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					Welcome to the October edition of News and Changes – a Halloween
special.

There are a few points we ought to be acting on – the main one is to
consider risk in our money laundering procedures – a guide has been
issued to help us. Also there has been some practical advice issued on
dealing with computer problems when trying to file your tax return
online.

So, just stop carving that pumpkin lantern or dooking for apples for a few
minutes to see what is happening this month.

Read on……
 1. Money Laundering
 2. Companies Act 2008



1. FRSSE and LLPs



 1.Self Assessment Enquiries
 2. Travel Costs
 3. Online Returns
 4. Reasonable Excuse
 5. Director’s Loan Account




1.Vital Statistics
2.National Minimum Wage Review
Checklist
           1. Money Laundering

                                                               The new rules have
          been in place for a while now – have you done anything about them yet?

       Have you considered risk in all new clients?

Have you introduced procedures to review your clients regularly to ensure risk
changes are dealt with?

Well, help is at hand – in the form of the Financial Action Task Force RBA Guidance
for Accountants.

The purpose of the guidance is to

      Support the development of a common understanding of what the risk-based
       approach involves;
      Outline the high-level principles involved in applying the risk-based approach;
       and
      Indicate good practice in the design and implementation of an effective risk-
       based approach.


Best of all- it is not mandatory but is designed for accountant in public practice and
should be cost effective.

Now, the big question is – is it any good?

Well, I have to say that it depends on the size of the firm and the number of new
clients you gain each month. A smaller firm may feel it simpler to use the same
money laundering procedures for all prospective clients.

However, following this guidance, it may be possible to reduce the money laundering
requirements for low risk prospective clients.

So, how do we assess risk?

Well really the pointers are towards high risk eg
Reduced transparency

Didn‟t get to meet the client
Not clear who really owns business
After initial meeting, don‟t get to see much of client
Inexplicable changes in ownership
Unnecessarily complex structure
Etc etc

Higher Risk Sectors

Lots of cash transactions
Large international payments for no obvious business reason
Investment of property at higher or lower price than expected

Variables

Unexplained urgency for accounts to be prepared
Accountant‟s familiarity with laws and regulations of the country where the client
transacts business
Involvement of financial institutions
Sophistication of transaction

So, if you assess the client/prospect as higher risk, what do you do then?

Broadly
    Enhanced due diligence
    Increased awareness of risks associated with client for all staff who may have
       dealings with this client
    Higher requirements for client identification before agreeing to take on the
       work



Where clients are assessed as lower risk, it is possible to reduce the identification
procedures. However, the guidance is not explicit on what this would mean in
practice.

It would appear that all clients must be identified ( passport etc) and reviewed
regularly (perhaps annually) to note any changes in ownership, business activities and
consequent risk. For those identified as higher risk, the accountant must consider
more carefully the client‟s business, any transactions of which you become aware and
ultimately whether you remain comfortable acting for this client.


If you are planning to use a risk- based approach to money laundering, it is imperative
that senior management control this and create a culture of compliance.
Source: http://www.fatf-gafi.org/dataoecd/19/40/41091859.pdf




   2. Companies Act 2008
We have passed another milestone in the implementation of this Act.

On 1st October 2008, the following provisions were introduced

      Objection to Company Names – Sections 69 to 74
      Trading Disclosures – Sections 82 to 85
      Corporate directors and under-age directors – Sections 155 to 159
      Provisions relating to the directors‟ „conflicts of interest duties‟ – Part 10
      Share capital reduction through the solvency statement route – Sections 641 to
       644
      Control of political donations and expenditure, provisions relating to an
       independent candidate – Sections 362 to 379
      Power of court to grant relief in certain cases – Section 1157
      Restoration for personal injury claims of companies dissolved prior to 16
       November 1969 - Section 1295 of the 2006 Act, and Schedule 16 (repeals)
      Repeal of the restrictions on financial assistance for acquisition of shares in
       private companies – Sections 151 to 153 and 155 to 158 (1985 Act)
      Changes to the requirements of annual returns (1985 Act)
      Limited Liability Partnership changes to bring accounts content in line with
       the company regulations.


