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Here you will find a range of the latest news articles from around the accounting and finance world. These news articles will offer a range of opinions on current key accounting, auditing, business and finance topics.

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August 2022

The Financial Reporting Council’s 4th annual enforcement review reveals a record number of cases resolved in the past year and record financial sanctions of £46.5 million imposed.

KPMG was reprimanded four times and fined £10m before discounts for its co-operation. Grant Thornton was fined three times, PwC was penalised twice, with EY and Deloitte fined once each.

The increase in the total financial sanctions, up from £16.5m in 2020/21, reflects the seriousness and high number of cases concluded. It also reflects the FRC’s growing capability to take on the large and complex cases that are an increasingly prominent feature of its work, supported by a 23% growth in the Enforcement Division’s headcount.

The report also reveals that the increased focus on non-financial sanctions has continued. Non-financial sanctions, which are carefully tailored to the facts of each case, are becoming increasingly sophisticated, with a focus on tackling the underlying causes of failure in order to reduce the risk of recurrence. The report emphasises the critical importance of detailed follow-up reporting so that the effectiveness of such sanctions can be closely monitored.

For the vast majority of concluded cases, a lack of audit evidence and a lack of professional scepticism featured – both of which go to the heart of robust audit.

August 2022

HMRC’s latest performance data, for the period April to June 2022, shows that its performance has still not returned to pre-pandemic levels.

The tax authority’s monthly and quarterly performance reports show that:

  • Average call waiting time increased from about 15 minutes in March to 19 minutes in April before improving to 13 minutes in June. Before the Covid-19 pandemic, the target was five minutes.
  • Percentage of people waiting more than 10 minutes remained at around 60% across the quarter. The pre-pandemic target was 15%.
  • When it came to calls answered, 71% of calls were answered in March, falling to 66% in April. It improved in June to 79%.
  • The percentage of correspondence answered  around within 15 working days has declined each month and was 59% in June. It was 65% in March.
  • After peaking at £72bn in 2020, HMRC’s debt balance reached its lowest point since the start of the pandemic in January 2022 at £38.8bn. Since then, it has grown to just over £42bn at the end of June 2022. HMRC is forecasting that, given the current economic conditions, the debt balance will remain broadly static through 2022/23.

HMRC said: “We have made progress towards the levels of customer service performance we would expect to achieve. We began the new financial year in a better position than in 2021 to 2022, but some of our customer service levels still aren’t where we want them to be and we’re sorry to customers and agents who have been affected.

“We expect to see continuing pressure on our services for some time, but we’re maintaining service levels across most areas of our business and we’re focussed on continuing to deliver improvements for our customers in the remaining quarters of the year.”

HMRC helpline opening hours continue to be significantly shorter than before the pandemic.

August 2022

One in six university students in the UK have admitted they have cheated while taking online exams in the past year, according to a poll by law group Alpha Academic Appeals.

The survey of 900 undergraduates found that around 16% of students broke the rules. Of those students who admitted to cheating just 5% were caught by their institutions.

Alpha found that more than half of students (52%) knew people who had cheated in online assessments.

Despite the end of Covid-19 restrictions, most universities continued with online assessments this summer instead of traditional in-person exams. Some 79% of students in the survey believed that it was easier to cheat in online exams than in exam halls.

The reported methods of cheating were not sophisticated, showing the ease with which cheating occurs in remote assessments. Common methods included calling or messaging friends for help during the exam, using Google to search for answers on a separate device, or asking parents to read through answers prior to submission.

August 2022

More than 16,000 companies that took out bounce back loans to help them through the pandemic have gone bust, without paying the money back.

A BBC investigation also found that hundreds of company directors who got loans they were not entitled to have also been disqualified.

The cost to the taxpayer of these insolvencies could be as much as £500m, and is likely to grow as more companies go under.

The figures, obtained under a Freedom of Information request, have been described as “shocking” by a former head of the Serious Fraud Office. Sir David Green QC called checks the government required banks to do on bounce back loan applicants “hopelessly inadequate”, the BBC reported.

