AML compliance made seamless with accounting software Posted 04/11/2024 by Capium & filed under Anti-money laundering. This content is brought to you by Capium. We’d be lying if we said that Anti-Money Laundering (AML) was one of our favourite topics, and we doubt it’s one of yours, either. In fact, if our conversations with customers are anything to go by, no accountant really wants to ‘do AML’, and most of you view it as a regulatory burden that you’re stuck with. There are reams of regulations surrounding AML compliance, and that landscape is continually changing. Keeping up is time-consuming, the rules can be hard to interpret, and it’s difficult to get it right all the time. Just last year, for instance, global AML fines were almost $5bn – a staggering cost to businesses around the world. And who could forget the case of a sole practitioner being fined £23,000 for insufficient compliance? It’s clear that – irritating as it may be – avoiding risk by factoring water-tight AML into your practice should be a priority. And, while we can’t change the regulations around AML compliance itself, we do pride ourselves on making accountants’ lives easier. Building AML software for accountants that handles the majority of checks for you – meaning you can carry on working with the clients you love – is one of the ways we’ve tried to do that. How can software make AML for accountants easier? A key part of any successful AML strategy for accountants is making sure it’s built into your onboarding process. Put simply, as part of your customer due diligence, you must verify that your clients are who they say they are. Our software is centred around handling this part for you, which has several benefits: A complete audit trail You’ll have a digital record of exactly what checks have been made, when they were made, and who made them. By building it into our workflow, we’ve made sure your compliance activities are documented every step of the way. Time-saving automation We know that removing as much time spent on AML as possible is the goal, which is why we make the most of automation. When you issue a check with us, we’ll automate the customer due diligence process by collecting and verifying client identity information. We’ll cross-reference the information we find against relevant databases and watchlists, and flag any potential matches for further investigation. Our AML checks It’s easy enough to check client passports or verify National Insurance details, but that’s just the tip of the iceberg. For the most complete picture, we carry out the following ten extensive checks: Full and edited electoral registers (current and historic) Address and ID data drawn from recent credit file activity Landline telephone directory information Mortality registers Births index UK and international passport check National Insurance Number check Address redirection and departure check HMT, EU and OFAC sanctions lists Domestic and global Politically Exposed Persons (PEPs) list. After we’ve completed our checks, our software contributes to client due diligence by storing and managing required ID documents securely. Accessible – when you need it Depending on the volume of new clients you take on each month, you might not need an extensive AML software package with a sizeable monthly fee. We’ve structured our pricing to make sure you’re only paying for our AML services when you need us. All of our existing Capium customers have access to our AML module, and you can start making checks at £3 per time. That way, you’ll only ever be paying for what you use – making sure you’re compliant, while minimising the impact proper AML compliance has on your overheads. Get peace of mind AML compliance isn’t going anywhere, but using specifically-designed software can help you get – and stay – ahead of your regulatory obligations, all while reducing the risk of you facing any reputational or legal damage if things go wrong. Get started today or speak to our team to find out more. This content is brought to you by Capium. This is a sponsored post by Capium. We are pleased to bring these products to your attention, which we believe may assist with your AML compliance, but please note that this does not constitute a recommendation from AAT. Liability for AML compliance ultimately remains with you when it comes to your firm demonstrating that any customer due diligence conducted by a third party meets anti-money laundering legislation.
AAT welcomes Labour’s promise of investment in HMRC Posted 04/10/2024 by AAT Comment & filed under Members, Policy. HMRC’s troubles with under-resourcing have been noticeable for some time. Here’s a look at the pledged funding and uses. Yesterday (Tuesday 9 April) the Labour Party’s Shadow Chancellor, Rachel Reeves MP, outlined the party’s plans to close the ‘tax gap’ – the £36bn difference between what HMRC should be collecting on paper, and what it actually does. The gap has never been bigger. Reeve’s target is to raise £5.1bn per year by the end of the next parliament through new investment in HMRC, which would be in addition to the current compliance yield target (£40.5bn in 2023-24). As part of these plans Reeves committed new funding of up to £555m for HMRC, which would represent an increase of 12% on the planned HMRC budget for 2024/25. Measuring up AAT has long called for increased investment in HMRC to address the shortcomings encountered by its members in its customer service levels. This 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. ‘ Positive step as tax becomes election issue AAT is positive about the fresh support being put behind its long-standing calls for investment into the country’s public revenue service. Director of Professional Standards and Policy, Adam Harper, says Labour’s announcement is timely, as customer and public confidence in HMRC has reached critically low levels in recent times. “We welcome this announcement from the Shadow Chancellor on her plans to give HMRC more of the resources it needs to do its job effectively. 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 Harper. “Our hope is that commitments such as this will continue to bring this important issue to the fore in the run up to the general election, and see investment in such a critical public service become a top priority within all parties’ manifestos. Labour’s HMRC proposals The opposition Labour Party says it would make additional resources available to HMRC to deliver the following: Increased staffing on compliance: an additional 5,000 staff to be recruited and trained to work within HMRC to meet its £5bn target. This would represent a less than 10% increase in HMRC staffing. Additional resource for segments with the greatest complexity and return: addressing the view that increasing upstream compliance activity is a better use of resources to improve compliance yields. Improved quality control of compliance checks: reducing instances of taxpayer overcharging, which currently contributes towards higher costs for HMRC in repayments and debt interest. Improving customer service: as well as improving the rollout of digital solutions, the aim would be to seek to ‘improve the core customer service offer’. Investing in digitalisation to improve compliance and customer service: to address the view that the UK is falling behind other countries in terms of the range of data that is automatically provided within tax returns through pre-population. The plans also supported working with businesses, the tax profession and digital service providers to bring a new focus to HMRC’s modernisation, including greater use of AI – with new, achievable timescales for delivery. Longer-term investments to update technology in the department: to put in place a plan to replace HMRC’s legacy IT systems over time. Taxing times 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.
