Welcome to our
Winter 2001 newsletter
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Please contact us if you have any questions or would like more information about any of the articles featured
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Statistics...statistics
Everybody knows accountants love numbers!
However, we thought you might like to share these with us...
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Start-ups
A recent survey (conducted by the Institute of Chartered Accountants in England and Wales) has criticised government support to small and medium sized enterprises (SMEs): 75% of respondents said that the government was not doing enough to encourage an enterprise culture. Almost half said that it was very important government improved SME access to finance.
Highest priorities for start-ups were:
- ensuring adequate finance (84%)
- seeking advice at an early stage (62%)
- getting experience in the sector (56%) and
- doing vigorous research (54%).
Research published by Barclays Bank shows that during the second quarter of 2001, the number of business start-ups was down 6% on last year. However, there were wide geographical differences.
Late payments
UK companies are delaying paying their invoices by an average 60.3 days in order to improve their cash flow say Experian, the credit research company. The figure has risen from 59.6 days in November 2000. Small businesses pay most promptly – 58.6 days on average, compared with 61.3 days for medium-sized companies and 78.5 days for larger companies. The rules whereby interest can be charged on late payments make it clear that such behaviour is unacceptable but there still seems to be a long way to go.
And finally……..
We are sure you will not be surprised to learn that small businesses are spending more and more on regulation compliance – the average this year being between 4% and 6% of turnover.
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20% of what?
Do you run a trading company? Then this article is for you!
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Does your trading company engage in any ‘non-trading activities’? The most common are letting out a property (or part of a property) and/or investing surplus company funds.
If so…….. then your company might not be regarded as a ‘trading company’ for capital gains tax taper relief purposes. This could result in significant tax liabilities on a sale of your company.
The Inland Revenue takes the view that if more than 20% of your company’s business relates to non-trading or investment activities then your company is not a trading company.
The 20% could be measured by reference to a number of factors including your turnover and/or your asset base.
At the very least you should proceed with caution and talk to us if you plan any investment activities within your trading company. We can help you plan to maximise the available reliefs.
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The euro: changes imminent
The single European currency, the euro, was launched on 1 January 1999. The 12 EMU member states are listed below. They are frequently referred to as ‘in’ countries and are collectively known as the eurozone. The EU countries outside the eurozone are Denmark, Sweden and the UK.
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The eurozone countries will switch to the euro as their only currency from 1 January 2002. Euro notes and coins will be introduced in each country on 1 January 2002. References to European national currencies (known as legacy currencies) in existing contracts will automatically be read as references to euros from 1 January 2002. National currencies for the eurozone countries will cease to be legal tender on 31 December 2001 (Germany), 9 February 2002 (Ireland), 17 February 2002 (France) and 28 February 2002 for all other countries.
How will these changes affect my business?
If your business uses legacy currencies you should consider the implications in terms of your existing accounts, internal systems and processes. It will be sensible to convert all existing legacy currency accounts to euro if you have not already done so. You will need to give customers abroad details of your new euro account.
Your customers within the eurozone will find it easier to compare prices if you price in euros. If you import from the eurozone you may want to consider plans to pay suppliers in euros if you have not done so already. Even if you have no direct dealings with the eurozone, your UK customers may have. Some larger companies, including American and Japanese multinationals operating in the UK may expect to deal with all their suppliers entirely in euros. Retailers in tourist areas are expected to accept euros from consumers following the introduction of notes and coins in January 2002.
Assuring your customers that you are willing and flexible enough to price and be paid in euros could help you hold on to valued business, though it will expose you to currency risk.
Please talk to us if you have any concerns or wish to discuss anything relating to the euro.
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Eurozone Countries
- Austria
- Belgium
- Finland
- France
- Germany
- Greece
- Ireland
- Italy
- Luxembourg
- the Netherlands
- Portugal
- Spain
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Foot and mouth misery!
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The Inland Revenue and Customs and Excise have said: ‘we recognise that many businesses are facing acute problems as a result of foot and mouth and that people who are adversely affected by the disease should not face any additional worries because of tax, NICs and VAT related issues. We have set up a special helpline and we will do our best to help people facing problems’.
The helpline number is 0845-3000157 and it is open from 8am to 12 midnight seven days a week.
Specifically the following help is available:
- Deferring payment of tax and NICs for three or six months.
