Big care home compliance changes – are you ready?

Big care home compliance changes – are you ready?

Big care home compliance changes 

As part of the revised compliance standards to be implemented by Care Quality Commission (CQC) it is vital for home operators to be aware of the financial aspects that the changes in legislation mean for them. From 1 April 2015, CQC will be recognised as the financial regulator for the sector, meaning it will now have the power to enquire in to operators’ financial information.

The forthcoming changes are some of the biggest the sector has seen and, as expected, largely revolve around the delivery of care and the safety of the service users. However, the implementation of financial compliance reviews will now form part of the inspection process.

This briefing will talk about the financial aspects of the upcoming compliance changes, including what has prompted the changes, what you can expect from the new standards and in what ways your home can manage the additional regulations, ensuring compliance is maintained.

Why the changes?

Following a number of recent failures there were recommendations that the Government should do more to monitor the finances of care home operators in the UK. As such, the Government has reviewed the current mechanisms in the UK care sector and, following a public consultation, the current legislation as defined in Outcome 26 is not considered to be sufficient. This has led to the implementation of Priority 3: Approach to monitoring the finances of some providers, which comes into effect on 1 April 2015.

The failure of Southern Cross in 2011 is undoubtedly a key reason that the Government and regulator are taking this pro-active approach to monitoring the financial fundamentals of some operators and linking this with being able to deliver quality care and to protect the service’s users.

Darlington-based Southern Cross, the largest provider of care in the UK, equating to 9% of market share, collapsed in 2011 in the backdrop of the financial crisis. The care group took considerable financial risks, coupled with the financial recession, which consequently led to its closure.

The standard pre April 2015

Outcome 26 requires the service provider to take all reasonable steps to carry on the regulated activity in such a manner, to ensure the financial viability of the carrying on of the activity. The legislation goes on to ‘prompt’ providers to consider:

Does the provider have the necessary financial resources?

Does the provider have the necessary insurance and indemnities?

More importantly, this is NOT one of the Core 16 Quality and Safety Standards

What are the changes?

chnage ahead

Priority 3: Approach to monitoring the finances of some providers comes into effect for all CQC regulated care providers from 1 April 2015 and will see ‘some’ providers financially monitored.

Some providers is not defined, but larger providers will almost certainly be monitored. Smaller providers, depending on local or regional concentration and specialism of services, may also be monitored. For providers operating in specialist care or rural areas, who would be difficult to replace, the chances of your home being on the financial compliance radar of CQC are almost certainly increased.

The new legislation has two key objectives:

  • To clarify duties on local authorities, ensuring continuity of care if the provider fails. Failed homes will be then managed by the local authority to protect the service users. Currently there are around 40 homes managed by local authorities.
  • To establish CQC as the financial regulator of the sector; with the power to regulate the financial aspects of providers as well as the care aspects.

From April 2015 CQC will:

  • Require regular financial and relevant performance information from some providers.
  • Provider early warning of a provider’s failure, to “ensure a sustainability plan can be implemented to manage and reduce the risks of failure.”
  • Seek to ensure managed and orderly closure of failed homes.

CQC are likely to carry our financial checks on 50-60 providers, based on size, local or regional concentration or specialism of services; typically providers who are difficult to replace if they fail will be targeted.

So what can you do to manage the changes?

It is important for providers to review the financial processors of their business to ensure they remain compliant under the new legislation; this pro-active approach should also assist with improving profitability – something which has been difficult in recent years with on-going funding pressures.

As a minimum, we would suggest that all providers should undertake and adhere to the following:

  • Keep your accounting records up to date.
  • Implement a financial reporting timetable and framework. Agree a weekly/monthly review of financials and stick to them!
  • Prepare annual budgets and review against management accounts to continually assess performance, which could an provide early warning sign of difficulties and changes.
  • Monitor your risks to financial sustainability, including a review fixed costs vs. variable costs and a consideration of how quickly you can adapt to changes in operating levels e.g. occupancy levels, staffing levels etc.

Money Jar

How can we help?

At Hawsons our dedicated team of specialist accountants and tax advisors offer a wealth of experience in the care sector, including residential homes, nursing homes and other specialist care services.

