to prevent and detect money laundering.

The new regime requires many more businesses to introduce procedures to combat money laundering and the criminal activity that underlies it. As money launderers have resorted to more sophisticated ways of disguising the source of their funds, new legislation aimed at catching those involved has become necessary.

The regulated sector

The legislation relates to anyone in what is termed as the ‘regulated sector’, which includes but is not limited to:

• accountants and auditors
• tax advisers
• financial institutions
• credit institutions
• dealers in high value goods (including auctioneers dealing in goods) whenever a transaction involves accepting a total cash payment equivalent to €15,000 or more, whether in a single operation or in several operations that are linked
• casinos
• estate agents
• some management consultancy services
• company formation agents
• insolvency practitioners
• legal professionals

The implications of being in the regulated sector

Those businesses that fall within the definition are required to establish procedures to:

• apply customer due diligence procedures (see below)
• appoint a Money Laundering Nominated Officer (MLNO) to whom money laundering reports must be made
• establish systems and procedures to forestall and prevent money laundering and
• provide relevant individuals with training on money laundering and awareness of their procedures in relation to money laundering.

If your business is caught by the definition you may have received guidance from your professional or trade body on how the requirements affect you and your business. Those of you who are classified as High Value Dealers may be interested in our factsheet of the same name, which considers how the 2007 Regulations affect those with high value cash sales.

The implications for customers of those in the regulated sector

As you can see from the list above, quite a wide range of professionals and other businesses are affected by the legislation. Those affected must comply with the new laws or face the prospect of criminal liability (both fines and possible imprisonment) where they do not.

Procedural changes – customer due diligence (CDD)

Under The Regulations, if you operate in the regulated sector, you are required to undertake CDD procedures on your customers. These CDD procedures need to be undertaken for both new and existing customers.

CDD procedures involve:

• identifying your customer and verifying their identity. This is based on documents or information obtained from reliable and independent sources
• identifying where there is a beneficial owner who is not the customer. It is necessary for you to take adequate measures on a risk sensitive basis, to verify the beneficial owner’s identity, so that you are satisfied that you know who the beneficial owner is. The beneficial owners of the business are those individuals who ultimately own or control the business
• obtaining information on the purpose and intended nature of the business relationship

You must apply CDD when you:

• establish a business relationship
• carry out an occasional transaction (one off transaction valued at €15,000 or more)
• suspect money laundering or terrorist financing
• doubt the reliability or adequacy of documents or information previously obtained for identification.

CDD measures must also be applied on a risk sensitive basis at other times to existing customers. This could include when a customer requires a different service. Businesses must consider why the customer requires the service, the identities of any other parties involved and any potential for money laundering.

The purpose of the CDD is to confirm the identity of the customer. For the customer’s identity to be confirmed, independent and reliable information is required. Documents which give the strongest evidence are those issued by a Government department or agency or a Court including documents filed at Companies House. For individuals, documents from highly rated sources that contain photo identification, eg passports and photo driving licenses, as well as written details are a particularly strong source of verification.

The law requires the records obtained during the CDD to be maintained for five years after a customer relationship has ended.

Enhanced due diligence

Enhanced CDD and ongoing monitoring must be applied where:

• the client has not been met face to face
• the client is a politically exposed person
• there is a higher risk of money laundering or terrorist financing.

Additional procedures are required over and above those applied for normal due diligence in these circumstances.

Procedural changes – reporting

As mentioned above, the definition of money laundering includes the proceeds of any crime. Those in the regulated sector are required to report knowledge or suspicion (or where they have reasonable grounds for knowing or suspecting) that a person is engaged in money laundering, ie has committed a criminal offence and has benefited from the proceeds of that crime. These reports should be made in accordance with agreed internal procedures, firstly to the MLNO, who must decide whether or not to pass the report on to the National Crime Agency (NCA).

The defences for the MLNO are:

• reasonable excuse (reasons such as duress and threats to safety might be accepted although there is little case law in this area as yet)
• they followed Treasury approved guidance.

The Courts must take such guidance into account.

National Crime Agency (NCA)

The NCA is the UK new crime-fighting agency with national and international reach and the mandate and powers to work in partnership with other law enforcement organisations to bring the full weight of the law to bear in cutting serious and organised crime. Part of the role of the NCA is to analyse the suspicious activity reports (SARs) received from those in the regulated sector and to then disseminate this information to the relevant law enforcement agency.

