COLIN COATES & PARTNERS

TAX ADVISERS

Welcome to the website for Colin Coates and Partners, Tax Advisers

We are tax advisers based in Winscombe, North Somerset.

Our website gives details of the services we offer together with information about us and how to contact us.

The items on the site are listed chronologically. If you require specific information about us or what we do please use the Category menu on the right hand side, or the search facility.

Prospective Clients – please feel free to call us to arrange an introductory no obligation discussion or meeting at no charge.

Contact Us

Colin Coates & Partners
Webs House
Woodborough Road
Winscombe
BS25 1AD
United Kingdom

Tel: +44(0) 1934 844133
Fax: +44(0) 1934 844797
Email: info@ccptax.com

Colin Coates & Partners is the trading name of CCPtax Limited Registered in England No 4450558.

Add comment February 16, 2009

Mike Ashley has been appointed a voluntary Director of Trinity Comunity Arts in Bristol, a community association formed to manage the Trinity Centre in Lawrence Hill Bristol. The mission is to engage the local community of all ages in imaginative and socially inclusive projects.

http://3ca.org.uk/

Exerpt from the Trinity Winter Newsletter -which is available in full here – http://3ca.org.uk/about-us/news/newsletters/Winter09.pdf/view

Message from the Trinity Board

Trinity is pleased to welcome five new members to our Board of Directors: Mike Ashley, John Barker, Nate Benjamin, Geoff Day and Telbert James.

Speaking on behalf of the new board, John Barker announced:
“After the jubilation of our election at the Annual General Meeting, it was back to the hard graft of continuing the
organisation’s tremendous success. We are in ongoing negotiations with Bristol City Council over the extension of
the lease, and we are continuing to work on safeguarding the structure of your building. Looking ahead to the future, the Board are committed to making the Trinity Centre the beating heart of creative Bristol. We will continue to support the organisations ongoing growth and rising stature within the community.

We must also say thank you to all the volunteers, members, project leaders, and management team who have all contributed to the continuing success of the Trinity Centre.

Thanks for all your hard work, and for your continued offers of help to ensure the future development of this
wonderful facility.”

If you are interested in contacting any of our new board, please contact them at: mike@3ca.org.uk john@3ca.org.uk
nate@3ca.org.uk geoff@3ca.org.uk telbert@3ca.org.uk

Add comment October 16, 2009

IT and Internet Terminology

ICT

IT and Internet Terminology

Applet – an applet is a small program that can be sent along with a Web page to a user. Java applets can perform interactive animations, immediate calculations, or other simple tasks without having to send a user request back to the server.

ASP (Application Service Provider) -these offer on-line real-time access to standard packages. Users pay a metered charge to log on and perform tasks using standard accounting, spreadsheet and word processing packages.

.ASP (Active Server Pages) – A dynamic web page.

Attachment – an attachment is a file which is appended to an e-mail. The file may be a word-processing document, or a spreadsheet, for example.

The significance of an attachment is related to the security risks associated with opening attachments, as any program code stored in an attachment is executed. The code can contain a virus which can potentially damage a PC or network (see macro virus and virus below).

Authentication - a process which is used to confirm the identity of a person, or the integrity of a transaction.

Bandwidth – the capacity of a system to deal with network traffic.

Broadband – high speed internet access.

Blog – Blog (originally weblog) is a diary or history. Blogs are used by all types of entity from corporate to personal users. Most personal blogs are anonymous and typically refer to issues in daily life – usually centred around the working environment.

Bot - (from Robot) A piece of software which runs automated and repetitive tasks exceptionally quickly. On the internet the most common types of bots are called Spiders which perform typical search operations.

Browser – a program which enables web access.

Cable-modems – a service provided by cable TV companies to allow internet access. TV cable is used to send and receive data, and not the telephone line. The service relies on the provision of cable in the area.

Cloud computing hardware – it means that rather than logging into a traditional network server, an internet connection instead will allow access to a vast array of hardware processing and storage resources.

Cloud computing software – it means using web applications instead of desktop applications. Google Apps, for example, contains both spreadsheet and word processing software – which enables worksheets to be uploaded, shared and downloaded.

Cookie – bookmarks which remember details about a site visited. They have evolved to become fairly intelligent robots. They store details about a site, what log on preferences have been set, passwords and specific buying patterns.

