“Voluntary work does something for your community… and it pays back” Posted 05/30/2024 by Christian Doherty & filed under Community, Members, Skills. Work done on the ground by and for members is AAT’s lifeblood. We spoke to branch organisers about the importance of their role. The work of branches up and down the UK is absolutely central to AAT’s existence and success. These branches are staffed by volunteers who give up their time to organise events, introduce members to each other and generally serve as a link between AAT the body, and those that make up its membership. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more That’s why AAT President Kevin Bragg was in Birmingham on 23 May, speaking to a room full of enthusiastic AAT branch members and students. Bragg’s number one issue is employability, and he’s passionate about helping members boost their prospects using AAT’s qualifications, courses and membership to help students and professionals get hired, promoted, paid and recognised. AAT’s branch network is priceless for members coming together to network and a great forum for mentoring and softer skills development. Eve Jones and the Birmingham Branch are a clear demonstration of our valuable, dynamic community in action. AAT President Kevin Bragg MBA FCMA CGMA MCMI MAAT Events are a key part of branch work, which means getting the timings and topics right is crucial. So what makes a good meeting? “First of all, attendees,” says Eve Jones, AAT lecturer and chair of the AAT’s Birmingham branch. “So if you end up having a group with only five people it’s not enough.” Jones reflects that Covid certainly impacted turnout. Since the return to normality her focus has been on reviving the branch’s events and getting a younger crowd involved. And doing that has focused her mind on pitching compelling events that inspire and engage local members. What events can offer “I cannot tell somebody just to come in there because we like their faces. No, we have to focus on what we’re offering in return,” she says. “First, these events are a very, very good business platform which gives members exposure to their peers and others in the industry.” Then, it’s about building confident, rounded accountants. “At the moment, people – especially youngsters – are behind their computers and they don’t have people skills,” Eve explains. “I can see this from my students: when I give them something to explain to the class they look at me with worry. So these events are about helping them expose themselves and build confidence, something that speaking to people – especially qualified people – can really help with.” And of course, there’s also the small matter of getting ahead in your career. “I do know that quite a few people will think, ‘Oh you’re looking for a new job, well that person over there just said that they’re hiring‘,” says Katarina Collins, who runs the AAT’s Swindon branch. “So networking is one of the biggest benefits, as well as getting to know more people, or asking questions and learning from responses from people when it’s an interactive session.” Timing is everything Collins typically runs her events on Saturday mornings, a timeslot designed to attract a wider cohort of busy accountants from both business and practice. “Basically we start, people get together and sign in around half past nine, some people come earlier because they want to chat, so we try to be there around nine o’clock. “And the actual presentation or speech or workshop starts around 10, then we take a break, which is either for just grabbing a coffee or asking questions which you don’t want to ask in front of everybody. And then we finish around half past 12.” Collins has recently run events on topics as diverse as mental health and technology. But the most popular? “I found out that any tax update is very well received – I mean, we run out of chairs. The reason being, every year something happens around tax and if you go into HMRC’s website, it’s impossible to decipher. “So we get an expert, and people can ask questions and they’re really happy that somebody can give them a concise summary in three hours and they don’t have to read about it. They get their slides afterwards and that’s a reminder of what has been said and they can ask questions. Brilliant, happy days.” Collaborating to improve expertise Clearly, members are responding to these volunteers’ efforts, with attendance up across the board. And Eve Jones credits some of the success of her events to a willingness to reach out and collaborate. “We’ve run joint events with other institutes like CIMA and the CIPD, as well as local businesses and accounting firms. “That collaboration is critical because those other bodies learn from our attendees, from the other side, the accountant, because they are HR or legal people and they don’t deal with accountancy. So, it was not only for us – we learned a lot from them, but it was educational for them too.” Jones ran eight events in 2023, and is on track to do the same again this year. Highlights have included an invite from EY for members to attend a tax seminar, as well as a talk from a senior figure in the NHS on public finance. So what’s next? For Jones, a session planned for September on Management Games is especially exciting, as well as sessions on BI (jointly run with CIMA) and inheritance tax. Collins, meanwhile, is in discussions with the local CIMA branch about collaborating again: “We are probably going to run an event about AI and how it’s going to affect our work. And that goes to all levels, so everybody’s going to be interested in that.” Jones sums up the importance of volunteering. “If you’re doing voluntary work, you’re doing something for your community, and I really think it is good, it pays back. And attendees are learning, they came back from that meeting, from our event, and said, ‘Oh my goodness, it was amazing’.” Improving employability “I was in Birmingham to speak about ’employability’ – a topic I chose as my personal theme for the year of my presidency,” says AAT President Kevin Bragg. “In my view, the whole point of AAT is to give people a pathway to a broader career in accountancy and finance. “AAT distinguishes you from people who don’t have the qualifications or aren’t members. The letters ‘AAT’ are a strong sign you have the practical skills and commitment to lifelong learning needed in a rapidly changing world. AAT gives people the technical skills they need, but also the soft skills that contribute to employability. These ‘power skills’, include good communication, innovation, teamwork and leadership, for example. “When I shared these insights with those gathered, my presentation was well received by the many students and AAT members in attendance. We even had a recruitment agency along, curious to know more about the power of AAT. “AAT’s branch network is priceless for members coming together to network and a great forum for mentoring and softer skills development. Eve Jones and the Birmingham Branch are a clear demonstration of our valuable, dynamic community in action.” The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more
Transitional arrangements for basis period reforms are far from simple Posted 05/28/2024 by Annie Makoff & filed under Members, Tax. Accountants discuss the issues that transitional arrangements are causing. Basis period reforms came into effect in April 2023, with the intention of simplifying how business profits are taxed. But the transitional arrangements are actually making things more complicated, causing financial headaches for many businesses including those in partnerships. This introduction gives an overview of BPR, so for a more detailed explanation AAT members should read our article on Knowledge Hub. