Events sector optimistic of a New Year bounce back Posted 11/16/2020 by Mark Rowland & filed under Members, Road to Recovery. The events industry has been hit hard in 2020, but there is hope that 2021 will make up for it Previous restrictions including the rule of six and the 30-person limit for certain events have affected profit margins.The British Events Industry Coalition (BEIC) was launched in October to give a voice to the private events industry. 2021 could see a ‘bottleneck’ in supply chains for event bookings The sector will bounce back next year as people ‘itch’ for a return of in-person events. It’s been a year of disruption in the events calendar. Major music festivals such as Glastonbury and Reading, the 2020 Wimbledon championships, countless arts, literary and street festivals along with business conferences and private events were either postponed or cancelled altogether. For an industry that usually brings around £70bn a year to the British economy, the pandemic has had a catastrophic impact. A motion tabled to Parliament in July to schedule a sector re-opening warned that 700,000 jobs and 25,000 small businesses were at risk, while the ‘rule of six’ restriction brought in during October put a further 90,000 exhibition sector jobs in jeopardy. Practice Pros: adapting to a new level of client support In this on-demand webinar, AAT Licensed Accountant, Sam Mitcham, shares advice on how to use the tough times to develop stronger client relationships. Learn more Dating events company Smudged Lipstick Events has been significantly affected. With a USP of ‘quirky, offline experiences’ designed to get people off their phones and enjoy in-person events, the prospect of lockdown and moving everything online felt like a backward step to founder Jordi Sinclair. “Our brand is based around improving people’s offline communication skills. When lockdown happened, I watched other businesses move to online events which puts people behind screens again,” Sinclair recalls. “It felt like we were going back to square one.” Lost revenue in customer refunds and declining sales Without having a clear timeline of when things could go back to normal, Sinclair was forced to cancel every planned event. “We spent so much money on marketing these events; then bang, we had to refund every customer when the first lockdown was announced. It was unbelievably disheartening.” Even when things temporarily opened up in July and August, Sinclair struggled to find venues to host events – many had gone into insolvency. He felt at the mercy of the hospitality industry: with venues closed, the events industry couldn’t operate. Being a limited company, Sinclair was not entitled to any government support or benefits. He realised he had to adapt or lose business. Smudged Lipstick Events have now diversified their offering and have built up their online brand. They host a mix of online dating nights with ice breaker games and activities, ‘bad dating stories’ open mic nights and social nights for friends. More recently, Sinclair has developed online team building events for corporates. “It brings in less money than in-person events, and there are fewer people [in attendance], but it means my rent is paid each month,” he says. “Revenue has dropped to about 16% of what I normally earn, and that’s on a good week.” Government discussions with private events sector needed Katie Soraff, tax specialist and co-founder of the newly-launched British Events Industry Coalition (BEIC) shares his concerns. She and three other industry professionals set up the coalition in October to give a voice to the private events sector during the pandemic. The private events sector which includes charity and small corporate events, gala dinners as well as so-called lifecycle one-offs such as weddings, birthdays and bar mitzvahs is worth an estimated £10bn a year according to the BEIC. It mostly consists of small business owners, sole traders and freelancers working as face painters, DJs, events planners etcetera. But, says Soraff, they have been completely overlooked. “The government have lumped us all in with the large exhibition and live music sector, yet we operate on a much smaller scale,” she explains. “We’ve become 90% wiped out. Even when certain events were allowed during the summer, the 30 people limit made it impossible to make any money. Professionals in the private events sector have had their work stripped away. I’ve known several DJs who are now driving for Amazon or have gone into painting and decorating. People’s income has totally dried up.” BEIC don’t want financial hand-outs which would only be a short-term stopgap. Instead, they want a line of communication with the government, which would pave the way for the private event sector to re-open after lockdown with safety measures in place. Industry bounce back Kaziu Gill MAAT, co-owner of Lime Green Accountancy, works with several businesses across the events sector. He is optimistic that the industry will bounce back. “Events businesses ground to a halt when lockdown started in March, and many weddings were postponed, but many of our clients have had a flurry of bookings for next year already,” he says. “It’s been brutal for one-person companies and those running freelance gigs, and there have been many job losses, but I’m optimistic the industry will return as healthy as ever. I think Spring 2021 will be like the roaring ’20s.” Even so, Gill believes there is likely to be a bottleneck in venues and sector supply chains due to ‘pent up demand’, which could drive prices up for the end-user, so clients and customers should expect to pay more to secure the dates and services they want. When the events industry does re-open, it’s likely to look different. “With everything going online, there’s been a huge boom in digital events,” says Gill. “Digital and virtual events are likely to emerge as a subindustry which will continue to grow long after lockdown.” Adapting existing product offering It was certainly the case with team-building event services Zing Events who had to adapt their offering completely. Having worked in the events industry during the last recession, co-founder Andy Wells says he knew they needed to react quickly and ‘invest heavily’ in software if they were to survive. Within weeks of lockdown, the company moved its entire events programme online. It now hosts augmented reality versions of their in-person team building events including escape room and crystal-maze type challenges as well as online cocktail masterclasses and cookery classes. “We run around 50-60 virtual events every month now. We’ve been busier than we’ve ever been, even in September which is traditionally a quiet month,” says Wells who hosted an online event for 800 Vodafone employees last month. “Virtual makes it easier to bring teams together too, especially for multinationals with offices across the globe. I think this is where the industry will go – these virtual events are here to stay.” Encouraging outlook for the industry So with the surge in popularity in digital events, could it be the beginning of the end for tightly packed music venues and sporting events? Gill doesn’t think so. “As a nation, we’ve always been big on live events, and that isn’t going to go away because of a virus,” he insists. “People are itching to return to the tangible, physical world. They can’t wait to pack into a football stadium and cheer on their team or get back into the mosh pit.” Ultimately, Gill is confident that the sector will see a healthy return. Agile companies can weather the storm, as long as they diversify their offering and take advantage of government schemes and loans including bounce back loans, the Coronavirus Business Interruption Loan and the Cultural Recovery Fund offered by the Arts Council England. “There is enough help and support out there for events businesses,” he says. “The pandemic will leave a scar which will take time to heal, but the industry will revive because demand will return.”