- Not charging interest or self assessment surcharges for the agreed deferred period.
- Speeding up VAT repayment claims by faxing the returns directly to Customs and Excise on 01702-366085.
- Customs are encouraging use of the special VAT accounting schemes whereby some businesses can make just one annual VAT payment and others can spread their VAT payments evenly.
- Enquiries into returns, employer compliance reviews and national minimum wage reviews will not be undertaken.
- As a reminder that early claims may be made for losses on the basis of a ‘best estimate’ claim.
- Payments from appeal funds are not taxable if they are unconnected with the trade – eg made purely to alleviate personal hardship. However if any monies received are to be used in the business, they will generally be taxed as normal trading receipts.
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For trustees everywhere
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The Trustee Act 2000 became law earlier this year. It places a greater onus of responsibility on trustees than previously. If you are already a trustee or considering becoming one, read on to ensure you are fully aware of the impact of the new Act.
The five main areas covered by the Act are:
- Duty of care
- Investment powers
- Duty to obtain and consider proper advice
- Power to appoint agents
- Power to acquire land
We consider each of these below
Duty of care
All trustees have a duty to ensure that they manage and protect the assets of the trust diligently and prudently. The Act has made it a statutory duty to exercise the care and skill that is reasonable in all circumstances.
Investment Powers
Investment powers are significantly broadened by the Act. Generally, the Act allows trustees to invest the trust assets as if they were the absolute owners.
Duty to obtain and consider proper advice
Trustees must seek proper advice before exercising their powers of investment or reviewing the trust investments unless they conclude that it is not appropriate or necessary.
Power to appoint agents
If the trustees agree and provided the trust deed does not prohibit it, an agent may be appointed to undertake certain functions, eg asset management. Powers in relation to certain matters, eg income or capital distributions and the appointment of trustees cannot be delegated.
Power to acquire land
If the trust deed does not give the trustees power to acquire land, the Act now permits the acquisition of UK land. The trustees are able to exercise all the powers of an absolute owner.
We hope you have found this article a useful summary of the widened powers and duties of trustees. Please talk to us if the article raises any issues or you have any concerns.
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VAT update
Improvements for Small and Medium-Sized Enterprises (SMEs)
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1. Cash accounting scheme
The turnover limit for accounting for VAT on the basis of cash receipts and payments rather than invoiced amounts was increased from £350,000 to £600,000 on 1 April 2001. Businesses already operating the scheme can continue to use it until their annual taxable turnover exceeds £750,000. This increase is intended to help more SMEs manage their VAT whilst easing their cash flow burdens.
2. Annual returns
The upper turnover limit for filing VAT returns on an annual rather than quarterly basis has been raised from £300,000 to £600,000 from 1 April 2001. Businesses already using the scheme can continue to use it until their annual taxable turnover exceeds £750,000. This increase is introduced to allow at least 100,000 more businesses to benefit from lower compliance costs.
3. Flat rate scheme
This is still subject to consultation, but it is likely that businesses with turnover below £100,000 will be able to operate an optional ‘flat rate scheme’. Under such a scheme VAT would be calculated as a percentage of turnover rather than accounting for VAT on all purchases and sales. The percentage would depend on the line of business and Customs’ proposals suggest a range from 5% to 15%. Watch this space for further details of the scheme.
Cars
VAT can only be recovered on car purchases if they are used wholly for business purposes eg by private taxi firms.
It has proved extremely difficult to deduct VAT on a car that shows any signs of being potentially used for even the most occasional private use. However, in a recent tribunal case, recovery of VAT on the purchase of a Lamborghini was initially allowed. The car was wholly used in the business which involved selling stock for cigarette vending machines. The businessman explained to the tribunal that success in this business was largely related to giving the appearance of conspicuous success (since success breeds success). The car one drives is the clearest indication of this, and, as his competitors had moved up to Aston Martins (a marque he had originally owned), he had little choice but to purchase the Lamborghini in order to put yet more distance between himself and his competitors. In his private circumstances, he had no use for a private car, and in practice the only mileage he could conceivably clock up would be related entirely to his business activities – which also took up 100% of his time, bar the time he spent sleeping and eating. However, the High court has now overturned the tribunal’s decision and refused recovery of the VAT on the grounds that the car was available for private use!