Digital signature/certificate - a method using encryption techniques and a public/private key to verify the authenticity of a person or transaction.

DSL – an abbreviation for Digital Subscriber Services. It is a method of transferring data over traditional BT copper wire lines. The data is transferred at higher speeds than normal.

Discomgoogolation – stress caused by not being able to access the internet

Dot com – an expression referring to the internet industry. Frequently used in the context of ‘a dot com company’ and ‘a dot com millionaire’.

Download – to transfer data from one computer to another. Typically, implies transferring data from a larger network or host system, to a PC or laptop. (also see Upload)

DRM – Digital Rights Management – a method of securing access to software, videos or music files, to prevent illegal copying.

e commerce – conducting business over the internet and therefore by electronic rather than by paper-based methods.

EDI (Electronic Data Interchange) – is a standard method of exchanging documents, such as invoices, between companies who may have incompatible hardware and/or software.

Electronic form filling and transmission is far quicker than manually completing a form and then posting it. A further extension of EDI is the processing of electronic funds.

Standards have emerged for different types of fund transfers – for example the SET standard (see below) for credit card transactions.

Extranet – a network, but only for ‘invited’ business partners. These are set up mainly to cope with B2B (business to business) transactions. One company may have access to a number of different extranets.

Firewall – a hardware and/or software based security system to prevent unauthorised access to a network or server.

Gateway – a device or devices which enable two or more different types of network to communicate with each other. Sometimes described as a bridge.

HTML (Hyper Text Markup Language) – a programming language used to create web pages.

Host – a computer or network which holds information such as a web site on behalf of a number of different companies. Also see ISP below.

Hub – a device connected to several other devices.

Hyperlink – a link which can be created in a document, for example, which can then branch to another document, or web site.

Intranet – an internal network based on the internet, but containing material for company employees only.

ISP – an Internet Service Provider. An ISP acts as a host (see above) providing e-mail services, web site services and access to information channels.

JAVA – a programming language which can be run across a variety of platforms. Its interoperability means that applets can easily be downloaded to any computer, when required.

Local loop – the last kilometre or so of cable from a telephone exchange to a house or business is known as the local loop.

Macro virus – a macro virus is a program written within a standard application, which executes a malicious payload when the document or spreadsheet is opened. A macro virus can perform a variety of unwanted side effects from putting up strange messages to completely destroying data on a network. (Also see Virus/Worm below).

Mbps – A rate of data transfer that is typically quoted, by ISP’s (see above) as a measure of download speed from the internet. Mbps is a transfer rate of a megabit (a million bits) per second (not to be confused with the much faster MBps – see below).

MBps - A rate of data transfer that is typically quoted, by ISP’s (see above) as a measure of download speed from the internet. MBps is a transfer rate of a megabyte (a million bytes) per second (not to be confused by the much slower Mbps – see above)

Non-repudiation – provides proof of the origin of a transaction. It protects the recipient against the sender denying that the transaction was originated by him (the sender).

.PDF (Portable Document Format) – this is a read-only version of an existing document or spreadsheet. As the information is compressed, PDF files tend to be relatively small.

Phishing – this refers to the stealing of personal identifiers such as Pin numbers, Credit card numbers and passwords via a spoof web site or email.

Podcast – a Podcast is an audio, and sometimes video, recording made available online.

PKI (Public Key Infrastructure) - the framework in which digital certificates are created and used, based on a public/private key.

Router – a device which forwards data from one network to another.

SaaS – (Software as a Service) – a model of web-based software delivery, where a software vendor provides maintenance, operation and support for their software.

SET (Secure Electronic Transaction) – is one of several standards for ensuring credit card payments are secure over the internet.

Spam – unsolicited bulk e-mail.

TCP/IP – a protocol designed to allow different computers to communicate with each other regardless of the hardware or operating system platform.

Upload – to transfer data from one computer to another. Typically implies transferring data from a PC or laptop to a larger network or host system. (Also see Download)

URL – (Uniform Resource Locator) – a standard method of identifying web resources, such as web sites and web addresses.

USB – (Universal serial bus) – A standard method of communicating to an external computer device such as a printer, USB pen or network hub for example. Most computers now come with a number of USB connections as standard.

Virus/Worm – a generic term for a rogue piece of software. Generally a virus is introduced to a computer by stealth – often hiding in an innocent attachment (see attachment above). Once activated it can carry out a wide range of unwanted side effects from changing the behaviour of a computer, to infiltrating and disabling a whole network. (also see Macro virus above). Worms tend to propagate themselves over a network or networks.

