CONTENTS SECTION

New Accounting Standards 1

Increased Corporate Transparency 2

Corporate Taxation 3

Entrepreneurs’ Relief 4

Changes to CGT Rates 5

The New Customs Regime 6

VAT Partial Exemption 7

Abolition of Dispensations 8

Employment Allowance 9

Audit Thresholds 10

Cor

pora

te N

ewsl

ette

rWith the summer holidays approaching, escaping it all may seem tempting withthe number of recent regulatory changes which impact businesses of all sizes,let alone the uncertainties around “Brexit” and other world events. We hope ournewsletter will help alleviate concerns where we can and answer some of yourquestions but of course should anything in this edition raise further queries,please speak with your usual Rawlinson & Hunter contact.

The overhaul of UK accounting standards has been in discussion for severalyears, however now is the time we are seeing the impact of this change onbusinesses and their accounts. Our helpful summary will guide you throughsome of the significant changes dependent on your business size.

Another key area which has been in recent press is increased transparency incorporate structures and the introduction of the register of “People withSignificant Control” is part of this process. Our article expands on what thisreally means for corporate entities and their owners.

The newsletter also includes a summary of some of the significant corporatetax changes following the Budget 2016, recent VAT and Customs updates andclarification on recent payroll changes.

SUMMER 2016EDITION

Corporate Newsletter

1Change is afoot with newaccounting standards

The whole accounting framework in the UK hasrecently changed and this article highlights the impacton businesses of different sizes.

Non-small, unlisted entities

Many non-small, unlisted entities will now haveadopted either Financial Reporting Standard(“FRS”) 101 ‘The Reduced Disclosure Framework’or FRS 102 ‘The Financial Reporting Standardapplicable in the UK and Republic of Ireland’, whichwere effective for accounting periods beginning onor after 1 January 2015.

FRS 101, which follows the accounting treatmentsrequired under International Financial ReportingStandards (“IFRSs”) but with reduced disclosures,is typically being adopted for the standalonefinancial statements of companies that have aparent undertaking preparing consolidated financialstatements in accordance with full IFRS. FRS 101may not be adopted for consolidated financialstatements.

FRS 102, which is somewhat of an amalgamationof IFRS and previous UK GAAP, is typically beingadopted by all other UK, non-small, unlistedentities.

As expected, some of the most significant issuesarising from adoption of FRS 101 and 102 by largeand medium sized, private entities have been:

1. The requirement to adjust non-current assets andliabilities, which do not incur market rates ofinterest, to their fair values, i.e. to recognise the gainor loss arising from the non-market rate of interestover the term of the asset or liability by discountingfuture cash flows using a market rate of interest.

This has particularly affected:

1) loans from or to related parties which areoften provided for a number of years at noor low rates of interest; and

2) rent deposits, also held for a number of yearsbut which often do not accrue interest.

2. The tax effects arising from accounting changesunder FRS 101 or 102.

3. The increased level of disclosures required in anentity’s financial statements, in particular in itsaccounting policies.

Small entities

Small entities (broadly those satisfying two out ofthree of (i) annual turnover less than £10.2 million, (ii)gross assets less than £5.1 million and (iii) averagemonthly employees less than 50) will be able tocontinue using the old UK GAAP standard applicableto small entities (the Financial Reporting Standard forSmaller Entities (“FRSSE”)) for another year.

Thereafter, for accounting periods beginning on orafter 1 January 2016, the FRSSE has beenwithdrawn and small entities may either adopt FRS102 in full or Section 1A of FRS 102 (“Section 1A”).Section 1A sets out reduced presentation anddisclosure requirements for small entities. Therecognition and measurement requirements of FRS102 continue to apply to entities applying Section1A.

The main disclosure exemptions in Section 1A are:

• There is no requirement to prepare a statementof cash flows.

• A disclosure exemption for related partytransactions with and between wholly-ownedsubsidiaries.

• Reduced disclosures in relation to financialinstruments.

