What accountants and bookkeepers need to know about basis period reform Posted 08/03/2023 by Xero & filed under Tax. This content is brought to you by Xero. The basis period for income tax is changing. From April 2024, unincorporated businesseswill move from an accounting year basis to a tax year basis. This means sole traders andpartnerships will need to report on profits generated in the tax year instead of in theiraccounting period. While the reform is only expected to impact 7% of sole traders, 33% of partnerships arelikely to be affected. As a result, there will be an increase in workload for bookkeeping andaccountancy practices across the country as the new rules come into place. And no doubtclients will call on you for advice and guidance on the new legislation. To help get your head around the next 12 months and all of the upcoming changes, we’vecreated a guide that explores the timeline for HMRC’s basis period reform, including whatthe new rules mean for your practice and clients and what the opportunities andchallenges are that accountants, bookkeepers, and clients will face. Download Guide This content is brought to you by Xero.
Navigating the pensions minefield for self-employed clients Posted 08/03/2023 by Annie Makoff & filed under Members, Pensions and payroll. Accountants on the tricky task of unpicking pensions legislation as well as their own advisory boundaries. Over 10 years on from the introduction of auto-enrolment, the number of employees signed up for workplace pension schemes has more than doubled from 42% in 2012 to 86% in 2021. But among the self-employed community ineligible for auto-enrolment, fewer than one in five are actively saving into a pension scheme, say the Institute of Fiscal Studies. Given that self-employment accounts for around 13% of the UK labour market, a potential pensions crisis is quietly brewing. There are many complexities associated with pensions in general, not least due to changing legislation and volatile pensions market. The main issues include: The more generous Defined Benefit (DB) workplace pension schemes are relatively rare in the private sector these days. DB pension schemes guarantee pension income based on employment duration and final salary, but they’re comparatively expensive to run. Defined Contribution (DC) workplace pension schemes are much more common, but due to how they work, there is higher level of risk involved. DC pension schemes are based on pension contributions and fund investment performance. Recent pension freedoms legislation allows individuals more freedom and flexibility to withdraw funds, which has resulted in many running out of funds too early. In some cases, pension funds have been used to fund luxury/non-essential purchases instead of continuing to save. State pension is no longer enough to sustain the majority of Brits when they retire, especially with longer life expectancy. There is cause for concern about the self-employed’s lack of pension savings. Many do not have the funds to save due to cost of living and high bills. There’s quite a grey area when it comes to pensions and accountancy, with some advisors unsure which aspects they can advise on and which they need to refer to an independent financial advisor. (Hint: if it’s tax-related, it’s OK). So how are accountants navigating this complex area? We spoke to several to find out how they tackling what can be a minefield. A collaborative approach between IFA and accountants will go a long way Mark Frier Financial Planning Director, Operations & Commercial, Armstrong Watson Accountants and Financial Planning Limited If a client is struggling with bills, the appeal of saving for retirement will be limited. There may also be a lack of understanding around pensions in general. There’s a perception that setting up a pension is difficult, complicated and expensive. Enabling clients to work with a trusted financial adviser/planner will help take away some of those worries. Some people mistakenly believe that their business is their pension. Whilst selling the business can provide a lump sum, it’s not recommended. Missing out on years of tax relief and the potential for capital gains tax on disposal and being entirely reliant on the fortunes of a single company (your own) could have big financial implications. We generally encourage diversification of assets as a way of managing investment risk. Both accountants and financial advisers have their part to play in helping clients to understand the benefits available and reasons why planning for retirement is important, so a collaborative approach, combining skills and knowledge of both will go a long way.Many years ago Armstrong Watson made a decision to employ financial planning consultants to make that collaborative approach part of our service and offer independent financial advice and we now work with 25 Independent Financial Advisers (IFAs). We – and most importantly our clients – benefit from having both IFAs and accountants under one roof. Verdict: A collaborative approach between IFA and accountant will go a long in providing pensions-related support and guidance. We work with several partners and specialists to ensure self-employed clients have best possible advice Abdulaziz Behrouz, Assistant Accountant, Clear Start Accountants We can still see the effects of Covid on the economy, particularly among the self-employed. With high costs of living and inflation, many self-employed individuals would rather spend earnngs on daily life expenses than put more focus on their pension and savings. The most common challenge clients face for their pensions is where to source professional, trusted, reliable and best offers. This has a major sustainability impact on their future income professionally and personally. We as a firm believe it is our duty to speak to our self-employed clients about their financial future, ensuring they have plans in place for retirement. Many will struggle to survive on the state pension alone. We therefore have several partners/experts we work with to give our clients the best possible advice. There’s an increasing need to provide regular pension freshers fairs for self-employed clients, alongside accountants, pension advice specialists, and financial advisors to keep updated on current pension schemes and government guidelines. Verdict: We’re talking to our clients about the importance of having plans in place for retirement and work with partners and specialists to provide independent financial advice. The main benefit of pension saving is the tax relief Tony McKenna, Director, Contractor Unlimited Accountants and MD, Pension Point Both self-employed and one-person limited companies are badly served by the financial adviser market and they often don’t understand the tax advantages of a pension. Accountants, at the same time, are very cautious about crossing the threshold into regulated advice and so avoid the topic most of the time. A better understanding amongst accountants of where the boundary between regulated and non-regulated advice is a huge advantage. Accountants can advise clients on pension-related tax advantages, but they can’t advise or recommend a specific pension provider, or where and whether to invest. Many of our one-man-band limited company clients have annual tax planning conversations with us which include pensions-related tax advantages, with the strong caveat that it doesn’t take into consideration things like attitude to risk. This then leads to them approaching an IFA. What’s interesting is that most of the benefit of pension saving comes from tax relief and not the advice process itself. In short, the bit that matters is the awareness of what’s possible and how big an advantage it offers. After that, it doesn’t matter which investment house you choose. Verdict: The most important benefit of pension saving is the tax relief itself rather than the advice process.