We can provide you with

Pro-active financial advice, including:

  • Interim management accounts
  • A review of your financial reporting system
  • Year end statutory accounts and tax planning strategies
  • Budgets and forecasts to support on-going financial performance evaluation or to service existing or additional finance requirements
  • Performance benchmarking looking at how your home compares to other local homes and competitors

More from our care sector experts

You can also find all of our latest care sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]

What Budget 2015 means for pensions

What Budget 2015 means for pensions

What Budget 2015 means for pensions

After the revolutionary pension reforms and new flexibilities that came from the 2014 Budget, this year, in comparison, announced only minor changes. The further changes to pensions that the Chancellor introduced in the 2015 Budget included plans for a secondary annuities market and a hefty 20% cut to the lifetime allowance.

What will the changes mean for you?

Over 50% would consider selling their annuity! But is it good value?

Chancellor George Osborne said in his speech “For many, an annuity is the right product, but for some it makes sense to access their annuity now. So we’re changing the law to make that possible.”

The consultation to lay the groundwork for a secondary market for annuities, announced in the 2015 Budget, will allow 5 million savers to trade their future annuity income in exchange for an immediate lump sum.

A survey of 1,000 retired and non-retired respondents by adviser Portal Financial, which took place in March, revealed that over 50% of savers would consider selling their annuity. Of those, over half would do so because their annuity was too small, while nearly a quarter would want to use the lump sum for a significant purchase.

“So can I buy my Lamborghini?”

It is important to note, however, that although this allows for greater flexibility, there are significant risks involved and many savers may suffer.

What does the cut to lifetime allowance really mean for me?

The Chancellor also announced a 20% cut to the lifetime allowance (LTA) for pension savings, reducing from £1.25m to £1m. This is the third time that the allowance has been cut since 2006, when it stood at £1.8m.

Budget documents said: “Over 96% of individuals currently approaching retirement have a pension pot worth less than £1m, so this change will affect only the wealthiest pension savers.”

The impact of the announcement is likely to vary across defined benefit (DB) and defined contributions (DC) savings.  Is there now a mismatch in the way they are valued?  The impact is likely to hurt DC savers disproportionately compared to those benefiting from DB schemes.  Many public sector workers, such as doctors, dentist and civil servants could be affected by the cut.

To help protect savings from inflation the Chancellor also announced that, from 2018, the £1m allowance will be indexed in line with the consumer price index (CPI) for the first time, “to ensure those building up their pension pots are protected from inflation.”

The commitment to index-link the LTA to the CPI from 2018 is a positive step.

Conclusion

The 2015 changes represent the biggest shake up to UK pensions ever and reflect the Government’s vision for a more flexible regime; giving more choice, control and responsibility over how you can access your pension savings.

The further changes to pensions that the Chancellor introduced in the 2015 Budget were only minor in comparison to the big pension reforms, in which we held seminars on in March, and that come into force in April 2015. The announcements included plans for a secondary annuities market and a hefty 20% cut to the lifetime allowance.

For more details on anything covered in this piece, or a recap of our recent pension seminars, please contact me using the information below. We will only be too pleased to help.

Free initial meeting

Natasha Fathers, Director of HWM

Natasha Fathers

Director of Hawsons Wealth Management Limited, Sheffield

0114 229 6557
Reducing the cost of buying a home – SDLT reform

Reducing the cost of buying a home – SDLT reform

Reducing the cost of buying a home – SDLT reform

One of the welcome announcements in the Autumn Statement included the immediate reform of Stamp Duty Land Tax (SDLT) on the purchase of residential property.

Until this announcement SDLT was charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. This created a distortion as the tax due jumped at set thresholds and deterred potential purchasers. For example a house with a value of £255,000 attracted a charge of £7,650 as it was subject to the 3% rate yet if sold for £250,000 (or less) only a 1% charge applied reducing the cost to £2,500.

For contracts which complete on or after 4 December 2014 SDLT will be payable at each rate on the portion of the purchase price which falls within each band, rather than at a single rate on the whole transaction value as follows:

Price of residential property Rate
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,001 and above 12%

The effect of the changes means that all purchasers of residential property valued at less than £937,500 will pay less tax than they would have paid under the old rules.

For example using the property above valued at £255,000. The SDLT will now be £2,750. This is calculated as 0% on £125,000, then 2% on the next £125,000 and 5% on the final £5,000. This is a saving of £4,900!