The Regulations require those in the regulated sector to report all suspicions of money laundering to the NCA. By acting as a coordinating body, the NCA collates information from a number of different sources. This could potentially build up a picture of the criminal activities of a particular individual, which only become apparent when looked at as a whole. This information can then be passed on to the relevant authorities to take action.

Is your business vulnerable?

Criminals are constantly searching for new contacts to help them with their money laundering. Certain types of business are more vulnerable than others. For example, any business that uses or receives significant amounts of cash can be particularly attractive. To counter this, the Regulations require businesses that deal in goods and accept cash equivalent to €15,000 to register with HMRC and implement anti-money laundering procedures.

You can imagine that if a drug dealer went along to a bank on Monday morning and tried to pay in the weekend’s takings, the bank would notice it and report it unless the sum was relatively small. If criminals can find a legitimate business to help them by taking the cash and pretending that it is the business’s money being paid in (in exchange for a proportion!), then that business can put the cash into the bank without any questions being asked.

Take for example the mobile telephone business that has had a fairly steady turnover of £10,000 per week for the last couple of years but suddenly begins to bank £100,000 in cash each week. Without a clear, rational and plausible explanation, this type of suspicious activity would clearly be reported to the NCA.

Perhaps a less obvious example of possible money laundering could be where an individual comes into an antiques shop and offers to buy a piece of furniture for £12,000 in cash. Not too many sellers would have insisted upon a cheque in the past! This person may be a money launderer who then goes to another shop and sells the antique for say £8,000, being quite prepared to suffer the apparent loss. This time the criminal asks for a cheque that can then be paid innocently into a bank account, making the money look legitimate.

The legislation aims to put a stop to this type of activity. Those in the regulated sector are required to report any transactions that they have suspicions about. Also, it is not simply the more obvious examples of suspicious activities that have to be reported. For the majority of those regulated, the government has insisted upon there being no de minimis limits within the legislation. This means that very small proceeds of crime have to be reported to the NCA.

Tipping off

There is also an offence known as ‘tipping off’ under the Act. This is what would happen if a person in the regulated sector were to reveal that a suspicious activity report had been made, say for example about a customer, to that customer. Where this disclosure would be likely to prejudice any investigation by the authorities, an offence may be committed. A tipping off offence may also be committed where a person in the regulated sector discloses that an investigation into allegations that a money laundering offence has been committed is being contemplated or carried out and again that this disclosure would be likely to prejudice that investigation. As you can imagine therefore, if you were to ask an accountant or estate agent whether they had made any reports about you, they would not be able to discuss this with you at all. If they did, they could break the law and could face a fine or imprisonment or both.

How we can help

The legislation brings a number of professions and businesses into the regulated sector. Complying with the requirements of both the Act and the 2007 Regulations requires those affected to introduce a number of procedures to ensure that they meet their legal responsibilities. If you would like to discuss how the legislation could affect you and your organisation please do contact us.

Data Security – Data Loss Risk Reduction

Many companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices or 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 issues to consider when reviewing the security of your computer systems, and how to minimise the risks of data loss.

There have been many high profile incidents of data loss – where large volumes of personal information have found their way into the public domain.

Examples of this sort of information include health records, financial records and employee details.

A commercial organisation also faces the additional risk of data being lost to a competitor.

Obviously, the larger data losses from government and corporations has hit the headlines.

However, any company, however large or small can suffer data loss unless sensible precautions are taken.

In the past year alone, according to research undertaken by the Department for Business Innovation & Skills some 87% of small businesses have experienced some sort of security breach.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/200455/bis-13-p184-2013-information-security-breaches-survey-technical-report.pdf

Small businesses were commonly subject to system failures and data corruption, with computer theft and fraud also featuring on the list of types of security breach.

Mobile devices in particular – which can run applications, link to corporate servers and can receive emails with corporate and personal data in the form of attachments, can be considered high risk. Firms may want to think about a BYOD (Bring Your Own Device) policy.

There are usually two ways in which data can go missing:

• an employee accidentally or deliberately loses a device, or discloses personal information
• the data is stolen through the physical theft of a device, or by electronic penetration.

Audit use and storage of personal data

Consider the potentially sensitive and confidential data which is stored by your business –

• staff records with date of birth, salary and bank account details, sickness/absence etc
• customer and supplier records with bank/credit card account details, pin numbers, passwords, transaction information, discounts and pricing, contracts information
• financial and performance data and business plans.