Brexit: How accountants are preparing clients for VAT changes Posted 11/16/2020 by Mark Rowland & filed under Brexit. Post-Brexit VAT could be complicated. Accountants are pushing clients to prepare When the UK leaves the Single Market on 31 December, it will also leave the EU VAT regime. It will no longer be bound to EU principles such as fiscal neutrality, abuse of law or legitimate expectation. Brexit Webinar: VAT for imports and exports This webinar will bring you up to speed on the significant changes to the movement of goods from Great Britain to the EU, how goods are reported, and the conditions for zero-rate goods exports, plus the Northern Ireland protocol. Register Some thinktanks see it as an opportunity for the UK to take a more flexible approach, and others are calling for it to be abolished altogether (though given the revenue it brings in, this is unlikely. Either way, UK businesses selling goods both in the UK and the EU will have to be compliant with local rules. How much things will change depends on whether the UK gets a trade deal with the EU and what that might entail. Essentially, the UK will become a ‘third country’. Goods crossing international borders will be subject to import VAT. In a no-deal scenario, the government has said it would introduce postponed accounting for import VAT to help businesses ease into the new regime. Other major changes include: Many businesses (an estimated 145,000-to-250,000) will have to make import-export declarations for the first time. UK businesses might need to engage VAT representatives in different countries in order to comply with VAT obligations across the EU. The EU VAT Refund Portal will no longer be accessible for UK businesses, and it will likely take longer for businesses to receive refunds,Digital services companies supplying EU non-business consumers using the EU Mini One-Stop Shop (MOSS) scheme will have to switch to the non-Union scheme to account for their sales.Non-EU businesses using the UK for their MOSS VAT return will have to move their MOSS identification to an EU member state to continue using the scheme. Accountants are trying to prepare businesses in the run-up to the end of the transition period. Here’s how they’re advising clients. Businesses are supported by advisory services and holistic quick-response provision on a national and international level Steve McCrindle, VAT Partner at Haines Watts Generally speaking, businesses aren’t ready for VAT changes post-Brexit. It is well publicised that only 24% of UK business are prepared for Brexit. I have seen a very big influx of enquiries and work from EU-based businesses that have suddenly realised they need a UK VAT registration and assistance with UK Customs matters to enable their goods smoothly enter into the UK. To help supports clients on a national level, we have identified those businesses to whom Brexit means change and have contacted them directly. This has resulted in working with clients at one end of the scale on simple advisory assignments and at the other end, on cross border restructuring of the supply chain in order to: Ensure that clients can provide analogous customer experience post-Brexit to what is on offer pre-BrexitEstablish a post-Brexit structure that, for example, simplifies goods entering into free circulation within the EU with as little VAT, customs duty and customers declaration/border control ‘red tape’ as possibleEnable clients to meet their new compliance obligations with as little upheaval – now and going forwards – as possible. On a global level, we have established multi-disciplinary Quick Response Teams (QRT) with our Geneva Group International (GGI) alliance member colleagues in jurisdictions such as France, Germany, Italy, The Netherlands and the USA (amongst others), covering accounting, company start-up, direct taxes, indirect taxes and legal advisory. The QRT’s allow us to focus appropriate resources on client cross-border advisory needs. Next steps: Avoiding Brexit’s impact on your business is not an option. We are therefore advising clients that all they really need is the ability to get goods into the UK and/or out into the EU without glitches from 1 January 2021, even if the solution is a temporary one. We’re then recommending businesses invest in the advice and structuring/planning which will provide a permanent operable solution as soon as possible. And as always, keep things simple. Verdict: Businesses aren’t prepared for Brexit and VAT so we’re providing business advisory services on a national level and a multi-disciplinary quick response team QRT on a global level. Businesses are kept up-to-date on a need-to-know basis Barry Soraff, partner at Raffingers Generally, those that are more likely to be most affected including importers, exporters and businesses that employ from overseas – are prepared for VAT changes post-Brexit. Those that maybe import/export occasionally for instance probably less so, but they will likely muddle through as they need to. To help clients prepare, we have reviewed our database carefully to identify any clients we think might be affected and we have sent out a number of newsletters and updates as well as ensuring that we engage with clients directly to make sure they are aware of what they might need to know. Next steps: We are advising our clients to review their processes and to make sure they are aware of any changes which might affect them as well as making any procedural adjustments which might be necessary. Verdict: Businesses who deal with the imports and exports of goods on a regular basis are generally well prepared and we’re providing updates to those most likely to be affected.
Croydon’s collapse shows the Government needs a long-term plan to keep local authorities afloat Posted 11/16/2020 by AAT Comment & filed under Coronavirus. Councils across the UK face a grim outlook for councils in 2021, unless more long-term support is provided by the Government. Croydon council has become the first London borough to fall casualty to the pandemic, after filing a notice declaring itself virtually “bankrupt” with debts of over £60m. This reinforces the bleak message that councils are under severe financial strain and up to 100 may need to issue a section 114 notice. Help needed Councils are hoping for more long-term solutions, potentially in the spending review. One of the most promised reforms is that of social care. A green paper on its future was due in 2017. Prime minister Boris Johnson has promised to deliver that by the end of this year. Adult social care accounts for £1.8bn of councils’ additional spending pressures this year, with the pandemic exposing the weaknesses in care for the elderly. There has already been speculation that social care could be transferred into the NHS, creating a national care service. The Fair Funding Review was launched in 2016 and was originally due to be implemented by this year. For small district councils it could have a major impact and has been consistently delayed. In parallel, the Treasury is also reviewing business rates and the business rates retention scheme. These raise around £25bn a year, with councils collecting them and passing 50% direct to the Treasury. In a booming economy business rates are a vital source of funding and councils have been pushing to keep 75% to fund their local economies. Councils have been pushing for greater powers to be devolved for over 15 years, arguing that local people are better placed to run their own communities. A prime example outside of London is the Greater Manchester Combined Authority, which brings 10 councils and 2.8m people under one city region. It has more devolved powers than single councils, including over public transport and regeneration, but it is still limited. A devolution white paper has also been promised with Johnson stating that his “levelling up agenda” will also feature. The LGA is pushing for more fiscal devolution, allowing councils more tax-raising powers such as a tourist tax, to help plug the funding gaps. Spending review However, more immediately, the Treasury has confirmed that it will only conduct a one-year spending review for the third year in a row. The Treasury said it had done so “in order to prioritise the response to Covid-19, and our focus on supporting jobs”. The view in local government is that this is short-sighted and will put more councils at risk. “This is a missed opportunity for the Government to draw a line under inefficient short-term budgeting, that leads to higher costs to the public purse, and to allow councils to set reliable medium-term financial strategies,” said councillor James Jamieson, chair of the Local Government Association. “The Government has provided some much-needed support but significant challenges remain. It is vital that the Government addresses in full the financial challenges facing councils as a result of Covid-19, including all lost income and local tax losses, and provides further investment so councils can protect and improve local services next year.” Summary The Government has shown a willingness to heed criticism and change direction – when sufficient pressure is brought to bear. Help for the self-employed, the introduction of simpler Bounce Back Loans, instead of the Coronavirus Business Support Loans, and the extension of furloughing a just a few examples. However, it remains to be seen whether there is sufficient clamour to force a change of direction over local authorities to provide long-term support.
