Study tips: discounts calculations (foundation bookkeeping) Posted 05/22/2021 by Gill Myers & filed under Foundation Certificate, Students. Discounts series (Foundation Bookkeeping) Part 1 – Discount types Part 2 – Discount calculations Part 3 – Posting the discount This is the second article in our 3 part series on discounts. In part 1, discount types, we discussed what they are and how we calculate them. Now we will look at: how each type of discount is shown on an invoice how those invoices are entered into the accounting records at the point they are sent to the customer and then how the accounts are updated once a payment is received. In part 1 we calculated the discount for a customer who was buying 3,000 units of a product which has a list price of £24.75 plus VAT per 15 units. How discount types appear in invoices If we offer them a trade discount of 5%, the discount will be shown on the invoice as follows: If we offer them a bulk discount of 1% per 1,000 units, the discount will appear on the invoice as: If we offer them a prompt payment discount of 3% if payment is received within 7 days of the invoice date, the discount may or may not be shown on the invoice, but the terms of the offer will be included instead: Recording the discount Once the invoice has been issued, regardless of which type of discount it includes, it needs to be recorded in the accounting records by being added the list of invoices in the sales daybook: Trade: Bulk: Prompt payment: From here, the totals will be double entered into the SLCA, VAT and Sales accounts in the general ledger. The individual total amounts will be posted as memorandums in the customer’s accounts in the subsidiary sales ledger. The process of posting the sales daybook is the same regardless of the discount type, the only difference would be the amounts. For the invoice that deducted trade discount, the entries are: Settling an invoice with a trade discount Now let’s imagine 30 days have past and Love Outdoors Ltd have sent a payment to settle the version of invoice 269 that included a trade discount. The invoice total has been received into the bank account and can be double entered to reduce the balance on the SLCA and clear the debt. In this example it’s easier to see that the invoice has been paid in full by looking at the memorandum posting in the sales ledger that duplicates the entry in the control account: The bulk discount invoice would have been processed in the same way as the trade discount invoice and would also result in the debt being settled in full. Therefore bulk and trade discounts alter the calculations for sales and are shown on sales invoices, however, once those invoices enter the accounting records the discount no longer features in their recording or processing. Settling an invoice with a prompt payment discount We’re going to turn back the clock in our ‘what if’ scenario now and look at what would have happened in the accounts if the version of the invoice that offered the prompt payment discount had been issued. The postings are the same as before, only the amounts are different when the entries are made from the sales daybook. However, when we look at the bank receipt we can see that Love Outdoors Ltd sent a payment of £5,761.80. Let’s assume this payment was received 5 days after the invoice date and was in full settlement of the invoice, which was for £5,940. The accounting entries are the same as for other invoices, however, now we have a discrepancy between the amount invoiced and the amount received. The discrepancy is in both the SLCA and the customer’s account but it is easier to see in this example, that the invoice in Love Outdoors Ltd’s account is not clear but in fact showing that £178.20 is still outstanding. The £178.20 is the 3% discount and in part 3 we will look at how to: check that the discount was allowable raise a credit note for the discount record the credit note in the discounts allowed daybook post the entries in the ledger accounts Read part 3 – posting the discount now. Browse the full range of AAT study support resources here
Inside a disciplinary case with AAT investigators Posted 05/18/2021 by Christian Koch & filed under Accountable, Policy. As part of AAT’s Accountable campaign, we look at how AAT investigators maintain high standards and protect the public. Whenever Donna Drew meets new people and tells them she works as an investigator, the reaction is usually one of fascination. “They’re generally impressed,” she says. “Unless, that is, they’re an accountant!” Drew works as a professional standards officer in AAT’s investigations team. While non-accountants probably assume her day job involves pursuing shady subjects and wearing lots of trench coats, the reality is slightly different. The investigations unit follows up complaints or allegations of unethical behaviour made against AAT members. This could range from serious financial crimes such as swindling clients, incompetence or the sadly all-too-frequent problem of operating without a licence. By conducting reviews of AAT members (which can involve office visits) the investigations team plays a vital role in protecting businesses from rogue and inept accountants, maintaining the high standards the public has come to expect from accountants. Here, Drew and her colleague, professional standards officer Adam White, talk us through four recent real-life investigations that ended in disciplinary action to help highlight the importance of maintaining high professional and ethical standards. The following examples are real examples, but names have been changed. CASE #1: NO ANTI-MONEY LAUNDERING (AML) COMPLIANCE Olivia had been running her practice for 11 years. In late-2019, AAT randomly selected her for a practice assurance review. While visiting her office, AAT discovered Olivia prepared financial accounts for clients without any anti-money laundering procedures in place, such as conducting AML due diligence on clients, or providing AML training for her employees. The rap sheet didn’t end there – the investigation also found Olivia submitted tax returns without client approval, and hadn’t kept client files for at least six years (as required by the government). The investigation also unearthed some elemental but potentially damaging errors in Olivia’s work, too, such as declaring income and expenditure as “gross” in the P&L statement, rather than “net”. Olivia’s lack of AML processes meant she posed a risk to the public, and could undermine confidence in AAT. Key issues and outcomes Olivia’s membership was terminated by AAT. However, she can apply for re-admission after two years. Here are some key lessons and takeaways. Revealed through a practice assurance review Drew: “A practice assurance review is where we randomly select AAT members to assess their standards of service. We review around 5% of our licensed members every year, notifying them first so they can