Confidential data is not always conveniently stored in a ‘secure’ database. Often employees need to create and circulate ad hoc reports (using spreadsheets and other documents) which are usually extracts of information stored in a database. This is quite often done at the expense of data security – as the database itself invariably will have access controls, but these ad hoc reports usually do not.

Find out what is happening to data and what controls are in place to prevent accidental or deliberate loss of this information.

Risk analysis and risk reduction

So the first key question is – If all or some of this data is lost who could be harmed and in what way?

When that is known, then steps to mitigate the risks of data loss must be taken.

So here are some steps which should be undertaken to reduce the risk of data loss –

• Undertake regular backups and store backup data off-site
• Review the type of information which is stored on devices (such as laptops, mobiles or other media) which are used off-site. If such information contains personal and/or confidential data try to minimise or anonymise the data. Ensure that the most appropriate levels of data security and data encryption are applied to this data
• If mobile devices are permitted to use company facilities ensure there is an active Bring your own Device (BYOD) policy in place
• Review the use/availability of USB, and other writable media such as Optical devices within the company and think about restricting access to these devices to authorised users only, via appropriate security settings, data encryption, and physical controls
• Ensure that company websites which process online payments have the highest levels of security. This means adopting SSL encrypted transmissions, and also testing for vulnerabilities from attacks
• Have a procedure for dealing with sensitive information and its secure disposal once the data is no longer required
• Have a procedure by which any personal/corporate data stored on mobile devices can be wiped
• Train staff on their responsibilities, the data security procedures and what they should do if data goes missing

Security breach

As well as risk reduction, it is also good practice to have procedures in place in the event a security breach occurs.

This should concentrate on four main areas –

1. A recovery plan and procedures to deal with damage limitation
2. Recovery review process to assess the potential adverse consequences for individuals, how serious or substantial these are and how likely they are, to happen again
3. Notification procedures – this includes not only notifying the individuals who have been, or potentially may be, affected. If the security breach involves loss of personal data then the Information Commissioner (ICO) should be informed. There may be other regulatory bodies and other third parties such as the police, the banks and the media who may need to be informed
4. Post-breach – ensure that appropriate measures are put in place to prevent a similar occurrence, and update procedures and train or re-train staff accordingly.

How we can help

Please contact us if you require help in the following areas:

• performing a security/information audit
• training staff in security principles and procedures

Limited Liability Partnerships

Most important features of LLPs

The key advantage of a LLP compared with a traditional partnership is that the members of the LLP (it is very important that they should not be called partners but members) are able to limit their personal liability if something goes wrong with the business, in much the same way as shareholders in a company have always been able to do. Of course anyone lending money to the LLP such as a bank may still require personal guarantees from the members, as they frequently do with directors/shareholders in a company.

Where business owners have wanted to limit their personal liability in the past, they have normally set up companies and any profits made by those companies are subject to corporation tax. Dividends paid by the companies can then be taken as income of the shareholders. LLPs are taxed quite differently in that the profits are treated as the personal income of the members as if they had run their business as a partnership. The taxation of companies and partnerships is very different but taxation should not be the main consideration in choosing a business vehicle. The Government has announced that it intends to introduce new rules which will change the tax status of some LLP members (see Changes ahead for some LLP members). We would be very pleased to discuss the impact of this in any particular case.

LLPs must produce and publish financial accounts with a similar level of detail to a similar sized limited company (although micro entity provisions are not available for LLPs) and must submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for non-incorporated partnerships and specific accounting rules may lead to different profits from those of a normal partnership. The filing deadline is nine months after the period end.

Setting up LLPs or converting an existing partnership

A LLP is set up by a legal incorporation process which involves sending certain documents to the Registrar of Companies (more details from Companies House at www.companieshouse.gov.uk) along with the relevant fee. Although it is not legally necessary, every LLP should have a thorough and comprehensive members’ agreement in place and needs to have taken legal or professional advice about the issues that should be covered by this agreement.

Existing partnerships can convert to a LLP by exactly the same process of incorporation and providing there are no changes in membership or in the way in which the partnership operates, there may well be no impact on the partnership’s tax position. Again care and advice needs to be taken before any decisions are made.

It is not possible for a limited company to convert into a LLP and there will be a significant legal and taxation impact where a LLP takes over the business of a company.

Which businesses might want to use a LLP?