Wireless – the ability of a computer to access external devices without being physically connected by cable.

XBRL (extensible business reporting language) – This uses XML (see below) data tags to transmit financial data. HMRC, for example use XBRL for e-filing of CT returns.

XML (extensible mark-up language) – this allows designers to create customized tags to enable information to be transmitted from one system into another (completely different) system.

How we can help

If you would like information as to how we can assist you with your IT and e commerce activities we will be more than happy to provide you with help.

Top of page

For information of users: This material 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 can be accepted by the authors or the firm.

Add comment September 8, 2009

Non – Domiciled Individuals

Personal Tax

Non – Domiciled Individuals

This factsheet sets out the rules which deal with the taxation in the UK of income arising outside the UK, for non UK domiciled individuals. The rules changed significantly from April 2008.

What was the position?

Until 5 April 2008 an individual who was resident in the UK but was either not domiciled (referred to as ‘non-dom’) here or was not ordinarily resident here enjoyed what is termed the ‘remittance basis’ in respect of income and capital gains arising outside the UK. What this meant in practice was that instead of being taxed on the actual income/gain arising in the year they were taxed on the amount of that income/gain actually brought into the UK in the tax year.

Example

Jan, who is domiciled in Poland but who has been living in the UK for a number of years, has rental income arising from the letting of property in Poland. In 2007/08 the income amounted to £5,000 but Jan only brought £1,000 of that into the UK leaving the remainder in Poland. He will be taxed in 2007/08 only on the £1,000 remitted.

The advantages of non-domiciled status were further enhanced by the very narrow definition of what constituted a remittance – essentially limited to the transmission of cash or cash equivalents. If, the overseas income/gains were converted into other assets, and those assets were then brought into the UK, they did not constitute a remittance. Other planning routes could be exploited to ensure that the UK tax liability of the non-dom was kept to a minimum.

So what has changed?

In essence two major changes have taken place, which apply from 6 April 2008. Firstly, the remittance basis will not be given automatically to those who are non-doms or not ordinarily resident and secondly, the rules which determine what constitutes a remittance have been considerably tightened. These changes mean that every non-dom must now give very careful consideration to their UK tax position and take extreme care in planning their overseas income and capital gains.

Claiming the remittance basis – all taxpayers

The starting point of liability for all non-doms is that overseas income/gains are taxable on the arising basis just as they are for any UK domiciled individual. The non-dom will have the option of making a claim for the remittance basis to apply, but if they make this claim, they will automatically forfeit their personal allowance for income tax purposes and their annual exemption for CGT. This will obviously impact on their total tax liability including any UK income/ gains.

The main situation where a non-dom will be able to benefit from the remittance basis without making a claim and will therefore retain their allowances is when they remit to the UK all but a maximum of £2,000 of their income and gains arising abroad in the year.

Example

Let’s take Jan again as our example and pose two different scenarios for 2009/10 assuming his overseas income is still £5,000.

Scenario 1: He remits £1,000 to the UK – he can pay tax on the full £5,000 as it arises and he will retain his personal allowance against that and any UK source income. If he claims the remittance basis he will pay tax on £1,000 but will lose his personal allowance against that and any UK source income.

Scenario 2: He remits £3,000 to the UK. He can have the benefit of the remittance basis and pay tax on only £3,000 because he has left no more than £2,000 unremitted. He will retain his personal allowance.

Claiming the remittance basis – long term residents

What is a long term resident?

Matters become more complex and serious when an individual falls within the definition of a long term UK resident. This will arise when the individual has been resident in the UK in seven out of the nine UK tax years preceding the one for which liability is being considered. For these purposes a part year of residence counts as a full year. In considering the position for 2009/10 it is necessary to look at the individual’s UK residence position going back as far as 2000/01 (ie to 6 April 2000). If they have been UK resident for at least seven of those years then they will be classed as a long term resident for the purpose of the remittance basis.

Example

Jan first came to the UK in July 2002. He will be classed as resident here from 2002/03 which will mean that he meets the seven year rule and will therefore be treated as a long term resident in 2009/10. If his residence had not commenced until July 2003 he would only have six years of residence and would not become a long term resident until 2010/11.

What are the implications of being a long term resident?