The Government loves audits and press releases, but not action to end unfair pay Posted 11/13/2020 by AAT Comment & filed under Ethnicity pay gap reporting. Two years after the Government consulted over the ethnicity pay gap, nothing has changed. So says Dawn Butler MP, former Shadow Secretary of State for Women & Equalities. When the Government announced a consultation on ethnicity pay gap reporting in 2018, I knew that nothing would come of it. Two years later, there has still been no movement from the Government on this vital issue. Sadly, they have form here – announcing hundreds of consultations, issuing thousands of press releases and following it up with zero action. As the former Shadow Minister for Women and Equalities, I have long challenged the Government to take action, not just audits. It is important to make clear that the reason for these campaigns is fairness. When it comes to mandatory gender pay gap reporting, which I and so many campaigners and organisations had called for, for a long time, the Government had to be dragged kicking and screaming into doing it. But still, this reporting has no teeth or sustainable action. For example, there is no requirement to publish an action plan, let alone take action. There may have been progress when it comes to ethnicity pay gaps, with the ONS finding the pay gap between white and ethnic minority employees has been reducing and now stands at 2.3%, however, there is still such a long way to go to tackle racial inequality. And as the ONS said, the national figures mask a wide variety of experiences among different ethnic minorities. For example, we know that Pakistani workers had the lowest average hourly wage at £10.55 – a pay gap of 15.5% – while White and Black African workers are the next lowest with £10.57. There are other concerning reports too, such as one from the Bank of England who found in 2019 that ethnic minorities in the UK earn 10% less than white workers. We also know there are stark differences in different regions of the UK. London has the largest ethnicity pay gap, with White British employees paid almost a quarter (23.8%) more than their Black, Asian and minority ethnic colleagues. It is unjust and simply wrong that this exists in one of the most diverse capital cities in the world. People should be paid fairly on merit – no one should be paid less for their work because of the colour of their skin, their ethnic background or their class. This is why we need reporting on ethnicity pay gaps too – if you measure it, you know what the problem is and can fix it. We know that action can be taken, there just needs to be a will to do it. I praise companies, like AAT, who are voluntarily monitoring, publishing and acting on data. Those businesses will see rewards in staff retention, bottom line and customer goodwill. London Mayor Sadiq Khan has also showed leadership when he announced that comprehensive data on the pay gap affecting Black, Asian and minority ethnic employees for all organisations in the Greater London Authority Group would be published, making it among the first employers in the country to do so. So, if the Mayor and some private companies can do it, why can’t the Government with their abundance of resources mandate it? I am proud to have been one of the first to call for compulsory ethnicity pay gap reporting, and when I was Shadow Minister for Women and Equalities, I committed this pledge to Labour’s election manifesto. This would also require businesses to demonstrate with action plans how they will tackle their pay gaps, taking the onus away from the employees to call out pay inequality and placing it on employers. This means that real action would be taken to tackle the underlying reasons for pay gaps. As Chair of the All-Party Parliamentary Group for Governance and Inclusive Leadership, I launched the Maturity Matrix in Parliament. This free guide was issued to big businesses as a toolkit for improving opportunities in the workplace for BAME employees. This Maturity Matrix, as well as having a focus on achieving pay parity by pushing for pay gap reporting among many other guidelines, seeks to ensure that BAME employees have equal access to recruitment opportunities and career progression. Because having representation at all levels is vital for good decision making. I remain strongly committed to ensuring that both the Government and big businesses do their part in stamping out inequality throughout the UK. I hope the Government will finally take action and, as a first step, introduce ethnicity pay gaps to help enact positive change for all. About the author Dawn Butler is Labour MP for Brent Central. She is a former Shadow Secretary of State for Women & Equalities.