Banks issued around 1.5 million loans worth £47bn, which were supposed to be paid back within 10 years.

Under the scheme any small company could apply for a loan of up to £50,000 depending on its turnover. Applicants were allowed to “self-certify” the figures.

“You wouldn’t send an army into battle without assessing the risks. And just the same in this situation, the risks, which were obvious, should have been assessed and addressed,” said Sir David, who is now chairman of the Fraud Advisory Panel, told the BBC. He added that bounce back loans must be recovered wherever possible.

The government has said it will “not tolerate” people defrauding taxpayers.

The government has instructed the National Investigation Service (Natis) to look into the scheme. The latest figures show Natis, which has a £6m budget, made 49 arrests and recovered just £4.1m. It has identified 673 suspects of whom 559 used the bounce back loan scheme.

August 2022

Importers must switch to new customs system, says HMRC

More than 3,500 businesses risk significant delays to importing goods if they don’t move to the new Customs Declaration Service for import declarations by 1 October 2022.

HMRC is also warning importers that the Customs Handling Import and Export Freight (CHIEF) system will close for import declarations on that date.

HMRC said: “Businesses should check that their customs agents are ready to use the Customs Declaration Service. Those without a customs agent must set themselves up to make their own declarations using software that works with the system.

“Many businesses are already using the Customs Declaration Service, however around 3,500 businesses are yet to move. It can take several weeks to be fully set-up on the Customs Declaration Service so those waiting to register risk being unable to import goods to the UK from 1 October.”

HMRC is contacting affected businesses by phone and email to inform them of the steps they need to take. Further information is available on GOV.UK, including a Customs Declaration Service toolkit and checklists, which outlines the steps traders need to take.

Traders can also register or check they have access to the Customs Declaration Service on GOV.UK and access live customer support services for additional help.

CHIEF will close for export declarations on 31 March 2023, with businesses being required to use the Customs Declaration Service to send goods out of the UK.

August 2022

The Financial Reporting Council (FRC) resolved a record number of cases in the past year, dishing out record fines of £46.5 million.

The FRC’s 4th annual enforcement review explains that KPMG was reprimanded four times and fined £10m before discounts for its co-operation. Grant Thornton was fined three times, PwC was penalised twice, with EY and Deloitte fined once each.

The increase in the total financial sanctions, up from £16.5m in 2020/21, reflects the seriousness and high number of cases resolved. It also reflects the FRC’s growing willingness to take on large and complex cases that are an increasingly prominent feature of its work, supported by a 23% growth in the Enforcement Division’s headcount.

The report also reveals that the increased focus on non-financial sanctions has continued. Non-financial sanctions, which are carefully tailored to the facts of each case, are becoming increasingly sophisticated with a focus on tackling the underlying causes of failure in order to reduce the risk of recurrence. The report emphasises the critical importance of detailed follow-up reporting so that the effectiveness of such sanctions can be closely monitored.

For the vast majority of concluded cases, a lack of audit evidence and a lack of professional scepticism featured – both of which go to the heart of robust audit.

The FRC continues to encourage and incentivise full and frank co-operation. While progress in this area has been slower than hoped, there have been some positive changes, including through self-reporting, comprehensive admissions and proactive steps to address the causes of matters self-reported.

August 2022

The Organisation for Economic Development (OECD) is to delay implementation of ‘Pillar 1’ of its proposed framework, which aims to address taxation of the global digital economy.

Eloise Walker, corporate tax expert at Pinsent Masons, described the decision to delay the planned reforms by 12 months to 2024 as “unsurprising and predictable”.

She said: “Securing international agreement on Pillar 1 has been seen as challenging for some time now, so it is unsurprising and, in many ways, predictable that the OECD has announced that implementation is being delayed 12 months.

“From a UK perspective, the UK government has previously expressed its desire for Pillar 1 to be implemented to help resolve longstanding concerns that the international corporate tax system has not kept up-to-date with the digitalisation of the economy and how digital businesses generate value and profits from online users. Therefore, it is unlikely that a new UK government will have a differing approach,” she said.

