Would you pay an IFA?

On 1 January 2013, RDR kicks in. This will mean that financial advisors will no longer recieve commissions from the product providers (which of course come out of your investment) but instead will have to change you fees. The industry reckons that IFA's will chargew about £160 plus VAT an hour.

On that basis, a recent survey by BDO worked out that a £50000 investment would cost you £17,797 in commissions over 20 years. The same investment is likely to cost you £22,205 in fees over the same period.

Little wonder then that another recent survey by JP Morgan Asset Management found that only 13% of households with income over £50,000 would be prepared to pay an IFA fees.

Regulation

The ICAEW's Quality Assurance Department has recently started to do desk top reviews of a number of firms.

48% do not carry out adequate client due diligence to ID clients in accordance with the law

15% had not registered with the Information Commissioner as required by law

25% hadn;t realised that the ICAEW's logo had changed and were using the wrong one on their letterhead

16% hadn't explained to their clients the basis on which they charge fees

We rigorously apply all the red tape thrown at us by our regulators but clearly an awful lot of firms do not!

Save the Planet

Peter Bakker, president of the World Business Council forn Sustainable Development, said at the recent Rio Earth Summit that "it was the accountants who would save the planet".

Audits

More than 100,000 UK businesses could opt out of annual audits as the government announces plans to change qualifying thresholds and reduce auditing and reporting requirements.

The government’s response to the consultation on Audit Exemptions and Change of Accounting Framework confirms plans to allow more companies to make a commercial decision about whether or not to have a statutory audit.

Business secretary Vince Cable said:

‘Reporting requirements have become increasingly demanding and costly over the years. We listened to business, who made a strong case for reform, and I am delighted that we are now taking this opportunity to make audit more flexible and targeted.’

The changes to audit rules are likely to save companies up to £2.4m per year in fees, according to BIS.

Currently, to be eligible for an audit exemption in the UK, small companies must be less than a certain size in terms of balance sheet and turnover. The new regulations will align mandatory audit thresholds with accounting thresholds, meaning SMEs will be able to obtain an exemption if they meet two out of three criteria relating to balance sheet total, turnover and number of employees. This change will allow 36,000 more companies to opt out of an audit.

Under the current thresholds, qualifying SMEs must comply with two of the following criteria: they must have no more than 50 employees; no more than £3.26m on their balance sheet; and less than £6.5m in turnover.

Simon Letts, head of audit quality at Deloitte, says:

‘This is an innovative and welcome initiative offering flexibility to companies. While an audit is a valuable service to provide assurance to shareholders and directors, these benefits may be considerably lower for wholly owned subsidiaries.’

‘Directors of both parent companies and subsidiaries will need to balance their assurance needs, the potential savings in audit fees and the potential exposure under a guarantee.’

The government will also exempt most subsidiary companies from mandatory audit, as long as their parent company guarantees their liabilities. A further 83,000 subsidiary companies fall into this category. In addition, another 67,000 dormant subsidiaries will no longer need to prepare and file annual accounts, provided they receive a similar guarantee.

Following consultation by the Financial Reporting Council (FRC) on changes to UK GAAP, the government has also decided to allow companies that prepare their accounts under International Financial Reporting Standards (IFRS) to move to UK GAAP and take advantage of reduced disclosures.

The regulations are expected to come into force for accounting years ending on or after 1 October 2012.

(Accountancy Live, 6 September 2012)

Tax avoidance

One half of the Hargreaves Lansdown financial services empire has dubbed the entire cabinet “muppets” and said his business is one of just two in the FTSE 100 not using offshore or other tax avoidance arrangements.

Peter Hargreaves’ bold pronouncements were made in the wake of Hargreaves Lansdown announcing that its pre-tax profits leapt by a market-defying 21% to £152.8m, with its tax bill rising by 16% to £39.5m.

In an interview with the London Evening Standard, he said the Cabinet reshuffle this week was ‘just one bunch of muppets exchanged for another bunch of muppets’.

On tax issues, he said:

‘We are one of only two FTSE 100 companies which do not use offshore or other tax avoidance arrangements. In fact, we are probably one of the highest tax paying companies in the index.’

Two years ago the company brought forward its dividend payout to avoid the 50% top tax rate for the core beneficiaries — Hargreaves and co-founder Stephen Lansdown. This year, though, he will be coughing up the full 50% on his £34.4 million dividend.

The accountant, who launched the company from the spare bedroom of his Bristol flat in 1981, when Britain was ravaged by strikes, high unemployment and rioting, is about to wave goodbye to his business partner, Stephen Lansdown.

Lansdown, who recently celebrated his 60th birthday, will not to seek re-election as a director of the company and is set to step down from the board following the investment management group’s annual meeting.

Hargreaves Lansdown now employs 650 staff and is headquartered in Bristol.

HMRC Toolkits

HMRC has published the updated Small Profits Rate and Marginal Relief Toolkit to assist agents when completing their clients' 2011-12 Company Tax Returns.

These toolkits provide guidance on areas of error HMRC frequently see in returns and set out the steps that you can take to reduce those errors. They should help you to:

•ensure that returns are completed correctly, minimising errors

•focus on the areas of possible error that HMRC consider key

•demonstrate reasonable care

Details of the latest update is available from HMRC.

Finance Act 2012

The Finance Act 2012 received Royal Assent on 17 July 2012. It has 687 pages, 229 sections and 39 schedules. It is longer than all the Finance Acts added together for the 1950s. George Osborne and Vince Cable promised to reduce the burden of red tape strangling British businesses - how about starting with making the tax system simpler and easier?