prepare paperwork. The review can involve either visiting the office (which takes up to a day), a two-hour telephone review or (during Covid-19) a remote review via video conferencing. Importance of AML Drew: “Sadly, many members aren’t as aware of AML as they should be. We find many longer-serving accountants struggle with this, possibly because AML regulations were introduced relatively recently (2007) and they believe their old systems are adequate enough.” What you should do… Drew: “If you’re unsure about AML procedures at your firm, contact AAT – we’re here to help with any compliance issues you may have. You can also check AAT’s Knowledge Hub, where you’ll find templates to assist with AML compliance. And if you feel your boss isn’t adhering to AML rules, ring or email AAT’s AML whistle-blowing helpline and speak to us anonymously.” “Members aren’t as aware of AML as they should be.” CASE #2: STEALING FROM CLIENTS Nathan owned an accountancy practice. He was facing significant financial problems, which meant he couldn’t provide for his young family. He began to steal from his own company. Instead of filing VAT returns for his clients to HMRC, he pocketed these payments himself. He also excluded £33,000 from his tax return and inflated the turnover of one of his clients from £30,000-40,000 to £141,000 (so it appeared more profitable to the majority stakeholder). One of his clients would send him blank signed cheques four times a year, which Nathan would then make payable to himself to help pay off his debts. A concerned client contacted the police, who arrested Nathan. Nathan’s theft devastated the finances of his clients. One company collapsed, while another had to pay HMRC thousands of pounds every month. Key issues and outcomes Nathan pleaded guilty to theft and fraud, and was sentenced to five years in prison. The judge’s verdict? “There was a massive abuse of power… I’m not satisfied [Nathan] is a man that can be trusted.” Nathan was also expelled from AAT. Abuse of position is rare Drew: “Luckily, crooked accountants like Nathan are very rare. Most investigations involve non-intentional breaches.” Stealing is not the answer Drew: “When accountants commit theft from their own company, financial problems are often the motive. “We’ve also come across gambling problems. Sometimes people borrow money from their firms believing it can be paid back without anyone noticing.” Expelled from AAT Drew: “If an accountant has a conviction for serious (drugs, human trafficking, terrorism) organised crime or is convicted of financial crimes, we wouldn’t approve their application to become an AAT member.” CASE #3: INCOMPETENCE DUE TO PERSONAL PROBLEMS When one of MAAT Anna-Marie’s clients received letters from a debt-collection agency (warning of a £400 HMRC fine) plus a £375 Companies House penalty because her company accounts had been filed late, she contacted AAT to complain. AAT investigated Anna-Marie, finding that she’d shared confidential client information with third parties, had lost client records, and failed to issue letters of engagement. It also transpired Anna-Marie was experiencing turmoil in her personal life, which she said had led to her late filing and errors. Unfortunately, Anna-Marie was not able to provide any documentary evidence to support her claims. Key issues and outcomes Anna-Marie was expelled from AAT membership for three years. Take action White: “If you’re unwell or have personal problems that affect your ability to do your job, you need to ensure this doesn’t affect clients. Anna-Marie should have arranged cover [handing over the practice to an employee or another firm], or released her clients.” Document evidence Medical notes would be a good example of documentary evidence. Expelled from AAT White: “We obviously took Anna-Marie’s personal issues into account, but she needed to protect her clients. Instead, they were fined by both HMRC and Companies House. Such errors breached the AAT’s Code of Professional Ethics, making her a risk to the public.” CASE #4: OPERATING WITHOUT A LICENCE Amala had been an AAT member for nearly 10 years, and had provided accounting services to small businesses throughout this time. She did all this despite having never applied for a licence. When AAT’s investigations team contacted Amala, she told them she hadn’t applied because she’d failed to pass the AML and ethics diagnostics tests six years previously. Since then, she’d been providing services to clients without a license or AML supervision. Key issues and outcomes Because she’d put her clients at risk, Amala was reprimanded and fined £1,861. Stay licensed White: “Members providing self-employed accountancy services without a licence is our highest area of investigation. Most of the time it’s down to ignorance or oversight, such as members simply forgetting to renew their licence.” Pass the AML and ethics diagnostics tests White: “If AAT members fail these tests, they can’t get their licence. However, they can resit the exams.” Fined £1,861 White: “This sum was based upon the annual licence fees Amala should have paid over the past seven years.” “Members operating without a licence is very common.” CALLING ACCOUNTANTS TO ACCOUNT Phil Hall is head of public affairs and public policy at AAT. Here, he talks about the need for accountancy to be regulated Why do some AAT accountants operate without a licence? Most do have a licence but for those that don’t, it’s mostly down to ignorance, rather than a willful attempt to avoid having one. Some people think that once they’re AAT qualified, it entitles them to call themselves an AAT-licensed accountant. Of course, it doesn’t and our professional standards team are pretty good at taking action where this happens. How big a problem is it that some AAT members operate without a licence? It’s not a huge problem but it is an issue that crops up time and time again so we need to continually monitor and enforce here to stay on top of it. A far bigger issue is the third of accountants who are unregulated i.e. they’re not a member of any professional body, often completely unqualified and almost always uninsured. The unregulated are responsible for two-thirds of agent related complaints to HMRC. Solicitors, doctors and nurses all have to be a member of their respective professional bodies so why shouldn’t accountants and tax advisers? What’s the Government doing? The Government has ignored this issue for a long time but is now proposing that unregulated accountants should hold professional indemnity insurance — something professional body members have been required to hold for decades. It’s inadequate, does nothing to address the causes of unregulated advice and scarcely deals with the symptoms. That’s why AAT is running the Accountable campaign, working for all accountants to be accountable by requiring anyone offering paid-for tax advice to be a member of a relevant professional body.
