Dispatch (UK/ROW edition)
| by Paul Gosling 07 Jun 2007 Topic: News |
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UK wins permission for VAT reverse charge The UK has finally been given approval by the EU to introduce reverse charging of VAT to disrupt carousel fraud. The new rules will apply from 1 June, but are restricted in scope compared with those originally proposed. After months of bad-tempered negotiation, France has withdrawn its opposition to reverse charging. France had claimed that it was concerned that the UK's adoption of reverse charging of VAT - with VAT imposed only on the last item in the chain of transactions - might simply move carousel fraud to other member states, such as France. However, the fraud has meanwhile risen sharply in France and fallen heavily in the UK. France's concession on the reverse charging rules coincides with an acceptance by the UK Government of a reduction in its budget rebate. The approved reverse charge system only applies to mobile phones and computer chips. This represents a significant change from the initial proposals for reverse charging as published by HM Revenue & Customs (HMRC) last September and notified to traders as intended for implementation last December. These rules, had they been approved by the EU, would also have applied to other electronic equipment, including MP3 players, games consoles, handheld computers and satellite navigation equipment. A spokeswoman for HMRC confirmed that the scope of the reverse charging had become more limited. But she declined to comment on speculation that this may have been forced on the UK by resistance from other EU member states. 'It was originally intended to apply to a broader range of goods,' she told accounting & business. 'After discussion with other member states and businesses, it was narrowed down to those goods most especially associated with missing trader and carousel fraud.' The adoption of reverse charging is only one of numerous measures being taken by HMRC to tackle the loss of billions of pounds of tax income through VAT fraud. HMRC has allocated an extra 700 staff to combat the frauds, nearly doubling the number of customs officials involved. HMRC is also more actively checking VAT repayment claims from businesses in the mobile phone and computer chip trades. EU agrees common payments system European finance ministers have agreed to produce a common payments system that will make transfers across the EU as cheap, easy and quick as payments within member states. The system will apply both within the eurozone and to non-euro member states, such as the UK, Denmark, Sweden and those new member states that have not yet adopted the euro. Principles for a Payment Services Directive have been agreed by ministers to cover transactions conducted by businesses and individuals, whether made by credit or debit cards, electronic transfers, direct debit, standing orders or cheques. The directive will also provide the legal basis for a Single Euro Payments Area. At present, each member state has its own rules on payments and the cost of making payments between national systems costs 2%-3% of European GDP. Competition is restricted because service providers are prevented from operating across the EU. The European Commission, which initially proposed a draft Payment Services Directive in 2005, calculates that the adoption of the harmonised rules will save Europe's economy at least ?28bn annually. Also, electronic payments made within any two places in the EU will take no longer than one day and will lead to a cross-border direct debit system. Financial services companies that are not banks will be given the opportunity to compete in the payments market. The Single Euro Payments Area (SEPA) will lead to the removal of all technical, legal and commercial barriers between the current national payment markets. The Internal Markets Commissioner, Charlie McCreevy, said the agreement in principle was excellent news. 'This is a decisive milestone towards making the Single Euro Payments Area a reality,' he said. 'This is a good compromise and contributes to the twin objectives of market opening and consumer protection.' The Directive should be enshrined in member states' national laws by November 2009 at the latest. government adopts IFRS for own accounts The UK Government is adopting International Financial Reporting Standards (IFRS) for its accounts from April 2008, it was announced as part of the Budget. IFRS will be used to publish the whole of government accounts for the first time for the 2008/09 financial year, replacing UK GAAP. Use of IFRS was not included in Chancellor Gordon Brown's Budget statement, but revealed in the published background papers. These state that using IFRS was necessary to 'bring benefits in consistency and comparability between financial reports in the global economy and to follow private sector best practice'. While it was inevitable that the Government would move towards IFRS, its adoption could prove painful for the Treasury. One of the implications is that hundreds of millions of pounds of borrowing carried out through Private Finance Initiative schemes that are currently off-balance sheet for the public sector will be shown in the accounts for the first time. Other measures announced in the Budget included a large number of variations to tax rates. The headline rate of corporation tax is to fall from 30% to 28% from April 2008, but will be paid for by cutting capital allowances and increasing the small company tax rate from 19% to 22%. By reducing the headline rate, the UK makes itself more competitive for multinational service companies, such as banks, some of which were considering moving international headquarters to other countries. Further tax reform could follow because the Treasury is currently consulting on whether to make overseas profits remitted to multinationals' UK head offices tax-free. The Confederation of British Industry's (CBI) deputy director-general, John Cridland, said: 'This is a consultation we have been advocating for some time. An exemption for foreign dividends should lead to more companies basing their organisations here and, in principle, should be simpler to administer than the present credit-based system.' But he warned against recovering lost tax income by removing tax exemption on interest payable on loans. The Chancellor also announced in the Budget variations to personal tax rates. The 10p starting rate for income tax has been abolished, but the main rate now falls from 30p to 28p. Broadly, the change favours middle earners at the expense of the lowest paid. Higher earners face an increased National Insurance (NI) bill, with a lifting of the NI payment ceiling. The Budget was broadly revenue-neutral. Chas Roy-Chowdhury, ACCA's head of taxation, criticised the Chancellor's approach. 'This is a very surprising Budget from a Chancellor who claims to be a friend of enterprise,' he said. 