We need compulsory ethnicity pay gap reporting to end inequality Posted 11/13/2020 by AAT Comment & filed under Ethnicity pay gap reporting, Members. Compulsory reporting can be a powerful ally for BAME workers who are paid less but are fearful to speak out. So says Caroline Nokes, Chair of the Women & Equalities Select Committee. They say sunlight is the best disinfectant, and we have certainly seen the reporting of the gender pay gap shine a light on some glaring discrepancies in pay between men and women. Of course, it is not enough to shine a light, in turn, that has empowered women to demand equal pay, and employers to be prompted to offer it. But it should not and must not stop there. Covid-19 has seen the suspension of gender pay gap reporting. But it will come back, and I believe it should be accompanied by mandatory ethnicity pay gap reporting. Because there is a shameful and long-standing problem with BAME workers being paid less and being too worried to speak out on the subject. As Chair of the Women and Equalities Select Committee, I have listened to a great deal of evidence this summer, about BAME workers being treated differently to colleagues, being more likely to be on the front line of the fight against Covid, but being too worried to speak out when they did not receive adequate access to PPE. Now that may not at first appear related to pay, but actually, it is, because BAME workers are also less likely to receive a promotion, less likely to reach positions of seniority or influence and as a result, their voice is not being heard. So let us start with the very basics. If workers are too frightened to speak up if they suspect they are being paid less than colleagues, let it be the duty of their employer to report it. It will lead to improved behaviours lest a worse situation be reported the following year. I often say it is of no use to accurately record a growing deficit, in any organisation, you have to take the steps that will end that deficit – bring about effective change. That might not be popular, particularly when employers are already facing the storm of a further lockdown, the challenges of Brexit and preparing for what a post-Covid world looks like. I appreciate that the future is going to be both uncertain and difficult, but that does not mean we should not be fighting inequality where we find it. Nobody imposes additional burdens on business lightly – and I well recall the hoo-ha when gender pay gap reporting was first mooted, about how hard it would all be for firms to manage. But the sky did not fall in, and guess what, the gap started to be closed, albeit with some glaring exceptions, including some Government departments that really should have had the political drive to do better. A few months ago, I was pleased to speak at a large accountancy firm’s regional AGM within my remit as the Chair of the Women and Equalities Select Committee. I know every time I am given a platform I am expected to focus on equality for women, and many times I do. But I am an ally and a voice for all those who have a protected characteristic, whether they be young or old, women, BAME, disabled, whatever their faith, LGBTQ. Where I see inequality, where I see unfairness that can be addressed or a policy change that could make a real difference I am going to call it out. So I know they were not expecting me to talk about the ethnicity pay gap or the disability employment gap, but there is no joy to be had just by being the predictable angry woman. And we ended up having a great discussion about their existing commitment to reporting their ethnicity pay gap and the steps they have taken to put positive policies in place to facilitate disabled employment. We can all be an ally, or we can look the other way, and when it comes to pay inequality none of us should be prepared to look the other way, however bad the timing or inconvenient the naysayers wish to portray it. Because inequality cannot be excused just because it is convenient to ignore it. About author Caroline Nokes is the Conservative MP for Romsey and Southampton North, and has been an MP continuously since 6 May 2010. She is Chair of the Women & Equalities Select Committee.
10 ways tax could change after coronavirus Posted 11/11/2020 by Neil Johnson & filed under Tax, Tax reform. The Treasury Committee’s “Tax After Coronavirus” inquiry is looking at how to improve the taxation system after the pandemic. Here, experts from across the tax profession highlight 10 areas they expect to change The experts Chris Sanger, global government and risk tax leader, and UK tax policy leader, EY Genevieve Morris, partner, Blick RothenbergGeorge Bull, tax consultant, RSMGuy Smith, senior tax manager, inTAX Helen McGhee, senior associate, Jospeh Hage Aaronson Under normal circumstances, our experts would wholeheartedly welcome the opportunity to engage with a system-wide shake-up. But these are not normal circumstances. The coronavirus (Covid-19) pandemic is an unprecedented modern-day crisis. It has seen governments around the world deploy previously unthinkable levels of fiscal and monetary scaffolding to firstly underpin societies and economies, and secondly, it is hoped, to help them get back on their feet as quickly as possible. None of which comes for free. Governments are borrowing big and at some point they will need to service the debt accrued. As such, an inquiry into the UK’s tax system in light of the crisis is unsurprising. Or is it? Why review now? A government conducting a tax system review at a time when it desperately needs to increase revenues has the potential to be short-sighted, at the expense of long-view fundamental reforms. “There is a time and a place for tax reform, and getting the timing right post-global pandemic and in a recession will be critical to its success,” says Genevieve Morris, partner at Blick Rothenberg. But now is not the time for raising taxes, she suggests. “Instead, the government needs to look at what it can do to stimulate growth and investment.” Economists, by and large, agree that we don’t need to increase taxes to pay for Covid-19 at the moment because government debt is so cheap, and as such a large amount of continued borrowing is the way to proceed for now. Throw the real possibility of a no-deal Brexit into the mix and the waters get even mirkier, says Guy Smith, senior tax manager at inTAX. “Businesses are finding it hard enough to survive at the moment without substantive tax change as well.” Nevertheless, the inquiry is happening and input is being sought. So, in a perfect world (imagine!), what would tax experts like to see from a post-Covid-19 UK tax system reform? The big themes 1 – Simplicity and automation Chris Sanger, global government and risk tax leader, and UK tax policy leader, EY: “Tax post Covid-19 needs to be a combination of efficient collection, effective incentives and easy administration.” Genevieve Morris, partner, Blick Rothenberg: “The tax system needs greater simplicity, it also needs greater automation, particularly for corporation taxes.” 2 – Clarity and leadership George Bull, tax consultant, RSM: “Overlaps between work being undertaken by the Office for Tax Simplification, the Treasury Committee and the Public Accounts Committee may yield conflicting recommendations and incoherent or muddled decision-making when tax changes are amalgamated into a future budget. “Observers of the UK tax scene will know how easy it is to get to the wrong place for all the right reasons. With several government or parliament-initiated projects currently underway, clear vision, tough negotiating skills and strong leadership will be required if the UK is to have a post-coronavirus tax system fit for purpose in the 21st century.” 3 – Climate change Bull: “Tax increases to achieve climate change objectives. Under the Climate Change Act 2008 and the 2019 climate emergency resolution, the UK government has a statutory obligation to act to reduce the UK’s contribution to global warming. It is widely recognised that tax is already playing a role in this – a role which will increase dramatically as further changes are made in the shift from purely moneybased taxation to carbon-based taxation. As timescales are tightening, businesses urgently need a roadmap so that they can begin to plan for these tax changes. Unfortunately, there still seems to be a long way to go in the development of policy.” 