HMRC transformation director writes to AAT members over Covid-19 support Posted 05/18/2021 by AAT Comment & filed under Members. Joanna Rowland, HMRC Director of Transformation, has written an open letter to agents for a year of extraordinary support. Here’s what she has to say: “I wanted to take this opportunity to write an open letter to you, as part of the tax agent community, including members of Association of Accounting Technicians, readers of Accounting Technician and visitors to AAT Comment to say thank you. “Thank you for your support in the last year as we reach the anniversary of the launch of the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS). “Your support has made a real difference, and I would like to pay tribute to both AAT, and you, AAT members. Your help in designing and delivering what has been an unprecedented level of financial support across the United Kingdom has been greatly appreciated. I would also like to take time and reflect on the challenges we have faced together. AAT Future Finance 2021 – available on-demand Gain fresh inspiration and actionable insights from top industry experts. Register now to watch over 17 sessions for those working in industry, practice, and the public sector. Watch on demand “AAT, along with other stakeholders, has been really involved with the economic support schemes, whether advising us on aspects of scheme deliverability, helping us to hone and improve our scheme guidance, or supporting clients. There is no doubt the pandemic has resulted in HMRC working more closely with our trusted partners and stakeholders such as AAT, – allowing us to build on our longstanding relationships which we hope will continue well into the future. “Thanks to you and your members’ continued support – whether you’ve been submitting CJRS claims on behalf of employers or advising your clients on SEISS grants – you’ve made a real difference and have allowed us to pay out the relevant grants to support individuals and employers and protect jobs. I know it’s not been easy, with many of your members often juggling challenging circumstances at home and work as a result of the pandemic, but I hope you agree it’s worth it; to date, over £61bn has been paid through CJRS to 1.3m employers, and over £19bn as part of SEISS to 2.7 individuals. “And there’s still more to do, now that extensions to the CJRS and SEISS have been put in place until the end of September 2021. “For the CJRS, until the end of June 2021, the UK Government will continue to pay 80% of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month. For periods in July, CJRS grants will cover 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50. In August and September, this will then reduce to 60% of employees’ usual wages up to a cap of £1,875. “Similarly, for SEISS, the UK Government will pay a taxable grant which is calculated based on 80% of three months’ average trading profits, paid out in a single payment and capped at £7,500 in total. The value of the grant is based on an average of trading profits for up to four tax years from 2016/17 to 2019/20. “We’ve been contacting self-employed people with their personal claim dates to confirms the earliest date they can claim. The online claim service is open, and all claims must be made by 11:59 on 1 June 2021. “I’m extremely proud of the way my colleagues in HMRC have risen to the challenge of delivering the schemes, and hugely grateful to AAT members, who I hope are also proud of the contribution you have made. There is still much work for us all to do yet, and we value our strong working relationship with AAT. We will continue to consult closely with you as we do all we can to support our customers. “ Joanna Rowland, HMRC Director of Transformation.
10 things to help you develop and recall your synoptic skills Posted 05/18/2021 by The content team & filed under Students. Synoptic assessments encourage you to combine elements of learning from different parts of your studies to demonstrate your understanding across topics. In particular, they assess your ability to link elements from a number of units across a qualification. This mirrors how we apply knowledge in everyday life. Having deeper context for even straightforward questions sustains a network of associations that help retrieve information and apply it in different situations. Accountants must be able to explain different accounting concepts and theories, as well as analyse the results of certain calculations – what they mean, how they will affect the client’s business, and what action the client should take as a result of these figures. In your AAT synoptic assessment, you may be asked to write about certain concepts and theories, explain the results of certain calculations, or analyse data in order to make a decision or recommendation. 10 things you can do to help develop and recall synoptic skills in your study Become familiar with the test specification for the synoptic test unit. The synoptic test specification is slightly different to a unit test specification, as it includes the specific learning outcomes from each unit that will be addressed, rather than just covering one unit.Synoptic assessment objectives cover more than one learning outcome across multiple units. To help prepare yourself for a synoptic assessment, make a note of which learning outcomes are included against each assessment objective. This will help focus your studies and think “synoptically”.Review the practice assessments and Sample Assessment and Mark Schemes (SAMS). The practice assessments will help you familiarise yourself with the assessment environment and question format.Stay focused on the question that has been asked – always go back to the original question and check that you’ve clearly addressed the question.There is a requirement to write extended responses in the synoptic assessment. Depending on what the task instructions are asking for, key command verbs are used to prompt you to respond in a certain way and require varying levels of detail. Command verbs are the words in your exam questions that tell you what the examiner is expecting you to do. They are normally the first word in each question. Check out the e-learning module on writing skills on the AAT Lifelong Learning Portal.Practicing your writing skills and responding to different command verbs will help you, even if you practice with everyday subjects. When you feel more confident, try limiting the time you allow yourself to write a response to practice writing under timed conditions.Look back at the units you’ve already taken. Refresh your knowledge, understanding, and skills across all contributing units of the synoptic.Read the latest Examiner’s Reports on the AAT Lifelong Learning Portal. The Examiner’s Reports review each of the assessment tasks, noting where students do well and where there are areas for improvement (see page 26 for more).You can find a wealth of study resources on the AAT Lifelong Learning Portal.Remember to stay calm and reflect on all you have learned. Further reading: The secret to tackling your synopticHow to retain what you’ve learntHow to keep what you’ve learned and carry on