Micro-entities

Micro entities (broadly those satisfying two out ofthree of (i) annual turnover less than £632,000, (ii)gross assets less than £316,000 and (iii) averagemonthly employees less than 10) have been ablesince 2014 to take advantage of furthersimplification of accounting treatments anddisclosure requirements under the FRSSE.

The main features of the micro-entities regime are:

• A simplified balance sheet and profit and lossaccount format.

• No directors’ report.

• No notes to the accounts are required andinstead ‘minimum accounting items’ (consistingof details of advances, credit or guaranteesprovided to directors and contingent liabilitiesand capital commitments) should be provided atthe foot of the balance sheet.

• Where further voluntary information is disclosedin addition to the minimum accounting items,the entity must follow the disclosurerequirements of the relevant accountingstandard.

• Accounting is on a historical cost basis, i.e. norevaluations or subsequent measurements atfair value are permitted.

• Accounts prepared in accordance with theregime are presumed to give a true and fair view.

• Only the balance sheet and disclosures at thefoot of the balance sheet need be filed atCompanies House.

For accounting periods beginning on or after 1January 2016, following the withdrawal of theFRSSE, micro-entities may adopt FRS 105 ‘TheFinancial Reporting Standard applicable to theMicro-entities Regime’.

Whilst FRS 105 is based on FRS 102, it has beenadapted significantly to accommodate the features ofthe micro-entities regime detailed above. In additionthere are further simplifications to reflect the small sizeand simple nature of micro entities including noaccounting policy options and no accounting fordeferred tax or equity settled share based payments.

Accordingly, the recognition and measurementrequirements of FRS 105 are broadly in line withthose of the FRSSE, with the most notable differencebeing the prohibition on accounting for deferred tax.

A key consideration for entities considering adoptionof the micro-entities regime will be the lack ofinformation presented in the accounts, which may beconsidered insufficient should the accounts berequired by banks, when considering overdraft or loanfacilities, or by suppliers and other interested parties.Additionally much of the more detailed informationwould still need to be prepared for the corporate taxreturn reporting process and the underlying basicaccounting (accruals, prepayments and revenuerecognition) will still need to be undertaken.

Application of FRS 101, FRS 102, Section 1Aand FRS 105

Application of all the new UK GAAP standards isretrospective meaning that, subject to varioustransitional exemptions, an entity will need to

restate the previous year’s balance sheet and profitand loss account using the accounting standardbeing adopted and prepare an opening balancesheet as at the date of transition (i.e. the beginningof that earlier period). Disclosures to explain thetransition will be required in the entity’s first set of“new UK GAAP” financial statements.

2No hiding behind glasses -increased corporate transparency

From 6 April 2016, all UK companies and LimitedLiability Partnerships (“LLPs”) are required to startmaintaining a register of the people who havesignificant control (“PSC Register”) over thatcompany or LLP. This requirement arises as part ofa series of measures by the government aimed atincreasing transparency about who ultimatelycontrols UK companies and LLPs.

Furthermore, from 30 June 2016, companies andLLPs will need to report people and entities includedin their PSC Register to Companies House in a newAnnual Confirmation Statement (which replaces thecurrent Annual Return) and in the information to besent to Companies House upon incorporation.

Where a company or LLP does not have any PSCsor is still identifying its PSCs, this fact will also needto be reported to Companies House, with anychanges communicated as they arise.

The information to be maintained in a PSC Registerand reported to Companies House is summarisedbelow, together with details of any information thatwill not be made available to the public.

A PSC is an individual who meets one or more ofthe following conditions:

1. The individual holds, directly or indirectly (e.g.through a corporate chain), more than 25% of

the shares of a company or the right to morethan 25% of the surplus assets on wind-up of anLLP.

2. The individual holds, directly or indirectly, morethan 25% of the voting rights of a company orLLP.

3. The individual holds the right, directly orindirectly, to appoint or remove a majority of theboard of directors of a company or thoseentitled to take part in the management of anLLP.

4. The individual has the right to exercise, oractually exercises, significant influence or controlover the company or LLP.

