BIM47615 - Specific deductions: trade organisations: British Standards Institute quality systems

Cost on acquiring accreditation

The guidance below considers, as an example, expenditure incurred to obtain a particular accreditation. There are many other accreditations on which a trader may expend money in the acquisition or attempted acquisition (for example, Investors in People - IIP). You should follow the same general approach when considering other types of accreditation.

BS5750 establishes a registration and assessment system that tells a business' customers something about how that business is run. It is not concerned so much with specifications of individual products - there are a whole range of British Standards concerned with that - but with how services are delivered, the quality of the trader's internal control and management systems, in short the `quality' of the trader's overall operations.

A trader may apply to register for all aspects of the business or it may just be concerned with the operation of one aspect such as delivery, cargo handling, production or administration. Depending on the nature of the business, a trader may have to make a number of separate applications in order to cover all of his activities.

The registration process

This consists of a number of steps:

1. Apply to an accredited body that undertakes BS5750 assessments. One of these is the British Standards Institute (BSI) itself, but some private concerns are also accredited.
2. Receive a preliminary visit (free of charge).
3. Pay the application fee and initial assessment fee (based on size of company, number of employees, complexity of activities, number of sites and location).
4. If successful, pay:

The cost of registration is increased if the trader uses outside consultants. There may also be outlay on matters such as bringing in new documentary procedures, the preparation of instructions, having measuring and testing equipment calibrated and training staff to carry out audits. There must also be a quality manager responsible for initiating and maintaining BS5750 standards and, in larger concerns, this may even be a full time post.

Benefits of registration

Certain benefits may flow from BS5750 registration. For example, the trader will be able to display the registration logo and to feature in a Department of Trade & Industry approved trade guide. Reasons for registration may also include:

• To improve customer/supplier relations, in particular by getting things right first time.
• To improve the internal organisation and efficiency of the business.
• To gain increased market share in existing markets and to explore new markets, at the same time retaining existing customers.

In practice, it is important to establish why the particular business under consideration obtained registration and, though literature issued by the BSI and by accredited bodies is useful, ultimately it is the traders own documentation - internal feasibility studies, minutes of Board meetings, correspondence, etc - that is most informative. If a trader only seeks registration to satisfy existing customers, the documentation may sound more impressive than the reality. It is important to relate the one to the other.

Treatment

Whether outlay registering under BS5750 is capital or revenue turns on the nature of the rôle played by the asset or advantage secured (or, in the case of abortive expenditure, the asset or advantage that might have been secured) in the context of the trader's business. Is the asset or advantage sufficiently enduring and substantial to be regarded as capital? Does it add to the profit making structure of the business or merely preserve it?

In the context of BS5750 we consider the position to be broadly as follows:

1. In isolation, the direct benefits of working towards registration are unlikely to be capital in nature. The outlay is more likely to be capital if it is made in connection with other expenditure that alters or expands the scope of the trade rather than just seeking to increase the share of existing markets.
2. Some traders register merely to preserve an existing trading relationship, say with the local council. If nothing else has been done; if the trading operations are unaltered and the existing profit earning structure has just been maintained; the expenditure is likely to be on revenue account.
3. If, at the other extreme, a trader who has hitherto only undertaken small private contracts secures registration as part of a wider scheme to extend significantly his trading operations, say to bid for large public sector contracts, the outlay may well be capital.
4. In between, there will be a range of circumstances, in which the asset or advantage may or may not be sufficiently major to stamp the outlay capital. Two factors are likely to be of particular importance. Was the registration expenditure part of a wider reorganisation of the trader's affairs to attract new customers? Was the outlay concerned with moving into markets previously untapped?