4 – Tax evasion Guy Smith, senior tax manager, inTAX: “HMRC has dramatically reduced the number of people it attempts to prosecute for tax evasion and that needs to be reversed. Over recent years a trend has emerged of HMRC preferring civil settlements compared to criminal prosecutions. Until people can see tax evaders being regularly successfully prosecuted, not just predominantly for VAT fraud, but across business sectors for tax as well, the deterrent message will not get through. Naming and shaming deliberate defaulters on GOV.UK has not proven to be the embarrassment and restraint on evasion that might initially have been hoped for.” 5 – Tax relief Morris: “The huge number of tax reliefs needs to be reviewed, the best need to be kept, reviewed and simplified. The rest need to be abolished. The tax system needs to be straightforward, so everyone can pay the right amount of tax. Tax reliefs are hugely attractive and can encourage growth and investment, but they need to be clear and easy to understand. “R&D relief is an excellent relief, yet can be hard for businesses to access as the rules are complex. There are also different rules for subcontracted expenditure, large and small companies. We should be encouraging innovation and making R&D more accessible would hopefully encourage more businesses to innovate.” Sanger: “With commitments on rates, changes may well be seen in the reliefs embedded inside the taxes. Reliefs (and indeed all elements of the tax system) are always worth keeping under review, but they should be reviewed on their merits and not merely as revenue raisers because rate changes have been eliminated.” Smith: “I think the Treasury needs to respond to the problems on the high street. Personally, I do not believe the high street will ever return to what we have known. People have got used to the convenience and ease of shopping online. Rather than throw money at trying to support jobs on the High Street, I feel tax reliefs targeted to help people start up their own businesses and enterprises supporting new green technology initiatives are the way forward.” 6 – Balance of taxation Morris: “If wealth has been created, it has likely been created through income and gains that have already been taxed. Where is the fairness to then tax it again? Will it encourage people to spend more, if it does it may help raise VAT, but for the super-rich and internationally mobile, it will likely drive them away from the UK altogether.” 7 – Digital and multinational businesses Morris: “Multinational businesses and the taxation of the digital economy are already on the agenda, already being taxed in a number of different ways. What the government should not forget is the huge amount of VAT these businesses are collecting on HMRC’s behalf on the sales they are making. Don’t drive these businesses away by trying to over-tax, or make tax so complicated, they decide it’s not worth staying in the UK.” 8 – The tax gap and MTD Smith: “According to HMRC, the PAYE tax gap is 1% compared to 13% for Self-Assessment. Self-Assessment is where the challenge lies, both in terms of education and evasion. The roll out of Making Tax Digital (MTD) for income tax from April 2023 and corporation tax from April 2024 will effectively mean businesses, landlords and companies also record their transactions closer to real time, rather than simply producing a set of accounts at the year end, with the inevitable exercise of trying to remember historical events from the trading year. MTD will naturally help reduce evasion from nonintentional mistakes, but there will remain a hardcore element who will deliberately attempt to evade tax.” 9 – Potential wealth tax and broader base Helen McGhee, senior associate, Jospeh Hage Aaronson: “We are constantly being told that the top 1% of earners pay 30% of the income tax take, but this hides a more complex picture. Many wealthy people pay very low effective tax rates – we are told that 1 in 10 people earning over £1m pay only an 11% effective tax rate on income, which is the same tax rate as an employee earning £15,000 a year. With this distortion in mind, I quite like the LSE concept of an Alternative Minimum Tax that would charge tax on the total amount of income and capital gains a person reports, before applying any deductions or reliefs. “If everyone earning more than £100,000 is required to pay at least a 35% tax rate on their income and gains, we could raise around £11bn, which is equivalent to 2p on the basic rate, or 5p on both the higher and additional rates. “A wealth tax that looks like that would be less contentious than removing any tax breaks on pensions and/or property or any mooted windfall taxes on multinationals and foreigners. For the long-term we need to hit a broader tax base and this will require difficult political decisions, which this government is unlikely to have to make, as big rises will be nudged until after the next general election.” 10 – Windfall tax or new levy Morris: “I do not support a windfall tax – businesses that make larger profits already pay more tax, just like people who earn more pay more tax than people who earn less. To a business, tax is a cost and costs need to be managed. A windfall tax on these businesses could lead to them making decisions to cut costs elsewhere (e.g. staff head count, particularly with greater automation), which would ultimately reduce the tax take. “However, I would not be surprised if the government introduces a new levy, something similar to the apprenticeship levy, or even just increases the levy. This separate fund can then be used to help support new job creation and fund training. In an increasingly AI world, the robot levy may not be that far behind.” Taxes in need of a rethink Capital gains tax According to Blick Rothenberg partner, Genevieve Morris, capital gains tax (CGT) needs reforming, noting there are already too many different rates depending on the type of asset you are selling – business asset, non-business asset, property. “I’m a supporter of business asset disposal relief and did not support the cut in allowance to £1m, but accept this was politically necessary,” she says. “There should be two rates of capital gains tax – one that is attached to active business investments (10%), and one to passive investments, such as listed shares, property etc (30%).” Helen McGhee, senior associate at Joseph Hage Aaronson agrees, noting that “not many people actually pay it”, and that increasing the yield would require increasing the number of people who pay it. “Otherwise you risk making a lot of changes with a very uncertain and limited return,” she says. The main and most contentious area regarding rates is how gains are taxed in relation to other types of income, McGhee adds. “There will be pressures to equalise rates of CGT and income tax, but it should not be forgotten that the fiscal distinction between the two is there for a reason. Capital is the right to receive income, it is not actual income and there is inherent risk involved in capital returns. Companies already pay the same rate of corporation tax on income and capital, so there is precedent for alignment. “An obvious area for reform would be to scrap CGT uplift on death, particularly where there is IHT relief – i.e. this uplift means someone inheriting an asset is treated as acquiring it at its market value on the date of death, rather than the amount it was bought for and the recipient can then sell it shortly after death without paying CGT. If the asset benefits from agricultural or business property relief from IHT there is no IHT and no CGT payable. This requires a comprehensive review of IHT as well as CGT – in fact many want to see IHT and CGT merged.” Basic income tax and NIC “The basic rate of income tax will need to rise, coupled with an increase in the personal allowance to ensure the poorest in the country are not impacted, but the tax burden needs to be shared,” says Morris. “I fully expect to see NIC for the self-employed become aligned with employee NIC.” About the Tax after coronavirus inquiry The Treasury Committee’s inquiry will look at what the major long-term pressures on the UK tax system are, what more the UK can do to protect its tax base from globalisation and technological change, and whether such pressures should be met with tax reform. It will be open to evidence until Monday 7 December 2020.