5. A trust or partnership or another entity that is nota legal person meets (or would if it were anindividual) one or more of the conditions 1 to 4above and the individual has the right toexercise, or actually exercises, significantinfluence or control over the activities of thattrust, partnership or other entity.

The government has published guidance on whatconstitutes significant influence or control for thepurpose of the fourth and fifth conditions. Insummary:

• Control means having the right to direct thepolicies or activities of a company or LLP.

• Significant influence means being able to ensurethat a company or LLP adopts the policies oractivities which the individual decides.

Some examples of significant influence or controlare provided below:

1. An individual who, without reference to orcollaboration with anyone else, has the right tomake or veto a decision relating to the runningof the business of the company or LLP, e.g.adopting or amending the business plan.

But veto rights that are designed to protect anindividual’s minority interest in the company orLLP (e.g. by preventing the company's articlesor the LLP’s partnership agreement beingamended or further shares being issued withoutthe individual’s consent) will not usually betreated as conferring significant influence orcontrol.

2. A director or member who owns importantassets used by the company or LLP or who haskey relationships which are important to therunning of the company's or LLP’s business.

3. An individual who is not a director or memberbut who is regularly consulted on board ormanagement decisions and whose viewsinfluence decisions made by the board ormanagement.

4. An individual whose recommendations arealways or almost always followed byshareholders who hold the majority of the votingrights or the members, such as an influentialfounder or family head.

But professional advisers, suppliers, customers,directors and employees who simply perform theircustomary role will not normally be treated asexercising significant influence or control.

Although the general principle is that every UKcompany and LLP should maintain a register ofPSCs, there is effectively an exemption for a UKsubsidiary company or LLP ("Subsidiary") whichhas a parent undertaking ("Parent") that:

1. would have been a PSC were it an individual;and

2. is subject to the PSC regime or similarobligations. This in practice really only includesother UK companies / LLPs or certain foreignlisted companies (i.e. companies that have theirshares admitted to trading on a regulatedmarket in the European Economic Area orspecified markets in the USA, Switzerland,Japan and Israel).

In this situation, Subsidiary may disclose on its PSCRegister the name of Parent, called a RelevantLegal Entity (“RLE”), instead of the PSCs of theParent.

The information to be included in the PSC Registerincludes the following:

Individual Relevant Legal Entity (RLE)

• Name

• Service address

• Country or state of usualresidence

• Nationality

• Date of birth (although theday of the date of birth willnot be accessible by thepublic)

• Usual residential address(although this will not beaccessible by the public)

• If any of the individual’sdetails are protected fromdisclosure to the public,that fact

• Corporate or firm name

• Registered or principal office

• Legal form of the entity andlaw by which it is governed

• Register of companies inwhich it is entered

• Registration number

Before a company or LLP can include the abovedetails in its PSC Register, it must confirm thedetails with the relevant individual or RLE.Particulars may be treated as confirmed if theyhave been provided or confirmed to the companyor LLP by the individual or with the individual’sknowledge.

As mentioned above, a company’s or LLP’s PSCRegister will be publicly available from CompaniesHouse (except that the day of the date of birth andthe residential address will be withheld). Inaddition, a company or LLP must provide a copy ofthe register (subject to the same withheldinformation) to a member of public upon requestbut may charge a small fee.

Companies or LLPs that do not comply with thePSC Register regime will be subject to criminalsanctions. In addition, a company or LLP mayimpose voting, transfer or other restrictions on aPSC who fails to comply with the company’s orLLP’s request for information.

3A quick dip !

The following is an overview of some of the moresignificant changes to corporate taxation announcedover the last few months:

• Corporation tax rate - this will be cut to 17% from1 April 2020 rather than 18% as had previouslybeen announced. The corporation tax rate fell to20% for all companies from 1 April 2015.

• Payment dates for large companies - theproposed new system for corporate groups withprofits of more than £20 million which requirescorporation tax payments on account to be madein the third, sixth, ninth and twelfth months of theiraccounting period has been deferred (from theoriginally planned date 1 April 2017). This newsystem will now apply for accounting periodsstarting on or after 1 April 2019.

