Examiner reports: common mistakes at Q2022 Level 4

Posted by & filed under Study tips.

This article has been written to help you familiarise yourself with some of the units in AAT’s level 4 Diploma in Professional Accounting. 

It is based on the feedback available in the examiner’s reports, which “provide information on the overall performance of students” and “are intended to be constructive, informative and provide further understanding of the specification content and assessment requirements.”  The reports are published annually but as the new specification of the qualification only started in September 2022, the current reports are interim versions and based on data from the initial stages of the qualification’s launch.

That said, they highlight key areas of strength and, more importantly, areas for improvement.  Therefore, they contain really useful nuggets of information.  Because if you know in general which topics/tasks most students find hard, you can use that information to guide your learning and revision and ensure you avoid common mistakes. Although, be careful not to neglect topics just because people generally perform well in them!

So, to encourage you to use them, here is a summary and links to other Comment articles that will support your understanding of the topics.*  The reports can be found in the learning portal. 

Applied Management Accounting (AMAC)

Overall pass rate: 68%

Use of time: on average students only use 86% of the time available to them but spend proportionally more time on the written elements.

Notable areas of strength:

  • features and application of the product lifecycle
  • standard costing and variance analysis
  • resource and production budget calculations
  • relevant costing
  • financial and non-financial performance evaluation.

Key area for improvement:

Maybe unsurprisingly, two out of the five areas noted as weak relate to written tasks, an area that most accounting students find challenging, regardless of the level within the qualification: 

  • improved use of the content provided within the task data for written responses to ensure they are tailoring their responses
  • making sure that all elements of the question requirement are addressed

A range of resources have been written and developed over the last few years to help you hone your writing skills, produce the kinds of answers that the examiners are looking for and gain you maximum marks.  The examiner has stated that written tasks are proving more challenging, particularly where students are required to question the validity of the decisions being made.  Therefore understanding active verbs, such as assess and evaluate, is key.  So, 

  • the writing skills e-learning unit and associated videos on the learning portal, which explain each of the verbs used and give examples, is a good place to start
  • plus you could have a read of the following Comment articles:

On a positive note, the examiners also said that student performance in the written tasks when looking at performance evaluation using ratios analysis has been strong.  So if it can be done in one area, it will be possible to transfer those writing skills to other topics!

The other areas for improvement are:

  • budgetary responsibility and accountability
    • Production budget report: note that this is the final part of a series so will make the most sense if you read all three Comment articles
  • evaluation of the reliability of forecasts
    • The How to apply active verbs Comment article linked above, includes AAT’s definition of ‘evaluate’ and gives an exemplar answer
  • linear programming
    • This Comment article on limiting factors will help your understanding of both key factor analysis, which relates to decision making when a single resource is scarce and linear programming, which is about how to produce an optimum production plan when multiple resources are scarce. 

Other relevant AQ16 Comment articles:

Drafting and Interpreting Financial Statements (DAIF)

Overall pass rate: 72%

Use of time: only 80% used on average

Notable areas of strength:

  • preparing of individual company statements of profit or loss, statements of changes in equity and statements of financial position
  • preparing consolidated statements of financial position and consolidated statements of profit and loss tasks with students dealing with most consolidation adjustments well
  • understanding of how to calculate ratios
  • identifying whether a ratio has improved or deteriorated which shows a good level of understanding

Key area for improvement:

  • preparing of statements of cash flows as this is the weakest area of Task 1
  • performance on tasks involving the IFRS Conceptual Framework is generally weaker and students should ensure these areas are revised thoroughly
  • the accounting treatment of different elements of financial statements as various things could be tested, and students must understand the impact, if any, on the financial statements
  • taking note of the number of marks available to ensure students are making enough valid points to achieve full marks. This is particularly relevant in the ratio analysis task and students should think about the components of the ratio when answering this task to ensure all their points are valid
  • care must be taken when reading the task to ensure the students tailor their response to the question asked. Marks cannot be awarded if responses are generic and not relevant to the task.

Relevant AQ16 Comment articles:

Internal Accounting Systems and Control (INAC)

A report about the INAC unit is yet to be published, however, the unit includes tasks that require written answers so the suggestions made in relation to AMAC would also be applicable to INAC.

A couple of Comments have been written to specifically support the Internal Accounting Systems and Control unit:

And the following AQ16 Comment article is also relevant:

*  Note that Comment articles published before September 2022 will have been written in line with the AQ16 specification therefore, they could use different terminology, for example, sales ledger/control account as opposed to receivables ledger/control account, but the theory will still be valid.

What accountants should know about recent changes to R&D tax relief

Posted by & filed under Anti-money laundering, Members, Tax reform.

Vicki Morrall warns accountants dealing with R&D tax credits must be confident they can prepare fully compliant and defendable claims.

For those accountants that prepare R&D tax credit claims, it will not have escaped notice that the schemes have been in the spotlight over recent months. Increased scrutiny has seen HMRC opening a significant number of enquiries into R&D tax credit claims. This increased policing has, rightly, caused concerns for many accountants. They are having to deal with enquiries for the first time, and it can be demanding.

