Apprenticeships and the levy for small businesses

Posted by & filed under Career-boost, Employers.

Apprenticeships have changed considerably over the last few years. We’ve got the latest on what’s involved and how your business can benefit from the apprenticeship levy.

Accounting apprenticeships give ambitious individuals the opportunity to achieve AAT qualifications while earning and developing relevant skills and experience. Successful apprentices also get generous exemptions with ACCA, ICAEW, CIMA, ICAS and CIPFA if they decide to carry on with their professional studies.

Anyone who is 16 or older and not in full-time education is eligible to become an apprentice. This now includes existing employees and university graduates – as long as there is substantive new learning involved.

“So, you could put a nursing graduate on an accounting apprenticeship but not an accounting graduate,” says Liz Sebag-Montefiore, director of HR consultancy 10Eighty.

Because there’s no upper age limit, mature apprenticeships are increasingly popular with people looking to change careers.

Key takeaway: Apprenticeships are now open to anyone 16 or older, and not in full-time education, which includes existing employees and graduates.

Apprenticeship funding and costs

To encourage and fund new apprenticeships, the UK government imposed an apprenticeship levy in April 2017 on employers with annual pay bills in excess of £3 million. This compulsory tax is charged at a rate of 0.5% of an employer’s pay bill (whether they employ apprentices or not).

If, like most small businesses, you don’t have to pay into the levy pot, you normally share the cost of training your apprentices with the government – this is called “co-investment”.

Natasha Penny, small business owner, says: “We receive 90% of funding for our current apprentice’s AAT programme through Wiltshire College and pay the remaining 10%. Just think about the saving on course fees compared to if we were to pay them independently.”

The co-investment rate changed last year for new apprenticeships starting on or after 1 April 2019. You’ll only need to pay 5% towards the cost of apprenticeship training and the government will cover the remaining 95% of the funding band maximum (£8,000 per apprentice).

Assuming you employ fewer than 50 staff and your apprentice is under 19, you don’t even have to pay the 5%. “You may be also be eligible for full funding for apprentices aged 19 to 24 if they have an Education, Health and Care (EHC) plan provided by their local authority,” Sebag-Montefiore says.

You’ll have to pay their salary of course, but you can take advantage of a reduced apprentice rate of pay in their first year – currently £3.90 per hour, rising to £4.15 from April 2020. After that, they must be paid the national minimum wage.

“My first apprentice was the only option for me back in 2014 when I couldn’t afford to employ my first full-paid member of staff,” Penny says. “That first year reduced salary really helped me get Busy Books from a sole trader to an employer.”

Key takeaway: Thanks to the apprenticeship levy, small businesses only pay 5% towards the cost of apprenticeship training. You con’t even have to pay 5% if you employe fewer than 50 people, and your apprentice is under 19.

Other benefits of apprentices

Figures released by the government show that 78% of employers who have invested in apprentices report improved productivity. Also, 90% of apprentices stay with the company they trained with after completing their apprenticeship.

Tanya Hamilton, staff partner at McBrides Chartered Accountants in Sidcup, Kent, comments: “You’re bringing staff onboard who are committed and eager to learn, who are likely to adopt your firm’s culture and ethos from the start, and stay with you long-term.”

McBrides currently have two AAT apprentices – Joe (19), a school leaver who joined them in 2017 and Scott (21), who changed careers from retail to accountancy.

Taking on an apprentice allows you to freshen up your workforce, too.

Busy Books’ apprentice Luke (currently 21 and studying the Professional Diploma in Accounting with AAT) is the youngest member of Natasha Penny’s team. “He brings a care-free and fun character to the team which lifts others some days. We also learn from him – vocabulary can be different as times change and of course technology has changed so much, but he has these strengths and knowledge that we, the elders, have not.”

Key takeaway: Apprentices have been linked to improved productivity within a business, and can renew your own enthusiasm for your business ethos.

Potential challenges with apprentices

There’s a general misconception that the admin involved, and actually accessing apprenticeship funding, is complex and cumbersome, but Penny disagrees.

“I find the whole process really simple. Also, we have a dedicated point of contact at Wiltshire Council who helps us with form-filling and the small print.”

The youngsters’ lack of general employment skills is more of a challenge.

“Most apprentices have never done any business correspondence and their Excel and other IT skills may be very basic,” says Farid Gasanov MAAT, director of Q Accountants. “You need to be ready for this and provide relevant training.”

Tanya Hamilton adds that, in comparison, graduates come with a level of maturity, which means they are often client-facing at an earlier stage in their training. “Although our apprentices’ confidence and abilities are growing quickly; they’re already running training sessions for clients and working on-site.”

But what if they turn out not to be quite right for your business? Do you have to keep them on and help fund their training?

“We commit yearly on a per level basis, so if for any reason Luke didn’t work out or changed his mind, we’d be under no obligation to see him through the whole course,” says Penny.

An apprenticeship level can take between 12 and 24 months to complete. If need be, you deal with termination of employment in the usual way.

Key takeaway: Whilst the process is straightforward, most apprentices will need training in basic office skills.

The biggest benefit of taking on an apprentice?

Farid Gasanov says: “We’ve had two AAT apprentices who completed Level 2, and also one who’s recently passed their first exam. Many would say that lower hiring costs are the key benefit, but I’d stress that combining work and study gives the best results: apprentices apply gained knowledge into practice straightaway which in turn helps them reinforce recently learnt material.”

