The art of persuasion: AAT’s work with the government Posted 05/08/2024 by Adam Harper & filed under Members, Policy. Reflecting on current policy priorities and giving an insight into the challenges we face in influencing policy makers on behalf of our community. Our engagement in policy and public affairs activity is an integral element underpinning our strategic aims. Ultimately, we recognise that we can add value to members, students, employers and training providers by supporting the development of, and advocating for, policy that keeps the profession relevant, drives up standards and builds responsible business. The consultation clash In recent times we have been actively engaged in two contrasting – but equally important – consultations, both with significant implications on AAT members, the wider profession and the general public. One of these consultations, issued on the back of the Chancellor’s Spring Budget Statement, is focused on the need to raise standards in the tax advisory sphere, where the issue of unqualified and unregulated tax advisers remains a serious challenge (the focus of our longstanding Accountable campaign). The other, now closed, consultation that we responded to last year, is centred on the future of the UK’s Anti-Money Laundering (AML) regime. Both timely, both important and both very relevant to us and the wider profession. But a closer look reveals a schism. The HMRC consultation on raising standards in the tax advice market includes a proposed approach whereby tax practitioners will be required to hold membership of a recognised professional body, with the regulatory framework strengthened through those bodies monitoring and enforcing standards as a means to raise them. By contrast, the Treasury’s consultation over reforms to the AML supervisory landscape ostensibly has at its heart a set of recommendations or proposals that would potentially result in most, if not all, of the professional accountancy/tax bodies that currently fulfil monitoring and enforcement roles through their professional body supervisor status for AML purposes, losing that status. Challenging and supporting policy-makers This seemingly contradictory approach being taken by two government departments is an example of the challenges we encounter in our drive to influence policy-makers. Inevitably we are drawing out the challenges represented by this inconsistency whilst supporting the basic principles behind the two government departments’ ambitions, but we’re also arguing that the inextricable link between the two does need further, joined-up, consideration. Another issue AAT is currently engaging with is the planned simultaneous developments to Higher Technical Qualifications (HTQs) and End Point Assessments (EPA) – the independent assessment of the knowledge, skills and behaviours learnt throughout an apprenticeship. The issue is a complicated one, but given our role as an awarding body, the planned reforms present us once again with the challenge of addressing and engaging with different departments with different agendas on a similar topic, with a genuine risk of a muddled outcome that won’t benefit the ultimate stakeholders: learners. In this instance, as opposed to submitting a consultation response, we are embarking on an outreach programme with key parliamentarians in a bid to highlight the concerns we have about the impact these developments will have on individual learners. Community drive for change On this issue, as is often the case with our policy engagement, AAT is but one of a number of organisations that is likely to be impacted. As such we often work in partnership with other awarding bodies and professional bodies to amplify and reinforce our concerns. Being part of a wider collective voice can be hugely effective; nevertheless, if we find ourselves taking a different viewpoint from others, clearly articulating our perspective can also deliver results. The point here is that the policy landscape can be unpredictable, often requiring us to respond quickly to emerging and urgent issues as well as similarly requiring the stamina for what can be longer-term campaigns where patience and resilience are important elements in our drive to influence policy. Whether that’s advocating for greater resourcing of HMRC to help the UK government raise revenues and close the tax gap, or lobbying for greater government action on late payments to SMEs, the results we have achieved over the years hopefully demonstrate how we have added value to the stakeholders across our community. Purpose of our public affairs activity The ultimate aim of our public affairs activity is to establish AAT as an organisation that is recognised by government and political stakeholders as a thought leader that influences the policy debate across the UK to the benefit of members, students and AAT’s charitable objectives, and therefore underpinning a commitment to delivering to a wider public benefit agenda. Being in the beneficial position of representing a diverse community presents a heady mix of opportunity and challenge. We are committed to being evidence-led in our activities, therefore the wealth of experience and opinions that members of our stakeholder community represent a rich seam of evidence, but also means that there will be conflicting opinions and viewpoints that we will need to consider. Nevertheless, if we are to be effective in delivering on our aim, we recognise the importance of having an authentic voice, backed up with relevant detail. To do that effectively, and to give added clarity to our voice, we need our members’ engagement. Experience shows that a submission to a given consultation that includes real and considered input from members in the field is so much more compelling. We have a mission to drive positive change areas across our key priority policy areas, so your input and voice can amplify the work that we do. And while you can’t please all the people all the time, we certainly won’t stop trying.