This is happening at the same time as new requirements were brought in around the claim process that came into effect in April 2023. Accountants will need to be aware of these changes to ensure due care and attention is given to your clients or, if you are in industry, to your internal claims process.

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What are the changes to R&D tax relief?

In April 2023, a number of process or administrative changes came into effect for anyone claiming R&D tax relief. 

These include:

  • The requirement for a Technical and Financial Report to accompany any R&D tax relief claim. This has been best practice for many years, but not a requirement before now. These reports are now compulsory.
  • The requirement for the claimant to notify HMRC of their intent to claim within six months of their Accounting Period End (APE), using a new digital form. This is required for all claims for accounting periods starting on or after 1 April 2023, except where the company has previously claimed R&D within any of the three previous calendar years, or the R&D claim is submitted within six months of the period end.
  • Claims must be endorsed by a named senior official from the company, with their contact details provided.
  • Any agent who advised the business on compiling the claim documentation must be named.
  • The requirement for an ‘Additional Information form’ to be completed digitally, before the filing of the CT600L. This is required from 1 August 2023.

In addition to these administrative changes, further changes within the scheme have come into effect and these include:

  • The SME R&D tax relief scheme sees the enhanced rate move from 130% to 85% and the cash credit reduce from 14.5% to 10%. The RDEC rate however increases from 13% to 20%
  • The extension of the R&D definition to include pure maths as a qualifying activity.
  • The inclusion of data licences and cloud computing as qualifying costs.

New support is available to a newly defined group of R&D intensive industries. This will be in the form of an enhanced tax credit available to loss-making businesses whose R&D expenditure consists of at least 40% of total expenditure. Qualifying companies will be able to surrender losses at a rate of 14.5% for qualifying R&D expenditure instead of the 10% credit rate for companies claiming under the existing SME scheme.

How will these changes impact accountants?

Of course it is essential that all accountants are aware of all these changes to ensure they advise clients or their businesses appropriately. Perhaps the most significant impact to accountants will be the new requirement for the Additional Information form to accompany all filed claims. This is now confirmed and legislated, but it has been left open to allow the content to be amended. This form asks questions about both the company claiming and also its R&D projects.

A number of our accounting partners I have spoken to over recent weeks are concerned about the administrative burden of this Additional Information form and the resulting duplication of effort and information it will entail.

We expect this digital form, required from August, will require in excess of 40 fields to be completed for a single project, single scheme claim. These fields will cover the simple administrative areas such as UTR, PAYE ref, SIC code, contact details and agent details. However there will also be further detail and fields concerning technical compliance and expenditure compliance for each of the projects undertaken. Multiple project claims or hybrid claims (across the RDEC and SME schemes) will demand the same information but multiple times over.

Accountants also need to be aware of the increased focus on R&D compliance from HMRC. Enquiries are time-consuming and can be difficult to defend. Accountants need to be aware of the risks associated with filing an R&D tax relief claim for their clients. HMRC is demanding robust compliance and evidence of the baseline for projects. This requires a depth of technical knowledge, an understanding of the legislation and sector-specific proficiency.

Recommendations for accountancy teams

Accountancy teams dealing with R&D tax credits need to be confident in their ability to prepare fully compliant and defendable claims. 

For any claims filed it is crucial to explain the technological advance and evidence the baseline or state of knowledge at the outset of any project. The advance must be in overall knowledge or capability in a field of science or technology. It can’t just be that the company’s own knowledge has increased. The baseline needs to determine what was publicly available at the start of a project in order to prove the technological advancement.

If an enquiry is opened, the accountancy team should only try and defend that claim if they’re confident in the compliance and have the required depth of technical understanding. The first reply to HMRC following the opening of an enquiry is critically important, and specialist support should be sought if you are uncertain of how to respond.

The R&D tax relief landscape is continuing to change, and it is likely that there will be further amendments and revised guidance over forthcoming months. Accountancy teams will need to keep up to date with the nuances of the claim process and the direction of travel of HMRC around Enquiries and One-to-Many compliance checks. This will enable them to advise their clients appropriately and get in specialist advice where necessary.

Many who provide their own R&D services have invested heavily in their internal teams. They have expanded their technical resource in order to deliver technically compliant claims. For others their risk appetite has reduced, and they choose to partner with a specialist, recognised provider instead.

Whatever the chosen route, the days of filing summarised claims with limited understanding of the requirements are over.

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Vicki Morrall, Accounting Partner Director at R&D tax credit specialists Source Advisors, has vast accounting experience and commercial expertise. She co-founded R&D tax consultancy Luvo Financial in 2015. In 2021, Source Advisors acquired Luvo, which allowed Vicki access to additional services for her clients and partners.

Your way to professional membership

Posted by & filed under AAT news, Employer newsletter, Students, Study tips.

Just passed Level 4? We’re removing barriers to membership while offering support and maintaining standards.