Charity Commission delivers updated guidance on internal financial controls Posted 08/02/2023 by AAT Comment & filed under Financial accounting and reporting, Members. In an effort to support charitable organizations in an ever-evolving digital landscape, the Charity Commission has released updated guidance on internal financial controls (CC8). Internal financial controls play a pivotal role in safeguarding charities and their valuable resources, which is a key responsibility for all trustees. Recognising the diverse operational methods charities use, the Charity Commission has streamlined and enhanced the clarity of its guidance. So what’s new? The Charity Commission has restructured the guidance and simplified the language so readers can easily find the information they’re looking for. As trustees very often manage their duties alongside other work and personal commitments, the new CC8 is also shorter to make it easier to read and put into practice. They’ve also added new sections to reflect the dynamic ways charities operate. These cover issues such as: using mobile payments systems, such as Google Pay and Apple Pay accepting gifts and hospitality dealing with donations of cryptoassets Why is this important? Trustees have a legal duty to manage their charity’s resources and ensure their charity is accountable. While certain financial considerations can be delegated, trustees ultimately remain responsible for their charity’s finances and for making sure it has suitable internal financial controls in place. Finances aren’t just for the treasurer or a finance sub-committee – if a charity even has one. Robust and well-understood internal financial controls support trustees in meeting their legal duties and help them make sure their charity operates effectively and efficiently. They also help protect the charity’s assets from internal and external risks. Adapting to a changing landscape Following the Covid-19 pandemic, numerous charities took to providing their services online or using online services themselves. This marked many trustees’ first encounter with online payment systems and the management of potential cyber risks. While some may have been familiar with online payments, cryptoassets are a new frontier. The revised CC8 guidance now covers these emerging areas, reflecting the increasing digitalisation of donation processes and asset management within charities. Cryptoassets in particular are rapidly evolving technologies. The Charity Commission published a blog last year aiming to clarify the nature of cryptoassets and whether charities should accept them. Charity resources remain under strain as the difficult economic climate continues. As money gets tighter, you can protect your precious resources by ensuring your charity’s internal financial controls cover the right areas and are properly followed. What should trustees do? The Charity Commission encourages trustees to take the opportunity to read through their new guidance and discuss their charity’s internal financial controls at their next meeting. Trustees can use the accompanying checklist to help identify any gaps their charity may have and take action to address them.
How to lead when change is imposed from above Posted 08/01/2023 by AAT Comment & filed under Leadership, Members, Run your business. What can staff do when a change is imposed on them? The CIPD’s people & transformation director Amanda Arrowsmith unpacks how successful (or not) edicts can be. Change is an inevitable part of the working world. As businesses evolve and adapt to the shifting landscape, employees often find themselves at the receiving end of mandates from their superiors. When such changes are imposed, reactions may range from confusion to frustration. But how should employees respond, and why do some changes succeed while others fail? Firstly, when an edict is issued, it’s crucial to understand the rationale behind it. Uninformed resistance can be counterproductive. If the reasoning is not immediately clear, seek clarification. A conversation with your manager or HR can illuminate the purpose behind the change. For instance, an organisation’s decision to remove social media apps might stem from concerns about data security, productivity or professional image. Guiding your teams and colleagues through these imposing waves of change can feel akin to captaining a ship in stormy waters. But, with insights gleaned from recent studies, you’re in a strong position to navigate this challenging course. Understand why Understanding is the bedrock of managing change. A study by Willis Towers Watson found that merely half (53%) of organisations reported that their employees grasped the rationale behind significant organisational changes. You, as a leader, must comprehend the ‘why’ behind the change. This understanding will prepare you for resistance or questions from your team and equip you to explain the rationale behind the change effectively. Once you understand the ‘why,’ you can assess the implications for your work. Will it make certain tasks more difficult? Will it require new skills or adaptations? If the change poses significant challenges, it’s essential to communicate these. Constructive feedback can lead to additional support or consideration of adaptations to plans. It’s equally important to approach change with an open mind. Knee-jerk reactions can blind us to potential benefits. A seemingly disruptive policy may lead to better work-life balance, improved productivity or safer data practices. On your journey through change, adopt a systematic, yet adaptable approach. Research by Harvard Business Review indicated that successful organisations treated imposed changes as a dynamic, ongoing journey rather than a stringent plan to adhere to. So, while you should prepare a roadmap for this change’s impact on your department, remember to allow space for adjustments. Success and failure It is essential to embrace the human side of change. Research from the CIPD shows that the success or failure of policy change is often dependent on the process of implementation rather than the policy itself. Successful policy changes are usually marked by clear communication, empathetic leadership, and appropriate training that can reduce anxiety and resistance among employees during periods of change. Therefore, your role expands beyond finance to include boosting morale, offering support and serving as a mediator. Once you understand the ‘why’ you can