ISSUE 50 : SPRING 2014
accounting for the future
Inside this issue Accounting standards A guide to the big changes to the rules that are on the way The learning curve Expertise on offer for schools and academies Tax: New partnership rules Crackdown on ‘disguised employment’ avoidance CGT relief halved Change hits property profits
Golfing success down to a tee Business and golf have always gone hand in hand. But in Nick Lunn’s case, they are one and the same thing. Nick’s firm, NGL Golf, has been running corporate golf events at some of the finest courses for more than 35 years. Their events range from a golf day for a client’s select customers to entire national corporate tournaments. Nick was working as a golf pro when he spotted a gap in a fledgling market. “It was the early days of corporate golf and we were one of the first agencies to start, so we’re one of the longest established,” he said. From humble beginnings, NGL Golf has grown to become a major player in the sector and has spun off a second business, The Boston Golf Tee Company. Together, the two firms create a one-stop shop, reducing the need to rely on outside suppliers when organising and staging events. Nick explained: “We started out working from a bedroom at home. But we soon outgrew that and bought our first office building in Old Basing, then outgrew that in 2000 and bought the office we’re in now. “We’ve gone from employing no staff to having 14 and a turnover that’s grown to £1.6million. Boston Golf emerged out of NGL and specialises in providing personalised golf accessories like tees,
ball markers, pencils and various forms of packaging. “Between the two businesses turnover is up to around the £2million mark.” Bob Lock - Wise & Co. Like any business that’s been going as long as NGL Golf, it hasn’t always been plain sailing. But by being customer focused, Nick has made sure they have always made it out of the rough. Nick said: “We’ve been going for over 35 years and we’ve survived at least three recessions in that time. That’s thanks to some very loyal clients, many of whom have been with us for over 20 years. The only real dip in profitability was in 2009 when the recession bit. But its been steadily growing back since then to near pre-recession levels. We are certainly busier now than we have ever been. “We’ve been service led, concentrating on looking after our existing clients, so haven’t marketed ourselves or been sales oriented, just grown organically through recommendation.”
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WISE WORDS All change - what the new accounting rules mean for you By Treena Turner : Partner
There are big changes coming for the way companies prepare their financial statements, with the introduction of a new set of reporting standards.
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The firm certainly boasts an impressive client list: BMW, Porsche, Bentley, Lexus, Nespresso, Hewlett-Packard, Coca-Cola, AT&T, to name but a few. It’s an approach that has paid dividends, but now the company is embarking on a new phase with plans to expand over the next three to four years.
Innovation scores Innovation is also part of the game plan. NGL Golf is proud of its new digital scoreboard, a £105,000 investment that is a hit with guests and gives clients’ events the edge. So what is it that makes the golf course a great place to do business? “It’s quality time spent with clients or potential clients,” Nick explains. “You’re on the course for four or five hours with time either side of that. “People like to compete, and the handicapping system means everyone can enjoy taking part regardless of their skill level. There is a friendly competitiveness among our clients’ customers. Of course, if they win it’s a bonus. “Golf courses tend to be upmarket venues, often with a hotel attached. We work with a lot of the top venues such as Wentworth, Turnberry, Woburn, Birkdale. They are perfect environments to entertain and reflect our clients’ brands and standards.
A winning team “It’s more than just corporate hospitality. With golf you are participating.” Wise & Co has been part of NGL Golf’s success story for around six years. Nick explained what made his choice of accountancy firm an easy one. “What we like about Wise & Co is that they are a one-stop shop and we like the idea of fixed cost accounting. We have a very good relationship with Bob Lock, not least because he’s a golfer. It’s great that the senior partner we deal with knows the world of golf and understands our business.”
Some of these measures could have a significant impact on your business, so now is the time to start making plans. The new rules aim to simplify a regime that has become lengthy and bloated, having evolved over time, and also to bring the UK into line with international standards. They will come into effect for accounting periods starting from 1 January 2015 but can be adopted before this.
ideas, new names for things and new methods of measurement for items with the accounts.
The key differences with FRS 102: Investment properties Currently, investment properties are included within the accounts at market value, with changes in value being recognised through the statement of total recognised gains and losses (STRGL).
