Why stocktaking in Bars is essential 1

Pubs, Bars, Restaurants & Night Club operators… It’s a cash business!! And where there’s cash there’s a fiddle, you may think you know them all, you might! But what you don’t have is eyes in the back of your head and the time to watch hours of CCTV footage to catch them at it, and that’s just the tip of the iceberg.

Over pouring, cross ringing, recipe knowledge, wastage, breakages, deliveries, poor GP’s are all areas you need to be on top of if you are to make any profit from your hard earned takings, and given today’s economic climate, knowing how your business is performing and at the very least verifying your in house weekly results via an independent auditor makes sense and could be worth tenfold the monthly cost in potential lost profit.

By choosing an independent stocktaking company who specialise in the licensed trade, you can be certain of finding the answers you need to improve and grow your business effectively.

Stocktaking is essential to all businesses, as it enables you to check that your business is performing to its optimum potential. Stocktaking also highlights any problems with stock losses, for instance theft, and determines whether the pricing and ordering of stock is accurate, allowing you to react and make adjustments to improve your margins or re visit your suppliers costs.

On average 28 Pubs close every week and Net closers are 14 Pubs per week http://fullfact.org/factchecks/pub_closures_alcohol_business-3237

In the current climate stocktaking has to be essential.

steve@bicknells.net

 

Should my Assets be Revalued – How are assets revalued? (IAS16) Reply

Most assets decrease in value over time with usage and should be depreciated over their useful economic life. However, some assets increase in value for example Land & Buildings and some Metal based assets.

Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31]

If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS 16.36]

Revalued assets are depreciated in the same way as under the cost model.

If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required: [IAS 16.77]

  • the effective date of the revaluation
  • whether an independent valuer was involved
  • the methods and significant assumptions used in estimating fair values
  • the extent to which fair values were determined directly by reference to observable prices in an active market or recent market transactions on arm’s length terms or were estimated using other valuation techniques

Revaluing Assets will not create a tax charge because:

1. If the asset value increases, the revaluation creates a balance sheet revaluation reserve – Debit Assets, Credit the Revaluation Reserve – in does not create a profit, it increases the Net Worth of the business

2. Revaluing an Asset does not affect Capital Allowances these are based on the Cost of the Asset

3. Revaluing an Asset will not generate a Deferred Tax Charge because although it will affect depreciation, it should be excluded from the Deferred Tax computation as it is excluded from Capital Allowances (IAS 12) – Revaluing the asset increases its carrying value without altering its tax base (since revaluations have no immediate tax consequences)

4. Revaluing an Asset does not create a Capital Gain, Capital Gains will only crystalise if the asset is sold

steve@bicknells.net

Should my Work in Progress be classified as a Debtor (UITF40) 3

It’s a common issue and area of confusion and it has tax implications. WIP is valued at the lower of cost or net realisable value but Debtors whether invoiced or not are valued at Sales Value, uninvoiced Sales are shown as Amounts Recoverable on Contracts within Debtors.

Here is an example from HMRC

A joiner contracts to create fitted bookcases in an office for a total price of £15,000. He purchases the timber (materials cost £6,000) and builds the doors in his workshop. He also prepares the timber for the rest of the structure in his workshop. He then builds the skeleton of the bookcases on the customer’s premises and attaches thereto the timber that he has already prepared in his workshop. What is the accounts treatment if his year end occurs after he has prepared the timber and the doors but before he has gone to the customer’s premises to build the skeleton and fit them?

The contract is a single contract and the joiner should recognise revenue according to the stage of completion of the work. It is not relevant whether the work is done at his workshop or at the client’s premises. Neither is it relevant that part of the contract can be regarded as ‘goods’ and part as ‘services’: both are treated in the same way for accounting purposes.