assess the implications for your work. Will it make certain tasks more difficult? Will it require new skills or adaptations? So, why do some policy changes succeed while others fail? Success typically hinges on communication, understanding and support. Change can be unsettling, so clear, consistent communication from leadership is key. Colleagues need to understand the reasons for the change and the benefits it could bring. Communication is paramount. The Willis Towers Watson Change and Communication ROI Study reported that organisations with effective communication are 3.5 times more likely to outperform their peers. The CIPD also reinforces the importance of communication during change management, advocating for two-way dialogue to encourage engagement and feedback. Support package Understanding on its own isn’t enough. Support in terms of training, resources and patience can ease the transition. If colleagues are expected to adapt without adequate support, resistance and resentment may follow. Conversely, when leadership demonstrates commitment to supporting their team through change, colleagues are more likely to embrace the new policy. When change goes wrong or fails it can often stem from a lack of these elements. If changes are imposed without clear communication, without reasoning or without support, colleagues can feel disrespected and overlooked. Moreover, if changes are perceived as arbitrary or unnecessary, they are likely to be met with resistance. Change can be unsettling, so clear, consistent communication from leadership is key. Colleagues need to understand the reasons for the change and the benefits it could bring. The lessons we can learn are clear. Whether you’re an employee facing a new edict or a manager planning a policy change, open dialogue, understanding, and support are crucial. For employees, understanding the reason behind the change, communicating concerns, and remaining open to potential benefits can help navigate the transition. For employers, explaining the rationale for changes, providing necessary support, and being receptive to feedback can foster acceptance and cooperation. The imposition of a new policy or an edict need not be a cause for anxiety or resistance. It can be an opportunity for growth, improvement and increased efficiency. The key lies in understanding, communication and support. Remember, change is not the enemy, but an opportunity for evolution and progress. So, when the next edict lands in your inbox, view it as an opportunity rather than an obstacle – a chance to grow, learn, and exhibit your resilience and adaptability. It’s not the change that defines us but how we react to it.
There’s more to inclusivity than we think Posted 08/01/2023 by Sarah Beale & filed under Employers, Members, Recruitment. Pursuing skillsets rather than personality could help boost diversity. I’ve considered myself a champion of inclusivity for a long time. I’ve always been an advocate of surrounding myself with people with completely different skills and attributes than I have, because, hopefully, when you bring us all together, we are more than the sum of our parts. But I’ve recently understood that I’ve had a narrower viewpoint on what diversity is than I had realised. I was focused on age, gender, ethnicity and educational background and other standard demographics. In fact, it wasn’t until more recently in my career that I’ve recognised levels of neurodiversity, and how that can change a team dynamic and problem-solving capability. So, over time, I’ve reflected on that. A woman I worked with who held a role that required a high level of attention to detail was highly respected for the job she did. She had been in the business for many years, and in fact she left, and the company asked her to come back because we couldn’t find anyone who was as good as she was. On her return, she told me that in her time away, she had been diagnosed with Asperger’s syndrome. She must have been in her late 50s or early 60s and had known all her life that she thought differently to others, and as a result, she had been happy to label herself as ‘odd’. Knowledge sets you free In getting the diagnosis, she was given access to all sorts of support, which allowed her to make it an advantage. In fact, she told me she could see the skills she has that others simply don’t. It gave her so much confidence to realise she wasn’t odd, and that it’s just a different mindset. Imagine how different her career and personal life could have been if she’d been armed with that knowledge or her employer had spotted it 20 or 30 years earlier. More recently, while speaking about talent on an IFAC panel, one attendee bravely shared that they had actually left several employments because they could never find somewhere that ‘they fit’. The turning point for them was they found a company that in their words, recognised their strengths, not weaknesses. They concentrated on the attributes they brought and how they could be deployed, and that became part of the culture. After all, as a natural introvert who often has to be extroverted for my role, I’m well aware that adopting opposite traits is tiring. I’ve always wanted to be around people who are very detail- and process-driven, because while I can do it, that’s not my natural preference and it’s exhausting. Being around people who are energised and motivated by that is fabulous and allows me to add value in different ways. “As a natural introvert who often has to be extroverted for my role, adopting opposite traits is tiring.” Wider understanding We need to see this happen more widely in the profession. I used to compare myself to colleagues all the time, and wished I was as good with figures as our finance director, or as good at policy as the head of public affairs, rather than have pride in my own abilities, and it was a turning point when we all realised why we made such a good team. If you’re really doing skills-based and behavioural-based assessment, you should be looking for the positives all the time. In terms of gender or ethnicity parity, for example, there is still some distance to go, but people are well aware of the value it brings. The success measure with all of this is that we are no longer talking about it because it’s naturally embedded. Employers need to change the way they think, so it’s not ticking diversity boxes, and instead looking for someone with a particular skillset because you don’t currently have it on your team.