Set up an apprenticeship in 4 steps

1. Get funding

Apprenticeships and funding in England differ to those in Wales, Scotland and Northern Ireland, so contact your regional apprenticeship agency for more information.

2. Find an AAT-approved training provider

You can use our online training provider directory.

3. Enrol and register your apprentice with AAT

4. Set up an Apprenticeship Agreement.

You need to support their study time out of the office (usually one day a week) and provide a mentor at work.

Read more on how an AAT apprenticeship works here.

In summary

Lower employment and training costs make apprenticeships a highly cost-effective way for you to recruit and develop your staff. Why not take advantage of the government’s funding to grow your talent and your business?

Further reading:

Study tips: Budgeting using standard costing – material variance analysis

Posted by & filed under Professional Diploma, Students.

Budgeting with Standard Costing Series (AAT Professional Diploma)

Standard costing is used by lots of manufacturing organisations to calculate the expected costs of products. It’s distinct from general budget setting because it concentrates on cost units, in other words the cost of what the business produces, as opposed to the costs of the business’s sections or departments. Standard costing is used in all stages of the budgetary process; planning, decision making, monitoring and control. 

In previous articles we’ve considered how it can be used to help plan production when resources are limited. We have also discussed how labour variances can be analysed to see how the actual cost differs from the expected cost that was budgeted using standard costing.

In this article, we’re going to focus on a raw material cost statement and see how material’s price and usage variances are used to monitor actual costs against budgeted costs.

Using standard costing as a budget accountant

Let’s resume the role of the budget accountant for a company that manufactures specialist windscreen wipers. Standard costing is used alongside budgeting because the components for its products are identical and the manufacturing process is repetitive. 

The company makes a range of products including one coded ET2709. This is a new product and as yet a standard cost card hasn’t been created. However, it was included in the budget and has been in production for the last quarter, consequently, some activity data is available:

You need to prepare a raw material cost statement from the information you have as part of the monthly monitoring cycle. The statement shows material variances which can then be used to analyse why the actual costs have deviated from the budget.

Whilst there are only four boxes to complete, a good understanding of both standard costing and variance analysis is needed in order for the figures in them to be correct.

What does standard costing do?

Let’s start with clarifying what standard costing does. Fundamentally, it establishes, in detail, the standard cost of each component of a product and then calculates its total standard cost. In this case, we are only dealing with one component and that’s raw material. We can establish, from the information in the budget row of the activity data, that:

  • the standard cost per unit is £4.36 (£37,060 ÷ 8,500 units)
  • the standard cost of the raw material per kilo is £5.45 (£37,060 ÷ 6,800kg). 
  • 1 unit requires 0.8kg of the raw material (6,800kg ÷ 8,500 units)

This information would normally be shown on the standard cost card. However, understanding these calculations is important if we are to accurately calculate and understand the figures that feature on the cost statement. 

Flexing budgets

That isn’t the only underpinning knowledge we need. In order to calculate the standard material cost of production, we also need to be familiar with flexing budgets so we can apply the standard cost to the actual production levels.  The calculation to do that is:

  • Standard cost per unit x actual quantity of units produced
  • £4.36 x 8,300 = £36,188

Next we need to draw on our knowledge and understanding of variances and variance analysis. A variance is the difference between the actual cost and the budgeted cost*, usually after it has been flexed. The variance is then analysed to see if it’s favourable or adverse, in other words, whether the actual cost is more than or less than expected.

Working out the material cost variance

The material cost variance is therefore the difference between the actual cost of £36,412 and the flexed budgeted cost of £36,188, which is £224. The variance is analysed as adverse because the actual cost of the raw materials was more than expected, based on the standard cost for the actual level of production:

Standard costing allows us to analyse this overall variance to understand what proportion of it is the result of paying a different price to the standard, and how much is due to using more or less materials than expected. This is done by calculating the price and usage variances.

Calculating the direct material price variance

The direct material price variance looks at different material prices, standard and actual, and calculates figures that are comparable, as both relate to the actual quantity of material used. It is calculated as:

Standard cost of actual materials used

less

Actual cost of actual materials used

In this case:

  • £5.45 x 6,806kg – £36,412 = £680.70

The calculation tells us that the standard cost of materials should have been £37,092.70. However, the actual cost was £36,412 so the variance is analysed as favourable as the cost is less than expected due to the actual price paid.

Calculating the actual rate paid

We can verify this by calculating the actual rate paid:

  • £36,412 ÷ 6,806kg = £5.35

And sanity check our figures by reconciling the variance because the £0.10 less paid per kilo in comparison to the standard price of £5.45, accounts for the difference, bar a rounding discrepancy:

  • £0.10 x 6,806kg = £680.60

This figure can be added to the statement:

Calculating the direct material usage variance

The direct material usage variance looks at different amounts of material used, again standard and actual, and converts them both into standard values, using the standard price, so they can be compared like for like. It is calculated as:

Standard quantity of material for actual production at standard price

(ie. flexed budget standard cost)

less

Actual quantity of material at standard price

In this case:

  • £36,188 – 6,806kg x £5.45 = £904.70

We have already flexed the budget and know that the standard quantity of materials for production is 6,640kg (0.8kg x 8,300 units) and the expected materials cost is £36,188 (6,640kg x £5.45). However, the actual quantity of material used was 6,806kg and therefore the cost of raw material at standard price for the actual quantity used is £37,092.70, which results in a difference of £904.70. The variance is analysed as adverse as it cost more to make the 8,300 units than allowed as standard, because actual production used 6 kilos more than expected.

