Enews May 2015

eNews – May 2015

In this month’s eNews we report on a number of issues including recent warnings over pension scams, guidance on the things to avoid when completing forms P11D and the latest labour market statistics. We also include links to the latest Pensions Regulator auto enrolment guidance for employers with no workers and the updated VAT fuel scale charge rates.

Please contact us if you would like further information.

Parliamentary processes

Latest labour market statistics

Warning over pension scams

TPR guidance for small employers with no ‘staff’

Lack of awareness of VAT rules

P11D forms – don’t get them wrong

VAT fuel scale charges

VAT recovery on car-derived vans and combi vans

Parliamentary processes

With the political parties campaigning well underway in anticipation of the General Election on 7 May and Parliament having been prorogued there are few Government announcements to report this month. However by the time we issue next month’s eNews we will have a new Parliament.

For details of the relevant dates and formal procedures visit the following link.

Internet link: GOV.UK news

Latest labour market statistics

The Office for National Statistics has issued the latest labour market data for the three months to February 2015 which show that unemployment fell by 76,000 to 1.84 million.

Neil Carberry, CBI Director for Employment and Skills said:

‘It’s great to see 248,000 more people in work, the fastest rise in employment in just under a year – thanks to our flexible jobs market.

With real wage growth rising people have a little more money in their pockets. But we need to see a recovery in productivity before wages can rise faster.’

Internet links: ONS statistics  CBI news

Warning over pension scams

Those approaching retirement are being urged to be aware of a rise in pension scams, as criminals seek new ways to defraud pensioners.

Savers have been urged to be aware of a rise in pension scams, as criminals seek new ways to defraud pensioners. A report produced by Citizens Advice looked at 150 cases where pensioners had fallen victim to fraudsters. The report identified common types of scams which include:

  • encouraging pensioners to move their savings into a ‘new’ pension
  • fake investment opportunities and
  • offering apparently ‘free advice’ and support which actually costs money.

In some cases pensioners are charged a fee for a service that isn’t required, while others are encouraged to part with personal information and bank details, either by email or phone.

Gillian Guy, Chief Executive of Citizens Advice said:  

‘Scammers see pensioners as a prime target….‘There are many people looking to benefit from the new pension rules, including scammers. Fraudsters can ruin people’s retirement plans by taking a portion or all of a victim’s pension pots.’

The Pensions Regulator (TPR) has recently launched a campaign to alert people to the danger posed by fraudsters.

From 6 April 2015 individuals have more flexibility as to how they use their pension pot, including the option to choose to take all their savings as a cash lump sum. TPR has warned that scammers are exploiting this change by enticing those about to retire with promises of ‘one-off investments‘ or ‘pension loans’ or ‘upfront cash’, most of which are bogus.

Individuals who believe they are being targeted by a pension scam should contact the Pensions Advisory Service on 0300 123 1047. The Financial Conduct Authority’s website also has a list of known scams. Visit scamsmart.fca.org.uk.

Internet links: Citizens Advice publications  Press release

TPR guidance for small employers with no ‘staff’

The Pensions Regulator (TPR) has updated its guidance on pensions auto enrolment including what businesses need to do when they have no workers.  

If you would like help with auto enrolment please do get in touch.

Internet link: TPR guidance

Lack of awareness of VAT rules

According to research 36% of the UK’s smallest businesses are unaware of the rules governing VAT thresholds.

A third of the UK’s smallest businesses are unaware of the rules governing VAT thresholds, recent research has revealed.

This lack of understanding could mean that approximately 780,000 businesses are at risk of being fined by HMRC.

Meanwhile, according to the research, 9%% of small businesses intentionally limit their trading in order to avoid reaching the VAT threshold.

Under the current rules, where a taxable person (for example an individual, company or partnership) has VAT taxable turnover of more than the current registration threshold of £82,000 in a rolling 12 month period or where turnover is expected to exceed the registration threshold in the next 30 day period then they must register for VAT.

It is important to monitor turnover, as there is a penalty for late registration in addition to the tax payable.

Please contact us if you would like advice on VAT issues.

Internet links: icaew news   GOV.UK news

P11D forms – don’t get them wrong

HMRC have published a list of common errors in the completion of forms P11D. The information is part of the latest Employer Bulletin and we have reproduced the guidance below.

  • Submitting duplicate P11D information on paper where P11D information has already been filed online to ensure ‘HMRC have received it’. These duplicates can cause processing problems. 
  • Using a paper form that relates to the wrong tax year – check the top right hand corner of the first page. 
  • Not ticking the ‘director’ box if the employee is a director. 
  • Not including a description or abbreviation, where amounts are included in sections A, B, L, M or N of the form. 
  • Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section. 
  • Completing the declaration on the final FPS/EPS submission accurately (for those employers whose software package requires them to be completed) or question 6 in section A of RT 4 form to indicate whether P11Ds are due. 
  • Not advising HMRC either by paper form P11D(b) or electronic submission that there is no Benefits in Kind & Expenses return to make. 
  • Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full gross value of the benefit. 
  • Not completing the fuel benefit box/field where this applies. This means an amended P11D has to be sent in. 
  • Incorrectly completing the ‘from’ and ‘to’ dates in the ‘Dates car was available’ boxes. For example entering 06/04/2014 to 05/04/2015 to indicate the car was available throughout that year. If the car was available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed.

If you would like help with the completion of the forms P11D please contact us.

Internet link: Employer Bulletin 53

VAT fuel scale charges

HMRC have issued details of the updated VAT fuel scale charges which apply from the beginning of the next prescribed VAT accounting period starting on or after 1 May 2015.

VAT registered businesses use the fuel scale charges to account for VAT on private use of road fuel purchased by the business.

Please do get in touch for further advice on VAT matters.

Internet link: GOV.UK news

VAT recovery on car-derived vans and combi vans

HMRC have issued a list of makes and models of car derived vans and combi vans which VAT registered businesses can use to determine if the VAT paid on the purchase can be reclaimed as input tax.

The issue is that VAT will normally be claimable in full on the purchase of a commercial vehicle.  However if the vehicle purchased is a passenger car VAT is not recoverable unless it is used ‘exclusively for the purposes of a business’. Generally cars are therefore VAT ‘blocked’ and no input VAT is recoverable.

The VAT guidance states

‘Motor car means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

a) is constructed or adapted solely or mainly for the carriage of passengers; or

b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows’

Whether or not a vehicle is commercial is not specifically defined but instead the definition of a car excludes:

  • vehicles capable of accommodating only one person or suitable for carrying twelve or more people including the driver
  • vehicles of more than three tonnes unladen weight;
  • caravans, ambulances and prison vans
  • special purpose vehicles such as ice cream vans, mobile shops, hearses, bullion vans and breakdown and recovery vehicles
  • vehicles constructed to carry a payload of one tonne or more.