Accountants argue for and against offshoring work Posted 04/09/2024 by Annie Makoff & filed under Ethics, Members, Remote teams. Offshore accounting is highly controversial. We hear from accountants with varying views on it. Offshore accounting – where a practice subcontracts work to an overseas third-party provider – has really taken off over the past ten to fifteen years. Yet it’s highly controversial and has attracted intense debate. Proponents say offshoring can help deliver cost savings due to reduced labour costs overseas and can fill skills gaps and help to solve recruitment challenges, particularly if certain specialist areas are otherwise unavailable. In addition, offshoring the more routine, yet time-consuming accountancy tasks to an overseas provider can free up accountants to focus on providing more value-add services and developing client relationships. But critics argue offshoring has huge ethical implications. Some say it exploits overseas workers, many of whom are on lower wages and experience poorer working conditions than their UK-based counterparts. At a time when businesses are under pressure to take full accountability for the ethics of their supply chain, this is a big concern. Offshoring also raises questions about transparency, client trust and accountability. And yet, it can bring economic benefits to developing countries and provide workers with opportunities they may not otherwise have. So what are the views of accountants themselves? We spoke to a small sample of UK-based accountants, some of whom offshore some of their tasks and some who don’t, to find out their views on this hotly debated issue. AGAINST: Offshoring comes with ethical and security concerns Julie Pocock MAAT, Kingfisher Services Offshoring client work is not something I would do. I wouldn’t allow any third party outside of the UK to access client data due to security concerns. I would also worry about the lack of control when you’re passing work over to somebody somewhere else in the world. There could also be communication problems due to language barriers and time differences. I’d also have concerns around ethics: are the offshore workers being paid a fair wage and what are their working conditions? Also, if mistakes were to be made, it would have a negative effect on my brand reputation, a risk I am not prepared to take. I can understand why some accountants choose to offshore their work. There is the money-saving benefit of operational and staff cost savings, and it can address staff shortages. But the negatives of offshoring outweigh the positives. I am sure that some clients would share in the above concerns. Client trust is paramount to my business and transparency is essential. My clients can be assured that their data, and their work, are not going outside of the UK. Verdict: I wouldn’t offshore work due to security concerns, ethics and risk to my business if mistakes were made. FOR: Offshoring can fulfil an urgent business need Claire Bartlett, Director, Arden Bookkeeping and Founder, Female Founders Collab I have previously used offshoring services with a third-party provider for four years. During the pandemic, I was unable to find staff in the UK and it was becoming critical to gain extra resources for my business. I did a lot of research before choosing a firm as I wanted to ensure it was an ethical and respectable firm. I had personal recommendations and this helped me make a decision. I think offshoring is still such a taboo subject and people need to be much more open about their experiences to help others decide whether or not it’s for them. It obviously can come with some financial gain to a business as generally the costs are lower than hiring a UK staff member, but this was never what led my decision. It was simply an urgent need for staffing which I had been unable to fill within the UK. I think it is incredibly important to be honest with your clients about it, which I have been throughout my offshoring journey. I have integrated them the same way as any other member of staff, which has helped my clients feel comfortable with it, too. It has never caused any problems for my firm or my clients and I would do it again as and when my business needs. Verdict: Assuming you do due diligence and talk to clients, offshoring can help businesses with urgent staffing issues. AGAINST: Offshoring work isn’t ethical – it’s misleading clients Lydia Read-Potter FMAAT MD, BookSmart Accounting We do not offshore client work – I believe very strongly that clients would not be happy knowing that a firm were doing this. It is entirely misleading to clients – we all know that they are not going through our engagement letters with a fine-tooth comb. I also believe that there is an ethical issue with pay. If the client went directly to the offshore accountant, they would be getting the same service for a lower fee – yet the UK accountant is profiting from the pay divide between different countries in the world. We pride ourselves on our relationships with our clients, which is built through our team. Additionally, I worry that practice licences obtained in the UK from UK regulatory bodies, cannot sufficiently cover work completed by a third party in a foreign country.* I think that the regulatory bodies need to take this issue more seriously than they currently do. Verdict: Offshoring work isn’t ethical as it misleads clients, and they aren’t the ones benefiting from lower service fees. *AAT comments in response to this concern: We only license our members who are in a public practice in the UK, but we don’t have any policy around who they can and cannot employ at their firm. There are many legislative and regulatory requirements to consider, including data privacy regulations, money laundering regulations, satisfying the employee screening procedure employer are required to undertake, doing due diligence on the offshoring country and being transparent with clients about such arrangements. Members need to ensure that they have considered all the risks and threats to their ethics and compliance obligations before offshoring work. If AAT were to receive any related complaint from a client or the public, then we would be obliged to investigate misconduct as in any other case. FOR: We work closely with our offshoring team in India to ensure ethical practices Ellie McQuade, Technical Learning and Development Manager, Monahans We began offshoring audit work because of the lack of audit resource here in the UK. We were finding it really challenging to recruit enough high-quality talent for the volume of work we had to complete. Whilst our preference would be to hire in the UK, it is a strong employees’ market at the moment, making