Existing compliance and controls processes struggle to add organisational value Posted 06/07/2023 by AAT Comment & filed under Automation, Run your business, Technology. FloQast’s survey suggests that companies are failing to properly protect themselves. Companies breaching compliance face serious reputational damage, not to mention the costs of paying any associated fines. Only this week, reports reveal that Microsoft has been ordered to pay $20 million for child privacy violations. This case, like many before it, highlights the impact to organisations that fail to meet compliance and regulation standards. A new study from FloQast, the fintech unicorn, shines a light on organisational attitudes to compliance. And, why most are failing to add value when it comes to their processes. What’s the research? Compliance and Controls: The State of the Industry is a market research survey done in conjunction with the University of Georgia Consumer Analytics program. It takes into account the perspectives and opinions of 213 accounting and finance professionals from the United States and 157 from the United Kingdom. It found that only 26% of participants believe their existing compliance and controls processes add significant value to their organisation. There’s significant room for improvement within compliance and controls management environments, and that reinvestment in compliance and controls programs may not only benefit and protect the company during challenging economic times, but also improve employee work-life balance. The study explores the root of this lack of confidence, offering key solutions to drive greater value within the organization. These include reinvestment in compliance and controls management strategy, reevaluation of team structure and adoption of technology. ”Accurate and agile compliance and controls management programs are essential for protecting companies and avoiding costly inefficiencies, especially during turbulent economic times,” says Mike Whitmire, co-founder and CEO of FloQast, CPA. Key findings Compliance and controls management professionals are experiencing inordinate levels of stress: The average professional rated their current compliance and financial control function a 69.9 out of 100 – about 70% benefit and 30% burden. More than half (56%) of participants indicated that current compliance or controls processes were adding stress to the work rather than removing it. Organisations are inefficiently staffing their compliance and control teams: Only 37% of professionals reported having sufficient headcount in place to manage compliance/financial controls processes. 35% of the survey participants had a clear understanding of how their work impacted their company. Today’s compliance and controls management professionals are just scratching the surface when it comes to delivering organizational value: While the average organisation spends about $2.4 million annually on compliance and control processes, only 26% of survey participants believe their existing compliance and controls management processes add significant value to their organisation. 93% of compliance and control professionals cite adherence to regulations, not a desire to add organisational value, as the motivation for their efforts. There’s a lack of strategy within existing compliance and controls programs: Only 37% of participants reported a current strategic initiative around compliance or controls management programs. Most initiatives cited were general efforts to understand compliance and controls processes, rather than those focused on how to optimise compliance and controls management for greater organisational strategy or agility. Technology is not properly being leveraged to drive organisational value: 70% of organisations would benefit from automating their compliance processes. Those that already have a strong technical foundation indicated they are seeing greater benefit from their adoption of new technology. Developing solutions to optimise compliance and controls: The study uncovered three key ways organisations can transform their compliance and controls management programs to not only decrease the burden but also increase value and improve strategy, efficiency, and employee wellbeing. One: Improve the strategic focus behind all compliance and controls activities. Teams should implement strategic process narratives in compliance and controls management programs in order to lay out processes in context, provide greater clarity around how they are functioning, what they seek to accomplish and boost organizational agility and efficiency, particularly from a cost standpoint. Two: Staff compliance and controls management to better reflect companies’ scale and needs. Companies must work to appropriately staff their teams with professionals who understand how to deliver strategic value through their work. Three: Perhaps most importantly – implement workflow automation to streamline processes and glean richer data insights. Workflow automation solutions are a key tool for supporting compliance teams by helping streamline activities, eliminating manual and tedious processes, improving cross-team visibility, empowering programs’ strategic focus and reducing the levels of burnout that employees might be experiencing. FloQast is a provider of accounting workflow automation software created by accountants for accountants, delivering an Accounting Operations Platform that enables organizations to operationalize accounting excellence.