Calculating the actual material usage

We can verify this by calculating the actual material usage per unit:

  • 6,806kg ÷ 8,300 units = 0.82kg

The standard cost requires 0.8kg per unit and the calculation shows that in reality each unit was made using 0.82kg instead.

The completed statement is:

In summary

The material cost variance is explained by the combination of the price and usage variances. The overall adverse variance of £224 is due to the fact that the actual price paid for material was less than standard but that the amount of material used to produce the actual number of units was slightly more than expected. The figures are reconciled as:

  • £681 – £905 = -£224

* Income variances are also calculated and analysed. A favourable variance would be when the actual income is more than expected and an adverse variance when there is a shortfall.

Read more study tips for Professional Diploma in Accounting:

Browse the full range of AAT study support resources here

Study tips: Advanced aspects of spreadsheets

Posted by & filed under Advanced Diploma, Students, Study tips.

The fifth article of our series on some of the trickiest areas at Advanced level.

Study Tips: Advanced Level series

We’re working through a business scenario to illustrate how the AAT Advanced Diploma in Accounting can be applied, in practice, to the typical day-to-day tasks of a part-qualified Accounting Technician.

Lewis is a member of Gorgeous Threads & Co’s finance team, and works on both the organisation’s management and financial accounts. Heidi has recently joined the company and is shadowing Lewis as part of her induction.

The monthly budget meeting was held yesterday, and as a result Lewis has been asked to investigate last month’s sales as they fell short of the budgeted target, despite the marketing team running a number of campaigns. The Sales Manager has asked to see which campaign was the most successful, and if any particular day of the week generated more sales than others, as he has heard that Sunday evening is popular for on-line sales.

Investigating the sales

Gorgeous Threads’ has a huge amount of data that is used for a range of purposes, including stock control, marketing, sales and accounts. As Heidi is working with Lewis at the moment, he has imported the relevant data into a spreadsheet so it is more manageable.

Click here  Advanced Synoptic Series – Part 5 to download the spreadsheet and replicate Lewis’s work.

Despite only copying the required information there is still a lot of data which is not easy to make sense of in its raw form. Lewis therefore tells Heidi they are going to use pivot tables and charts to summarise and analyse the information, and present it in a much clearer format.

Using pivot tables and charts

Heidi hasn’t produced pivot tables before so Lewis gives her the following instructions:

  • Highlight all the raw data to be included in the pivot table including column headings
  • Click on the ‘Insert’ tab and then ‘PivotTable’ button
  • Check the ‘Table/Range’ data (which should already be there as it was highlighted at the start)
  • Select whether you want to insert the table into a new or existing worksheet
  • Click OK
  • The pivot table will appear as a blank proforma
  • Select the appropriate fields from the ‘Pivot Table Field List’ on the right-hand side

Heidi successfully follows the instructions up to producing the proforma, but now is unsure which fields to choose.

Lewis says they need to think about what they are trying to show. In the first place they want to discover how many sales were made during each campaign.

Therefore, Heidi needs to select ‘sales quantity’ and ‘campaign’:

From the table they can see that 1,978 sales were made in total and of them, 617 correspond to when the first social media campaign was run. However, Lewis says the table can be enhanced in lots of ways to make the data even clearer. For example, he uses the drop down box in ‘Row labels’ to custom sort:

  • Drop down the menu and click ‘More Sort Options’
  • Select ‘Descending (Z to A) by:’
  • Then click on the drop list to choose ‘Sum of sales quantity’
  • Click OK

Then he selects the Social Media 1 cells and uses ‘Fill Colour’ from the font tools on the ‘Home’ tab to highlight them in green:

The Sales Manager had also asked on which day of the week most sales are made. Therefore Heidi creates another pivot table showing ‘sales quantity’ and ‘day’:

Presenting the data in a chart

As it’s logical to leave the days in chronological order, Lewis suggests a chart might be the best presentation for this data. Heidi follows his instructions:

  • Click on a cell within the pivot table
  • Select the ‘Insert’ tab and then the ‘PivotChart’ button
  • Select an appropriate chart
  • Click OK

Heidi is really pleased with the chart as the visual presentation shows a general build in sales as the week progresses, with a dip on Wednesdays and highest sales on Sundays as the Sales Manager suspected.

Lewis reminds her to change the title so it is meaningful and shows her that it is possible to enhance pivot charts in the same way as pivot tables, for example, using the ‘shape fill’ button in the ‘Format’ tab to change the colour of the bars:

The Sales Manager’s questions have been answered but Lewis wonders if there’s a link between two. In other words, were for example, the highest sales in the month made on Sundays during the first social media campaign and if so are they significantly more than other days?

Lewis creates another pivot table and this time selects ‘Sales quantity’, ‘Day’ and ‘Campaign’ from the field list:

It’s in a vertical format, doesn’t all fit on his screen and isn’t really showing him what he wants. Therefore, in the ‘PivotTable Fields’, he moves the ‘Days’ out of the Rows section and into the Columns section:

Finally, he uses conditional formatting (discussed in Part 1) to highlight the top three daily sales:

He can see that they were generated during Social Media 1 but Sundays don’t stand out particularly as the same number of sales (148) were made on Saturdays in the period.

Interestingly though Heidi observes that Wednesday sales during the campaign were significantly better than the rest of the month.