Many car-derived vans are not cars for VAT purposes as they have no rear seats, have metal side panels to the rear of the front seats and a load area which is highly unsuitable for carrying passengers etc.

HMRC have issued the clarification due to developments in the car-derived van market as some vehicles with a payload of less than one tonne, have ‘blurred’ the distinction between cars and vans.

If you would like help with this or any other VAT issue please contact us.

Internet link: GOV.UK news

Enews April 2015

eNews – April 2015

This month’s enews not surprisingly reflects Budget announcements. Some of the key announcements are set out in the following articles together with a round up of other news.

Please contact us if you would like any further information on any of these or any other issues.

Budget 2015

Personal tax rates and allowances

Tax bands and rates for 2015/16

Starting rate of tax for savings income

Proposed personal allowances to come

Personal Savings Allowance

Help to Buy ISA

Pension freedoms for those with annuities

National Minimum Wage rises

Penalties

Auto Enrolment guidance for small employers

Business rates system – have your say

Budget 2015

George Osborne presented the final Budget of this Parliament on Wednesday 18 March 2015.

In his speech the Chancellor reported ‘on a Britain that is growing, creating jobs and paying its way’.

Towards the end of 2014 the government issued many proposed clauses of Finance Bill 2015 together with updates on consultations. Due to the dissolution of Parliament on 30 March some measures have been legislated for in the week commencing 23 March, whilst others will be enacted by a Finance Bill in the next Parliament (depending on the result of the General Election).

The Budget proposed further measures, some of which may only come to fruition if the Conservative Party is in power in the next Parliament.

The articles which follow summarise some of the key changes.

Internet link: GOV.UK Budget

Personal tax rates and allowances

For those born after 5 April 1938 the personal allowance will be increased to £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660.

The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is being decreased from £31,865 to £31,785 so that the threshold at which the 40% band applies will rise from £41,865 to £42,385 for those who are entitled to the full basic personal allowance.

The additional rate of tax of 45% is payable on taxable income above £150,000.

Dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%.

Starting rate of tax for savings income

From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased from £2,880 to £5,000, and this starting rate will be reduced from 10% to 0%. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

This will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest. Eligible savers can register to receive their interest gross using a form R85.

Internet link: GOV.UK Budget

Proposed personal allowances to come

The Chancellor announced that the personal allowance will be increased to £10,800 in 2016/17 and to £11,000 in 2017/18. The Transferable Tax Allowance will also rise in line with the personal allowance, being 10% of the personal allowance for the year.

The higher rate threshold will rise in line with the personal allowance, taking it to £42,700 in 2016/17 and £43,300 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

These changes will have effect from 6 April 2016 and the Personal Savings Allowance will be in addition to the tax advantages currently available to savers from Individual Savings Accounts.

The Personal Savings Allowance will provide basic and higher rate taxpayers with a tax saving of up to £200 each year.

Internet link: GOV.UK News

Help to Buy ISA

The government has announced the introduction of a new type of ISA, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

Help to Buy ISAs will be subject to eligibility rules and limits:

  • An individual will only be eligible for one account throughout the lifetime of the scheme and it is only available to first time buyers.
  • Interest received on the account will be tax free.
  • Savings will be limited to a monthly maximum of £200 with an opportunity to deposit an additional £1,000 when the account is first opened.
  • The government will provide a 25% bonus on the total amount saved including interest, capped at a maximum of £3,000 which is tax free.
  • The bonus will be paid when the first home is purchased.
  • The bonus can only be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
  • The government bonus can be claimed at any time, subject to a minimum bonus amount of £400.
  • The accounts are limited to one per person rather than one per home so those buying together can both receive a bonus.
  • As is currently the case it will only be possible for an individual to subscribe to one cash ISA per year. It will not be possible for an account holder to subscribe to a Help to Buy ISA with one provider and another cash ISA with a different provider.
  • Once an account is opened there is no limit on how long an individual can save into it and no time limit on when they can use their bonus.

The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years.

Internet link: GOV.UK factsheet

Pension freedoms for those with annuities

The Chancellor has announced 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.

The government recognises that for most people retaining their annuity will be the right choice. However, individuals may want to sell an annuity, for instance to pay off debts or to purchase a more flexible pension income product.

We will keep you informed of developments.

Internet link: GOV.UK News

National Minimum Wage rises

The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. NMW rates increases come into effect on 1 October 2015:

From 1 October 2015:

  • the adult rate will increase by 20 pence to £6.70 per hour
  • the rate for 18 to 20 year olds will increase by 17 pence to £5.30 per hour
  • the rate for 16 to 17 year olds will increase by 8 pence to £3.87 per hour
  • the apprentice rate will increase by 57 pence to £3.30 per hour

Penalties

Penalties may be levied on employers where HMRC believe underpayments have occurred and HMRC ‘name and shame’ non-compliant employers.

If you have any queries on the NMW please get in touch.

Internet links: GOV.UK News

Auto Enrolment guidance for small employers

The Pensions Regulator (TPR) has launched a new step-by-step guide to help small businesses get ready for their automatic enrolment duties.

According to TPR the online guide has been written specifically for employers with between one and 50 staff.

The guide which is broken down into 11 steps, considers the legal requirements and what employers need to do to comply with their obligations.

Executive director for automatic enrolment Charles Counsell said:

‘We are determined to do all we can to reach out to all small and micro businesses preparing for their automatic enrolment duties. We want to make the process as simple as possible so that employers can avoid the risk of non compliance.’

‘Our new online 11-step guide is a key part of a wide package of measures we are rolling out to give more than a million employers all the information they need, written and produced in a way they makes sense to them.’

‘Our message to employers is ensure you know when your automatic enrolment duties begin and start planning in good time. The regulator’s website should be the first port of call for all employers and their advisers as it offers essential information about each task an employer will need to accomplish in order to comply and avoid penalties.’

If you would like help with Auto Enrolment please do get in touch.

Internet links: step-by-step guide  Press release  

Business rates system – have your say

The government has launched a wide-ranging review of national business rates in England.

HM Treasury’s ‘wide-ranging review’ of England’s non-domestic rates system will report its findings before the 2016 Budget. The Treasury’s discussion paper invites responses from a wide range of stakeholders on issues such as commercial property use, how the rates system can be modernised, and whether business rates should continue to be based on property values.

Written responses will be accepted from the beginning of April until 12th June 2015.

Chief Secretary to the Treasury Danny Alexander said:

‘Our system of business rates was created nearly 30 years ago. Since that time, the worlds of commerce and industry have changed beyond recognition. I’ve been impressed by the representations made by the business community and I know that business rates are a considerable cost.