Navigating your tools in an AAT assessment Posted 05/08/2024 by AAT Comment & filed under Students. Here we show you how to find the highlighter tool during your AAT assessment. Highlighter At present the highlighter tool can be found along the right-hand side of the assessment. Following an update on 14 May, the highlighter tool will be located in the “tools” button at the top of the assessment window. On activating the highlighter a popup window will open, which allows you to control your highlighting. While “Edit” is selected, new highlights can be added to the assessment by selecting the text you wish to highlight. When it is not selected, the highlights remain, but no new highlights can be added until “Edit” is selected again. The “Clear” button will clear the highlight selection for that task. Closing the Highlighter popup will hide the highlighting but it will re-appear when you re-launch the highlighter tool. Calculator At present the calculator can be found along the right-hand side of the assessment. Following an update on 14 May, the calculator will be located in the “tools” button at the top of the assessment window. All other functionality of the calculator will remain unchanged.
Will you be signing clients up to HMRC’s MTD for IT pilot? Posted 05/03/2024 by Annie Makoff & filed under HMRC updates, Making Tax Digital, Members. Accountants react to HMRC’s request to take part in its latest Making Tax Digital for Income Tax pilot. HMRC is urging accountants and tax agents to take part in its latest pilot to test out Making Tax Digital for Income Tax (MTD for IT) before it becomes mandatory – in stages – from April 2026. The MTD for IT pilot was officially launched this April, after it had been previously trialled in June 2022 and subsequently paused a few months later. Under the pilot, accountants and tax agents whose clients are self-employed and/or landlords with an annual income over £50,000 can now sign up on a voluntary basis. They will need to keep digital records of client income and expenditure, send HMRC quarterly updates via MTD-compliance software, and submit tax returns by 31 January the following year. HMRC has said it’s a ‘good opportunity’ for accountants to ‘familiarise themselves’ and their clients with the MTD for IT before it becomes mandatory, while helping to prepare accountancy practices and be in a better position to support the client base. Eligibility criteria include: client personal details are up-to-date with HMRC client is a UK resident and has a National Insurance number client has previously submitted at least one Self Assessment tax return client is up-to-date with tax records and have no outstanding tax liabilities client’s accounting period aligns to the tax year (6 April to 5 April). But there is a big list of exceptions. Accountants will be unable to sign their clients up if they: are in receipt of High Income Child Benefit Charge, claim Married Couple’s Allowance or Blind Person’s Allowance have a payment plan with HMRC are a partner in a partnership are about to go bankrupt or insolvent are an MP, minister of religion or Lloyds underwriter are a foster carer or are in a shared lives scheme have income from a trust have income from a jointly owned property or from a furnished holiday let are subject to a compliance enquiry have variable annual profits due to their profession and therefore use ‘averaging’. Previous trials have also not proved successful. According to a Freedom of Information (FOI) request, just 115 self-assessment taxpayers had signed up to the initial 2022 trial. HMRC is hoping the latest pilot will encourage significantly more people to sign up to the pilot but this is looking unlikely. We asked a few accountants if they were intending to sign up for the pilot and put their clients forward. There may be slippage on test control so taking part carries risk Chris Demetriou, AAT-qualified Accountant and Co-Founder, Archimedia Accounts Digitising tax filings seems like a logical step forward but any significant changes also require diligence to avoid unintended consequences. That’s why my partners and I have been cautiously observing the pilot launch. Naturally, there’s an appeal to gaining first-hand experience before the new system becomes mandatory but equally, rushing into the pilot comes with risks that I can’t ignore as a responsible business owner and advisor. Some of the concerns raised by professional bodies resonate strongly with me. For example, will the pilot actually test every facet of the upcoming system? Software providers may not have sufficient time to address all issues before next year’s wider rollout. Slipping on testing quality control could lead to unforeseen bureaucratic nightmares down the road. I want to avoid a situation where participating does more harm than good. If we sign clients up only for their data to encounter glitches that jeopardize important tax compliance, that undermines our focus on delivering consistent, high-quality services. Our reputation is built on trust through transparent communication and reliable solutions – which is harder to ensure in the pilot’s