Members' technical questions
I understand that in order to make a report to NCIS I need to fill out a standard disclosure form. Where can I obtain this form?
This form can be found on NCIS’s website: www.ncis.co.uk/disclosure.asp. In addition you should also refer to ACCA’s new money laundering microsite for further guidance: www.accaglobal.com/transparency/moneylaundering.
Is it true that the Inland Revenue is offering incentives for filing PAYE returns?
Yes, businesses with fewer than 50 employees are being offered a cash incentive to file PAYE returns via the Internet. From 2004/05 they will receive £250 for the first two years, with further amounts on a decreasing scale until 2009/10 when the scheme becomes compulsory for all employers.
Large employers with 250 or more employees will be obliged to submit electronic returns from 2004/05 onwards and those with 50 or more employees from the year after. If they fail to comply, they could incur fines of up to £3000. Employers without computerised payrolls can fill in their returns and submit them using the Inland Revenue’s online PAYE service:
Large employers must also make their monthly payments of PAYE and National Insurance to the Inland Revenue electronically by April. There are new penalties for employers who fail to make their payments on time. Employers who are late with their payments more than twice during the year will face a surcharge based on the amounts payable for the whole year.
When practitioners and their clients are contracting work-in-progress, should this work now be valued at sales value, or at cost OR net realisable value (whichever is lower)?
This question is significant because any change could lead to profit recognition being speeded up and with that also a hastening of tax liabilities. Such a change would follow on the heels of the effect on professional practices of moving from the cash basis for tax in the period 1999 to 2001.
The rules are unfortunately not clear cut. The new FRS5 Application Note G would point to a sales value approach (especially paragraphs G6 and G7):
“Where a seller has partially performed its contractual obligations it recognises revenue to the extent that it has obtained the right to consideration through its performance. Revenue should be measured at the fair value of the right to the consideration… this will normally be the price specified in the contractual arrangement.”
On the other hand the SSAP9 standard still remains in place. SSAP9 requires long-term contracts to be recognised at sales values (i.e. including attributable profit), but if the contracts for services are deemed not to be long term then they should be stated at the lower of cost and net realisable value. Furthermore FRS5 (paragraph 13) does not apply where there is a more specific standard dealing with the question.
The position remains unclear on whether the cost basis of SSAP9 can still apply to short-term contracts for services or whether the new FRS5 Application Note G changes the treatment of short term contracts so that it is the same as for long term (i.e. it should be accounted for on a sales value basis, subject to the outcome of the work being reasonably certain and the profit prudently assessed).
This is a controversial matter and ACCA is aware that opinions differ. Interpretation and clarification may develop and so the above advice should be viewed as preliminary at this stage.
Even if a distinction remains between long term and short term in respect of revenue recognition, SSAP9 is not straightforward when it comes to the definition of a long term contract (Paragraph 22).
For example it states that while such a contract will usually extend for a period of more than one year:
“Some contracts with a shorter duration than one year should be accounted for as long-term contracts if they are sufficiently material to the activity of the period that not to record turnover and attributable profit would lead to a distortion of the period’s turnover and results such that the financial statements would not give a true and fair view…”
Businesses should review the categorisation of their contracts under SSAP9 is right.
However, this may only be a temporary situation. IAS18 will apply from 2005 to affected companies, and it is clear in requiring the sales value approach in these cases. For companies continuing to apply UK standards, the ASB is likely to replace SSAP9 with the international equivalents at some point (as they proposed in FRED28 in May 2002). What do I need to do now?
- advise clients who may be concerned of their position - many may have seen commentary in the press
- advise clients how any future change will impact on their business
- review billing arrangements to keep WIP low
- calculate the potential cashflow requirements for when SSAP9 is replaced
- look at the client’s software requirements and how it would cope with any change.
This information (and any updates) is available on ACCA UK’s website: http://uk.accaglobal.com/uk/members/technical/advisory/frs5.
I have read an article that suggested that certain types of businesses need to register with HM Customs and Excise. Is this true and if so who needs to?
If any of your clients fit one of the following categories, they will need to register with HM Customs and Excise by 1 April 2004:
- bureau de change, money transmitters and third party cheque cashers (known as Money Service Businesses or MSBs)
- businesses that deal in goods and accept (or are prepared to accept) in cash the equivalent of €15,000 or more (approximately £10,000) for any single transaction (known as High Value Dealers, or HVDs).
Further information can be viewed here: www.hmce.gov.uk/business/othertaxes/money-serv-bus.htm.
What are the implications of goods being acquired subject to a reservation of title clause?
This situation arises when goods supplied on terms that provide for the supplier to retain ownership in the goods, in general terms, until the debtor (buyer) pays them for. For accounting purposes, if the circumstances indicate that the reservation of title is regarded by the parties as having no practical relevance except in the event of the insolvency of the debtor, the goods should - notwithstanding the strict legal position - normally be treated as purchases in the accounts of the debtor and sales in the accounts of the creditor (supplier).
The debtor can use the goods in ordinary course of business, then sell them to their customer. If the debtor defaults on payment to their supplier, the supplier can seek recovery of the goods from the debtor. The following would normally facilitate the recovery of the goods by the supplier:
- goods being separately identifiable (e.g. in separate clearly labelled boxes, not part of a pile of goods indistinguishable from other suppliers’ goods)
- the goods have not been processed into work in process or finished goods
- the supplier has rights to enter the debtor’s premises to recover the goods (this clause is usually part of the agreed terms of sale in such circumstances).
The sale of goods subject to reservation of title as described above is to be distinguished from the supply of goods as consignment stock (e.g. on a sale or return basis). Goods supplied as consignment stocks are normally to be treated as stock in the hands of the supplier until disposed of by the consignee.
I have read that the definition for a small and medium size company has recently changed. Can I change my accounting period to take advantage of the new thresholds?
With effect from 30 March 2004 the definition of a small company for audit purposes will change to the following: turnover of £1m to £5.6m and a balance sheet total of £1.4m to £2.8m.
Statutory Instrument 2004/16 states at section 7 (3) that unless a company had changed its accounting period before 9 January 2004, then it could not take advantage of the revised thresholds when considering the audit threshold. For example, a company that was previously medium sized that therefore required an audit could not change its accounting period to take advantage of the extended small company threshold and therefore avoid the need for an audit.
However, section 7 (transitional provisions) only declares that this applies to companies that have changed from medium to small. If a company was small under the old regulations, and small under the new, they may change their accounting reference date to take advantage of the increased threshold. For example, a company that is small, with turnover of £2m, may change its accounting period to, say, 30 April to take advantage of the increased audit threshold of £5.6m turnover and therefore no longer require an audit.
Note, as stated above, this only applies to companies that were small before and after the change in the thresholds, but would have breached the audit threshold under the old regulations.
FAQs are compiled by the Technical Advisory Service.