Progression Pathways is our modern approach designed to help students progress to professional membership. Based on feedback, it recognises how today’s accountants make an impact in the workplace. It stops work experience from becoming a barrier; instead members grow their skills by completing a prescriptive CPD programme in their first nine months of membership.

What is the new system?

In place of work experience, AAT has pioneered a new system where students who have completed Level 4 are immediately eligible for membership once they have completed their fit and proper checks and paid their AAT membership fee.

In the first nine months, they’ll be supported with a compulsory CPD programme, which covers key areas they need in the workplace from ethics and sustainability to collaboration and leadership.

The accounting qualification is taken as absolute proof of technical competence. But the CPD modules support individuals further by developing supplementary skills and behaviours, based on a formula that has proven successful in apprenticeships.

What are the advantages?

This new approach removes barriers for many would-be members and is in keeping with AAT’s desire to create open access to accountancy careers. The previous system sometimes created a Catch-22 situation: work experience was hard to come by without membership, but membership was contingent on securing work experience. It was a system that created obstacles rather than one that helped students progress.

Coming into professional membership provides the benefit of accessing a broader bookkeeping and accounting community for support and opportunity.

Another benefit is consistency – all new members will have the same grounding, so can feel confident they have the same skills.

Crucially, AAT believes this approach will give the public greater confidence in a consistent standard of competence, helping the standing of the profession. This contrasts with the public’s experience of unregulated accountants, which our Accountable research found leads to problems that require a properly trained accountant to put right in 20% of cases.

When does the CPD have to be completed?

The Pathway is simple: once you’ve demonstrated your technical competence by passing the final exam at Level 4, you are eligible to apply for professional membership. Completing the application includes ‘fit and proper’ checks and paying the membership fee.

You must complete the CPD pathway within the first nine months to remain in membership. The programme is therefore delivered online and designed to flex around your career and time commitments. There’s no final test at the end of the modules, either.

What’s in the CPD programme?

To achieve that, the CPD programme has been put together with a rigorous commitment to maintaining standards. It’s designed around the framework of the Level 4 Apprenticeship and as such combines practical learning and case studies drawn from real life.

We believe this programme is better than most work experience that you would likely find at a similar stage. It’s been put together to give broad exposure to the kinds of challenges you’ll face as your accounting career progresses. So, whether that’s understanding your ethical responsibilities, how accounting supports business development or how to build effective teams, the programme aims to cover the most useful ground. We believe it will round out your technical skills and help you hit the ground running. Here’s the full list of modules:

Module 1 – Awareness and adaptability to the business environment

Module 2 – Ethics, integrity and professional judgement

Module 3 – Adding value and delivering business success

Module 4 – Leadership, collaboration and working in teams

Module 5 – Planning, prioritisation and delivering accurate information

Module 6 – Sustainability

Module 7 – Data protection and information security

Module 8 – AML and fraud prevention

Building your career

The modern accountant needs to understand a broader range of business drivers than previous generations. As a profession we’re expected to act as gatekeepers of business governance and efficiency, ethical leaders and gatherers of insight through data. That’s before we get to active and pragmatic agents of change around the sustainability agenda.

The Pathway will help you understand these issues with real-life and relevant examples that reflect the challenges you’ll face as you build a career in accounting. Our goal is to give you the tools to help you fit seamlessly into the modern workplace, and we believe the Pathway will do exactly that.

Anti-money laundering supervisory landscape: where are we now?

Posted by & filed under Anti-money laundering, Policy.

We consider how OPBAS has fared since its launch.

The UK’s Anti-Money Laundering (AML) regime has evolved over the years to keep up with the changing face of financial crime.

It underwent a major transformation in 2018 with the creation of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). The intention at the time was to create one supervisor to oversee the various ‘on the ground’ oversight bodies that work at the front line of AML. As a result, OPBAS now sits above 22 regulatory bodies within the accountancy and legal sectors with the aim to ensure a robust and high standard of supervision.

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Calls for change

Not surprisingly, that number of supervisors has led some to conclude that the regime may need reform to improve efficiency, accountability and consistency. While AAT has enjoyed a constructive relationship with OPBAS and received consistently positive reports, OPBAS issued a report in April of this year indicating that improvements in effectiveness amongst the Professional Body Supervisors were not consistent in pace or scale, with some bodies demonstrating only partial effectiveness or ineffectiveness in key areas across the supervisory landscape.

With that in mind, the Government has indicated it will launch a consultation into the next stage of the UK’s AML supervisory regime. And early indications, outlined last year, suggest that the Government is considering a number of options to strengthen the regime going forward.

While it’s too soon to know exactly what each option will entail, one route the Government has indicated could be taken would see a development to the role fulfilled by OPBAS. Under this, the fundamental structure would remain unchanged, but OPBAS’s powers would be strengthened.

Consideration around any extension to OPBAS’s powers will give rise to necessary reflection around how it has fared since its launch. Evaluating what has worked well and where there have been challenges will help determine whether extended powers for OPBAS would improve compliance.