The government has taken measures to help businesses by capping rates and introducing reliefs for smaller businesses. But now the time has come for a radical review of this important tax. We want to ensure the business rates system is fair, efficient and effective.’

Internet link: GOV.UK News

Getting Help – Accountants in Practice

New UK and Irish GAAP micro-site

Getting Help – Accountants in Practice

Intro

If you work in practice, you will need to ensure that you and your team understand the full impact of New UK and Irish GAAP and how it is relevant to your clients.

Mercia have a number of training solutions, practical tools and free resources to help you every step of the way.

Training

Online Transition Library

From £20 per module

This library of 31 practical New UK and Irish GAAP e-learning modules are a great reference tool for you and your entire team, covering topics from accounting formats to hedge accounting.

With unlimited access for your whole firm throughout 2015 the modules are available at a time to suit you and are viewable on all devices.

Each module has some background, practical examples, FAQs, comparisons to current UK GAAP and the chance to test yourself once you’ve taken it all in!

To demonstrate just how great this library is Mercia are giving away one of the modules FREE!

Try for FREE   Find out more

Face-to-face Courses

From £100/€125 per place

Mercia have a variety of courses covering New UK and Irish GAAP and FRS 102 in locations throughout UK and Ireland.

CPD Courses

Specialist Courses

Online courses

From £75 per place

Mercia’s online courses are a great way to get up to speed with New UK and Irish GAAP without leaving your desk!

Find out more

Technical Support

FRS 102 financial statements review

Prices start from £250 per hour plus VAT.

Have you prepared your first set of financial statements under FRS 102? Are you concerned over the new formats, disclosures and transition adjustments?

Mercia’s technical team can review those accounts to ensure that they are in accordance with appropriate statutory formats and disclosure requirements of FRS 102.

Find out more

Technical Queries

Prices from £55 plus VAT per query.

Mercia’s technical team can offer practical advice on a FRS 102 matter and not just a repeat of the rules.

Queries can be dealt with by telephone, in writing or via email, whichever is the most convenient for you.  We work to provide the best available practical help and guidance in a professional manner.

Find out more

Manuals

Do you need guidance and work programmes to help you provide audit services to your clients?

Mercia’s New UK and Irish GAAP ready Audit and Audit Exemption Manuals include disclosure checklists written in accordance with FRSSE 2015, FRS 101 and FRS 102.

These are available, along with example financial statements, programmes to help prepare and audit financial statements prepared under new UK GAAP and comprehensive procedures guidance.

Find out more

Marketing Support

Client Seminars

From £395 per seminar pack

Your clients need to be in a position to understand how the changes to UK and Irish GAAP will affect their accounts and will look to you for guidance on application, opportunities and pitfalls.

So why not run a training seminar for them?

Our PowerPoint presentation and accompanying speaker notes will help you run a successful training seminar for your clients and prospective clients.  We even have seminar notes for you to hand out, which can be personalised if you wish.

Find out more

Client Letters

From £55 per letter

Inform your clients about the changes to UK and Irish GAAP and how it will affect them with these letters.

Written in a language your clients will understand, these are a great marketing tool to showcase your UK GAAP knowledge and services.

Find out more

Free Resources

Take a look at our relevant and useful FREE downloads on a number of areas of UK and Irish GAAP.

[all downloads – please wait for updates of these]

For the latest News and Blogs on New UK and irish GAAP, see our News page.

Getting Help – Accountants in Industry

New UK and Irish GAAP micro-site

Getting Help – Accountants in Industry

Intro

If you are an accountant in industry you will need to be up to speed with New UK and Irish GAAP and how it affects your business.

Quorum Training have a number of training solutions to help you understand the changes and prepare you for the challenges.

Face-to-face Courses in London

From £345 per place

Practical and relevant courses covering the core areas under New UK and Irish GAAP.

The courses are presented by highly experienced specialist trainers who are committed to providing a great learning experience.

Online Transition Library

This library of 31 practical New UK and Irish GAAP e-learning modules are a great reference tool for you, covering topics from accounting formats to hedge accounting.

With unlimited access throughout 2015 the modules are available at a time to suit you and are viewable on all devices.

Each module has some background, practical examples, FAQs, comparisons to current UK GAAP and the chance to test yourself once you’ve taken it all in!

To demonstrate just how great this library is Quorum Training are giving away one of the modules FREE!

Free Module

For more information on the Transition Library please email hannah.howe@quorumtraining.co.uk

TEST

Capital Allowances

Overview

italic bold underline expense. However tax relief is available on certain capital expenditure in the form of capital allowances.

indented para

  • Capital allowances are not generally affected by the way in which the business pays for the purchase. So where an asset is acquired on hire purchase (HP), allowances are generally given as though there were an outright cash purchase and subsequent instalments of capital are ignored. However finance leases, often considered to be an alternative form of “purchase” and which for accounting purposes are included as assets, are denied capital allowances. Instead the accounts depreciation is usually allowable as a tax deductible expense.
  • Any interest or other finance charges on an overdraft, loan, HP or finance lease agreement to fund the purchase is a revenue tax deductible business expense. It is not part of the capital cost of the asset.
  • If alternatively a business rents capital equipment, often referred to as an operating lease, then as with other rents this is a revenue tax deductible expense so no capital allowances are available.

Plant and machinery

This includes items such as machines, equipment, furniture, certain fixtures, computers, cars, vans and similar equipment you use in your business.

Note there are special rules for cars and certain ‘environmentally friendly’ equipment and these are dealt with below.

Acquisitions

The Annual Investment Allowance (AIA) provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses. Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.

The maximum amount of the AIA depends on the date of the accounting period and the date of expenditure. The changes in the amount of the AIA can be summarised as follows:

Period from:

Annual limit

*1 April 2012

£25,000

1 January 2013

£250,000

*1 April 2014

£500,000

1 January 2016

£25,000

*From 6 April for unincorporated businesses

Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis.

Example

For example a single company with a 12 month accounting period to 31 December 2014 could obtain overall relief for the period of £437,500 (£250,000 x 3/12 plus £500,000 x 9/12). There is a restriction of £250,000 for expenditure incurred in that part of the accounting period which falls before 1 April 2014.

According to the Government the increased AIA will mean that up to 99.8% of businesses could receive 100% upfront relief on their qualifying investment in plant and machinery.

Where purchases exceed the AIA, a writing down allowance (WDA) is due on any excess in the same period. This WDA is currently at a rate of 18%. Cars are not eligible for the AIA, so will only benefit from the WDA (see special rules for cars).