Choices for small companies Most small company clients of Wise & Co prepare their accounts using UK Generally Accepted Accounting Principles (UK GAAP), which the new Financial Reporting Standards (FRS) will replace. When the new rules come into force the two main options available will be to adopt the existing Financial Reporting Standard for Smaller Entities (FRSSE) or switch to the new FRS 102.
FRSSE Under this regime, your accounts will appear much the way they do already and disclosures will remain similar. However, while there are no current plans to withdraw FRSSE, it is not expected to be continued indefinitely.
FRS 102 FRS 102 is based on the International Financial Reporting Standard for Small and MediumSized Entities (IFRS for SMEs) amended for use within the UK. It represents some new
• Under FRS 102 these properties need to be carried at fair value and the resulting gains or losses are taken to the profit and loss account but these are not distributable reserves. • There is no current requirement to recognise a deferred tax liability on the revaluation gain but under FRS 102 there will be – even if you have no immediate plans to sell. This could impact your balance sheet. • Property owned by one group company and then let to another group company is not classified as investment property but under FRS 102 this is not the case.
Goodwill and intangible assets If you have a significant amount of goodwill on your balance sheet then the new rules under FRS 102 could have a significant impact. Currently, goodwill normally has a maximum useful life of 20 years but this can be longer if there is justification.
WISE WORDS • Under FRS 102, the maximum useful life, where no other reliable estimate can be made, is 5 years. This could represent a significant reduction. • At the moment many intangible assets are classed as goodwill on the acquisition of a business because intangible assets can only be recognised separately if they are capable of being sold or transferred independently. However, under FRS 102, intangible assets should be separately recognised “when their fair value can be reliably measured”. Each intangible can then be allocated an appropriate useful life. • It is expected that this will have an impact on future sale and purchase agreements and so this is an area that lawyers as well as accountants need to understand.
Holiday pay accruals Under current UK GAAP there is not a specific requirement to make accruals for holiday pay. However, under FRS 102, there is an explicit requirement to accrue for holiday pay and other accumulating compensated absences as the employees earn the right to them. So if your holiday year-end and accounts year-end are not the same this could result in new calculations being required.
Other areas that are seeing significant change:
of your balance sheet.
• • • • •
• Could this impact upon banking covenants? These may need to be reviewed and discussions held with your lenders. • Do you have the internal systems to gather all of the necessary information, especially for items such as the holiday pay accruals, if the staff numbers on your payroll are significant? • Do you have a written dividend policy that refers to distribution of a percentage of retained profit? This may need to be re-written as more items are recognised in the profit and loss account and not via the STRGL.
Defined benefit pension accruals Merger accounting Lease incentives Financial instruments All accounts will require a cashflow statement • Terminology and the names of the primary statements
Why do I need to consider this now? Although the mandatory adoption of FRS 102 does not take effect until accounting periods commencing on or after 1 January 2015 – so realistically 31 December 2015 year-end – when you do adopt, you need to restate your comparatives which means you need to restate your opening position, and this could be your closing position as at 31 December 2013. In the first year in which you change there are various detailed disclosures and reconciliations that are required within the financial statements to show what has been done, and the impact that this has had upon the accounts.
What does this mean in practical terms? There are a number of ways these changes could have a negative impact upon the value
While these changes may still be some way off, now is the time to be considering your options. If you are a small company, you are not required to adopt FRS 102 and it may not be the right thing for you to do. This is a learning curve for all involved and for some clients it will have little impact but this really does depend on what you have in your accounts. If you would like to discuss this further then please contact your usual Wise & Co partner.
A class act for schools By Mark Dickinson : Partner
At Wise & Co, our experience in the school sector supporting both independent schools and academies, has built our expertise in understanding the ins and outs of school finance. Here are some of the ways we can help:
There are around 2,500 independent schools in the UK, many of which benefit from charitable status. In the public sector, the Government’s academies programme is proving popular with many schools across the country, freeing them from local authority control and enabling them to have greater control over their budgets. By the end of February there were 3,689 academies. The greater financial freedom brings added responsibilities, and there are lots of things to consider when running an academy or an independent school.