Using a number filter

Lewis suggests they finish by looking at the top 10% to see what the average sales were and how Sundays and the campaigns affected the figures. To do that he says they will use a number filter. 

They return to the raw data and start by applying a filter:

  • Highlight the headers
  • Clicking on ‘Filter’ from the drop down menu of the ‘Sort & Filter’ button in the ‘Editing’ section of the ‘Home’ tab

Now they have the drop down arrows for all the columns. In order to get the top 10% of sales they:

  • Click on the drop down menu for ‘Sales Quantity’
  • Hover over ‘Number Filters’ so that another menu appears
  • Select ‘Top10…’ from this second menu
  • Change ‘Items’ to ‘Percent’
  • Click OK

The filter shows that of the eight entries that comprise the top 10% only one was a Sunday but three were generated within the Social Media 1 campaign.

Using subtotal

Lewis wants to find the average sales quantity of the top 10% too but knows he can’t use a normal average formula as the data has been filtered. Therefore he uses Subtotal because it will produce an average just of the eight entries. To do it he:

  • Clicks the cell in which he wants the average
  • Clicks the fx box, in the ‘Formulas’ tab, and searches for ‘subtotal’ to bring up the function argument box
  • In the first box he types 1 as this is the number that specifies average
  • Clicks in the second box and then selects the cells to be included from the worksheet
  • Ignores Ref2 and clicks OK

Lewis is now ready to give their work to the Sales Manager which shows that in January:

  1. The most sales were made during the first social media campaign
  2. The highest sales were generated on Sundays
  3. The three highest daily sales were all achieved during the first social media campaign.
  4. The top 10% of daily sales is comprised of eight entries, of which one is a Sunday and three were generated within the Social Media 1 campaign.
  5. A daily average of 48 sales were made in the top 10% days.

In summary

Lewis and Heidi have used a number of advanced spreadsheet skills and techniques. Further help with excel tips can be found by clicking on the link.

The final part in this series will challenge Lewis in a new way as he tries to work out how to manage his time in order to complete a project.

Read the next article in the series now: Advanced aspects of time management.

 

Browse the full range of AAT study support resources here

Time for online marketplaces to collect and remit VAT

Posted by & filed under Tax.

HMRC estimate that the tax loss from VAT fraud on online marketplaces, where firms that should pay VAT but don’t, was between £1 billion and £1.5 billion in 2016/17.

HMRC further estimates that overseas sellers contributed to approximately 60% of the VAT loss.

It’s likely that these figures are an underestimate. The Public Accounts Committee concluded that HMRC’s estimates of the impact of online VAT fraud are out of date and flawed. Furthermore, most other countries that have dealt with this problem found that their original assumptions as to the scale of the problem proved to be significant underestimates.

Of course, it’s not just the tax lost for investment in public services or reducing the deficit but the fact this reduces the earnings of many small businesses – putting some out of business completely – because of unfair competition, being undercut by companies that can benefit from an unjustified and illegal 20% cost saving.

Effective action?

Faced with increasing pressure to act, the Government introduced new rules in 2016, which have seen around 80,000 new firms register for VAT.

In 2019 HM Treasury and HMRC issued a joint publication highlighting “HMRC successes in tackling online VAT Fraud”  which makes reference to these increased registrations as their primary evidence of success.

However, there is little reliable information as to how many of these 80,000 firms have subsequently submitted returns and paid the correct VAT due. In addition, many of these registrations are false, cloned or registered in someone else’s name.

As Steve Dishman, Vice President for Taxes, Europe, Amazon, stated when giving evidence to Parliament’s Public Accounts Committee in 2017; “…the VAT number itself does not guarantee in any way that a company is compliant.”

AAT’s suggested solution

AAT believes that online marketplaces like Amazon, eBay and Etsy should be required to collect and remit all VAT.

This has proved very successful in other countries. In Australia such moves have resulted in 300% more revenue being collected than originally expected – and that’s with a population that’s more than two and half times smaller than the UK, and with a VAT rate of only 10% rather than 20%.

A rapidly increasing number of individual states in the US are introducing the same. For example, eBay calculates, collects, and remits sales tax on behalf of sellers for items shipped to customers in most US states compared to none just two years ago.

Online marketplaces have been required to collect VAT in New Zealand since December 2019 with a population of less than 5m and a VAT rate of 15% (compared to the UK’s 67m population and 20% VAT rate) this is still expected to raise over $125 million per year (approximately £70m).

Perhaps rather surprisingly, given it has fought such proposals across the globe, most notably in Australia, Steve Dishman, Vice President for Taxes, Europe, Amazon told MP’s in 2017, “We could do it and we support the idea in principle”.

In summary

Despite the wealth of international evidence, numerous calls for change and online platforms own acceptance of the idea, the British Government does not yet appear willing to compel online marketplaces to collect and remit VAT.

Instead, it continues to rely on the changes made in 2016 and an increased number of VAT registrations as evidence of successful action. Whilst it does so, the UK falls further behind its international peers who are clamping down on VAT fraud by requiring online platforms to collect and remit it. This in turn makes the UK increasingly attractive to fraudsters, whilst legitimate small businesses continue to lose out.

That’s why AAT will be discussing this issue with policy makers in the weeks and months ahead, with a view to delivering positive and effective change.

Further reading:

10 Essential articles for your AAT revision

Posted by & filed under Students, Study tips.

