SRA Accounts Rules – clarification of the new rules as at October 2019

Ahead of the 25 November 2019 introduction of the new rules, the SRA have released in October 2019 additional documents on their website clarifying aspects of the new rules.

Payments of residual balances to charity

The SRA have issued further guidance regarding prescribed circumstances for the SRA authorising a withdrawal from the client account under new Rule 5.1(c). One such instance is the payment of client funds to charity, in the situation where the individual client matter balance is less than £500, and the firm has made a sufficient effort in order to trace the rightful recipient of these funds. This brings in line with the current Rule 20.2.

In their guidance note, the SRA have provided information regarding the steps it expects a firm to follow before paying these funds to a charity. These are:

  1. that the balance is paid to a charity of your choice;
  2. you have taken reasonable steps to return the money to the rightful owner. The reasonableness of such steps will depend on:
    • the age of the residual balance;
    • the amount of the residual balance;
    • if you have access to the client’s most up to date contact details;
    • if not, the costs associated with tracing your client;
  3. you record the steps taken to return the money to the rightful owner and retain those records, together with all relevant documentation for at least six years;
  4. you keep appropriate accounting records, including:
    • a central register which records the name of the rightful owner on whose behalf the money was held, the amount, name of the recipient charity (and their charity number) and the date of the payment; and
    • all receipts from the charity and confirmation of any indemnity provided against any legitimate claim subsequently made for the sum they have received; and
  5. you do not deduct from the residual balance any costs incurred in attempting to trace or communicate with the rightful owner.

As is currently the case, authority must be obtained from the SRA prior to the payment of an individual client matter balance in excess of £500 being paid to a charity.

Operation of a client’s own account

New Rule 10.1 suggests that 5-weekly reconciliations should be performed for all instances where the firm operates a client’s own account as a signatory; one such example being as a Deputy in a Court of Protection matter.

The SRA has now stated that where ledgers are not maintained for a client’s own account and will not have access to monthly bank statements, the firm will not be regarded as in breach of the above Rule provided that the firm has sufficient internal controls in place to ensure that such matters are adequately recorded and ensuring that client monies are not at risk.

The SRA has provided examples of records which should be maintained, which are:

  • central register of the client’s own accounts that you operate,
  • separate record of the transactions carried out by you or on your behalf in respect of the client’s own account, and
  • record of your bills and other notification of costs relating to that client’s matter

In both scenarios above, the guidance from the SRA follows the path the Rules have headed with less emphasis being placed on the detailed Rules themselves, and more on the internal controls the firm has in place to ensure compliance with the Rules. These controls will therefore increasingly be checked by your reporting accountant as part of your annual SRA Accounts Rules compliance review.

Should you have any questions regarding the above, or any aspects of the new SRA Accounts Rules, please do not hesitate to contact Sam Evans or any member of the Professional Practice team on 01772 821021.

Links:

https://www.sra.org.uk/solicitors/standards-regulations/withdraw-client-money/

https://www.sra.org.uk/solicitors/guidance/ethics-guidance/clients-own-account/

The importance of organisation in the workplace

For any business to grow and run smoothly organisation is a key skill. Here are a few tips on how to stay organised in the workplace;

Manage your working area

An organised work space helps avoid misplacing documents and items getting mixed up or lost, it also avoids the scramble and stress of having to root through papers to find a specific document if a client or customer calls unexpectedly. As well as looking tidier for unexpected visits it creates a calmer atmosphere which can help with productivity. To help with this consider going paperless which avoids having physical documents to deal with altogether.

Keep your computer organised

If you decide to go paperless, you then must compete with the filing of digital documents. A system will need to be implemented for naming files and saving them to specific locations that everyone in the business is aware of. While this can initially be a timely process, once set up and running smoothly you will reap the benefits of not having paper documents lying around everywhere. Going paperless also helps to comply with GDPR and as the documents can be accessed remotely, flexible working is also a possibility.

Expenses

Keeping your expenses organised and recorded in a timely manner helps so you can focus on your business itself. It is easy to leave it till your businesses year end and then have to find all those receipts, often in various pockets and glove compartments to get your expenses claim in. Consider using an app that links to your accounting software so expenses can be posted immediately, receipt scanned and then it can be lost with no worry.

Keep track of your debtors and creditors

Paying suppliers, invoicing customers and chasing payments is a key part in every business. Disorganisation can lead to late payments, missed debts or even missed opportunities for raising bills. Keeping your accounting software up to date can help flag up important dates for when payments are due or if a payment needs chasing. Many software’s, such as quickbooks, have built in reminders and flag up these areas every time you login. If chasing debts is taking up a lot of your time and you don’t have someone employed to do this job consider an automated service such as Chaser (www.chaserhq.com/), which links to your accounting software and deals with the chasing of debts automatically.