Difficult beginnings

It’s important to note that AAT was initially unconvinced of the need for OPBAS when it came into being five years ago. Our objections at the time included the lack of a clear rationale for its creation, confusion over its objectives and an opaque funding model. However, as is standard practice, we pledged to work constructively with the new body to give it the best chance of succeeding. Ultimately, OPBAS’s aim is to create and sustain a successful and efficient AML supervisory regime, and that requires bodies like ours to engage fully, working in good faith and in the public interest.

And the past five years have proved that, by and large, OPBAS has been a force for good in the AML space. OPBAS has grown into its role and has set about fulfilling its commitment to improving the landscape for all stakeholders.

AAT has continued to engage with OPBAS, the other Professional Body Supervisors and relevant authorities. For example, following the publication of the OPBAS report we compared our risk-based approach to the examples of effective practice within the revised OPBAS Sourcebook, which did not highlight any particular areas of concern.

We will conduct a review of the risk-based methodology in the coming months to ensure it remains fit for purpose.  We will also continue to look for ways to proactively engage with our supervised population to develop our understanding of the risks present in the accountancy sector. The oversight provided by OPBAS has been invaluable in helping us to improve our effectiveness and efficiency.   

Staying current

We certainly agree that a strengthened OPBAS would add real value, and having the powers to remove low-performing supervisors would be a positive development for the body. AML enforcement is one of the most dynamic and challenging areas of financial regulation, and there’s evidence that OPBAS is making real progress. Now that the system is working well, harnessing and strengthening that cooperation must surely be the priority going forward.

While we’re waiting for the Government to announce what options it will consider for reform, it would be counterproductive to shift in a dramatic direction away from the progress OPBAS has made in improving the supervisory landscape. Evolution, not revolution, is what is needed to ensure the integrity of AML supervision and avoid unnecessary transitionary risks that could damage the reputation of the UK as a leading nation in AML regulation.

Change is needed, but building on success is better than disruption. AAT is fully behind any efforts to improve compliance and regulation, but we firmly believe the achievements of OPBAS – and its proven ability to raise the bar – should be taken into account as its future is debated.

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You don’t need a degree to work for the ‘Big Four’

Posted by & filed under Apprenticeships, Members, Social mobility.

One of the ‘Big Four’ accounting firms, Deloitte presents a dream job for many finance professionals. Here’s why they don’t require all their staff to go to university.

Recently ranked in the Top 100 Apprenticeship Employer list, Deloitte is a global provider of audit and assurance, consulting, financial advisory, risk advisory, tax, and related services. One of the ‘Big Four’ firms, Deloitte was founded in 1845 and now employs around 415,000 people. 

Deloitte offers an earn-while-you-learn apprenticeship programme called BrightStart, which offers school leavers the chance to study for recognised professional qualifications, while gaining project experience and client exposure from day one.

BrightStart apprenticeships are available in audit and assurance; business and financial advisory; consulting; cyber; governance; risk and regulation; legal; technology; and tax consulting. 

“Our apprentices are a talented and curious group of people from diverse backgrounds, and they bring with them fresh approaches and new ideas that make a real impact for our clients and our firm,” says Jackie Henry, managing partner for people and purpose at Deloitte. “They have some exciting opportunities waiting for them and we’ll be helping them to build the skills they need to succeed in a rapidly changing workplace.” 

I really do recommend apprenticeships for employers as the best way to grow their talent and gain increasingly skilled staff from day one.

I’ve found some of my apprentices were able to get promoted while still learning because the work examples they developed to showcase their skills were the same competencies asked for in higher-paid roles.

No surprises there, as the Apprenticeship is designed by employers to develop the technical knowledge, skills and experience desperately needed in this day and age.

AAT President Christina Earls

“We encourage applications from talented students from a range of backgrounds and with different experiences to best serve our clients,” says Jessica Jones, Deloitte’s head of early careers recruitment. “We are proud of our apprentice scheme, which can switch on a person’s potential and help them forge a brilliant career. We want people with motivation and drive, and we’ll teach them the skills and knowledge they need to succeed. Our aspiration for our apprentices is the same as our graduates – that one day they will make it to partner.” 

An alternative route to Deloitte 

Twenty-one-year-old Arthur Clark discovered Deloitte’s BrightStart apprenticeship programme during his final year of A-Levels, while Googling alternative routes into the firm. 

Originally from York, Arthur started his BrightStart apprenticeship in September 2021 as an associate in Deloitte’s audit and assurance business. He recently passed his AAT Level 3 qualification and has moved on to AAT Level 4. 

“I’ve always wanted to work in audit and Deloitte is the firm to strive for,” he says. “I’d read about the firm in the business pages of the news and wanted a successful and fulfilling career for myself.” 

He chose the apprenticeship scheme because he wanted the blend of study and hands-on work experience. 

“I also wanted to get my foot on the ladder and start networking early on to build my career,” he adds. “I didn’t get a position the first time I applied for Deloitte, but it only made me more determined. Throughout the application process Deloitte were approachable and stood out above the rest. I completed a different apprenticeship in an investment management firm in 2020 and then applied again for Deloitte. I’m glad I stuck at it and secured my dream job!” 