• Loss relief for companies - from 1 April 2017the following changes will apply:

1. Companies will be able to offset lossesbrought forward from earlier accountingperiods against profits from other incomestreams. Currently these can only be offsetagainst profits from the same income stream.

2. Corporate groups with profits exceeding £5million will only be able to offset brought forwardlosses against 50% of the group profits.

• Tax relief for interest payments - the currentworldwide debt cap rules which restrict theamount of interest deductible against corporateprofits will be abolished from 1 April 2017.Instead, large companies within the new ruleswill only be able to deduct interest equal to 30%of the group’s UK Earnings Before Interest,Taxes, Depreciation and Amortisation(“EBITDA”). However, groups with UK interestpayments of less than £2 million will not beaffected by the new rules.

• Capital allowances for business cars - the 100%first year allowance (“FYA”) available to businessespurchasing low emission cars was due to ceaseon 31 March 2018, but is now being extended fora further three years to April 2021. However, from1 April 2018 the carbon dioxide (“CO2”) emissionthreshold below which cars are eligible for the FYAwill be reduced from 75g/Km to 50g/Km. At thesame time, the CO2 threshold for the main rate ofcapital allowances for business cars will bereduced from 130g/Km to 110g/Km.

• Increase in the tax rate for loans toparticipators - where a close company (broadlyone controlled by five or fewer persons) makes aloan to a participator (broadly a shareholder),and that loan remains outstanding for more than9 months after the end of the accounting periodin which the loan is made, the company is

Both:

• Details of the date on which the individual / RLE becameregistrable and the nature of their control

• Which one of the conditions they meet

• The level of their interest by reference to specified bands, i.e.more than 25% up to 50%; more than 50% up to 75% ; or75% or more

• Certain other information to show what the company or LLPknows or does not know about its PSCs (e.g. if it believesthat it has further PSCs but it has not yet been able toidentify them and/or confirm their details)

required to pay a tax charge to HMRC. This taxcharge is not repayable until 9 months after theend of the accounting period in which the loan isrepaid or written off.

Up to 5 April 2016 the charge was 25% of theloan outstanding, but as a result of the increasein the income tax rate applying to dividends, therate from 6 April 2016 is 32.5%. For accountingperiods which straddle 6 April 2016 differentrates will apply to separate loans made beforeand on or after 6 April 2016.

4Steering a course through recentEntrepreneurs’ Relief changes

Since Entrepreneurs’ Relief (“ER”) was introducedin April 2008 the qualifying amount has increasedsignificantly. It is now a very valuable relief with alifetime limit of £10 million. However, changesannounced in 2015 introduced unwelcomerestrictions on the types of disposal qualifying forER, one of the most significant being the loss of ERon incorporation in most circumstances.

Fortunately further changes announced in theMarch 2016 Budget have been backdated toreverse some (but not all) of the 2015 restrictions,particularly in relation to family companies. At thesame time, an extension of the benefits of ER forlong-term investors was announced (a new“Investors’ Relief”).

Reversal of 2015 Restrictions

The changes announced in 2015 were intended torestrict ER where HMRC considered there wereartificial structures, or there was no real withdrawalfrom the business, and in particular:

1. On the disposal of goodwill to a company onincorporation;

2. In relation to certain joint venture structures; and

3. In relation to associated disposals of assets.

The 2015 changes took effect from 3 December2014, and the partial reversals contained in Budget2016 are also effective from that date.

These are considered in more detail below.

Disposal of Goodwill

The changes made in 2015 introduced relatedparty provisions which removed goodwill from theclass of assets qualifying for ER where the personmade a disposal of goodwill to a close company(broadly one controlled by five or fewer persons)which the individual was connected to (typicallybecause they were a shareholder).

These related party provisions meant that ER was nolonger available on a disposal of goodwill as part ofa typical incorporation of a sole trader or partnershipbusiness. The intention was to prevent individualsincorporating and obtaining the benefit of the growthin value of their business at a cost of only 10% tax.