AAT exams and synoptic assessments can take place at various times throughout the year, so revision can become a 24/7 task! Make the most of your time with our advice from the experts.

1 Study hacks to help you slay your final assessment

Read up on how to plan out your revision, what to focus your studies on, when to revise, and what to do in the actual assessment.

Read more

2 The trick with synoptics is…

Our expert takes a look at the synoptic exam, including what to expect, how to approach it, and common mistakes students make.

Read more

3 The key to success in synoptics

We hear from a recent AAT graduate on how to succeed at your synoptic exams, including advice on how to deal with time pressure, and how her job helped whilst studying.

Read more

4 How to overcome exam anxiety and succeed

Find out how to control exam nerves and turn things around from AAT graduate Charlie Atkins.

Read more

5 Coping with stress when studying for your AAT qualifications

Anxiety, stress and nerves are all to be expected in the lead up to exams, but they don’t have to derail your revision. We spoke to some experts on stress management to get the latest mental strategies.

Read more

6 Top tips for studying accountancy

We hear from AAT graduate Amanda Ward on the study techniques she found most effective when revising for her AAT assessments.

Read more

Take a Green Light Test

Do a quick test of your knowledge now with a green light test from AAT. We’ve pulled out the tests for each level of the AAT Accounting Qualification below, but if you’re doing a different qualification, just follow the link to study support and navigate to the relevant qualification.

Search Study Support for your qualification

7 The one thing that can help you manage exam stress

When nerves do start to take hold, or you start feeling a bit dejected, turn things around in 17 seconds with this quick tip from psyhcologist Robert Zajonc.

Read more

8 Speed reading: Revise like a pro

Don’t let reading slow you down – learn how to become super efficient with some speed reading techniques.

Read more

9 Facing your first exam: Everything you need to know

Get pumped for your first exam with our tips on maintaining motivation, preparing for the exam, and what to do with your results.

Read more

10 Study tips: the best way to work through an assessment

And when exam day arrives, there are some key things to remember about your assessment. Hear the top tips from an AAT tutor, and student.

Read more
Browse the full range of AAT study support resources here

6 Myths about becoming an AAT student

Posted by & filed under Students, Study tips.

We’ve seen hordes of new AAT students recently, and some questions just keep popping up again and again. Today we’re busting some myths about studying AAT.

1. Do I have to become a MAAT to start studying AAT?

MAAT are the letters that appear after your name to indicate you have an AAT full membership (AKA MAAT status). You might have seen advertisements for this on your daily travels, but don’t let that confuse you – you don’t have to think about that just yet.

When you’re just getting started with AAT, you’ll register as a student, and this will be your ‘membership level’. As you progress through AAT, you have a number of professional membership options;

You can apply to become a MAAT if:

  • you have completed the Professional Diploma in Accounting (AAT level 4)
  • or have relevant qualifications or membership from another professional body
  • or have an accounting/finance degree from a partner university.

2. Can I skip levels?

The AAT Accounting qualification starts at level 1, and finishes with level 4. The Bookkeeping qualification has levels 1 – 3.

You can indeed skip certain levels (or even just specific assessments) of AAT, as long as you can provide evidence that you’ve covered the qualification units elsewhere. This could be a previous finance or accounting qualification.

This means you should not have to study topics that you’ve already studied elsewhere.

Use the exemptions navigator tool on our website to check if your previous qualifications offer you any exemptions. If they do, then you can apply for your exemption here.

3. How do I study Bookkeeping/AATQB?

This is a very common question from our new students.

AATQB is not listed as one of AAT’s qualifications because it’s actually a membership status. Once you’ve completed the Advanced Certificate in Bookkeeping (level 3), you’ll be eligible to apply to become an AAT bookkeeping member, and attain the AATQB letters after your name. This is ideal for those looking to take their first steps in the professional world.

As a bookkeeping member, you have a number of options – see here.

4. Am I automatically an AAT member if I complete AAT level 1?

No. There are six different kinds of membership available with AAT, and only the affiliate membership is applied automatically upon completing the AAT Professional Diploma in Accounting. For the other membership types, you will have to apply.

In order to sit AAT assessments, you need to have a student membership, so you will apply for this before you complete level 1.

Click here to learn more about AAT membership.

5. Can I study ACCA/CIMA after I complete AAT?

Yes. If you want to study chartered accountancy, you’ll have to progress on to chartered studies. These studies are provided by the UK’s chartered accountancy bodies; ACCA, CIMA, CIPFA, ICAEW, and ICAS.

It’s up to you which body you choose to study with, but happily, all 5 chartered accountancy bodies offer AAT full members (MAAT), and fellows (FMAAT), generous exemptions and fast-track routes to chartered accountancy status. So you can progress quicker than those who followed the university path.

You can also maintain your AAT membership at a discounted rate whilst studying towards chartered status.

As some bodies offer more generous exemptions than others, and these exemptions may be based on which specific AAT exams you have taken, you may choose to become chartered through the most advantageous option.

Read more on some of the potential pathways here;

6.  Do I have to complete AAT level 4 to start my own accountancy practice? 

To start your own business, you need to be an AAT Licensed Accountant or Bookkeeper. To apply for your license you need to have completed the relevant AAT Qualification (accounting or bookkeeping) and gained either your AATQB or MAAT status.

There are a number of things you must supply in your application to become an AAT Licensed member, including arrangements for Professional Indemnity Insurance, registration with the ICO, and more.

