Key challenges for CAs in 2015
Reform has been the order of the day for many sectors and CAs find themselves having to address new circumstances, on a number of fronts.
This year looks set to be a challenging one for professionals keeping up with the pace of change.
The new version of UK GAAP takes effect for accounting periods starting from 1 January 2015. FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland was published by the Financial Reporting Council (FRC) in March 2013, so companies and advisers should have had time to prepare for it.
The new-style GAAP is based on IFRS for SMEs, the international standard for smaller businesses, but has been adapted for the UK's specific circumstances, drawing on some elements of IFRS and some from existing UK GAAP.
Meanwhile, the UK Government has announced its intention to transpose the European Union (EU) Accounting Directive into law by July 2015. This is likely to raise the turnover threshold defining a "small" company to £10.2m (from £6.5m) and the balance sheet total (fixed plus current assets) to £5.1m (from £3.26m). The Government estimates that 11,000 more companies will be brought into the small company accounting regime as a result.
Audit Market Reform
Measures to encourage more competition in the UK statutory audit take effect from 1 January. They are contained in an Order from the UK Competition and Markets Authority, which stipulates that FTSE 350 companies put their statutory audit engagement out to tender at least every 10 years and includes various measures to strengthen the accountability of the external auditor to a company's audit committee and reduce management influence.
Meanwhile, EU audit legislation came into force in June 2014. Among other provisions, the legislation imposes mandatory audit firm rotation as well as significant restrictions on non-audit services for Public Interest Entities (PIEs) across the EU. This legislation will take effect two years later in June 2016, and organisations falling into the PIE category will need to work out their strategy for compliance over the coming year. Audit firms will also be considering their own strategic response to the new constraints.
Pensions auto-enrolment kicks in for smaller companies in 2015. Those with between 30 and 49 members ("eligible job holders") will have staging dates between 1 August and 1 October 2015. Most companies with fewer than 30 members will come under the auto-enrolment scheme from 1 January 2016, so the vast majority of the UK's smaller employers will need to put their pensions arrangements in place during 2015, if they have not already done so.
For more information and to check staging dates see the Pensions Regulator website.
As usual, a number of income tax changes take effect from 5 April. The personal allowance goes up from £10,000 to £10,600 (£100 more than stated in the 2014 Budget). The higher rate tax band will be raised to £42,385.
As from December 2014, a surviving spouse will be able to inherit the ISA (individual savings account) of a deceased husband or wife tax-free.
In 2016 the Scottish Rate of Income Tax, under the Scotland Act 2012, will be introduced. This will require employers to identify which of their employers is a Scottish resident taxpayer, to be identified with an "S" code. Note that residence, not place of work, is the key issue, and also that the question is customary residence ("where your home base is") and not simply the number of days spent in a given location.
The Smith Commission proposals suggest a much more sweeping devolution of income tax to the Scottish Government. Whatever happens, 2015 will require work on the part of employers and advisers to prepare for the changes.
Morag Watson, partner with Scott-Moncrieff, comments: "The publication of the Smith Report has started a seismic shift in the tax regime in Scotland, but we don't know yet in which direction. The chief concern at the moment is whether Revenue Scotland is geared up to cope with sweeping change… it's difficult to see where we will be in six months, but one thing is guaranteed, 2015 will be a pivotal tax year in Scotland."
April 2015 sees the introduction of Scotland's first major devolved tax, land and buildings transaction tax (LBTT), which will replace stamp duty land tax (SDLT). LBTT was designed as a progressive tax in contrast to the "slab" format of stamp duty, and has been structured so that the majority of residential properties will incur less tax when they are sold.
The new tax does hit middle to high value properties more heavily, however. The contrast between LBTT and SDLT is even more marked now, following the surprise reform of SDLT announced in last month's Autumn Statement. This introduced a progressive system similar to the Scottish system, but the point at which properties incur a higher tax liability is much higher than under LBTT. As the new SDLT took effect as from early December, while LBTT has yet to come into force, the incentive to push through the sale of higher value properties in Scotland is now very strong, and a busy property market is expected for the first quarter of 2015.
The "high street discount" for around 300,000 shops, pubs, cafes and restaurants will go up from £1,000 to £1,500, from April 2015 to March 2016.
This is in addition to doubling Small Business Rate Relief for a further year, which means 380,000 of the smallest businesses will pay no rates at all.
The Government will also continue to cap the annual increase in business rates at 2 per cent from April 2015 to March 2016. Transitional arrangements will be extended for smaller properties that would otherwise face significant bill increases due to the ending of transitional rate relief.
The package of recommendations from the Graham Review into insolvency "pre-packs" comes into effect from March 2015. The reforms, which include the creation of a pool of experts to scrutinise pre-pack deals in confidence, will operate on a "comply or explain" basis.
In Scotland, the Bankruptcy and Debt Advice Scotland Bill received Royal Assent on 29 April 2014 and is now the Bankruptcy and Debt Advice (Scotland) Act 2014 ("BADAS"). The legislation will come into force on 1 April 2015, and will introduce significant changes for personal insolvency in Scotland including the requirement for debtors to receive financial advice before they are able to enter a sequestration scheme.
May 2015, of course, sees a UK general election with the possibility of a change in administration that could affect all of the above. With UKIP in England – and the SNP in Scotland – making major inroads into the voter base of the established parties, this election is perhaps one of the hardest to predict and a number of business decisions may be on hold until the outcome is clear.