You may know somebody entitled to Pension Credit Posted 06/07/2023 by AAT Comment & filed under Pensions and payroll. Make a difference for someone aged over 66 by telling them about Pension Credit. You may know someone who is eligible for Pension Credit – it could be your friend, family member or a neighbour. Too many people are still missing out but you can help by encouraging more pensioners to check their eligibility and claim. Despite common misconceptions, people can be entitled even if they own their own homes, have savings or receive a small occupational pension. Almost half of the people who currently receive Pension Credit own their own homes. What is it? Pension Credit gives people extra money if they’re over State Pension age (66) and on a low income. They may be eligible even if they own their home or have savings, and no matter how much Pension Credit they receive, they could also get: additional Cost of Living Payments help with heating costs help with rent and Council Tax a free TV licence (for those aged 75 or over) help with other costs such as NHS dental treatment, glasses and transport costs for hospital appointments What to do next It is easy to claim. People just need to make one simple, free phone call (0800 99 1234), claim online or fill out a paper claim form. To find out more or check someone’s eligibility, visit www.gov.uk/pension-credit and see what else you can do to support the campaign.
Countdown! – what to do in the final week before your synoptic Posted 06/07/2023 by The content team & filed under Students, Synoptics. Over the years, synoptic assessments have gained a reputation for their sizable tasks, content spanning multiple units, and detailed written questions pushing learners outside of their comfort zones. Here are some tips to help you prepare… Build up Draw your battle lines: A robust schedule often makes the difference between passing and failing – take time to draw out your planned revision, based on the areas you require reinforcement on, and consolidating areas of previous knowledge. Know your limit: When writing your plan, do not overstate the amount of time you realistically have to study, as this can create additional pressure and stress if you are falling behind a pace you realistically never could achieve anyway. Utilising resources: As part of your planning, reach out and grab the resources at your disposal, such as revision sessions or recorded videos. And always complete your mock assessments! Dealing with changes: When changes occur, do not elect to ignore them. Research the changes and reflect on how they may impact your plans, and ensure you discuss any uncertainties about them with your tutor or mentor. Remote invigilation for selected AAT assessments Assessments can be taken at any time and most are available for scheduling every day, allowing real flexibility when completing your AAT qualifications. Find out more The day before Find your cut-off: Provided you have stuck to your plan, find a suitable time to put the books down to digest your final revision session and unwind. Plan your trip: Make sure you have everything ready for your exam the day before you go (ID, train tickets, stationery etc). Avoid the scramble for your car keys and have all required items easily accessible. Get some sleep: This goes without saying, but a good night’s sleep is more important than a late night revision session – so get some rest! Exam day Avoid cramming: The temptation to squeeze in one more study session just before your exam is tempting, but provided you have set and stuck to your revision plan, this should offer little benefit. A last minute scramble often causes more harm than good. Keep your mind clear on the objective ahead. Roll with the punches: Things may go amiss in the exam, be it technological blips or a topic that has caught you off-guard. Do not panic! Take a moment to step back and recollect your thoughts. These are happenings beyond your control and allowing them to dominate your thoughts can make or break your exam. No regrets: Leave the room with no regrets. Take a moment to acknowledge the work you have put in to reach that point and do not leave the room thinking: “I should have done more of this or that”. Before you press the finish button, tell yourself: “I have given my best in this exam and in my preparation for it”. Further reading: How to avoid common exam mistakes There’s no better time to pass your Synoptic: Top tips for success 10 things to help you develop and recall your synoptic skills
Construction Industry Scheme reforms a welcome opportunity for simplification Posted 06/07/2023 by Adam Harper & filed under Members, Policy. HMRC believes adding VAT to the compliance test could help reduce abuse. A Government consultation into the Construction Industry Scheme (CIS) that governs the construction industry’s treatment by HMRC is now underway. The proposals for reform are comprehensive and welcome. At AAT, we believe the scheme is ripe for simplification. The main proposals centre around tightening up the regime around Gross Payment Status (GPS). The principal change will look at reforming legislation that currently allows only direct tax compliance to be taken into account when considering applications for, or removal of, GPS. The Revenue says it now feels that adding VAT to the