Members' Technical Questions
How has the April Budget affected the decision by the Court of Appeal in the Mansworth v Jelley case?
Aprils Budget reversed the effect of the Court of Appeals decision. For shares acquired through the exercise of options from 10 April 2003, the base cost for capital gains purposes reverts to the sum of the amount paid for the option (usually nothing), the amount paid when the option was exercised and any amount charged to income tax as a result of the exercise.
But there will be people holding shares acquired by exercising options before 10 April 2003 and which they have not yet sold. The Mansworth v Jelley ruling will apply when these shares are disposed of.
What is the time limit for claiming losses which arise as a result of the decision in Mansworth v Jelley?
It depends on the year when the loss was made. For self-assessment tax years (1996/97 onwards), you have to claim capital losses within five years after the first 31 January following the tax year in which you made the loss.
For example, you have to claim a capital loss for shares sold between 6 April 1997 and 5 April 1998 no later than 31 January 2004.
Capital losses are deducted from capital gains in the following order:
- losses in the same year as the gain, then
- losses brought forward from 1996/97 or a later tax year (self-assessment years), then
- losses brought forward from 1995/96 or earlier tax years.
A deduction for capital losses for pre-self-assessment tax years (1995/96 and earlier) can be given without a claim.
In the tax year 1998/99, I sold shares that I had acquired by exercising an unapproved employee share option and, under the previous understanding of the rules, returned and paid CGT on a capital gain. 1998/99 is a closed tax year for me. Following Mansworth v Jelley, I now calculate that I have a smaller capital gain. Can I now claim that there was an error or mistake in my tax return and will CGT paid on the original capital gain be repaid?
The Court of Appeal decision in Mansworth v Jelley was given on 12 December 2002. You cannot claim that there was an error or mistake in your return because you made your return on the basis of the practice generally prevailing at that time. The larger capital gain still stands as it was calculated according to the prevailing practice and CGT paid on the larger gain cannot be repaid.
If I transferred shares that I acquired by exercising an unapproved employee share option to my husband, and he sold the shares, what would be his acquisition costs of the shares for CGT?
If you and your husband were living together for the whole or any part of the tax year in which you transferred the shares, your husband would be treated as acquiring the shares for consideration that would give neither capital gain nor loss to you.
When he sold the shares his acquisition cost would generally be treated as equal to the total of the market value of the shares at the date you exercised your share option, and any amount you were charged to income tax on the exercise in respect of the shares transferred.
My client is a small company: how will it be affected by changes to international accounting standards in 2005?
The company will have a choice: it can adopt the FRSSE, current UK standards (SSAPs and FRSs) or International Accounting Standards. You should ask the directors for their preference. The directors decision is likely to be influenced by any exposure to international stakeholders, expected growth and development of the business and cost implications. One of the factors impacting on your costs will be staff training and your software suppliers decision on how they will manage the changeover.
ACCAs website provides current information on IFRS, FAQs and a decision tree, which both you and your client may wish to consult. Visit www.accaglobal.com/ifrs.
How have the OPRA reporting requirements changed?
In October 2003 OPRA issued guidance notes for scheme auditors and scheme actuaries (see In Practice 61).
OPRA expects reports from scheme auditors and scheme actuaries to be made where a breach, discovered in the course of their work, could immediately or potentially constitute a significant risk to members interests, by posing a significant risk to the security of scheme assets or having a significant detrimental impact on members benefits.
In deciding whether to make a report under section 48(1) of the Pensions Act, the scheme auditor and scheme actuary have a duty to consider:
- whether they have reasonable cause to believe that there is non-compliance as described in section 48(1)(a) of the Pensions Act
- whether the non-compliance is likely to be of material significance to OPRA in the exercise of its functions.
OPRA guidance on reporting takes the adviser through a traffic light framework.
Red scenarios involve breaches which OPRA always regards as materially significant because of the significant risk they constitute to members interests. OPRA would expect to receive a report in a red scenario.
Amber scenarios involve breaches where the risk to members interests is less clear. Only by taking into account the context of the breach in relation to the scheme can the scheme auditor or scheme actuary decide whether the breach constitutes a significant immediate or potential risk to members interests, and is therefore likely to be of material significance to OPRA and should be reported. This contextual information may include, for example:
- knowledge of the history of the scheme
- awareness of the skills and knowledge of the trustees and their stewardship of the scheme
- knowledge of the employer organisation, including the nature of its business and how it is structured
- the nature and circumstances of the breach.
Green scenarios involve breaches which OPRA does not regard as materially significant because our experience has shown that such breaches do not constitute any significant risk to members interests. OPRA would not expect to receive a report in a green scenario. However, OPRA would expect trustees to put matters right and to comply in the future.
The guidance notes issued by OPRA contain more detail and practical examples of the reporting scenarios likely to be encountered by the scheme auditor and scheme actuary.
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FAQs are compiled by the Technical Advisory Service.