Welcome to HB Accountants Monthly Tax Update for July 2017.  In this month’s update, we will be outlining the Common Reporting Standard (‘CRS’) and what it means for our clients and contacts.

What is the CRS?

The Common Reporting Standard, generally known as the Global FATCA, is a regulation initiated by the OECD, aiming at preventing tax evasion and leading to a global automatic exchange of information between CRS-participating jurisdictions.

Which countries will be adopting the CRS?

The governments of over 100 countries have so far committed to the automatic exchange of information and the list is still growing.

The UK has committed to commence automatic information exchange, along with 56 other jurisdictions, by September 2017.

Which financial institutions are required to report?

Financial institutions that may have a duty to report include:

• Banks (including local banks)
• Custodial institutions
• Trust companies
• Brokers
• Insurance companies
• Collective investment vehicles
• Investment managers and funds.

Which accounts are reportable?

The accounts that are reportable under the CRS include accounts held by individuals and entities i.e. trusts and foundations.

Details and information to be reported

The following information will be reported  

• Personal information: Name, address, taxpayer identification number (e.g. UTR number in the UK), date of birth and place of birth of account holder
• Country of residence of the account holder
• For entities – the above for each controlling person
• The account details
• The financial institution’s details

The following financial information will be reported:

• The account balance
• Interest, dividends, and sales proceeds from financial assets
• The applicable currency of the account

How will the CRS affect me?  

Financial institutions will be required to identify customers who are tax resident in one country but have financial accounts held in another for reporting purposes. To do this they will need to collect and report certain information on the ‘reportable person’ and their financial accounts to the local tax authorities.

The above means that HM Revenue & Customs (HMRC) and other tax authorities around the world will now have access to a vast amount of data, so it is becoming progressively more important for account holders to regularise their tax affairs at the earliest opportunity, as the penalty and disclosure regime will become much less favourable following the implementation of the CRS.

How can I bring my tax affairs up to date prior to the implementation of the CRS?

The Worldwide Disclosure Facility (‘WDF’) opened on 5^th September 2016, this facility allows anyone to disclose a UK tax liability relating either wholly or partly to an offshore issue to HMRC.

Why Should I use the WDF?

HMRC has stated that the WDF is the final chance to put things right for those individuals with outstanding UK tax liabilities on undeclared offshore money or assets.

This last chance comes before HMRC starts to receive an unprecedented amount of data on offshore accounts held by individuals with a footprint in the UK.

Sanctions facing those who have not come forward already or use the WDF will be far tougher in the future, with the potential prospect of minimum penalties of 100% of the tax due and an increased chance of criminal prosecution.

How can HB Accountants help?

The HB Accountants tax team have experience in making disclosures to HMRC including via the WDF. HB accountants can assist you with computing any liabilities due under the WDF and assist you with approaching HMRC to ensure you minimise your financial exposure.

If you would like any further information regarding the above, or have any queries, please do not hesitate to contact John Neighbour (Tax Director), Amy Armitage (Tax Manager) or any other member of the HB Accountants team on 01992 444466.

If you have a growing business, you may well have taken on a bookkeeper to help you do the accounts. But grow the business a bit further and you will need to supplement the bookkeeping role with the services of an accountant.

The problem is that there is an in-between time when you need a management accountant, but cannot afford to employ someone on a full-time basis. This is when you need the services of a virtual financial director – a qualified accountant who will spend as much time and energy on your business as you need, but who will work only for the amount of time you need them.

Your virtual financial director is integral to your company’s growth

Even though they’re not directly employed by you, your virtual FD will have your business’s interests at heart. They will work on your behalf as though they are a valuable and trusted member of staff – it’s their job to help you increase sales and improve turnover and profitability, but they will also have an objective overview of the business, helping you to spot trends and new opportunities you may not previously have been aware of.

They will give you financial guidance and strategic advice, prepare your management accounts and forecasts, and attend meetings on your behalf wherever necessary, but without the expense of having to employ a full-time FD.

The additional benefit of a virtual financial director above is that they will help you with strategic planning to help you achieve your goals in the short- and long-term. You can also use them as a sounding board to discuss ideas to make sure you’re going in the right direction.

Having a virtual FD on board will also improve your credibility and raise the confidence of stakeholders and financial institutions. If there are any regulatory changes you need to be aware of, they will update you.  

Where to find a virtual FD

You’re most likely to source your virtual FD from your current accountancy firm – if you factored your business growth into the equation when choosing your accountant, you will hopefully have someone who can seamlessly take over because you’ve already got a good working relationship with the company.

Otherwise, look for a reputable accountancy firm that offers management accounting, advice and consultancy services.