“However, wider implementation is dependent on international agreement, which is difficult given political challenges in securing agreement, particularly from the US. Some aspects of Pillar 1 are likely to be implemented in some form eventually, although the implementation plan may end up being pushed back further and the finer detail of the proposals may well shift,” she said.

The Pillar 1 proposals, which focuses on where large global businesses are required to pay corporate taxes, were agreed by 136 countries in October 2021.

Walker explained: “Pillar 1 involves a partial reallocation of taxing rights over the profits of the largest and most profitable multinational businesses to the jurisdictions where consumers, rather than the businesses, are located. It is currently envisaged that multinational businesses with global turnover above €20 billion will be subject to tax on a proportion of their profits in the countries where they operate.

“Pillar 2 of the framework will introduce a global 15% minimum corporate tax rate. Under those initiative, large multinational enterprises will pay a minimum 15% tax on profits in each country where they operate.

“The OECD’s framework will operate on a country-by-country basis.”

July 2022

The number of UK business becoming insolvent has leapt by 70% in the past 12 months, from 11,261 to 19,191, research from Mazars has found.

The accountancy and advisory giant said a major factor in the increase was due to the highest interest rates in 13 years, which have made businesses’ debts more expensive. Interest rates rose for the fifth consecutive time in June.

Mazars’s report also found that businesses are finding it increasingly difficult to refinance their debts at a competitive rate, while inflationary pressures are increasing operating costs.

One sector particularly badly hit is construction, which has seen 3,611 insolvencies in the past year, up 112% from 1,705 the year.

Rebecca Dacre, a Partner at Mazars, said “Businesses are fighting a losing battle against rising costs – with the added worry of falling consumer spending. With energy prices rising, businesses are being forced to increase their prices despite consumers feeling the pinch. Many businesses that were already struggling are now facing a real crisis.

“Price pressures are becoming more embedded as interest rates rise and the economy contracts. Whilst easing slightly from the peak in March, the latest insolvency figures will still cast greater uncertainty over businesses that are already facing a grim outlook.”

She added: “The financial support that the Government provided during the pandemic has been withdrawn, and the UK economy appears to be seeing some of the post-Covid wave of insolvencies that were feared. Sadly, the dismal outlook means more pain for businesses is likely.”

July 2022

The £4.5bn Recovery Loan Scheme, offering a government guarantee for small businesses looking to raise finance, has been extended for another two years.

The government will underwrite 70% of the loan in the event of default, with the maximum loan size remaining at £2m. However, lenders may now require a personal guarantee from the borrower.

The Recovery Loan Scheme was launched in April 2021 to help companies struggling with the impact of Covid-19. It has supported almost 19,000 businesses, with the average loan being £202,000.

Business secretary Kwasi Kwarteng said: “Small businesses are the lifeblood of the British economy, which is why we are determined to support our traders and entrepreneurs in dealing with worldwide inflationary pressures.

“The extension of the Recovery Loan Scheme will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.”

Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said: “After two years of pandemic disruption and with a faltering global economy, the BCC has been calling for this continued financial support for firms. The two-year extension to the Recovery Loan Scheme will be a lifeline for many businesses facing a rising tide of costs.

“It is now essential that businesses in need of this extra support can access the scheme as quickly as possible to make sure they get help before it’s too late.”

However, Gregory Taylor, MHA head of banking and finance, said the extension did not go far enough to helping SMEs. “Requiring a personal guarantee from the borrower de-risks the government’s own 70% guarantee and puts the risk back on business owners” he said.

The minimum funding is £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts. The lender will carry out credit checks and fraud checks before granting the finance.

The annual interest rate and other fees cannot be more than 14.99%.

The British Business Bank (BBB) has named the accredited lenders, who are:

  • Term loans – Aldermore, Arbuthnot Latham, Bank of Scotland, Barclays, Clydesdale Bank, Danske Bank, HSBC UK, Lloyds Bank, Natwest, OakNorth Bank, Paragon, Santander, SecureTrust, Skipton Business Finance, RBS, Ulster Bank and Yorkshire Bank.
  • Invoice Finance – HSBC UK, Skipton Business Finance.
  • Asset Finance – Aldermore, Paragon.
  • Revolving credit (overdrafts) – Arbuthnot Latham, Ebury.

