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Newsletter - July 2006

Welcome to the first issue of the firm’s newsletter. Following the formation on 1st July 2006 following a demerger from Edwin Jones & Co things are looking good and it is anticipated that full electronic services will be in place for HMRC and RoC.

The following are brief points to note relating to trading:

New FRS rules re bonuses:

With effect from accounting periods beginning on or after 1st January 2005, under new FRS 21 rules, bonuses for employees or directors declared after the year end may only be accrued within the accounts if there was a legal or constructive obligation at the Balance Sheet date to make such payments. If there isn’t then the bonuses need to be included in the following year.

It may therefore be advisable to produce a board minute before the year end which sets out the basis upon which a bonus is to be paid, perhaps as a percentage of net profits, thus creating an event prior to the year end which produces the obligation to pay.

Benefits in Kind – The Company Van:

2005/06 sees the introduction of new rules for the exclusion of company vans for benefit in kind purposes if the private, non-business use of the van is restricted to purely home to work commuting. If the employee continues to use the van for other non-business trips, then the employer should be reimbursed at an agreed company rate per mile. Wherever applicable, an employees contract should stipulate that whilst the company van may be used for usual commuting to and from the business, no other personal use is permitted unless the cost of same is made good by the employee. If this remains the case, no benefit arises on the van and no Employer’s national insurance therefore accrues.

Identity Theft - NEWS reaches us that identity theft is on the increase and limited companies have become prime targets:

The scam commences with the fraudster filing form 287 at Companies House suggesting that the registered office of a genuine company has been changed. Companies House has no obligation to check the validity of such a form and will duly process the information accordingly.

Having created a bogus address for the bona fide company, the fraudster can then rely on the company’s credit rating to obtain expensive goods and services, all delivered to the new address, only then to disappear with the company facing threat of action if settlement is not made.

You may therefore wish to check regularly the information held at Companies House over the internet. There’s no cost to obtain such basic details as the registered office, although there is a more secure method of only filing details of changes electronically.

The ‘PROOF’ service is a free password protected means of changing details such that only online electronic information is accepted.

http://www.companieshouse.gov.uk for further information.

Employment status issues:

Contrary to popular belief, length of service bears little relationship to the matter of employment status. Assuming that an individual is self-employed simply because he claims to be is similarly misleading however and care must always be taken to assess the specific details of the relationship between the main contractor and the sub-contractor.

H M Revenue & Customs are keen to ensure that all ‘subbies’ are correctly classified and they will point to a number of ‘rule of thumb’ guidelines to help you reach the right classification. Unfortunately, there remains no single objective measure by which to gauge the working relationship and although there may be no disputing the self-employed status of an individual during the remainder of the year, it may well be the case, that whilst working for you, the individual should be considered an employee! Little comfort indeed for the unwary or the unprepared.

Tips to ensure the balance favours self-employment;

a) Ensure that the sub-contractor appears to the world to be their own boss;

b) Do they supply their own tools, preferably more than just small hand tools,

c) Does they have their own van, business or public liability insurance, or are they registered for VAT?

d) Failing the above, a contract for services could be prepared prior to work commencing. If so, make it clear …. that there is no mutuality of obligation on either party, either to offer work on the one hand, nor to accept work on the other. …. that sub-standard work or snagging will be rectified at the ‘subcontractor’s own cost.…. that there is a right of substitution whereby the subcontractor may send a replacement to fulfil their obligation should they personally not be able to do so. Whether this is ever applied is immaterial.

e) Obtain a quote prior to work being undertaken, written or verbal.

f) Ensure that an invoice is prepared at completion of the work and that this discloses details of the work done. Try to avoid this reflecting a simple time-sheet format of hours worked. Might the wording thereon also perhaps suggest, ‘... as per quote.’?

g) Ideally, settle the invoice a little after the day it’s presented, thus implying that the subcontractor faces true financial risk with possible default or non-payment, unlike the employee who may rely in law to be remunerated on a timely and regular basis.

Despite best efforts, if all else fails and it is difficult to determine the status of any sub-contractor, you can always contact the Revenue for peace of mind and obtain from them their opinion! The onus does, after all, rest with you, the main contractor, and penalties for getting it wrong can be costly.

Gift Aid - From 1st November 2005, all gift aid declarations must:

Include the donor’s name and address; disclose the name of the charity; identify the gift to which the declaration relates and confirm that the gift is to be treated as a gift aid donation.

HMRC advise that donors need to be aware of their tax obligations and have suggested that gift aid declarations contain the phrase ‘You must pay an amount of income tax equal to the tax we reclaim on your donations’, or ‘Remember to notify us if you no longer pay an amount of income tax equal to the tax we reclaim on your donation.’

Every effort has been made to ensure that the information given is accurate and not misleading but G C Reid & Co cannot accept responsibility for any loss or liability perceived to have arisen from any such information. Readers should appreciate that the articles are unlikely to be sufficiently comprehensive to foresee all considerations and further advice should be obtained from G C Reid & Co or other professional advisers before reliance is placed on such articles