it difficult to compete with other firms for such a small talent pool. The founders of the offshoring firm we now work with trained in the UK as accountants, so they already have extensive knowledge about the UK accountancy market. At Monahans, our team is effectively not seen as an offshore resource, they hold the same email address as us and are very integrated into our team, attending virtual meetings just like the UK team does. We have also established working hours that are practical for the offshore team but also align with our working day to allow for regular communication. I visited the offshoring partner’s offices last year to meet the team, carry out training and to check the offices and environment they are working in. This is critical in building strong professional relationships but also in ensuring that the employees’ working conditions are equivalent to ours in the UK. Verdict: Offshoring is necessary because of the lack of UK audit resources. We work closely with our offshoring team in India and have visited the premises to ensure ethical practices.
Getting ahead of an HMRC investigation Posted 04/03/2024 by Christian Doherty & filed under Anti-money laundering, Ethics, Members. No one wants an HMRC investigation, but for those in the spotlight, there are ways to mitigate the worst of the pain. It’s become the subject of many tired old jokes – the taxman letter arriving on the doormat informing the recipient that they are under investigation. HMRC retains the power to investigate and prosecute individuals and businesses for a range of misdemeanours, and as the tax code has evolved so too has the Revenue’s powers to investigate and penalise those it believes are falling outside the rules of lawful or reasonable behaviour. Any claims made outside the normal tax return will come under a Schedule 1A inquiry, with any inquiry in the returns itself coming under section 9a. With these, HMRC will typically pick up a discrepancy and issue a notice, request information and go forward from there. These days many of the inquiries will be instigated by the automated HMRC Connect system that trawls scores of databases to detect anomalies and potential tax offences. Let HMRC do the work David Wase worked for HMRC in a variety of enforcement and compliance roles for almost three decades before crossing over into the profession in the last few years. He now serves as a tax investigation specialist at PKF-Francis Clark in Truro. He says the key principle for anyone under investigation is to find the right balance between cooperation with HMRC and giving up too much information. “When it comes to an inquiry notice into a tax return, then you want to be limiting what you’re providing HMRC to the year of that return, and not straying outside of it,” he says. Of course, as with any type of inquiry, HMRC has the right to request a whole range of documentation that might relate to the case. Wase says that understanding what it can and cannot demand is where an experienced accountant can come in handy. “What HMRC has to demonstrate is that the records are broken,” he explains. “It has to show a weakness in the records so that either all the turnover is not there on the return or there’s excessive expenditure there that’s not been demonstrated. “In the event that HMRC can prove there is substance to their investigation, then it is likely they can request access to a whole range of supporting records. In that case, it’s open season on the bank accounts,” says Wase. Given that, Wase always advises clients to always have dedicated bank accounts for separate income streams. “So if they have rental income then put that in the rental income account and don’t pay it into a personal bank account, because that personal account then becomes a prime record and HMRC is able to request prime records.” Wase also points out that under the current investigatory regime, until HMRC has demonstrated that there’s an incorrect return – and it counts as careless – then it can’t go back into earlier tax periods as the time limit on inquiries comes into play. “So don’t be providing earlier years until HMRC can demonstrate that it’s made a valid discovery; if it has, then those earlier years are up for grabs.” Under-resourced and under pressure Increasingly, there is a feeling that HMRC simply doesn’t have the resources to carry out that kind of investigation anymore. Quite often, these nudge letters, and inquiry notices too, are generated by an automated process. “What happens these days, I’m led to believe, is that inquiries come packaged and the notice goes out, and only then does it go to the individual inspector. That means you don’t get any inspector oversight before any of it goes out.” As someone brought up in old school system where the inspector would generate the inquiry and only take a case forward when there was a reasonable chance of success, Wase believes the new, more speculative, ‘nudge’-type investigation approach lacks nuance and puts a lot more emphasis on self-reporting. “The system will harvest this information, and it will see that John Smith on his return has put some property income. We’ve got some information here that’s clashing against your return, against what’s held on Connect that says you’ve got some offshore trust income: what’s this? So therefore, out goes the nudge letter and then we’re effectively doing HMRC’s inquiry job for them.” And Wase points out that the internal dynamics at HMRC – continued pressure on resources, greater focus on efficiency, avoiding drawn out and costly cases – all play into the revenue’s current modus operandi. Helping the process along “Where HMRC has gone now is fast churn; it’s not interested in having inquiries lasting for years. Provided you give them the response they’re looking for, then you can get the thing settled quite quickly.” And, as has long been standard practice, HMRC does reward those who respond to investigation with co-operation. “I always emphasize that we’re making a fulsome disclosure and I always look to pitch the penalty correctly. That means looking at their guidance on penalties.” In short, if HMRC starts the ball rolling, then any response is counted as a ‘prompted disclosure’, with the penalty rate beginning at a minimum 15%. With an unprompted disclosure – where the taxpayer themselves go to HMRC to rectify an error – a lower rate of penalty applies. Wase says that most accountants and investigation advisers will typically look to make a fulsome disclosure: “We explain what we’re providing them with and how this came about. We put it down to a careless inaccuracy and we afford the client maximum abatements, to keep it at the bottom of the range – 15-30% usually.”