Those wanting to access the scheme should apply directly to the lender.

July 2022

The UK is missing out on a total of £2.7bn in underpaid VAT, according to new study by Thomson Reuters.

HMRC believes 208 of the UK’s 2,000 largest businesses have underpaid VAT by an average of £13.4m each, the study said. The £13.4m figure relates to “tax under consideration”, which is an estimate of the amount of VAT the taxman believes has gone unpaid, prior to full tax investigations being completed.

The study also said that businesses should expect HMRC to increase the number of tax investigations after the authority received an additional £292m to tackle underpayment of tax in last year’s Autumn Budget.

“The government has beefed up HMRC’s tax compliance capabilities and will be expecting results. Large corporates, which HMRC views as underpaying VAT, are likely to be a high priority target for investigation,” said Jas Sandhu Dade, head of corporates Europe at Thomson Reuters.

July 2022

The UK’s small companies are struggling to fill vacancies, according to the latest Small Business Index from Xero.

May’s Index was unchanged in May at 86 points, with stronger sales and wage rises being offset by the number of job vacancies – the figures show that the number of people employed by small firms fell by 5% year-on-year in May. There are now 11.1% fewer jobs in the small business sector than there were in February 2020, before the pandemic began.

The good news is that sales are stronger, up 14.3% increase year-on-year, and the last 12 months has seen a record rise in wages among small firms (up 5% on May 2021). However, they appear to be struggling to compete with big business when it comes to salaries, perks and job security.

However, late payments to small businesses also increased in May, with the average time to pay rising by 1.1 days to 30.6 days. On average, payments were late by 8.8 days beyond the agreed terms.

Small businesses in the construction and manufacturing industries saw the biggest drop in employee numbers, falling 10.8% and 10% respectively. Xero’s report said: “As construction and manufacturing make up 7.2% and 9% of total employment in small firms, an inability to fill vacancies in these sectors will have severe implications for the rest of the economy.”

Retail was only sector to record negative sales growth (-1.3%), the second consecutive month that retail sales have fallen.

Alex von Schirmeister, Managing Director UK & EMEA at Xero, said: “Small firms are facing a major talent crisis. They are having to offer some of the highest wages in recent memory to compete for staff, which is just piling more pressure on them with other rising costs. That’s troubling in sectors such as manufacturing and construction that are inherently linked to other industries, like retail.”

“The government must do more to help in areas like late payments. When big businesses hold on to unapproved debt, it chokes small firms’ cash flow so they can’t compete for workers. We need to incentivise early payments and penalise late payers, and expose the repeat offenders.”

  • The Xero Small Business Insights programme looks at the sector’s health, drawning on data collected from hundreds of thousands of subscribers. It releases a monthly index, as well as reports and multimedia about the small business economy.

July 2022

The UK’s Financial Reporting Council (FRC) has published comprehensive professional guidance for auditors, in the hope that it will improve how they exercise their judgement.

The FRC’s Mark Babington said:Professional judgement is a fundamental requirement for high quality audit. Unfortunately, the FRC’s supervision and enforcement work regularly finds professional judgement has not been exercised effectively and consistently, undermining audit quality and trust in audited accounts.”

The new guidance, which is the first of its kind by a regulator, sets out a clear framework for how auditors should exercise professional judgement to enhance audit quality.

Check out the full report.

July 2022

Use of technology by small and medium businesses (SMEs) contributes £216 billion to the UK economy.

However, new research from Sage says if these SMEs unlock the full benefits of technology it could add an extra £232 billion, boosting the value of tech use to the UK economy by almost double to £448 billion annually.

The new ‘Digital Britain: How Small Businesses are turning the tide on tech’ report found that 92% of firms see technology as critical to their survival, but are worried about the lack of capital, knowing where to invest and not having the right policy framework to enable growth.

Accessing and understanding commercial data is going to be a big opportunity to drive performance, but just a quarter of SMEs have adopted technology to collect and analyse this data.