The types of business that LLPs were originally designed for were professional partnerships such as lawyers, surveyors and accountants. In many of these cases, though not all, they have not been able to operate through limited companies because of restrictions from their professional associations and the option of using a LLP offers some advantages.

However other businesses may also benefit from using LLPs, particularly new start-ups who might otherwise have formed limited companies.

What liability might members of a LLP have if something goes wrong?

Because LLPs are relatively new compared to other forms of businesses, there are no decisions yet by the courts where something has gone wrong. This is therefore a hard question to answer but it looks as if the following describes the position as most people understand it at present:

• if, for example, a member of a LLP were to give bad advice to a client and the client suffered a loss as a result, the client may be able to take the LLP to court and be awarded appropriate compensation
• in certain circumstances it could be possible that the member who actually gave the advice may also be required by a court to pay compensation to the client
• it is however probable that any other members who were not directly involved in the advice will not have any personal liability. In a normal partnership it is quite possible that they would have had a personal liability.

It will still be essential for LLPs (and individual members) who might find themselves in this position to have suitable insurance cover.

The other area that needs to be considered is to do with what the law calls unlawful or insolvent trading. In just the same way as company directors can be prosecuted for these offences, members of a LLP can also be prosecuted (and can be disqualified from being a member of a LLP in the future).

A decision to use a LLP?

Increasing numbers of LLPs are being created, despite take up being relatively slow to begin with. Initially many LLPs were start ups but an increasing number of conversions are being made. Any decision to convert an existing partnership or to set up a new business using a LLP is a complex one, involving legal, accounting and tax issues.

Changes for some LLP members

The LLP is a unique entity as it combines limited liability for its members with the tax treatment of a traditional partnership. Individual members have historically been deemed to be self-employed and taxed on their respective profit shares.

With effect from 6 April 2014 the Government considers that deemed self-employed status is not appropriate in some cases. For example, individuals who would normally be regarded as employees in high-salaried professional areas such as the legal and financial services sectors have been benefitting from self-employed status for tax purposes which resulted in a loss of employment taxes payable.

The rules apply when an individual is a member of an LLP and three conditions are met. The conditions are:

• There are arrangements in place under which the individual is to perform services for the LLP, in their capacity as a member, and it would be reasonable to expect that the amounts payable by the LLP in respect of their performance of those services will be wholly, or substantially wholly, disguised salary. An amount is disguised salary if it is fixed or, if is variable, it is varied without reference to the overall profits of the LLP.
• The mutual rights and duties of the members and the LLP and its members do not give the individual significant influence over the affairs of the LLP.
• The individual’s contribution to the LLP is less than 25% of the disguised salary. The individual’s contribution is defined (broadly) as the amount of capital which they contributed to the LLP.

These rules took effect from 6 April 2014.

How we can help

We would be delighted to discuss these issues with you and demonstrate what the impact on your business would be. Please contact us for further information.

Data Security – Access

Many businesses are now completely reliant on the data stored on their Network Servers, PCs, laptops, mobile devices and cloud service providers or internet service providers. Some of this data is likely to contain either personal information and/or confidential company information.

Here we look at some of the issues to consider when reviewing the security of your computer systems with respect to access controls, and to ensure compliance with Principle 7 of the Data Protection Act. This states that –

Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data.

Access security

Good access controls to the computers and the network minimise the risks of data theft or misuse.

Access controls can be divided into two main areas:

• Physical access – controls over who can enter the premises and who can access personal data
• Logical access – controls to ensure employees only have access to the appropriate software, data and devices necessary to perform their particular role.

Physical access

As well as having physical access controls such as locks, alarms, security lighting and CCTV there are other considerations such as how access to the premises is controlled.

Visitors should not be allowed to roam unless under strict supervision.

Ensure that computer screens are not visible from the outside.

Use network policies to ensure that workstations and/or mobile devices are locked when they are unattended or not being used.

Ensure that if a mobile device is lost it can be immobilised remotely.

Mobile devices being small are high risk items so sensitive data should always be encrypted and access to the service should be controlled via a pin number or password.

It may be necessary to disable or restrict access to USB devices and Optical readers and writers.

Finally, information on hard-copy should be disposed of securely.

Logical access

Logical access techniques should be employed to ensure that personnel do not have more access than is necessary for them to perform their role.

Sensitive data should be encrypted and access to this data controlled via network security and user profiles.

Access to certain applications and certain folders may also need to be restricted on a user by user basis.