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more The basis period refers to the time period in which a sole trader or partnership pays tax on actual profits accrued during the tax year. Under the old rules, for new businesses, the basis period began from the start of the business to the end of that particular tax year (5 April). In the second year, the basis period was based on the date the business’s accounts were prepared and took into account whether the accounting date was less or more than than 12 months since the date the business was first established. After that, and for established businesses, the basis period covered the twelve months’ accounting period which ended with the tax year. As these rules were primarily based on a business’s accounting period, they tended to create overlapping basis periods which meant businesses were being taxed twice. Under the basis period reforms: Basis periods are now known as ‘tax year basis’. Accounting periods must now align with the tax year. The reforms removes the issue of overlapping basis periods. These reforms will apply in full from 2024/25 but transitional arrangements were put in place from 2023/2024. It’s these transitional arrangements which are causing issues for businesses. Under the transitional arrangements, businesses whose accounting periods don’t align with the tax year are temporarily required to implement two accounting periods. This often results in shorter timeframes in which to declare taxable profits and a likelihood of returns needing to be amended at a later date. We spoke to accountants about the impact these transitional arrangements are having for themselves and clients. The reforms spell an initial cash nightmare and extra work Vipul Sheth, Chartered accountant and MD, Advancetrack Basis Period Reform (BPR) aligns sole trader and limited liability partnership (LLP) tax filings with that of the tax year itself. From April 2024, businesses are now required to report taxable profits for the period up to 5 April, regardless of their accounting year-end. But BPR could be a cash nightmare for small businesses, with some suffering financial catastrophe if arrangements are not made to accommodate them. That’s because 2023/24 is a transition year and businesses with a year-end that doesn’t match the tax year-end will have to catch up. Those with an end-of-April year-end could be taxed on 23 months of profit. BPR will result in extra work for accountants who will need to bring clients in line with the changes. Clients won’t necessarily see the work as adding any value and could lead to difficulties when it comes to charging fees. Many practitioners are already considering changing accounting periods for some clients to assist them in managing upcoming tax bills. Although existing ‘overlap relief’ allows spreading the additional tax burden over five years, the reforms could still significantly impact cash positions. I also have concerns around BPR awareness and its impact: The lack of extensive publicity means many tax professionals are aware but haven’t paid it the same level of attention as major government projects like MTD. Some LLP accountancy practices may have failed to mitigate against potential difficulties that these accelerated tax payments (and/or shifting their accounting period) may have on any partner pay-outs. This will need to be accounted for if cash flow arrangements have been taken out to mitigate against the initial one-off tax bill caused by BPR. Hospitality and farming businesses in particular usually have specific accounting dates that match up to the end of busy periods. Moving their date away from those periods will skew numbers. Accountants should provide intricate tax advice to navigate various scenarios to limit undue tax increases. There will also be additional reporting costs, potentially requiring extra accounts, advice and more complex tax calculations as the changes take effect. Verdict: The reforms could be an initial cash nightmare for businesses while accountants have their work cut out to support clients. The basis period reforms will result in massively reduced working capital for businesses Nicky Owen, Head of Professional Practices, Crowe These reforms will affect partners in partnerships and the self-employed where their accounting year doesn’t align with the tax year. With the reform, you’re taxed on the profits of a fiscal year. If accounts straddle 5 April, two sets of accounts will be apportioned. For example, with an accounting date of 30th April, you’ll be taxed on ¹⁄₁₂ of one accounting year and ¹¹⁄₁₂ of the following. For the transitional year 2023/2024, individuals are taxed on their accounts ending in the tax year plus the transitional profits, profits to the end of the tax year less overlap profits. For example, businesses with 30 April year end, the assessable profits will be for the year ending 30 April 2023 plus ¹¹⁄₁₂ profits to 30 April 2024, less overlap profits. Transitional profits can be spread over five years. If the individual retires within five years the untaxed transitional profits will crystalise. So what’s the impact? Acceleration of the tax payable on profits, starting with 31 January 2025. The knock-on effect is that working capital is reduced. Individuals and firms will need to plan cash flow for the future. Some individuals will have to file provisional returns and estimate profits, in particular those with an accounting year end of 31 December. How do individuals and firms estimate profits? Some firms have said they won’t be providing estimates; they don’t want to have difficult conversations reconciling the estimates to actual. All this is to make things simpler for MTD! Small businesses can be nimble enough to change their accounting year to align with the tax year. However, for larger businesses, it’s an upheaval with the impact on processes within HR and accounting functions. Call to action: Cash flow management, replenish working capital and work out what additional tax is due. Verdict: The basis period reforms will result in massively reduced working capital for businesses. Not all businesses can change their accounting year-end date Kelly Dixon, Tax Manager, DSG Chartered Accountants From 6 April 2024, taxable profits will be based on the tax year irrespective of the accounting year-end. A trader who does not prepare their annual accounts to 31 March or 5 April will be required to apportion their profits. The tax year 2023/24 acts as a transitional year for businesses to adapt. During this year, the basis period for a 30 September year-end will be 12 months to 30 September 2023 and six months to 31 March/5 April. A trader will therefore be subject to tax on profits earned over a period greater than 12 months. Overall, HMRC hopes the new rule will eliminate the burden of calculating overlap profits for new traders and simplify tax reporting. However, the reforms bring added complications and issues including: Having to estimate profits if the accounts figures are not available in time for the Tax Return filing deadline. Estimated Tax Return must therefore be provisionally filed and later amended to reflect actual figures. Cash flow issues, particularly during the transitional year where businesses will be assessed on more than 12 months of profits. To mitigate additional tax liabilities, HMRC allows use of overlap profits brought forward which can be deducted from the profits in the transitional year. Remaining tax liabilities arising from the reforms will be spread over a five-year period, with 20% of the additional profits taxed in each consecutive year. Businesses are encouraged to change their accounting year-end date during this transitional year, but this isn’t possible for some businesses. Seasonal businesses, such as farming, will be unable to change their accounting year as 5 April year end coincides with one of their busiest periods (e.g. lambing season). Other businesses operate a calendar year-end date of December to align their business affairs with an overseas year-end date. Verdict: Not all businesses can change their accounting year-end date – seasonal businesses and those with a year-end date of December to align with overseas subsidiaries will struggle. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more
“My AAT apprenticeship has opened so many doors” video Posted 05/22/2024 by AAT Comment & filed under Employer Videos, Employers, Students. Three AAT students discuss the ways AAT’s qualifications have helped them and their employer, Scrutton Bland. The tuition is really good. When you’re in a career like accountancy, AAT qualifications line you up for that perfectly as they train you on exactly what you need to learn. Dan Read, Trainee Client Support Scrutton Bland partners with AAT to create a talent pipeline. Watch this video to see how three employees from the award-winning firm of accountants have benefitted from AAT’s qualification. Lucy Jennings, Trainee Client Support, felt university was not for her. AAT provided her an alternative to university, which has got her where she wanted to be. She’s now looking towards leadership roles within the firm. Dan Read, Trainee Client Support, began by doing a degree in Sport Science but prefers doing AAT to studying at university, as it’s teaching him something much more specific to what he’s doing day-to-day. Denise Tsangaris, Finance Assistant, had already worked in banking for nearly 15 years when she decided to move further into accounting. She’d started work in audit and found accounting interesting – with AAT’s flexibility she was able to retrain.