Let‟s have a look at a couple of these changes.

Changes to the Annual Return requirements:
Companies can now restrict access to their register of members. To facilitate this,
annual returns made up to a date on or after 1st October 2008 will contain reduced
information on the company‟s shareholders.
Private and non-traded public companies are now only required to provide names of
shareholders, not addresses. Traded public companies are required to provide names
and addresses for those shareholders holding at least 5% or more of any share class.
If a private or non-traded public company enters shareholders addresses on the
annual return, it will be rejected for the extra information to be removed. WebFiling
system will not allow shareholder‟s addresses to be entered for private or non-traded
public companies.
Trading Disclosures – Sections 82 to 85

Every company must display its registered name:



at its registered office and its inspection     However, dormant companies are now
place.                                         exempt from 1 October 2008.

at any place where the company carries          But if that place is primarily used for
on business.                                   living accommodation (for example the
                                               director‟s address) the company will be
                                               exempt.

in the company business correspondence         This includes documents in hard copy,
and documents.                                 electronic or any other form.




Remember that the needs to display

       the company name,

       number,

       place of registration,

       and its registered office address.


in its business letters, orders and websites

If the company fails to comply with the trading disclosure requirements, the company
and every one of its officers in default will be committing an offence and they may be
liable to a fine. However, from October 08 the personal civil liability has been
removed. This means that for example, if the officer signed a cheque on behalf of the
company he will no longer be personally liable to the holder of the cheque for any
money.

Source:
http://www.companieshouse.gov.uk/companiesAct/implementations/oct2008.shtml
1. FRSSE and LLPs
As you will recall, the ASB recently issued a revised version of the Financial
Reporting Standard for Smaller Entities (FRSSE) which applies to accounting periods
beginning on or after 6 April 2008.

The new FRSSE is really just revised to reflect changes in company law arising from
the Companies Act 2006.
 There is however a complication for small Limited Liability Partnerships (LLPs) that
are entitled to use the FRSSE as the regulations governing LLPs do not come into
force until 1 October 2008.
This means that small LLPs should not use the updated version of the FRSSE
(effective April 2008) until accounting periods beginning on or after this date.
The requirements for LLPs are governed by SI 2008 No. 1912. While this is pretty
much the same as the Company Law requirements, there are a few minor differences.
For this reason, small LLPs that choose to adopt the FRSSE should also ensure they
comply with SI 2008 No. 1912.


Source: http://www.frc.org.uk/asb/publications/it44_p376.html
   1. Self Assessment Enquiries
Remember that 2007/8 tax returns must be lodged by 31st October unless you are
submitting online.

HMRC have announced, in order to help busy tax advisors, that they will not issue
any new enquiries into tax returns, except under exceptional circumstances between
Monday 20 October and Friday 31 October inclusive.

Their kindness does not however extent to existing enquiries which will proceed as
normal during this period.

Source: http://www.icas.org.uk/site/cms/contentViewArticle.asp?article=5825




   2.Travel Costs
Now, you know that home to work travel costs are not tax deductible for an
employee.

Well, what if your home is your place of work?

An employee of HMRC has a contract where she works partly from home and partly
in the office. Her home had been adapted to include HMRC telephone lines and office
equipment.

However when she tried to claim her travel costs for the times she was travelling into
the office, they were disallowed.

The basis of this decision was that such costs had to be necessarily incurred by every
holder of that employment. It was held that these costs were only work- to- work
travel due to the circumstances of that individual rather than the circumstances of the
employment.
As a result, the costs were held to be ordinary commuting and were therefore
disallowed.

Source: Small Practitioner September 2008


3. Online Returns
On 22 October 2008, we will be temporarily withdrawing HMRC's Online Return and
Forms – PAYE service so that it can be upgraded. The service is likely to be
unavailable until 27 October 2008.

