Britain’s banks are booking future credit card income long before it materialises, prompting concerns about the accounting practice among regulators, investors and analysts.
Riskier products such as credit cards have become more popular among banks in search of higher returns in recent years. In the first nine months of 2017, cards brought in 1.5 billion pounds in income for Barclays alone.
But how banks account for interest earned on zero percent balance cards, which attract consumers with sometimes long initial interest-free periods, is worrying some. Britain’s Prudential Regulation Authority warned that if banks are wrong about how customers will behave it could hit their capital.
Banks start booking interest income immediately after issuing the card, even though some customers may not pay any for years and could switch banks at the end of the interest-free period, before rates which can be as high as 20 percent kick in.
Barclays, Lloyds Banking Group and Virgin Money have all offered such deals, while Royal Bank of Scotland, one of Britain’s major lenders, does not.
Under international accounting rules, banks predict how much income the card will earn in total, and then spread this out equally over the years they expect it to be active.
Forecasts are based on assumptions the banks set themselves, including how many customers they think will continue to use the cards after the interest-free period ends and for how long.
Interest income can also include upfront fees and interest charged on additional purchases.
January can be a tricky time for companies and business owners. Even if you’ve kept on top of it all throughout the year, you can still have a time consuming task on your hands.
Companies face a number of challenges at this time of year, particularly as the tax deadline is in tandem with reduced revenue after the Christmas break.
It’s all too easy to forget that small business owners don’t have the luxury of enjoying much downtime over Christmas. The break is often a prime opportunity to catch up on important business admin and to start planning for the year ahead.
It’s worrying that nearly half of small businesses in the UK admit that they have struggled to pay tax bills, according to a report from insurer RSA. But what’s more worrying is that problem with accounting, or simply a lack of awareness about the process or the deadline, mean that as many as a quarter of companies are missing the due date.
Failing to file a self assessment form by 31 January can leave you facing an automatic £100 penalty.
The fines build up after three months, with HMRC starting to charge penalties of £10 per day, and after six months, the penalty amounts to five per cent of the person’s tax or £300, whichever is higher.
Being hit with fines will inevitably put a strain on the cashflow of small businesses, so managing your tax properly is important. We have here some tips to help you manage your taxes:
First, stay organised. You don’t want to be panicking the day before the deadline trying to find bits of paperwork, so it’s a good idea to file everything in an organised fashion throughout the year.
If you haven’t made any progress, there’s still a week until the deadline. Just don’t leave it until the last minute.
Second, keep tabs on all expenses and include all the information required. Make sure you don’t miss any sections out on the form, and include all earnings, including dividend income on any shares you own. You don’t want HMRC to reject your tax return if there are any mistakes, so also allocate time to double-check the form before you submit it.
Third, use tools available to you. The days of doing everything by hand are long gone. Software’s are available to give you a helping hand when managing your accounts, so do a bit of research to figure out which app is best suited to your business. Making use of these tools will make your life a whole lot easier; think of it as an investment.
Finally, if you are really stumped when it comes to your tax return, you can get a professional accountant involved who should be able to take all the stress away.
Yes, this will come at a cost, but you have to consider if that cost outweighs the penalty from HMRC. Seeking advice from an accountant on your finances can be invaluable to your business, particularly later down the line as your company grows.
Fulfilling tax obligations can be one of the biggest barriers to the success of a business, but don’t let it stop your company from having a prosperous future.
The Finance (No. 2) Act 2017 has introduced changes to the corporation tax loss regime. The rules are now more flexible for carried forward losses but restrictions to the amount of losses that can be carried forward have also been introduced. The changes apply to accounting periods beginning on or after 1 April 2017. If an accounting period sits on that date, the periods before and after are treated as separate accounting periods and its profits and losses for that period are time apportioned.
What was the position before the changes?
For periods before 1 April 2017, a company could set losses against profits of any description in the same accounting period and against profits of any description of an accounting period in the 12 months immediately preceding the period of the loss. If a trading loss had not been used in this way then the loss would be automatically carried forward and set against profits of the same trade in future periods.
What has changed?
Now, for trade losses arising in accounting periods beginning on or after 1 April 2017, they can be carried forward and set against a company’s total profits (including capital gains) in the next accounting period, subject to certain conditions being met (for example, that the trade did not become small or negligible in the accounting period in which the loss arose). The claim to set the loss against the total profits needs to be made within two years from the end of the later period. There are also similar changes to the loan relationships non-trading debit rules and the losses on intangible fixed assets rules, where the losses can now be set against total profits where they could not previously. All carried forward losses will also be available for surrender by way of group relief.