Arthur says being offered the position at Deloitte was a particularly proud career moment for him. 

“I had worked really hard on my application and it had been my dream for a few years – I couldn’t wait to tell my family,” he says. “More recently, I got my AAT Level 3 and have moved on to my Level 4. I was really pleased with that accomplishment and found it rewarding to see my progression in the programme.” 

Work/life balance 

Deloitte’s hybrid working policy provides Arthur with the flexibility to work from the Newcastle office or remotely depending on the tasks he’s completing. He says he found the hybrid working policy very helpful when studying for his AAT exams, often choosing to study from home. 

“This flexibility has been very beneficial to my work/life balance,” he explains. “It’s important to make sure that you maintain that balance between work and study. It can be easy to get fixed on your day job, but study is just as important for your development.”

The thing I enjoy the most is the analytical aspect of my job. I love critical thinking, getting into the details of a project and examining information to make sure it’s correct.

Arthur Clark

Arthur says he still goes into the office quite often to meet up with and work alongside his colleagues. “I work with people of all ages, backgrounds, and nationalities as well as levels of seniority and expertise in the firm,” he adds. 

During a typical day, Arthur gets stuck into various audit and assurance reporting tasks. 

“This primarily involves reviewing financial statements for accuracy and consistency to assist the on-site audit team,” he says. “Reviewing financial statements to ensure they meet all legal and regulatory requirements is an important aspect of my role within Deloitte and within audit. 

“The thing I enjoy the most is the analytical aspect of my job. I love critical thinking, getting into the details of a project and examining information to make sure it’s correct. Every day there is something new to learn, whether it’s about the audit process or an individual company, it never gets boring. You can definitely tell that audit is the right career for me!” 

Information overload 

Arthur says it can be challenging switching from work to study during the week. 

“At the beginning of an apprenticeship, people should avoid information overload by planning out their time for study and protecting it,” he advises. “I found that managers understand the balance apprentices face and are very accommodating. Both Deloitte and the training provider Kaplan give plenty of preparation time in advance of examinations, which really helps.” 

With aspirations to one day become a partner, Arthur says he plans on working hard to learn more and more about the companies he audits as he progresses through the firm. 

“In particular, I’d like to improve on my communication skills and get more involved with the many companies Deloitte audits,” he notes. “Everyone I work with is really encouraging and supportive of apprentice career journeys, and it’s great to see other BrightStarts complete their apprentices and move up through the firm.” 

Arthur’s advice 

“I’d recommend networking within your company as soon as you can. As an apprentice, you learn from loads of different people across different levels. It’s a great chance to speak to senior people and I’ve found that you can grab chances to get valuable advice and get your name out there within the company, something that becomes invaluable as you progress.” 

Download your interactive study planner and finish your qualification on time

Posted by & filed under Students.

We’ve created these three interactive study planners to help you track your studies so you can confidently complete your AQ2016 qualification by 30 September 2023.

Download your interactive study planner

Prepare for your AQ2016 assessments by downloading our free interactive study planner (login required)

Download your planner

“I can confidently say that having a study planner kept my mind focused on how much work I had ahead of me. Each time I marked a task as ‘completed’ and slowly saw red turning green, my confidence grew.” Hanni Owens, AAT student

“The interactive study planner has been such an effective way for me to plan my studies. Thank you for this amazing tool: it has really helped me in my studies.” Stacey Roe, AAT student

“The interactive study planner has allowed me to focus on specific areas of studying, giving me the confidence to try out my first practice assessment.” Danielle Tulloch, AAT student

HMRC update – seasonal self-assessment helpline, Child Benefit and more

Posted by & filed under HMRC updates, Members.

Trialling a seasonal helpline; claiming Child Benefit online now quicker and easier for new parents.

HMRC to trial seasonal Self Assessment helpline

HMRC has announced it’s piloting a new seasonal model for the Self Assessment (SA) helpline, to prioritise helping those with urgent queries.

For three months from 12 June, HMRC will trial directing SA queries from the helpline to the department’s digital services, including its online guidance, digital assistant and webchat. This will free up around 350 advisers to support customers online, take urgent calls on other lines, and answer customer correspondence.

The vast majority of SA customers already use our online services. 97% file online, and only one percent of HMRC customers are digitally excluded.

The helpline will re-open on 4 September this year, so in addition to the online support available, customers can call in the five months running up to the SA deadline on 31 January 2024.

Further information about the announcement can be found on GOV.UK.

SMS text messages continue to help customers find support online

In May, HMRC expanded its SMS text service, where callers are given a digital alternative to answer their queries rather than staying on the line.

It’s now added more topics to this service where customers calling helplines will be given the option to use a link sent via text message for a quicker answer or remain on the phone if preferred.

From 6 June, these topics will include:

HMRC will continue to automatically redirect routine queries where this SMS service is already in place and expects to add more common queries to the service over the coming months, to help customers find answers quickly and easily.

Check if a text message received from HMRC is genuine on GOV.UK.