'It seems to be a case of robbing small business Peter to pay big business Paul.' PricewaterhouseCoopers' Russian practice has come under intense scrutiny from state prosecutors and investigators. Its Moscow offices were raided by officials from the Russian Prosecutor General's Office and the Ministry of Internal Affairs and documents seized in relation to two separate investigations. Days later, as a result of one of these, an investigation into the affairs of fallen oil giant Yukos, the firm was fined 16.8m roubles (£345,000). A hearing at Russia's Arbitrage Court found the Russian arm of PwC, ZAO PricewaterhouseCoopers Audit, guilty of assisting its audit client, Yukos, in tax evasion. The Russian state tax authority, N5, claimed that in its audits for the 2002, 2003 and 2004 years the firm provided unqualified audit opinions, while raising conflicting observations in internal control reports. The firm said it would appeal against the decision. Mike Kubena, general director at PricewaterhouseCoopers Russia, said: 'The tax inspection claims that PwC should have known about, and therefore alerted informed authorities about, Yukos' tax schemes, determined to be illegal by the Russian court. The claim seeks to make the audit contracts for the respective years null and void and requires that the related audit fees should be paid by PwC to the state. We believe that the tax inspection claim is without merit and is based on a fundamental misunderstanding of the roles and responsibilities of auditors as defined by Russian law.' Kubena added that the points raised in the management letter were not material to the company's financial statements and did not alter PwC's opinion about the accuracy of the financial statements. He said that the audits were conducted to the highest professional and ethical standards and complied with Russian law. Documents seized in the raid on PwC by the Ministry of Internal Affairs related to a separate matter, its investigation of a tax claim against PwC relating to the 2002 year. But PwC said the documents seized far exceeded those regarding this investigation. The firm has engaged lawyers to seek the return of the extra documents. PwC strongly denies any wrongdoing regarding either matter. NHS abandons resource accounting for hospitals The UK's Department of Health has abandoned the use of Resource Accounting and Budgeting (RAB) for NHS hospital trusts. The move will assist 28 hospital trusts to overcome persistent deficits from which RAB rules had made it difficult to recover. The application of RAB in the NHS has proved controversial, and a review of NHS financial management published at the end of last year by the Audit Commission proposed the ending of RAB rules for NHS trusts. Trusts with deficits had suffered through the application both of RAB rules requiring overspends in one year to be deducted from the following year's financial allocations and the rules of the Department of Health requiring that deficits be posted to the balance sheet and corrected in a three-year period in order to meet the statutory requirement of achieving 'break even taking one year with another'. Together, these rules were referred to as the 'double deficit' or 'double whammy'. The Department of Health says that the strict rules can now be relaxed because of the general trend towards improved finances across the NHS. The latest forecasts showed that the NHS as a whole would be in surplus of £13m at the end of the 2006/07 financial year. As a result of abandoning the RAB rules, some £178m will be returned to trusts. There will be no change to the previously announced allocation of a £450m contingency fund for NHS trusts. This will be allocated to strategic health authorities on the basis of local need. The abandonment of RAB only affects hospital trusts because of the impact on them as treatment providers. Primary care trusts remain subject to RAB. FRS 17 should be replaced by a new accounting standard that allows accounts to reflect accurately the financial health of pension schemes, the Association of British Insurers (ABI) has argued in a research paper. At present, FRS 17 does no more than present 'a useful headline figure', the ABI suggests. 'We need to understand deficits better to devise investment strategies which really deliver the best value for beneficiaries and sponsoring companies,' said Stephen Haddrill, the ABI's director-general. 'If trustees and sponsors do not have a complete picture, pensioners could lose out badly.' The ABI is urging accounting standards setters to draw up a new standard for pension funds. The ABI's report was commissioned in response to concerns that pension funds were taking investment and policy decisions because of the impact of FRS 17, rather than the real underlying health of the funds and the ability of employers to meet liabilities over the longer term. Those impacts include replacing defined benefits schemes with defined contributions schemes and moving out of equities into bonds. Perceived problems were compounded as more schemes moved into bonds, leading to lower bond prices and falling bond yields, which, in turn, drove further demand for bonds and even weaker yields. An FRS 17 analysis on its own does not provide an adequate measure of the viability of a scheme, says the ABI paper. FRS 17 takes no account of when liabilities fall due and whether an investment strategy adopted by a scheme sponsor is adequate to meet those liabilities. A more effective analysis would be based on a forward cash flow projection, giving investors a clearer view of whether a company can meet its pensions liabilities. A static measure such as FRS 17 does not consider future contributions and likely investment returns, simply calculating a deficit which may not need to be met for a very long period into the future, the ABI report suggests. 'The headline figure given by the accounting standard is useful, but the individual dynamic picture is equally, if not more, important,' argues the report. Difficulties are made worse, says the ABI, by the choice of the discount rate. Fairly small variations in discount rate can have disproportionate impacts. A 2% rise in the discount rate causes a liability to fall by 61%, whereas a 2% fall increases liabilities by 174%. The effect of this is that pension fund deficits can rise alarmingly when interest rates fall. Overall, concludes the ABI, 'there is no clear correlation between the size of FRS 17 deficit and the financial health of the plan'. in brief...
Dell discloses possible accounting misconduct
iSoft sacks director after accounting probe
Credit card details stolen from TK Maxx
HMRC accused of 'sentence first, verdict afterwards'
Company car policies driven by green taxes,
says PwC
Online filing takes off
Watch out, bluetooth about
'Most SMEs have no business plan'
Banking fraud 'needs collaboration' | |