Do your employees need to be chartered accountants? Posted 05/21/2024 by Christian Doherty & filed under Employer newsletter, Employers, Members. Different kinds of businesses have different needs to meet. Here’s why qualified accountants may be more than enough. Apologies, the previous version of this article included the 2016 audit threshold figures. It has been updated as of 31 May 2024. As a business grows, its needs change. In its early days, financial management consists largely of basic bookkeeping with some additional elements of payroll and tax. However, as the company grows in size and complexity so too does the level of financial oversight needed. At such a point, many business owners look at the expertise levels within their organisation’s finance team and decide whether they employ a bookkeeper, qualified accountant, or even choose someone with additional qualifications – for example, a chartered accountant. It’s a decision that has cost and compliance implications for the business, so needs to be carefully weighed up. “There’s no right or wrong approach when choosing a chartered or non-chartered accountant. In the modern world of work, skills-based hiring has become more predominant, particularly given how quickly environments can change,” says Hannah Szymanski, Market Director Finance & Accounting at Robert Half. “Any decision around choosing an accountant needs to be skills-based and specific to individual role demands more than anything else. “Even if the job requires more of the technical elements of the profession than in the past, a chartered accountant has often been the first choice, but it doesn’t mean that they are the only ones with the skills to perform the tasks.” Casting a wider net With that in mind, it’s worth remembering that qualified accountants can sign off the accounts for most companies up to the audit threshold. The current threshold rules are that if you meet two of the following criteria, you are not required to undertake an audit: an annual turnover of no more than £10.2m, assets worth no more than £5.1m or 50 or fewer employees on average. And given that the vast majority of businesses the UK are under the audit threshold, it’s clear that AAT-level accountants, for example, are responsible for maintaining the financial health of huge swathes of the UK economy. And of course, qualifications aren’t everything. “We also often advise finance leaders to be guided by experience, including their chartered experience and training,” says Szymanski. “And of course, this includes their soft skills and ability to operate and influence outside the confines of the finance function. “ So what about cost? “As a result of tenure, we also see little variation in costs for both, so realistically, the decision needs to be based on what an accountant can bring in terms of experience and value for the organisation,” says Szymanski. “It’s unlikely that the size or complexity of the business will play a role in the decision-making apart from the entrenched habits of hirers. For these reasons, it’s always advisable to speak to an expert recruitment partner to discuss the specifics of each role, rather than be limited by traditional talent pools or unnecessary job specification requirements.” Questions on chartered vs. unchartered accountants There are questions worth asking when you’re considering whether your business requires a highly qualified accountant. Can we afford it? The cost of a chartered accountant, whether through salary or professional fees, will typically exceed that of a similarly experienced non-chartered counterpart, so it’s worth bearing in mind whether you’re paying for qualifications that you don’t need. Do we need it? On some basic levels, this is easy to answer. If you’ve gone over the audit threshold then yes, you have a statutory obligation to ensure you have a chartered accountant running your financial report and accounting function. You should also consider whether your business is likely to be regularly involved in buying other businesses, selling overseas or working with complicated tax mitigations. Can we get one? Availability is a crucial aspect in this, and it’s not just as simple as looking on a recruitment website. It may be that finding a suitably qualified chartered accountant who wants to work for you at that time is tricky: for many chartered accountants, working in smaller businesses might not align with their ambition. They may also expect to be in more senior positions than the business currently has to offer. When chartered is the way to go In some cases, it may be that the business requires the services of a chartered accountant. The difference between different kinds of qualification can be immaterial depending on your business, but there are a few significant areas where the expertise of chartered accountants is required. ICAEW describes becoming a chartered accountant as an indication that “the person has undertaken a minimum of three years in-depth training, passed a series of rigorous examinations in financial management, auditing, business strategy and taxation, and committed to continuing professional development to keep their skills up to date.” Chartered accountants can typically assist in more complex areas and transactions than qualified accountants. These usually incorporate financial management and cash flow forecasting and might also involve elements of corporate finance (such as buying businesses, tax negotiations or insolvency). These typically necessitate a high-level understanding of the business’s changing needs. When qualifieds qualify If it turns out that the answers to these questions is ‘no’, then there may be alternatives to hiring a full-time chartered accountant onto the payroll. Some businesses opt for buying in accountancy expertise as and when they need it, while others look to technology for a solution and opt for bespoke accounting software that can meet their needs. Of course, for millions of businesses across the UK, the most convenient, compliant and cost-effective answer is to simply hire a qualified accountant. AAT accountants learn on the job right from the beginning of their training, tackling real-life problems faced by most businesses. As a result, they can apply their training to a wide range of areas, no matter what type of business they work in.