ER was still available if the individual was genuinelyretiring from the business, but the changes createdunwelcome tax charges for family businessesseeking to incorporate and pass on the business tothe next generation.

The changes announced in March 2016 amend therelated party provisions so that they only applywhere the person making the disposal, togetherwith anyone connected to them, owns 5% or moreof the shares or votes of the acquiring company.For these purposes a connected person includes:

• A company connected to the individual; and

• Trustees connected to that individual.

Family members are now excluded from the definitionof connected person for these purposes. This meansthat family businesses can be passed down to thenext generation with the benefit of ER where thefounder retains a small stake (less than 5% of theshares and votes) in the business going forward.

Joint Venture Structures

Prior to the 2015 changes it was possible to structurea business or company to enable certain individuals toobtain ER in circumstances where they would nototherwise have been entitled to the relief (for examplebecause their shareholding was less than theminimum 5% required to obtain ER).

Typically the structure made use of the joint ventureprovisions to “look through” a corporate entity, broadly

that a proportion of the trade carried on by theunderlying business was treated as being carried onby the corporate entity. This meant that by virtue of itsshareholding in another company or its interest in apartnership the corporate entity would qualify as atrading company for ER purposes.

As a result of the 2015 changes the corporateentity’s interest in a partnership was disregarded,and the definition of trading company wasamended so that the corporate entity was nolonger treated as a trading company by virtue of itsinterest in another business. This meant its sharesno longer qualified for ER unless it was a tradingcompany in its own right.

However, these changes had an unintended impacton genuine commercial transactions. As a result, theMarch 2016 changes introduced new provisions toallow shareholders to qualify for ER in genuinecommercial transactions whilst still seeking to denyrelief for “contrived” structures.

Unfortunately the new provisions do not simplyreverse the previous changes, but seek to preventfurther perceived abuse. Inevitably this has led togreater complication in determining whether aparticular structure qualifies for ER. It is hoped thatHMRC will issue guidance to assist with workingout how the changes will apply in practice.

Associated Disposals

Where a business owner holds business assetsoutside the partnership or limited company thatcarries on their business (for example the businesspremises from which the business operates), it ispossible to claim ER on a disposal of those assetsprovided it meets certain conditions to be treatedas an “associated disposal”.

The changes made in 2015 meant that to qualify forER, an associated disposal would have to beaccompanied by a “material disposal” of at least 5%of the business owner’s interest in the business.

In addition, where there was no “meaningfulwithdrawal” from the business and arrangementswere in place to potentially allow the individual toretain the assets in the future (for example throughsomeone connected to them such as a familymember), ER was denied.

These changes to the provisions meant that it wasno longer possible to dispose of assets to familymembers, and hence restricted the options forsuccession planning for family businesses.

To address this, changes have been made to allowER to be claimed on an associated disposal of a

privately-held business asset to a family memberwhen the individual retires or reduces theirparticipation in the business.

In addition, ER will not be denied where it is clearthat the disposal is part of pre-planned familysuccession planning, which pre-dates the materialdisposal and the associated disposal.

Families will therefore need to carefully documentfuture plans to pass on the business in order tosafeguard the availability of ER on future disposalsof business interests and privately held assets usedin the business.

New Relief For Long Term Investors

The March 2016 Budget included a welcomeannouncement that the benefits of ER would beextended to encourage long term investment inunlisted trading companies by introducing a so-called“Investors’ Relief”.

Provided certain requirements are met, individualswho acquire newly issued ordinary shares in anunlisted trading company on or after 17 March 2016,and who hold them for at least three years, will beentitled to claim investors’ relief on a disposal of theshares. This means they will pay CGT at 10% on anygain, subject to a lifetime limit of £10 million.

Since the new rules are designed to attract newcapital into companies, anti-avoidance rules have alsobeen introduced to ensure that shares are subscribedfor by individuals for genuine commercial reasons,and not for tax avoidance purposes.