Also from 22 October to 26 October 2008 (inclusive) you will not be able to use
HMRC's Domestic scheme or Charities, Assets and Residence (CAR) scheme. This
involves forms P12 and P37 (Domestics) and forms CA3831 and CA3822 for
applications of E101 (CAR).

Source: http://www.icas.org.uk/site/cms/contentViewArticle.asp?article=5827


    3.Reasonable Excuse
As I have already mentioned, paper tax returns have to be submitted by 31st October.

The problem is – what happens if you miss that deadline but when you try to file on
line, for some reason you are unable to do this?

The short answer is that you will need to submit a paper return instead, and you will
also need to submit a reasonable excuse claim to avoid a late filing penalty.

However, you can avoid a late filing penalty simply by paying your tax on time.
However, that will not work for a partnership return.

However, without a valid claim for reasonable excuse, late partnership tax returns and
returns of individuals or trusts who have not paid all their tax on time can attract a
penalty of up to £100 per individual or partner.

You must get the reasonable excuse claim into HMRC well in advance of the 31
January deadline. Provided HMRC agrees with your excuse, it will suppress the issue
of the penalty notice.

The professional bodies, in conjunction with HMRC, have designed a reasonable
excuse claim form
(see http://www.icas.org.uk/site/cms/download/tax_reasonable_excuse_claim_form_20081006_dd.pdf)
which should be used. There is a tick box on the form, which allows you to blame the
computer provided you attach a copy of the error message or give an explanation why
you couldn‟t file online.
 HMRC has also produced a flowchart,
http://www.icas.org.uk/site/cms/download/tax_reasonable_excuse_agent_help_sheet_
20081006_dd.pdf,
http://www.icas.org.uk/site/cms/download/tax_reasonable_excuse_annex_a_2008100
6_dd.pdf,
http://www.icas.org.uk/site/cms/download/tax_reasonable_excuse_annex_b_2008100
6_dd.pdf,
http://www.icas.org.uk/site/cms/download/tax_reasonable_excuse_annex_c_2008100
6_dd.pdf

 To help agents identify whether or not reasonable excuse will apply to individual
cases. The last one gives a list of common error messages on commercially available
software and how to correct them.

Source: http://www.icas.org.uk/site/cms/contentViewArticle.asp?article=5811




   5. Director‟s Loan Account
Here is a common scenario. Your client has an overdrawn director‟s loan account
balance. What do you do?

How about a nice dividend? Well, that‟s fine providing there are sufficient reserves.
However, remember that paying a dividend out of negative reserves is illegal

Ok then why not just write off the debtor balance? This is taxed as though a dividend
had been paid but it isn‟t actually a dividend. Therefore it is not an illegal dividend.

Remember however the other tax consequences of an overdrawn loan account eg NI,
P11d, Sect 419 and timing of either CT due or to be reclaimed.
1.Vital Statistics
The economy is still the major news issue at the moment although the prices seem to
be improving. I actually got petrol at under £1 per litre. The funny thing is that I was
really pleased and forgot that 99.9p is still a very high price. George Orwell really
seemed to know something when he wrote 1984!!!

The housing market is of course on a downward turn. However, as prices had
spiralled out of control, this is not surprising. There is a lot of talk about negative
equity.

The Bank of England has, finally reduced the interest rates this month.

The consumer price index (CPI) is the one the government monitor for and is the most
commonly reported figure of “inflation”. It is similar to the Retail Price Index except
that it excludes mortgage costs.

For those who don‟t want to read any further, here are the current figures:


CPI July 08                                    110.3     5.2%
RPI July 08                                    218.4     5.0%
Interest rate                                  4.5% at 8/10/08


Now for the detail.

Firstly the retail price index. Although this is not the inflation figure you see in the
papers, it is the accountants‟ favourite and as such gets top billing.

Retail Price Index
 DATE                                 INDEX                INFLATION
September 2008                        218.4                5.0%
August 2008                           217.2                4.8%
July 2008                             216.5                5.0%
June 2008                             216.8                4.6%
May 2008                              215.1                4.3%
April 2008                            214.0                4.2%
March 2008                            212.1                3.8%
February 2008                         211.4                4.1%
January 2008                          209.8                4.1%
December 2007                         210.9                4.0%
November 2007                         209.7                4.3%
October 2007                          208.9                4.2%
September 2007                        208.0                3.9%

Inflation is the percentage change in the retail price index compared with the same
month one year previously.