Essentially the long term resident (who must be 18 years of age or over at some time in the tax year concerned) can only claim the benefit of the remittance basis if they pay an additional £30,000 in addition to the tax on any income or gains remitted. This sum is known as the ‘remittance basis charge’ (RBC).
The rules surrounding this charge are complex but the ‘bare bones’ are as follows:

the charge effectively represents tax on unremitted income or gains
the non-dom nominates specific income/gains to represent this charge
the sums nominated cannot then be charged to UK tax even if they are subsequently remitted to the UK in a later year
the nominated income/gains are deemed to be remitted only after all other unremitted income/gains have come into the UK
tax on the sums nominated may be eligible for relief under a double tax agreement (DTA).

The RBC is not avoided where there is a failure to nominate specific income/gains and such failure may result in duplicate or higher taxation in future years.

Example

Let us assume that Jan is a long term resident. He can only secure the remittance basis for 2009/10 if he pays the RBC. Clearly it would be nonsensical for him to pay that charge to avoid tax on say £4,000 of income which was unremitted. He will therefore not elect for the remittance basis and will pay UK tax on the full £5,000 of income arising in Poland. If that income has been subject to tax in Poland he may be entitled to set any Polish tax against his UK liability.

Example

Sergio is a very wealthy Spaniard who has been living in the UK for many years. He is a higher rate UK tax payer. In 2009/10 he has income of £200,000 arising in Spain and also makes a capital gain of £150,000 on the sale of a Spanish property. He remits none of this to the UK in 2009/10.

He claims the remittance basis and obviously has no liability on remitted income because there is none. He will have to pay the RBC of £30,000 and must nominate income or gains to represent this sum. He could nominate all of the capital gain and that would represent £27,000 of the charge (£150,000 x 18%), he could nominate an additional £7,500 of income for the balance (£7,500 x 40% = £3,000).

That would satisfy the RBC and would mean that all the gains and £7,500 of the income would not be taxed if it is subsequently remitted. It would also mean, subject to the terms of the UK / Spanish DTA, that he may be eligible for relief in respect of any Spanish tax on these sums.

What is a remittance?

The rules to determine a remittance have been widened and HMRC take the view that whatever method an individual may use to bring income or gains into the UK will be caught. Again these new rules are very detailed and it is only possible here to give a brief outline.

Relevant person

Essentially a remittance can be caught if it is for the benefit of any person who, in relation to the taxpayer (ie the non-dom with overseas income/gains), is within the definition of a relevant person. That list includes:

the taxpayer
their spouse or civil partner
a partner with whom they are living as a spouse or civil partner
any child or grandchild under 18 years of age
a close company in which any relevant person is a shareholder
a trust in which any relevant person is a beneficiary.

Basic concept of a remittance

Two conditions must be in place for a remittance to arise. Firstly property, money, or consideration for a service, must be brought into the UK for the benefit of a relevant person and secondly, the funds for that property etc must be derived directly or indirectly from the overseas income and gains. These rules are much wider than the old rules. Some examples will help to explain the scope.

Example

Alex, a wealthy Canadian lives in the UK with his wife and young children. He has a significant bank deposit in Jersey which generates a large amount of income each year. Any of the following uses of that income would constitute a remittance for UK tax purposes:

he buys an expensive car in Germany and brings it into the UK
he opens a bank account in the UK for each of his children with funds from Jersey
he sends his wife on an expensive weekend at a spa and the bill for the break is sent direct to Jersey for settlement
he uses a credit card in the UK which is settled on a monthly basis out of the Jersey income.

There are some exceptions for example clothes, watches and jewellery for personal use and other goods up to a value of £1,000.

A more indirect route is also caught

In the past it had been possible to use a route known as ‘alienation’ to avoid the remittance basis. This would involve an individual giving someone else their overseas income and then that individual bringing the money into the UK. In the recipient’s hands it would have represented capital and the remittance would have been avoided. Now such a route is not possible. Any attempt at ‘alienation’ which involves the funds ultimately being brought into the UK for the benefit of a relevant person will be caught as a remittance by the taxpayer. This rule is likely to cause some difficult situations.

Example

Alex gifts some of the Jersey income to an adult son. He uses the money to pay for a UK school trip for his own son. The grandson is a relevant person as far as Alex is concerned and this payment will constitute a remittance on which Alex is taxable in the UK.