Read more on the types of licence available, and which one you’ll need

In summary

AAT may be a whole new world to you as a new student, so a few questions are definitely expected. We’re the experts, and we’re more than happy to tell you all about AAT. Get in touch via our contact page, or call customer services directly on +44 (0)20 3735 2434.

Our telephone lines are open Monday to Thursday from 09.00 to 20.00, and Friday from 9.00 to 17.00 UK time.

Read more on becoming an AAT student:

Distance learning: Study in the real world

Posted by & filed under Students, Study tips.

As our lives move increasingly online, it’s no wonder that more people are deciding to take their studies online too.

Modern living is mobile, global, and it’s changing our behaviours. Individuals are increasingly finding other ways to achieve what they want, their way.

And that’s exactly what one of AAT’s distance learners, Chloe McGuire, is doing.

Tell us a bit about yourself

I’m 22 years old and living in Wiltshire with my family. I was brought up in a little village called Buttermere in the Lake District but have been living in the South West since I was 9. Outside of my studies, you’ll find me blogging on my health and wellness website Nourishing Chloë, in the kitchen creating new meals, singing along to music or with my mum and the deer in my favourite National Trust grounds, Dyrham Park.

What led you to AAT and to decide to study via distance learning?

I never really took myself for a lover of maths at school.

I was naturally quite good at it but it never struck me as something to pursue. I went travelling around the world for 18 months after leaving school, and it was after returning from my trip and doing some basic bookkeeping for my mother’s property business that I decided to look up courses in accounting, which of course led me to AAT.

I never found classroom learning to be effective for me, so I looked into other options and decided distance learning was a positive route.

So I ordered the textbooks and taught myself Level 2, taking exams in a local college as an external student.

What have you found are the main benefits of distance learning?

I’ve been able to study at my own pace and taken the exams when I felt ready, not when I was told to take them.

Accounting was really new to me so I wanted to take Level 2 at the speed at which I felt most comfortable.

I really thrive on studying on my own time frames; I can fit it around my job and study leisurely in the evenings and at weekends. I’ve achieved a high pass rate in each of my Level 2 exams due to studying via distance learning in my own time.

How much support do you get ?

I chose to go down the route of self-teaching myself Level 2 so I had no support from a tutor or employer during my first year of AAT, which I didn’t struggle with at all.

The textbooks covered everything I needed to know, and I utilised all the materials on the AAT website which really helped me to understand something if I became stuck on something from the textbook.

The most support I received was from the most amazing Facebook group called ‘AAT Distance Learning’, where I shared worries or questions; they were quickly resolved from the support and knowledge of fellow members of the group.

Do you think distance learning is becoming more common and accepted as a learning method?

Absolutely, it’s the most realistic way of successful studying now.

I think classroom learning is becoming a dated way of studying as for the most part it simply isn’t practical for people.

Distance learning suits modern people down to the ground as it provides a way to study rather than having to give up working or a day at home with the family or needing to travel to a classroom. It gives people an opportunity to pursue AAT in a way that suits them. I can’t praise it enough.

What would you say to someone considering distance learning?

I think a lot of people’s perception of distance learning is that you’ll be on your own and won’t get the support or help you need, but that really isn’t the case!

There are hundreds of other students with you every step of the way and when you’re able to study at home in the evening with a glass of wine, you can’t beat it!

Find a practical way of studying that suits you:

  • turning off distractions,
  • rewarding a finished chapter of study with a Netflix binge,
  • studying in a café with a hot coffee (my personal favourite and most productive way!).

Your success is really down to how much time and effort you’re willing to put in.

Don’t get me wrong, distance learning requires a lot of self-motivation and pro-activity in getting out the books – if you really want it, you’ll do it.

When you’ve got the hang of it and you’ve got a strong support network around you, you can do nothing but succeed.

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Study tips: Advanced aspects of short-term decision making

Posted by & filed under Advanced Diploma, Students, Study tips.

The fourth article of our series on some of the trickiest areas at Advanced level.

Study Tips: Advanced Level series

We’re working through a business scenario to illustrate how the AAT Advanced Diploma in Accounting can be applied, in practice, to the typical day-to-day tasks of a part-qualified Accounting Technician.

Lewis is a member of Gorgeous Threads & Co’s finance team and has recently been working on both the organisation’s management and financial accounts. Heidi, a new apprentice, is due to join the team.

Break-even analysis

She has sent an email enquiring about break-even analysis, as she was told at her interview that it’s the management accounting technique used at Gorgeous Threads to inform short-term decision-making. 

Lewis is about to start working on the actual figures for the year to compare to the budget so has been asked to reply to Heidi, using his findings to illustrate his explanations.

Heidi has enquired about:

  1. The relationship between financial and management accounts as she only has experience of bookkeeping at the moment.
  2. What budgeted figures are used for and how that differs from the use of actual figures.

Before Lewis emails Heidi, he calculates the actual figures Gorgeous Threads requires:

  • Total variable cost and variable cost per unit
  • Total contribution and contribution per unit
  • Total fixed cost
  • Break-even sales volume

He opens the spreadsheet he’s been working on to prepare the financial accounts, as it contains the actual figures for the year. 

Click Advanced Synoptic Series – Part 4 Final to download it and replicate Lewis’s work.

In the Working tab Lewis has some management accounting details:

He knows direct costs are incurred directly by production, and vary in proportion to output, in other words an increase in volume leads to an increase in cost.