4 big benefits of studying AAT by self-study Posted 08/01/2023 by Accountext & filed under Digitisation. This content is brought to you by Accountext. Education has undergone a significant transformation in the digital age, making it more accessible and flexible than ever before. The days of the educational experience being restricted to just a classroom environment have been over for some time with students studying an AAT qualification via either a traditional college course, a tutor-supported distance learning course, or studying independently by using ‘self-study’ AAT course material. We sat down with Steven Nash, Head of Marketing at Accountext, an AAT study resource provider for both colleges and self-study students, to discuss self-study and find out more about the benefits and challenges. 1. Flexibility and Convenience – Study When You Want One of the primary advantages of self-study for AAT is flexibility. Unlike traditional classroom-based learning, self-study allows students to set their own pace and tailor their learning schedule to fit their individual needs. There are no fixed timetables or rigid deadlines, allowing learners to balance their studies alongside work, family commitments, or other personal obligations. This flexibility ensures that students can pursue their AAT qualification without sacrificing their existing responsibilities. Moreover, self-study eliminates the need for commuting to a physical location, saving valuable time and money. By using the mixture of printed study books and online materials, students can log into the Accountext self-study materials and study from the comfort of their homes, libraries, or any place with an internet connection, allowing for a convenient and adaptable learning experience. But this flexibility is not without its challenges. In the absence of the structure provided by a traditional classroom setting, some individuals may find it challenging to stay focused and motivated. To overcome this challenge, it is vital to create a study plan with clear goals and deadlines. By breaking the material down into manageable chunks and setting specific milestones, a student can create a sense of structure and their roadmap for AAT success. 2. A Cost-Effective Way to Study AAT Another compelling benefit of self-study for AAT is its cost-effectiveness. Traditional classroom-based courses tend to come with tuition costs and additional expenses for commuting. And a tutor-supported distance learning course still incurs costs that some may prefer to avoid. By opting for an AAT self-study course, students can significantly reduce these financial burdens. The Accountext AAT self-study package is specifically designed to deliver an effective learning journey at an attractive price point. Steven Nash, said: “We saw great results from students who were using our study materials without ever contacting their tutor. And in a cost-of-living crisis, our self-study package which includes our study books, videos, and online assessments and mock exams – is an increasingly attractive option for students.” But a significant cost reduction isn’t the only financial-related benefit of self-study. The flexibility of self-study enables students to continue working while pursuing their AAT qualification. This allows them to maintain a stable income and avoid the financial strain of leaving a job to attend full-time classes. 3. Improve Your Time Management Skills One of the additional benefits of the self-study route is how in overcoming the challenge of staying focused, students develop much stronger time management skills. Without the structure of a physical classroom or fixed study hours, learners must take responsibility for organizing their study time effectively. This self-discipline fosters invaluable skills that extend beyond the realm of accounting. Students develop the ability to prioritize tasks, manage deadlines, and allocate time efficiently – all of which are highly sought-after skills in the professional world. Employers value candidates who can demonstrate self-motivation, discipline, and effective time management, all of which are inherent in the self-study approach. 4. Personalise Your Learning Experience Self-study for AAT offers a personalised learning experience tailored to the needs of individual students. Unlike traditional classrooms, where lessons are delivered to a large group of learners, self-study allows individuals to focus on their specific areas of weakness or interest. Students can spend more time on challenging topics, revisiting them until they fully comprehend the material. Summary The benefits of studying AAT through self-study can be vast and encompass flexibility, convenience, cost-effectiveness, enhanced time management skills, and personalized learning experiences. But it’s important to acknowledge the importance of maintaining your motivation and creating a study plan that keeps you on track. Students who are able to do this are ideally suited to this cost-effective way to invest in their careers and join the world of finance. Accountext produces AAT study material that is used by self-study students, in college classrooms, and by private training providers. This content is brought to you by Accountext.