The next one is monitored by the Government who have set a target of 2% but an
upper limit of 3%. When it goes over this, the Bank of England and the Treasury have
words.

That 2% target seems a long way away at the moment.
Consumer Prices Index

 DATE                                 INDEX               INFLATION
September 2008                        110.3               5.2%
August 2008                           109.7               4.7%
July 2008                             109.0               4.4%
June 2008                             109.0               3.8%
May 2008                              108.3               3.3%
April 2008                            107.6               3.0 %
March 2008                            106.7               2.5%
February 2008                         106.3               2.5%
January 2008                          105.5               2.2%
December 2007                         106.2               2.1%
November 2007                         105.4               2.1%
October 2007                          105.3               2.1%
September 2007                        104.8               1.8%

It is the measure adopted by the Government for its UK inflation target. The Bank of
England's Monetary Policy Committee is required to achieve a target of 2 per cent,
subject to a margin of one percentage point on either side.



Clearing Bank Base Rate
8/10/08                               4.5%
10/4/08 – 7/10/08                     5%
7/2/08 – 9/4/08                       5.25%
6/12/07 – 6/2/08                      5.5%
5/7/07 – 5/12/07                      5.75%
10/5/07 – 4/7/07                      5.5%
11/1/07 – 9/5/07                      5.25%
9/11/06 – 10/1/07                     5%
3/8/06 – 8/11/06                      4.75%
5/8/05 – 2/8/06                       4.50%
5/8/04 – 4/8/05                       4.75%,
10/6/04                               4.50%,
6/5/04                                  4.25%,
5/2/04                                  4%

Source: Latest Economic Indicators – www.statistics.gov.uk/instantfigures.asp
       Bank of England.co.uk



2.National Minimum Wage Review
Checklist
Following on from last month‟s point about the increase in the National Minimum
wage, I thought it would be worth highlighting the type of questions that an NMW
inspector may ask in checking that they comply with the regulations.
Eg

           Do employees have contracts?

           How are the employees paid? (Weekly, monthly)

           How is pay made up? e.g. Basic, overtime, shift premium

           How is payroll notified?

           Are there any provisions for safety equipment?

           If so, is it deducted from employees’ wages?

           Do the company have any apprentices?

           Does the company provide accommodation?

           What hours do the employees work?

           What breaks are given?

           Do the employees accrue Holiday Pay?

           Do the employees receive copies of their payslips?

           Does the company keep any petty cash records?

           How do the employees get to work?

           Does anyone have a company van or car?

The NMW Inspector will want to speak to 1 or 2 of the employees to confirm the

details.
I‟ve noticed an advertising campaign highlighting the wage rate to employees and
there have been cases of employers being fined for failure to comply.


Almost everyone who works in the UK is legally entitled to be paid the National
Minimum Wage. This is the case even if an employer asks a worker to sign an
employment contract at a lower rate of pay. Those entitled to NMW include:-

         employed by an agency                     a casual worker
         a homeworker                              a pieceworker

         a part-time worker                        a worker on a short-term contract




       However, the following are not entitled to receive the minimum wage:-

       a worker under school leaving age           some apprentices
       genuinely self-employed                     an au pair
       those in the armed services                 a voluntary worker

Company directors need not be paid the NMW unless they have an employment
contract for services other than that of a director.


Apprentices under the age of 19 and those in the first year of their apprenticeship need
not be paid the NMW.


Source: http://www.berr.gov.uk/files/file47736.pdf
         http://www.direct.gov.uk/en/Employment/Employees/Pay/DG_10027201




If you would like to discuss any of the above issues please contact us on
01797 223127 (Rye Office or 01580 765171 (Tenterden Office) or email
info@phippsllp.co.uk
Q&As

				
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