AAT’s Code of Professional Ethics Posted 03/28/2024 by Calum Fuller & filed under Anti-money laundering, Ethics, Members. Accountants face a range of ethical issues and demands every day during the course of their professional lives. From anti-money laundering considerations and responsible business to questions of tax avoidance, accountants must navigate difficult and challenging scenarios with honesty, integrity and high levels of competence. AAT is committed to enhancing and upholding the highest ethical and professional standards, which is key to maintaining public confidence in accountancy. AAT achieves that through holding members to its Code of Professional Ethics. Code of Professional Ethics in full AAT requires members to have a professional and ethical approach throughout their lives. To help members maintain these standards and offer the highest levels of professional service at all times, AAT’s Code of Professional Ethics can be found in full here. Walk me through it AAT’s Code of Professional Ethics is based on the IESBA Code of Ethics for Professional Accountants and sets out the five fundamental principles which all AAT members are required to adopt: integrity objectivity professional competence and due care confidentiality professional behaviour. Common challenges There are several issues accountants face when it comes to ethics. A major one is unregulated accountants, who are not members of any professional bodies and offer no guarantee to the public in terms of the quality of their work or maintaining their skills through CPD. They pose a reputational risk to the profession, something that AAT has sought to tackle through its Accountable Campaign. Disciplinary process AAT members who breach the Code of Professional Ethics will face disciplinary action where necessary to ensure that AAT membership retains its high standards. Key takeaways AAT members are subject to AAT’s ethical standards, as set out in the Code of Professional Ethics AAT members must adhere to the five fundamental principles AAT’s Accountable campaign seeks to ensure standards are set across the entire accounting profession Failure to adhere to AAT’s ethical standards will result in disciplinary action.
Considering resurrecting an old company? Here’s how Posted 03/25/2024 by Annie Makoff & filed under Members. With Woolworths possibly coming back to the UK, accountants discuss the process of resurrecting a dissolved company, and the considerations around intangibles such as intellectual property. Back in January, it was reported that Woolworth CEO Roman Heini was considering bringing the Woolworth brand back to the UK. The brand – known as Woolworths in the UK – went into administration at the end of 2008 but was later purchased by The Very Group as part of their portfolio of online retail stores. The website closed in 2015 and was then bought by Woolworth Deutschland, a separate German chain of the original brand which is continuing to expand across parts of Europe. The rumoured move to bring the Woolworth(s) back to the UK raises interesting questions from an intellectual property perspective which can, by its very nature as an intangible asset, get rather messy. How easy is it to resurrect an old company like Woolworths? What happens if business partners fall out – who has the IP rights? Are there restrictions on directors re-using similar trading names to a dissolved company? What happens if the IP was not properly documented or explicitly transferred during the dissolution process? We spoke to several accountants with experience in intellectual property as an intangible asset for their views. Ease of resurrecting a company depends on legal aspects of the dissolution Karen Feltham MAAT, Owner, Aligned Accountancy It can be challenging to revive a dissolved business and its IP so it’s essential to ascertain whether the IP was properly documented and legally transferred or retained during the dissolution process. If IP rights were explicitly transferred to one of the partners or a third party, resurrecting the company may entail negotiating the return or licensing of these rights. The ease of resurrecting an old company depends very much on legal and contractual aspects of the dissolution. If the dissolution agreement clearly addresses the disposition of IP, including provisions for re-establishment, the process is smoother. However, if the agreement doesn’t address these matters, disputes and legal hurdles may arise. Another consideration is things like trademarks. One partner, having agreed with partners to dissolve a company, may wish to revive and utilise its trademark. This is one of the most common situations I’ve encountered. Such instances have required a renewal and ongoing maintenance during the period of dissolution to remain valid. Failure to give sufficient attention to this has resulted in a loss of these rights. Verdict: The resurrection of a dissolved business and the fate of its IP depends on the thoroughness of legal documentation during the dissolution process. Clear agreements regarding ownership, transfer or licensing of IP can significantly ease the process, while ambiguity may lead to complications. Catalogue all company IPs on formation and deal with them before dissolution Bai Cham, Partner, Begbies Traynor Intangible assets are inherently difficult to deal with. Accountants must work with their clients to ensure that they can identify all IP, understand where it is held and – if it is tech-based – be sure who has the source codes, etc. Accountants should be able to help identify, list and catalogue all IPs of a company on formation, which would help with resurrecting it. It’s worth considering the best method of dissolution. In most instances, a solvent winding-up process may be more appropriate to dissolve a company thus enabling a distribution of the assets of the company to the shareholders, especially where those assets include unrealisable assets such as IP. Any assets owned by a company that has been dissolved become Bona Vacantia and rest with the Treasury Solicitor who acts for the Crown. Any IP will form part of those assets and reinstating a company back on the Register of Companies is not an easy task. It requires instructing solicitors to make an application to court, supported by a witness statement seeking to restore the company. Therefore, it is important to make sure that all of the company’s assets are dealt with before dissolving a company. Verdict: It’s not