Technical update

Glenn Collins, ACCA UK’s head of technical advisory, provides a roundup of the latest developments in audit, reporting, tax and law

Audit and reporting

Accounting guidance

Guidance on the accounting treatments of grants has been produced by ACCA and Steve Collings FMAAT FCCA, a director at Leavitt Walmsley Associates and a member of the UK GAAP Technical Advisory Group at the Financial Reporting Council. You can find the factsheet, which examines the accounting treatment of grants received in respect of the Coronavirus Job Retention Scheme (CJRS) and the Coronavirus Statutory Sick Pay Rebate Scheme, together with the disclosure requirements under UK GAAP on the ACCA website.

As an overview, FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland, deals with government grants in section 24. FRS 102, paragraph 24.3A, states that government grants cannot be recognised in the financial statements until there is reasonable assurance that:

  • the entity will comply with the conditions attaching to them
  • the grants will be received.

Once the recognition criteria have been met, FRS 102, paragraph 24.5E states: ‘A grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in income in the period in which it becomes receivable.’

The relevant accounting policy in respect of the grant will then be applied. Under FRS 102, section 24, this will either be the ‘performance model’ (FRS 102, paragraph 24.5B) or the ‘accrual model’ (FRS 102, paragraphs 24.5C to 24.5G). As far as the CJRS is concerned, recognition of the grant in the financial statements is likely to be the same under both models (ie it will be recognised immediately in profit and loss).

For example, the grant in respect of furloughed employees must be presented as income within profit or loss. This can be done either separately as ‘grant income’ or ‘government grant’ or under the heading ‘Sundry income’. The grant cannot be offset against the payroll expense (or any other expense) in profit or loss, as this is prohibited in company law. Schedule 1 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410), paragraph 8, states: ‘Amounts in respect of items representing assets or income may not be offset against amounts in respect of items representing liabilities or expenditure (as the case may be), or vice versa.’

The above restriction is also the same for small companies in The Small Companies and Groups (Accounts and Directors’ Reports) Regulations 2008 (SI 2008/409), paragraph 8.

We’re listening to your Covid-19 concerns

Thank you to all ACCA  members and partners who have contributed to the Covid-19 newsletters and microsite updates, and who have also shared insights and thoughts with the ACCA community over the past months.

ACCA UK’s policy team has been working hard on behalf of members to influence discussion on Covid-19 and many other areas. At the beginning of the lockdown period, ACCA UK launched a survey in collaboration with the Corporate Finance Network to identify the urgency and prevalence of liquidity concerns for businesses. Member feedback has received coverage in the Financial Times, on the BBC and through many other outlets.

We urge members to share their views and their business and client experiences by emailing. Also, do follow the progression of the policy requests made on your behalf on the resources hub.

There are no specific disclosure requirements in section 1A where government grants are concerned. However, there is still a requirement for the directors to ensure the financial statements give a true and fair view, so potentially there may be some disclosures made in respect of the grants received if in the directors view this is necessary to enable a true and fair view to be presented.

Charity Commission

As highlighted in June’s issue, the Charity Commission has stated that it will be conducting ongoing reviews of the reporting of matters of material significance and that as ‘part of this review, we will check all independent examination reports or audit opinions that are signed on or after 1 May 2020 that contain a qualification, modified opinion or other reporting paragraph to confirm that a report of a matter of material significance has also been promptly filed with us in accordance with the updated guidance’.

You can find guidance on reporting matters of material significance in AB (February/March 2019, July/August 2018, May 2018 and April 2018) and on the ACCA website.

The Charity Commission has also updated its reporting guidance for trustees. It includes examples on when it would expect to receive a report from trustees. The following are some of the example scenarios:

‘The charity has not been required to stop operating under the government’s lockdown measures but the trustees have made a voluntary decision to stop operating temporarily. As a result of this, the charity is:

  • unable to deliver vital services to at risk beneficiaries and/or
  • insolvent and/or forced to close permanently or
  • highly likely to be insolvent and/or forced to close permanently within the next 12 months.’

‘The trustees have decided to furlough some or all of the charity’s staff and, as a result of this, the charity is:

  • unable to deliver vital services to at risk beneficiaries and/or
  • insolvent and/or forced to close permanently, for example because the furloughing of staff has directly led to the loss of a major income stream or
  • highly likely to be insolvent and/or forced to close permanently within the next 12 months.’

With the example above, it is also highlighted that a report is not required where there has been ‘a decision to furlough some or all of the charity’s staff, which hasn’t resulted in one or more of the impacts listed’.

Trustees would be well advised to review the additional guidance at GOV.UK.

Companies House

Companies House has been moving more online. You can find the current list of what can be uploaded at GOV.UK.

Extensions to filing deadlines are also available. Where accounts will be late because a company is affected by Covid-19, and the filing deadline has not yet passed, it is possible to apply for an automatic and immediate three-month extension. However, as we see credit, supply chains and credit referencing being even more important, as highlighted in June’s issue, do consider what needs to be filed on the public record and the impact that lack of information has on those using accounts.

