IFRS 16 leases rules have changed 1 January 2019

IFRS 16 leases rules have changed 1 January 2019

Leasing is very common and is often used as a financing solution to access buildings and equipment without suffering large up-front cash outflows. Most of a company’s operating leases to date tended not to be shown on the balance sheet. Going forward the introduction of IFRS 16 requires both the asset and the liability to now be reflected on the balance sheet. 

The majority of companies reporting under IFRS (typically larger companies or subsidiaries of large groups) will be affected. Whilst there can be a delay for those reporting under FRS102 or the reduced disclosure for SMEs in FRS101.

The new standard will affect nearly all frequently used financial ratios and performance metrics for example, gearing, current ratio, asset turnover, interest cover, earnings before interest, tax, depreciation and amortization (EBITDA), earnings before interest and taxes (EBIT), operating profit, net income, earnings per share (EPS), return on capital employed (ROCE), return on equity, (ROE), and operating cash flows. This means that the changes could affect loan covenants, credit ratings and lower borrowing costs without appropriate discussions with banks, other lenders and suppliers.

Companies and organisations that lease ‘big-ticket’ assets will be most affected by these rule changes. These assets could comprise property, airplanes, printing machines and technology for example. Whilst there may be an exemption for low value assets (typically $5,000 or less when new), many assets like photocopiers and cars have a value greater than this and will be brought into the regime.

These new standards mean that it could be difficult and costly to comply with the new lease rules, especially if companies do not have an in-house lease information system.

Tax impact

The current approach by HMRC is to continue the status quo of allowing the net operating lease cost as a deduction for tax purposes. In addition, HMRC has no desire to tax transitional adjustments for the new basis.  As IFRS 16 is worldwide, other countries may adopt a differing stance.

The introduction of IFRS 16 is likely to cause initial accounting adjustments which may be positive or negative depending on the previous treatment adopted. In the case of M&A activity and acquisitions/disposals the projected trading results and tax exposure will need to be forecast and reconciled.

Impact on industries

Nearly every industry uses leasing to gain access to assets but the terms and structure of the agreements are completely different for each industry. Various studies have been conducted on global lease capitalisation to determine the impact of new lease standards. The results show that most of the bigger industries have a median increase in debt of 22% of all companies. The industry worse affected by this is the retail industry with a 98% median debt increase, followed by airlines with 47% and professional services with 42%.

How we can help

We have Large Business experience and have helped a number of companies with the implementation and modelling of IFRS16. Through HLB our global network we can obtain guidance on a country by country basis.   If your company would like guidance, Hawsons are well placed to help you.  If you would like assistance on this, book your first free initial meeting with us here or telephone your local Hawsons office. 

If you would like to see more about our large companies services click here.

 

More from our tax experts

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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.

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Stephen Charles

Tax Partner, Sheffield

0114 266 7141

Martin Wilmott 5

Martin Wilmott

Partner, Doncaster

01302 367 262

David Cairns

David Cairns

Tax Partner, Northampton

01604 645 600

[email protected]

Changes to business risk reviews for large Businesses

Changes to business risk reviews for large Businesses

Hawsons have worked with many Large Businesses and International groups over the years so that they can introduce the appropriate systems and procedures and achieve “low Risk status” with HMRC. Part of this process has been to liaise between the Businesses and HMRC to resolve areas of uncertainty, immaterial or isolated errors. When handled correctly, the Business Risk status can be unaffected.

For several years now Large Businesses have been subject to increased scrutiny from HMRC as they have larger tax liabilities. To formalise this process the Senior Accounting Officer regime was introduced that required large businesses to have enhanced reporting, to confirm that their accounting systems could identify, report and pay the correct amount of tax at the right time. Following a review of each business HMRC assigned them a low risk status or non low risk. The benefit of low risk status is that HMRC tended to rely on the company to report and pay tax correctly and did not need constant monitoring. Non low risk businesses in comparison, tended to have more involvement from HMRC in the form of enquiries and interventions.

What is the purpose of this update?

From 1 October 2019 HMRC will be updating the Business Risk Review Process to an enhanced version named BRR+. The rating system will change from binary low or non-low risk ratings to using 4 new ratings – low, moderate, moderate-high, and high.

HMRC have decided to make the review process more visible and consistent. This will be by enabling customers to understand why their business risk assessment has arrived at the particular outcome. The Business can then take the appropriate steps if they want to change to a low risk rating.

A lot has changed in legislation and business since the BRR process was first announced. Therefore, HMRC want to be clearer and more consistent about the BRR process. They have produced clearer guidelines and have developed a different approach for a deeper understanding of customers and sectors. Such as understanding and working collaboratively with each customers business and differentiating between behavioural, inherent, and structural risks.

The new BRR+ process will include:

  • Replacing the rating system from binary low or non-low risk ratings to using 4 ratings – low, moderate, moderate-high, and high.
  • The introduction of customer behaviour assessments across three areas. These include Systems and Delivery, Internal Governance and Approach to Tax Compliance which determine risk ratings.
  • Determining what is low risk for the three behaviours.
  • In each tax regime they will reach a risk rating and share them with customers.
  • Providing detailed guidance on a new BBR template to record risk ratings.