Claiming Child Benefit is now quicker and easier online for new parents

The new online Child Benefit claims service means the majority of parents can now claim for a first or additional child at a time that suits them on GOV.UK and be paid quicker.

Parents can claim as much as £1,248 a year for their first child, which could add up to almost £20,000 by the time they’re 16. They could also receive nearly £827 a year for any other children they have.

By logging in to their Government Gateway account – or taking just a few minutes to set one up if using HMRC services for the first time – a straightforward online claim (for example a new baby under six months old and registered in the UK) could see their first payment made in as little as three working days, rather than waiting weeks previously.

HMRC knows how important this payment can be to families, so would really appreciate if you could share this information with your clients to support and encourage them to claim online.

Advertising Standards Authority have taken action against tax repayment agents

The Advertising Standards Authority has banned individual adverts from three tax repayment agents for various claims which included being unclear about fees when claiming a tax refund from HMRC, exaggerating the size of the refunds and failing to mention that clients were signing over rights to a cut of potential repayments from preceding years. The ASA determined these adverts must not appear again in the form complained of.

HMRC is reminding customers that they can claim tax refunds directly, ensuring they get 100% of any money due. Be cautious about promises of easy money – if it sounds too good to be true, it probably is. Please share this information with your clients to make them aware of this issue and direct them to the guidance on how to claim a tax refund on GOV.UK.

HMRC has recently introduced a range of new measures to improve transparency in the repayment agent market and to further protect customers, including requiring repayment agents to register with HMRC, new transparency requirements and removing the use of legally binding assignments. We urge anyone thinking of using a tax repayment agent to do their research and check the guidance on how to choose a tax agent on GOV.UK before committing to anything.

Helping customers spot tax avoidance and get help to leave schemes

HMRC is running a ‘Tax avoidance – don’t get caught out’ campaign to help contractors and agency workers spot the warning signs of tax avoidance, report suspicious companies and get support to leave tax avoidance schemes.

You can help reach workers by sharing campaign messages from the Tax Avoidance – don’t get caught out page on GOV.UK and by telling your clients about HMRC’s tools and guides.

The resources include published details of tax avoidance schemes and their promoters to steer clear of. Two contractors, Duncan and Tanya, have also shared their personal stories of tax avoidance to help other people learn from their mistakes.

How to define and identify apprenticeships

Posted by & filed under Bookkeepers, Members, Pensions and payroll.

Calculating the apprentice rate and when to implement it.

When is an apprentice an apprentice? How much should an apprentice be paid and for how long? How does the funding work and who finances it? Below is a brief outline of apprenticeships and how the funding is accessed.

Apprenticeships

An apprenticeship is where an individual (16 years or older, not in full-time education), learns a skill, gains experience and is paid by an employer. The apprenticeship can last between one and five years depending on the level of education the apprentice is studying. The individual gains on-the-job training while also spending at least 20% of their working hours completing a classroom-based course with a college, university or training provider which eventually leads to a nationally recognised qualification.

There must be signed apprenticeship agreements with the employer, apprentice, and training provider. If one or more of these is missing, then the individual does not qualify as an apprentice.

The apprentice must

  • work with experienced staff
  • learn specific skills
  • attend apprenticeship training during their working hours.

An apprentice must be paid either the Apprentice rate or the National Minimum Wage (NMW) depending on age and whether they are in the first year of the apprenticeship or not.

Rates and when to implement

The Apprentice rate is for the first year of the apprenticeship or for those under the age of 19.

Remember, all apprentices, aged 19 and above, who have completed their first year of apprenticeship, should be paid the relevant National Minimum Wage (NMW).

Category of worker1 April 2023 £
Apprentices <19 years, and Apprentices 19 years and above and in the first year of apprenticeship5.28
Workers 18 – 20 years
7.49
Workers 21 – 22 years10.18
Workers >23 years10.42
Accommodation offset
daily rate
weekly rate		 
9.10
63.70

Higher apprenticeships are exempt from the Apprentice rate.

Pitfalls on implementation of apprenticeships

There are several pitfalls to be aware of when paying the apprentice rate or NMW.

  1. Any deductions and payments for expenses or other types of costs connected with the job must not take the individual below the NMW or apprentice rate.
  2. When applying the accommodation offset rate: The accommodation rates (table above) must be considered when calculating the apprentice rate or NMW. This is the only benefit that can be included in the calculation. Note the following:

a. If the charge for accommodation is more than the above offset rate then the worker’s pay will be lower when completing the NMW calculation.

Accommodation is charged above the accommodation rate
An apprentice, aged 25, is paid £12 per hour for 35 hour week, which is above the NMW. The employer charges £9.50 per day for the accommodation. The apprentice lives in the accommodation permanently and is paid fortnightly (14 days).
(£12 x 35 x 2) = £840 – £133 (£9.50 x 14) + £127.40 (£9.10 x 14) = £834.40 ÷ 70 = £11.92
Still above the NMW but the hourly rate has decreased.

b. If the accommodation charge is lower than the accommodation offset then there will be no effect on the individual’s pay.