Please contact us before capital expenditure is incurred for your business in a current accounting period, so that we can help you to maximise the AIA available.

Pooling of expenditure and allowances due

  • Expenditure on all items of plant and machinery are pooled rather than each item being dealt with separately with most items being allocated to a main rate pool.
  • A writing down allowance (WDA) on the main rate pool of 18% is available on any expenditure incurred in the current period not covered by the AIA or not eligible for AIA as well as on any balance of expenditure remaining from earlier periods.
  • Certain expenditure on buildings fixtures, known as integral features (eg lighting, air conditioning, heating, etc) is only eligible for an 8% WDA £so is allocated to a separate ‘special rate pool’, though integral features do qualify for the AIA.
  • Allowances are calculated for each accounting period of the business.
  • When an asset is sold, the sale proceeds (or original cost if lower) are brought into the relevant pool. If the proceeds exceed the value in the pool, the difference is treated as additional taxable profit for the period and referred to as a balancing charge.

Special rules for cars

There are special rules for the treatment of certain distinctive types of expenditure. The first distinctive category is car expenditure. Other vehicles are treated as general pool plant and machinery but cars are not eligible for the AIA. The treatment of car expenditure depends on when it was acquired and is best summarised as follows:

From April 2013

Currently the capital allowance treatment of cars is based on the level of CO2 emissions.

 

Type of car purchase

Allocate

Allowance

New low emission car not exceeding 95g/km CO2

Main rate pool

100% allowance

Not exceeding 130 g/km CO2 emissions

Main rate pool

18% WDA

Exceeding 130 g/km CO2 emissions

Special rate pool

8% WDA


Acquisitions from April 2009 up to April 2013

Type of car purchase

Allocate

Allowance

New low emission car not exceeding 110g/km CO2

Main rate pool

100% allowance

Not exceeding 160 g/km CO2 emissions

Main rate pool

18% WDA

Exceeding 160 g/km CO2 emissions

Special rate pool

8% WDA

Pre April 2009 acquisitions

Type of car purchase

Allocate

Allowance

New low emission car not exceeding 110g/km CO2

Main rate pool

100% allowance

Not exceeding £12,000 cost and not low emissions

Main rate pool

18% WDA

Exceeding £12,000 cost and not low emissions

Single asset pool for each car

18% WDA but restricted to £3,000 max. pa

Cars purchased pre April 2009 that are used wholly for business use will attract WDA as detailed above. However any expenditure remaining in a single asset pool after a transitional period of around 5 years (unless there is any non-business use of the car) will then be transferred to the main rate capital allowances pool.

Non-business use element

Cars and other business assets that are used partly for private purposes, by the proprietor of the business (ie a sole trader or partners in a partnership), are allocated to a single asset pool irrespective of costs or emissions to enable the private use adjustment to be made. Private use of assets by employees does not require any restriction of the capital allowances.

The allowances are computed in the normal way so can in theory now attract the 100% AIA or the relevant writing down allowance. However, only the business use proportion is allowed for tax purposes. This means that the purchase of a new 94g/km CO2 emission car which costs £15,000 with 80% business use will attract an allowance of £12,000 (£15,000 x100% x 80%) when acquired.

On the disposal of a private use element car, any proceeds of sale (or cost if lower) are deducted from any unrelieved expenditure in the single asset pool. Any shortfall can be claimed as an additional one off allowance but is restricted to the business use element only. Similarly any excess is treated as a taxable profit but only the business related element.

Environmentally friendly equipment

This includes items such as energy saving boilers, refrigeration equipment, lighting, heating and water systems as well as cars with CO2 emissions up to 95 g/km (110g/km prior to 1 April 2013).

A 100% allowance is available to all businesses for expenditure on the purchase of new environmentally friendly equipment.

  • www.etl.decc.gov.uk gives further details of the qualifying categories.
  • where a company (not an unincorporated business) has a loss after claiming 100% capital allowances on green technology equipment (but not cars) they may be able to reclaim a tax credit from HMRC.

Capital allowance boost for low-carbon transport

A 100% first year allowance will be available for capital expenditure on new electric vans from 1 April 2010 for companies and 6 April 2010 for an unincorporated business.

Short life assets

For equipment you intend to keep for only a short time, you can choose (by election) to keep such assets outside the normal pool. The allowances on them are calculated separately and on sale if the proceeds are less than the balance of expenditure remaining, the difference is given as a further capital allowance. This election is not available for cars or integral features.

For assets acquired from 1 April 2011 (6 April for an unincorporated business) the asset is transferred into the pool if it is not disposed of by the eighth anniversary of the end of the period in which it was acquired. For assets acquired prior to April 2011 the deadline is the fourth anniversary of the end of the period in which is was acquired.

Long life assets

These are assets with an expected useful life in excess of 25 years are combined with integral features in the 8% pool.

There are various exclusions including cars and the rules only apply to businesses spending at least £100,000 per annum on such assets so that most smaller businesses are unaffected by these rules.

Other assets

Capital expenditure on certain other assets qualifies for relief. Please contact us for specific advice on areas such as qualifying expenditure in respect of enterprise zones and research and development.

Claims

Unincorporated businesses and companies must both make claims for capital allowances through tax returns.

Claims may be restricted where it is not desirable to claim the full amount available – this may be to avoid other allowances or reliefs being wasted.

For unincorporated businesses the claim must normally be made within 12 months after the 31 January filing deadline for the relevant return.

For companies the claim must normally be made within two years of the end of the accounting period.

How we can help

The rules for capital allowances can be complex. We can help by computing the allowances available to your business, ensuring that the most advantageous claims are made and by advising on matters such as the timing of purchases and sales of capital assets. Please do contact us if you would like further advice.

Depth – Leases

Leases

Section 20 of FRS 102 covers accounting for all leases other than:

  • leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;
  • licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights;
  • measurement of property held by lessees that is accounted for as investment property and measurement of investment property provided by lessors under operating leases;
  • measurement of biological assets held by lessees under finance leases and biological assets provided by lessors under operating leases; and
  • leases that could lead to a loss to the lessor or the lessee as a result of non-typical contractual.

What types of leases are covered?

Some arrangements do not take the legal form of a lease but convey rights to use assets in return for payments. Examples of arrangements in which one entity (the supplier) may convey a right to use an asset to another entity (the purchaser), often together with related services, may include outsourcing arrangements, telecommunication contracts that provide rights to capacity and take-or-pay contracts.

As well as more standard leases (with the above exceptions), section 20 also includes agreements that transfer the right to use assets even though substantial services by the lessor may be called for in connection with the operation or maintenance of such assets. But this section does not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other.

How are leases classified?

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

[[[Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract.]]]

Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. FRS 102 includes examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease.

Lease classification is made at the inception of the lease and is not changed during the term of the lease unless the lessee and the lessor agree to change the provisions of the lease (other than simply by renewing the lease), in which case the lease classification shall be re-evaluated.

How are leases recognised and measured?

Finance leases

A lessee shall recognise its rights of use and obligations under finance leases as assets and liabilities in its statement of financial position at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, determined at the inception of the lease.

Operating leases

Lease payments (excluding costs for services such as insurance and maintenance) are recognised as an expense over the lease term on a straight-line basis unless either:

  1. another systematic basis is representative of the time pattern of the user’s benefit, even if the payments are not on that basis; or
  2. the payments to the lessor are structured to increase in line with expected general inflation (based on published indexes or statistics) to compensate for the lessor’s expected inflationary cost increases.

A lessee shall recognise the aggregate benefit of lease incentives as a reduction to the lease expense over the lease term, on a straight-line basis unless another systematic basis is representative of the time pattern of the lessee’s benefit from the use of the leased asset.

Section 20 also deals with lessors’ treatment of finance leases and sale and leaseback transactions resulting in an operating lease.

What lease disclosures are needed?

A lessee shall disclose the total of future minimum lease payments under non-cancellable operating leases for each of the following periods:

  • not later than one year;
  • later than one year and not later than five years; and
  • later than five years; and

Lease payments recognised as an expense should also be disclosed.

How is this different to ‘old GAAP’?

The overall approach adopted by FRS 102 is very similar to current UK and Irish GAAP. However the following minor differences should be noted:

Finance leases – lessee accounting

Under SSAP 21 the initial measurement of the asset and liability is at the present value of minimum lease payments, discounted at the rate implicit in the lease. Under FRS 102 the assets and liability are recorded at the lower of the fair value of the leased item and the present value of the minimum lease payments using the interest rate implicit in the lease.

Finance leases – lessor accounting

The accounting is very similar, although the detailed definitions of gross investment; net investment; and net cash investment are different.

Operating leases – lessee accounting

SSAP 21 provides no guidance on the treatment of inflationary increases. FRS 102 implies that these increases are expensed as incurred.

Sale and leaseback transactions

The basic treatment currently set out in UK and Irish GAAP is the same as FRS 102, but guidance is also given on ways of deferring and recognising a gain.

Lease incentives

Currently under UK and Irish GAAP the value of the lease incentives are recognised against the value of lease payments to be recognised on a straight line basis up to the point when the lease resets to market rates. FRS 102 recognised lease incentives over the term of the lease.

Are there any exemptions on transition?

Yes – the existing UK and Irish GAAP treatment for operating lease incentives (see above) can be continued for leases whose inception occurred prior to the date of transition. This is important for lessors as it allows them to avoid unfavourable tax cash flows which would arise from the new approach in FRS 102.

Depth – Business Combinations

Business combinations and intangibles

Section 18 of FRS 102 sets out the accounting treatment and disclosure for all intangible assets other than goodwill. Section 19 does the same for business combinations and goodwill.

What is meant by ‘intangible assets’?

[[[An intangible asset is an identifiable non-monetary asset without physical substance.]]]

An intangible asset is an identifiable non-monetary asset without physical substance. To count as identifiable an intangible asset must be separable or must arise from contractual or other legal rights. To be separable it must be capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged.

Section 18 does not apply to:

  • financial assets;
  • heritage assets; or
  • mineral rights and mineral reserves.

When are intangibles recognised?

An intangible asset is only recognised if it is probable that its expected future economic benefits will flow to the owner and if its cost of value can be measured reliably.

Entities should assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent management’s best estimate of the economic conditions that will exist over the useful life of the asset.

How are intangibles measured?

Intangible assets are initially measured at cost. The cost of a separately acquired intangible asset consists of its purchase price and any directly attributable cost of preparing the asset for its intended use.

  • The cost of an intangible asset acquired in a business combination is its fair value at the acquisition date.
  • The cost of an internally generated intangible asset is the sum of expenditure from the point when it first meets the recognition criteria. Internally generated goodwill is not recognised as an asset.
  • The cost of an intangible asset acquired by way of a grant is its fair value at the date the grant is received or receivable.

Where an intangible asset is acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets the entity should measure the cost of such an intangible asset at fair value. This applies unless the exchange transaction lacks commercial substance; or the fair value of neither the asset received nor the asset given up is reliably measurable. In these instances, the cost of the asset is measured at the carrying amount of the asset given up.

What about research and development costs?

The process of internally generating an intangible asset is split into a research phase and a development phase. Research costs are always expenses to profit or loss. Where an entity cannot distinguish the research phase from the development phase, it treats the expenditure on that project as if it were incurred in the research phase only.

FRS 102 contains a list of items (such as internally generated goodwill) which should be treated as an expense and not be recognised as intangible assets.

If the conditions set out in FRS 102 for development costs are satisfied, an entity has the choice of capitalising the expenditure (with subsequent amortisation) or writing the expenditure off as incurred.

FRS 102 does not specify how software and website development costs should be treated.  Entities will need to determine and apply a suitable accounting policy to classify such costs as tangible or intangible fixed assets. It is possible that having considered the nature of the asset that it is recognised as an intangible asset (Note: UITF 29 required all such costs to be capitalised as tangible fixed assets).

How are intangibles subsequently measured?

After initial recognition, assets are measured using the cost model or the valuation model.

Whichever model is chosen, assets are systematically amortised. Additionally, appropriate provision should be made for impairment losses.

If the fair value of a revalued intangible asset can no longer be determined by reference to an active market, the carrying amount of the asset shall be its revalued amount at the date of the last revaluation by reference to the active market, less any subsequent accumulated amortisation and any subsequent accumulated impairment losses.

Amortisation over useful life

All intangible assets shall be considered to have a finite useful life. If in exceptional cases an entity is unable to make a reliable estimate of the useful life of an intangible asset, the life shall not exceed ten years.

How are business combinations accounted for?

Section 19 applies to accounting for business combinations. It provides guidance on identifying the acquirer, measuring the cost of the business combination, and allocating that cost to the assets acquired and liabilities and provisions for contingent liabilities assumed. It also addresses accounting for goodwill both at the time of a business combination and subsequently.

[[[Merger accounting is not permitted except for group reconstructions and certain combinations involving public benefit entity combinations.]]]

All business combinations shall be accounted for by applying the purchase method. Merger accounting is not permitted except for group reconstructions and certain combinations involving public benefit entity combinations. Currently under UK and Irish GAAP, FRS 6 permits the use of merger accounting for business combinations when certain conditions are satisfied. In other respects, the approach to combinations is similar to old GAAP.