From adversity to diversity, one member’s battle with racism Posted 05/17/2021 by Annie Makoff & filed under Inspiring stories, Members, Women in finance. When Jacqui Burnett was repeatedly shunned by a colleague, she placed a vase of flowers between them and got on with making a difference. You can never tell where an AAT qualification will take you. Back in the eighties, Jacqui Burnett found it hard to even get a job. Now she is an Executive/Cabinet member at Luton Borough Council and Portfolio Holder for Safer and Stronger Communities, having built a colourful career that has included being a member of the Arts Council, a school governor and a Windrush ambassador for the Home Office. “It was really hard to get a job in finance during the 1980s,” remembers Burnett. “I experienced racism and I struggled to progress in my finance career once I got my foot on the ladder. It wasn’t like ‘I hate you because you’re black’, it was more subtle than that.” Hiring managers would tell Burnett she was either overqualified or underqualified; they didn’t think she’d stay long in the role, or they didn’t think she was a good fit. “I lost count of the number of finance jobs I applied for where they used those excuses,” she says. Eventually she secured her first finance role as an admin finance assistant at London Buses before moving to London Underground where she worked in several roles from Information Assistant to Operating Management Accountant. She may have ended the working day reeking of cigarette smoke, but Burnett has fond memories of her tenure at LU. “We worked hard and we all pulled together. It was a lovely family feel. We laughed lots.” It was quite different when Burnett moved to Bedfordshire in 1987. Systemic racism, it seemed, was rife in the home counties. The loaded questions asking where she was born, the raised eyebrows when colleagues discovered her children who attended one of the top state schools in the country had gone skiing ‘even though they were Black’, or Burnett herself being constantly overlooked for promotion in favour of white peers. “In the 1990s, there were a lot of Australians and South Africans who had moved to the UK for a gap year, got a university degree and land themselves a job in finance. I’d train them and then they’d get promoted above me. Time and time again I saw white staff with less experience land Financial Director or Finance Manager roles, yet Black people like me, who were born in this country, never got those kind of opportunities.” And then there was the lady who Burnett sat opposite at work every day for years, who never spoke to her, not even to say ‘good morning’ or ‘good evening’. “She never said one word to me, only to my boss. In the end, I just placed a vase of flowers on the desk between us, so I had something lovely to look at instead.” Burnett says she had to prove and justify herself and her qualifications time and time again, something she explains, is a common experience for many Black employees. “Every time you have to remind someone of how qualified you are, it’s traumatic: justifying yourself as a Black person again and again and again. Other people don’t have to do that.” On one occasion, during an appraisal, after Burnett had spent months improving the finance function resulting in a positive internal report audit at her public sector role in Luton, her manager told her she did not think her ‘personality’ suited ‘parochial’ Bedfordshire. Burnett took the opportunity to complain using the right channels, but shortly after, she was told they had decided to ‘reorganise’ the team and her post was being dissolved. After union intervention, Burnett was offered an alternative post, but Burnett was ready to move on and take her skills elsewhere. Burnett focused her attentions on her local community, moving into diversity and inclusion (D&I). However, she never forgot her accountancy training. And she continues to use accountancy skills in her day-to-day roles. “My accountancy background has stood me in good stead,” she explains. “Especially from my time at London Underground – I was offered every type of support and training needed. I couldn’t want for more. Since moving careers, I still work with budgets and I’m the one who likes to delve in and look at the numbers, where a lot of my colleagues are more ‘blue sky thinking’. My accountant skills also helped ensure we created a permanent financial scrutiny committee and not many local authorities have that.” As Burnett explains, she’s used the skills, knowledge and experience gleaned from qualifying with AAT and later being a member in every role she’s had since – including being a member of the LGPS Bedfordshire Pensions Board and setting up Connect2Luton, a joint venture with Kent Commercial Services during the pandemic. Connect2Luton employed Luton residents at the town’s Covid-19 testing centres, ensuring it had a positive impact on the local economy. And there’s another hugely significant element, inherent in accountancy which Burnett brings to her role: ethics. “I’m a politician but when you’re trained as an accountant, ethics are massive. I always have ethics with me, on my conscience. I’m always mindful of my professional conduct, which possibly a lot of other politicians aren’t. My professional conduct is with me all the time, in everything I do.” Since retraining, Burnett has worked across human rights, fire services, housing developments and now, in her current role as Executive Cabinet member and Portfolio Holder for Safer and Stronger Communities, she looks at ways to improve community safety and engagement alongside health and safety initiatives and compliance. She has also helped close the attainment gap for African heritage children from 23 per cent with five GCSEs including Maths and English in 2004 to 78 per cent with five GCSES in 2015 and spearheaded several community projects including the Luton-based youth jazz orchestra for young people from a diverse backgrounds to play with professionals. And she’s a member of the Windrush national organisation: her own parents were of the Windrush generation. “It’s about righting the wrongs,” she explains. So what’s the thread which links all this community work, both professional and voluntary together? “Levelling up,” says Burnett. “Without question, it’s about levelling up from an equity, not equality point of view.” She uses the analogy of watching a basketball game behind a wall. Treating everyone equally would mean that everyone is treated the same, but those who are lower down or smaller would be unable to see the game. “We don’t all start from the same place in life,” Burnett explains. “Some of us will need bigger boxes to help us watch the game. Then we can all enjoy it.”