Accommodation is charged below the accommodation rate
An apprentice, aged 21, is paid £10.30 per hour for 35 hour week, which is above the NMW. The employer charges £5.60 per day for accommodation which is below the £9.10 threshold. No offset rate is applied.
The accommodation charge has no affect on the pay per hour.

c. If the accommodation is free, then the offset rate is added to the workers’ pay.

Accommodation is free
An apprentice, aged 22, is paid £8.60 per hour for 35 hour week, which is below the NMW. However, when the accommodation rate is added pay exceeds the NMW
(£8.60 x 35) + £63.70 = £364.70 ÷ 35 = £10.42

3. Then there is the decision on when to apply the appropriate rate.
a. Paying the apprentice rate when the individual is not an apprentice or before the individual starts the apprenticeship. This is an easy error to make (see above).
b. Not paying the individual for all their working time. For example, attending team meetings between shifts, complying with security checks at the start and finish of their working day.

All of these need to be checked to ensure compliance as the LPC do ‘name and shame’.

Apprenticeship Levy

The Apprenticeship Levy was brought into being in April 2017. It applies to employers with an annual pay bill of £3 million or more and the money is used to fund all apprenticeships. The Levy is calculated as

0.5% x Pay bill – Levy allowance (£15,000 pa)

and collected via the Employee Payment Summary (EPS). Though the funding of Apprenticeships are UK wide, how funding is accessed and how employers arrange apprenticeships are devolved.

Conclusion

Setting up apprenticeships and employing apprentices can enhance a business’s reputation, increase their profits and introduce new and fresh ideas. There are some pitfalls but these can be avoided with a bit of planning and forethought.

More investment in HMRC customer support is needed

Posted by & filed under HMRC updates, Making Tax Digital, Members.

We’re calling for more investment following concerns over the seasonal self-assessment helpline pilot.

HMRC has today (8 June 2023) announced it will pilot a new seasonal model for its self-assessment helpline from 12 June.

It will redirect self-assessment queries from the helpline to digital services, including online guidance, digital assistant and webchat, before the helpline reopens on 4 September. The intention is to free up the full-time equivalent of 350 advisers to focus on urgent queries on other lines and customer correspondence.

We’re concerned about the impact this will have on those without digital access. We also see this as part of the ongoing issues with HMRC funding: resource constraint on HMRC’s customer services was a major reason behind a letter which AAT and nine other professional accountancy bodies wrote to the Chancellor ahead of the Spring Budget in March 2023 urging the Government to prioritise investment in HMRC’s service levels.

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Responding to the announcement, Adam Harper, Director of Professional Standards and Policy, AAT, said:

“This pilot raises significant concerns about the impact it will have on taxpayers, particularly those who are digitally excluded or who cannot currently access the service they require via digital platforms. The need for such a pilot, in order to redirect staff elsewhere, highlights the much bigger challenge that HMRC faces in balancing competing priorities with a constrained budget. Ultimately, the Government must address the root problem that more investment is needed.

“AAT and other professional accountancy bodies remain concerned that HMRC does not currently have sufficient resources to improve its customer service levels. Although AAT is supportive of the digital agenda, we believe it can only be delivered successfully if HMRC is properly resourced for customer service, providing a strong foundation for effective tax administration. Today’s announcement therefore shows the increasingly pressing need for further investment to support HMRC and reverse declining service levels.”

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The Construction Industry Scheme is highly complex – here’s how to simplify it

Posted by & filed under Members, Tax, Tax reform.

Accountants suggest the most pressing improvements.

The Government is currently consulting on reforming the Construction Industry Scheme (CIS) to help simplify and improve the scheme’s aims and objectives.

The HMRC-enforced scheme applies to both contractors and subcontractors in the construction industry, and was set up in the 1970s to reduce tax evasion.

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Contractors are legally required to register with the CIS scheme prior to the start of any construction work, while registering is optional for subcontractors.

Under the scheme, contractors deduct tax from subcontractors and send this directly to HMRC. Thish counts as ‘advance payments’ towards income tax and/or National Insurance Contributions (NICs). Contractors must also provide a CIS statement – proof of deductions – to subcontractors, which details tax deducted from their earnings.

In some situations, subcontractors end up having too much tax deducted from their earnings over the course of a year and are therefore due a refund by HMRC.

It’s been nearly 50 years since the scheme was introduced and its scope is in need of updating and simplifying.

Proposals and suggestions in the consultation include:

  • Adding VAT to the compliance test.
  • Enabling HMRC to mandate a channel of application for GPS administrative easements eg, treatments of payments made by landlords to tenants.
  • Bringing forward the first annual review of compliance history.
  • Introducing a ‘CIS grouping arrangement’ for certain types of groups/entities which would allow a single nominated company within an entity to be responsible for submitting one monthly group CIS return on behalf of all companies in the group.

In addition, the consultation is also asking for suggestions for further simplification measures.

We asked accountants how they’d simplify the scheme and what improvements they’d like to see.