AAT’s Accountex 2024 takeover Posted 05/20/2024 by AAT Comment & filed under Community, Members. This year, AAT members were everywhere across the two-day conference. Accountex London is the UK’s biggest accountancy conference. This year’s installation summoned thousands of accountants, vendors and regulators to the capital to network and discuss the industry’s most essential and controversial issues. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more A number of AAT staff and members joined the crowds at London’s ExCeL centre on the 15th and 16th of May. This was our second year in a row exhibiting, and our first sponsoring a stage and acting as an accessibility partner. AAT sponsored Theatre 6: Future Leaders, where we heard from many expert speakers, including regular contributors Becky Glover FMAAT and Rachel Harris MAAT. Presenters covered topics ranging from going digital to leadership skills, diversity and inclusion and acquisitions. Taking the lead Sarah Beale, CEO, AAT, appeared on four different panels across two days, including ‘The ultimate guide to credit control, cashflow and getting paid!’, chaired by AAT’s Claire Bennison, Executive Director of Customer, Partnerships and Innovation. Here she and fellow panellists Lucy Cohen FMAAT, Co Founder and CEO, Mazuma, and Lynne Darcey Quigly, Founder and CEO, Know-it, discussed strategies for managing credit control. This is essential given that, according to Declan Leach, over half of all bankruptcies are attributed to poor credit management, and late payments are a known, existential issue for small businesses. Beale also took part in the panel on ‘The apprenticeship Levy – maximising benefits for all practices, regardless of size’. Presenters talked about how non-levy employers can make use of apprenticeship levy funding to teach critical career skills and implement successful apprenticeship programmes. Here, Beale highlighted that employers of all sizes can benefit from the levy. Smaller employees are eligible for government funding that pays 95% of apprentice training costs, while large employers can use their levy to pay for their apprenticeship training. Separately, AAT’s Jonathan Gorvin, Senior Executive Director of Strategy and Compliance, led the panel discussion ‘Leadership is not a position it’s a disposition’. He, Yash Selarka, Vice Chairperson, AAT London Branch, Alexis Charkiw, CEO, Right Click and Grace Hardy, Founder, Hardy Accounting looked at effective leadership. The session considered the characteristics of effective leaders, and the changing expectations leaders must meet as culture shifts. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more
The VAT threshold limit is a big issue for small business Posted 05/15/2024 by Annie Makoff & filed under Members, Tax. Accountants weigh in on the problems the VAT ‘cliff face’ is causing their clients – and the economy. The VAT threshold is significant because, once it is reached, suppliers must pay 20% VAT. SMEs and sole traders nearing the VAT threshold face a difficult choice: reach the threshold and register for VAT – meaning they must increase prices to account for the rate, and risk losing customers – or actively limit business growth to avoid reaching the threshold. This is unsurprisingly having a chilling effect. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more Many small businesses and sole traders are struggling with the threshold, not least due to high inflation, increased business costs and overheads and the need to remain competitive. Small businesses that are VAT registered are at a huge disadvantage compared to non-VAT registered competitors. The current VAT threshold for 2024/25 increased to £90,000 in April this year. Usually, the VAT threshold rises in line with inflation, but until recently it had been frozen since 2017, at £85,000. Measures some businesses are taking to avoid reaching the VAT threshold limit include: Working a four-day week. Temporarily closing the business if turnover is nearing the threshold limit. Turning down work. Being selective of the work that’s taken on. There’s also anecdotal evidence that some are asking to be paid in cash to avoid declaring income to HMRC. We spoke to accountants about the issues the VAT threshold poses for clients and what some businesses are doing to legally avoid reaching the threshold. This unfair system massively stunts growth Ed Stittle, Chartered accountant, Founder, ESDG Accountancy The VAT threshold mainly affects small customer-facing businesses. That’s largely tradespeople such as plumbers, beauticians and electricians for example, who can’t easily pass on increased costs to customers. It’s a cliff edge. Once a sole trader exceeds the £90,000 threshold, they’re suddenly 20% more expensive than their competitors. It can also be a real barrier to hiring, particularly once you’ve added insurance, additional materials and so on. And many are instead deciding not to grow their businesses – therefore not taking on employees or apprentices. None of this is good for the UK economy: businesses having to avoid the threshold results in less tax revenue for the government and stunted business growth. Clients often ask me about how to avoid reaching the VAT threshold. My answer is usually either to commit to growth and accept VAT as a business cost, or the other extreme: work less and restrict growth, which isn’t ideal. One plumber client now skips work on Fridays to avoid having to register for VAT. The Flat Rate scheme is something I’d recommend. This offers partial relief and a simplified system, but still doesn’t go far enough and is still ultimately a cliff edge. You also have to be significantly over the VAT threshold to get any benefit and be in a position to claim input VAT – which most small businesses aren’t. A better solution would be to make everyone register for VAT at much lower thresholds so it’s fairer. It would prevent a business £1 over the VAT threshold faced with being 20% more expensive than their competitor who is £1 under. It would generate more VAT revenue for the government and that surplus revenue could be used to reduce the 20 per cent VAT rate. Verdict: Many clients are having to avoid the VAT threshold but this massively stunts growth – there needs to be a fairer system. The difference between £89,000 and £90,001 can be £14k in VAT Alan Broome, Director, Acumenica Group The VAT registration threshold is a huge cliff edge. The difference between £89,000 in turnover and £90,001 can actually be as much as £14k in VAT. B2B business can largely defray this by passing the cost on to the consumer who can, of course, reclaim it. B2C business find it much harder to deal with and must either absorb it as a cost, or pass it on to the customer, making them less competitive. It’s common for business butting up against the registration threshold to restrict activity so that their turnover remains below the £90k mark. We’ve seen businesses turn away work, or close down for a few weeks so as not to exceed the threshold. Others will try to be a little creative and look at splitting their business into two so that both are below the threshold. This is doomed to failure as this is known as artificial disaggregation and HMRC don’t like it. We’re also aware that less scrupulous businesses will insist on cash payments from customers so that this activity doesn’t go near any official books. Verdict: VAT registration threshold is a cliff edge that causes financial issues for small businesses: the difference between £89,000 and £90,001 can be £14k in VAT. The VAT threshold hugely disadvantages smaller businesses Wendy