easy to reinstate a company back to Companies House – accountants need to ensure they help clients to identify and understand all IP and where they’re held. It’s fairly straightforward to resurrect an old company but IP can get messy James Hopkirk, Restructuring Partner, Kreston Reeves Practically speaking, it’s fairly straightforward to resurrect an old business. You do need to check if the old name is available at Companies House as anyone could have incorporated a new company with that name following dissolution. It’s also important to check if there are any registered trademarks or web domains which might restrict trading using a certain name. If the old company was insolvent and entered liquidation, there are also restrictions on directors re-using a similar trading name for five years unless they are exempt. IP may also have been sold to someone else but that should be clear from company records if they are accessible. If the old company was wound down on a solvent basis and then a shareholder resurrects a business trading in the same way within two years of receiving distributions from the old company, there may be tax implications. To look at real-life examples: one business partner might have had the ideas and feels a personal connection to the IP, whereas another partner may have provided financial backing. If the business partners went their separate ways but there is no agreement already in place, the parties would need to agree a split of assets – but there may be a great deal of uncertainty as to how much value to ascribe to the IP. I’ve seen situations where the original founder (Mr A) sells his business (to Mrs B) then later the business fails. Mrs B might approach an insolvency practitioner with a view to buying some of the business including the IP but the insolvency practitioner has a duty to maximise recoveries and publicise the opportunity, which would include contacting Mr A and other competitors to try to generate competitive bids. Verdict: It’s fairly straightforward to resurrect an old company but checks and balances need to be performed and dealing with IP can get messy.
Don’t fall foul of HMRC’s dividends sweep Posted 03/25/2024 by Christian Doherty & filed under Financial accounting and reporting, Members. Whether or not your client has undeclared dividend income to report, documentary evidence is vital. There’s been a buzz recently about HMRC sending letters to thousands of taxpayers to inform them that they may have undeclared dividend income to report. HMRC uses a system called HMRC Connect that is able to scan, read and collect data from an ever-growing list of sources. “They’ve got access to bank records, various tax information exchange agreements, savings, pensions, investments, land registry, Zoopla, and they have also recently added Companies House,” explains Lisa McPherson, Head of Tax Technical at PKF Francis Clark. Meet the demands of the digital era Sign up for our masterclass on automation in finance to increase your productivity. Find out more Casting the net wide pays dividends Connect now automatically collates information from more than 30 databases, even up to activity on online platforms such as eBay and Airbnb, to check whether someone is trading or hiring out property without declaring it. This collation is an increasingly common tactic in HMRC’s ‘nudge’ led anti-evasion efforts, which involves HMRC Connect triggering an alert and sending a nudge letter to a large number of recipients that might be in breach of a particular rule. “So they’re scraping all this together, and if anything throws up flags, it notes it,” says McPherson, who explains that typically, a nudge campaign will see letters go out to 2,000 people, 1,900 of whom will have nothing to declare. “But for the 100 that have missed something off their return, they can then make a disclosure, meaning the revenue gets the tax, some interest, and possibly some penalties. And they get that all for the investment in time to administer it, as opposed to opening inquiries into 2,000 people and finding out that 1,900 have nothing to declare.” It’s this process that has driven the recent wave of letters focusing on dividends. But McPherson is at pains to point out that even if a taxpayer or accountant receives such a notice, it does not mean that they haven’t declared all the necessary dividends, and that there may be a number of innocent reasons for the flag in HMRC’s systems. “These letters are a cheap cash-raising exercise for HMRC though, and if it gets a small positive ‘hit-rate’, it more than pays for the administrative costs of running the exercise,” McPherson says. Communicate with HMRC So in this latest wave, HMRC is comparing consecutive sets of accounts, to select companies that have made profits but appear to have depleted reserves, potentially flagging up that a payment of a dividend or distribution has been made to that company’s shareholders. In terms of a response where accountants deal with the company accounts, and possibly also Company Secretarial matters for the client, they should have access to the information and it is a case of ensuring communication between departments. “If we are not engaged to deal with accounts and/or Company Secretarial (including dividend vouchers, Board Minutes, etc) then the question is asked on the annual tax return questionnaire sent out in early April every year,” says McPherson. She notes that there will be situations where dividends are voted, but not – for whatever reason – taken (they may be waived, or circumstances may change – e.g. unexpected liabilities later in the year which means that there are insufficient reserves to pay an interim dividend). It is also important to make sure that evidence is available to show a dividend being properly voted and paid. Because directors have a fiduciary obligation to ensure dividends are legal and valid, documentation is required to demonstrate that the correct procedure has been carried out, to affirm that dividends have been correctly processed and to show evidence that dividends were intended – this may also include evidence that the client follows a pattern of taking such dividends. A proactive approach you can take So be warned: without the proper documentary evidence, HMRC may argue that payments were not dividends but are instead loans or employment income, subject to IT/NIC/s.455 tax. Therefore they will expect to see evidence both of payment and of the decision to make that