Tourism tax “will cripple businesses in the industry leaving thousands out of work” Posted 07/31/2023 by Annie Makoff & filed under Members, Tax. A tourism tax is being touted in several regions across the UK, theoretically to bolster the services tourists use. But not everyone is supportive. The idea of a so-called tourist tax has gathered momentum in recent months, as several UK regions have touted the idea to help generate income for local services and infrastructure. In many cases, money generated from the tax is intended to help restore and maintain the local area and fund public services and attractions. In other parts though, the tax is being used to actively deter tourism – as was the case for Amsterdam’s tourist levy. In this instance, authorities are currently considering further increasing Amsterdam’s tax to discourage the binge-drinking tourism which has plagued the city for decades. Currently, the tourist levy is 7% plus an additional €3 per person per night as well as €8 per person daytripper tax for cruise ship passengers. Closer to home, Manchester became the first UK city to introduce a tourist tax in April, charging visitors £1 per room per night. And Scotland is currently in the throes of introducing a Visitor Levy (Scotland) Bill through parliament. In areas such as the Lake District, introducing a tourist tax would be more about discouraging tourism due to conservation and addressing environmental concerns rather than generating additional income. Other UK regions and areas currently considering introducing a tourist tax include: North Norfolk Wales St Ives, Cornwall Bath, Somerset Tourist taxes are highly controversial. Some hoteliers and hospitality businesses in Wales, for example, fear it could put people off visiting the area, which would dent the local economy. Others believe more regions should introduce the tax, given the additional income it could generate. We asked accountants who work with hospitality businesses what they think and how a tourist tax in their area could impact clients. Tourist taxes may be necessary in some areas but will be expensive and complex to administer Samantha Perkin, FMAAT, Director, Zamu and Lecturer, Cornwall Business School Tourist areas such as Devon & Cornwall need substantial extra spending on areas like hospitals and roads and public transport to help manage the massive increase in numbers in the summer months. There are two basic ways to impose a tourism tax: Flat nightly rate as introduced by Manchester BID (Business Improvement area) which now charges £1 per night per room extra, covering 74 businesses and hopes to raise £3 million a year. However, a flat rate does not reflect the price being paid – a £1 charge on a £2,000 a night suite is of little consequence, but to a family renting an Air BNB room, the tax is financially a heavier burden. Percentage extra which adds a percentage extra to the bill. This tax would be shown separately on the bill but is not recoverable like VAT. Edinburgh is considering this at a rate of 4% of accommodation-only charge. A flat nightly rate is easy to manage in areas like Manchester BID as there are a limited number of businesses involved but if it were imposed in Cornwall, where one in five jobs are supported by tourism sector with an estimated annual income of £2.4 billion, administration and collection would be complicated and expensive. There are many complex issues to consider, too: A room-only booking would be less than B&B booking and could lead to tax avoidance eg, a free room with every £100 breakfast. Who would collect the tax? How would it be managed and administered? What about penalties? If council-led, substantial investment would be needed. How would tourist tax be effectively ringfenced to Cornwall’s benefit? If Cornwall were to implement a tourist tax, visitor numbers would be affected. An extra £40 tax on an average hotel bill may not sound much, but on top of spiralling food and fuel costs, it will mean families will reduce spending elsewhere. Cornwall is also worried that the price sensitivity felt by everyone in the current crisis, along with recovery from Covid/Brexit and ongoing staffing issues will create another challenge the industry will need to work with. Verdict: A tourism tax may be necessary in some areas but could be complex and expensive to administer. Tourism tax “will cripple businesses in the industry leaving thousands out of work” Laura Day-Henderson, Founder, More Than Bookkeeping Ltd The hospitality industry is still recovering from the Covid-19 pandemic, with many businesses struggling to stay afloat. This, coupled with the cost of living crisis, shortage of workers post Brexit, and increased wages has meant prices for hotels have sky-rocketed despite businesses profits actually dwindling. Anything that may impact consumers being willing to fork out for a hotel stay – such as the introduction of a tourism tax – will cripple businesses in this industry leaving thousands of people out of work. More should be done to support the hospitality sector’s continuing recovery post-Covid and post-Brexit rather than dealing them another blow. The sector helps drive the local economy by facilitating guests from other parts of the UK and the wider world to visit and spend money in the local area whilst also being a significant source of employment. Many hospitality businesses also double up as community spaces providing space to work, conference rooms, a meeting place, local eateries and emergency accommodation and refuge locations. They are a pivotal part of the community, and so need to be protected and supported, not driven into liquidation. Verdict: Introducing a tourism tax will cripple businesses in the sector, leaving thousands out of work. A tourist tax could improve the visitor experience in some ways Lauren Harvey, MAAT, Assistant Accounts Manager, The Accountancy Partnership A tourist tax aims to raise funds to improve the visitor experience, and this could, in theory, have long-term benefits for all local hospitality businesses that rely on attracting tourists. However, a potential consideration is the fact that accommodation providers will be responsible for collecting the tax, affecting businesses differently. For instance, hotels might have to adjust their pricing to stay competitive, whereas restaurant owners won’t have that consideration. Smaller accommodation providers, such as an Airbnb host, may also find it harder to compete with larger hotel chains. Also, hospitality and leisure businesses are already under a lot of strain as the high cost of living means they’re likely to see fewer people travelling for pleasure. Adding to this pressure by turning them into tax collectors could see a further impact on their businesses. The tax is collected from the customer by the business, so it’s important to make sure that this is clearly separated from their income figures. Accountants will need to be extra vigilant when working with clients in affected regions to make sure the tourism tax amounts are accounted for correctly and paid to the right place. Verdict: Tourism tax could raise funds to help improve visitor experience, but turning hospitality businesses into tax collectors will do little to improve existing strain on the sector and could muddle the books.