Tax

Consultations

As highlighted in June’s issue, many of the consultations/calls for evidence being undertaken have new response times, reflecting the simple fact that individuals, businesses and professional bodies are otherwise engaged. Please do email in your comments and thoughts.

In June’s issue we highlighted the following:

Call for evidence: raising standards in the tax advice market is open until 28 August. It is an important call that is relevant to a large number of members and future members. It asks for views and evidence on several issues under the following headings:

  • the scope of the market for tax advice and services
  • the characteristics of good and bad practice
  • current government interventions
  • international models
  • possible approaches to raising standards.

A key question being asked is ‘What more could the government do to promote the work of good advisers?’ One of the discussion paper points highlights that ‘Recognising the good work that many professional bodies do to maintain standards, one option which would meet the objectives for reform would be to introduce a legal requirement for anyone who wants to provide tax advice on a commercial basis to belong to a recognised professional body.’ Another suggestion is that ‘Advisers could be required to satisfy a fit and proper person test in order to register, and this test could include provisions such as:

  • possessing relevant qualifications or length of professional practice
  • having professional indemnity insurance
  • being registered for anti-money laundering supervision
  • not having been subject to a penalty for promoting or enabling tax avoidance
  • being up to date with their own tax affairs
  • being up to date with responsibilities as a company director, ie was not an undischarged bankrupt or a disqualified director
  • not having been expelled by a professional body for misconduct.’

Read the document.

Notification of uncertain tax treatment by large businesses is now open until 27 August, with the proposed notification requirement still due to come into effect from April 2021. More at GOV.UK.

Tackling Construction Industry Scheme abuse is open for comment until 28 August, with the planned introduction from April 2021. It includes the explanation of a new power that would allow ‘HMRC to correct the CIS deduction amounts claimed by sub-contractors on their Real-Time Information (RTI) Employer Payment Summary (EPS) returns’, and it seeks views on implementation. See GOV.UK for more.

Academies budget forecast return changes

A number of changes have been made to the academies budget forecast return (BFR3Y). These include:

  • extending the deadline by two months to 29 September 2020
  • removing the need to submit forecasts for academic years 2021/22 and 2022/23 for this year only
  • including eight summary revenue fields for 2018/19.

The BFR3Y form will be available to use from 8 July 2020. Find out more.

Preventing abuse of the R&D tax relief for SMEs: second consultation is open for comment until 28 August. It is a consultation on the delayed introduction of the PAYE cap that was announced as part of the Budget 2020. Visit GOV.UK.

Claims and grants

There are a few important changes to government support in July that will impact businesses. Most of the eligible businesses will have made claims but those that have not, and want to claim their first Self-Employment Income Support Scheme grant, must do so on or before 13 July 2020.

Also, from 1 July employers can bring back to work employees who have previously been furloughed for any amount of time and any shift pattern, while still being able to claim a CJRS grant for normal hours not worked. We have further explanations of the rules and requirements on the ACCA website. Also, under the previous furlough arrangement for all employees furloughed by 10 June with the furlough completed by 30 June, employers will have until 31 July to make any claims in respect of the period to 30 June.

As the VAT deferral ends, VAT payments due after the end of the deferral period will need to be paid as normal. Do remember that Time to Pay arrangements are available to all businesses and individuals who are in temporary financial distress as a result of Covid-19. It is important to remember and contact HMRC for Time to Pay in advance of payment dates. See the Time to Pay service and the latest guidance on ACCA’s Covid-19 resources hub.

Inheritance tax and emergency responders

Inheritance Tax Act 1984 S153A provides an exemption from inheritance tax for an emergency responder whose death occurs as a result of responding to emergency circumstances. The exemption applies where the death results from:

  • an injury sustained, accident occurring or disease contracted when that person was responding to emergency circumstances, IHTA84/S153A(1)(a), or
  • a disease contracted at some previous time, the death being due to, or hastened by, the aggravation of that disease when the person was responding to emergency circumstances, IHTA84/S153A(1)(b).

There is no time limit on when the injury, accident or disease was incurred. It is important to note that for the exemption to apply, the person must qualify as an emergency responder and they must have been responding to emergency circumstances. It will be vital that records are kept and that, with any estate planning, the exemption and likelihood of it applying is considered.

To find out more, see ‘In practice’ .

Reverse charge

The domestic reverse charge for construction services has again been delayed. It has been highlighted in Revenue and Customs Brief 7 (2020) that the reverse charge requirement will now come into force on 1 March 2021, rather than 1 October 2020. As previously highlighted, ‘Businesses need to adapt their accounting systems for dealing with VAT and there will be a negative impact on the cashflows for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies.’