Let us assume the joiner assesses that he has done 1/3 of the work by the year end and he has used half of the timber and other materials. The calculation would be: total price £15,000 less materials at cost (£6,000) leaves £9,000. Assuming the profit attaches only to the labour, accrued income is £3,000 (1/3 complete) plus materials at cost of £3,000 ( a half used), a total of £6,000. The remaining half of the total cost of the materials (£3,000) is work in progress. These figures should then be adjusted to reflect any likely losses, discounts, delay in payment or cost of difficulties expected to arise in completing the contract. Any progress payments received should be treated as creditors in accordance with SSAP 9.

http://www.hmrc.gov.uk/manuals/bimmanual/bim74270.htm

Also further guidance at

http://www.hmrc.gov.uk/helpsheets/hs238.pdf

http://www.icaew.com/en/technical/tax/tax-faculty/~/media/Files/Technical/Tax/Tax%20news/TaxGuides/TAXGUIDE-8-06-UITF-40-and-Taxation.ashx

So do you have Work in Progress or Amounts Recoverable on Contracts?

steve@bicknells.net

How De-pooling Short Life Assets can reduce your tax 1

In the Finance Bill 2011 the period over which expenditure on plant or machinery can be given “short life assets” (SLA) treatment was extend from 4 year to 8 years.

The change will have effect for expenditure incurred

• on or after 1 April 2011 for businesses within the charge to corporation tax (CT); and

• on or after 6 April 2011 for businesses within the charge to income tax.

If a business elects for plant or machinery to be treated as a short life asset, capital allowances are calculated individually on the asset until a “cut-off” point. This ensures that, if the asset is sold or scrapped before the cut-off point, the total allowances given over the period of ownership equal the actual net cost of the asset to the business.

An election will be beneficial if the asset depreciates faster than the rate at which capital allowances are given, and it is sold before the cut-off date.

Expenditure incurred on an asset given SLA treatment is allocated to a ‘single asset pool’ for the cut-off period. The current four-year cut-off period is four years from the end of the chargeable period in which the expenditure is incurred.

Writing-down allowances are given on the reducing-balance each year, currently at 18 per cent. If the item is scrapped or sold within a ‘four-year cut-off’ period, the remaining balance of expenditure in the pool is compared with the disposal proceeds. A further allowance, or charge, is made for the difference. This ensures that allowances given to this point match the actual net cost of the SLA.

If the Asset was placed in the Main Pool the tax relief would come through in future years through the WDA. So using the SLA will speed up Tax Allowances.

If the asset is not disposed of within the ‘four-year cut-off’ period, the remaining expenditure in the single asset pool is transferred to the main capital allowances pool, where writing-down allowances will continue to be available in the normal way.

The exceptions to SLA treatment are listed in section 84 CAA 2001 and include most cars and all expenditure on ‘long-life assets’ (assets with a useful economic life of at least 25-years) and ‘integral features’ of a building or structure.

A SLA election must be made for corporation tax within two years of the end of the relevant chargeable period in which the expenditure is incurred. For income tax the time limit is normally the anniversary of the 31 January following the tax year in which the end of the relevant chargeable period occurs.

Assets that cannot be treated as SLAs are:

  • assets that were provided for some other purpose including leasing under a long funding lease before being brought into use for a qualifying activity CA23030;
  • assets received as a gift CA23040;
  • assets used for special leasing CA20040;
  • cars apart from cars hired out to people in receipt of certain disability allowances CA23510;
  • long life assets CA23700;
  • special rate expenditure assets CA20150;
  • assets provided for leasing except:
    • those used in the designated period for a qualifying purpose and for no other purpose; and
    • cars provided for disabled people in receipt of certain allowances;
  • assets leased overseas that qualify for WDAs at the 10% rate CA24200;
  • assets leased to two or more persons jointly where at least one lessee is a non- resident who does not use the asset exclusively for earning profits chargeable to tax and the leasing is not protected leasing CA24400;
  • ships CA25000;
  • assets used partly for a qualifying activity and partly for other purposes CA27000;
  • assets that receive a partial depreciation subsidy CA27100.

http://www.hmrc.gov.uk/manuals/camanual/CA23620.htm

steve@bicknells.net

RTI and the Universal Credit Reply

Under the new rules companies submitting payroll payments to BACS will need to include additional information along with the BACS transaction including the payee’s tax code, pay to date and tax to date amongst other items of information. These new rules have been named RTI or Real Time Information by HMRC.

Migration started in April 2012 with an aim to have all companies migrated by the end of 2013.