Ross, Founder and Director, Tonbridge Accountants There are two key barriers to VAT registration. One: prices need to increase by 20%. For businesses selling to non-VAT-registered customers, this has a significant impact. Where customers cannot reclaim any VAT, the cost to them is 20% more. If selling to VAT-registered customers, the impact isn’t significant, as they can reclaim the VAT. For smaller businesses that are in direct competition with non-VAT-registered peers, this can be a huge disadvantage. Two: Businesses don’t always have the finance processes in place to handle the administrative burden. Since the introduction of Making Tax Digital for VAT, all VAT-registered businesses must keep digital records and file the returns using HMRC-compatible software. This can be an additional cost, if you are not already using software. Also, every transaction has to be captured and recorded using the appropriate VAT rate and supported by documentation, such as a VAT invoice. If suppliers make a mistake with the VAT on their invoicing, additional time is spent correcting the error. There’s a real mix as to how businesses approach reaching the VAT threshold. Some are selective about what jobs they take on while other business owners take time off and take on less work. However, a lot of businesses just choose to deal with issues as they arise or pass the threshold without realising, which can cause big problems. I believe that the current VAT threshold is suppressing the economy. Data shows there’s over £100m of lost revenue from businesses capping their turnover at the VAT threshold level. The way the system is designed, a lot of businesses are much worse off being just over the threshold than they are staying under it and this really is preventing growth. Verdict: VAT threshold is suppressing the economy and putting smaller businesses at a huge disadvantage. Some businesses may be tempted to avoid VAT threshold by fraudulent means Natalia Micu AATQB, Freelance Accountant and Management Accountant, Novenary Even though the VAT threshold has increased from £85,000 to £90,000, the biggest barrier is the cash flow. When any of my customers express the desire to register for VAT, I sit down with them and explain the ‘two baskets variance’. The ‘two baskets variance’ is where, when making sales, rather than putting all the money in one basket, you distribute 80% in one and 20% in another. This ensures you have enough to pay the taxman at the due date. For those not wanting to hit the threshold, you can either work less or turn down work. It’s potentially possible to incorporate a new company so turnover can be split and does not reach the threshold. However, this is not something I’d recommend as it’s not a practice HMRC condones and can be seen as potentially fraudulent. My biggest concern is that some business may be tempted to avoid the VAT threshold by fraudulent means such as receiving cash directly for services and then not declaring that as income. Verdict: Some businesses may be tempted to avoid VAT threshold through fraudulent means. Small businesses are having to turn down work Mike Block, Director of VAT, HW Fisher Small businesses that deal with B2C customers will be more wary of crossing the threshold than those who sell to B2B customers as they aren’t able to recover the VAT. Once they register, they have two options: increase their prices (typically by 20%) to cover the cost of the VAT, which can make their business less attractive to its customers, or keep their prices the same and absorb the cost of VAT themselves, which can affect their bottom line. Small businesses find themselves at a cliff edge whereby a business with income of £84,500 pays no VAT, and one with a taxable income of £85,500 pays a minimum of £14,250 if it is unable to pass on the VAT to its customers. Given these figures, many small businesses in the UK actively ensure that they remain under the VAT threshold by turning down work. Verdict: Many small businesses are having to turn down work to remain under VAT threshold. The fundamentals of working with complex VAT issues It can be challenging to keep up-to-date with the latest VAT regulations. Keep ahead of the latest in VAT by attending our informative one-day online VAT masterclass. Our VAT expert Simone Hurst will guide you through recent updates and compliance essentials and the potential impact on finance strategies. Find out more
What employers hiring accountants for small businesses need to consider Posted 05/15/2024 by Marianne Curphey & filed under Employer newsletter, Employers, Recruitment. An accountant is a key hire for SMEs. Here’s how to choose the right person with the right skills. When creating and growing a small or medium-sized business (SME), one of the key appointments you make will be your accountant. That’s because accountants have many responsibilities beyond keeping financial records accurate and complying with tax law. They also help with financial planning and budgeting, use data to make business decisions and ensure the business follows important regulations – and much more. This article looks at how to choose the right person for the job and what skills they need to bring with them. What qualities should an SME look out for when hiring? Initially, an SME may not need to recruit an extremely highly qualified accountant, especially if the business is relatively small. Instead, it would be a priority to find someone with strong skills in bookkeeping, payroll and tax, and an ability to communicate well and fit in with a small team. If you are running a start-up or small company, your accountant will need to be comfortable with taking on a variety of roles and responsibilities and be able to explain financial and accounting concepts to non-financial employees. “Having a bookkeeper in-house helps with compliance and provides a real-time snapshot of your current finances,” says Warren Mead, CEO of Sumer, a leading mid-market accountancy practice. “An experienced accountant will perform audits, prepare taxes and provide forecasts and strategic advice to the business owner,” he says. These skills are more necessary at a slightly larger firm. “Who you look for would depend on a few areas. You’d look at your company size, your existing team, what external support you already have, the business strategy, growth ambitions, and, of course, the budget you have available for this recruit.” Sector-specific skills “Different sectors require different skill sets. A security firm might seek skills for tracking contract profitability and labour costs. A printing business may need a finance technician to understand tax incentives for equipment investments, and printing job cost structures,” says Mead. Depending on the type of company you are running, you may need to recruit someone with knowledge of your industry. For example, if you are operating in a specialised or niche industry you will require an accountant with expertise in that area. However, a career changer can also bring valuable communication skills. For example, in his ten-year career in hospitality, Jack Bennett learnt a lot about customer service, operational complexity, effective communication and working under pressure. After studying for his AAT qualifications, Jack now works as Finance Assistant at Pobl Housing Association, a large provider of social housing, care homes and rented housing stock in Wales. See also our guide: Insider tips on hiring accounting apprentices – from the top 100 employers. SME growth expectations and market aspirations When thinking about hiring new members of staff for the finance function it is important