Intangibles acquired as part of a business combination

An intangible asset acquired in a business combination is normally recognised as an asset if its fair value can be measured with sufficient reliability. However, an intangible asset acquired in a business combination is not recognised when it arises from legal or other contractual rights and there is no history or evidence of exchange transactions for the same or similar assets, and otherwise estimating fair value would be dependent on immeasurable variables.

[[[An intangible asset acquired in a business combination is normally recognised as an asset if its fair value can be measured with sufficient reliability]]]

Under old GAAP (FRS 7), assets (including intangible assets) are only recognised separately from goodwill if they are “capable of being disposed of or settled separately”. In many acquisitions this limits the number of assets which are separately recognised.

Goodwill acquired as part of a business combination

Positive goodwill acquired in a business combination is initially measured at its cost – being the excess of the cost of the business combination over the acquirer’s interest in the net amount of the identifiable assets, liabilities and contingent liabilities recognised. After initial recognition, the acquirer shall measure goodwill acquired in a business combination at cost less accumulated amortisation and accumulated impairment losses.

Goodwill shall be considered to have a finite useful life, and shall be amortised on a systematic basis over its life. As with other intangibles, if in exceptional cases an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall not exceed ten years. Under old UK and Irish GAAP, there is a rebuttable presumption that positive goodwill has a finite life of twenty years or less.

Are there any exemptions on transition?

Yes – business combinations that occurred prior to the transition date can remain as originally accounted for. So combinations effected using merger accounting, where this would now be prohibited, can remain unchanged. In addition, any intangibles that would be separately identified and recognised under FRS 102 can remain subsumed within the amount recognised as goodwill in connection with such combinations.

Depth – Financial Instruments

Financial instruments

Accounting for financial instruments is perhaps the most challenging aspect of FRS 102 for many entities, who have been able to leave many of the more complex arrangements off balance sheet under old GAAP. Even for common instruments such as bank loans and intercompany loans, the new standard may mean more complex accounting.

Section 11 of FRS 102 applies to basic financial instruments and is relevant to all entities. Section 12 applies to other, more complex financial instruments and transactions. Together they deal with recognising, derecognising, measuring and disclosing financial instruments.

[[[Even for common instruments such as bank loans and intercompany loans, the new standard may mean more complex accounting]]]

If an entity enters into only basic financial instrument transactions then Section 12 is not applicable. However, even entities with only basic financial instruments must consider the scope of Section 12 to ensure they are exempt.

To account for all of its financial instruments, an entity shall choose to apply either:

  1. the provisions of both Section 11 and Section 12 in full; or
  2. the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement (as adopted for use in the EU) and the disclosure requirements of Sections 11 and 12; or
  3. the recognition and measurement provisions of IFRS 9 Financial Instruments and/ or IAS 39 (as amended following the publication of IFRS 9) and the disclosure requirements of Sections 11 and 12.        

Where an entity chooses (b) or (c) it applies the scope of the relevant standard to its financial instruments. Changing between (a), (b) and (c) is regarded as a change of accounting policy.        

What are financial instruments?

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. An entity shall recognise a financial asset or a financial liability only when the entity becomes a party to the contractual provisions of the instrument.

Sections 11 and 12 cover a broad range of contracts and arrangements, but some are specifically excluded as they are dealt with elsewhere in the standard. These exclusions are:

  • Investments in subsidiaries, associates and joint ventures (these are accounted for in accordance with Sections 9, 14 and 15 of FRS 102 respectively);
  • Financial instruments that meet the definition of an entity’s own equity and the equity component of compound financial instruments issued by the reporting entity that contain both a liability and an equity component (Section 22 – Liabilities and Equity applies);        
  • Leases (Section 20 applies);
  • Employers’ rights and obligations under employee benefit plans (Section 28 Employee Benefits applies);
  • Share-based payments (Section 26 applies);
  • Insurance contracts and financial instruments issued by an entity with a discretionary participation feature (see FRS 103 Insurance Contracts).
  • Reimbursement assets and financial guarantee contracts (Section 21 applies).

How are financial instruments classified between ‘basic’ and ‘other’?

Basic financial instruments typically include the following:

  • cash;
  • demand and fixed-term deposits when the entity is the depositor, e.g. bank accounts;
  • commercial paper and commercial bills held;
  • accounts, notes and loans receivable and payable;
  • bonds and similar debt instruments;
  • investments in non-convertible preference shares and non-puttable ordinary and preference shares; and
  • commitments to receive a loan and commitments to make a loan to another entity, that cannot be settled net in cash.

Examples of financial instruments that do not normally satisfy the conditions in Section 11, and are therefore within the scope of Section 12, include:

  • asset-backed securities, such as collateralised mortgage obligations, repurchase agreements and securitised packages of receivables;
  • options, rights, warrants, futures contracts, forward contracts and interest rate swaps that can be settled in cash or by exchanging another financial instrument;
  • financial instruments that qualify and are designated as hedging instruments in accordance with the requirements in Section 12; and
  • commitments to make a loan to another entity and commitments to receive a loan, if the commitment can be settled net in cash.

How are ‘basic’ financial instruments accounted for?

Initial recognition and measurement

A basic financial asset or liability is measured initially at the transaction price (including transaction costs except where financial assets and liabilities are measured at fair value through profit or loss) unless the arrangement constitutes, in effect, a financing transaction. A financing transaction may take place in connection with the sale of goods or services, for example, if payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate. If the arrangement constitutes a financing transaction, the entity shall measure the financial asset or financial liability at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.

[[[If the arrangement constitutes a financing transaction, the entity shall measure the financial asset or financial liability at the present value of the future payments discounted at a market rate of interest]]]

Section 11 contains a number of examples of such initial measurement.

Subsequent measurement

At the end of each reporting period, an entity shall measure financial instruments as follows, (without any deduction for transaction costs the entity may incur on sale or other disposal):

  1. Ordinary and preference shares are measured at fair value (wherever available), or at cost less impairment if no fair value can be found. NB unlisted shares can in many cases be valued at fair value through comparison with recent transactions for identical instruments, or by using a valuation methodology. Guidance on fair value measurement is provided in section 11.
  2. Debt instruments are measured at amortised cost using the effective interest method.  However, debt instruments that are payable or receivable within one year shall be measured at the undiscounted amount of the cash or other consideration expected to be paid or received.
  3. If the arrangement constitutes a financing transaction, the entity shall measure the debt instrument at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. As an alternative, in some cases debt instruments can instead be valued at fair value through profit or loss.        
  4. Commitments to receive a loan and to make a loan to another entity shall be measured at cost (which sometimes is nil) less impairment.