Road to recovery: hospitality on hold Posted 11/10/2020 by Annie Makoff & filed under Members, Road to Recovery. We look at the challenges and recovery strategies in the hospitality sector to recover from lockdown 2. The Local Restrictions Support Grant is encouraging hospitality businesses to closeCJRS extension is welcomed – but it’s light on detailCity hotels expect a better performance than in holiday destinationsIf lockdown continues into December, it will be too much for many businesses Hospitality businesses are faced with a stark choice this lockdown: do they offer a takeaway service, or close completely to get a Local Restrictions Support Grant? It’s not as easy a decision as you’d think; there’s a risk involved in staying open, competing with established takeaways and spending on perishable ingredients. “I’ve got quite a few restaurant clients who are deciding not to take the risk,” says Samantha Perkin FMAAT, director of Cornwall-based practice Zamu. “It is just better to just close completely and take the grant than to risk opening and not make the same amount, or make £3,000 and then pay out the costs of running a business.” It goes without saying that this has been a rough few months for the hospitality sector. Industry analysts Red Flag Alert revealed a significant spike in business debt across the hospitality sector: insolvent debt among the hotel and accommodation sector increased from £5.9m to £12.4m between March and June while travel and tourism businesses saw levels of bad debt increase from £5.1m to £9.1m during the same period. Paula Rutter MAAT, assistant to finance director at a Norwich-based hotel, says the hotel she works at faces a similar situation. “Although our hotel has been busy since restrictions were lifted during the summer, business has now dropped by 20% compared to early October, and with the approaching winter months, business on the books is looking bleak.” New furlough lacks detail While the CJRS extension has been welcomed by the sector, there’s also concern about the lack of clarity around the rules. This is more of a problem for their accountants – Perkin says that her clients have said of furlough: ‘we’ll leave you to sort it out’. She says that it has already proved to be a bit of a headache. “They’ve already told us that people who’ve gone on to the payroll and had an RTI done prior to the 30 October can be furloughed, whereas before they had to be on in March, so that allows us to put new people on furlough, but what about if they’ve had a pay rise between March and October?” The National Minimum Wage increased in April this year, but previously, furlough was calculated based on the old National Minimum Wage. It is unclear whether the furlough extension will continue on the old rate, or switch to the new National Minimum Wage. “What if someone has been fully furloughed 100% of that time period? They’ve never been paid the new national minimum wage, so what number do we use?” David Chaplin, chartered accountant and CEO of the Chaplin Group of hotels, has done better than most. He has overhauled his businesses with a raft of technological innovations, from now common ‘order-at-table’ apps and devices, to thermal imaging cameras used to identify people with high temperatures. He also took the opportunity to update the group’s accounting systems – modernising and streamlining them to improve financial planning and forecasting. He kept only a core group of staff working during the previous period, with all other staff on furlough. This time, he says, everyone will be taking at least some time on furlough, including senior staff. This, he says, will increase the sense of camaraderie among staff. “It’s better that everybody’s in the same boat and everybody feels that they are contributing in both ways.” Adapting cost bases and staff shortages Chaplin and his accounting team reviewed the group’s cost base near the beginning of lockdown. He took a risk and actually increased his prices as the first lockdown restrictions eased. This educated gamble paid off: while the volume of sales was down, revenue actually increased across the business. Coastal hotels did better than the group’s hotel in Cambridge: the coastal hotels were up 140% on the previous year, while the Cambridge location was dow 40%. This was down to a more domestic customer base than you would usually expect – holidaymakers from other countries are more likely to stay in cities. Demand was such that the hotels had a shortage of kitchen staff, but it was hard to recruit new staff members, says Chaplin. There was a reluctance to move to the coast to work, and Chaplin puts this down to the effectiveness of furlough. “If you can stay home on 80% of your pay, why commute to another town for 100% of pay?” Chaplin was able to move some front of house staff to help out until chefs moved over from Norwich. Fears for a December lockdown The other big question for hospitality businesses is: will this lockdown last a month or longer? Will they be able to trade in the crucial month of December? “I would think it essential that we do open over Christmas,” says Chaplin. “If that means that we shut down again in January, so be it. If we don’t re-open over Christmas, a lot of hospitality businesses that simply go to the wall.” Christmas trade gets many hotels and restaurants through the quieter months of January and February. If the government was to announce on 2 December that they need to extend the lockdown throughout Christmas, suddenly the much-derided £1,000 bonus for furloughed staff kept on until the end of January seems a much more valuable lifeline for hospitality staff fearing for their jobs. “I was rather dismissive of it back in the summer because at that point, it looked little by comparison,” says Chaplin. “Now, it actually has real effects. Whether that is elegant design or by accident, I don’t know.” Perkin agrees that missed December trading could be devastating for the sector; particularly for mid-priced restaurants. Even if they can open in December, many are expecting lower than normal trade as people decide not to take the risk. “You’re going to have cheap and cheerful restaurants – they will survive. You’re going to have the really expensive, top-end locations, they have enough money to sit out the bad times. All those middle-market restaurants that most of us go to when we want to go out for reasonable dinner will really struggle. I think a lot could be gone.” Industry-specific support needed Hospitality businesses feel that they are being unfairly scapegoated for spreading the virus and causing the second wave when they’ve invested in many safety measures in line with government guidance. They also want to see more sector-specific measures from government to help them through this difficult time. “They need support with specific and written for them with the help of their trade bodies,” says Perkin. “I’m not sure how it would work – the government need to reach out to businesses and professional bodies.” Alex Campbell, partner at law firm FieldFisher and hotel and leisure finance specialist, is optimistic that the sector will eventually bounce back, but it would take time. “Most people have considered 2020 a write off,” he says. “It will be April 2021 where the sector is hoping to see a return to normality. It’s not going to be a full return, but a gradual one over a long period.” Rutter agrees. “We are all just looking forward to next April when the season can begin again,” she says. “We have a recovery plan in place and have staffing levels confirmed for over the winter, and we’re hoping to use the government scheme to protect our employees. We just need to survive the winter and support our staff financially and mentally.”