Other issues

There are a number of other issues covered by the rules such as:

transitional arrangements to deal with property acquired before 6 April 2008
transitional arrangements to deal with payment of interest on overseas loans used to fund the purchase of a UK property
the identification of remittances from mixed funds
dealing with gains arising in offshore trusts.

As can be seen from this brief review, the rules are wide ranging and complex. The non-dom now needs to take great care in how they organise their overseas assets and in particular cash funds. Ideally pure capital funds should be kept clear of any income so that they can still be used as a means of tax free remittance.

Each individual’s situation is going to have different problems. Please do get in touch if you would like to discuss how the rules impact on you and the steps you can take to mitigate their impact.

Add comment September 8, 2009

Business Motoring

Corporate and business tax

Business Motoring – Tax Aspects

This factsheet focuses on the current tax position of business motoring, a core consideration of many businesses. The aim is to provide a clear explanation of the tax deductions available on different types of vehicle expenditure in a variety of business scenarios.

Methods of acquisition

Motoring costs, like other costs incurred which are wholly and exclusively for the purposes of the trade are tax deductible but the timing of any relief varies considerably according to the type of expenditure. In particular, there is a fundamental distinction between capital costs and ongoing running costs.

Purchase of vehicles

Where vehicles are purchased outright, the accounting treatment is to capitalise the asset and to write off the cost over the useful business life as a deduction against profits. This is known as depreciation.

The same treatment applies to vehicles financed through hire purchase with the equivalent of the cash price being treated as a capital purchase at the start with the addition of a deduction for the finance charge as it arises. However, the tax relief position depends primarily on the type of vehicle, and the date of expenditure.

A tax distinction is made for all businesses between a normal car and other forms of commercial vehicles including vans, lorries and some specialist forms of car such as a driving school car or taxi.

Tax relief on purchases

Vehicles which are not classed as cars are eligible for the Annual Investment Allowance (AIA) for expenditure incurred. This allowance allows a 100% write off against profits on plant and machinery purchases of £50,000 per year.

Where purchases exceed the AIA, a writing down allowance (WDA) is due on any excess in the same period. This has been set at a rate of 20%. Cars are not eligible for the AIA or the temporary 40% FYA and so will only benefit from the WDA.

Complex cars!

The green car

Cars generally only attract the WDA but there is one exception to this and that is where a business purchases a new car with low emissions – a so called ‘green’ car. Such purchases attract a 100% allowance to encourage businesses to purchase cars which are more environmentally friendly. For expenditure on/after 1 April 2008 so that the 100% write off is only available where the CO2 emissions of the car do not exceed 110 grams per kilometre (g/km). The cost of the car is irrelevant and the allowance is available to all types of business.

When did you buy?

There have been significant changes to the basis of capital allowances for car purchases and the tax relief thereon from 1 April 2009 for companies and 6 April 2009 for individuals in business.

For purchases before April 2009 the following rules apply:

Cars costing up to £12,000 were included in the main plant pool and get the annual 20% reducing allowance only. The AIA cannot be applied against such purchases whereas it is available on vans.

Cars costing more than £12,000 (so called expensive cars) usually had to be allocated to a separate single asset pool. Each qualifies for the annual allowance of 20% but with a maximum allowance on each car of £3,000. On disposal of each separate asset an extra allowance is available on any overall net cost.

Any cars used by the self employed with part non business use were also separately allocated to a single asset pool so that any private use element can be restricted. This does not apply to employee provided cars.

For purchases from April 2009:

The annual allowance is dependent on the CO2 emissions of the car rather than the cost.

Cars between 110 -160 g/km are placed in the main pool and will qualify for an annual allowance of 20%.
Cars in excess of 160 g/km are placed in the special rate pool and will qualify for an annual allowance of 10%.

The new rules apply to all cars including ‘qualifying hire cars’ which means they may not be as favourably treated as before.

Any cars used by the self employed where there is part non-business use will still be separately allocated to a single asset pool. The annual allowance will initially be either 20% or 10% depending on the CO2 emissions and then the available allowance will be restricted for the private use element.