Note that if a reliable measure of fair value becomes unavailable for an asset measured at fair value, its carrying amount at the last date the asset was reliably measurable becomes its new cost (less impairment) until a reliable measure of fair value becomes available.

How are ‘other’ financial instruments accounted for?

Initial measurement

When a financial asset or financial liability is recognised initially, an entity shall measure it at its fair value, which is normally the transaction price (including transaction costs except in the initial measurement of financial assets and liabilities that are measured at fair value through profit or loss). If payment for an asset is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate, the entity shall initially measure the asset at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.        

Subsequent measurement

At the end of each reporting period, an entity shall measure all financial instruments within the scope of Section 12 at fair value and recognise changes in fair value in profit or loss, except as follows:

  1. investments in equity instruments that are not publicly traded and whose fair value cannot otherwise be measured reliably and contracts linked to such instruments that, if exercised, will result in delivery of such instruments, shall be measured at cost less impairment; and
  2. hedging instruments in a designated hedging relationship (see below).

Hedge accounting

The hedge accounting rules within section 12 allow entities to reduce volatility in profit or loss by accounting for a hedging instrument and a hedged item together. Section 12 outlines the permissible lists of hedging instruments and hedged items.

[[[The hedge accounting rules within section 12 allow entities to reduce volatility in profit or loss by accounting for a hedging instrument and a hedged item together]]]        

There are three types of hedging relationships:

  1. fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or a component of any such item, that are attributable to a particular risk and could affect profit or loss;
  2. cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction, and could affect profit or loss; and
  3. hedge of a net investment in a foreign operation.

Section 12 provides guidance on the accounting treatment for each of the three types, with examples.

Depth – Employee benefits

Employee benefits

Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees, including directors and management. Section 28 applies to all employee benefits, except for share-based payment transactions, which are covered by Section 26 Share-based Payment.

Employee benefits covered by this section will be one of the following four types:        

  1. Short-term employee benefits, which are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the reporting period in which the employees render the related service;
  2. Post-employment benefits, which are employee benefits (other than termination benefits and short-term employee benefits) that are payable after the completion of employment;
  3. Other long-term employee benefits, which are all employee benefits, other than short-term employee benefits, post-employment benefits and termination benefits; or
  4. Termination benefits, which are employee benefits provided in exchange for the termination of an employee’s employment as a result of either an entity’s decision to terminate an employee’s employment before the normal retirement date; or an employee’s decision to accept voluntary redundancy in exchange for those benefits.        

How are employee benefits recognised?

Entities must recognise the cost of all employee benefits to which employees have become entitled as a result of service rendered to the entity during the reporting period:        

  1. As a liability, after deducting amounts that have been paid either directly to the employees or as a contribution to an employee benefit fund. If the amount paid exceeds the obligation arising from service before the reporting date, an entity shall recognise that excess as an asset to the extent that the prepayment will lead to a reduction in future payments or a cash refund; and
  2. As an expense, unless another section of FRS 102 requires the cost to be recognised as part of the cost of an asset such as inventories or property, plant and equipment.        

How are short-term employee benefits measured?

Short-term employee benefits include items such as the following, if expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service:

  • wages, salaries and social security contributions;
  • paid annual leave and paid sick leave;
  • profit-sharing and bonuses; and
  • non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees.

When an employee has rendered service to an entity during the reporting period, the entity shall measure the amounts recognised at the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

An entity may compensate employees for absence for various reasons including annual leave and sick leave. Some short-term compensated absences accumulate. They can be carried forward and used in future periods if the employee does not use the current period’s entitlement in full. Examples include annual leave and sick leave. Entities must recognise the expected cost of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences.

[[[Entities must recognise the expected cost of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences.]]]

An entity shall recognise the cost of other (non-accumulating) compensated absences when the absences occur. The entity shall measure the cost of non-accumulating compensated absences at the undiscounted amount of salaries and wages paid or payable for the period of absence.

An entity shall recognise the expected cost of profit-sharing and bonus payments only when the entity has a present legal or constructive obligation to make such payments as a result of past events (this means that the entity has no realistic alternative but to make the payments); and a reliable estimate of the obligation can be made.

What about post-employment benefits such as pensions?

Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on their principal terms and conditions (in much the same way as under old GAAP).

Defined contribution accounting is straightforward and is unchanged from old GAAP.

There are more extensive changes to the way in which defined benefit plan assets and liabilities (and the movements in these) are measured and presented, although the principles are largely similar to those set out in FRS 17.

One area of change concerns multi-employer plans. FRS 102 maintains the position (from FRS 17) that where such plans are defined benefit plans but the entity does not have sufficient information to calculate its share of the plan assets and liabilities, it should account as if the plan were a defined contribution plan and make suitable disclosure of this situation. However if the entity has entered into an agreement with the multi-employer plan that determines how the entity will fund a deficit, the entity must now recognise a liability for the contributions payable that arise from the agreement (to the extent that they relate to the deficit) and the resulting expense in profit or loss (whereas previously the entity may have simply increased its annual expense for the additional annual contribution).

Group plans (where the entities are under common control) are now distinguished from other multi-employer plans and are treated differently. If there is a contractual agreement or stated policy for charging the net defined benefit cost of a defined benefit plan as a whole to individual group entities, the entity shall, in its individual financial statements, recognise the net defined benefit cost of a defined benefit plan so charged. If there is no such agreement or policy, the net defined benefit cost of a defined benefit plan shall be recognised in the individual financial statements of the group entity which is legally responsible for the plan. The other group entities instead recognise a cost equal to their contribution payable for the period.

[[[Group plans (where the entities are under common control) are now distinguished from other multi-employer plans and are treated differently.]]]

What about other long-term employee benefits?

Other long-term employee benefits include items such as the following, if not expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service:

  • long-term paid absences such as long-service or sabbatical leave;
  • other long-service benefits;
  • long-term disability benefits;
  • profit-sharing and bonuses; and
  • deferred remuneration.

An entity shall recognise a liability for other long-term employee benefits measured at the present value of the benefit obligation at the reporting date; minus the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly.        

An entity shall recognise the change in the liability in profit or loss, except to the extent that FRS 102 requires or permits their inclusion in the cost of an asset.

What about termination benefits?

An entity may be committed, by legislation, by contractual or other agreements with employees or their representatives or by a constructive obligation based on business practice, custom or a desire to act equitably, to make payments (or provide other benefits) to employees when it terminates their employment. Such payments are termination benefits.

Because termination benefits do not provide an entity with future economic benefits, an entity shall recognise them as an expense in profit or loss immediately. When an entity recognises termination benefits, the entity may also have to account for a curtailment of retirement benefits or other employee benefits.