to consider your company prospects, how quickly you hope to grow it and your aspirations. This will dictate the type of recruit and the skills they will need to have so that they can grow with the business. If you are operating on a tight budget or are funding the start-up yourself, you will need to think about what level of experience you can afford when recruiting an accountant and ensure that their pay level is compatible with other team members. For example, technical competence and adaptability are crucial skills in a small team as you balance day-to-day demands with the unexpected challenges that are encountered in a high-growth company, says Amanda McCulloch, chief executive at TMM Recruitment. “In a small business each member of the team juggles multiple responsibilities so for a management-level appointment, hire someone who can support the day-to-day. Possibly that person should have prior experience in a similar environment because there’s an appreciation for how resources are managed,” she says. “Over time this may grow into a requirement for a Financial Controller with transactional line reports.” Will you need help with strategy and data insights? The software now available means that even small companies can gain valuable insights around cash flow, forecasting and market share. “When I consider hiring new recruits for the finance function in a small business, my focus is not solely on traditional accounting qualifications,” says Peter Wood, Chief Technical Officer at Spectrum Search. “Instead, I emphasise the importance of digital literacy and strategic insight. In the current business landscape, an accountant’s ability to leverage technology effectively is as crucial as their fundamental financial skills. This means a candidate’s familiarity with cloud-based accounting tools and their readiness to adopt new technologies are key indicators of their potential to contribute significantly to the business.” Why is the role of technology important in recruitment? Cloud based technology and AI are both growing rapidly and changing the role of accountants to be more strategic. Employers will need to bear this in mind when thinking about who to recruit. Accountants with technology skills are likely to command higher salaries and they will expect a firm to have invested in new software to future-proof the business. “If technology talent is not high on the priority list for small companies looking to hire accounting and finance staff, then it should be,” says Neil Parsons, Managing Director, Wolters Kluwer Tax & Accounting UK. Not only will you need to find a recruit who understands technology in order to drive your business forward, but your company will be less attractive to new recruits, especially digital natives, if you are using outdated or legacy systems. “If small businesses don’t consider transforming their finance tools and processes, then there is also the danger that they won’t be able to attract the top talent in the first place,” says Sarah-Jayne Martin, Director, ICA Global AR Practice at Quadient. “The last thing a new finance recruit wants is to join a small business that lacks the actual technology or processes to enable them to do their job well.” Further reading Why apprenticeships are becoming the solution of choice for employers
Cash injection for HMRC at last Posted 05/13/2024 by AAT Comment & filed under HMRC updates, Members. The Treasury has announced £51m in additional funding for HMRC to support its performance and phone services, after years of declining resources and services. AAT and other organisations have been calling for the government to provide HMRC with more resources for some time. We are pleased to see this call answered at last, with the Treasury announcing £51m in additional funding for the Revenue. This move follows HMRC’s 24-hour U-turn on plans to close its Self Assessment, PAYE and VAT support phone lines over the summer months, following public outcry in March. Calls answered Financial Secretary to the Treasury Nigel Huddleston says he is “fully committed to providing HMRC with the resources it needs to meet the needs of all its customers”. HMRC’s Chief Executive and First Permanent Secretary Jim Harra said “We remain committed to expanding our online services and encouraging customers to go online where they can, as we strive to deliver good services as cost-effectively as possible. But we recognise this must happen at a pace the public is comfortable with. “This additional funding will enable us to improve our helpline service for those who need to speak to us – including the vulnerable and digitally excluded – making sure they get the support they require.” In other words, HMRC will continue to transition customers on to digital services. But that’s with the assurance, as Huddleston put it, that “there will be someone at the end of the phone, ready to speak.” Whilst AAT is pleased to see this additional investment in improving HMRC’s telephone services, we maintain that there still needs to be new, significant, long-term funding to enable HMRC to fundamentally transform its customer service offering and improve the taxpayer experience. Letter to HMRC Previous calls for more funding culminated in a joint letter sent to the Chancellor ahead of the Spring Statement in 2023, in which AAT and nine other UK professional bodies urged the Chancellor to prioritise investment in HMRC’s service levels. The letter argued HMRC’s customer service levels had fallen to an unacceptably low level which had ‘significant ramifications for taxpayers, business owners and their agents who are trying to comply with their tax obligations but need to be able to interact with the tax authority in a timely and efficient way.’ The bodies went on to state that by focusing on improving its customer service and effectiveness, HMRC would ‘help both improve public sector finances and boost productivity in the UK as a whole.’ “AAT members have been vocal, both in terms of the impact on themselves and on the thousands of clients and small businesses they serve, in identifying that HMRC has been struggling to meet satisfactory service levels,” said AAT’s Interim Director of Policy, Adam Harper. A timeline of AAT’s calls for investment in troubled HMRC Autumn 2022: New Time for change policy report shows cross-party support for a fairer, more effective tax system. AAT calls for HMRC to fix gaping flaws in current system. January 2023: AAT warns that half-measures won’t solve customer protection issues coming from HMRC consultation. March 2023: AAT and nine other UK professional bodies write letter urging the Chancellor to prioritise investment in HMRC’s service levels. April 2023: AAT calls out government for missed opportunity to regulate tax advice standards ahead of Tax Administration and Maintenance Day. May 2023: AAT provides evidence to the Public Accounts Committee inquiry into progress with Making Tax Digital. June 2023: AAT responds to the HMRC consultation on simplifying and modernising HMRC’s Income Tax services through the tax administration framework. July 2023 AAT urges HMRC be given more funding to solve poor performance, customer service October 2023: AAT provides evidence to the Public Accounts Committee inquiry into HMRC Standard report 2022-23. January 2024: AAT submits a representation to HM Treasury ahead of the Spring Budget 2024. March 2024: Government announces consultation on introduction of mandatory professional membership and supervision, which AAT welcomes. March 2024: AAT comments on the HMRC helpline U-turn. April 2024: AAT welcomes Labour’s promise of investment into HMRC.