What you should know about the new HMRC penalty system for late submissions Posted 05/17/2021 by Annie Makoff & filed under Making Tax Digital, Members. HMRC has introduced a new points-based, late-submission penalty system – how well will it work? HMRC is introducing a new points-based penalty system for late submissions, effective from April 2022 for VAT customers. For those submitting Income Tax Self Assessment (ITSA) and whose businesses and property income is over £10,000 per annum, the new system comes into effect from 6 April 2023. For all other ITSA submissions, the system will be effective from 6 April 2024. The new system is intended to be fairer for those who occasionally miss deadlines, but cracks down on those who are consistently late with payments and submissions. AAT Future Finance 2021 – available on-demand Gain fresh inspiration and actionable insights from top industry experts. Register now to watch over 17 sessions for those working in industry, practice, and the public sector. Watch on demand Currently, late submissions and payments of VAT returns results in an automatic fine, known as a single default surcharge, which is a certain percentage of the VAT due on the return. First defaults on business accounts are liable for a 2 per cent surcharge, followed by 5 per cent, 10 per cent and up to a maximum of 15 per cent. Although the amount is fixed and does not increase over time, nor is interest accrued on late payments, the fines can nevertheless be substantial. The new system, however, aims to bring VAT in line with existing penalty systems applied to direct tax returns. Here’s how it will work: Late payments There will be no penalty for late payments made within two weeks of the due date, but penalties will be applied in increasing amounts after this cut-off point. 2 per cent penalty of money owed if the late payment is made between 16 and 30 days after the due date.4 per cent penalty of money owed if payment has not been made after 30 days.A second penalty of an additional 4 per cent per year, calculated on a daily basis of total money owing will be incurred from day 31. Taxpayers should approach HMRC directly to agree on a Time to Pay Arrangement if they are struggling to pay their tax. Late submissions This is where the points system comes in. Each submission obligation has its own separate points threshold, depending on the frequency of tax returns, as follows:Annual submissions: two-point thresholdQuarterly submissions: four-point thresholdMonthly submissions: five-point threshold.One point is accrued following a late submission.Failure to meet one obligation but submitting on time for others will only accrue one point corresponding to the late or missed submission.Once the points threshold of a submission obligation has been reached, a capped fine of £200 will be payable.Further missed submission deadlines after a penalty fine has been issued will result in further penalties.Penalty points will expire after two years, providing the account remains under the point threshold and current submission deadlines have been met.If the points threshold has been reached, points will only be reset once all deadlines have been met for a particular time period:Two years for annual submissions12 months for quarterly submissionsSix months for monthly submissions.In addition, taxpayers will need to submit everything outstanding over the previous two years. So, what do accountants think of the new points-based, late-submission penalty system? A progressive scheme, which gives taxpayers the chance to improve Ercan Demiralay, Partner, Wellers The new system will make things fairer because where you make two late monthly submissions, you’ll only accrue one point; the idea being to provide taxpayers with a chance to improve and not suffer too many penalty points and hence financial consequences. However, it will be tricky to explain the taxpayer’s penalty points position at any given time, and for those registered on numerous schemes, it might be difficult to keep up to date. An unforeseen event could trigger missing multiple returns/payments and hence points could rack up quickly and penalties payable could escalate. Next steps: This is a progressive scheme encouraging clients to meet their deadlines and allowing the occasional delays that taxpayers may encounter. The message is still that clients should do their best to meet every deadline, as it is good practice and avoids uncertainty and unnecessary costs escalating. Verdict: A progressive scheme, which will make things fairer overall. This slap-on-the-wrist system could be effective – but we need consistency Laurence Field, corporate and international tax partner, Crowe UK A bit like getting punished for speeding, taxpayers will get points on their record for submitting returns late. Incur enough points and what do you get? Fines. HMRC is clearly trying to get more consistency into its penalty processes, as well as reducing the administrative burden by encouraging taxpayers to accept the slap on the wrist of penalty points, which doesn’t give rise to immediate fines. This latter element allows HMRC to encourage businesses to make improvements to their systems, without imposing an immediate penalty, but clearly with the threat that future transgressions could be costly. Clarity over process is no bad thing. Given that HMRC has discretion over when to issue points, the key will be ensuring that the discretion is exercised consistently. This may result in a zero-tolerance policy – albeit one that is consistent. Next steps: The new system will provide a good opportunity for businesses to make improvements to their in-house systems, as penalty points will be seen as a warning to improve, rather than being met with automatic fines. Verdict: The slap-on-the-wrist system may be enough to change behaviour, but the element of discretion must be exercised consistently. The new system is very clear and will proportionately affect repeat offenders Craig McCall from Alchemy Accountancy The new system will see a VAT-registered taxpayer receive a point if they miss a submission deadline for accounting periods beginning on or after 1 April 2022. There’s a points threshold, so if the taxpayer accrues two points a year, four points a quarter or five points a month, they become liable to a fixed penalty of £200. It’s intended to proportionally affect those who miss