5Extra helpings

In an unexpected move, it was announced that themain rates of capital gains tax (“CGT”) are cut from28% to 20% for higher rate taxpayers and from

18% to 10% for basic rate taxpayers from 6 April2016.

However, the existing 28% and 18% rates will stillapply to disposals of residential property and gainsmade by Private Equity fund managers (known as“carried interests”).

6Jetting off into the new Customsregime

New Union Customs Code (“UCC”) rules wereimplemented on 3 May 2016 to modernise andstandardise customs procedures throughout theEuropean Union.

The aims of the UCC is to facilitate legitimate trade,introduce a paperless environment for customsprocedures and to harmonise customs controlsthroughout the EU.

Any business involved with the international tradeof goods will be affected by the new rules in someway. However, there will be a major impact onbusinesses that currently have a TemporaryAdmissions Approval to facilitate the import ofgoods.

It is now compulsory for businesses using theTemporary Admissions facility to place a guaranteewith HMRC. The guarantee covers the potentialimport VAT payable which will have beensuspended under the Temporary Admissionsregime.

Prior to 3 May 2016, businesses importing highvalue goods into the UK under the TemporaryAdmissions regime were able to apply to HMRC fora guarantee waiver. Such a waiver is of significantbenefit to a business importing high value goods asa guarantee to cover the suspended import VATand duty can attract significant fees charged by the

financial institution that provides the guarantee. Thecriteria HMRC applied to allow a business toreceive a guarantee waiver was that the businesshad to be solvent and have a good compliancehistory with HMRC.

From 3 May 2016 businesses will still be able toobtain a guarantee waiver, however, there are nowstricter criteria to be met. To obtain a guaranteewaiver, a business now has the same bar as set forbusinesses who are, or wish to become, registeredas an Authorised Economic Operator (“AEO”).

An AEO is an internationally recognised qualitymark which indicates that a business operateswithin a secure supply chain and its internalcontrols and procedures are efficient andcompliant. Therefore an internationally recognisedbusiness that is an AEO will be seen as ‘low risk’and, generally, will see its goods beingimported/exported with efficiency and minimal (ifany) physical inspection by the customsauthorities.

The criteria set for businesses to become AEOsinclude:

• record of compliance with HMRC procedures;

• satisfactory system of managing commercialand transport records;

• proven solvency; and

• the meeting of certain security and safetystandards.

As from 3 May 2016, the criteria to become a AEOwill include personnel within the business meetingpractical standards of competence or professionalqualifications. The business also needs to have ahistory of compliance not only with customsprocedures but also in all other areas of taxation.

A business that uses a facility of an agent to dealwith its customs procedures is unlikely to see anysignificant change in its procedures. However,those businesses, despite using an agent, thatcurrently operate within the Temporary Admissionregime are likely to see a significant change in theiroperations if they currently hold a TemporaryAdmissions Approval with a guarantee waiver.

Any business that currently operates a TemporaryAdmissions Approval with a guarantee waiver willnot see an immediate change in procedures,although, once the current Temporary AdmissionsApproval comes up for renewal, HMRC will applythe new criteria. Therefore, it is recommended thatbusinesses that are likely to be in a position to

renew their Temporary Admissions Approval withinthe next six months should seek advice andassistance in applying for a renewal of theirTemporary Admissions Approval.

7It’s no picnic doing partialexemption

Where a UK business provides both taxable andexempt supplies for VAT purposes, input VAT whichcannot be directly attributed to the taxable orexempt part of the business (and therefore fullyrecoverable or not recoverable) is restricted to theproportion relating to taxable supplies using apartial exemption calculation.

Financial services, which ordinarily would betreated as VAT exempt where supplies are in theUK/EU, are considered taxable for the purposes ofinput deduction when supplied to customersoutside the EU. Previously, businesses with foreignbranches could recover VAT on branch overheadcosts based on supplies made by those branches.

Following Le Credit Lyonnais case, HMRC havechanged the regulations with effect from 1 January2016 in respect of partly exempt businesses withestablishments outside the UK to ensure UK law isaligned with EU law.