payment. It is worth noting that a dividend is legally a payment per share and so dividends must be in proportion to shareholdings. The usual process is to establish the distributable reserves, then establish the dividend per share used to calculate total dividend payment (not the other way around!) If a shareholder intends to waive their dividend, there must be sufficient reserves that the waived dividend could legally have been paid. McPherson has a number of suggested steps that accountants should follow to avoid falling foul of the dividend sweep: Consider dividend payments for a year before the end of the tax year. This avoids the problem of lack of evidence as to when they were voted. February is an excellent time of year to conduct such reviews for all clients. Consider pre-year-end reviews in any case – they are good practice. Ensure proper documentation is in place for each dividend. Ensure the dividend has been properly declared in accordance with the Companies Act formalities and the company’s Articles of Association. This should make it easy to challenge HMRC should it seek to treat the payment as employment income. Communicate to clients the importance of correct documentation, where they are dealing with their own Company Secretarial work. There must be absolutely no ‘retrospective’ dividends or ‘back-dating’ of documentation – either of these may amount to fraud. ‘Nudge’ campaigns are the future As a final note, it’s clear that HMRC’s ‘nudge’ campaigns are here to stay. Since 2019, letters have gone out regarding offshore assets (which might be subject to IHT, or be sources of future income or gains) as well as offshore income and gains – these arise from the UK’s tax information exchange agreements negotiated by the government and also the common reporting standard. “Similarly, we have had letters asking about residential property sales arising from HMRC’s access to HM Land Registry records, claims for the plant & machinery super-deduction, R&D claims, undeclared income from short-term property letting (Airbnb etc) and claims for repairs & renewals against rental costs, and potential breaches of the £1m BADR lifetime limit,” says McPherson. She also counsels accountants to take a proactive – and preventative – approach to this. “Ultimately, you don’t want clients in this situation. It’s understandable that if we’re not involved, we have to rely on the client telling us what they’ve done. And clients can forget things, or they can forget they’ve done something. Or they’re businesspeople and they’re busy. They’ve got a million and one to worry about, and they do get things wrong. “So we just have to hold their hand and help them through the disclosure. That means saying to HMRC, ‘This is what happened, here’s the tax’. But actually, if we’re doing all the work, then yes, why shouldn’t we be proactive and talk to them about their dividend policy and make sure we’re on top of it all.” Meet the demands of the digital era Sign up for our masterclass on automation in finance to increase your productivity. Find out more
Enforcing professional standards vital to compliant accountants and their small business clients Posted 03/22/2024 by Adam Harper & filed under Accountable, Members. Why we are so enthusiastic about the prospect of accountability for all tax agents. The government’s recent announcement of its consultation into strengthening the regulatory framework to raise standards in the tax advice market was a welcome sign that the central element of AAT’s Accountable campaign may be about to bear fruit. The next two months will see a consultation into the best way to improve the service to clients through higher quality tax advice and tax services and therefore establish greater trust in the tax advice market. The government says it is determined to improve clarity, transparency and enforcement around tax advice, and as part of the consultation, has suggested three possible routes to achieve this. And while it’s right that stakeholders consider the merits of a hybrid approach of joint HMRC-industry enforcement and the creation of a government body to oversee the regulatory regime, we remain firmly behind the best and most workable option – that is, to introduce mandatory professional membership for those working in tax advice. Share your experiences of unregulated agents Have you ever taken on clients who were previously using an unregulated tax agent? If so, please fill out our feedback form so we can gather valuable evidence to take to the government in support of our Accountable campaign. Fill out the form Mandatory professional membership Under this approach, the consultation sets out, “Professional bodies would be responsible for using existing supervisory processes to ensure new and existing members consistently meet expected standards and necessary action is taken if not.” These bodies could also “be responsible for providing routes for customer support and be the first point of contact for a client wishing to complain.” The arguments for reform are well rehearsed, but put simply, this is a problem that requires a real and lasting solution. AAT’s Accountable campaign has spelled out the numerous problems created by the current system but there are several key salient points to remember. Lack of regulation leads to huge problems First, two-thirds of complaints to HMRC about tax come from the third of the accountancy profession which is unregulated. Second, businesses – and smaller businesses in particular – are the most impacted by the current framework. Consider the fact that, according to our research, 51% of small businesses have had to hire a qualified accountant to correct the mistakes of a previous unqualified accountant. Additionally, 68% of AAT members say unregulated accountants had previously caused their clients harm, leaving some individuals and businesses facing bankruptcy. Finally, the issue points to the broader economic harm being caused: with 42% of small businesses reporting losing money due to poor accounting and 45% (or £16bn) of the tax gap comprised of taxpayer error and failure to take reasonable care, the impacts of the current system are felt across the board. So, while mandatory professional membership would be of immediate benefit to business and taxpayers, it will also do a great deal to enhance the credibility of the profession as a whole. Standing up for standards Bringing unregulated tax agents into a proper framework would support the creation