deadlines regularly, rather than those who occasionally default. The penalties are very clear because they’re fixed. For example, currently, a second VAT return default in a 12-month period can trigger a 2 per cent tax charge, penalising those with a higher tax bill on that second late return. It’s unlikely that the new system will be enough to discourage repeat offenders, though. Repeat offenders may deregister for VAT by deliberately lowering their annual taxable turnover to below £83,000 and avoid the new regime altogether. Next steps: Stay up to date with affairs. It’s important that businesses understand the new system and the penalties that will arise at each point. Verdict: The new fixed penalties are very clear and will only really affect those who miss deadlines regularly. The new points system will be fairer and gives businesses enough of an incentive to get organised Lucy Cohen, co-founder, Mazuma Money Instead of getting an automatic fine if you miss a deadline, under the new system you’ll get a penalty point. The more deadlines you miss, the more points you get, until you reach your penalty threshold. After passing this threshold, you get a £200 fine (and another £200 fine for every subsequent deadline you miss). You can appeal points and penalties just like you can currently, but you’d need to prove a reasonable excuse. Missing one deadline out of many in a year is hardly indicative of a dodgy character and poor record keeping – so it’s fair that those who accidentally fall foul of the deadlines don’t get penalised too heavily and are given the opportunity to correct their behaviour. However, I’ve seen people bury their head in the sand for years with penalties and interest accruing daily, so I’m unsure if it will help change the behaviour of those who have become totally overwhelmed. Overall, it’s a big change and quite complex to get your head around! The added complication of Making Tax Digital for sole traders means that a large group of taxpayers will also suddenly have a lot more deadlines to contend with. Next steps: We’re advising businesses to speak to their accountants and check what systems they have in place. Double-check contact details with HMRC to make sure nothing goes amiss. Most of all – get organised! Verdict: It will be a fairer system and gives businesses and individuals enough of an incentive to get organised. The system may encourage smaller companies to get organised and hit deadlines Carolyn Atkinson, director, Sheards Accountants At first glance, the system appears to be fair, transparent and clear, especially for those businesses that have a genuine reason for missing a deadline. However, for smaller businesses that may simply overlook the date due to having responsibilities for the overall operations of their business, the fine might be enough of an incentive to encourage timely filing. For repeat offenders who already incur fines, I can’t imagine their behaviours particularly changing. There are those who struggle with tax compliance and just accept penalties as if they are ordinary business costs. If anything, it will be those who accidentally overlook deadline dates that will be most affected by the changes. Next steps: Businesses have been bombarded with a raft of new changes over the past few years, so clarity around what it applies to and from when will be absolutely vital, for example, only regularly filed returns will be covered by the points-based system, whereas on-off filings such as corporation tax and VAT652 will continue under the old penalties regime. Verdict: The system could help smaller businesses who may have missed deadlines accidentally to become more organised.
AAT welcomes government pledge to move more people up the career ladder Posted 05/11/2021 by David Nunn & filed under News. AAT has welcomed the Government’s pledge to boost skills and support alternative pathways to develop a successful career. The promise was made in the Queen’s Speech and included funding for training courses such as AAT’s Level 3 Advanced Diploma in Accounting and Advanced Certificate in Bookkeeping qualifications. The proposed changes include a new student finance system to give every adult access to a flexible loan for higher-level education and training at university or college, which they can use at any point in their lives. Employers will also be handed a statutory role in planning publicly-funded training programmes with education providers, through a “Skills Accelerator” programme. AAT believes these changes can support social mobility and boost recovery. Mark Farrar, Chief Executive, AAT, said: “The announcements in the Queen’s Speech will help even more people across the UK access the training they want or need to reskill, whatever stage of their life or career, and give them access to wider opportunities to thrive in a rapidly changing business environment. “AAT is pleased to see the Government’s ongoing commitment to lifelong learning, which will be vital to the UK’s economic recovery following the pandemic. The Lifetime Skills Guarantee has the potential to create new opportunities and we look forward to next week’s announcements for the detail on how people will be supported, including loans. “Whilst there are many positives to be taken from the new measures, we would also want to see more support for the UK’s small and medium-sized enterprises to ensure that available training matches the needs of local economies, including reform of the apprenticeship levy. Doing so would help to tackle regional skills gaps and improve job prospects, whilst also meeting the needs of the economy as we navigate the coming months.” AAT’s Level 3 Advanced Diploma in Accounting and Advanced Certificate in Bookkeeping qualifications are both included among 400 fully funded courses as part of the Lifetime Skills Guarantee. These fully-funded courses are now available to adults aged 24 or over seeking their first Level 3 qualification. A Level 3 course is equivalent to a technical certificate or diploma or two full A Levels. AAT courses are open to anyone regardless of age, school qualifications or background. Prime Minister Boris Johnson said of the new Bill: “I’m revolutionising the system so we can move past the outdated notion that there is only one route up the career ladder, and ensure that everyone has the opportunity to retrain or upskill at any point in their lives.”