uncertain early days. Once we see clear evidence that problems have been solved sustainably rather than superficially, I’ll feel much better about recommending involvement. Verdict: There may be slippage on test control which could lead to huge risks for clients and us as a business. Risk outweighs possible benefits due to HMRC’s track record Yiannis Zourmpanos, Chartered Accountant, Financial Consultant and Founder, Yiazou Capital Research I have mixed feelings about HMRC’s MTD for IT. I appreciate the aims to modernize the tax system through digital record keeping and reporting, but based on the delays, complexities, and additional burdens reported so far, I am hesitant to recommend MTD participation for most of my clients at this time. Although maintaining digital records can make reporting easier, HMRC has come under fire for being opaque and adopting a less-than-customer-focused strategy. Confidence has already been damaged by multiple delays in the implementation. I would need to see a track record of success and a simplification of requirements before recommending clients to participate. HMRC needs to show the benefits of the pilot to taxpayers and agents while addressing valid concerns. I will reevaluate my recommendation for MTD participation for qualified clients after changes have been made. But in the interim, I think it’s wise to exercise patience. Verdict: HMRC’s track record has damaged confidence so the risk outweighs possible benefits. Persuading clients to participate could be a challenge Katharine Arthur, Partner & Head of Private Client, haysmacintyre Currently, we do not have any clients participating in the pilot. But we plan to have some signed up before the latest announced implementation date of April 2026. Persuading clients to participate is a challenge: there have been so many false starts to the initiative, with the start date being delayed often, and for a long time. Additionally, clients would have to spend additional time filing the MTD quarterly returns – in advance of a statutory requirement to do so! That said, HMRC, taxpayers and agents participating in the pilot will be key to ensure a smooth introduction of MTD for IT, and we welcome HMRC’s aim to broaden the pilot. Verdict: It’ll be important to participate in the pilot but it’ll be a challenge to persuade clients due to lack of confidence in HMRC and its systems.
Share your opinions on the effectiveness of the Money Laundering Regulations Posted 04/29/2024 by AAT Comment & filed under Anti-money laundering, HMRC updates, Members. The government is consulting on changes to improve regulations while minimising burdens on legitimate customers, and it wants to hear from you. HM Treasury has published a consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs). These place requirements on a range of businesses to identify and prevent money laundering and terrorist financing. This consultation principally covers already-identified issues with the MLRs. One example is the 2022 Review of the UK’s anti-money laundering and counter-terrorist financing regulatory and supervisory regime. This review found the core requirements of the regulations mostly fit for purpose, but recognised some technical changes could be made to increase effectiveness and ensure proportionality for both regulated firms and customers. The consultation also includes issues put forward by key stakeholders, such as the anti-money laundering/counter-terrorist financing supervisors, the regulated industries and their representative bodies, which could reduce burdens and make the regulations more effective at tackling economic crime. Four core themes Making customer due diligence more proportionate and effective Strengthening system coordination Providing clarity on scope of the MLRs Reforming registration requirements for the Trust Registration Service. Make your voice heard HM Treasury is keen to hear from a wide range of stakeholders in response to the consultation, including regulated businesses and their customers, supervisory bodies, law enforcement agencies, civil society organisations and members of the public. The consultation document sets out a number of ways to respond to the consultation. This includes answering the questions via the online form Improving the Effectiveness of the Money Laundering Regulations. While the consultation is open, HM Treasury is holding a series of virtual, working-level events to discuss the consultation with interested stakeholders. It closes at 11:59pm on 9 June 2024. You can find out more on the GOV.UK consultation page. Cost of Compliance Survey In parallel with this consultation, HM Treasury is running a survey on the cost of compliance with the MLRs. This will help the government better understand how regulated businesses comply with the regulations and to assess the impact of future changes to the MLRs. HM Treasury is keen to receive responses from a wide range of regulated businesses, including large firms, SMEs and sole traders. You can see and respond to the survey at the Cost of compliance with the Money Laundering Regulations – survey for regulated businesses.