Finally, it may be necessary to lock down certain devices on certain machines.

Passwords

It is accepted, universally, that a password policy consisting of a username and password is good practice.

These help identify a user on the network and enable the appropriate permissions to be assigned.

For passwords to be effective, however, they should:

• be relatively long (i.e. 8 characters or more)
• contain a mixture of alpha, numeric and other characters (such as &^”)
• be changed regularly through automatic password renewal options
• be removed or changed when an employee leaves
• be used on individual files such as spreadsheets or word processed documents which contain personal information

and should NOT

• be a blanket password (i.e. the same for all applications or for all users)
• be written on ‘post it’ notes which are stuck on the keyboard or screen
• consist of common words or phrases, or the company name.

How we can help

We can provide help in the following areas:

• defining and documenting security and logical access procedures
• performing a security/information audit
• training staff in security principles and procedures.

Please contact us if you would like any help in any of these areas.

Recruitment Procedures – Seven Steps for Good Procedures

In order to avoid the danger of discriminating in some way, particularly unconsciously, employers must take care to develop and use recruitment procedures which will avoid the risk. Using sensible procedures will also inevitably improve recruitment decisions and the quality of the people, taken on.

Professional advice should be sought before any action is taken.

Seven Steps

Sensible procedures would include the following:

1. Always produce clear job descriptions which identify both the essential activities of the job and the skills and attributes needed by candidates. It should be possible to see from this whether a disabled candidate would be able to deal with those essential activities. Avoid gender references such as he or she and only refer to qualifications and/or experience which are clearly required by the job. The danger is that any such attributes which cannot be shown to be essential could be inferred as being there to deter women, candidates from ethnic minorities or those with a disability.
2. In seeking candidates ensure that any wording used does not imply that some category (such as men or women) are favoured candidates, and be careful with words like energetic (unless this is a genuine requirement of the role) which might deter candidates with disabilities. The process for seeking candidates must also be non-discriminatory and not restricted in a way which could be seen to be discriminatory. An obvious error would be to put an advertisement in a place where it would only be seen by, for example, males (such as an all male golf club).
3. Selection methods must be chosen which will enable the appropriate skills and attributes to be assessed but should avoid anything which would in effect be discriminatory. An example could be written tests involving English comprehension for a basic cleaning job where the skills assessed by the test would be irrelevant. Where tests are used all candidates need to be given the same tests to avoid any suggestion of discrimination.
4. Be careful to avoid discriminatory questions at interview (eg when do you expect to have a family?) and generally try to ensure that all candidates are asked the same questions.
5. Do not ask candidates health related questions during the interview process or before an offer of a job is made, this would include questionnaires or general questions such as ‘the number of days sickness during the last 12 months’. Enquiries as to whether any adjustments are required to enable candidates to attend interview are permitted.
6. Consider modifying the workplace to make it suitable for candidates with disabilities – the code refers to a reasonable cost as being what the extra costs involved in recruiting a non-disabled person might be. You should also look critically at the physical arrangements for recruitment to assist candidates with disabilities to apply more easily (eg wheelchair ramps) and consider whether changes may need to be made to application forms. These should not ask questions which do not impact on the suitability of the candidate for the particular job and should not ask if a candidate is registered disabled.
7. It is essential that good records are kept for an appropriate period of time about applications, reasons for rejection and performance in any assessments and at interviews, and that these complement the job description and the skill requirements for the job. Obviously such processes help with selection anyway but these records may be essential if anything goes to an Employment Tribunal.

How we can help

We will be more than happy to provide you with assistance or any additional information required so please do contact us.

Taxation of the Family

Individuals are subject to a system of independent taxation so husbands and wives are taxed separately. This can give rise to valuable tax planning opportunities. Furthermore, the tax position of any children is important.

Marriage breakdowns can also have a considerable impact for tax purposes.

We highlight below the main areas of importance where advance planning can help to minimise overall tax liabilities.

It is important that professional advice is sought on specific issues relevant to your personal circumstances.

Setting the scene

Married couples

Independent taxation means that husbands and wives are taxed separately on their income and capital gains. The effect is that both have their own allowances, savings and basic rate tax bands for income tax, annual exemption for capital gains tax purposes and are responsible for their own tax affairs. Since December 2005, the same tax treatment applies to same-sex couples who have entered into a civil partnership under the Civil Partnership Act.