How to use visualisation tools to make your data persuasive Posted 05/10/2021 by Calum Fuller & filed under Digital download, Members. How are different accountants using data visualization and what approaches work best for them? For all the deep-diving into your data and powerful forecasting, you need to be able to present it in a compelling and understandable way. Moore’s law argues that the power of technology doubles every year, and the rate of progress in accounting technology may be no exception. But powerful automation and data modelling abilities are only useful if the insights they bring are brought to life in a way that can be easily understood and interpreted by colleagues and clients. Here are some approaches other accountants are using to get great results. 1. Keep it simple The most effective visualisation and reporting tools use as few steps as possible. Once you’ve identified which reports you need to run, you may not necessarily need a third party app to achieve the best results, especially if you’re only reporting financials. “Wherever possible, the number one thing to look for is not having to outsource that to another app,” explains Rachel Martin, founder and director of Accountant_She. “It’s best to generate the information from your accounting software and you should be able to get all the information from what the client gives you without having to include anything else. If you’re not able to do that, the most important thing is the integration and not having to duplicate any work. It’s vital to have automatic connections and two-way data feeds so you’re able to feed information in, make amendments and those amendments would feed back into the accounting software.” The primary strength of third party apps, Martin says, comes when some of the KPIs you are reporting on are non-financial, such as environmental benchmarks, R&D progress, staff retention, marketing impact and lead generation. “Information that comes from your accounting software will only be able to feed you accounting information. If that report is going to a board, for example, it’s not just a finance director on a board – there’s also marketing, recruitment – so with a third party app you can enter in and track other KPIs.” 2. Collaborate If you do produce reports on non-financial information, third party apps can become useful collaboration tools with other teams. “You would ask your client what your top KPIs are outside of finance, and you might look at return on investment in different marketing streams,” explains Martin. “That’s working in partnership with your accounting data, but you’d need your marketing team to input into the app where the leads have come from. Most small businesses do a lot of that themselves and manually calculate the return on investment and that’s where the third party apps really help. Normally in a bigger business you’d use it as a collaborative tool and you’d connect it with your CRM and track your sales leads and recruitment and report on all of those things and manage your data.” 3. Have fun with it Once you’re happy with the information you’re producing for your reports, you can begin to get creative with the presentation. “It depends on what your board is like, but some might place appearances very highly on their priorities, while others might be more interested in the data,” explains Martin. “Once you’ve got that process set up, it exists for everybody. It can be intensive at the start, making sure it’s right, but once you know the numbers are right, you get to have fun with it.” 4. Unlock opportunities Crucially, while many may view reporting in this way a more superficial and aesthetic exercise than a substantive one, displaying and reframing data in different ways can lead to the identification of new opportunities. For your app stack Making sure you have the right reporting and visualisation tools is vital for any organisation. Here are some of the most widely-used options on the market. Fathom Fathom allows users to create analytics, reports and dashboards that enable you easily compare, rank or consolidate multiple departments and organisations. As with many reporting tools, Fathom is customisable and integrates with Xero, QuickBooks Online and MYOB. It also allows users to monitor trends to identify improvement opportunities. Requirements: Xero, Quickbooks Online, MYOBPrice: £33.00 / month with a 14-day free trial https://www.fathomhq.com/ Spotlight Spotlight is versatile and offers a range of comprehensive management reports, fully customisable dashboards, three-way forecasting (linking your profit and loss, balance sheet and cash flow), and franchise reporting. It is also capable of reporting across multiple entities, such as franchise, not-for-profits and industry specialists. Requirements: MYOB, QuickBooks Online, Sage 50cloud Pastel, Xero Price: £25.00 / month (single business) with a free trial. https://www.spotlightreporting.com/ Clarity Clarity monitors seven key metrics (revenue growth, gross profit, operating profit, revenue per employee, core cash, cash days and business return) and produces regular reports on your business’s performance. It can also be used to build step-by-step development plans and access funding. Requirements: QuickBooks Online, Xero Price: £50.00 / month with a 14-day free trial https://clarity-hq.com/uk/ Case study: “Use apps to reframe your numbers” Many third party reporting apps, such as Fathom, are able to incorporate non-financial KPIs into reports alongside their financial counterparts. Doing so allows businesses additional flexibility in their reporting and, in many cases, assign monetary value or cost to non-financial and operational activities, such as inventory or lead generation. Third party apps are also able to represent financial information in a wide variety of ways, which can be easily read and understood. Spotlight shows a business’s financial position though its balance sheet, equity and two representations of its liquidity. Impact Nobody likes to see a spreadsheet full of thousands of cells of data. It can be overwhelming and have the effect of drowning out the key information. Tips to get started 1. Be confident in your numbers The basis of all good reporting and the effectiveness of reporting and visualisation tools is correct and up-todate data. Make absolutely sure that the data you’re working with is sound before you explore representing it in new and exciting ways. 2. Identify your KPIs This will help determine whether you can use standard accounting software for your reporting and visualisation or require a third party app. Third party apps can provide everything you might need, but if you only need financials, you can achieve that with your standard accounting software. 3. Experiment Once you’re happy with your numbers and benchmarks, you can experiment with the format and presentation of your data until you find something that works for you, your clients and/or colleagues. 4. Spot issues and opportunities The way data is presented can influence how it’s interpreted and understood. Reframing data can, as result, lead to the identification of problems and opportunities if done correctly. Take the time to re-examine how you’re presenting information to make sure you’re getting the most from it.