The red flags that warn of unlawful dividends Posted 04/25/2024 by Annie Makoff & filed under Ethics, Members. Dividends are widely used among limited businesses, but they can come with ethical issues. Many limited businesses utilise dividends because they’re more tax-efficient for directors than taking a salary. For shareholders, they act as a ‘thank you’ for investing. But there are ethical issues associated with dividends. Unlike taking salaries, dividends can only be paid if the business is making enough profit for equal distribution. In addition, a business must be in good financial health and in a position to meet financial obligations even after dividends are paid. It is therefore unlawful to pay dividends on a loss-making making business and one which is in financial difficulties. As such, companies must meet the requirements as set out in the Companies Act 2006 or their dividend payments are considered unlawful. Examples of unlawful dividend payments may include: paying out dividends despite insufficient company profits paying out dividends despite knowing the company will be unable to meet ongoing financial obligations failure to prepare interim accounts to support interim dividends inadequate paperwork or evidence to declare the dividend failure to pay all shareholders the same amount. There have been several high-profile examples of unlawful dividend payouts. Former high street retailer Wilko infamously paid out £3m in dividends despite annual losses of £39m losses – it subsequently went into administration. Both Domino’s Pizza Group and retailer Dunelm have previously admitted to paying dividends which breached the Companies Act 2006 in 2015/16. Accountants therefore play a crucial role in ensuring an ethical approach is applied to clients’ dividends and payouts are not in breach of the Companies Act 2006. So what are the warning signs accountants should look out for? Beware overly complex legal entities and share structures Wendy Ross, Founder, & Laughton Ross, Director, Tonbridge Accountants Deliberately not declaring dividend income is tax evasion which is both illegal and unethical. There’s no grey area here: if an individual receives over £10,000 in dividend income it needs to go in their self-assessment tax return. Smaller amounts can be dealt with through tax codes with the tax being taken from salary or pension income. When it comes to paying dividends, the legal side of things can be very complex as directors have to consider company law and tax law. This includes: Taking into account size and nature of the company. A large company with many shareholders should have a robust process, but can be simpler for smaller owner-managed businesses. Determining whether the company has realised profits from which dividends can be paid. This will be straightforward for a company which dividends once a year as their annual accounts will show retained earnings. But it’ll be more challenging for a company which pays dividends frequently. For every dividend paid, the director needs to assess if profits allow dividend payouts and must also factor in tax due on profits, cash flow and whether it can meet financial obligations etc. Documenting dividends via a vote at a shareholders meeting and issuance of a dividend certificate. An alarm bell should ring if a client has an over-engineered or over-complicated legal entity structure or share structure. This doesn’t mean complex structures are wrong – but if a company had multiple legal entities in different jurisdictions, multiple share classes with different types of share and different dividend rights or complex profit-sharing arrangements, I’d want to dig into this. Verdict: Overly complex legal entities and share structures with multiple share classes, legal entities in different jurisdictions and different dividend rights may be a bad sign. Paying shares to family members is always a red flag Beth Jackson, Founder, 2 Sisters Accounting We find getting business owners to really understand the difference between dividends vs salary hard enough, let alone the full rules around dividends and what is and isn’t allowed. Ultimately, unlawful dividends nearly always happen in small owner-managed businesses. We try and drill into our clients to save their tax as they go, leave a buffer in the bank account and then pay themselves to make sure they’re not going to be taking more in dividends than is available in profit. A/B/C shares with spouses and children having shares is always an area we check into. Are family members actually involved in the running of the business? If not, should they really have shares? Especially B or C shares. The changes in national insurance rates and the lower dividends allowance mean dividends are not the tax-efficient method of payment they once were. This may slowly change people’s attitudes towards them. Verdict: Paying shares to spouses and/or children is always a red flag – if family members aren’t actually involved in running the business, should they really have shares? Watch out for disguised dividends hiding excessive salaries or bonuses Aftab Hussain, Accounting and Tax Expert, ANNA Money A dividend can be paid to any person or entity that is a shareholder belonging to the company regardless of who they are, whether they have a role in the company or not. There are some important points to take into account, however: A company should have enough accumulated profits tax to be able to cover any dividend. If there are no sufficient profits, then any dividends declared or paid above the profits level would be considered illegal payments. This would apply to any interim dividends during the year, too. If a dividend is declared for a certain share class, all other shareholders in that share class must be paid an equal dividend unless they specifically waive their right to that dividend. There’s a grey area when dividends are paid to shareholders who are also directors, especially if there are overdrawn director’s loan accounts. If the company pays dividends to clear a director’s loan, this might be reclassified by HMRC as salary, leading to additional taxes and penalties. The main warning signs for accountants would be around insufficient profits. Also, where there is reason to believe that dividends are disguised as other payments. These other payments would normally be remuneration for services but are instead being made to shareholders under the guise of dividends. This would suggest an attempt to evade taxes. Another example may be where a company has a complex structure set-up involving multiple other companies and companies which are shareholders instead of individuals. This would be an indicator that the true benefactor is trying to keep themselves hidden with a complex web of companies and would be an indicator of tax avoidance. Verdict: Disguised dividends which may be hiding excessive salaries or bonuses are huge red flags.
New VAT scam alert Posted 04/24/2024 by AAT Comment & filed under Cyber security, HMRC updates, Members. Watch out for a new email scam purporting to be from HMRC. HMRC warns that it has identified a new VAT email scam, which may encourage you to scan a QR code. HMRC will never ask you to submit personal information using a QR code – if you receive this email, do not engage with it. Instead, report it to HMRC here.