HMRC’s guidance on the new BRR+ process can be found here click here.

How we can help?

Hawsons have been working with several Large Businesses to highlight and work with the new rules, including how to deal with HMRC on immaterial and isolated errors that all businesses can make but which does not affect the Business Risk status. We can guide you through the process to understand and achieve low risk status. If you would like assistance on this, book your free initial meeting here or telephone your local Hawsons office.

If you would like to see more about our large companies services click here.

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.

Free initial meeting

Stephen Charles

Stephen Charles

Tax Partner, Sheffield

0114 266 7141

Martin Wilmott

Partner, Doncaster

01302 367 262

David Cairns

David Cairns

Tax Partner, Northampton

01604 645 600

[email protected]

new anti-money laundering regulations set to hit charities

new anti-money laundering regulations set to hit charities

New anti-money laundering regulations set to hit many charities

It has been reported that a large number of charities could face administrative bureaucracy from the government as they bring in new anti-money laundering regulations. The Fifth Money Laundering Directive could force all registered charities to sign up with the government’s new trust and registration service (TRS).

The rules around TRS state that charities must provide up to date information about their beneficial owners – settlor, trustees, protector, beneficiaries and any “other natural person exercising effective control of the trust”.

It should be noted that, unlike its predecessor, the fifth directive applies to all ‘express trusts’ and not just those liable to tax. The ICAEW have already expressed their concerns on the extension of scope to include express trusts and have sought further clarification. The Institute have urged the government to consider application of the fiscal definition of settled property to express trusts to reduce the scope of registration.

Given the issues found by the previous directive, this will be of concern to many charities, and if not handled correctly could result in disproportionate administrative burden on trustees and companies. The impact could be for reaching, impacting on chartable trusts, unincorporated associations and potentially incorporated charities who hold trusts as restricted funds or endorsements.

How can we help

If you are worried about how this may affect you or your charity, Hawsons expert charity accountants are here to help. We have a team of dedicated accountants at our offices in Sheffield, Doncaster, and Northampton.

If you would like more information about our charity accountants click here.

If you would like to contact us and book your free initial meeting click here.

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You can find all of our latest charity 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.

Free initial meeting

Simon Bladen

Partner, Sheffield

0114 266 7141
Protection for flights and road after Brexit reaffirmed

Protection for flights and road after Brexit reaffirmed

Protection for flights and road after Brexit reaffirmed 

On the 5 September 2019 the Government confirmed that they have measures in place to make sure flight and road haulage will continue to run smoothly after 31 October if the UK leaves the EU. There will also be an extension on the UK’s air traffic rights for EU airlines until October 2020. This builds on the agreements revealed in March 2019, this means that air travel is guaranteed to continue without change until March 2020 no matter when we leave the EU.

Key Facts:

  • Government confirm they have taken measures to make sure flight and road haulage runs smoothly after the UK leave the EU
  • Airline travel is guaranteed to continue without change until March 2020.

 Grant Shapps, Secretary of State, said:

“We welcome these proposals from the European Commission to extend arrangements allowing flights and road haulage to continue between the UK and EU after Brexit. Connectivity is at the forefront of this government’s vision for a global, outward-facing Britain and these extensions between the UK and EU ensure that it will be business as usual when travelling and trading for the foreseeable future.”

To find out more information click here.

How can we help

At Hawsons we have a specialist transport and logistics accountants at our offices in Sheffield, Doncaster, and Northampton. We act for a large number of clients in this sector across our three offices, ranging from hauliers to international couriers, and understand the challenges this dynamic sector faces.

More from our transport and logistics experts

You can find all of our latest transport and logistics 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.

Free initial meeting

Paul Wormald

Paul Wormald

Partner, Doncaster

01302 367 262
Property price growth has fallen to less than 1% in England

Property price growth has fallen to less than 1% in England

House price growth has almost slowed to a standstill, with the annual price growth in the 12 months up to July 2019 being just 0.7% in England. If we compare that to Wales and Scotland where year on year rise is 4.2% and 1.4% respectively.

In terms of location average London houses prices were down 1.4% year on year to £477,813. Interesting Yorkshire and the Humber area had the highest annual price rise of 1.9%, with the North East having the largest annual price fall of 2.9%.

Key Statistics  

Annual house price growth in the 12 months leading up to July 2019 fell to just 0.7% in England.

London houses prices were down 1.4% year on year to £477,813.

Yorkshire and the Humber area had the highest annual price rise of 1.9%.

The key question is the going to be will the market bounce back. Sam Mitchell, chief executive officer of Housesimple has said “Brexit appears to be the main factor behind the larger decline. While Brexit uncertainty may put some people off moving, life does not wait for politics to calm down and neither should sellers. If you need more space or are in the market for your first or dream home, mortgage rates remain very competitive and less competition in the marketplace could work in your favour”.

How can we help

At Hawsons we have a dedicated team of specialist property and construction accountants in Sheffield, Doncaster, and Northampton. If you feel like you or your business is going to be affected by this article feel free to contact us for your free initial meeting.

If you would like to see more information about our property and construction accountants and the services we provide click here.

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.

Free initial meeting

SAC

Stephen Charles

Tax Partner, Sheffield

0114 266 7141