Children

A child is an independent person for tax purposes and is therefore entitled to a personal allowance and the savings and basic rate tax band before being taxed at the higher rate. It may be possible to save tax by generating income or capital gains in the children’s hands.

Marriage breakdown

Separation and divorce can have significant tax implications. In particular, the following areas warrant careful consideration:

• available tax allowances
• transfers of assets between spouses.

Tax planning for married couples

Income tax allowances and tax bands

Everyone is entitled to a basic personal allowance. This allowance cannot however be transferred between spouses except for the circumstances outlined below.

If either you or your spouse were born before 6 April 1935, a married couple’s allowance is available. This is given to the husband, although it is possible, by election, to transfer it to the wife.

From April 2015 married couples and civil partners may be eligible for a new transferable tax allowance.

The transferable tax allowance will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The transferable allowance is £1,060 for 2015/16 being 10% of the personal allowance.

Transferable Tax Allowance

From 6 April 2015 married couples and civil partners may be eligible for a new Transferable Tax Allowance.

The Transferable Tax Allowance will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.

The option to transfer will be available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their personal allowance to the other partner which means £1,060 for the 2015/16 tax year.

The claim will be made online and entitlement will be from the 2015/16 tax year. Couples will be entitled to the full benefit in their first year of marriage.

For those couples where one person does not use all of their personal allowance the benefit will be worth up to £212.

Eligible couples can register their interest for marriage allowance at https://www.gov.uk/marriage-allowance. The spouse or partner with the lower income registers their interest in transferring some of their personal allowance by entering some basic details. HMRC will subsequently invite the couple to apply. Those who don’t register their interest will be able to make an application at a later date and still receive the allowance.

Joint ownership of assets

In general, married couples should try to arrange their ownership of income producing assets so as to ensure that personal allowances are fully utilised and any higher rate liabilities minimised.

Generally, when husband and wife jointly own assets, any income arising is assumed to be shared equally for tax purposes. This applies even where the asset is owned in unequal shares unless an election is made to split the income in proportion to the ownership of the asset.

Married couples are taxed on dividends from jointly owned shares in ‘close’ companies according to their actual ownership of the shares. Close companies are broadly those owned by the directors or five or fewer people. For example if a spouse is entitled to 95% of the income from jointly owned shares they will pay tax on 95% of the dividends from those shares. This measure is designed to close a perceived loophole in the rules and does not apply to income from any other jointly owned assets.

We can advise on the most appropriate strategy for jointly owned assets so that tax liabilities are minimised.

Capital gains tax (CGT)

Each spouse’s CGT liability is computed by reference to their own disposals of assets and each is entitled to their own annual exemption, for 2015/16 £11,100 (2014/15 £11,000) per annum. Gains are treated as an individual’s top slice of income and charged at 18% or 28% or a combination of both rates.

Some limited tax savings may be made by ensuring that maximum advantage is taken of any available capital losses and annual exemptions.

This can often be achieved by transferring assets between spouses before sale – a course of action generally having no adverse CGT or inheritance tax (IHT) implications. Advance planning is vital, and the possible income tax effects of transferring assets should not be overlooked.

Further details of how CGT operates are outlined in the factsheet Capital Gains Tax.

Inheritance tax (IHT)

When a person dies IHT becomes due on their estate. Some lifetime gifts are treated as chargeable transfers but most are ignored providing the donor survives for seven years after the gift.

The rate of inheritance tax payable is 40% on death and 20% on lifetime chargeable transfers. The first £325,000 is not chargeable and this is known as the nil rate band.

Transfers of property between spouses are generally exempt from IHT. New rules have been introduced which allow any nil-rate band unused on the first death to be used when the surviving spouse dies. The transfer of the unused nil-rate band from a deceased spouse, irrelevant of the date of death, may be made to the estate of their surviving spouse who dies on or after 9 October 2007.

The amount of the nil-rate band available for transfer will be based on the proportion of the nil-rate band which was unused when the first spouse died. Key documentary evidence will be required for a claim, so do get in touch to discuss the information needed.

A gift for family maintenance does not give rise to an IHT charge. This would include the transfer of property made on divorce under a court order, gifts for the education of children or maintenance of a dependent relative.

Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.

Small gifts to individuals not exceeding £250 in total per tax year per recipient are exempt. The exemption cannot be used to cover part of a larger gift.

Gifts which are made out of income which are typical and habitual and do not result in a fall in the standard of living of the donor are exempt. Payments under deed of covenant and the payment of annual premiums on life insurance policies would usually fall within this exemption.