Accountex London releases first sessions from their CPD accredited seminar programme Posted 04/23/2024 by Accountex & filed under Events. This article is brought to you by Accountex. Accountex London is returning in the Spring, on 15-16 May 2024. London’s ExCeL is expected to welcome over ten thousand accounting and finance professionals through its doors. The education programme offers up to 16 free CPD hours and will be held across 13 theatres and 250+ sessions. It will be made up of innovators and thought leaders from the field and beyond. AAT are sponsoring the Future Leaders Theatre, which has a packed line-up of seminars aimed at equipping visitors with the right tools to become the next generation of successful leaders. Explore sessions from AAT At the Future Leaders Theatre on day one, AAT CEO Sarah Beale will be hosting the session ‘How to be a future leader’. The panel will explore the key areas influencing leadership, including the importance of diversity and inclusion within the industry, and the adoption of technology to enhance decision making. On day two, Jonathan Gorvin, Executive Director of Strategy and Compliance at AAT will be running the panel discussion ‘Leadership is not a position it’s a disposition’. The panel will delve into the impact of mindset on leadership, within the finance industry. Contrary to the traditional approach that leadership is associated with your job title, AAT will discuss whether the attitudes, values and behaviors are the real drivers which enable effective leadership regardless of your position. Over at the In Practice Theatre, an all-female panel will focus on ‘The ultimate guide to credit control, cashflow and getting paid!’. Sarah Beale, AAT; Lynne Darcey Quigley, Know-it and Darcey Quigley & Co; Lucy Cohen, Mazuma and Andrea Reynolds, Swoop, will be discussing strategies for managing credit control, optimising cashflow, and ensuring timely payments. Dive into the world of tax Accountex regular Rebecca Benneyworth will be returning to the stage to dive into all things tax, with the session ‘Current topical tax issues’. Rebecca will take visitors on a whistle stop tour of key issues and changes, together with the practical implications and advice prompts for clients. Also delving into the world of tax is Sharon Cooke, Tax Technical Director from 20:20 Innovation, as she highlights her ‘Top 10 tax considerations for 2024/25’, which will include practical pointers and key takeaways. Calling all Bookkeepers For the second year, Accountex will have a dedicated bookkeeper’s lounge, sponsored by Xero. The dedicated space is for bookkeepers to form new connections and leave with fresh insights to help super-charge their businesses. The Bookkeepers Theatre will have a programme full of seminars specifically catered to the Bookkeeping community. Jo Wood and Zoe Whitman from The 6 Figure Bookkeeper will be delivering the session ‘How to maximise the software you already have’. The panel will discuss how to automate routine tasks, unlock hidden features, and how to build a micro practice with a smaller team. Claire Bartlett, from Arden Bookkeeping will be giving the talk ‘The best kept secret – how bookkeepers can profit from accountants’ disregard for everyday tasks’. Claire will look at the benefits of being involved on a daily level with clients, and how this is setting Bookkeepers apart from Accountants. Empower and motivate After the success of his session at Accountex Summit Manchester, Richard McCann is presenting ‘Audit your mindset: overcoming challenges with the power of ‘iCan’. Here he will draw from his personal journey of healing and growth. The presentation promises to empower audiences, with invaluable insights and practical strategies to conquer challenges and achieve success. Steve Judge, Achievement Catalyst at i.Nspire, will be hosting the seminar ‘Good to Gold – achieve the life that you want to live’. Steve will share his journey that took him from wheelchair to world champion and beyond. Register for free Visitors will also be able to meet the AAT team at stand 390 and have their questions answered in person, as well as exploring the opportunities they have on offer. Accountex London is taking place at ExCeL on the 15-16 May, 2024. For further information and to book your free ticket, please visit www.accountex.co.uk/london. Use priority code ACX146 when booking. This article is brought to you by Accountex.