The tax implications of remote work Posted 05/13/2024 by Annie Makoff & filed under Employers, Members, Tax. HMRC recognises work arrangements have changed permanently since the pandemic – here accountants consider the benefits and expenses that may incur tax. Hybrid working – where employees work some of the time in the office and some of the time at elsewhere – has been in place for most businesses since the pandemic. Some companies are trying to bring employees back to the office, though. Such a requirement would significantly increase travel costs and affect work-life balance. There have, nevertheless, been permanent changes to working arrangements since 2020. In April, the Flexible Working Bill 2023 finally became law, which gives employees the right to request flexible working from the first day of their employment. As a result, HMRC has updated its relevant guidance to reflect changes and clarify the costs and expenses which can and cannot be claimed in tax relief. HMRC is clear that employees cannot claim tax relief for ‘ordinary commuting and private travel’, which includes travel between home and place of work. This covers hybrid working arrangements. HMRC guidance (section 3.39) states: “Modern information and communications technology has allowed many more employees to work from home on a flexible or hybrid basis. Under such arrangements, the employee will have a base office and journeys from home to that location will be ordinary commuting.” As per HMRC guidance, the following can be claimed for as expenses, so long as it does not form part of the regular commute, but is still work-related: public transport costs hotel accommodation for overnight stays food and drink congestion charges and tolls parking fees business phone calls and printing costs business mileage. So what costs should businesses be covering under hybrid working arrangements, and what are the tax and accountancy implications of remote work? Return-to-office incentives can carry tax and NI costs Nick Bustin, Employment Tax Director, haysmacintyre The impact of the Government’s mantra “Stay at home, Protect the NHS” is still noticeable today in terms of where employees work. Some businesses have introduced initiatives to encourage employees back to the office. For example, providing breakfasts, fruit baskets, social events and covering commuting costs. However, the use of such incentives will come at an additional tax and National Insurance cost. No benefit in charge will arise if breakfast and fruit basket provision are freely available to all employees, but social events can result in a benefit in kind charge and resulting tax/National Insurance liabilities. Employers will need to enter into a PAYE settlement agreement (PSA) with HMRC. This is a contract between HMRC and the employer where the income tax and NIC can be paid on benefits provided to the employee, so long as one of the following criteria is met: the benefit is minor in nature, or the costs are incurred on an irregular basis; or it is impractical for the benefits to be dealt with any other way. However, employers need to budget for almost a ‘doubling’ of the original cost of the social event once the tax and NIC liabilities are considered. In relation to travel and commuting costs, there have also been instances where employees made the decision to ‘move to the country’ and were taken aback when employers wanted them to return to the office. Where the employer agrees to pay all or part of the employee’s commuting costs including any overnight accommodation, this will be liable to tax and NIC. This is on the basis that the cost of commuting merely puts the employee in a position to carry out their work; a point which is often over-looked by employers and employees. Verdict: Many incentives to encourage employees back to the office will carry additional tax and NI costs. Travel and commuting costs falls under taxable benefits – these trips must be properly documented to ensure tax compliance Andrea Rozario, Chief Corporate Officer, Bower Home Finance Some businesses now require their staff to return to the office more regularly as they continue to navigate the challenges and opportunities presented by hybrid working models. In my view, travel or commuting costs for employees may fall under taxable benefits. However, these trips need to be properly documented and reported to ensure compliance with relevant tax regulations. Increased overhead costs related to office maintenance and utilities may impact the company’s financial statements and tax obligations, necessitating adjustments in their budgeting and forecasting processes. Verdict: Covering travel and commuting costs may fall under taxable benefits – these trips must be properly documented to ensure tax compliance. If policies and expenses are the same as pre-pandemic, legal and tax implications are too Emma Clewes, Head of Tax Advisory, Prime Accountants Group I’m aware of a number of large retail corporates requiring head office staff to come back to the office full-time. Part of this is about addressing a disconnect between employees and business, and the feeling that it’s unfair people from head office don’t go to the office when others have to (drivers, store operatives, retail staff, etc). If a business is thinking about making a shift in working practice – whether that’s working from home, encouraging people to cycle or take the train to work – you have to think about it carefully as there are legal and tax implications. The main tax implications of whether or not to cover commuting costs come down to whether an employer recognises home as a permanent place of work. Driving to the office is not a business expense. The problem businesses are having is the job market is buoyant, and if businesses are worried about losing staff, they may have to incentivise them to stay. Part of that could be paying a ‘top up’ for travel to the office or reimbursing travel expenses. This would have a tax effect on the individual and the company as it would be treated as an additional reward. Businesses therefore need to communicate effectively. What is in staff’s contracts versus the accepted status quo will be different, so the recommendation is to formalise it. Verdict: My message to businesses would be to think carefully about what your expenses and hybrid work policies say. If nothing has changed since before the pandemic, then coming into the office won’t have legal or tax implications.