[[[Because termination benefits do not provide an entity with future economic benefits, an entity shall recognise them as an expense in profit or loss immediately.]]]

An entity shall recognise termination benefits as a liability and an expense only when the entity is demonstrably committed either to terminate the employment of an employee or group of employees before the normal retirement date; or to provide termination benefits as a result of an offer made in order to encourage voluntary redundancy.

An entity shall measure termination benefits at the best estimate of the expenditure that would be required to settle the obligation at the reporting date.

Enews March 2015

eNews – March 2015

This month we report on the latest round of penalties issued by the Pensions Regulator and end of year filing and payment reminders for employers. We also include details of how to claim the new ‘Marriage Allowance’. Please contact us if you would like any further information on these or any other issues.

Fines for those who fail to comply with Pensions Auto Enrolment

Registration opens for new married couples tax break

Charities Digital Service launched

PAYE end of year – pay on time reminder

HMRC concession for late RTI returns and payments

Advisory fuel rates for company cars

Car benefits online

Fines for those who fail to comply with Pensions Auto Enrolment

The Pensions Regulator (TPR) has issued 166 Fixed Penalty Notices of £400 to employers who failed to meet their obligations in the last quarter of 2014.

The number of employers approaching the date when they must confirm that they have complied with new workplace pensions duties (known as a declaration of compliance) is now beginning to rise significantly as Auto enrolment is rolled out across all employers. In future months, TPR expects to see more employers who, despite the message to prepare early, leave it too late or do not comply at all.

The Pensions Regulator’s Director of automatic enrolment, Charles Counsell, said,

‘My message to all employers is that failing to declare within five months of your staging date means you risk being fined, which is why we recommend you start your automatic enrolment planning and preparation 12 months before staging.

It appears some medium employers waited for a prompt from the regulator before completing their automatic enrolment duties. Employers must complete all their duties including making their declaration of compliance to The Pensions Regulator.’

Experience to date also shows that employers should begin gathering the information they need to complete their declaration of compliance well in advance of their deadline.

If you would like help or advice with auto enrolment please get in touch.

Internet link: Press release

Registration opens for new married couples tax break

HMRC have announced that registration for the new ‘Marriage Allowance’ for married couples and those in civil partnerships is now open.

From 6 April 2015 certain married couples and civil partners may be eligible for a new Transferable Tax Allowance referred to by the Government as the ‘Marriage Allowance’. The allowance will enable eligible 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 which could save them tax of up to £212 a year.

Couples can register their interest to receive the Allowance.

The government estimates that more than four million married couples and 15,000 civil partnerships will be eligible for the tax break.

Chancellor of the Exchequer George Osborne said:

‘We made a promise to introduce a recognition of marriage into our tax system – and now we’re delivering on that promise.

This includes updating the tax system so that it recognises marriage and civil partnerships.

Our new Marriage Allowance means saving £212 on your tax bill couldn’t be simpler or more straightforward.’

From April, HMRC will contact those who have already registered for the ‘Marriage Allowance’ to apply. People can register at any point in the tax year and still receive the full benefit of the allowance. It is also possible to claim the allowance after the end of the tax year where claimants are unsure if they will qualify.

Applying online is simple. One person in a couple will apply online to transfer the allowance to their spouse or civil partner, and HMRC will tell the recipient about the change to their Pay As You Earn (PAYE) tax code.

Internet link: GOV.UK

Charities Digital Service launched

HMRC have launched an online registration service for charities.

Until now charities have been required to complete a paper form (ChA1). Approximately 15,500 new charities are registered each year.

Chief digital and information officer at HMRC, Mike Dearnley, said:

‘We are completely changing the way we work with our customers – including charities. Our new digital services are straightforward, easy to use and convenient. The charities service minimises the risk of making mistakes, so applications are less likely to be returned to the organisation’.

All registration must now be completed online. Please contact us if you would like help with a charity.

Internet link: Charities Digital

PAYE end of year – pay on time reminder

HMRC are reminding employers that with the end of the 2014/15 tax year approaching they will soon need to make their final 2014/15 PAYE (RTI) submission.

For most employers, the final submission will be their final Full Payment Submission (FPS) which advises HMRC about the very last employee payments for 2014/15 and this needs to be made on or before 5 April 2015. Details of how to make the final submission can be found on the GOV.UK website using the link below. Alternatively if you would like help with your payroll please do get in touch.

HMRC are also advising employers to take extra care as the deadline for electronic payment of 22nd March falls on a Sunday.

HMRC are advising that employers should ensure their payment reaches HMRC on time, which means that cleared funds should be in HMRC’s account by the 20th unless employers are able to arrange a Faster Payment. For more details about paying HMRC electronically visit Pay PAYE tax.

Internet link: GOV payroll annual reporting Employer Bulletin

HMRC concession for late RTI returns and payments

HMRC have announced that employers will not incur penalties for delays of up to three days in filing RTI returns. There is no change to the filing deadlines and employers should generally file their full payment submissions (FPS) ‘on or before’ each payment date unless a concession applies.

HMRC are also advising any employer that has received an in-year late filing penalty for the period 6 October 2014 to 5 January 2015 and was 3 days late or less, to appeal online by completing the ‘Other’ box and add ‘Return filed within 3 days’.

In addition, to prevent unnecessary penalties being issued, HMRC will be closing around 15,000 PAYE schemes next month that have not made a PAYE report since April 2013 and which appear to have ceased.

HMRC will write to the affected schemes to tell them about the planned closure and what to do if they are, or should be, operating PAYE.

Employers with fewer than 50 employees are reminded that PAYE late filing penalties will apply to them from 6 March.

Internet link: News

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 March 2015. Due to the reduction in fuel prices many rates have reduced this quarter between two and three pence so please take care to update your expenses payments. However, the guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 March 2015 are:

Engine size Petrol
1400cc or less 11p
1401 cc – 2000cc 13p
Over 2000cc 20p

 

Engine size LPG
1400cc or less 8p
1401 cc – 2000cc 10p
Over 2000cc 14p

 

Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 14p

Other points to be aware of about the advisory fuel rates:

  • Employers do not need a dispensation to use these rates. Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
  • The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

If you would like to discuss your car policy, please contact us.

Internet link: GOV.UK

Car benefits online

As part of HMRC’s digitisation campaign, an online trial allows company car drivers to make changes to car and fuel benefits that will affect their tax codes.

It is important to ensure the benefits included in your tax code are as accurate as possible or large under or overpayments of tax may arise. For information on how to amend your tax code visit the link below. Alternatively if you would like help checking your tax code please do get in touch.

Internet link: GOV.UK