Return to basics to ensure the right businesses are targeted

Clare Bowen, Partner, Monahans

The rules around CIS are ridiculously complex, with a lot of uncertainty around who will or won’t fall within it.

In many cases it isn’t clear cut. Consider someone who has been involved in building an integral part of the building which falls under CIS, and then they need to get someone else in to complete another part of the job. This means they become both a contractor and a contractee for CIS. As a result, they will be having tax deducted, but also need to deduct other people’s tax and can end up getting stuck in this long chain.

Also, it’s relatively easy for an individual at the bottom of the chain who completes a day’s labour to claim 20% back on their tax return. But for a limited company to reclaim, they must claim it either as a credit through their PAYE scheme or apply for a refund from HMRC – which can take months. This long-drawn-out process can really impact businesses’ cash flow – many of which are businesses that the original scheme was not set up to capture.

I think CIS can be improved and simplified in the following ways:

  • Refocus on the people that HMRC is trying to capture within this scheme, rather than having businesses ‘falling’ into it by accident.
  • Provide clarity on who CIS does and doesn’t apply to. For instance, we have a few relatively large companies who, because their CIS income isn’t high enough, can’t apply for the gross payment status or, businesses whose cash flow is affected.
  • Simplify the rules and provide resources by creating flow charts around questions like: ‘Am I involved with something that is the fabric of the building?’ If yes, therefore I must fall under X.

To achieve this, HMRC must revisit the rules and go back to the basics of who they are trying to capture: who is most at risk of not paying tax? Then amending and tightening the rules.

Verdict: HMRC should revisit CIS rules and return to basics to ensure it’s targeting the right businesses and individuals.

Allow subcontractors to claim tax overpayments on a monthly basis and contractors to reverse-charge CIS

Tom Hamilton FMAAT, Director, Erdingsworth Business & Tax Advisors

The scheme is complicated for both contractors and subcontractors.

Subcontractors already registered for self-assessment are also required to inform HMRC if they are also registered as a CIS subcontractor in order for them to benefit from deducted 20% tax rather than 30% for non-CIS-registered subcontractors.

Subcontractors also have to wait to complete personal tax returns to potentially receive any refunds on tax overpayments.

Contractors have the pain of verifying all their subcontractors through the HMRC CIS system to make sure they are deducting the correct tax at source.

CIS suffered on the contractors’ sales is then processed and must be filed by the 19th of the month to ensure they will be repaid for any deducted CIS. This is a massive time constraint for businesses and also has negative implications on cash flow: these businesses have to pay CIS along with PAYE and in some cases, while waiting for CIS deductions to be repaid.

I’d improve CIS by potentially allowing subcontractors to claim any potential tax overpayment on a monthly basis to minimise impact on cash flow. Contractors could be allowed to reverse charge the CIS suffered on their invoice to the final user in the same way that VAT is reverse charged in the industry.

Verdict: CIS could be improved by allowing subcontractors to claim any tax overpayments on a monthly basis and enabling contractors to reverse charge CIS, reducing impact on cash flow.

Allow group registrations and halve turnover requirements

Sandy Cochrane, VAT Partner, Carter Backer Winter LLP

There are many factors that contribute to the complexity of CIS. Subcontractors can register online but main contractors are expected to telephone the helpline. For overseas clients, this can be difficult, especially where English is not their first language. We would suggest that all contractors have access to an online form followed by a conference call if required (attended by the client and their accountant).

The CIS guide for contractors and subcontractors (CIS340) is 85 pages long, 34 of which are appendices – this needs to be shortened considerably to reduce red tape.

Group registration should be introduced, using the same eligibility as for VAT to avoid different rules for entities to grapple with.

Also, deduction of tax at source for businesses not eligible for gross payment status raises serious cash flow issues. We suggest that the turnover requirement is halved to £15,000 for sole traders, £15,000 for each partner in a partnership or director in a company subject to a minimum of £50,000 for the whole partnership or company.

We also suggest streamlining the definitions of construction operations in section 74 of the Finance Act 2004 (and reproduced in Appendix B of CIS340) to provide clarity and make it easier for businesses to comply.

Verdict: Allowing group registrations, halving turnover requirements for sole traders, partnerships and companies and providing more clarity overall will help to improve CIS.

Reduce uncertainty with clearer, more definitive guidance

Andy Vessey, Head of Tax, Kingsbridge

The CIS scheme can be highly complex and lead to uncertainty. It’s an area of scrutiny by HMRC. For the less vigilant, there are several traps and pitfalls which can be costly, particularly if mistakes are deemed to be careless. The scheme applies to a wide range of construction work and deciding which construction operations fall within the definition can be complex, as a review of HMRC guidance CISR14330 will reveal.

I’d like to see clearer, more straightforward and definitive guidance with CIS reforms. I’d like clarity on what constitutes a construction operation, so it becomes absolutely apparent if anything falls outside of this guidance and will not be subject to the CIS scheme.

Verdict: Clearer, more straightforward and more definitive guidance around CIS is needed.

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