Sage is calling on big tech companies and the government to adopt a pro-tech, pro-enterprise approach and deliver improved financial incentives to encourage greater investment in productivity-enhancing technologies, more data sharing so SMEs can innovate and adequate futureproofing of digital infrastructure.

For more information click here.

July 2022

Businesses that manufacture or import plastic packaging into the UK may have to submit a plastic packaging tax (PPT) return by 29 July 2022.

The UK’s (PPT) took effect from 1 April 2022:

  • The first PPT return will cover the period from the date the business became liable to register for the tax to 30 June 2022.
  • The return will become available to submit on the government gateway from 1 July 2022.
  • The deadline for completion of the return, and payment of any PPT due, is 29 July 2022.

Although PPT is only payable on plastic packaging components that contain less than 30% recycled plastic, a business will still be required to register for PPT if it:

  • expects to import into the UK or manufacture in the UK 10 tonnes or more of finished plastic packaging components in the next 30 days; or
  • has imported into the UK or manufactured in the UK 10 tonnes or more of finished plastic packaging components since 1 April 2022.

Businesses must register within 30 days of triggering the registration requirement.

Groups of companies can register and submit PPT returns as a group by appointing a UK-established representative member. It is important to note that each company in the group must individually trigger PPT registration requirements.

Once registered, businesses or groups can submit their PPT returns through the government gateway.

To complete the return, a business liable to PPT will need records to show the total weight (in kilograms) of any finished plastic packaging components that, in the period, it:

  • manufactured in the UK;
  • imported into the UK;
  • directly exported or that it expects to directly export in the next 12 months (to cancel or defer a liability);
  • manufactured or imported for use in the immediate packaging of licensed human medicines, that were not and will not be directly exported (to claim an exemption); and
  • manufactured or imported that contained at least 30% recycled plastic content, that will not be directly exported (to claim an exemption).

Businesses can also claim credit for PPT paid in a previous accounting period that another business in the supply chain has later converted or exported, although not on its first return.

Failure to comply with the requirements of PPT – including failure to register, file or pay a return – could lead to a fixed penalty of £500, with an additional daily penalty of £40 for each day the business continues to fail to comply.

July 2022

HMRC has estimated that the tax gap for the 2020 to 2021 tax year is £32bn, or 5.1% – the second lowest recorded percentage and unchanged from the previous year.

The annual Measuring Tax Gaps publication estimates the difference between the total amount of tax expected to be paid and the total amount of tax actually paid during the financial year.

In monetary terms, the tax gap for the 2020 to 2021 tax year is £32bn. At 5.1%, there has been no change in the percentage tax gap compared to the previous year, although the monetary value has fallen by £2bn from £34bn in the 2019 to 2020 tax year.

The total tax due to be paid fell from £672bn in 2019 to 2020 to £635bn in 2020 to 2021 due to the economic impact of the pandemic.

HMRC said: “The estimate for the 2020 to 2021 tax gap is the best assessment based on the evidence available at this time. There is some uncertainty for the tax gap estimates for the first year of the pandemic and estimates could be subject to revisions in future years.

“HMRC has published tax gap estimates since the 2005 to 2006 tax year. There has been a long-term reduction in the overall tax gap from 7.5% in 2005 to 2006, to 5.1% in the 2020 to 2021 tax year. The reduction is a result of the government’s action to help taxpayers get their tax right first time, whilst bearing down on the small minority who are deliberately non-compliant.”

Further findings for the 2020 to 2021 tax gap publication show:

  • the tax gap for Income Tax, National Insurance contributions and Capital Gains Tax is 3.5% (£12.7 billion), representing 39.5% of the total tax gap by type of tax.
  • the VAT gap shows a strong downward trend falling from 14.1% in 2005 to 2006 to 7.0% in 2020 to 2021.
  • the Corporation Tax gap reduced from 11.5% in 2005 to 2006, to 9.2% in 2020 to 2021, reaching a low of 6.5% in 2011 to 2012, remaining broadly stable since 2014 to 2015.
  • at 48% (£15.6 billion), small businesses represent the largest proportion of the tax gap by customer group, followed by criminals at 16% (£5.2 billion).
  • individuals account for 8% (£2.5 billion) of the overall tax gap and, at 5% (£1.5 billion), wealthy individuals have the smallest tax gap by customer group.
  • failure to take reasonable care (19%), criminal attacks (16%), non-payment (15%) and evasion (15%) are the main reasons for the tax gap by behaviour.