Example

A company purchases three cars for £20,000 in its 12 month accounting period to 31 December 2009. The dates of purchase and CO2 emissions are as follows:

Red car	White car	Blue car
1 March 2009	1 May 2009	1 May 2009
145	145	165

Allowances in the year to 31 December 2009 relating to these purchases will be:

Red car (single pool as more than £12,000 cost)	White car (main pool as emissions less than 160)	Blue car (special rate pool as emissions more than 160)
£20,000 @ 20% = £4,000 but restricted to £3,000	£20,000 @ 20% = £4,000 No capping	£20,000 @ 10% = £2,000

In the following year to 31 December 2010 the allowances will be:

Red	White	Blue
£17,000 @ 20% = £3,400 but restricted to £3,000	£16,000 @ 20% = £3,200 No capping	£18,000 @10% = £1,800

Disposals

Where there is a disposal of plant and machinery from the main or special rate pools any balance of expenditure, after taking into account sale proceeds, continues to attract the annual allowance.
Where there is a disposal of a car held in a single asset pool, there is an additional allowance if there is an unrelieved cost often referred to as a balancing allowance.
This applies to:

cars which cost greater than £12,000 prior to April 2009
any cars used by the self employed with part non business use whenever purchased.

In the less usual situation of a car disposal where all costs have been recovered and there is an excess of sale proceeds then this is clawed back as a ‘negative’ capital allowance.

What difference will it make?

The key change here is that certain employee or director provided cars would have been placed in a single asset pool when the cost of the purchase exceeded £12,000. Therefore on disposal any shortfall in allowances would have been available at the time of disposal. For cars purchased from April 2009 this will not apply as the cars will be included in one of the two plant pools (main or special rate). Instead the annual allowance will continue to be claimed in that and subsequent periods.

Example

The company above sells all three cars in its accounting period to 31 December 2012 for £7,000. The tax balances immediately prior to sale and the effects of the sales are as follows:

At the start of the period	Red (single asset)	White (main pool)	Blue (special rate pool)
Tax balance	£11,200	£10,240	£14,580
Proceeds	(£7,000)	(£7,000)	(£7,000)
Balance after disposal	£4,200	£3,240	£7,580
Allowance permitted in period of disposal	£4,200	£648 (£3,240 @ 20%)	£758 (£7,580 @ 10%)
In subsequent periods	Nil as all covered	20% annually on the balance	10% annually on the balance

What if vehicles are leased?

The first fact to establish with a leased vehicle is whether the lease is really a rental agreement or whether it is a type of purchase agreement, usually referred to as a finance lease. This is because there is a distinction between the accounting and tax treatment of different types of leases.

Tax treatment of rental type operating leases (contract hire)

The lease payments on operating leases are treated like rent and are deductible against profits. However where the lease relates to a car there may be a portion disallowed for tax. For 2008/09 this applies where the car has a retail price when new which exceeds £12,000. An adjustment is made to disallow part of that excess. These rules continue to apply for existing lease agreements.
For 2009/10 onwards for new lease agreements a disallowance of 15% will apply for cars with CO2 emissions which exceed 160 g/km.

Example

Existing contracts

If a car has a retail list price of £20,000 and an annual lease charge of £6,000, there would be a disallowance of £1,200 so only £4,800 would be tax deductible.

New contract from 1 April 2009

For a car with 166 CO2 emissions and a £6,000 annual lease charge the disallowed portion would be £900 so £5,100 would be tax deductible.

Tax treatment of finance leased assets

These will generally be included in your accounts as fixed assets and depreciated over the useful business life but as these vehicles do not qualify as a purchase at the outset, the expenditure does not qualify for capital allowances unless classified as a long funded lease. Tax relief is generally obtained instead by allowing the accounting depreciation and any interest/finance charges in the profit and loss account – a little unusual but a simple solution! A disallowance still applies if the vehicle is an expensive car.

Private use of business vehicles

The private use of a business vehicle has tax implications for either the business or the individual depending on the type of business and vehicle.

Sole traders and partners

Where you are in business on your own account and use a vehicle owned by the business – irrespective of whether it is a car or van – the business will only be able to claim the business portion of any allowances. This applies to capital allowances, rental and lease costs, and other running costs.

Providing vehicles to employees

Where vehicles are provided to employees irrespective of the form of business structure – sole trader/partnership/ company – a taxable benefit generally arises for private use. A tax charge may also apply where private fuel is provided for use in an employer provided vehicle. For the employer such taxable benefits attract 12.8% Class 1A National Insurance.

Vans

No charge applies where employees have the use of a van and a restricted private use condition is met. For details on what this means please contact us. Where the condition is not met there is a flat rate charge per annum of £3,000 for the unrestricted private use plus an additional £500 for private fuel.

