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Topical Accounting Issues


Audit regulation changes

Business Records Checks

iXBRL

Companies Filing Deadline

Settlement legislation

Accounting Standards

International Standards on Auditing

Tax Return filing deadlines

Dividends and Corporation Tax Rates


Not so topical, ongoing technical issues



Audit Regulation Changes

The law requiring companies to have an audit was relaxed from 1 October 2012. All small companies are now exempt from a statutory audit, although accounts still have to be filed at Companies House.

In addition, subsidiary companies with an EU parent company are able to claim exemption from an audit as long as the parent company guarantees the subsidiary company's debts,  the shareholders unanimously agree, and the parent company includes the subsidiary's figures in its consolidated accounts which must disclose the exemption.  Documents confirming these conditions have been met must be filed at Companies House before the subsidiary company's accounts are filed.

Click here to download Statutory Instrument SI2012 2301 which brought these changes into law.

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Business Records Checks

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'.

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iXBRL

In-line Extensible Business Reporting Language (iXBRL) has been with us since 1 April 2011 at which point it became the only means of filing Company Tax Returns and associated documents with HM Revenue and Customs.

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 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 had 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. The minimum number of tags required by HMRC increases in April 2014 so that more items in the accounts can be read by HMRC's computers automatically. 

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Companies Filing Deadline

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.

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Settlement legislation

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.

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Accounting Standards

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.

From 2015 the UK standards (SSAPs and FRSs) will be replaced by three new Financial Reporting Standards (FRSs) numbered 100, 101 and 102.  In addition the Financial Reporting Standard for Small Entities (FRSSE) will be updated.

In addition a new regime of reduced disclosure requirements will be introduced for 'micro' entities.

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International Standards on Auditing

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 unified approach to audits in all countries adopting these standards should make it easier to understand what audits in different counties mean.

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Tax Return filing deadlines

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.  If you want the Inspector of Taxes to calculate your tax bill for you the deadline is 30 September.

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 this can take HMRC some weeks in busy periods.

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Dividends and Corporation Tax Rates

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 has reduced further and will match the 20% small companies rate soon.

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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