• Efficient annual audit of the statutory financial statements (including relevant reports to the Education Funding Agency for Academies) • Preparation of the annual financial statements meeting regulatory requirements • Audit of the Teachers’ Pension Scheme return • Professional support for academies for one-off requests from the Education Funding Agency • Bookkeeping support • A comprehensive range of payroll services • Recovery of Gift Aid • Invaluable advice on taxation and VAT Additionally, with deadlines coming up, here are some dates for your diary where
our expertise and experience could be beneficial: • The annual return for the Teachers’ Pension Agency (year to 31 March) can be audited in time for either the 31 May or 30 September deadlines • New academy trusts that have not yet prepared financial statements will be asked to complete an accounts return covering their first period to 31 March 2014 and submit it to the Education Funding Agency If you are interested in the above, or have questions about any aspect in the not-forprofit sector, please contact Mark Dickinson, Ghislaine Tradgett or Amanda Thomas.
WISE WORDS Property profit tax relief halved By Sharmini Woodings : Tax Partner
Changes to Capital Gains Tax rules mean the amount of relief available when selling property that isn’t your main home has been halved from this year. As you probably know, you don’t pay any tax on profits you make from selling your home, provided the property has been your main residence for the whole time you’ve owned it. However, if you own more than one property – or a property that has not been
your main residence throughout the period of ownership – you will have to pay capital gains tax on some of the profits. Prior rules allowed you to mitigate exposure to capital gains tax by treating the last 36 months of ownership of a property as your main residence, whether or not you actually lived in it when sold (although it must have been your main residence at some point).
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People are doing more and more in the cloud these days. And no, not the sort of cloud that’s big, grey and brings lots of rain. This is cloud computing – where data is stored and software can be run remotely.
Working in this virtual environment brings greater data security and the ability to work wherever you have an internet connection. Cloud accounting systems allow you to access your records on computers, tablets and even smart phones depending on the type of system you use. This gives your authorised people the ability to work with data securely with no need to worry about backups – that’s all taken care of for you. It does away with traditional accounting software that is loaded on your computer hard
From 6 April this year the last 36 month exemption has been reduced to just 18 months. Where contracts have been exchanged prior to 6 April 2014, the 36-month exemption should apply. If you have any queries regarding this article or believe you may affected by the changes please do not hesitate to contact a member of the tax team.
drive or on your organisation’s network servers. From an accountant’s perspective, the advantage is having access to your data at any point during the financial year via a secure login, enabling easier assistance with posting queries and tax planning. Wise & Co can now keep you bang up to date with the benefits of this technology thanks to our partnership with Xero Cloud Accounting. For more information and to discuss how cloud accounting could work for your business please get in touch.
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WISE WORDS Chancellor foils masters of disguise By Joanne Colwell
The Chancellor is cracking down on the use of business partnerships to ‘disguise employment’ and avoid tax, with tough new measures announced in his Autumn Statement.
There are two key changes for partnership businesses to consider. Firstly, any partnership – standard or Limited Liability Partnership (LLP) – that has corporate members, will face new antiavoidance measures dealing with movement of profits between individuals and corporate members. In this article, we are going to focus on the second change being introduced which relates to LLPs only. Currently, all members of an LLP are treated as self-employed. In many cases senior employees have been introduced as LLP members which then saves the business 13.8% in Employer’s National Insurance costs on the value of those salaries. The new legislation, effective from 6 April 2014, will specifically tax individuals that are in substance employees, subjecting them to PAYE and National Insurance (including Employer’s National Insurance). There are three conditions that must be satisfied in order for an individual to be treated as an ‘employee’.
Other tax news NIC changes Employers will get a tax cut in the form of a £2,000 saving on their National Insurance bill. The Employment Allowance took effect from 6 April and the changes should automatically be processed by payroll software. The Government expects the allowance to benefit 1.25million businesses, with a third of employers paying no National Insurance at all.
Self-employed entertainers For example, strategic decisions for the business should be consulted and voted on, with regular meetings held to review the business and individuals’ contributions.
Test 1 – Disguised salary This test is designed to catch individuals whose overall reward package is akin to that of an employee’s. For example, where there is a fixed profit share and a variable bonus based on performance and little or no part of the earnings are affected by the partnership’s profitability. Present guidance from HMRC suggests that where more than 80% of the reward package is ‘fixed’ with only 20% or less being variable, this condition will be met.
Test 2 – Significant influence Very simply put, this test is looking to establish what role the individual has in the actual running of the business. Again, this test is somewhat subjective and is likely to be a more significant factor for smaller and family-run businesses. It will, therefore, become important for affected businesses to ensure that each partner’s commitments are detailed in the partnership agreement or documented in the business records.
