Finance Bill 2009

Now that the Finance Bill 2009 has been published what are some of the main issues relevant to companies?

There are a number of important issues in the 433 pages of the Finance Bill 2009. These still need to be debated in Parliament and changes may occur but in the meantime here are the headlines.

What's included in the small print for 'senior accounting officer' obligations?

Proposals were introduced in the 2009 Budget regarding the obligations of 'senior accounting officers', more detail has now been provided in the Finance Bill 2009. For accounting periods beginning on or after the date on which the Finance Bill 2009 receives Royal Assent, a senior accounting officer within a large company will have to certify annually that the accounting systems for the company and its subsidiaries are adequate for the purposes of accurate reporting of all 'taxes and duties' which are collected and managed by HM Revenue and Customs (HMRC), including National Insurance. If they are unable to do so, the officer will have to specify the nature of the inadequacies and confirm to HMRC that these have been notified to the company's auditors.

While the company's annual audit may go some way to giving officers comfort on these issues, it is not specifically designed to review the tax reporting systems and with reference to 'accuracy' in the Finance Bill provisions, reporting could require something more than a level of materiality sufficient for audit purposes. The proposals would appear to place a greater compliance burden on companies. To satisfy the requirement to take 'reasonable steps' (a term referred to in the Finance Bill), to establish and monitor the systems, the senior accounting officer will need to stand back and objectively review the internal systems and controls in place.

The 'senior accounting officer', is defined as, "the director or officer of the company who has overall responsibility for the company’s financial accounting arrangements". In practice this is likely to be the Finance Director

Companies will also have to identify the senior accounting officer to HMRC and failure to do so within the period for filing the accounts for the financial year could incur a penalty of £5,000. Penalties of £5,000 can be levied on the senior accounting officer for each of the following:

• Failure to maintain and monitor that the company has appropriate tax accounting arrangements
• Failure to provide a certificate, or providing a certificate that contains a careless or deliberate inaccuracy   
• Failure to provide the company’s auditor with an explanation of deficiencies in the tax accounting arrangements before the auditor's report on the company accounts is finalised

Where officers are required to take 'reasonable steps', an element of uncertainty will arise over precisely what HMRC's expectations are. Grant Thornton's Head of Tax, Francesca Lagerberg is in active discussions with HMRC to obtain clarity on these proposals, seeking the most practical application possible. Once clarification is obtained in respect of HMRC's expectations Grant Thornton will contact you again to confirm the clarification provided by HMRC, and where we can assist you to obtain the confidence you need in your company's tax accounting arrangements in light of this change.

What about the changes to foreign profits?

The Budget announced substantial changes to the proposed legislation in respect of the foreign profits which included provisions in respect of:

• The worldwide debt cap
• Dividend exemption
• Controlled Foreign Company changes
• Treasury consent

We now have further details by way of the Finance Bill in respect of how these rules are going to work. The first change is the introduction of a dividend exemption which is set to come in from 1 July 2009.

For further details regarding foreign profits please see our Budget commentary.

How will the temporary return to first year capital allowances work?

For businesses investing in plant and machinery the Finance Bill 2009 has introduce a temporary first year allowance (FYA) of 40% for expenditure exceeding the £50,000 Annual Investment Allowance (AIA). This enables businesses to claim 40% of the costs incurred in respect of qualifying plant or machinery against their taxable profits. The FYA will be available on qualifying expenditure incurred within the 12 month period from the 1 April 2009 for companies and 6 April 2009 for unincorporated businesses. The FYA is applicable to those assets that would normally be entered into the main pool of expenditure which obtains a writing down allowance of 20%.

There are exclusions from the FYA, which include those assets that would not normally qualify for the main pool of expenditure, for instance those assets which are considered long life assets or integral features. In addition, cars and assets for leasing are excluded.

In the past FYAs have in certain circumstances been restricted to small or medium sized companies but this is not the case here.

The AIA introduced in April 2008 will still be applicable. This is a 100% allowance which can be claimed in respect of the first £50,000 spent on plant and machinery and can include expenditure on long life assets and integral features. Expenditure incurred above £50,000 will be dealt with under the normal rules, with the FYA available on qualifying expenditure above the AIA limit. In effect, expenditure that would previously have received 20% relief in the next 12 months, will now receive 40% relief.

When does the proposed legislation come into effect?

The Finance Bill has already been through its second reading in Parliament and upon receiving Royal Assent it will become the Finance Act 2009. A number of provisions will come into force at that date, such as the further obligations for senior accounting officers. Other provisions will be back dated to 1 April, for example the carbon based capital allowance rules in respect of business expenditure on cars. In addition, some legislation will have effect from a future date, like the dividends exemption which operates from 1 July 2009 and a number of the VAT changes are due to some into force in 2010.

Further details on the Bill will be published on the HMRC website as the Bill progresses.

Francesca Lagerberg, Head of Tax, at Grant Thornton says: "Now that the Finance Bill has been published this allows us to really get to grips with the detail in respect to how the proposed legislation will work. It is important that both businesses and individuals are made aware of how this will affect them, as soon as possible to avoid falling foul of any changes. If you are in doubt it is always good to seek advice to ensure you are making the correct decisions going forward"

Please click here if you would like further advice on any of the above.