The new regime also introduces a restriction so that, from 1 April 2017, companies are only able to set losses against 50% of total profits exceeding an annual deductions allowance of £5 million. There is no restriction if profits are below the deductions allowance, so HMRC expect most small companies or groups to be unaffected. There are specific rules for single companies and groups of companies in relation to how the restriction and deduction are applied.
A targeted anti-avoidance rule (“TAAR”) has also been introduced to prevent abuse of the corporation tax loss rules. The TAAR enables HMRC to make such adjustments as are just and reasonable to prevent a loss related tax advantage arising from relevant tax arrangements.
Furthermore, the various relaxations described above (and indeed, a company’s ability to carry forward losses at all) are subject to particular limitations following a change in ownership of that company. Specialist advice should always be sought in these circumstances.
If you would like more information on how any of the changes or proposals affects you or your business or how they may apply in specific circumstances, please contact a member of our team on firstname.lastname@example.org or phone us 0161 205 6655 www.stanleycarter.co.uk
As with every New Year, January marks a particularly busy month for two sets of professionals; personal trainers and accountants. Gyms are at their busiest at the beginning of each year, packed with people wishing to stick to their New Year’s resolution to lose weight. Accountants, on the other hand, are spending many hours in the office trying to tie up year end. As much as any financial controller tries to prepare, year end always ends up being a battle of time versus a multitude of tasks.
We live in the digital age where the importance of big data has become more noticeable than ever. Companies have come to rely on business intelligence to clean through vast data lakes in order to drive business strategy and increase profits. However, this increase in data volume impacts all departments, many of which still rely largely on manual processes. None of these are as critical to success as the financial control function. Heads of Finance will no doubt appreciate that their teams are recipients of data outputs from a variety of sources, which are then consolidated for financial and management reporting purposes; often relying on hours of dedicated data mining and formatting by overqualified accountants.
This juxtaposition between the use of highly automated business intelligence to create strategy and revenue versus the manual, laborious approach taken by the back office could not be more striking in 2018. Often, the real casualties in this scenario are data integrity and financial intelligence. For most companies, the effort required to complete key accounting and finance tasks takes away time that could be used to ensure the integrity of the data and deliver continuous management information that adds value, such as liquidity and budget forecasting.
Gaining financial control means getting ahead of the many period end processes and gaining efficiencies in the routine tasks, such as intercompany or expense management, in order to produce reports that add value to your business.
Without a doubt, gaining control requires automation. It would be easy to suggest that this could mean the end of the trusty old spreadsheet. For many this is not true, and a frightening thought. But consider this; as data volumes grow, the limitations of spreadsheets becomes all too apparent. For many finance professionals, spreadsheets are the primary tool of choice for ad-hoc scenarios. It goes without saying that most financial controllers are highly adept at using systems such as Excel, Numbers or Lotus 123. But all too often manual processes are initially used as stop gaps which, in time, become strategic and part of the problem. This is particularly true when it comes to reporting. Unfortunately, the reliance on manual processes can, and does, lead to error.
It would be easy to dismiss the importance of spreadsheets. The simple fact is that spreadsheets are irreplaceable and will continue to be a part of every day life in finance. The trick is to limit their importance in any process and seek automation wherever possible.
Financial Control is at its busiest at the beginning of each month. The number of tasks performed during the first 3-10 days (depending on the firm’s policies) of the month to close off the previous month’s books is typically a challenge leading to countless late nights. Adopting a more streamlined, automated approach as outlined above significantly reduces time pressures and leads to a cleaner, more efficient month end close.
However, the UK audit watchdog could do more to help itself; particularly when it comes to convincing institutional investors who are the most concerned about its independence, by making its processes and outcomes more transparent.
Given the variety of areas that the FRC covers, nevertheless, a number of clear messages for the FRC come across, not least that as an organisation that holds others accountable, it also needs to be seen to be holding itself accountable to the same measures.
More than a quarter of institutional investors told researchers that they did not believe the FRC was independent of the audit profession. Reasons cited include the fact it hires many ex-auditors, it receives funding from audit firms, and a suspicion that it does not always hold auditors as accountable as they should be.
When you’re setting standards of governance for other companies and telling companies what they should be doing, then you have to be whiter than white.
