Who is in charge?

Whatever their rhetoric, its not politicians who determine success, its folks like us, the hard working business owners and their employees attending to future plans in spite of the changes thrown in their way by “the powers that be”.

And we are about to witness a change in our economic circumstances that even the most ardent Brexiteers will admit is likely to create a downturn.

More change is on the way

If we assume that a no-deal outcome is on the cards, what will the Treasury dream up to present as the UK’s next budget? And how will the timing of the presentation be affected by a possible election (if we have one)?

One thing is certain, accountants will need to respond to all these challenges, and quickly, if we are to support clients through the Brexit upheaval and consequent legislative changes. Our hard-won practice client base will be diminished if we do not.

How should Professionals adapt to these challenges?

At a minimum, we should improve our communication of relevant changes, those that will affect our clients, and adapt our services to meet the new demands.

Certainly, Landmark will be creating various support packs for firms in the coming months. These will target sections of your client base with relevant updates and ideas to minimise the pain.

Change and opportunity

Change can sometimes be a painful process in business, but for advisers, it always opens the door to opportunity; for the chance to offer new and more supportive services. Firms that rise to these opportunities will find themselves in demand.

How Landmark can help right now

Two ideas that you could consider:

Autumn Budget 2019

Have you considered a video presentation of the next Budget announcements for your website? This would provide you with an entertaining, visual means to communicate the key points instead of the usual dry copy. You could use social media prompts to drive traffic to your website. Places are limited as we guarantee to have your branded video produced for the day following the Chancellor’s presentation to parliament.

Here’s an example of the Autumn Budget video for last year:

Read more about the Budget Box service here

No-deal Brexit – client alert

This really is a no-brainer, you can use our copy out of the tin and have updates with your clients next week. There is no excuse for failing to advise clients on the risks and planning required to get prepared for the October deadline.

And the activity you stir up, aside from keeping clients informed, will generate fees.

Read more about our no-deal support pack here

New release for next week

Next week we will be releasing details of a support pack that you can use to advise your VAT registered, CIS contractors and sub-contractors with a call to action regarding the adoption of the Domestic Reverse Charge process for the construction industry on 1 October 2019.

This is a disaster waiting to happen not least because the detailed planning required is so complex.

Again, you will be able to use the client facing material out of the tin, and should stimulate the uptake of advisory services to adapt contractors accounting software and VAT admin changes (to sales invoices etc).

More on this service next week.

If you have ideas for other topics to cover that would be of value to your clients let us know. Email bob@landmarkpd.co.uk



How HMRC judges gross profit rates

I came across the following text published in HMRC’s Enquiry Manual , makes for interesting reading. You might like to advise your staff to read this post as it may focus their minds on variations in clients’ gross profit returns and how these might be interpreted by HMRC.

The full text is:

Examining Accounts: Business Ratios: Gross Profit Rate

Gross profit rate (GPR) is the most commonly used business ratio in HMRC.

The relevance of GPR in the distributive trades is obvious but its significance will vary according to the conditions of the trade. A newsagent will have very little influence on either the buying or selling price of the commodities handled but will know what rate of gross profit can be expected within the constraints of current price structures. Therefore the newsagent will have some idea of the volume of trade needed to make a living. In other trades the trader may have a target rate (or rates) in mind and will have pricing policies based on them. The interpretation of gross profit rates is relevant to any discussion of the profits of a buying and selling business.

More detail is available under these headings.

Use of GPR

Although the concept is simple, skill is needed in using GPR. The limitations and possible pitfalls need to be understood. Initially, an unexpected or abnormally low rate of gross profit may raise legitimate doubts but an attempt to re-compute the true profits of a business by using the ‘mean’ or most common rates achieved by other apparently similar businesses should only be done where there is no co-operation from the trader.

As explained at EM3508, to reconstruct sales you will need to

  • discover the mix of goods bought and sold by the business and any operations carried out on them
  • to apply appropriate ‘mark-ups’ to specific categories
  • to make any necessary allowances for wastage, sub-standard goods, pilferage etc.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Ultimately, the GPR should not be looked at in isolation.


When you are reviewing accounts for enquiry, you should think about possible comparisons.

  • How does the GPR compare with other businesses? The location of the business and any peculiarities of its trade should be borne in mind. However, if the business can realistically be compared with others, either nationally or locally, a lower than average GPR may be a risk indicator.
  • How does the gross profit rate compare with previous years? Is there a trend, and if so how does this compare with other changes in the business? A widely fluctuating GPR would give cause for concern if the trade is one in which the terms of trading do not vary greatly year by year. Similarly a substantial rise or fall in gross profit rate in any one year may be a risk indicator.