The implications of Companies House fee increases for your clients Posted 04/22/2024 by Annie Makoff & filed under Members, Run your business. Accountants explain how the Companies House fee increases will affect their practices and clients. Significant reforms to Companies House are currently underway to clamp down on fraud and economic crime and improve transparency. As part of these reforms, Companies House has been granted greater powers to investigate and act on any suspicious company information, and there are now stricter requirements for companies when filing information. The first round of changes came into force in March. Future reforms with implementation dates yet to be announced include: A requirement for businesses to file digital accounts rather than paper ones – the software-only roll-out will take place over 2-3 years. A requirement for small and micro entities to file profit and loss accounts as well as a directors’ report. From 1 May 2024, Companies House will significantly increase its fees. As part of the move towards digitalisation, fees for paper filing will be more expensive digital filing. Given the huge increase and the extent of the changes to Companies House overall, accountants have a lot to absorb and incorporate when it comes to client communications and pricing structures. We spoke to several accountants to see how they’re preparing for all these changes, not least the fee increase – and what it might mean for them and their clients. Companies will need to use accountants more Morgan Davies, Director, Prime Accountants Group Companies House has significantly increased its fees for a lot of things and we’re having to pass those costs on to the client in some instances. However, the increases are generally for things which are designed to be infrequent. For example, a change of company name or a business closure. So while the cost has gone up a lot as a percentage, for most businesses, the costs are fairly trivial. For example, some items which once cost £8 have gone up to £40. But on the flip side, some costs have come down, e.g a filing charge is £24 to submit on paper and £15 to submit digitally. From a professional services point of view, the move towards digital won’t impact us as a company, as we got rid of paper filing a long time ago. Many accountants will have already invested in the software needed. But one significant change from the reforms is around ID checks. Toughening up on this helps create a better environment for companies to do business, as it creates more confidence in the system. The downside for companies is they are more likely to have to use an accountant for things they previously had the flexibility to do themselves. Verdict: Companies will have to use an accountant for things they could previously handle themselves. We’ve increased our fees and are running social media campaigns Zahid Mustafa, Founder and Director, Erdingsworth Business and Tax Advisors We’re advising clients of the Companies House changes and what it means for them. This process takes a significant amount of time, but as our clients must be fully up to date, we’ve dedicated an entire social media campaign to raising awareness. The increase in Companies House fees has resulted in us increasing our fees. We have advised our clients in good time about this to ensure that there are no issues for them and it can be incorporated into their cash flow forecasts. On the digital side, we’ve already adopted a digital policy well before the changes, so we’re well prepared. In fact, we would encourage more “digitisation” as it is easy, quicker and reliable. We also use cloud-based software for accounts preparation and filing. Overall, we welcome the new reforms. They mean greater transparency and therefore, information held by Companies House will be more reliable. Verdict: We’re educating clients about Companies House reforms through social media campaigns and we’ve also had to increase our fees. Companies House changes won’t affect our practices James Wood, Accounts Partner, Jackson Stephen LLP There have not been any significant changes to our practices so far as a result of Companies House reforms. We routinely perform AML checks on our clients each year anyway and we will work with Companies House and clients alike when the changes come into effect to provide the additional information required. Regarding the fee increase, we have no plans to increase our fees other than annual inflationary increases and we will just have to disburse the additional filing fee ourselves. When it comes to digitisation, we’re already ahead as we have been filing accounts online for a number of our clients for years. We welcome the changes being introduced meaning we will soon be able to file all online. Verdict: We already carry out AML checks and are ahead on digitalisation. We will swallow increased Companies House fees ourselves, so the changes won’t really affect us. There shouldn’t be any cost implications for accountants on the back of Companies House reforms Angela Brown, Director, Fin Flare There have been big changes at Companies House but they won’t necessarily have a huge impact on accountants. For example: Move to digital filing: most accountants will already be filing accounts digitally. This change will bring Companies House more in line with HMRC. There should be minimal impact on most accountants but it may cause some issues for smaller micro-entities that aren’t maintaining digital bookkeeping records. Move to filing profit & loss accounts for small and micro-entities: The loss of privacy for small companies and removal of the ability to file abridged accounts is concerning. For these businesses, it’s effectively “opening the kimono” revealing turnover and margins for the world to see. How valuable this will be for stakeholders of businesses is questionable. Reasonable financial data is already available through the filing of an annual balance sheet. Fee increase: the increased Companies House fees are significant but aren’t punitive and most likely reflect higher operating costs at Companies House. Verdict: There shouldn’t be any cost implications for accountants or the businesses they serve. Any fee increases on the back of these changes would be nothing short of scandalous!