The measures will only apply in Scotland until 1 April 2015 when the new land and buildings transaction tax (LBTT) takes effect. This will also operate on a progressive basis with LBTT payable at each rate on the portion of the purchase price which falls within each band. The price at which SDLT and LBTT produce the same liability on a residential purchase is set to be £333,000. Prices below this will produce a saving under LBTT.

More from our property experts

You can find all of our latest property and construction sector news here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

Budget 2015 and Tax Rates 2015/16 Booklets

Budget 2015 and Tax Rates 2015/16 Booklets

Budget 2015 Summary

George Osborne presented the final Budget of this Parliament on Wednesday 18 March 2015.

In his speech the Chancellor reported ‘on a Britain that is growing, creating jobs and paying its way’.

Towards the end of 2014 the government issued many proposed clauses of Finance Bill 2015 together with updates on consultations. Due to the dissolution of Parliament on 30 March some measures will be legislated for in the week commencing 23 March, whilst others will be enacted by a Finance Bill in the next Parliament (depending on the result of the General Election).

The Budget proposes further measures, some of which may only come to fruition if the Conservative Party is in power in the next Parliament.

Our summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was announced we have included our own comments.

Tax Rates 2015/16

Many of the tax rates and allowances are fundamental to our business and personal lives and the main ones are summarised here. We are sure that you will find it a useful point of reference throughout the coming tax year.

The Budget 2015

Tax Rates 2015-16

For more information, or to receive a hard copy of either Budget 2015 or Tax Rates 2015/16, please contact your local tax specialist.

Stephen Charles

Partner, Sheffield

0114 266 7141

[email protected]

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Martin Wilmott

Partner, Doncaster

01302 367 262

[email protected]

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David Cairns

Partner, Northampton

01604 645 600

[email protected]

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Up front tax savings on incorporating a business removed

Up front tax savings on incorporating a business removed

Up front tax savings on incorporating a business removed

Owner managers have increasingly chosen to operate their businesses through the company medium in recent years as some regulation has reduced for the smaller company and because it is more conducive to minimising personal tax and National Insurance liabilities. Various reliefs exist for those who start as an unincorporated business who wish to transfer into a company arrangement so that tax costs can be minimised. However, it is considered that some of these reliefs are too generous with some obtaining a potentially unfair tax advantage so two key changes took place with effect from 3 December 2014.
 

Corporation tax relief for goodwill

Corporation tax relief is given to companies when goodwill and intangible assets are recognised in the financial accounts. Relief is normally given on the cost of the asset as the expenditure is written off in accordance with Generally Accepted Accounting Practice or at a fixed 4% rate, following an election. This is subject to the general proviso that it is a transaction on or after 1 April 2002.

The rules allow relief to be claimed even when there is continuing economic ownership, referred to as a related party transaction. For example, on incorporation of a sole trader or partnership business where the individual(s) transfers their business to a company provided that the business itself commenced on or after 1 April 2002. For valuation purposes the rules require that the goodwill in such circumstances is recognised by the related party when the asset is transferred at market value.

However, an anti-avoidance measure has been announced to restrict corporation tax relief where a company acquires internally-generated goodwill and certain other intangible assets from related individuals on the incorporation of a business.

The measure means that corporation tax relief can no longer be obtained on such assets on acquisition. Relief is still available if a loss arises on a subsequent realisation of the asset.

No Entrepreneurs’ Relief

In addition, individuals will be prevented from claiming Entrepreneurs’ Relief on disposals of goodwill when they transfer the business to a related company. Capital gains tax will be payable on the gain at the normal rates of 18% or 28% rather than 10%.

This means that to relieve capital gains arising on goodwill and any other affected intangibles transferred to the company, only the deferral reliefs will be available. Deferral of gains can be achieved through business asset holdover (gift) relief, Enterprise Investment Scheme holdover or what is known as ‘incorporation’ relief. These alternative reliefs have different criteria and conditions of usage and will result in either the individual or the related company incurring the deferred gain on a subsequent event. Please contact us for further information about these alternatives if you are considering incorporating your business.

These measures will apply to all transfers on or after 3 December 2014 unless made pursuant to an unconditional obligation entered into before that date.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]