In its 2017 annual Audit Quality Thematic Review, the Financial Reporting Council found nearly a third of audits carried out “required more than just limited improvements”. In reporting about the review, the Financial Times pointed out that recent high-profile accounting scandals “raise questions about whether auditors are being appropriately sceptical when they scrutinise company accounts”, quoting a £4m fine the FRC had charged Deloitte for its audits of Aero, and a £3m fine against PwC for its audits of Yorkshire-based sub-prime lender Cattles.

Relationship-building with clients

We understand that as the majority of companies start out small – many as sole traders – directors prefer to use the services of a sole practitioner accountant or a small accountancy practice. It’s understandable that the accountant and the client will build a very good relationship with each other, with a lot of trust and loyalty on both sides.

As a business expands, it is inevitable that the director will want that relationship with the accountant to continue – and so it should. The problem for the accountant is that if the company is ever in a position to need auditing, it could become problematic if they don’t have the training and experience to undertake the task.

Many accountants in this situation are hugely reluctant to introduce their client to another accountancy firm as there is a risk that their client could be poached by a larger company. Quite often they muddle through with their own audit – but without the specialist training, experience and accountability, it could leave them vulnerable.

Outsourcing

The best compromise for sole practitioner accountants, or those in firms too small to have trained auditors, is to outsource the task to a registered auditor.

We are Registered Auditors with the Institute of Chartered Accountants in England & Wales and specialise in audits for businesses requiring FCA compliance, charities, pensions and solicitors.

At HB Accountants, we pride ourselves on our ethical stance and would never approach your client.

If you run a charity, you’ll know that when it comes to doing the accounts, there are more complications than a ‘for profit’ business. Charity Accountants do understand these complications and the most effective ways to address these without any interruption to your operation. 

The accounting requirements for charities are onerous and apply to even the smallest charity. Visit the Charity Commission for England and Wales’ website for the rules around reporting, accounting and audits depending on the size and type of charity.

When it comes to finances, there is a basic requirement to submit accounts and returns to the Charity Commission, as well as a trustees’ annual report, a set of accounts and an annual tax return. The accounting process needed also depends on the type of charity, whether it’s a Trust, a Charity Incorporated Organisation (CIO) or a charitable company limited by guarantee.

Charity Accounting Specialists

Keith Grover, Director at HB Accountants, specialises in accounting for charities and understands the complexities and challenges this involves.

“All charities need proper disclosure in all areas, but, in the case of the smallest ones, their expertise tends to be limited. The rules are not easy to get your head around and lots of the smallest charities muddle along simply hoping that they get it right. When a charity’s income rises above £25k, the statutory requirements it has to follow in terms of accounting are huge. The main problem is that every charity, even the smallest, has to have a Trustees Report as part of its financial statement, yet the report is a very wordy document with prescribed formats. This is usually when charities turn to us for our specialist accounting services.”

If you would like certainty about financial reporting requirements as set out in charity law, as well as help with accounting systems and procedures, VAT management and operational advice, contact us to make an appointment to talk to one of our charity and not-for-profit accounting specialists.

Under company law, all businesses must prepare annual accounts, as well as annual tax returns, to file with HMRC and Companies House. Many start-ups and small businesses hire an accountant to write these reports and leave it there, but when a company begins to expand, they tend to hire a management accountant to not only generate quarterly or monthly management accounts, but also to make the accounts more meaningful for the future success of the organisation. Below is a management accounting guide for small business owners: 

Management accounting

With management accounting, the more frequent production of reports enables managers and directors to use the up-to-date financial information to help them make better-informed business decisions and maintain effective control over corporate resources.

After the production of each report, the accountant will help clients to analyse the figures in order to work out how well, or otherwise, the company is doing. The frequency of analysis can help flag up the products and services that bring in the greatest amount of money, and those that aren’t living up to expectations, as well as help, identify and control wastage, improve cash flow and reduce expenses.

The regularity with which management accounts are generated depends on the individual company. Most will only want quarterly figures, but larger companies tend to do theirs on a monthly basis.

Outsourcing

On the whole, a large number of companies outsource management accounting to specialist companies like HB Accountants. One of our directors, Keith Grover, explains the advantages of outsourcing your management accounting.

“On a quarterly or monthly basis, we will prepare a set of accounts, then sit down with you and discuss the findings. We’ll tell you what we think the important points arising from the analysis are, and advise on the best course of action. We are also happy to attend Board meetings.

“An additional advantage of doing the accounts on a more regular basis comes with making better tax planning decisions at the best time.

“In taking the role of a virtual accounts director, a management accountant can make a significant difference to a company’s success. ”

For more information about management accounting or to make an appointment to discuss it with one of our qualified team members, call us on 01992 444466 or email directors@hbaccountants.co.uk.

Because of the forthcoming General Election, the Government have been forced to cut down the size of the Finance Act (to a mere 156 pages!) in order to get essential tax provisions into law before Parliament is dissolved.