When is enough growth enough for your practice? Posted 04/12/2024 by Annie Makoff & filed under Members, Practice management, Run your business. Accountants discuss finding the sweet spot between business growth and deep client relationships. What’s more important: business growth or client relationships? For most businesses, there’s a ‘sweet spot’ between the two, with a focus on sustainable business growth while nurturing current and existing clients. But sometimes it doesn’t work out like that – some businesses can become so focused on growth, prioritising sales and marketing and reaching out to new markets, that they forget to look after clients already on their books which can lead to a reduction in quality and service. Other fast-growing businesses may lack the resources to sustain business practices. On the other side of the coin are the businesses that make a conscious decision to focus entirely on client relationships. For them, closing their books to new clients for sustained periods and focusing instead on providing a great service to current clients may prevent expansion later on. A sustainable growth plan may include: identifying (and continually reviewing) achievable targets and KPIs for long, medium and short-term reviewing current capacity and identifying achievable growth rate producing cashflow forecasts investing in staff development or recruiting for specific skills providing excellent service and value for clients improving client satisfaction levels (including regular client check-ins and contact) implementing a clear sales and marketing strategy. We asked several accountants where they sit on this issue. Is it possible to focus on growth while developing and improving existing service? Or do some accountants favour a cyclical either/or approach? There’s an art to balancing growth and satisfaction Jess Middleton, AAT-qualified, Founder, MPAS UK (Middleton Professional Accounts Services) Like most business owners, I believe in business growth. However, I don’t believe that growth should come at the price of diminished quality of service for existing clients. This is something we have been working to balance since our start in 2020 and last year we turned a corner. What’s the point in growing if you are losing clients at every turn? Of course, clients will move on naturally due to various circumstances, but you don’t want one of those reasons to be your work. Quality feeds growth. Referrals can certainly be your best friend when it comes to growing. The key is ensuring your growth doesn’t outpace your ability to manage the workload including having regular communication with clients. This is how we plot sustainable growth: We look at management accounts so far in the financial year to review business progression and identify patterns of income (i.e which months show highest income and which show lower?) We use a database to track and review our own capacity, based on how up-to-date we are with work and realistically how much more we could take on. We review recent feedback, including a monthly 15 minute catch-up call and constant contact with clients via WhatsApp. We look at what growth rate is sustainable to keep the balance: keeping clients happy and continuing to grow to reach our targets. We produce a cashflow forecast to see how this looks and then decide whether we need to increase our headcount at some stage in the future to help maintain growth and quality. Currently, we have a very doable and sustainable growth target of 10% on the year. Verdict: It’s possible to focus on sustainable growth and keep clients happy, but it’s an art which takes constant readjustment. We’re at the point of ‘enough growth’ and are focusing on great service Sharon Wray, FMAAT, Director, Sharon Wray Accountancy Services I have been fortunate in my practice that growth has been organic without any sales or marketing but there have been times when I had too many clients and the overwhelm was detrimental to my health. You then have to consider either scaling down or hiring another person. I have done both, but only after the realisation that something had to give. I’m now in the position where I can scale down further and keep good clients who I want to work with, adding value to their business. It’s about the right client fit for your business and having the courage to let legacy or low-paying clients go. We now concentrate on working with the best software on the market to maintain great client service and relationships. Making the decision not to grow any more really works well for us, but it is finding the balance that works for you. I’ve seen clients be busy in their businesses, working all hours, only to reach burnout and subsequently lose work because they have taken their eye off the ball. It’s such an important lesson to realise where your business is sitting on the spectrum of value and growth so that informed decisions are made for the better. Verdict: Too many clients can be detrimental to a business then something has to give. We’re at the point of ‘enough growth’ and are focusing on great service and adding value. I’m implementing a client waiting list to keep my business purposely small so I can focus on existing clients and family Tom Smith MAAT, Director, Every Cloud Accounting My plan is to stay small and profitable. I want to build a ‘lifestyle accountancy practice’ and prioritise life as well as business. I have a newborn so I don’t want to build a big accountancy practice with HR, staff, offices and so on. I want to spend quality time with my son, whilst offering a great service for clients and building the business. A lot of accounting conferences are all about growing, getting to X number of staff members, but I want a flexible business that serves the life I want. My goal is to get to six figures in revenue, continue delivering a great service for clients and have time and balance in my personal life. The decision is based on running businesses in the past, where I have had it the wrong way round and ended up in a job chained to my desk. The key resource to look at will be my time and I will only take on clients up until a certain capacity. I may hire a VR/bookkeeper but I will be keeping the business purposely small. There is definitely a point where it’s sensible to focus on servicing existing clients. It’s easy to be on the treadmill of sales, sales, sales, but that can come at the price of the levels of service you’re offering. When I get to a certain capacity, I plan to pause taking on new clients and create a waiting list, so I only take on new clients when I am in a position to deliver a great service. Verdict: I’m keeping my practice purposely small with a client waiting list so I can offer great client service while having quality time with family.