Therefore he can use them to calculate the variable costs in a new worksheet he’s called Actuals.

As Gorgeous Threads has no direct expenses, he writes a formula that calculates the total variable cost as of the wages and salaries:

Then to calculate the cost per unit he divides the total cost by the quantity:

Contribution towards the bills

Next Lewis calculates how much contribution each item of clothing sold makes towards paying the organisation’s bills.

His knowledge of management accounting theory means, he understands that this is what’s left of the selling price once the variable costs have been deducted, therefore his formula is:

To calculate the total contribution, he does the opposite of what he did with the variable costs, and multiples the cost per unit by the quantity:

Currently the figures tell Lewis that each time Gorgeous Threads makes a sale it generates on average £19.66 of income.

Of that income £14.66 has to pay for direct materials and labour, which leave £5 to pay the organisation’s other costs. 

These other costs are the fixed costs. They’re the opposite of variable ones and are the overheads Gorgeous Threads will have to pay regardless of output.

In other words, fixed costs remain the same even if there is an increase in volume.

Lewis thinks about the formula required as the figures he needs are on the ETB, but he must be careful to select the correct ones. The fixed costs will be in the SPL columns as that’s where the income and expenditure for the year is shown.

He needs to include all the remaining expenses, remembering that he has already included 90% of the purchases and 65% of the wages in the variable costs. This means that only 10% of purchases and 35% of Discounts will need to be included but whereas discounts allowed will increase the cost, discounts received will reduce it. 

Inventory should not be included as it’s a year-end adjustment, nor should sales or the profit figure.

Lewis knows it will be a long formula, so he starts by adding the net purchases and wages, then deducts the variable costs from their total, to leave the correct proportion:

He then adds all the other expenses, and finally deduced the discounts received:

 

Calculating the break-even sales volume

Lewis is now in a position to calculate the break-even sales volume. He knows that this is how many items of clothing Gorgeous Threads has to sell in order to have enough £5 contributions to cover the fixed costs of £117,744.

To calculate it, he simply has to divide the fixed costs by the contribution per unit, being mindful to round up his answer to a whole unit:

This concludes the calculations Lewis needs to do on the actual break-even, so his next job is to look at the original budgets to see how well the organisation has performed in comparison.

Lewis has found the budgeted figures set at the beginning of the year, and copied them into a worksheet in his spreadsheet:

He then writes the following email to Heidi:

In summary

Lewis’ email gives Heidi an explanation of budgeted and actual figures, in relation to both financial and management accounting based on his work on break-even analysis. More detailed articles are available by clicking on the link.

In the next part, Lewis will be helping Heidi settle in, and become accustomed to Gorgeous Threads’ high expectation of spreadsheet users.

Read the next article in the series now: Advanced aspects of spreadsheets

 

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Study tips: Labour variances

Posted by & filed under Professional Diploma, Study tips.

Standard costing and variance analysis are important areas for management accounting. Nisar Ahmed, program lead at BPP advises how to calculate labour variances.

Key term: A standard is prepared by management in advance, and details their expectations of the future. It is an estimate of what should happen.

Standards are not just for items of production in manufacturing businesses. They exist in many different spheres.

Standard times for repairing cars, standard punctualities for train companies and standard response times for ambulances are just some of the many examples encountered.

Purposes of standards

Some of the uses of standard costing are as follows:

  • Prediction of costs and times for decision making, eg. for allocating resources.
  • Standard costing is used in setting budgets – an accurate standard will increase the accuracy of the budget.
  • Variance analysis is a control technique which compares actual with standard costs and revenues.
  • Performance evaluation systems make use of standards as motivators and also as a basis for assessment.

Variance Analysis

Key term: Variance analysis reconciles actual to budgeted costs, revenue or profit. It’s a way of explaining the difference between actual and budgeted results. They can be either favourable (F) – better than expected, or adverse (A) – worse than expected.

The following are the labour variances that may need to be calculated and the approach which can be taken to calculate these:

  • Total Labour variance: this variance is based on actual production of units – what should it have cost for labour to make the actual units? What did it actually cost?

The total variance can then be broken down into the following sub-variances:

  • Rate variance: this variance is based on hours paid – what should the hours cost? what did they cost?
  • Idle time variance: compares hours paid and worked. The difference in hours is valued at the standard labour rate per hour (note: this variance is only calculated if hours paid are greater than hours worked, meaning workers have been idle).
  • Efficiency variance: this variance is based on actual production of units – how long should it have taken in hours to make the actual production? How long did it take in hours (the actual hours worked)? The difference in hours is valued at the standard labour rate per hour.

Case study: Moona Co

Moona Co. manufactures one product, the HAAN, and the entire product is sold as soon as it is produced.

The company operates a standard costing system and analysis of variances is made every month. The standard cost data for labour for the product, is as follows.

Standard Labour Data – HAAN 

Direct wages: 2 hours at £20.00 per hour – £40.00

Budgeted (planned) output for the month of June 20X7 was 5,100 units.

Actual results for June 20×7 were as follows:

  • Production of 4,850 units
    Labour hours paid for amounted to 8,500 hours at a cost of £160,800
    Actual operating hours amounted to 8,000 hours

To calculate the Total Labour Variance and the Rate, Idle Time and Efficiency variances, the approach will follow that detailed in the variance analysis section above.

BPP Variance 1

Note that this variance calculation has been based on the actual production of units of 4850. What should 4850 units cost, compared with what they did cost for labour (comparing like with like units of 4850 on both lines above in the calculation and so using a flexed budget approach).