One of the omissions is MTD, although it is widely expected that this will be reintroduced after the election.

However, there has been more criticism of the proposals. The Office of Budget Responsibility has said that HMRC’s estimates of the improved tax take from MTC were highly uncertain and the House of Lords Economic Affairs Committee has also cast doubt on the estimates.

The Federation of Small Businesses has estimated that the introduction of MTD could cost businesses around £3,000 per year in time, salaries and fees.

Some member of the Treasury Committee have suggested that the Government should delay any implementation until a full pilot scheme has been run and assessed.

As ever with MTD, we will have to wait and see!

As you drive across the border into the county of Hertfordshire, you’re greeted by a road sign which says “Hertfordshire. County of Opportunity”.

When Hertfordshire County Council (HCC) published its Corporate Plan for 2013-17, they explained why they came up with this slogan: “We want Hertfordshire to remain a county where people have the opportunity to live healthy, fulfilling lives in thriving, prosperous communities”.

In terms of prosperity, HCC stated it was working towards a “business-friendly environment where initiative is encouraged and celebrated” in order to create a strong, resilient and successful economy.

But the Corporate Plan went further than just making Hertfordshire a great place to do business, it also encompassed the community as a whole. The plan focused on giving residents the opportunity to maximise their potential by supporting those in difficulties, giving them a clean and green environment to live in, and tackling the overall health and wellbeing of everyone living in the county.

The current situation

According to the Council’s latest Annual Report, HCC is doing very well. According to its latest survey, 74% of residents were satisfied or very satisfied with the way HCC runs things and the Council has been shortlisted by the Local Government Chronicle for the “Best Council of the last 20 Years” Award.

To increase the opportunities available to businesses, HCC is currently working to improve transport links which will have a direct effect on local businesses. It has given the go-ahead to the Croxley Rail Link that will bring the London Underground system into Watford, making commuting more attractive at the same time as taking the strain off road links.

HCC is an active member of the London Stansted Cambridge Consortium (LSCC) which aims to promote the economic potential of the London to Cambridge corridor. The Consortium’s Growth Commission described the corridor as sharing “a set of advanced industries characterised by rapid growth and high productivity, supported by a global centre for business and financial services. Productivity is 16 per cent higher than the national average, and growing”. HCC is supporting the LSCC’s economic vision for 2036 with ambitious targets to create 400,000 new jobs – half of which will be tech, life sciences and knowledge-based – as well as growth in productivity and the creation of 10 new companies each worth in excess of £1bn. Business growth will be backed up by an education and skills system that provides a skilled, qualified workforce, as well as high quality housing and diverse and vibrant communities.

HCC is also a member of the West Anglia Taskforce which is recommending that the Government brings forward the four tracking of the West Anglia Mainline to Broxbourne as part of a strategy to bring Crossrail 2 into Hertfordshire.

If you would like to explore the opportunities offered for your business, we offer full accountancy services for companies of all sizes. Contact us to find out more or to make an appointment.

Knowing what your gross profit and net profit are is a fundamental part of running a business. In the simplest terms:

Gross profit – you calculate what your gross profit is by taking your total turnover, minus the costs of the goods sold.

Net profit – this is what’s also known as your bottom line. It’s what’s left after you’ve deducted all your costs from your total turnover, i.e. the costs to you of the goods as well as all your business overheads, staff costs, interest on any business loans etc.

How to use gross profit to help you increase net profit

If you are taking steps to increase turnover, it will obviously have a knock-on effect on your net profit – ideally a very positive one.

You may want to offer discounts in order to get more business – “pile them high and sell them cheap” as the idiom goes. If your overheads stay the same, this is all well and good, but if your strategy to sell discounted products is successful, you may well need to increase your overheads in order to cope with the extra demand, and this will impact your net profit.

As soon as you understand your gross profit margin, you can use it to calculate whether any extra overhead costs involved in getting those extra sales are a justifiable business expense.

We find that, as a general rule of thumb, if you are looking after your overheads properly, the net profit should take care of itself. There’s a great phrase, “turnover is vanity, profit is sanity but cash is reality”, which means you need to get your profit right before taking care of your working capital.

If your small business is based in Hertfordshire and you would like to know more about our services and find out how our local Hertfordshire Accountants can help your business succeed, contact us to book an appointment.

At Budget 2016, the Government announced two new £1,000 allowances for property and trading income to take effect for income arising from 6 April 2017.

The Government also announced at Autumn Statement 2016 that the trading allowance may also apply to certain miscellaneous income to the extent that the £1,000 trading allowance is not otherwise used.

Further detail has now been released:

• Where the allowances cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 NIC;
• The new allowances will not apply to income on which rent a room relief is given; and
• The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.