RTI will:

  • make the PAYE process simpler and less burdensome for employers and HMRC; for example by removing the need for the end of year return (P35 and P14) and simplifying the employee starting and leaving processes
  • make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
  • enable HMRC to pursue late payments more effectively
  • support the payment of Universal Credits
  • reduce Tax Credits error and fraud

http://www.hmrc.gov.uk/rti/employerfaqs.htm

To enable RTI payroll providers and BACS providers are currently rolling out new software and applications.

The Universal Tax Credit will be launched in 2013 and will replace:

  • income-based Jobseeker’s Allowance
  • income-based Employment and Support Allowance
  • Income Support
  • Child Tax Credits
  • Working Tax Credits
  • Housing Benefit.

What’s different about Universal Credit?

The main differences between Universal Credit and the current welfare system are:

  • Universal Credit will be available to people who are in work and on a low income, as well as to those who are out of work
  • most people will apply online and manage their claim through an online account
  • Universal Credit will be responsive, as people on low incomes move in and out of work, they’ll get ongoing support – giving people more incentive to work for any period of time that is available
  • most claimants on low incomes will still be paid Universal Credit when they first start a new job or increase their part-time hours
  • claimants will receive just one monthly payment, paid into a bank account in the same way as a monthly salary
  • support with housing costs will go direct to the claimant as part of their monthly payment.

http://www.dwp.gov.uk/policy/welfare-reform/universal-credit/

steve@bicknells.net

ABI to withdraw notification of Bank’s interest on Insurance Policies Reply

Since 1992, an agreement has been in place between the Association of British Insurers (‘ABI’) and the British Banking Association (‘BBA’) whereby a bank could notify its interest in relation to secured properties and the insurers would tell the bank of any cancellation or alteration in cover, with a grace period to allow the bank to arrange its own policy if the borrower had failed to maintain the required cover.

Last September the ABI announced that they were ending this agreement and that co-insured status either as Joint Insured or Composite Insured would be the only options open to Banks. These options are likely to increase insurance premiums.

Banking sources tell me that last week it was agreed that ABI would extend the agreement with BBA to December 2012, the BBA are yet to issue guidance and comment.

steve@bicknells.net

10 things you need to know about Pension Auto Enrolment 4

Almost 70% of workers in Britain have little or no knowledge of the government’s plan to automatically enrol people in their company pension scheme from 1 October 2012. The change to pensions legislation means millions of people who have so far not been saving for their retirement will begin putting money aside for the first time.

Up to 10 million people will be placed into schemes from this autumn, under government plans to tackle the pension savings crisis, beginning with larger companies.

http://www.guardian.co.uk/money/2012/may/02/workers-unaware-auto-enrolment-pensions

Here are 10 things that you need to know:

  1. A Worker may include Agency workers and Self Employed workers depending on the their contracts
  2. One Person companies are not subject to Auto Enrolment however, if the company takes on a second worker and the director and new employee have contracts of employment then both could become workers under auto enrolment.
  3. Eligible Job holders are aged between 22 and state pension age and earn over £8105 and are automatically enrolled however Non Eligible Job holders could opt to join
  4. Employer contributions will start at 1% from October 2012 till 2017 (2% total contributions), then 2% till 2018 (5% total contributions), then go to 3% (8% total contributions)
  5. The employer must register their scheme www.tpr.gov.uk/registration
  6. The scheme is being introduced over a 5 year period starting in 2012, to find out when it applies to your business click on this link http://www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx
  7. Employees can opt out but new Employment Rights will prevent employers from offering inducements to opt out and prohibit employers from anti pension recruitment policies and unfair dismissal relating to pension enrolment
  8. If the employee opts out the employer must automatically re-enrol them every 3 years
  9. The Pensions Regulator will have powers to issue compliance notices and fixed and escalating penalties increasing on a daily basis. Employees who blow the whistle on their employer will be protected under the Public Interest Disclosure Act 1998
  10. The following types of scheme will qualify
    • Defined Benefit Schemes
    • Defined Contribution Schemes
    • Hybrid Schemes
    • Contract Based DC Schemes
    • Stakeholder Pension Schemes

steve@bicknells.net

Simpler Income Tax for the Simplest Small Businesses 1

HMRC issued a consultation paper on the 27th March inviting comments until 22nd June 2012.