Children

Use of allowances and lower rate tax bands

It may be possible for tax savings to be achieved by the transfer of income producing assets to a child so as to take advantage of the child’s personal allowance.

This cannot be done by the parent if the annual income arising is above £100. The income will still be taxed on the parent. However, transfers of income producing assets by others (eg grandparents) will be effective.

A parent can however allow a child to use any entitlement to the CGT annual exemption by using a ‘bare trust’.

Child Tax Credit

A Child Tax Credit (CTC) is available to some families. We have a separate factsheet which provides more detail about this area. To see whether you are entitled to claim go to HMRC website at https://www.gov.uk/child-tax-credit

Junior Individual Savings Account (Junior ISA)

The Junior ISA is available for UK resident children under the age of 18 who do not have a Child Trust Fund account. Junior ISAs are tax advantaged and have many features in common with existing ISAs. They are available as cash or stocks and share based products.

High Income Child Benefit Charge

A charge applies to a taxpayer who has adjusted net income over £50,000 in a tax year where either they or their partner are in receipt of Child Benefit for the year. Where both partners have adjusted net income in excess of £50,000 the charge will apply to the partner with the higher income.

The income tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

Child Benefit claimants can elect not to receive Child Benefit if they or their partner do not wish to pay the charge.

Example The Child Benefit for two children amounts to £1,770. The taxpayer’s adjusted net income is £54,000. The income tax charge will be £708. This is calculated as £17.70 for every £100 above £50,000. For a taxpayer with adjusted net income of £60,000 or above the income tax charge will equal the Child Benefit.

Marriage Breakdown

Maintenance payments

An important element in tax planning on marriage breakdown used to involve arrangements for the payment of maintenance. Generally no tax relief is due on maintenance payments.

Asset transfers

Marriage breakdown often involves the transfer of assets between husbands and wives. Unless the timing of any such transfers is carefully planned there can be adverse CGT consequences.

If an asset is transferred between a husband and wife who are living together, the asset is deemed to be transferred at a price that does not give rise to a gain or a loss. This treatment continues up to the end of the tax year in which the separation takes place.

CGT can therefore present a problem where transfers take place after the end of the tax year of separation but before divorce, although gifts holdover relief is usually available on transfers of qualifying assets under a Court Order.

IHT on the other hand will not cause a problem if transfers take place before the granting of a decree absolute on divorce. Transfers after this date may still not be a problem as often there is no gratuitous intent.

How we can help

Some general points can be made when planning for efficient taxation of the family.

Any plan must take into account specific circumstances and it is important that any proposed course of action gives consideration to all areas of tax that may be affected by the proposals.

Tax savings can only be achieved if an appropriate course of action is planned in advance. It is therefore vital that professional advice is sought at an early stage. We would welcome the chance to tailor a plan to your own personal circumstances so please do contact us.

Research and Development

Research and development (R&D) by UK companies is being actively encouraged by Government through a range of tax incentives.

The incentives are only available to companies and include:

• increased deduction for R&D revenue spending and
• a payable R&D tax credit for companies not in profit.

The relief

The R&D revenue relief increases the amount a company can obtain tax relief on to more than the normal 100% revenue deduction. This relief is 225% for expenditure incurred by a SME on or after 1 April 2012 (230% from 1 April 2015). Large companies are subject to a different regime not considered here.

Alternatively a SME may claim a payable R&D tax credit for an accounting period in which it has a surrenderable loss. For expenditure incurred on or after 1 April 2014 the amount of payable tax credit that a company is entitled to for an accounting period is 14.5% of the surrenderable loss for that period. For accounting periods ending on or after 1 April 2012 the R&D credit is no longer restricted to the PAYE/NIC liabilities of the company.

Example The following is an example of the relief in operation. Neuf Ltd is an SME and incurs qualifying R&D expenditure during the year to 31 March 2015 of £100,000. Assuming Neuf Ltd is profitable it will be able to claim a deduction in respect of its R&D expenditure of £225,000. This will reduce its corporation tax liability by £45,000 (assuming a 20% rate), giving the company effective relief on the actual expenditure of 45%. If, on the other hand, Neuf Ltd is making losses, the £225,000 attributable to the R&D expenditure can either be carried forward for relief against future trading profits or converted into a payable R&D tax credit. The rate of conversion is currently set at 14.5% so this would generate a payment to the company of £32,625 (£225,000 x 14.5%) which equates to 32.63% of the original expenditure.