“AI could be the greatest admin assistant in history” Posted 05/09/2024 by Neil Johnson & filed under Artificial intelligence, Members. How you can use Artificial Intelligence (AI) in your job, from those in the know. Lee Murphy, Managing Director, The Accountancy Partnership AI could be the greatest admin assistant in history. It could do the sorts of tasks needed to check a client’s financial health, or to investigate fraud. The functionality of AI means it can be applied to many areas including cybersecurity, CRM software, customer service bots – which is where clients and the public interact most with business-powered AI – and more. The benefit is that AI offers a more streamlined customer service experience while, for accountants’ use, it can provide help with financial records. Incorporating AI Currently, AI is not part of how we work with our clients’ accounts. We are keeping an eye on the technological and ethical developments with AI and are looking at how we can utilise it in the future – as it will undoubtedly become part of our future. We are a digital practice but we are a community-focused one and we pride ourselves on creating jobs for local people, which is our current focus in these critical economic times. Risks associated Integrating AI into an accountancy practice is complex, and staff will need training to use AI to bring a refined nuance to their role. We must be vigilant on data privacy and adhere to a strict ethical code of conduct. The AI itself must be clever enough to work with trained professionals and we must insist on accuracy and a model that offers genuine and useful critical analysis. There is a theory called technological determination in cultural studies which claims the human race’s decision-making is already largely influenced by technology. The continued development will likely increase our dependence on technology – a topic that needs rigorous scientific and social debate. Areas AI can help with in accounting From what we know of AI’s capabilities in accounting, tasks such as trend analysis, reviews of documents, forecasting and planning could all be automated and provided they are closely monitored and the finished result checked, this could be hugely beneficial for accountants to focus on other aspects of business. AI skills for members AAT members can learn about AI, privacy, compliance risks and generative AI for accounting tasks in Learning Portal. Find out more James Berridge, Director, Data Analytics, and Becca Durrant, Manager – Cloud Accounting, Saffery In much the same way as your phone keyboard tries to predict what you’re going to type next, accounting systems with AI could soon be suggesting journals to make based on historic trends combined with current influences. Better auto-reconciliations should become possible as AI starts to understand the wider context of what’s going on with bank feeds. The recognition of bank transactions has already come a long way since first being released. Incorporating AI We are already seeing vendors working on tools to automatically process leases and other legal documents using large language models to interpret and understand the documents. Using machine learning for better predictive analysis could help with improved sensitivity analysis for complex forecasts in audit contexts. Forecasting and Cash flow apps are a hot topic this year with the need for accountants to take on a more advisory role. There are plenty in the market such as Futrli and Fathom which are using AI to produce predictions based on the company’s historic activities. Risks Data privacy and accessibility are key. You don’t want your AI to ‘learn’ from data only certain individuals have access to and effectively leak that information to others. Similarly if your firm’s key data is hidden away in lots of siloed systems then its much harder to benefit from its ability to find and summarise relevant information. Microsoft has been demonstrating the incredible power of their new M365 Copilot features. It can draft emails and referencing source documentation, which it can pull from other emails, meeting, documents etc – but it requires all your emails, call logs and documents to be stored in a certain way for the AI to access them. Areas AI can help with in accounting AI will free up a lot of mundane tasks allowing accountants to focus on the more interesting aspects of their work. Business owners are increasingly looking to their accountants for financial advice in much the same way as they would have previously spoken to their bank managers. AI will leave room for accountants to upskill in advisory roles. The interactivity and data insights provided by AI through many of the apps and the accounting platforms themselves will make these discussions much easier. Stewart Hurd, VP of Sales, FreeAgent I don’t believe that we will see a situation anytime soon – if ever – where AI will fundamentally change the way that accountancy is done, or a machine will be able to do the job of an accountant. The potential of AI really lies in administrative data gathering, management and analysis. This is certainly something that accounting software systems like FreeAgent are building – although it’s unlikely that simple tools like Excel, which have stricter limitations on what they can calculate, will be able to offer them. In many ways, the future is already here. Methods of automation already envelope us every day and shape the decisions we already make – enabling much of the workflows that you already complete daily, even if in only small ways so far. We’re going to see a period of acceleration. Machine-learning algorithms are already making banking & expense reconciliation easier, and this kind of functionality will become increasingly sophisticated in the coming years. And AI will become a differentiating factor in leveraging an advantage within that period. Incorporating AI FreeAgent has been developing its own AI and automation toolkit since 2018. It has its own: bank feed platform, which handled about 300 million transactions in 2023 AI-driven categorisation which reaches 65% of all transactions from day one, with a 93% accuracy rate Intelligent extraction of receipt data to speed up expense creation and automatically match bank transactions cash flow forecasting benchmarking reports customer health scores radar insights that collate personalised lists of information and tasks that small business owners need to address in their accounts. Risks The risks of AI come when it’s being relied upon for tasks that it wasn’t designed to do. An AI tool like ChatGPT can help you write content based on data that it finds and analyses, but it isn’t sophisticated enough to understand complex issues and put them into the right context. If you’re planning to use that content to inform people (such as your clients or partners), you’ll need someone with expertise to properly review and curate it first. It’s better to be clear-minded and realistic about the value and scope of AI, rather than be drawn in by the hype. Areas AI can help with in accounting Fraud detection risk assessment and management algorithmic trading sentiment analysis. Jo Copestake, UK Sales Director, Xero AI-driven tools are helping accountants reduce manual tasks so they can focus on stepping into the role of a true business advisor – balancing technology with human connection. Incorporating AI Xero is already using AI in its software. AI powers many of Xero’s everyday features, including bank reconciliation predictions, Hubdoc data capture, Xero Expenses, and cash flow forecasting in Xero Analytics Plus. We implemented a Generative AI solution in Xero Central to help deliver accurate support answers, faster, to customers. We introduced short-term cash flow forecasting in Xero Analytics Plus to now include predictions for recurring invoice and bill payments. These insights give small businesses and their accountants more clarity on their potential future cash flow. GenAI will play a big role in helping businesses to improve efficiency in the future. At Xero we’re developing a conversational interface – called Just Ask Xero (JAX) – using powerful GenAI technology. JAX will give users a natural, approachable way to interact with Xero’s product, right from within the apps and devices they already use every day. When available, Xero’s customers will be able to Just Ask Xero to complete tasks like generating an invoice, editing a quote or paying a bill, either in Xero or other commonly used apps and surfaces such as mobile, WhatsApp and email. Risks associated It’s really important to embrace this new wave of tech innovation responsibly. Security, safety and trust remain core to our AI approach and the responsible data use commitments guide our decisions in this space. Areas AI can help with in accounting Automating data entry bank reconciliation invoice processing improving accuracy providing real-time insights speeding up manual tasks enhancing security. AI skills for members AAT members can learn about AI, privacy, compliance risks and generative AI for accounting tasks in Learning Portal. Find out more