Stakeholders want more transparency in the FRC’s disciplinary and enforcement activities.
One way round this issue would be for the FRC to step up its communication about its goals and activities, the researchers suggest. They point out that those stakeholders who are more engaged with the FRC have a greater understanding of its internal processes and constraints. Increasing outreach and communication with less-engaged stakeholders could help to improve favourability and perceptions of transparency.
In response, the FRC says that it has already made changes to meet many of the issues raised, including revising its governance structure to improve processes, publishing its register of interests and investing in its enforcement division.
Technological advancements require accountancy firms to review not only their internal processes relating to workflow and business management, but also their working environment, including employee reward and engagement practices
The rise of technology has transformed the accounting industry and the way in which accountants work in recent years, with cloud tools automating processes which previously took up valuable staff time, increasing efficiency in practices throughout the UK.
Yet, technological advancements require accountancy firms to review not only their internal processes relating to workflow and business management, but to also examine their working environment, including employee reward and engagement practices.
Cloud-based technology automates the collection and processing of financial transactions, helping to build better accountant-client relationships. It can capture, read, and store receipts and invoices automatically, removing the need to store paper, type in data, or chase clients. It also vastly decreases the likelihood of error.
These benefits mean that technology provides significant time savings, with firms needing to adapt to the new business climate as a result, eliminating time-based pay and incentive’s productivity to foster happier employees, and therefore happier clients. Ultimately, time is freed up for accountants and bookkeepers to focus on more important activities, and provide their customers with a quick, hassle-free service.
With staff wanting to feel challenged in their role and recognised for the performance they give, firms need to find an effective way of boosting productivity and rewarding employee performance.
Incentivised pay ensures that the amount an individual earns is relative to his or her results, profit, or performance. Short-term schemes, like bonuses and commission, motivate employees to hit or exceed targets while longer schemes, such as profit sharing, help to generate in the employee an interest in the success of the company.
Firms that fail to get on board with these productivity practices will likely find themselves unable to compete with the more tech-savvy businesses, and risk losing their best employees to competitors offering more recognition for individual performance.
Executive pay fell last year but top bosses will still have made more money in three days than the typical worker earns in a year, new figures reveal.
The mean pay of chief executives in FTSE 100 companies fell by a fifth from £5.4 million to £4.5 million – 120 times more than an average full-time worker, a slight drop on the ratio of 122-1 in the previous year.
The High Pay Centre think tank and the Chartered Institute of Personnel and Development (CIPD) said there had been “modest” restraint by company boards but the pay gap between the top and average workers remained wide.
All listed companies will have to publish the pay ratio between bosses and workers under new corporate governance reforms this year.
While it was encouraging to see a tiny amount of restraint on pay at the top of some FTSE 100 companies last year, there are still grossly excessive and unjustifiable gaps between the top and the rest of the workforce. Publishing pay ratios will force boards to acknowledge these gaps.
The drop in pay in the last year is welcomed but will have largely been driven by the Prime Minister’s proposed crackdown on boardroom excess.
It is crucial that the Government keeps high pay and corporate governance reform high on its agenda, but we also need business, shareholders and remuneration committees to do their part and challenge excessive pay. We need a radical rethink on how and why we reward chief executives, taking into account a much more balanced scorecard of success beyond financial outcomes and looking more broadly at areas like people management.
The current review of the UK Corporate Governance Code provides a great opportunity to broaden the remit of remuneration committees to ensure that there is much more focus on the wider workforce and employee voice when decisions on chief executive pay are being made, to improve fairness and transparency.
The London Stock Exchange raised 15 billion pounds from 106 initial public offerings (IPOs) in 2017, a 63 percent increase compared to last year and the highest level for three years.
Money raised from the exchange’s listings was up 164 percent compared to 5.7 billion pounds in 2016.
It added that 20 North American companies chose London for their listing, including Dallas-based oil and gas company Kosmos Energy.
London has seen a pick-up in listings this year after uncertainty around Britain’s future outside of the EU single market dampened investor confidence and caused a number of initial public offerings (IPO) to be postponed or cancelled.
Some analysts noted that despite the debates about Brexit, London is highly global, deep and liquid capital markets continue to be the ideal partner for funding the world’s growth. It is particularly significant to notice that the number of international listings in London is up too, with North American listings up nearly seven-fold on last year.