Archive and delete emails

It can be frustrating to login to your inbox and see hundreds of emails. Reducing and clearing out your inbox regularly can help flag up the emails that still require attention and avoid important emails getting missed.

Keep track of deadlines

Be aware of deadlines such as the following to stay on track and avoid any unnecessary penalties;

  • Companies House, accounts are due nine months after year end
  • Corporation tax return, due for filing twelve months after year end
  • Corporation tax payment, due nine months and one day after year end
  • VAT returns, due for filing and payment one month and seven days after the period end

BREXIT – Changes for UK employers sending workers to the EU, the EEA or Switzerland

Currently, if you send your employees to work in the EEA, your employee might be able to carry on paying national insurance in the UK for up to 2 years.  This will protect the employee’s UK national insurance record, which affects rights to benefits and the state pension.  This will also provide proof for the authorities in the country where the work is performed that social security contributions are not required.  To do this, you or your employee will usually be required to apply for a Portable Document A1.

In the event the UK leaves the EU without an agreement, there may be changes for UK employers who have people working in the EU, the EEA or Switzerland.

The EU Social Security Coordination Regulations ensure employers and their workers only need to pay social security contributions (such as National Insurance contributions in the UK) in one country at a time. However, if we leave without an agreement, the coordination between the UK and the EU will end.

This will mean that your employees working in the EU, the EEA or Switzerland may need to make social security contributions in both the UK and the country in which they are working at the same time.

Businesses will need to do the following to prepare:
  • If your employee is currently working in the EU, the EEA or Switzerland and has a UK-issued A1/E101 form, they will continue to pay UK National Insurance contributions for the duration of the time shown on the form.
  • However, if the end date on the form goes beyond Brexit day, you will need to contact the relevant EU / EEA or Swiss authority to confirm whether or not your employee needs to start paying social security contributions in that country from that date. The European Commission’s website will help you find the relevant country’s authority.
  • If your employee is a UK or Irish national working in Ireland, their position will not change after Brexit, they are covered under the international agreement signed by the UK and Ireland in February 2019. You, as their employer, won’t need to take any action.
  • A replacement for the A1/E101 form will be issued for new applications after Brexit. This ensures your employee continues to make UK National Insurance contributions to maintain their social security record. You can still use the same form on GOV.UK to make an application after the UK has left the EU.

The UK Government has announced it is working to protect UK nationals by seeking reciprocal arrangements with the EU or Member States to maintain existing social security coordination for a transitional period until 31 December 2020. Individuals in scope of these arrangements will only pay social security contributions in one country at a time.

If you would like to discuss the blog in more detail please contact David Bennett or Alex Gardner or call 01772 821021.

Times are changing for my accounting records

June 1986, 9am a fresh-faced young man starts his first day in the accountancy profession.  After settling in he is handed a large carrier bag contacting crumpled up invoices, receipts and bank statements, “could you get all these summarised by the end of the day”. What to do?  Luckily, he is given a calculator, pens and a pad.  Crisis averted.

Over the course of the next twelve months this young trainee would spend the majority of his time adding up 80-page, 32 column Guildhall cashbooks all by hand with the help of his trusted add lister.

The next 30 years would see some considerable changes in the accountancy and bookkeeping world.  Computers would start to appear in offices and businesses.  People would move away from traditional manual bookkeeping and use software designed to replace the old cashbook and ledgers.  Not only could you analyse the transactions far easier and quicker, but you could also reconcile the bank and check your trading statements at any point, not just at the year end.

The original software was desktop based, tying you to the office in order to keep information up to date or to get any information out.  With the advent of cloud technology, storing your data offsite, this gave you the best of both worlds.  Most of the work can be done in the office, but with cloud technology this same information can be accessed to provide quick information whilst out on the road.

Accountancy software, in particular cloud based, isn’t just confined to the general accounts it can also help with automating the day to day tasks such as;

  • Scanning purchase invoices, reducing the need to manually enter each one
  • Emailing sales invoices letting you track when they were sent and when they have been viewed
  • Taking a photograph of receipts from mobile telephone or tablet and uploading directly into the software
  • Attaching copies of invoices and receipts to transactions, reducing the amount of paperwork needed to be filed
  • Cleared bank transactions being directly fed into the software, allowing them to be automatically matched or added

This new technology has changed how a business owner can use the basic financial information at their disposal.  With more up to date and accurate information they can try and spot trends or weaknesses in the business.

No two businesses are the same, even ones in the same industry, meaning people may want different information;

  • How much am I making?
  • Who is my top customer?
  • Did I make a profit on that job?

These sorts of questions can now be answered in an instant.

Technology can help speed up the process of putting together your accounting records, allowing you to concentrate on the main reason you started in business in the first place – we are yet to find anyone who thinks great I get to do my bookkeeping at the end of the week.