6 April each year and every time there is a change of circumstances the tests must be re-applied. All new members joining should be reviewed on the day they join the LLP. Test 3 is applied to existing LLP members on 6 April every year – effective from this year – or on the date of admission for new members AND then on 6 April each year. Please do contact us for further information on how you may be affected by these new changes to the rules.
Test 3 – Capital contribution Probably the simplest of the three, this test measures the level of capital risk made by the individual. If the individual meets Test 1 you simply take the amount of their reward package and multiply by 25%. If the total capital contributed to the LLP is less than this amount, then this test is met.
For example: Belinda receives a fixed partnership profit share of £100,000 per annum with no variable amounts. As more than 80% of Belinda’s income is fixed it would fall within Test 1 above and, therefore, be treated as a disguised salary. When looking at Test 3 you take the £100,000 disguised salary and multiply by 25%. If the capital contributed to the business by Belinda is less than £25,000, then Test 3 is also met.
Applying the Tests Both Tests 1 and 2 are to be measured on
Some good news for people working in the performing arts sector. From the start of the new tax year, actors, singers, musicians and anyone else working in any similar performing capacity will be treated as selfemployed, meaning they will pay Class 2 and Class 4 National Insurance Contributions rather than Class 1, as was often the case. However, this does mean that entitlement to state benefits may be reduced.
Corporation tax In another boost for business, the main rate of Corporation Tax reduces from 23% to 21% from 1 April 2014. Announcing the cut in his Autumn Statement, Chancellor George Osborne said the cut could promote inward investment and job creation.
Business rates If you have a food/drink or retail premises with rateable value of up to £50,000 you will receive a £1,000 reduction in business rates for the next 2 years from 1 April 2014. There has been a range of other small extensions to business rate relief, so please contact your tax adviser for more information.
PRACTICE NEWS Amy’s treble triumph Hats off – or should that be mortar boards off – to trainee accountant Amy Cobley. Not only did she graduate with a First in Accountancy and Financial Management, but she also attained the highest undergraduate grade across all courses at the University of Gloucestershire. And to top it off, she won the Hazlewoods Accountancy Prize for the highest achievement
in an accountancyrelated degree, an award sponsored by Gloucestershire-based firm Hazlewoods. Amy spent a year on placement with Wise & Co before completing her degree, and then joined us as a trainee in September.
Tom’s top tips
Expert career advice was on offer when Tom Mason visited Farnham Sixth Form College to talk to students studying accounting. Tom gave an overview of both management and financial accounting and explained the alternative training paths of doing the AAT to ACA/ACCA straight after A Levels or starting as a graduate. Wise & Co is an authorised trainer for both the ICAEW (Chartered Accountant) and the ACCA (Certified Accountant).
It’s a half century
This is the 50th edition of Wise Words – something we’re proud of and feel is worth noting. That’s 50 newsletters packed with expert advice, information and real life business case studies from some of our clients. So, here’s to the next 50 editions!
Congratulations to Qasim Memon who has completed the ACA exams and has now qualified as a Chartered Accountant. Qasim joined us in August 2011 as a trainee having attained a first class degree in Accounting, Business Finance and Management from the University of York.
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The gossip from Pinewood A galaxy not that far away The Force is getting stronger. It’s only two months until Star Wars: Episode VII starts shooting at Pinewood. Plot and cast are strictly under wraps, but fans will see some familiar (if a bit older) faces in the latest instalment. It’s due for release in December 2015. Lightsabers at the ready...
Out of this world Glenn Freemantle, of Pinewood-based Sound24, picked up the Oscar for Sound Editing at the recent Academy Awards for his work on Gravity, starring Sandra Bullock and George Clooney. He had already bagged the BAFTA in February. Wonder if he’s come back down to Earth yet.
Playing a big part in China Pinewood is advising on the development of what will be one of China’s biggest film and TV complexes. British expertise will help with the design and construction of the Qingdao Oriental Movie Metropolis in Shandong, which will open in 2016.
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This newsletter has been written for the general interest of our clients. We believe that the facts are correct as at 1 April 2014 but there may be some unintentional errors or omissions. It is therefore essential to take advice on specific issues. We cannot be held responsible for the consequences of any action taken upon the information contained herein without our express consent.
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