Why your local authority may be struggling to survive Covid-19 Posted 11/10/2020 by AAT Comment & filed under Coronavirus, Members. Around 100 councils are in confidential discussions with the Government as the financial crisis from coronavirus takes its toll, writes Karen Day. Local government in England is in the most precarious financial position in its history. There’s a conservatively-estimated £2bn shortfall for this financial year alone. Circumstances – including the surge in Covid-19 related spending and drop in income – may overtake many councils’ ability to contain the financial damage. As we begin a second lockdown, councils’ room for manoeuvre is restricted to either slashing much-needed services or raiding reserves to balance their budgets. Without additional government funding, many are warning that even the last resort option of a section 114, which effectively freezes spending, might not be enough to plug the gaps. So how and why did this pandemic leave councils teetering so close to the edge? Analysis by the Institute for Fiscal Studies (IFS), an independent research institute, shows the scale of the pandemic on council finances. It found that in the three months between April and June this year, councils had spent 61% of their total year funding on environment and regulation, 46% on adult social care and 46% on transport. It predicts that local authorities will face extra spending pressures of £7.2bn this year – that’s £4.4bn in extra costs and £2.8bn of lost income, excluding council tax and business rates. Added together these equate to around 13% of pre-crisis expenditure. The IFS estimates that with the Government’s support packages (see box), it leaves a best-case scenario of a £2bn shortfall. With a second wave coming, this could quickly rise to £3.5bn. Austerity Firstly, going into the pandemic, English councils were not in good financial shape. “We went into this with councils having 10 years of austerity,” says Andrew Burns, associate director at the Chartered Institute of Public Finance and Accountancy (CIPFA). “Councils didn’t start this in a good, sound place.” Back in 2010, the Government launched its austerity programme, cutting public spending in order to reduce its budget deficit. By 2018, this had resulted in a 49% reduction in councils’ grant funding. The Local Government Association (LGA), the membership body for councils, says this equates to a cut of over £16bn in the last 10 years. But while cuts have increased, so has the demand for services, particularly in adult social care. Prepandemic, the LGA was warning that spending demands were growing at about £2.6bn a year and by 2024/25 the funding gap in day-to-day budgets would stand at £6.4bn. In addition, as grant funding was cut, councils were encouraged to find alternative cash streams, resulting in a dependence on income from investments and charges. As the pandemic hit, these changes combined to create a perfect financial storm for councils. As their income nose-dived, with shops and businesses closed and people struggling to pay rent and council tax, authorities’ unforeseen spending rocketed, and they took on new responsibilities including test and trace and controlling local outbreaks How councils can go ‘bust’ Councils have a legal duty to set a balanced budget. If that’s not possible, a chief financial officer issues a section 114 notice. This effectively freezes spending, except for “statutory services” such as safeguarding vulnerable people. These are incredibly rare in local government. The last one was 2018, the first for 18 years, issued by Northamptonshire County Council. Several councils have publicly warned that they are getting close to a section 114. Croydon Council has said it is working with the Government to secure a support package to plug its reported £62m funding gap – this includes a 15% reduction in its services. Peterborough City Council is also in talks with the Government on a long-term package of support. Meanwhile, Hackney Council has warned that a funding gap of £19m for 2021/22 may take it over the edge in the next financial year after forecasted losses of £37.2m in income from waste, parking charges, rent and council tax. According to CIPFA, there are three groups of councils most at risk – those most reliant on incomes from sales, fees and charges such as coastal councils and district boroughs, those already in a weak position with low reserves, and those with significant incomes from commercial activities including airports, such as Luton and Greater Manchester. Lack of support But so far there is no indication there will be extra funds. The Treasury is understood to be reluctant to move until after its spending review, where is sets out its financial plans, and that could be as late as November 2020. “The Government needs to listen and respond to what councils say they need in-year,” urges Jessica Studdert, deputy director of thinktank, the New Local Government Network. “With a second wave likely, councils need to be able to work with a fleet of foot approach and denying them funding certainty undermines their capacity to respond to fast-moving events.” Around 100 councils are already in confidential discussions with the Government in a bid to stem section114 notices for this year and next. These are issued when they can’t deliver their legal requirement of a balanced budget and are the last resort. There is an expectation of more targeted government support for those most in need, although this is again uncertain. But it is the next financial year and beyond that are of most concern. In 2021/22 the drop in council tax and business rates, already thought to be around £3.7bn, will hit budgets. And if councils have already raided reserves and cut services, it leaves them in a parlous state. “Securing the long-term sustainability of local services must be the top priority for this year’s spending review,” says councillor James Jamieson, chair of the Local Government Association. “It also needs to place emphasis on communities by properly enshrining long-term, locally-led investment.” Local government has been lobbying hard for a long-term financial settlement and a shopping list of much-delayed and over-promised reforms. This includes a long-term plan for the future of social care, a review of funding, business rates and a white paper on devolution to give councils more powers. Many are pinning their hopes on the spending review delivering all of these. The next few months are critical.