How retailers could be affected by FRC rent concession reporting requirements Posted 05/10/2021 by Annie Makoff & filed under Coronavirus, Financial accounting and reporting. Special conditions for reporting rent concessions in the pandemic could be extended by a year. Here’s what it means. During the pandemic, many entities struggled to pay rent and meet lease payment commitments for their rental properties, which led to negotiations between tenants and landlords in the form of rent concessions (deductions in rent or waivers) or rent deferrals (an agreement to pay rent or lease payments under a later date). According to the FRC, the prolonged duration of the pandemic has made it necessary to extend the existing reporting time for a further 12 months to ensure consistency and accuracy in financial records. The latest proposals would be an extension of existing amendments to reporting standards. Extending the time period to which rent concessions can be taken into account enables businesses to present a clearer picture of their performance in year-end accounts. In essence, the Financial Reporting Exposure Draft (FRED) 78 amendments to FRS 102 proposes that: Current requirements which apply to rent concessions relating to Covid-19, are extended beyond 30 June 2021 – this would then apply to rent concessions for lease payments due on or before 30 June 2022. The proposals will only affect entities that agree temporary rent concessions due to the pandemic and will only apply providing other conditions within FRS 102 and FRS 105 are met.The proposals would be effective for accounting periods beginning on or after 1 January 2021. FRED 78 would apply to both FRS 102 and FRS 105, and are open to comments until 11 May 2021. So, what do accountants think of these proposals? FRED 78 will help improve accuracy of financial statements Stuart Brown, director, Duncan & Toplis The latest FRC proposal relate to the way rent concessions are recognised in financial statements. It allows for the disclosure of the reality of rent concessions for businesses, by recognising the concession in full for the period of the concession. So if the business doesn’t have to pay rent for a given month, no expense will be recognised for that month. Previously, this reduction in rent would have been recognised over the life of the lease. FRED 78 proposals will therefore be useful, as they will give a clear picture to the user of the financial statements that no rent is expensed during the period of the concession. Next steps: I would advise all entities that can utilise this to do so, as it gives a clearer picture to users of their financial statements. Verdict: FRED 78 will help provide a clear and accurate picture to users of financial statements. FRED 78 proposals and continued rent concessions still have merit, providing retailers return to profitability John Bell, director, insolvency practitioners, Clarke Bell Where there is a strong chance the retailer will return to profitability, assisting the tenant’s cash flow by rent concessions as well as providing a more accurate picture of business performance by extending the reporting period for rent concessions, then these proposals absolutely have merit. However, many entities will not recover, and the rent liability will eventually have to be paid. Even so, the ability to accurately record rent concessions is still vitally important to provide a true and accurate picture of business performance, especially when support through rent concessions has been given. Next steps: For retailers struggling to pay rent, the writing may already be on the wall and they could be facing insolvency, although they have options: Liquidation – for those who have little chance of business turnaround. This can be done as a Creditors’ Voluntary Liquidation, whereby an insolvency practitioner liquidates a company and stops it from trading and operating. It’s a voluntary process initiated by company directors and shareholders. Alternatively, Compulsory Liquidation is a more serious form. A company is forced to stop trading by creditors who issue a winding-up petition to the court if a company owes them £750 or more and their payment demands have gone unfulfilled.Company Voluntary Arrangement (CVA) – this aims to turn the business around and restore profitability, and allows an insolvent company to come to an agreement with creditors to repay its debts over a fixed period of time. While under a CVA, the director remains in control and the business can continue to operate and trade. Verdict: Any measures to support retailers have merit but regardless, some entities may still not survive anyway, especially if they have not returned to profitability. The proposals are appropriate and could be extended again in the near future Carl Reader, chairman, d&t chartered accountants The latest FRED 78 proposals will allow companies to report more of an accurate picture about the substance of their business in terms of cash management, performance and, of course, rent-related support measures. In essence, FRED 78 is an emergency change to make financial accounts look more realistic, and will help represent a truer position, so when an outside party looks at these accounts, it will reflect the businesses’ economic reality. In my view, the FRC’s revision is therefore appropriate and it makes sense to implement these changes. The FRC may look to extend the reporting period again, at least until the end of the pandemic. The reality is that there are a lot of unknowns right now – we can’t predict future case surges, we don’t know how or if the virus will mutate, nor accurately predict the strength of vaccines over time. So there’s an inherent risk of future lockdowns, especially during winter, and the retail sector will be in the same position as before. Therefore, extending rent concession reporting will be of huge benefit for greater reporting accuracy. Next steps: We won’t be advising businesses to battle against these changes, as they make good economic sense. We will continue to advise and support them as we have been doing. Verdict: FRED 78 is an appropriate revision, but further extensions may be necessary as the pandemic drags on.
Common mistakes students make in foundation assessments and how to avoid them Posted 05/10/2021 by The content team & filed under Students. AAT publishes Examiner’s Reports for all assessments, which reveal what areas of assessments students are performing well in, and the areas they are struggling with. The reports are intended to be constructive and informative and promote a better understanding of the assessment requirements. Here we outline some common errors made in the Foundation assessments and how to avoid them. Bookkeeping Transactions Common mistake: Incorrectly calculating net and VAT amounts On average, students completed the assessment in 73% of the 90 minutes available, with the most time spent on Tasks 1 and 3.Even the most successful students often fail to recognise simple calculation errors, so any remaining time should be used to review responses.The most common error in this assessment was incorrectly calculating net and VAT amounts from a total amount. Students should focus on improving their skills in: Extracting net and VAT amounts from a total amount.Balancing T accounts.Transferring amounts from the cash book to the general ledger. Elements of Costing Common mistake: Not reading the questions properly On average, students completed the assessment in 72% of the 90 minutes available, with the most time spent on Tasks 3, 4 and 8.There is sufficient time available for students to spend longer on tasks and to take their time to properly read the questions.A key area of strength for students was in completing inventory records and completing basic pay calculations. To prepare for the types of questions in this assessment, students should complete the: Real-life scenarioe-learning modulesGreen light testPractice assessments Using Accounting Software Common mistake: Not providing enough evidence On average, students complete this assessment with around 20 minutes to spare, so they should take time to check that the correct evidence is uploaded.Students need to ensure that they are familiar with the reports that their specific accounting software produces.Students that are not yet competent are neglecting to sufficiently evidence the completion of tasks. Common errors across tasks are: Failing to enter transactions using the general ledger code provided in Task 3Failing to accurately enter information provided in the task – in particular, dates and referencesFailing to upload evidence in accordance with the assessment requirements Full reports can be viewed on the AAT Lifelong Learning Portal (log in to view content). Further reading: Study tips: discounts calculations (foundation bookkeeping)Preparing to sit your assessmentWhy students fail assessments