Considerations

There are two main considerations to establish whether the reliefs for R&D are available. These are concerned with the activity and also the conditions relating to the expenditure incurred.

Is the activity qualifying R&D?

The first essential matter to determine is whether HMRC would accept that the particular activities constitute R&D.

Relief is available if a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty and not simply an advance in its own state of knowledge or capability.

Furthermore it must be related to your company’s trade either an existing one, or one that you intend to start up based on the results of the R&D.

HMRC guidance suggests when making the claim for relief that a company should answer the following questions, so they can see how your view of the definition applies to your project.

• What is the scientific or technological advance?
• What were the scientific or technological uncertainties involved in the project?
• How and when were the uncertainties actually overcome?
• Why was the knowledge being sought not readily deducible by a competent professional?

Please do get in touch if you would like advice on R&D so we can maximise the reliefs available.

Does the expenditure qualify?

The second consideration is to ensure the relevant tax conditions are met, the most important being:

• the expenditure must be from a qualifying revenue category and not be capital expenditure
• the spending must not be incurred in carrying out activities contracted to the company by another person (however a slightly different form of R&D tax credit may apply – you may still be able to claim, as a subcontractor, under the Large Company Scheme which is not considered further in this factsheet)
• the expenditure must not have been met by another person (if the R&D project is funded in whole or part by ‘State Aid’ such as a government grant, none of the spending on that project can qualify for R&D tax credits).

The R&D does not have to be undertaken in the UK.

You must make a claim for R&D relief in your Company Tax Return. The normal time limit for making a claim is two years after the end of the relevant Corporation Tax accounting period.

Changes ahead

In the Autumn Statement the Government announced that it is proposing to restrict qualifying expenditure for R&D tax credits from 1 April 2015 so that the costs of materials incorporated in products that are sold are not eligible. There will be a package of measures to streamline the application process for smaller companies investing in R&D.

How we can help

If this is something that you would like to discuss in more detail, please contact us.

e-commerce – a Guide to Trading Online

According to the latest UK statistics, over 44m adults (that’s an average of over 85% of adults) have internet access and a large majority of these regularly use the internet for online shopping or to search for a provider of goods/services.

As well as the domestic market, the internet provides a gateway to the international market place. Furthermore, it can be used to develop relationships with suppliers and other trading partners.

It is therefore vital that your business has an online presence.

This can be anything from a one page ‘shop-front’, to a complex product catalogue with an online ordering and multi-currency payment systems and a world-wide delivery mechanism.

Issues to consider

e-commerce does not have to be either expensive or complicated, but as with all aspects of business, there are a number of issues which need to be considered –

• register the company name or trading name as a domain name (this will incur an annual fee)
• allocate both a start up and a recurring annual budget for the online project
• set some milestones for the website and a timeline for achieving these goals
• have a look at other websites and go through the check-out process – note what you like and dislike about these and how your clients/customers might react
• consider the needs of the disabled user
• decide whether to host the website in-house, or to use an external hosting company (ISP)
• consider the ease of being able to update website content on a regular basis
• have the website optimised to ensure that it features in popular search engines
• consider pay per click advertising options to increase ranking
• keep the site simple (and fast) – visitors will not spend ages on navigation or waiting for pages to load.  This includes all elements of the website including graphics, searching the site and the order and payment processes
• think about how the website will link to the back office accounting, invoicing and stock systems
• ensure that both the website and any online payment procedures have all available security measures in place to prevent fraud, hacking and denial of service threats
• enable the user to view/edit orders and to see order history and order tracking
• ensure that regular statistics on number of visitors, pages visited etc are available
• have a contingency plan to ensure that online trading can continue should there be a major problem.

Legal requirements

There are quite a few legal issues to contend with, some of these will not be relevant in all cases –

Who legally owns the website (and the content) and what happens if either the web developer/ISP ceases trading?

Compliance with relevant legislation which includes:

• Companies Act 2006
• E-Commerce regulations 2002
• Privacy and Electronic Communications Regulations 2003
• Distance Selling Regulations 2000
• Data Protection Act 1998
• Disability Discrimination Act 2005
• Provision of Services Regulations 2009

Bear in mind that legislation and the rules and regulations incorporated within primary legislation change over time. For example, all websites need to comply with regulations regarding the use of cookies.

How we can help

If you would like any further assistance please do not hesitate to contact us.