Expert predictions on how tech will change in the next 10 years Posted 11/10/2020 by The content team & filed under AAT at 40, Future of accounting. How will accounting technology develop over the next five years? AT spoke to four tech leaders to find out. Expert Panel Gary Turner, founder and Managing Director, Xero Adrian Blair, Chief Executive, Receipt Bank Ed Molyneux, Chief Executive, FreeAgent Chris Downing, Director, product, Sage Improved tech will bring accountants and businesses closer Activities such as budget queries, report production, and more will be automated. Over time, accountants will learn the kinds of business information an individual or business needs and deliver that information to them proactively. This, some argue, will tighten the relationship between accountants and their clients. Adrian Blair, chief executive, Receipt Bank said “there will always be small business owners who really want to self-serve, but it’s a great symbiotic relationship between accountants adding a lot of value and business owners. I don’t see that going away. In fact, it should increase because, with technology, they will be able to do so much more. Data is available in real-time in a way it never was, thanks in part to Open Banking, along with tools to make sense of it will advance in step with machine learning.” Democratisation of numbers Some businesses are moving away from finance as a department, and technology will continue to spread out into every part of the business. Many businesses will become entirely “connected”, with monitors reporting on everything from stock levels to fuel usage. The finance function would be affected and would be dispersed throughout the business. Gary Turner, founder and managing director, Xero says “New operational APIs that provide real-time data concerning specific functions or discrete processes in the business will expose teams outside the finance function to useful data – and this will lessen the dependency on the finance team.” “If you take employee expenses, in the past that would have been channelled through the finance function. With expense management tools, people can manage it themselves and the distilled data and approval process ends up in the finance function in a complete form” Ed Molyneux, chief executive, FreeAgent said. Push for data convergence Many companies don’t align and integrate their data, which can impede their progress. Commas, abbreviations, data-entry fields, nomenclature, and hundreds of similar factors are often all recorded differently, sometimes within the same business. Over the coming years, the proliferation of APIs like Open Banking could fuel an alignment. Ed Molyneux said, “Where we’re seeing interesting things happen is data convergence, in particular in banking and accounting. The idea of merging the banking platforms with accounting systems, so they’re the same is something we’re working hard on. Others, like Starling Bank are doing the same”. “It’s never been more important to be able to access high-integrity financial data, both for profitability and long term cash flow. This has been brought to the fore in recent months” Gary Turner added. A real-time view of data As a result of open data, accountants will have a real-time view of their business’s or client’s position. As a result, accountants will know instantly when things change. “Ideally, it’ll be in real-time, and not just looking backwards, but looking forwards. As more businesses come under Making Tax Digital in 2022 and 2023, that’s going to drive a move to real-time tools, which I think should be the minimum for any business” Ed Molyneux said. Chris Downing at Sage adds “This is inevitable. Accountants can see their 100 or more clients in a single dashboard and set up alerts. What’s improving over time is the affordability. If you want timely information, you could pay for it. Suddenly, it’s the price of a coffee, and that trend will continue.” Death of the password Often, passwords are easy to guess because the users frequently re-use the same one or slight variations on the same one. Neither of these options is an effective defence. The technology is already available, so will it take off? Gary Turner at Xero says “we have two-step authentication (2SA) in place, which adds another layer of security that makes it significantly harder for someone to get access to your account, even if they have somehow managed to get hold of your password”. Chris Downing, director, product, Sage adds “If we take any learnings from things like smart devices, FaceID provides an assurance that your private data is only accessible by you. That’s where we’ll be seeing more interaction with personal ID, unlocking information that’s only meant to be seen by you.” Further reading: “We should look forward to the next 40 years” – Mark Farrar5 ways accounting careers will change in the futureLessons for accountants from Track and Trace lost data
Brexit fatigue? It’s time to wake up! Posted 11/09/2020 by Phil Hall & filed under Brexit. The end of the Brexit transition period is now just weeks away. At this late stage, we still don’t know if the UK will have trading terms resembling Australia’s, Canada’s or Norway’s relationship with the EU. But whether a deal is agreed or not, very big changes to the way most British businesses operate are now inevitable. The Government has spent billions of pounds preparing for Brexit including hundreds of millions on communications campaigns to make businesses aware of what they need to do. Yet thousands of businesses remain clueless about what is to come. Giving evidence to the Public Accounts Committee last month, Alex Chisholm, Permanent Secretary to the Cabinet Office, told MPs about his fears that British businesses are unprepared for imminent change with the government’s own polling revealing a third of businesses still think there will be an extension to the transition period. In addition to those burying their heads in the sand in the hope of an extension, others simply don’t know what is coming. Whether this is through Brexit fatigue, blissful ignorance, disinterest or any other factors, the result is the same, administrative headaches, reduced productivity and impacted balance sheets. Yet the Government appears little better. Only last week the National Audit Office (NAO) highlighted that vital IT systems still haven’t been tested, transit areas for lorries are not ready and there is a substantial shortage of customs agents. The same report also highlighted problems with plans to maintain the supply of medicines. The past few days have also seen a flurry of last-minute announcements that could easily have been made before now, announcements that will be significant for accountants and many of their clients. For example, after months of uncertainty, on 3 November 2020, HMRC finally confirmed that Enterprise Management Incentive (EMI) schemes will continue after the transition period ends. However, even against the backdrop of governmental “challenges”, an unprecedented pandemic and significant economic shocks, it is not all doom and gloom. Many professional, trade and membership bodies are doing their bit to make sure their respective sectors are ready. For instance, the British Chambers of Commerce offers specific customs help and advice via “Chamber Customs” their advisory and brokerage service. Many trade bodies supply their members with weekly updates about Brexit developments in an attempt to bolster Brexit preparedness – the Manufacturing Technologies Association (MTA) and the Society of Motor Manufacturers & Traders (SMMT) are good examples. In the accountancy sector, most professional bodies have sought to ensure their members are ready, so that they in turn can maximise the chances of their clients being ready too. For example, AAT has long provided a wealth of Brexit related material via AAT Comment, CPD and technical information via KnowledgeHub, branch events on the subject, magazine articles, social media snippets and so on. All of this Brexit information being provided by reputable sources, together with hundreds of millions of pounds being invested in government information campaigns, has helped to ensure that many businesses have a good understanding of what they should be doing. However, some of these same businesses, especially SMEs, simply don’t have the bandwidth to prepare when being confronted with a range of new Covid-19 lockdown obligations – in addition to the many pandemic related challenges they have faced over the past nine months. For these businesses in particular, the help and advice of their accountant could be crucial. Agents should be asking some very simple but vital questions of their clients to make sure they’re as ready as they can be. These include the basics such as making sure any of their clients with EU employees have checked that th hey are registered for the settlement scheme; asking if VAT changes are likely to affect them; and questioning whether their clients export or import to EU countries – and if so have they registered for simplified import procedures and how might additional customs duties and tariffs affect them? There are a range of less obvious but potentially just as important questions. For example, in relation to the receipt of personal data from EU countries. GDPR ceases to cover the UK after the transition period. Although the UK has committed to replicate the requirements of GDPR in British law, as we will soon have “third country” status, the EU will have to make an adequacy decision about the UK. This decision could be made before the end of the transition period but equally it could be many months away. This means the transfer of data to the UK is only permitted if “appropriate safeguards” are in place. This includes inserting Standard Contractual Clauses into contracts before the transitional period ends. Fortunately, transfers of personal data to the EU from the UK remain unaffected but nevertheless, for some, this will represent an additional burden they could well have done without. With just over 50 days until the transition period ends there can be no time for any business, small or large, to delay or offer excuses. There is still time to take action to avoid or reduce the disruption that our new relationship with the EU is going to bring, so check what needs to be done, take action today and advise clients to do the same. Phil Hall is AAT’s Head of Public Affairs & Public Policy and a former lecturer on international trade at Lianyungang Technical University, Jiangsu, China.