Half of UK small businesses have unpaid invoices from last tax year Posted 07/28/2023 by AAT Comment & filed under Members, Prompt payment. A survey of 1,000 business leaders conducted by NerdWallet in April 2023 found that many small businesses are awaiting payments from up to six months ago. Having a consistent flow of money is vital to the running of any business, and interruptions to this cash flow can prove to be a real problem for business owners and freelancers. From being able to ensure that salaries are paid on time to covering bills and expenses, having overdue invoices can significantly impact the smooth running of small businesses. One thousand small and medium-sized enterprise (SME) owners, decision-makers and freelancers in the UK were surveyed about their experience with late payments and how this has affected their business. Outstanding pressure Over half (55%) of businesses still have outstanding invoices from the last tax year (2022/23). This is a problem that seems to be getting worse with time, as just under half (46%) of SMEs were left with more unpaid invoices at the end of the 2022/23 tax year than the previous year. Connor Campbell, business finance expert at NerdWallet, comments: “At a time when many businesses across the UK are already facing an extremely turbulent period financially, the stress and uncertainty of unpaid invoices is an additional headache that no organisation will welcome. “Our survey found that overdue invoices can have substantial effects on SMEs, causing them to make cutbacks on expenditure, recruitment and even staffing. We were most concerned to see that so many business owners were simply happy to sit back and wait for these late payments without chasing up invoices. “Of those that did pursue payment, very few opted to charge interest on repayments. Businesses in the UK are entitled to charge interest of up to 8% plus the Bank of England base rate for business-to-business transactions. “This is an area wherein many businesses could be losing out on compensation for the inconveniences caused by overdue invoices, so it’s important for business owners and freelancers to be aware of the legislation surrounding repayments.” The majority of invoices had not been left unpaid for a long period of time. A third (35%) were less than a month overdue, with just over a quarter (27%) being between one and three months late. Shockingly, however, a fifth (20%) of business owners said they had outstanding invoices from four to six months ago. Inaction has consequences These late payments can have significant repercussions on the running of a small business. Asked what measures they had taken in response to unpaid invoices, 39% of SMEs said they had either already, or thought they might have to, make reductions to their overheads. This included actions such as downsizing office spaces and moving to remote working, alongside cutting team social spending budgets. Recruitment also took a significant hit, with 28% of SMEs pausing their recruitment efforts due to having unpaid invoices. Additionally, a fifth of business owners said they had frozen planned pay rises for their employees. Unfortunately, the survey also found that 22% of small businesses had made, or might have to make, staff redundancies to compensate for their late payments. The survey revealed that, in most cases, business owners typically waited a week before taking action for unpaid invoices. In terms of how they went about chasing payments, half said they sent reminders every week until invoices were paid, while a quarter said they pushed for payment every day. An additional 40% of SMEs followed up failure to pay with a phone call or letter. Interestingly, only 23% of respondents told NerdWallet they charge interest on top of the agreed amount for each reminder, while only one in ten (11%) said they claimed debt recovery costs. Surprisingly, 14% of businesses had to use a debt collection agency to receive payment, while 8% said they had been forced to write off the invoice altogether. Perhaps most shocking of all was the revelation that 22% of small business owners were happy to wait and do nothing while the client remained unpaying.
HMRC Update – Voluntary and Community Sector Grant Funding Programme, Plastic Packaging Tax Posted 07/28/2023 by AAT Comment & filed under HMRC updates, Members. Tobacco Track and Trace, Child Benefit, removal of income tax assignment, Voluntary and Community Sector Grant Funding Programme and Plastic Packaging Tax. Help parents receive all the Child Benefit payments they’re entitled to by 31 August To carry on claiming Child Benefit, parents and carers of teens staying in full-time education or training need to let HMRC know. Parents and carers with children aged 16 and 17 can quickly and easily extend their Child Benefit online or in the HMRC app. They will see changes applied to their Child Benefit claim immediately by viewing their proof of entitlement. Customers with children aged 18 or over who are also staying in approved education or training can still advise us on this online i-form, and changes will be applied automatically. This is just one of the ways HMRC is improving its digital services to make things simpler and quicker for customers. Customers can also see recent Child Benefit payments, proof of their claim, and update their bank and address details instantly online or in the HMRC app, without needing to call or send any forms via post. Please remind your clients with children over 16 to take action to continue claiming Child Benefit by 31 August. If they don’t, their payments will automatically stop. New Tobacco Track and Trace regulation and penalties New regulations which provide stronger sanctions for businesses or individuals who deal with illicit tobacco and contravene the requirements of the Tobacco Products (Traceability and Security Features) Regulations 2019 have come into effect. From 20 July 2023, failure to comply with the requirements of the Tobacco Track and Trace (TT&T) regulations in the UK may result in the issue of financial penalties, seizure of certain tobacco products found at non-compliant premises and the exclusion of retailers from the TT&T registration system. Potential breaches may be investigated by Trading Standards and referred to HMRC for issue of sanctions. Further information about tobacco track and trace penalties is available on GOV.UK. Removal of assignment process Spring Budget 2023 included measures to void assignments of income tax and the vast majority of agents have progressively moved from assignments to nominations for third-party repayment requests. Any assignment of an income tax repayment received on or after 20 July 2023 will not be accepted as a nomination. In such cases HMRC will repay the taxpayer directly where there is no valid nomination present. Further information about raising standards in tax advice is available on GOV.UK. Applications open for the