The changes largely impact financial institutionssuch as banks and insurers which are partlyexempt for VAT purposes. For such businesses thevalue of supplies from foreign branches andestablishments should be excluded whencalculating input VAT recovery in the member stateof principal establishment. A partial exemptionmethod based on sectors can no longer be basedon geographical location.

HMRC argue this will simplify calculations forbusinesses and reduce the risk of manipulation onVAT recovery.

For some businesses it is thought this changecould even improve VAT recovery rates thatoperate through foreign branches.

Further details can be found in the HMRC Brief22/15.

Where there is a UK VAT group with an overseasestablishment as part of that group, revisedinterpretation of a Swedish VAT case (“Skandia”) byHMRC considers that overseas establishments area separate taxable person (assuming theestablishment is in a member state that operates“establishment only” grouping similar to those inSweden). This would mean intra group transactionswould not be ignored for VAT purposes, andinstead a reverse charge calculation would berequired.

8Abolition of dispensations is noplain sailing

With effect from 6 April 2016, in the majority ofsituations, employers no longer need to have adispensation in place to remove the requirement toreport genuine expenses incurred in a businessactivity on Forms P11D. The change is as a resultof a review carried out by the Office of TaxSimplification. Whilst this puts a greater onus onthe employer to ensure that any non-businessexpenses are reported on the P11D, it is generallywelcomed, as it reduces the administrative burdenon employers when completing P11Ds.

However, there is an exception to this removal ofthe dispensation in the situation where an employerpays round sum allowances for subsistence, ratherthan meeting the actual cost incurred by theemployee. If the amount being paid is inaccordance with HMRC’s benchmark rates forallowable expenses (see below), then no furtheraction is required. However, if the employer ispaying a special (“bespoke”) rate, they need toapply to HMRC to use the bespoke rates to ensurethe payment can be treated as non-taxable. Anyagreements that were reached prior to 6 April 2011are no longer deemed agreed by HMRC, as there isa five year limit for any such agreements to be inplace. Many employers overlook this situationwhere a previous agreement was in place.

To apply for a “round sum allowance” dispensation,the “Bespoke scale rate application form” has to becompleted which can be located on HMRC’swebsite. If there is no agreement in place, or theagreement in place was reached more than fiveyears ago, part of the form requires the employer toverify that the bespoke rate amounts beingrequested are in line with the actual expenses beingincurred and that the employer has carried out asampling exercise to confirm the level of expenses.In addition, a checking process needs to be inplace to ensure that the payments/reimbursementsare only being made where the employee hasincurred the underlying cost.

The benchmark rates referred to below andpermitted by HMRC are as follows;

In addition, where a meal allowance of £5 or £10 ispaid, and the qualifying journey in respect of whichit is paid lasts beyond 8 pm, a supplementary rateof £10 can be paid.

Hence, if round sum amounts are being paid whichare not in accordance with the benchmark ratesabove, an employer will need to either apply for therates to be approved, or, change the method ofreimbursing employees to the actual cost of theirsubsistence. If neither of these actions are

undertaken, the amount will be taxable on theemployee.

9Thrown a curveball on theemployment allowance removal?

With effect from 5 April 2016, two changes came intoeffect in respect of the annual Employment Allowance

Where an employer is eligible to receive the annualallowance, the amount increased from £2,000 to£3,000 per annum.

Most employers are entitled to the EmploymentAllowance. The significant exceptions to this are:

1. Domestic employers (for example a nanny)

2. Service companies where there are IR35deemed payments

3. Being part of a group, where only one memberof the group can claim the allowance

4. Being a public body, or doing more than halfyour work in the public sector (for example localcouncils or the NHS)

5. Being the sole director of a company and beingthe only paid employee in the company

This latter point is the second change that hasbeen made with effect from 6 April 2016. However,if the company were to employ someone else, so longas both are earning above the employer’s NI threshold,the Employment Allowance is available. Hence it ispermissible to employ a spouse or other familymember, on a salary of £8,112 or above, and thenclaim the Employment Allowance. This assumes thatthe additional employee is carrying out some work forthe company to entitle them to receive a salary.