How we can help

If you would like further details on any matter contained in this factsheet please do get in touch.

Top of page

For information of users: This material 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 can be accepted by the authors or the firm.

Add comment September 8, 2009

Fraud and How to spot it

General business

General Business

Fraud and How to Spot It

Major corporate frauds and collapses hit the headlines from time to time and many of these were high profile and the amounts involved quite spectacular.

With the current pressures we are now facing from the recession, difficulties in renewing finance, the challenge of achieving targets, even simply paying suppliers bills and it becomes easy to see that the risk of fraud for all sizes of businesses has increased significantly.

The issues associated with well publicised frauds may seem far removed from your business but the simple truth is that fraud can affect businesses of all sizes. Whether you employ a small team or a significant workforce, this factsheet considers how you can increase your awareness of the factors that indicate fraud. It also sets out the defences that you can implement to minimise the risk within your business.

It couldn’t happen here

It is easy to think that fraud is something that ‘couldn’t or wouldn’t happen here’. However while large businesses have the resources to implement what they hope are effective systems of internal control to prevent fraud, smaller and medium-sized businesses often have to rely on a small team of people who they trust. No doubt you can think of a handful of key employees who you couldn’t imagine being without! On so many occasions employers have said “do you know he/she (the fraudster) was my most trusted employee”.

A key difficulty faced by smaller businesses is the lack of options to segregate duties. Individuals have to fulfil a number of roles and this can lead to increased opportunity and scope to commit fraud, and for some, the temptation can be too great.

Areas where fraud can occur

While the precise nature of any fraud will be specific to the nature of the business and the opportunities afforded to a potential fraudster, there are a number of common areas where fraud can occur.

Employees abusing their position

Most fraud impacts on the profit and loss account, where either expenses are overstated or income understated. Frauds here could range from a few pounds of fiddled expenses, where no one checks supporting documentation or reviews whether the claim made is reasonable, to more significant frauds. These could involve the setting up of fictitious suppliers and the production of bogus invoices, or an employee who approves purchases working in collusion with a supplier.

Positions could also be abused where a business requests tenders. Here there is a risk of ‘kickbacks’ where the individuals involved in the tender process accept bribes or sweeteners from potential suppliers. This could result in inefficient contracts being signed perhaps for dubious quality goods.

The individual amounts involved in these types of fraud may not be large, so they go unnoticed for some time. However as time progresses the amounts involved can become significant. Many fraudsters gain in confidence and the figures involved escalate as they become ‘greedy’. Of course large scale frauds are more likely to be discovered and greed often plays a part in the identification and capture of fraudsters.

Nevertheless the time taken to detect fraud is vital. It may make all the difference to cashflow as fraud drains a business of resources that it needs to grow.

Suppliers taking advantage

Where a business has few or weak checking procedures and controls, a supplier may recognise this fact and take advantage. For example fewer items may actually be delivered than those included on the delivery note. Invoices may include higher quantities or prices than those delivered and agreed.

This highlights the importance of checking both delivery notes and invoices and following up any discrepancies promptly.

Other risk areas

Theft of confidential information such as client or customer lists or intellectual property such as an industrial process could cause a business untold problems if these are stolen by disgruntled employees. There have even been examples of these being copied onto an Ipod!

Information could also be vulnerable to attack from outside. Advances in technological developments mean that all businesses connected to the internet need to consider the risks associated with this. The same advances in technology sometimes lead us to believe that the computer is always right, so fewer manual checks are completed generally within the organisation as a result.

Certain types of organisation are at greater risk of fraud, for example those that are cash based can be more vulnerable due to the difficulties in implementing effective controls over cash. Similarly businesses that deal in attractive consumer goods are at increased risk.

Examples

J F Bogus & Sons

You might think that this could never happen to you but if your trusted bookkeeper presents you with an invoice and a cheque to sign, just how hard do you look at the invoice? The amount might be relatively small and is of course supported by an invoice. You have to sign the cheque in a hurry as you won’t be in tomorrow and it’s 5.15pm. Your bookkeeper will fill the payee line in before the cheque is sent out.

Ultimately, your year end figures just don’t look quite right and subsequent investigations identify missing invoices and eventually, that the bookkeeper has been making these cheques payable to himself.

Sporting life!