From April 2013, the Government proposes to introduce a voluntary cash basis for small businesses to calculate their income tax along with simplified arrangements for some business expenses.

The proposals are, that those who choose to use the new regime will be taxed on the basis of their receipts less allowable payments for expenses, rather than needing to spend their time doing accounting designed more for big business.

The Government is exploring proposals that small businesses with receipts of less than £77,000 would be eligible to use the cash basis, and that they could continue to use it until their receipts rise to more than £150,000 in any year.

Some accountants are concerned that this will mean they lose business as their services won’t be needed but others are concerned that the self employed could end up paying the wrong tax because of issues such as pre-trading expenses.

Soon we will find out the results.

steve@bicknells.net

 

 

 

Did you issue shares to Employees or Directors? Form 42 due 6th July Reply

HMRC F0rm 42 – Employment-related securities – covers most situation where you issue shares to employees or directors, however, you may not need to complete the form in some circumstances:

  1. On Company Formation
  2. Allotment of shares prior to starting to trade
  3. Shares issued to Directors before the company starts to trade
  4. Transfers of shares in the normal course of the domestic, family or personal relationships
  5. Flat Management Companies
  6. Members’ clubs (formed as companies)
  7. Share for share exchange
  8. Rights Issues
  9. Bonus Issues
  10. Scrip Dividends
  11. Dividend reinvestment plans (DRIPs)
  12. Shares acquired independently by employees

Examples of what you must report:

  • The gift or purchase of shares by employees or directors.
  • The grant or exercise of options granted to employees or directors.
  • Anything that changes the value of the shares held by employees or directors.
  • The sale of employees’ or directors’ shares for more than their market value.
  • Cash cancellation payments to employees or directors.

Penalties

Penalties are not imposed automatically, the company is warned of their failure to make a report on a minimum of two occasions before the case is referred to the tribunal. The penalties can be £300 per responsible person and £60 per day outstanding.

Here is a link to the 2012 Form 42 http://www.hmrc.gov.uk/shareschemes/form42-2012.pdf

 

steve@bicknells.net

Capital Gains Tax for Companies 1

Capital Gains can occur in many circumstances, for example, when the company:

  • sells, gives away, exchanges or otherwise disposes of (cease to own) an asset or part of an asset
  • receives money from an asset – for example compensation for a damaged asset

Sometimes it can be hard to establish the value of the gain and HMRC can carry out a post valuation check which is requested using http://www.hmrc.gov.uk/forms/cg34.pdf

Example – calculating the chargeable gain on the sale of a shop
Calculation step Result
Step 1: amount received for the asset in May 2011 £200,000
Step 2: deduct £120,000 (the cost of the asset in November 1997) £200,000 − £120,000 = £80,000
Step 3: deduct expenses on improving the asset (£10,000 spent on building an extension in June 2006) £80,000 − £10,000 = £70,000
Find the inflation factor for November 1997 0.474
Calculate the Indexation Allowance £120,000 × 0.474 = £56,880
Deduct the Indexation Allowance £70,000 − £56,880 = £13,120
Step 4: look up the appropriate inflation factor and calculate the Indexation Allowance for the extension 0.185
£10,000 × 0.185 = £1,850
Deduct the Indexation Allowance for the extension to arrive at the chargeable gain £13,120 − £1,850 = £11,270

http://www.hmrc.gov.uk/ct/managing/company-tax-return/returns/chargeable-gain.htm

You can get a full list of indexation allowances at http://www.hmrc.gov.uk/rates/cg-indexation-allowance/apr12-ct-cgains.pdf

If the losses don’t exceed the gains, put the total gains in Box 16 on your Company Tax Return and the total losses, if any, in Box 17. Deduct Box 17 from Box 16 and put the result in Box 18 – this is your ‘net chargeable gain’.

If the losses do exceed the gains, leave Box 16, Box 17 and Box 18 blank but put the amount of the net loss in Box 131. You can then ‘carry forward’ those capital losses to offset against any capital gains you make in a future Corporation Tax accounting period(s). You would include those losses in Box 17 of a future Company Tax Return. You can carry forward capital losses indefinitely.

If you intend to replace the asset you may be able to apply Business Asset Rollover Relief, this is most commonly use for Land and Buildings.

steve@bicknells.net