The listing of 35 investment companies drove total IPOs value higher, with 5 billion pounds raised from vehicles including real estate investment trusts or special purpose acquisition firms, compared to just 644 million pounds the year before.
However, the average share performance of newly listed companies in 2017 was down 34 percent year on year.
We’re just a matter of days into the New Year and no doubt accountants are already looking ahead at the new challenges and obligations 2018 will bring.
Of course, some of the most important deadlines for accountants to meet fall in the first few months of the year, and May 2018 brings a deadline of a different nature – with firms needing to ensure their data is compliant with the new EU-led General Data Protection Regulation (GDPR).
But what other challenges might accountants be facing this year, and how might they need to prepare to respond to them?
Self-assessment deadline looms large
The first real target to meet for accountants is the annual scramble to ensure clients submit their online tax returns in order to meet the 31 January deadline.
In truth, of course, the majority of accountants will have done the bulk of preparation by now; readying their clients and securing the necessary information for the 2016-17 tax year in the hope of comfortably ensuring submissions are made.
However, if you are struggling to extract the last pieces of information from your clients it’s worth sending out one last mail shot as soon as possible, not only to remind them about the deadline but also to ensure they fully realise they are entirely responsible for submitting their returns and thus avoiding triggering the automatic £100 penalty.
You don’t want to be in a position where any client tries to put the blame for any penalty at your door.
HMRC is in the process of reviewing how penalties are applied, with a review suggesting a driving licence-style points system, but for now, the immediate £100 fine remains in place, with further penalties following for clients who continue failing to submit.
From the start of the new tax year in April, legislation will come in reducing the band where dividends incur a 0% tax charge from £5,000 to just £2,000. Clearly, this could have an implication for how some clients choose to be remunerated in the future.
Tax relief for finance costs reduced
Also in April, the tax relief available for the finance costs of individual landlords will continue to be hit.
During the current 2017-18 tax year, higher rate tax payers have only been able to claim higher rate tax relief on 75% of the total finance costs deductible from rental income received. The remaining 25% of finance costs incurred only qualify for tax relief at the basic rate. From April 2018, the higher rate relief available will fall to 50%. Ultimately, landlords will only be able to claim basic rate tax relief on finance costs incurred; this process is set to be completed at the start of the 2020-21 tax year.
Making Tax Digital comes ever nearer
Finally, while Making Tax Digital (MTD) will not start to come into force until April 2019, many sole traders, partnerships or limited companies likely to be affected should be advised to consider whether their existing bookkeeping function will meet HMRC’s strict MTD filing requirements. If it doesn’t they will need to invest time and effort into adapting their record keeping to be MTD-compliant. This is not something that can happen overnight. The smooth transition can only be achieved if sufficient time is allowed for planning and evaluation.
While many VAT registered entities are already virtually compliant, for others the process will take a little longer, and it will be prudent to consider software choices a good nine months in advance of any new legislation coming into place. For a number of businesses therefore, the summer of 2018 will be a good opportunity to choose an option that will work best for your needs.
As the ribbon is cut on 2018, there’s usually a slight pause in business owners calendars which can be used to look back at what your company’s accomplished and how it might be get better.
Managing a small business is a complex endeavour that only passionate people can dare to undertake. A small business owner has to wear many hats, especially in managing sales, customers, workers, partners, and personal life at the same time. Keeping the finances of a small business running efficiently is one task that business owners cannot afford to outsource or delegate completely because finances is the lifeblood of the business.
However, managing the finances of a small business is fundamentally complex because there are so many balls that you must juggle at the same time. Nonetheless, the right tools can help you manage your business finances more efficiently without ignoring other important parts of the business.
Anyone who needs to complete a Self Assessment has the potential to shave hundreds of pounds off their tax bill by getting savvy on which expenses are eligible for relief with HMRC.
Keeping proper accounts is an important part of managing a small business, but the accounts of a small business can become confusing pretty fast if you don’t have a background in finances. In fact, many small business owners need help knowing where their personal finances end and where their business finances begin.
Once you moved up from being a sole proprietorship to become a small business owner, you’ll start having to manage other people other than yourself alone. However, many small business owners who don’t have a background in HR tend to see payroll management as a time consuming process.
Expenses are an important part of running a small business; you’ll have a number of core operational expenses and an even higher number of non-core but important expenses. You’ll spend money on petrol, meals coffee with potential clients, and sending holiday gifts. Those seemingly minor expenses can pile up and leave a big hole in your finances.