Absence from normalplace of work

Maximum amount of mealallowance

5 hours £5

10 hours £10

15 hours £25

10The sky’s the limit

Audit thresholds have increased significantlypotentially reducing costs and regulation for smallerentities.

For accounting periods beginning on or after 1January 2016, the thresholds above which aneligible, standalone company will require a statutoryaudit have increased such that an audit will not berequired as long as the company has satisfied twoout of three of the following criteria for twoconsecutive financial years:

* When a company is a member of an eligible (see below)group, broadly speaking an audit will not be required as longas, in aggregate, the worldwide group that the companybelongs to satisfies two out of three of the above criteria fortwo consecutive financial years.

A company is ineligible for small company andaudit exemptions if it is, or was at any time duringthe financial year, one of the following:

• a public company

• a member of an ineligible group (see below)

• an authorised insurance company, a bankingcompany, an e-money issuer, a MiFID (i.e.Markets in Financial Instruments Directive)investment firm or a UCITS (i.e. Undertakings forCollective Investment in Transferable Securities)management company or carried on insurancemarket activity

A group is ineligible if any of its members is:

• a public company

• a body corporate (other than a company) whoseshares are admitted to trading on a regulatedmarket in an EEA State

• a person (other than a small company) who haspermission under Part IV of the FinancialServices and Markets Act 2000 to carry on aregulated activity

• a small company that is an authorised insurancecompany, a banking company, an e-moneyissuer, a MiFID investment firm or a UCITSmanagement company

• a person who carries on insurance marketactivity

The above change brings the audit thresholds inline with the small company thresholds which havebeen in force for accounting periods beginning onor after 1 January 2015.

It should be noted that many companies thatsatisfy the above criteria may still wish to considerobtaining a voluntary audit of their financialstatements as this will often be a requirement whenseeking equity investment or loan finance. An auditwill also help to maintain or improve a company’scredit score which is often referred to by potentialsuppliers.

Criteria Accountingperiods beginningbefore 1 January

2016

Accountingperiods beginning

on or after1 January 2016

Turnover lessthan or equalto

£6.5 million £10.2 million

Balance sheettotal (i.e. grossassets) lessthan or equalto

£3.26 million £5.1 million

Employees lessthan or equalto

50 50

The information contained in this bulletin does not constitute advice and is intended solely to provide the reader with an outline of theprovisions. It is not a substitute for specialist advice in respect of individual situations.

This firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited rangeof investment services to clients because we are members of the Institute of Chartered Accountants in England and Wales. We canprovide these investment services if they are an incidental part of the professional services we have been engaged to provide.

Rawlinson & Hunter

Eighth Floor6 New Street SquareNew Fetter LaneLondon EC4A 3AQ

And at

Q3, The SquareRandalls WayLeatherheadSurrey KT22 7TW

T +44 (0)20 7842 2000F +44 (0)20 7842 2080firstname.lastname@rawlinson-hunter.comwww.rawlinson-hunter.com

PartnersChris Bliss FCA

Simon Jennings FCA

Mark Harris FCA

Frances Jennings ACA

David Barker CTA

Kulwarn Nagra FCA

Paul Baker ACA

Sally Ousley CTA

Andrew Shilling FCA

Craig Davies FCA

Graeme Privett CTA

Chris Hawley ACA

Phil Collington CTA

Toby Crooks ACA

Michael Foster CTA

DirectorsLynnette Bober ACA

Karen DoePaul Huggins ACA

Lynne Hunt FCA

Nigel Medhurst AIIT

Anita Millar-Neale CTA

Al Nawrocki CTA

Alex Temlett CA

Trevor Warmington CTA

ConsultantsPhilip Prettejohn FCA

Ralph Stockwell FCA

What to do next...If you are interested in any of these issues and wish to discuss them in moredetail, please call the Rawlinson & Hunter partner who normally acts for you. Ifyou are not one of our regular clients but would like more information or advice,a full list of partners is provided on this page and any of them will be delightedto help you.