International Accounting Standards
International Standards on Auditing
Dividends and Corporation Tax Rates
Not so topical, ongoing technical issues
On 17 December 2010 H.M. Revenue and Customs published a paper stating they intend to undertake 50,000 "Business Records Checks" (BRC) per year to review the adequacy and accuracy of business records within the Small and Medium Enterprise sector, accompanied by a tariff-based penalty regime for failure to keep proper records.
HMRC state they expect this to bring in £600m over four years. A quick calculation shows they expect to levy an average penalty of £3,000 per BRC.
Clearly it is now more important than ever to make sure businesses keep adequate accurate records. This will differ for each business, so it is important to take advice about what HMRC would be likely to consider 'adequate'.
In-line Extensible Business Reporting Language (iXBRL) is now with us, having become the only means of filing Company Tax Returns and associated documents with HM Revenue and Customs from 1 April 2011.
Traditionally Corporation Tax Returns and the associated accounts and tax computation were sent by post to the Inspector of Taxes. In recent years many accountants have submitted them electronically, attaching pdf versions of the accounts and computation (readable on almost all computers using Adobe Acrobat and other similar software).
From 1 April 2011 all Corporation Tax Returns have to be submitted electronically. The accounts and computation still have to be attached, but now they must be in iXBRL format, 'tagged' in accordance with a 'schema' laid down by HM Revenue and Customs. HMRC were asked how they envisaged the tagging would be done, and we understand their response was that a reasonably competent person should be able to tag a set of accounts in a day and a half! So much for reducing red tape, and for the government's concern about its cost to business.
The Companies Act 1985 was revised and rewritten, and published as The Companies Act 2006.
Perhaps one of the most important changes for small companies is the reduction in the time given to file accounts at Companies House. This has reduced from 10 months to 9 (effective for year ends April 2009 onwards), and now lines up with the Corporation tax payment deadline.
The automatic fines levied for missing the accounts filing deadline have also been increased quite dramatically. For private companies up to one month late costs £150 after which it rises to £375. At three months it rises to £750 and after six months it costs £1,500.
Click here to download The Companies Act 2006 or click here for the DTI's explanatory notes.
The House of Lords pronounced on a very high profile case (Arctic Systems) on 25 July 2007 regarding the treatment of income in husband and wife companies. In a number of these businesses HM Revenue and Customs have sought to treat the wife's income as if it had been paid to her husband, thereby increasing the couple's overall tax liability.
In their unanimous judgement the Lords decided that the interpretation of the law being used by HM Revenue and Customs is incorrect. The Lords agreed with HM Revenue and Customs that by setting up a company with one share each the husband and wife were entering into a settlement arrangement, but they also said that the exemption for gifts between spouses applied, so dividends paid to the non working spouse were not income arising under a settlement.
The Treasury issued a written Ministerial Statement the day the judgement was issued stating that they intend to change the legislation as a result.
In his budget speech on 12 March 2008 Alastair Darling announced that the proposed changes to the law dealing with 'income shifting' would be delayed until 2009, and this has since been delayed further owing to the banking crisis.
Most commentators believe this is just a delay and that legislation will be enacted - it is just a matter of time.
UK Accounting Standards were traditionally set by the Accounting Standards Board, and before that by the Accounting Standards Committee. A European Union directive requires all listed companies (those quoted on a stock exchange) to prepare their accounts from 2005 onwards in accordance with International Accounting Standards, which are set by the International Accounting Standards Board.
What will happen to the rules for companies not affected by the European Union directive remains to be seen. The UK Accounting Standards Board has suggested that all small and medium sized companies should be allowed to use the single "International Financial Reporting Standard for Small and Medium-sized entities". If this approach is adopted world-wide it would standardise accounts across the world, and small and medium sized companies would have a standard written to cover issues that affect them. However this proposal cannot be implemented in the UK unless it is adopted by the EU, or the relevant EU directive is amended. Perhaps its time to lobby your MEP.
UK Auditing Standards were traditionally set by the Auditing Practices Board. All audits for year ends 15 December 2010 and later now have to be audited under International Standards on Auditing. This should produce a unified approach to audits in all countries adopting these standards.
From 2009 tax returns have to be filed by 31 October unless you file electronically, in which case you have until the following 31 January.
It should be noted however that it is impossible to file electronically unless you have been given a 10 digit 'Unique Taxpayer Reference' (UTR) by HMRC, and HMRC can take several months to issue one.
There are two very different regimes for Corporation Tax. Companies with taxable profits of less than £300,000 are taxed at the small companies rate(s). Those with profits exceeding £1½ million are taxed at the full rate. Those with profits in between are taxed on a sliding scale.
The 2011 budget announced a 2p reduction in the Corporation Tax rate. This referred to the full rate of Corporation Tax, which became 26% on 1 April 2011 as a result. This rate will reduce further by 1p per year until it reaches 23%.
The small companies rate was also reduced in the 2011 budget to 20% and this is not expected to reduce further in the near future.
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