Because the actual cost incurred to make the units (£160,800) was lower than expected (£194,000), therefore the total variance is favourable.

BPP variances 2

Once again because the actual cost of the paid hours is lower than expected, the variance is favourable as we have performed better than expected. A possible reason for this could be less qualified staff were used to make the product, and were paid at a lower rate than expected.

BPP variance 3

Idle time is not good.

Hence this variance will be adverse.

This could be due to stoppages in production because demand was lower than expected or due to a shortfall in materials which resulted in delays in production.

It could also be caused by workers completing the work in less time than expected, creating spare capacity in terms of labour hours.

BPP variances 4

The efficiency variance is favourable as we expected to take 9,700 hours to make the units (the standard hours) but only actually took 8,000 hours, meaning we worked efficiently as less time was taken leading to a favourable variance.

Given that possibly lower quality staff were used as denoted by the rate variance, it may well be that the standard set was a poor one and the two hours expected time to produce a unit, was too generous. This links to the Idle time variance where workers were paid for more hours than worked.

BPP variances 5

This can also be analysed within a reconciliation statement:

BPP variances 6

*The £33200 (F) variances are deducted in the reconciliation statement, as we have performed better than expected and so our actual cost will be lower.

In summary

Labour variances are important to controlling costs. As well as having an understanding of how to calculate variances, you will also need to be aware of the possible reasons why these variances may occur.

We need to be able to advise management of possible reasons for variances to allow proper investigation of both adverse and favourable variances.

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Study tips : Valuation of raw materials – part 3

Posted by & filed under Foundation Certificate, Students.

In this three part series we’re going to review valuation of raw materials for the AAT Foundation Certificate. 

Study Tips: Valuation of raw materials series

So far we’ve reviewed the theory behind inventory valuation, considered the characteristics of the three common methods available methods, FIFO, LIFO and AVCO and used each of them to calculate the cost of issues and the value of closing inventory.

If you have missed part one or part two then click on the links to re-cap, as this article is going to conclude by looking at how the valuation of raw materials fits into the bigger picture of cost accounting and is used to calculate the total costs of products and their cost per unit.

In part one, we alluded to the relationship that exists between the costing and financial accounting systems within organisations. 

Inventory management and valuation

Inventory management and valuation is an area where it is clear to see because the process of buying raw materials throughout the year includes cross over between the financial accounting tasks, regarding purchases, and the cost accounting tasks, regarding inventory records. 

Then at year-end the closing inventory is valued* and the overall figure included in the financial statements.  Both systems use the same costs but in different ways and for different purposes.  Ultimately the two systems work together and one way of illustrating that, is by looking at how the cost of issues of raw materials, is included in the cost of production of products.

Calculating the total cost of raw materials

We have used the example of manufacturing a toaster and the inventory records of two raw materials, stainless steel and some plastic trim, to give context to this series. 

In reality, a toaster is made from a long list of parts that includes “a heating element, spring, bread rack, heat sensor, trip plate, level, timing mechanism, electromagnet, catch, and browning control.”

These parts are manufactured from metals and moulded plastics and are held together by screws, nuts, bolts, and washers.** 

Each of these inventory lines will have a separate physical location in stores and a separate inventory record showing the value of issues that have been made to production.  This information can be used to calculate the total cost of raw materials that have been used in the production process.

Analysing timesheets to calculate the direct labour costs

Let’s suppose that once we add up all the total costs of issues, for all the raw materials needed to make 50,000 toasters in April, we calculate a figure of £230,000. 

We could also analysis timesheets to calculate the direct labour costs attributable to the same product in the same month and retrieve appropriate data about the manufacturing overheads.  These are the three main elements of cost and are combined to calculate the total cost of the 50,000 toaster produced:

The cost of each toaster is calculated as the total cost divided by the quantity (£763,400 ÷ 50,000).

It is essential for organisations to know how much it has cost to produce products because this helps inform decisions about selling prices or control costs to achieve a fixed sales price. 

For example, if these toasters sell for £25.99 each, then the £10.722 difference between the selling price and the cost per unit, is gross profit.

Predicting costs at different levels

Another use of this information is to help predict costs at different levels of production.  Let’s say that next month a marketing campaign is running and increased sales of toasters are expected as a result. 

The information we have about the three elements of cost can be used along with our knowledge and understanding about how costs behave, to predict the costs for the manufacture of an additional 10,000 toasters.

The fixed manufacturing overheads will remain the same regardless of the level of output.  Whereas the variable costs will change in direct proportion to production. 

Therefore, the direct materials figure is divided by the 50,000 unit of production to calculate the cost per unit of direct materials (£230,000 ÷ 50,000 = £4.60), which is then multiplied by the new level of production (£4.60 x 60,000 = £276,000). 

This process is repeated for the direct labour and then the total cost and cost per unit is calculated as before:

In summary

Whilst we ‘ve moved away from methods of inventory valuation a little, to more strategic planning and budgeting, it’s important to recognise that higher level uses of costing information are only possible if the initially management and valuation of inventory is accurate. 

In the same way that financial statements can only be accurate if they’re based on high quality bookkeeping, the accurate application of an organisation’s chosen inventory valuation method, underpins many further cost accounting functions and should not be underestimated.

* in accordance with IAS2 using either FIFO or AVCO

** http://www.madehow.com/Volume-7/Toaster.html

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