Bad debts
Bad debts are an inescapable part of business life. But at what stage can you recover any VAT paid on a bad debt? The rule is that you can make a claim for bad debt relief six months after the date payment became due.
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Example
You supplied goods to a customer worth £23,500 (£20,000 for the goods plus £3,500 VAT) on 30 April 2001, with 30-day payment terms.
The earliest you could claim back the £3,500 VAT if it turned out to be a bad debt would be 1 December 2001.
With a VAT return due for the quarter ended 31 December your claim would affect any VAT due/repayable on 31 January 2002. |
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Remember!
- Any claims you make to recover the VAT on bad debts just get added to the input tax box on the VAT return.
- Review any really old debts and make sure you've made all the necessary claims.
- You must write to the debtor before claiming back the VAT. Make sure the letter makes it clear that you have only written off the debt for VAT purposes and not commercial purposes.
- If you do subsequently recover the debt, you will need to adjust your VAT return to pay back the VAT recovered to Customs and Excise.
Please talk to us if you wish to discuss any of the issues raised in this article.
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Data on the move mCommerce
It is vitally important for today’s busy executive to be in constant contact with the outside world and to be contactable by the outside world, whether in the office, or on a train or in a plane or car. This means that there is now a strong case for mobile technology. We no longer need to be in touch with the office just by phone. We also need, for example, to be able to send and receive e mails, browse the internet, synchronise diaries and databases and have a look at the accounts system to review particular customer accounts. There are a whole range of devices which make this possible.
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Choosing a mobile device
The choice of mobile technology can seem overwhelming. However the devices can be grouped into a relatively small number of
categories.
Laptop PCs
Portable computers with a full size keyboard, hard disk and large screen. They are desktop replacements and allow users to run the same applications used on the office PC. Many now offer video and sound and the possibility of upgrading with plug in PC cards (eg modem and network cards).
Hand-held computers
These include PDAs – personal digital assistants – tablet based devices that use a touch screen and stylus. They are good for personal information management applications but not for writing large amounts of text. The latest hand-helds are equipped with a fold-out keyboard. Such devices are available from Psion, Palm, Handspring, Compaq and Hewlett-Packard and some now use Microsoft’s windows CE operating system, a cut down version of windows. It will clearly be important to establish whether it can run the range of applications you need.
Mobile phones
Mobile phones are currently going through major technological changes. The second generation ‘WAP’ phones have a built-in browser and can access specially developed websites but because WAP is a dial-up system it tends to be slow. There is consequently much interest in the emerging GPRS (General Packet Radio Service) phones. These offer a faster ‘always on’ connection to the Internet.
Smart phones
Smart phones attempt to combine all of the technology required into one unit. Still in their infancy, these devices combine a PDA and a mobile phone.
There are two key players in the emerging market, Microsoft and Symbian (a consortium formed by Nokia, Ericsson, Psion and others).
Compatibility
This may be a very important consideration. Many products include synchronisation software that allows users to link their mobile device to a PC or server but some products make this easier than others.
Will your mobile technology work anywhere in the world or are there geographical limitations? You need to check this too.
Finally, if mobile technology is going to be used away from a power point for any length of time, battery life is important. Most laptop battery packs will only last for a couple of hours but many hand-held computers have a much, much longer battery life.
Costs
In addition to the initial cost of any device, you will need to consider the cost of any add-ons or peripherals and software costs, call costs and internet access costs. Furthermore there will be training costs, administration back-up costs and the cost of any additional security required, not to mention on-going maintenance costs. All of these need to be considered at the outset.
Other issues to be considered include reliability, control, safety and the effect mobile devices will have on staff productivity.
Conclusions
It is clear that there is still some way to go before a single device will provide all our communication needs. There are technological solutions to some of the problems, such as voice and character recognition to minimise the need for a large keyboard. However, these solutions are only just beginning to appear all together in one single piece of hardware. So whilst there is a very exciting future in the mobile communications market, we may have to compromise in the meantime with a variety of different devices.
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STOP PRESS
Personal service companies - the saga continues
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The personal service company rules or ‘IR35’ as they are more affectionately known are still the subject of an ongoing saga. Back in April this year the Professional Contractors Group (PCG) lost its appeal to the High Court for Judicial review of the IR35 legislation. The PCG has now taken its case to the Court of Appeal.
We will, of course, keep you informed of developments. |
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Disclaimer - for information of users
This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the authors or the firm.
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