The brief also highlights that an ‘additional amendment to require end users and intermediary suppliers to notify their sub-contractors of their end user or intermediary supplier status in writing is designed to make sure both parties are clear whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for sub-contractors as to the correct treatment for their supplies. If followed, it will remove a concern that HMRC may seek to challenge the reverse charge treatment where a business that qualified as an end user or intermediary supplier had not given any notification of their status.’ The latest reverse charge guidance can be seen at GOV.UK.

Law

Insolvency

Guidance on the Corporate Insolvency and Governance Bill and what it means for businesses has been provided by John Cullen FCCA, a partner at Menzies and an ACCA Council member. You can find the full Q&A on the ACCA website, and more detail about the bill in Easing the pain, in this edition of AB.

How do I trade? Your suppliers, unless they show cause, must continue to supply your business. Your business must be able to meet any debts incurred during the moratorium period. Your suppliers would not be bound by this provision for a short time during the period of the Covid-19 crisis, however, if they are a ‘small’ entity.

What is a ‘small entity’? Simply put, an entity is small if two of three of the following are true:

  • turnover is not more than £10.2m
  • balance sheet ‘total’ is not more than £5.1m
  • number of employees is not more than 50.

Are there any historic debts that can be paid? Yes, if the monitor consents, or the court so rules or the law suggests you should. There are exemptions on payment holidays to parties where the amount is less than £5,000 or, if greater, 1% of all debts and liabilities at the start of the moratorium.

How do I apply for a moratorium? The moratorium is a court process and requires a monitor who will be an officer of the court and an insolvency practitioner. There will need to be an application to court. Whether there needs to be a hearing will depend on the circumstances at the time of the application. There are also some temporary rule changes to make it a little easier during the ‘relevant period’, which is currently defined as up to one month after the coming into force.

Can a monitor refuse to act? Yes, and there may be lots of reasons. You might expect a company that applies for a moratorium to be able to afford to pay current creditors as and when they fall due, and have excellent and timely management information to give the monitor some comfort that it is an appropriate mechanism.

What is the advantage of a moratorium? When businesses are in distress, often the most critical factor is time. A moratorium provides that time.

I supply a business that is in a moratorium. What if it fails? The cost of your supply after the moratorium date would be paid in priority to pre-moratorium debts in any process that happens following a moratorium, subject to pre-existing mortgages/fixed charges.

Can a company issue a winding-up petition against my business or can I issue a winding up petition against another company? When this legislation comes into force, there will be a temporary restriction on the issue of winding-up petitions or statutory demands where the inability to pay is the result of Covid-19.

I have to hold an AGM but social distancing means that may not be possible. What do I do? The legislation allows companies to hold general meetings by any other means even if company protocol does not allow.

Are your AML procedures up to date?

Every accountancy firm must have policies and procedures for managing its money laundering and terrorist financing (MLTF) risks. This ensures a focus of resources on the areas of greatest risk. As per the MLR 2017, an anti-money laundering (AML) firm-wide risk assessment must be conducted and documented, and must be considered when creating or updating a firm’s policies and procedures.

ACCA has created a firm-wide risk assessment factsheet to help practitioners. You can find this and other AML support on our website.

It is also vital that firms regularly check financial sanctions information by, for example, reviewing countries on the sanctions list at GOV.UK. Fraud and business risk areas also need to be reviewed, and policies and procedures updated in light of available information, such as that provided by HMRC or Companies House, with regard to activity that may impact on certain business sectors and therefore increase the risk profiles of these business sectors and clients within them.

 

BBRS set to launch

A new free service to resolve disputes between small and medium-sized businesses and their banks has been launched, called the Business Banking Resolution Service (BBRS).

Read the Q&A with the chair, Lewis Shand Smith. Here are some highlights:

What is the BBRS? It is a new, independent organisation set up to resolve disputes between eligible small and medium sized businesses and participating banks.

What should accountants be most aware of? The service is free and is available for both historic and contemporary cases. It can look at complaints dating back to 1 December 2001. The service will launch in the early autumn, and businesses can register their interest in using the BBRS on the website thebbrs.org.

Who is the service available to, and will the BBRS be available to those whose complaints arise from Covid-19? BBRS can accept complaints from businesses registered in England, Wales, Scotland and Northern Ireland, and will be able to consider disputes in the wake of the pandemic crisis. It will consider complaints being raised by or on behalf of a number of corporate structures, including sole traders, limited companies, partnerships, trusts, charities, and community interest companies. However, businesses must first have complained to their bank within required timescales and given the bank concerned the opportunity first to resolve the dispute. There is more information about the eligibility criteria on the BBRS website.

How is the BBRS different from the Financial Ombudsman Service (FOS)? The FOS deals in part with cases brought by smaller businesse but it is primarily for consumers. It is a much larger organisation and it focuses on investigative adjudication. The BBRS is for eligible businesses that are too large for the FOS. It will do investigative adjudication, but will wherever possible offer formal and informal dispute resolution of various kinds.

When will the BBRS launch? The Financial Conduct Authority and the Treasury have made it clear they see the scheme playing a real role in the post Covid-19 recovery and they want it launched by early autumn.