Will company size thresholds actually simplify and reduce SMEs’ admin burden? Posted 04/11/2024 by Annie Makoff & filed under Financial accounting and reporting, Members. New government proposals attempt to reduce the administrative burden on SMEs. Accountants discuss whether they’ll work. Company size is decided by monetary thresholds. New government proposals include lifting these thresholds by 50% in an attempt to reduce the administrative burden on SMEs and to simplify non-financial reporting requirements. Under the proposals, 132,000 UK businesses will have their business category reclassified as either a medium or small business or a micro-entity. As SMEs and micro enterprises are exempt from statutory audit requirements, large numbers of reclassified businesses will benefit from the exemption. They’ll also benefit from simpler filing requirements such as FRS 105 for micro entities and FRS 102 1A for small businesses. The new proposals also include removing duplicate EU reporting requirements and enabling businesses to share annual reports in digital format. The new UK company size thresholds are expected to take effect on or after October 2024: Where two out of three apply:MicroSmallMediumLargeOldNewOldNewOldNewOldNewAnnual turnoverNot more than £632kNot more than £1mNot more than £10.2mNot more than £15mNot more than £36mNot more than £54m£36m+£54m+Balance sheet totalNot more than £316kNot more than £500kNot more than £5.1mNot more than £7.5mNot more than £18mNot more than £27m£18m+£27m+Av. no. of employeesNot more than 10Not more than 50Not more than 250251+ The government say the changes will ‘spare’ businesses from ‘burdensome form-filling and non-financial reporting requirements’ and estimate £150m per year in savings for SMEs. So what do accountants and corporate finance specialists think? How effective is the proposed legislation likely to be in reducing administrative burden and will it actually simplify reporting for SMEs and micro entities? A sensible idea with unintended consequences Stuart Brown, Director, Head of Technical Compliance, Duncan & Topis The plans are sensible in many ways. They’ll reduce the regulatory burden on thousands of companies, especially as current thresholds were due to inflationary increases in financial metrics. But there may well be unintended consequences. For example, it may be harder for a company to obtain finance if its financial statements have not been audited. Or, if they are no longer calculating carbon emissions they may no longer appear committed to ESG matters. The proposed changes also need to be considered alongside other incoming regulatory changes such as the far-reaching changes to Companies House which will include the verification of directors or persons with significant control. And changes around companies needing to submit profit and loss accounts. Verdict: The changes to company size thresholds, although sensible, may result in unintended consequences. We need a full overhaul to relieve the admin burden Stuart Crook, Partner, Wellers I have always believed that company size thresholds should rise in line with inflation. Revisiting them every so often doesn’t make any sense and doesn’t consider the wider effects of the economy on a business. These thresholds are primarily based on company size and revenue figures, which can be artificially magnified by inflation. A more robust system would consider this regularly rather than on political whims. Accounts can also be audited for several reasons that have nothing to do with these thresholds, including if they are using bank facilities, for example. If a company is approaching the next threshold, then typically they will be aware of the necessary upcoming audit anyway, so in this instance, the changes won’t make much of a difference. The devil will be in the detail with these proposals. Post-Brexit administrative burdens have been amplified to the extreme due to poor planning by the government pre-Brexit. But now, there have been no details released. Small businesses are already well over capacity with the administrative burdens put on them. They are juggling new legislation in all aspects of running their business from the Economic Crime Bill and anti-money laundering to changes to pensions and the national living wage, health and safety, and trading regulations. Therefore, any removal of admin at this stage wouldn’t be lightening the load on small businesses, it would simply be taking them back to the even keel they were dealing with pre-Brexit. To actually lighten the load, a full overhaul would need to happen. Verdict: The threshold changes are necessary but won’t lighten the admin load – a full overhaul needs to happen instead. Changes are baby steps towards bigger challenges Gareth Anderson, Corporate Finance Specialist and Head of Business Management, Allica Bank These size threshold changes are merely a baby step that won’t tackle the bigger challenges facing SMEs. Anything that helps reduce, simplify and streamline the regulatory and reporting burden for SMEs is welcome, but they really require help investing for the future, innovating and creating new workforce skills. Non-financial reporting obligations aren’t a bad thing either. I’d also argue that if we want to encourage more private investment into SMEs, providing visibility and transparency – particularly through the Directors Report and Strategic Report – is a good thing. They can give investors more confidence to invest in early-stage companies, while also supporting owner accountability. Verdict: On balance the changes should be welcomed, but alone they should be seen as just a tiny step of a much bigger journey.