Running a business involves navigating a number of potential pitfalls. From the work we are undertaking with our clients on their key risks, we have identified three threats which are particularly important in the current climate.
Corporate Criminal Offences
In 2017 new offences came into effect, which mean companies and partnerships can be found liable for failing to prevent the criminal facilitation of tax evasion.
These Corporate Criminal Offences (CCOs) apply to both onshore and offshore evasion and can affect businesses across all sectors and sizes – and we are now starting to see an increasing number of HMRC investigations taking place.
One of the key pillars of compliance under these rules is ongoing monitoring - regularly assessing the risks so that you can continue to demonstrate that reasonable procedures are in place to prevent tax evasion.
Having a third party review your risk assessment will not only provide reassurance that what you have done is reasonable, or advice on areas that should be improved, but it can provide insight as to how other businesses are responding.
HMRC has said that larger businesses that have not undertaken a CCO risk assessment and acted on it will be automatically scored as high risk in the governance element of their business risk review.
For further information on the Criminal Finances Act click here.
R&D Tax Credits
Small and medium-sized businesses can claim cash repayments of up to 33 per cent of their qualifying research and development (R&D) expenditure – but many fail to do so.
Part of this is down to a common misconception that R&D tax relief is limited to highly technical activity and the development of completely original products. The reality is that because the aim of the regime is to encourage innovation, it can also include:
- processes and systems to be used within a business, e.g. developing a bespoke trading platform or CRM system
- the effort of developing a process or product that already exists, but where the method of development is not readily available and where there is an element of technological uncertainty, e.g. the development of apps
- making improvements and/or enhancements to existing products or processes, where doing so involves technological uncertainty, e.g. making substantial improvements to a digital inventory system
- activities integral to the overall trade of a business which resolves technological uncertainty, e.g. a construction company investing in developing a method of making the erection of buildings more precise and efficient
For a comprehensive guide on how to claim R&D please click here.
Businesses also need to be ready for the change in lease accounting. IFRS 16 is an International Financial Reporting Standard that provides new guidance on accounting for leases and became effective on 1 January this year.
This complex change will impact on financial metrics for lessees – balance sheet assets and liabilities will both increase and the expense profile will change – potentially impacting key performance indicators and covenants unless ‘frozen’ Generally Accepted Accounting Principles (GAAP) clauses exist in financing arrangements.
Back office process changes will be required. Click here for further information on the impact of this change and the key points to consider.
For further information on CCOs and risk assessments please contact Andrew McKenna, Partner, Private Client Tax Services, Smith & Williamson LLP on 0121 710 5296 or email@example.com
For information on R&D tax breaks contact Matt Watts, Partner, Business Tax, Smith & Williamson LLP on 0121 710 5334 or firstname.lastname@example.org, or visit the Smith & Williamson R&D tax calculator https://smithandwilliamson.com/en/services/business-tax/tax-credits-and-reliefs/rd-tax-calculator/
For further information on IFRS 16 contact Stephen Drew, Partner, Assurance and Business Services, Smith & Williamson LLP on 0121 710 5324 or email@example.com or visit https://smithandwilliamson.com/en/insights/ifrs-16-all-change-for-lease-accounting-are-you-ready/
The word ‘partner’ is used to refer to a member of Smith & Williamson LLP.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
Notes to editors
Smith & Williamson is a leading financial and professional services firm providing a comprehensive range of investment management, tax, financial advisory and accountancy services to private clients and their business interests. The firm’s c1,800 people operate from a network of 12 offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton. Smith & Williamson is part of The Tilney Smith & Williamson Group.
Smith & Williamson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.