What’s new in our tax online services? Steve Savory summarises the highlights.
- Big news this month is the publication of a major new, one volume guide to UK accounting standards. “One volume” doesn’t mean “small” though – A Practical Guide to UK Accounting and Auditing Standards by Steve Collings runs to more than 1600 pages and contains more than 350 worked examples. Readers who are familiar with Steve Collings’ other titles for Bloomsbury Professional will know what to expect here. Is there any writer on UK financial reporting with a better understanding of what a typical practitioner needs to know? I don’t think so. Here, for example, is the beginning of the coverage of techniques for measuring the cost of inventories:
There are various techniques that an entity can use to measure the cost of inventories. FRS 102 and FRS 105 recognise the following:
- the standard cost method;
- the retail method; or
- the most recent purchase price.
Standard cost method
This method is often used in manufacturing companies and it allocates fixed and variable production overheads to each item of inventory the entity produces. The standard cost of a unit of production is based on the budgeted amount of fixed production overheads plus the normal capacity of the manufacturing facilities. Management information will compare budgeted figures to actuals which may result in variances (such variances will arise when there is a difference between budgeted versus actuals) and hence standard costs may need to be revised to take account of variances that have arisen.
The use of standard costs should only be used for the year-end inventory valuation if they are a close approximation of cost. In order to do this, the reporting entity will have to update standard costs on a regular basis or adjust for variances which have arisen.
- If there was ever to be a “Desert Island Discs” for tax advisers where the guest was invited to choose one book to be marooned with (in addition to a set of tax tables and current legislation, of course) I suspect many would plump for Capital Allowances: Transactions and Planning by Martin Wilson and Steven Bone. The word “practical” is often used imprecisely but this seems to me to be an eminently practical guide to CAs. Check out the coverage of solar panels as an example.
'Solar panels are treated as plant. Where the expenditure is incurred on or after 1 April 2012 for corporation tax purposes (6 April 2012 for income tax), the expenditure is treated as special rate expenditure, to be added to the special rate pool.
Solar panels themselves fall into two categories – solar photo-voltaic panels which generate electricity and solar thermal panels, in which the sun heats water directly to serve a heating or heated water system. Solar thermal panels potentially qualify for ECAs at 100% (see 14.31); however solar photo-voltaic panels are not on the published list of qualifying technologies.
Furthermore, from 1 April 2012 for corporation tax purposes (6 April 2012 for income tax) ECAs are not available in respect of expenditure on plant or machinery (including solar panels) when it generates electricity or heat that attracts tariff payments under either the Feed-in Tariff (FiT) or Renewable Heat Incentive (RHI) schemes as set out in the Energy Act 2008 or, in Northern Ireland, the Energy Act 2011 (CAA 2001, s 45AA). ECAs may still be claimed (subject to the other conditions of the ECA schemes) in respect of expenditure on such equipment as long as no tariffs are paid. Any ECAs given, in respect of expenditure incurred from April 2012, will be withdrawn if FITs or RHI tariffs are paid subsequently. The claimant must notify HMRC of such an event within three months of it happening (CAA 2001, s 45AA(3)(4)).'
- The most recent online update to the Corporation Tax core tax annual ran a little behind the other tax annuals, not least because it was so enormous. The authors’ notes on the update are viewable here: https://www.bloomsburyprofessionalonline.com/view/core-tax-annual-corporation-tax/CTACT-intro.xml. Here’s some example material extracted from notes on the new 'deductions allowance' in CTA 2010, s 269ZL.
'A major compliance point that smaller companies and groups need to look out for is that the £5 million allowance has to be ‘claimed’ by any company wishing to set off carried-forward losses against profits of a later year. The legislation provides that every company should state on its return the amount of its trading profits deductions allowance, for the purposes of the use of carried-forward trading losses. Failure to state the amount on the face of the return will, strictly, mean that the company has no trading profits deductions allowance, so that the use of any carried-forward losses will be restricted by 50% (CTA 2010, s 269ZB(7)(b)).
Similarly, there is no de minimis level for the requirement to allocate the £5 million allowance between companies in agroup (CTA 2010, s 269ZK(3)). This means that even the smallest companies comprising a holding company and a trading company must strictly nominate one of the companies to provide the relevant statement to HMRC, with all of the other information on it that the legislation requires.
HMRC have not indicated any sensible policy explanation as to why even the smallest companies must comply with these requirements. The concern is that a great many companies will not realise that this legislation applies to them, so that they will be denied the use of losses for no good reason. Alternatively, this will add time to every corporate self-assessment, so that the time required to submit company returns will be increased. While this might be a small amount of time for each individual return, the combined extra time required for an accountant with, say, 1,000 corporate clients will be huge.'
- Finally, this month, a specialist title, but an important one: Venture Capital Tax Reliefs: The VCT, EIS and SEIS Schemes, which has received a major update. The following is extracted from the coverage of the Seed Enterprise Investment Scheme and looks at the restriction of the exemption on disposal of shares:
'Where a disposal takes place of shares on which the investor’s investment relief was initially restricted for some reason, there may also be a restriction on the amount of the gain that qualifies for exemption. The main reasons why SEIS investment relief may be restricted at the time of the original subscription are:
(a) because the subscription is in excess of the permitted maximum;
(b) because the investor receives value; or
(c) because the investor does not have sufficient income tax liability to absorb all of the available relief.
If reason (a) or (b) is in point, or any other reason except (c), the exempt part of the gain on disposal of the shares is the fraction A/B, where A is the amount of relief given, and B is equal to the SEIS investment relief rate (currently 50%) on the amount subscribed (TCGA 1992, s 150E(3)).'
Precedent of the month: Capital Allowances: Transactions and Planning has some terrific precedents which most users will find relevant to their day-to-day work at some point. Here’s a case in point – an election for the apportionment of consideration on sale or acquisition of a building.
See you next month