Stock controls were put to the test in the sportswear and equipment business that showed up too many discrepancies between computerised stock and that actually counted at the year end. The differences could not be explained and eventually surveillance was used to monitor the warehouse.

Revealing footage showed the cleaners adding various bats, balls and kit to the bin bags full of rubbish removed each evening!

Businesses that are growing rapidly may also be more susceptible to fraud. When both company resources and directors personally are stretched to capacity, it is even more difficult to maintain an overview. Indicators of fraud may go unnoticed.

Does anyone know where Sid is?

Imagine the surprise a director of a local manufacturing company had when he handed out the payslips to his workforce and two were left over! His financial controller, who had never missed handing these out previously, had been taken ill and could not come into work. Subsequent investigations revealed that for some time, this much trusted staff member had created fictitious employees and had been paying the wages into his own bank account.

Ten step guide to preventing and detecting fraud

Given the wide range of fraud that could be committed, what steps can you take to minimise the risk of fraud being perpetrated within your organisation? Consider our top ten tips for detecting and preventing fraud.

Begin by recruiting the right people to work in your organisation. Make sure that you check out references properly and ensure that any temporary staff are also vetted, particularly if they are to work in key areas.
Ensure that you have a clear policy that fraud will not be tolerated within the organisation and ensure that this is communicated to all staff.
Consider which areas of your organisation could be at risk, then plan and implement appropriate defences. Target the areas where most of your revenue comes from and where most of your costs lie. Develop some simple systems of internal control to defend these areas. Effective controls include:
- segregating duties
- supervision and review
- arithmetical checks
- accounting comparisons
- authorisation and approval
- physical controls and counts
Wherever possible don’t have only one person who is responsible for controlling an entire area of the business. This in particular includes the accounting function but will also include other key areas. For example ordering goods, stock control and despatch in a business where stocks include attractive consumer goods.
Always retain a degree of control over the key accounting functions of your business. Don’t pre-sign blank cheques other than in exceptional circumstances and ensure that the corresponding invoices are presented with the cheques.
Be on the lookout for unusual requests from staff involved in the accounting function.
Watch out for employees who are overly protective of their role – they may have something to hide. Similarly watch out for disaffected employees, who might be bearing a grudge or those whose circumstances change for the worse or inexplicably for the better!
Watch out for notable changes in cashflow when an employee is away from the office, on holiday for example. Similarly be aware of employees who never take their holiday. These could both be indicators of fraud, something we see when we look back retrospectively.
Prepare budgets and monthly management accounts and compare these against your actual results so that you are aware of variances. Taking prompt investigative action where variances arise could make all the difference by closing the window of opportunity afforded to fraudsters.
Where a fraudster is caught, make sure that appropriate action is taken and learn from the experience.

Winning the battle against fraud

While the most devious of fraudsters might go unnoticed for some time, many fraudsters are ordinary individuals who see an opportunity. The frauds that they commit are quite simple in nature.
The implementation of some simple checks within a business can make it much more difficult for a fraudster to take advantage. The results could be startling – preventing a fraud of £100 each week equates to around £5,000 leaving a business over a year. Operating at a 20% margin would mean generating £25,000 of turnover to compensate for this.

How we can help

If you would like to discuss any of the issues raised in this factsheet please do contact us.

Add comment September 8, 2009

Expenses payments and benefits

The HMRC website now contains an A to Z list of types of expenses payment and benefit in kind with guidance on the reporting requirements. This does not change the requirements but sets them out in a way that should make it easier for employers and payroll agents to find out what they need to do.

The list contains links to online copies of staff manuals and is at

http://www.hmrc.gov.uk/paye/exb/a-z/a/index.htm

Add comment August 20, 2009

Email scams

HMRC has given a further warning about fraudulent emails asking recipients for details to update online accounts or promising tax rebates and asking for personal and bank details.

Whilst clients are well aware of these scams and are familiar enough with HMRC procedures to know that any such email is a ‘phishing’ fraud, clients may be caught off guard if not warned.

http://www.hmrc.gov.uk/security/examples.htm.

Add comment August 20, 2009

Oake Europe Limited

OAKE-Europe is a non-profit enterprise working in the area of research and development, providing technical assistance, management and training and development for organisations within the European Union and in the developing world. The focus of activities is work with people experiencing social exclusion; providing innovative actions and developments that offer opportunities for economic and social integration.
http://www.oake-europe.co.uk