Voluntary and Community Sector Grant Funding Programme HMRC have secured £5.5 million for 2024 to 2027 to fund voluntary and community sector organisations to help them provide advice and support for customers who need extra help with their tax affairs. This is the twelfth funding round in the Grant Funding programme, building on over a decade of partner support worth over £20 million. Successful applicants will also help customers to reform or build a relationship with HMRC that enables them to engage directly with us in the future. Organisations can apply from 24 July to 21 August, with successful applicants announced in October 2023. Live Q&A sessions will also be held during the application window. Details about HMRC Grant Funding application guidance is available on GOV.UK. HMRC Stakeholder digest change Thank you to those who participated in HMRC’s recent survey, which asked for your views on the HMRC digest content you receive. Over the last couple of months, HMRC has reviewed your feedback, and is making some changes so that its email content stays helpful but is easier to use going forward. Starting in this issue it is introducing some changes to the structure of its digests, and will also be bringing together a slightly different mix of articles to focus more on issues that stakeholders are raising in forums and correspondence. HMRC is also changing the frequency of the digests to monthly, which will take effect in the following edition and aims to reduce pressure on inboxes. It will continue to provide you with timely updates following key announcements and fiscal events separately. Open Consultations Plastic Packaging Tax – chemical recycling and adoption of mass balance approach On 18 July 2023, the government published a consultation about allowing a mass balance approach for calculating the recycled content in packaging made from chemically recycled plastic waste for the purposes of the Plastic Packaging Tax (PPT). This will be open for responses until 10 October 2023. The consultation also considers the exemption from the tax for the immediate packaging of human medicines, and the use of pre-consumer waste as recycled material. Share your views about the Plastic Packaging Tax chemical recycling and adoption of mass balance approach consultation by 10 October 2023 on GOV.UK. Tackling non-compliance in the umbrella company market consultation – open until 29 August Businesses have until 29 August 2023 to share their views on government proposals to protect workers from non-compliant umbrella companies. Following concerns raised by industry and employees, the government is consulting on potential measures to regulate the umbrella company market. The consultation also seeks views on measures to tackle non-compliance in the sector, including mandatory due diligence. Your input could help to protect workers from surprise future tax bills, while supporting businesses and growth in the economy. You can read more and find out how to respond on the tackling non-compliance in the umbrella market consultation on GOV.UK.
Secure your treasury to avoid bank failure risks Posted 07/27/2023 by AAT Comment & filed under Members. A string of banking failures has emphasised the need for best practice in managing the treasury function. SVB’s clients “lemmings” Silicon Valley Bank went all in on the tech sector. As the industry boomed and attracted investors’ cash, much of this was deposited with SVB. Its deposits tripled from $62 billion at the end of 2019 to $189 billion at the end of 2021. Looking for returns, the bank invested in long-term US treasury bonds and US government agency mortgage-backed securities. But when interest rates started rising last year, and its client base became more strapped for cash, the bank was forced to offload some of its bonds at a loss. That spooked SVB’s depositor base, which was heavily concentrated among fintech start-ups and early-stage firms that acted as a herd and withdrew their deposits en masse in a classic bank run. Growth hides a lot of sins, and a lot of time growth has this tsunami of those sins following it. David Koenig, Chief Executive of The DCRO Institute The resulting disaster exposed SVB’s ‘original sin’ of failing to manage its liquidity risk, according to Moorad Choudhry, the former head of business treasury, global banking and markets at Royal Bank of Scotland. “The original sin was their concentrated funding base. They had a concentration by type of customer, by type of deposits and by tenor,” Choudhry says. “They all acted in the same way, all at the same time and they all followed the same run like lemmings over the cliff. “The interest rate rises were the catalyst that exposed the original sin which was very poor liquidity risk management.” Diversification is essential The sight of Silicon Valley Bank’s (SVB) shell-shocked customers scrambling to meet their vital expenditure in the days after the lender collapsed delivered a stark reminder of the importance of effective treasury management. US banking regulators stepped in to shut down Silicon Valley Bank on 10 March after customers withdrew a staggering $42 billion of funds in 24 hours in a lethal bank run that caused the largest bank failure since the 2008 Global Financial Crisis. SVB was the bank of choice for a swathe of US tech start-ups, their founders and venture capital backers, many of which had concentrated their funding in just one or two banks. In one example, Roku, the video-streaming business, had $487 million, or 26% of its cash, deposited with SVB when the run began. “SVB was the bank for fintechs. A fintech bank might be your friend, but if they are a narrow niche bank and the fintech sector is in trouble, your bank is in trouble,” says Choudhry. Panic set in among the tech start-ups that banked with SVB as they were left facing the prospect of being unable to access their funds. The sudden failure of SVB exposed the poor cash management practices of companies that had succeeded in raising vast piles of cash but had spent little time thinking how to manage it. A cautionary tale “If you are flush with cash that is not really what you are thinking about,” David Koenig, Chief Executive of The DCRO Institute, which trains board directors, says. “In the kinds of companies that had their money with SVB, the focus is not on their treasury function.” Koenig recalls a meeting with a group of businesspeople from Silicon Valley in which he suggested that growth for growth’s sake is not necessarily good. The response, he says, was: “If you ever made a statement that growth isn’t a good thing, you would be thrown out of every meeting here.” He continues: “Growth hides a lot of sins, and a lot of time growth has this tsunami of those sins following it. Treasury functions matter because if it is not done well, it potentially cuts off the growth and if there is this tsunami behind it, it can take you away as a business.” Indeed, Choudhry says the “core discipline”, particularly in companies that rely on high revenue and low margin, is being conservative and keeping the cash safe, rather than seeking out higher returns. “My approach is to be conservative first and foremost and preserve the cash,” he says. “Making anything on the top of that on higher interest rates is a bonus that shouldn’t be the driving force. The minute you lose sight of that, you can’t blame anyone other than yourself when things go wrong.” Even though the Federal Deposit Insurance Corporation protected all deposits with SVB in a bid to stabilise the banking system, and the Bank of England sold its UK business to HSBC, the crisis should be a wake-up call for accountants to review their company’s counterparty credit risk. Counterparty risks Treasury teams are already acting. A Gartner survey of more than 250 finance leaders in March found that more than one in four CFOs plan to diversify their deposits across more banks in response to the unfolding crisis. The top actions CFOs are taking, or planning to take, include assessing their own funding sources for risk, educating the board on potential exposures and evaluating customer exposure and payment risks. The crisis exposed the risk of trusting too much in one bank when the macro-economy is uncertain, says Laurent Descout, the chief executive of Neo, a digital bank. Treasurers need to go back to lessons learned in 2008 – always have more than one depositor. “The tale of SVB should be a cautionary one for treasury teams about the risks of putting all their eggs in one basket,” Descout says. Treasury teams will look to diversify with several banks. “This means that should one bank get into difficulty, they have cash at hand to make vital payments, while not having to manage too many banking partners,” he adds. Be conservative first and foremost and preserve the cash. Making anything on the top of that on higher interest rates is a bonus that shouldn’t be the driving force. Moorad Choudhry, former head of business treasury, global banking and markets at Royal Bank of Scotland And the speed at which SVB unravelled highlighted the need to monitor counterparty credit risk on an almost real-time basis. Those companies that look at counterparty risk day in day out were able to spot some of the signs that trouble was brewing at the bank. “If you are taking this seriously you have got to do it on a regular basis looking at your counterparty risk. It is no good looking at it once a year because things can move a lot quicker than that,” Robert Waddington, director of PwC’s treasury and commodity group, says. He urges his clients to get on top of treasury management processes when they are flush with cash. “Now is the time to do it because there might be a time when it is tight and you don’t want to be putting in your processes, controls and operations to get a good cash flow forecast in place when you need to know it urgently,” he says. To understand counterparty risk, treasurers need to question their banks more about their investment policies. One of the critical errors made by SVB was that it had invested in longer-term government bonds, which take a decade to yield results. “The corporate treasurer needs to really understand the balance sheet structure if they want to be safe,” Choudhury, who is also a fellow of The DCRO Institute, says. This includes looking at the funding structure and the basic asset and liability position of the bank. “If you don’t have the time or the wherewithal or the expertise to do that, then at the end of the day you should go with a bank that has a diverse customer base,” he adds. Cash flow and forecasting The banking crisis triggered by the collapse of SVB, Signature Bank and First Republic and high-profile banks such as Credit Suisse being sold at fire sale prices is just the latest in a series of shocks corporate treasurers have had to absorb. A looming recession and rising interest rates around the world have, once again, underscored the importance of cash flow and working capital in business. And upheaval caused by Brexit, the Covid-19 pandemic and the war in Ukraine has led many finance functions to tighten their cash management practices. Research published by American Express in March found that finance teams were spending more time and resources on forecasting that any other discipline. The survey of finance leaders at larger UK businesses found that finance teams have increased how frequently they rebudget or reforecast: one-third are expecting to do this monthly in the year ahead, compared with 28% who did this as frequently before the pandemic. For many high-revenue, low-margin businesses in retail and transportation, business models “changed overnight” when lockdown measures restricting the movement of individuals were imposed by the government, says Zoe Harris, Deloitte’s head of treasury strategy and operations. As such, the pandemic increased attention on cash forecasting and cash management among those companies’ finance teams. “Businesses that had less of a focus on cash management or cash forecasting, because they have always been cash rich, were suddenly unsure of what their cash revenues were going to be over the next period of time and therefore already putting in place those cash forecasting processes,” Harris says. She adds that businesses with robust procedures, processes, policies and governance in place will be better able to “absorb that shock and know exactly what we are going to have to do to absorb that shock then they are in a better, stronger place”. Research by software provider Blackline found that understanding cash flow in real time will become more important for companies over the next year. However, nearly all the 1,483 executives surveyed admitted that they could be more confident about the visibility they have over cash flow. “Cash flow forecasting is never going to be perfect, but you have go to undertake continuous improvement,” Waddington says. “Some of the better organisations I work with put metrics in place around improvements, or league tables within their companies if they have different divisions around how they are performing as a group.” How CFOs plan to mitigate risk related to bank failures 39% Educating the board about exposure and potential risks 38% Assessing risk and viability of existing fund sources 34% Assessing customer exposure and payment risk 30% Assessing third-party supplier risk 28% Diversifying deposit base across more/new banks 20% Mitigating current exposure to failed banks 18% Reviewing investment policies 17% Improving cash visibility 17% Assessing and rebalancing counter party risk 15% Communicating to shareholders to explain bank exposure and relationship flexibility 10% Communicating to vendors/customers regarding cash flow impact 9% Benchmarking existing bank services and associated fees 8% Scenario modelling the impact on the cost of credit 4% Other Source: Gartner Bank Failures