For more information on this subject please contact Nick Wetherall

Related Party Transaction Reporting in Charity Accounts

Trustees must always act in the interests of their charity and not for their own personal benefit, but it is not uncommon for conflicts of interest to arise. It is important the charity is open and transparent in such situations, and it is good governance to handle these conflicts appropriately.

In charity accounts, the reporting of related party transactions is integral to complying with the SORP and providing details about their transactions with persons and entities closely connected to the charity or its trustees.

The Charity Commission has recently undertaken a review of a sample of Charity accounts and although reporting was found to be significantly better in larger charity accounts, less than two thirds of the charities in lower income samples fully complied with the SORP’s transparency requirement.

Charities preparing accruals (SORP) accounts must disclose:

  • trustees’ remuneration and benefits
  • trustees’ expenses
  • transactions with those persons and entities that are closely connected to the charity or its trustees, referred to as related parties

Trustees may delegate accounts preparation to charity staff or their accountant but remain responsible for approving the trustees’ annual report and accounts. The independent examiner or the auditor cannot be expected to know all of the related parties involved with the charity and so trustees need to co-operate with them to ensure that the disclosures provided in their accounts are complete.

If you have any questions on charity reporting, please do not hesitate to contact one of the charity specialist team at MHA Moore and Smalley.

Risk Management for Academies

Today’s video features Sarah Ollerton and Nicola Mason as they discuss risk management for academies.

This year the academies financial handbook has changed the requirement for a risk register from a should to a must, meaning academies need to update and review their existing risk register.

Watch to learn more!

Disposals of UK land – changes to the capital gains tax compliance regime for non-UK resident individuals

What’s new from 6 April 2019

The non-residents capital gains tax (NRCGT) rules have been extended to include non-residential property. The rules now apply to direct and indirect disposals of interests in all UK land (i.e. both residential and commercial).

A direct disposal is a disposal of land, whereas an indirect disposal is a disposal of shares in a company (whether the company is UK resident or not) and at least 75% of the value of the shares is derived from UK land. This briefing note covers the rules surrounding direct disposals for individuals and further advice should be sought for disposals by non-UK resident companies.

Background

The NRCGT rules were introduced on 6 April 2015 and apply to disposals of residential properties from this date. Only the gain arising after 5 April 2015 is chargeable and there are different ways of calculating the gain depending upon the individual’s circumstances.

The new rules now extend NRCGT to cover gains on commercial property, but only to the extent that the asset has increased in value since 5 April 2019.

Compliance

All persons making a NRCGT disposal have 30 days following the conveyance of the property (not the date of exchange) to submit an on line NRCGT Return to HMRC. A return must be filed even if there is no tax payable or the property is sold at a loss.

Late filing and payment penalties may be charged if the 30 day deadline is missed.

The Return must include a calculation of the chargeable gain or allowable loss and the tax due must be paid within 30 days of conveyance (i.e. the same deadline as the filing of the Return).

The rate of tax depends on whether the property is residential or non-residential and the level of the individual’s other income for the year.

The compliance regime has also been revised from 6 April 2019 to require all non-residents to make a payment on account of the CGT due on the disposal, irrespective of whether or not the individual is within the Self-Assessment regime. 

Potential problem areas

Due to the short filing and payment deadline not all of the relevant information may be known within that timeframe. It may be necessary to include reasonable estimates in the computations and then amend the Return when the actual details are available. In addition, it may not be possible to correctly calculate the amount of tax payable because the rate of CGT depends on an individual’s UK taxable income for the whole tax year and this may not be known at the time of submitting the return.

How we can help

We would be happy to calculate the capital gains tax position on the sale of the UK property and advise upon which method of calculation is most beneficial for your client. We can also file the NRCGT Return with HMRC.

Should you wish to discuss this in further detail please contact a member of our Professional Practice Team on 01772 821021.

Income recognition for charity

In this video Nicola Mason and Sarah Ollerton are discussing when a charity becomes entitled to recognise it’s income.

In the case of a grant, evidence of entitlement will usually exist on the offer of funding. That being said, some grant offers will contain terms and conditions which must be met before the charity is entitled to recognise this income.

Watch to find out more!

Are you thinking of starting up in small business?

Starting up in business can be a fresh start for some, an exciting opportunity for others, a need to satisfy one’s personal goals and ambition, or simply something to do in your spare time.  You might decide to stay small, keep your costs low, think about maximising profit on a small turnover.  Conversely you might aspire to grow your business fast, have multiple sites, build a team around you, generate your profit with low margins but high turnover. 

Whatever your drive to be in business, whatever your size and aspirations, it’s important to get the fundamentals right from the outset, seek professional advice in areas where you don’t have the skill or knowledge, but even if you do have those skills, it always good to have business advisers working alongside and supporting you. 

Our guide talks through some of the common areas to consider when starting in business, but likewise it might be worth a read for some business owners looking to move their business forward.