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Review: PPF propose changes to the levy rules
Buried in the detail of the Pension Protection Fund’s (PPF) 2017/18 levy determination are some proposals which could be of interest to a number of companies.
As expected, with this being the last year of the second levy 'triennium', the PPF is not making any significant changes to the way in which the levy is calculated, and the total levy they are expecting to collect is unchanged from last year (i.e. £615 million). However, some companies would do well to read beyond the headlines.
FRS102 transitional arrangement could lead to levy savings
"While the PPF’s analysis suggests that the vast majority of companies will not be affected by the change, they noted that the change to FRS102 could unfairly impact on the 'trend' variables in the Experian model for certain companies."
The change in accounting standard to Financial Reporting Standard 102 (FRS102) could result in changes to companies’ insolvency risk scores as measured by Experian, without there having been any substantial change in the nature of the underlying business. The PPF has recognised this issue, as the Experian insolvency risk model is based almost entirely on the information disclosed in companies’ annual accounts.
While the PPF’s analysis suggests that the vast majority of companies will not be affected by the change, they noted that the change to FRS102 could unfairly impact on the 'trend' variables in the Experian model for certain companies. To alleviate the impact of this, the PPF is proposing to allow certain companies to certify to Experian in cases where this has occurred.
'Trend' variables appear on a number of Experian’s insolvency risk model scorecards, and compare the information in a company’s most recent accounts relative to the information in the company’s accounts three years previously. In general, FRS102 changes the way in which certain assets and liabilities are valued. The change to FRS102 can, in some cases, make this comparison inconsistent.
The PPF is only proposing to introduce this transitional arrangement for companies scored on either the 'Large and Complex' or 'Not for Profit' scorecards (where the change in a company’s net balance sheet position is assessed). The PPF has invited companies to respond to the consultation if they feel that this transitional arrangement should be extended to other types of company.
If you think that your company could benefit from this, a certificate will need to be submitted to Experian by 31 March 2017.
Mortgage exclusions expanded
The PPF defines a number of criteria under which Experian will exclude mortgages or charges for scoring purposes. These criteria could now be widened slightly.
- The PPF is proposing to update the immaterial mortgage exclusion to cover money that could be recoverable in certain circumstances. For example, where grant funding has been awarded, and there is a requirement to repay the grant if specified conditions are not met.
- In relation to refinance mortgages, the PPF is proposing to extend the exclusion to cases where the original mortgage and refinance mortgage are entered into by different companies within the same group.
As for the previous year, the PPF is proposing to continue to carry forward all current mortgage exclusion certificates (providing the criteria continue to be met), with the exception of immaterial mortgages which need to be certified annually.
Interpreting company accounts
The PPF is making some other minor changes which will apply in specific circumstances:
- where accounts are restated
- where a company states accounts in a foreign currency
- where a group parent files 'small' accounts.
The PPF’s consultation closes on 31 October 2016 and the rules will be finalised in December, followed by a consultation on proposals for future years.
While many key deadlines for the 2017/18 levy fall on or after 31 March 2017, companies should engage with their advisers now to ensure they are not paying more than their fair share of the levy.