of a level playing field in the tax market, ensuring that everyone offering tax services is appropriately qualified. All the tax practitioners, in being regulated by a relevant professional body, will have to meet high standards in order to be able to practice. Not only will this establish minimum standards, but it will also deliver improved monitoring and effective enforcement resulting in better customer support. It is also worth noting that in a time where HMRC is under exceptional pressure to deliver its mandate with fewer resources, introducing better standards of tax compliance and advice through mandatory membership would inevitably ease the enforcement and compliance burden on the embattled Revenue agency. Any significant regulatory reform has its costs, and whilst the consultation is limited in its assessment of those costs, when compared to the hybrid or government-led model, compulsory membership does have the benefit of building on an existing model. And while it would require a period of transition for the bodies to develop mechanisms to onboard those tax advisers that are currently unregulated – and time for those tax agents to demonstrate/attain the necessary standards of professionalism – the costs would be initially borne by the professional bodies. Grasping the opportunity After many years of campaigning on this issue, the opening of this consultation is a major win for our Accountable campaign. It marks what we hope is the beginning of a new era of professional standards regulation in the tax arena, and one that will ultimately see the introduction of compulsory professional membership. We are determined to continue to lead the effort to deliver that outcome, and to do so we need our members to speak up. Whether you’ve been faced with having to sort out issues new clients are encountering after receiving poor tax advice from their previous accountant, or are frustrated at the erosion of professional standards in your profession, this is the time to get involved. Those of you working on the front line know all about the harm caused by substandard or unscrupulous practitioners under the current framework. You will also recognise the reputational impact that unregulated tax agents can have on the profession. So speak up. With all this in mind, the consultation is a welcome step in the right direction, and represents a golden opportunity not only to raise standards across the industry but also to make sure that AAT’s vision of a rigorous, dynamic and sustainable regime becomes a reality. Share your experiences of unregulated agents Have you ever taken on clients who were previously using an unregulated tax agent? If so, please fill out our feedback form so we can gather valuable evidence to take to the government in support of our Accountable campaign. Fill out the form
HMRC suspends controversial cuts to phone lines Posted 03/21/2024 by AAT Comment & filed under HMRC updates, Members. AAT welcomes the suspension of planned cuts to HMRC’s self-assessment and VAT helplines, but warns the embattled agency needs long-term investment. The Association of Accounting Technicians (AAT) has welcomed a temporary pause in the government’s plans to axe critical tax helplines. AAT represents 120,000 accounting technicians and bookkeepers working in the UK and those studying to join them. This week HMRC announced moves to shift its phone enquiry service to operating just six months of every year for taxpayers filing self-assessment returns. Outside of October-March, most clients would only have online options available to them. The agency similarly planned to pare back phone support for those paying value-added tax (VAT). HMRC’s VAT helpline service would only be open for five days ahead of the filing deadlines each month under the planned changes, “We welcome HMRC suspending its controversial plans to axe critical phone support relied upon by millions of UK taxpayers,” said Adam Harper, AAT’s Director of Professional Standards and Policy. “HMRC’s announced cuts to its critical phone services would have been shocking to the majority of the public,” said Harper. “Our members have been sharing their concerns about HMRC’s service levels for some time, however we understand that HMRC are working hard to deliver improvements and solutions.” In June 2023 HMRC piloted what it called a ‘seasonal model’ for phone services, pushing taxpayers to online guidance and web chat instead. Monday’s announcement would have made those changes permanent. Accountants have expressed scepticism that shifting to an online-only model would clear HMRC’s sizeable backlog. Claire Bartlett, Director of Arden Bookkeeping, said the agency’s online chat function would require improvement first. Other accountants said HMRC’s phone services were critical to their work for following up online form submissions and chasing digital enquiries. “The impact of making these changes permanent would have been enormous – both to many of our members, and to the thousands of business owners and self-employed people they serve,” said Harper. “For so many taxpayers, these helplines are a lifesaver when it comes to navigating the complexities of their tax returns”. The tax agency came under fire in February after the House of Commons’ Public Affairs Committee found customer confidence in HMRC had fallen to ‘all-time’ lows. Harper said whilst AAT supported HMRC’s sudden U-turn, concerns remained about the agency’s long-term ability to deliver its regulatory functions and policy agenda without an urgent injection of funds from the Chancellor. HMRC indicated that the planned cuts to the contact services were earmarked for deployment to other areas of its activities in dire need of resource. This begs the question: where is the resource now going to come from to fund these other, critical areas? What will the residual effect be on taxpayers? “We recognise HMRC is under pressure, but the sustainable way out is through adequate investment from government – not by cutting its core services to insufficient levels, further damaging its reputation.” The background: Call me, maybe? Where did HMRC’s ill-fated ‘shock’ announcement come from, anyway? AAT Comment provides the background: Last year HMRC temporarily closed its SA helpline between June and September as part of a trial to redirect customers to online services. Given it has been struggling to get understaffing issues and poor service under control, it was explained that HMRC wished to