High GPR

You should not be blinkered and consider only low GPR. The GPR is only part of a bigger picture. Obviously that is a clear indication that margins are depressed for commercial or other reasons. However, you will be trying to obtain a picture of the business as a whole and understand how it works. What might an unusually high GPR indicate? Do other ratios and trends conform with high margins?

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Sensitivity of GPR

The sensitivity of GPR is greatest where the turnover is modest. Where it is large, say £200,000, the omission of £2,000 from sales will show a difference in the rate of gross profit of only 1% of sales. In such cases, it will usually be necessary to demonstrate and correct specific errors in the accounts or business records. However, the existence of a high turnover figure does not mean that GPR can be ignored. Gross discrepancies do come to light in some cases. Looked at from another point of view, the insensitivity of GPR in large cases means that a ‘good’ rate of gross profit should not deter you from opening enquiries if there are other risk indicators.

Use of Average GPR at tribunal

Average gross profit rates have very limited uses if the case goes to a tribunal hearing. Can the Tribunals Caseworker get details of other gross profit rates in as evidence and, if so what will those details prove? Firstly even an enquiry officer who has spent many years on enquiry work is most unlikely to be accepted by the tribunal as an expert on the trading patterns and operations of any particular type of business. Although he or she may be an expert investigator they do not become an expert on any particular type of business as it is most unlikely that enough examples of that particular type have passed through their hands to make him or her an expert. Their opinion on trade practices and likely results is therefore inadmissible as evidence.

The Tribunals Caseworker cannot simply try to put in a summary of gross profit rates showing what other businesses have achieved (and by inference casting doubts on the taxpayer’s results). There is the very real objection that this is probably a breach of confidentiality. Such information is hearsay evidence and it is unlikely to be directly relevant to the issues being considered by the tribunal. There may well be objection to its introduction.

Evidence about other businesses such as average profit rates or levels is not evidence about the taxpayer’s business. It can be a justification for selecting a case for enquiry. Equally, it may have assisted you in making a ‘best of judgement’ assessment, and it is quite in order to say so. What the tribunal needs is evidence to demonstrate that the taxpayer’s profits are inadequate.

Do you have farming clients?

A notification from gov.uk has just popped into my Inbox and I think it’s worth sharing on this forum.

Farm payments if there’s a no-deal Brexit

The notice explains how payments under the present EU’s Common Agricultural Policy (CAP) would be affected in the event of a no-deal Brexit. You may want to share this update with your farming clients who benefit from EU grants.

Those businesses affected will effectively continue to receive payments after 31 October from the UK government under the terms of the UK government’s funding guarantee. This UK funding is only guaranteed until the end of 2020.

The notice continues:

Defra, and the devolved administrations, are preparing domestic legislation (under the Withdrawal Act) to ensure the UK has the ability in law to continue operation of payments in a ‘no-deal’ scenario. This legislation preserves the EU law as it currently stands, and ‘fixes’ the legislation so that it is operable after the UK leaves the EU.

The domestic legislation will require beneficiaries to conform to the same standards as they do currently, to receive payments. This will include on-site inspections to UK farms receiving payments, which will continue as normal.

All of these rules and processes will remain the same until Defra and the devolved administrations introduce new agriculture policies, either through the Agriculture Bill, or an Agriculture Bill in one or more of the devolved parliaments.

The government has pledged to continue to commit the same cash total in funds for farm support until the end of this parliament, expected in 2022. This includes all funding provided for farm support under both Pillar 1 and Pillar 2 of the current CAP. This commitment applies to the whole UK.

Hopefully, if we have a change in government before the end of 2020, they will honour this pledge. Interestingly, this comment is followed by:

This notice is meant for guidance only. You should consider whether you need separate professional advice before making specific preparations.

It is worth noting that the guarantee referred to in this article would seem to apply to other, non-farming, EU funding in place before we leave the EU.

What to do next?

Clearly, we should be seen to be active in keeping clients up-to-date on these issues. If you missed my email yesterday, you may want to consider sending out the update I wrote for your clients, and which is available for download at the foot of yesterdays post. There is a small charge of £30 plus VAT to access the client update, but I have included ideas to make best use of the material including social media copy. If you want to order, and there are no copyright restrictions, simply complete this order form.