THE EFFECT of last week’s looting and rioting on small businesses and insurance firms in a wider economic sense is minimal. This is of scant consolation to those business owners who had to watch their shops destroyed, of course.
HM Revenue & Customs was attuned to public opinion and acted quickly to help these businesses in any way it could. A special helpline was set up to provide advice and “deal sympathetically” with problems faced by those companies.
HMRC highlighted the Time to Pay scheme, allowing those with short-term financial difficulties to agree payment schedules, and said it would discuss practical solutions where businesses and individuals could not fulfill obligations, such as record keeping.
Advisors have been coming forward to help where they can. ACCA has produced a factsheet, alongside the Forum of Private Business, and a campaign to get accountants involved. So what can concerned professionals do?
One of the top priorities for businesses affected by the riots is insurance. Those that have insurance will have to put claims in as soon as possible, though the Department for Business, Innovation and Skills says that insurers have set up 24-hour helplines. Many policies, however, explicitly exclude this kind of damage. ACCA claims that this is an area in which advisors can help businesses by negotiating with the insurance companies.
There are also tax implications concerning any insurance payouts. Katharine Arthur, tax principle at MacIntyre Hudson, says the payouts will be taxed depending on what they are for: those that compensate traders for a “hole” in the commercial profits or for the insurance of stock-in-trade is a taxable trading receipt; a sum received under a policy insuring a fixed asset against damage or loss is a capital receipt. However, any allowable expenditure incurred in making good the damage or loss by repair, renewal or by replacement should be reduced by the amount recoverable, she adds.
If the reduction is effected in a trader’s accounts by crediting the recovery as a trading receipt when received, rather than by deducting the net cost of repairs and so on when incurred, no objection need be made by HMRC, she says. If the insurance recovery is treated as a disposal value for capital allowance purposes then it should not be deducted from the repairs.
For those unfortunate enough to have no insurance, there is still some recourse. Individuals and businesses can receive compensation from their police authority under the Riot Damages Act. Usually, claims must be received within 14 days but to give people more time to submit these claims, home secretary Teresa May extended this period to 42 days. Again, this is an area in which advisors can help small businesses.
The affected businesses’ tax situation overall will likely be affected by any loss of profits. As Patrick Stevens, partner at E&Y points out, if businesses make a loss for tax purposes for the year, they will be able to carry back one year and get some form of tax repayment. If not, the loss can be carried forward and set against future profits. This will lead to HMRC getting its chequebook out. It won’t be for a while, though. Businesses will need to think about drawing up a set of accounts, including the loss-making period, but as soon as possible thereafter hand it to HMRC to secure a repayment, Stevens adds.
This is all familiar territory for advisors but another point they must keep in mind is that, even if they are offering services for free, chartered accountants still have to abide by the rules of their respective bodies. And, if they are giving services, advisors need to be sure that the business’ current accountant is aware of this.
The truth is, though, that any advice and reducing tax burdens – from well-meaning advisors or HMRC – means little compared with the commercial costs. Manos Schizas, senior policy advisor at ACCA, who is leading the campaign at the institute to get advisors involved, says that the majority of advisors coming forward so far are insolvency practitioners.
Derek Allen, head of tax at ICAS, said: “All of the businesses in the areas affected lose out on the income they might otherwise have obtained from visitors. And those areas will not recover that until people have confidence that the area is safe. That reduces the potential value of businesses and other premises so the locals are suffering the short-term horror of the riot but also a longer-term loss in value of anything they had invested in premises in the area.”
This should not discourage people involved in the clean-up effort from helping in any way they can. The sad truth is, though, that the long-term implications are as likely to involve insolvency as tax rebates for the worst-affected businesses, through no fault of their own.
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