deploy staff where they’re most needed to react to peaks in demand. HMRC claimed that making the trial changes permanent was evidence-based, describing the seasonal pilot where calls to the SA helpline were directed to online services as “successful”, pointing to higher webchat use since the rollout. That point is somewhat undermined by the changes, announced only 24 hours earlier, being halted whilst HMRC considers how best to help taxpayers harness online services. So, what were the changes? Summary of changes to the SA helpline Self-assessment customers were to be expected to self-serve using the HMRC app or online on GOV.UK wherever possible. As in the trial period, the helpline would have been closed between 8 April and 30 September 2024. During the peak period of 1 October to 5 April, advisers would have been available on the helpline to answer specific queries. It was also announced that between 1 October and 31 January, advisers would have been available to support customers submitting their annual returns and making payments. And between 1 February and 31 March, the priority for advisers was going to be lined up to support customers with appeals and penalties. All other queries were to be directed to online services. HMRC indicated that anyone who would struggle to go online or needed extra support because of their health or personal circumstances would always have been able to speak to an HMRC adviser. What HMRC initially said “Our shift to online self-service is continuing and progressively we will be a digital-first organisation. We are supplementing that by providing targeted telephony support at particular times of the year and for particular call reasons. “Changing our helplines will allow us to focus support where its most needed. We must get the most out of every pound of taxpayers’ money. Embracing online allows us to be more productive and deliver these services without growing the state unsustainably.” Why the about-turn? The announcement has caused a furore, leading HMRC to halt its plans. HMRC Chief Executive Jim Harra said “Making best use of online services allows HMRC to help more taxpayers and get the most out of every pound of taxpayers’ money by boosting productivity. “However, the pace of this change needs to match the public appetite for managing their tax affairs online. “We’ve listened to the feedback and we’re halting the helpline changes as we recognise more needs to be done to ensure all taxpayers’ needs are met, whilst also encouraging them to transition to online services.” What now? The announced changes to the Self Assessment, VAT and PAYE helplines will all be halted while HMRC engages with stakeholders. This means the phone lines will remain open between April and September – for now. It is appropriate for HMRC to demonstrate that it has listened to the feedback received in response to yesterday’s announcement. However, the total halt raises questions both about the basis upon which the decision was initially made, and how prepared HMRC was to robustly respond to the inevitable challenges that the announcement would raise. More importantly, it would suggest that there has to be a knock-on implication that the resources that were earmarked to help deliver support where it was most needed, as articulated in the rationale for yesterday’s announcement, will no longer be available for that deployment.
What’s behind practice success? Five insights from Xero’s industry report Posted 03/20/2024 by Xero & filed under In practice, Members. This content is brought to you by Xero. According to Xero’s industry report, 72% of practices have reported increased revenue and a growing client base in the last 12 months. This coincides with the increased use of cloud-based software, which has delivered a range of financial and non-financial rewards for practices. But some practices aren’t getting the most out of digitalisation. In fact, many are missing out on the time savings, service diversification, and growth opportunities that come with fully integrating cloud-based software. To help you benchmark your practice and identify opportunities for growth and development, we’ve spoken to over 600 accountants and bookkeepers from practices across the UK. Here’s a taste of what we learned. UK industry performance: A snapshot Accountants and bookkeepers have shown immeasurable resilience during the past 12 months – withstanding economic uncertainty, the battle for talent, and regulatory change. Based on our conversations with UK practices, we identified five headline insights on working experiences, performance, and what’s driving success: Practices of all sizes are growing – with an average of 31 new clients added per practice in the last 12 months. Service portfolios are expanding, and practices believe their new service offerings are to thank for increased profits. 95% of practices have adopted cloud-based software, but not all are using software to its full potential – particularly smaller practices. Practices that report increased revenue and profit tend to use cloud-based software for multiple tasks (not just one). The benefits of cloud-based software are real. From improved client services and more time for billable tasks to greater job satisfaction and more time saved on manual admin. Getting the best out of practice tools The outlook is positive, but there’s plenty of room for growth. Practices of all sizes can benefit from better software integration – and taking full advantage of the features. For example: our research shows practices only use connected bank feeds for 37% of clients, data capture tools for 31%, and payment tools for 30%. Yet, practices using payment tools with clients are more likely to report an increase in profits than those who don’t. It’s clear to see that accountants and bookkeepers already have the right tools for the job – they just need to take advantage of them. We explore how you can do just that in this year’s industry report, uncovering: Which factors contribute to practice growth and success How practices are diversifying their service offerings to boost revenue How to improve business performance and productivity with cloud-based software – so cloud adoption (literally) pays off To discover how to make cloud-based software work harder for your practice, deliver a better service for clients, and provide higher quality work – read our Accounting and Bookkeeping Industry Performance Report today. This content is brought to you by Xero.