The tax authority said: “HMRC publishes the tax gap because it believes it is important to be transparent in its work. The data helps build trust in HMRC’s ability to support taxpayers in meeting their obligations and pay the tax they owe. It also helps inform the future work and priorities for HMRC, and where it can make the greater difference for taxpayers.”

July 2022

HMRC has contacted more than 220,000 VAT-registered businesses to encourage them to migrate to the UK’s new streamlined customs IT platform, if they’re not already using it.

After 30 September this year, businesses must use the Customs Declaration Service to make import declarations if they want to continue to import goods.

The Customs Declaration Service has been running since 2018 and should now be used for making import declarations when moving goods into the UK, HMRC said. The service will replace the old Customs Handling Import and Export Freight (CHIEF), representing a significant upgrade by providing businesses with a more user-friendly, streamlined system that offers greater functionality.

HMRC said: “This marks the first step towards the government’s vision of a Single Trade Window, which will have considerable benefits for businesses through reduced form-filling, better data use across government and a smoother experience for users.

“Businesses with a customs agent must make sure they are ready to make their import declarations on the Customs Declaration Service by 30 September. Those without a customs agent must set themselves up to make their own declarations using software that works with the system before the 30 September deadline.

“Lots of businesses use a customs agent to make declarations on their behalf. If businesses want to hire one, they can find a list of customs agents on GOV.UK. This list is regularly updated to show which agents are ready to use the Customs Declaration Service.”

Larger businesses, such as freight forwarders and hauliers, must start working with their software developer, community service provider or agent to begin the migration process now, the Revenue said.

Postal operators, such as Royal Mail, will continue to make customs declarations on behalf of UK small businesses who receive goods from abroad by post, and inform them of any tax or duty owed.

To help all businesses and agents prepare for the Customs Declaration Service, more information is available on GOV.UK, including a Customs Declaration Service toolkit and checklists, which break down the steps traders need to take. Traders can also register or check they have access to the Customs Declaration Service on GOV.UK and access live customer support services for additional help.

There is more information about using the Customs Declaration Service on GOV.UK.

July 2022

A whopping 70% of accountants and lawyers are ‘more concerned’ about money laundering since Russia invaded Ukraine in February, according to a new survey.

The war, and subsequent sanctions against Russia, has prompted 75% of companies to move anti-money laundering (AML) up the company agenda.

Despite 53% of respondents having identified an instance of suspected money laundering in the past three years (with 24% identifying more than one) only 45% are confident in their AML procedures. Alongside this, a staggering 91% think companies need to embrace online technologies to aid compliance with AML regulations. Likewise, 87% respondents are putting more rigid policies in place to be compliant and meet AML regulations.

The core reason for money laundering rising up company agendas is a focus on customer transparency and ethical customer onboarding (68%). This was closely followed by external risks (50%), such as the situation in Russia and people traffickers, and increased risks of fines (46%). Worryingly, 76% of respondents believe the threat will continue to get worse over the next three years.

To deal with the growing threat of money laundering, 80% of respondents reported that they are turning to technology to become more compliant, while 53% said they were turning to outsourcing services and 28% turning to hiring.

Simon Luke, UK Country Manager, said: “Even before the Ukrainian conflict and Russian sanctions, the UK has been recognised as a hub for Russian money-laundering. Accountants and lawyers need quick, easy and accurate ways to onboard customers and complete financial transactions without fear.”

When asked what the main causes for concern were, the growth in online transactions (38%) was the most common answer. This was followed by the growth of unethical business practices (23%) and the Russian situation (18%).

  • The poll was conducted on behalf of First AML, which surveyed 200 accountants and lawyers in the UK to discover attitudes toward current compliance and AML procedures.