compliance test would strengthen a regime that has been criticised as being overly complicated and consequently ripe for abuse. Stand for AAT Council We are searching for a diverse range of people from AAT’s membership to help us shape the future. Could that be you? Read more Reforms are overdue Ann White represents AAT at the Issues Overview Group, an HMRC forum, and is also a Member Representative on the Association’s Professional Regulation Standards and Compliance Board. In her view the consultation is a welcome step towards the simplification of CIS. “It’s overdue, because CIS is quite an antiquated system,” she says. Under the proposals outlined in the consultation the practice of granting either net or gross payment status (GPS) to a contractor of any kind when they registered for CIS would change, with HMRC considering introducing VAT into the compliance test. “I agree that it would be a good idea to do that,” Ann says. Tests require more rigour “That’s because if a contractor is non-compliant with VAT then they shouldn’t really have GPS. While they may not have other tax liabilities, VAT is important; particularly with the reverse charge coming in that puts the onus on contractors to pay the sub-contractors’ VAT as well; so if they’re non-compliant there they could end up with a significant liability.” In Ann’s view the VAT question is a loophole in need of closure. “You used to be able to get GPS status based on how long you’d been in business or your turnover which made it an easy process; and while introducing VAT into the mix might be complicated, it would help separate the good from the bad. “So GPS does need to be tightened up and that would be a good way to address that.” Moving towards a digital future As well as tightening up on GPS enforcement, the consultation also discusses ways to make CIS administration align with HMRC’s Making Tax Digital agenda. HMRC says it wants views on “Whether there are other areas of the CIS causing unnecessary administrative burdens. This includes further simplifications made either in terms of scope or administrative burdens, and where increased digitisation could be possible”. This question does reflect concerns that AAT has expressed before where tax simplification is taken simply to mean digitisation and not focus on the actual process or administration of tax. However, in this case Ann sees the positive side it can bring. “I think it is a sensible set of reforms so that once they’ve got the system in place they can then tweak the nuts and bolts to make it perfect, as they are trying to do with the rest of the tax system. And that might mean creating a one-stop shop for tax agents where we can use the digital system to apply on behalf of clients.” Empowering the profession Indeed this last point – empowering registered agents to share some of the compliance burden – is an area of interest where we would welcome further views. In common with many other practitioners, Ann believes the successful implementation of reform must include the profession, not only in a consultative capacity, but also in the rollout of any changes. “I think it’s reasonable that when you’re supervised by a professional body and you have an agent code – as many of us have – perhaps you could have status and responsibility for completing applications and security checks. We already do the AML check so it would make both our and HMRC’s jobs easier. Then, if the revenue saw something they were concerned about, they could trigger an inquiry. On this, and other points, we need your input. We believe these consultations are most successful when they include engagement and insight from across the spectrum of stakeholders. As such I would urge any of our members with a view on these issues to get in touch with Jack Withrington in order to have your views represented. Stand for AAT Council We are searching for a diverse range of people from AAT’s membership to help us shape the future. Could that be you? Read more
Corporation tax increases causing investment hesitancy Posted 05/31/2023 by Annie Makoff & filed under Members, Tax. A large number of UK SMEs are choosing to postpone investment plans to help mitigate the impact of tax rises – but is it necessary? Corporation tax increased from 19 to 25% at the start of the fiscal year. This follows delays to increases between March 2020 and 2022 as part of a wider package of measures to help businesses during the Covid-19 pandemic. The 2023 increase was first announced in March 2021, giving businesses two years to prepare. But research by BDO found that the rise in corporation tax will force just under half (46%) of businesses with a turnover of between £10-£300 million to pause investment plans. An additional 39% said it would negatively impact recruitment and could also result in job losses. However, UK businesses can now benefit from new expensing provisions which came into force at the start of the new tax year, for companies investing in plants and machinery such as: 100% full expensing, allowing companies to deduct 100% of the cost of eligible plant and machinery investments from pre-tax profits, available until 31 March 2026. 50% First Year Allowance (FYA), which allows companies to claim a 50% tax deduction on eligible plant and machinery assets that have been bought in the same year. In addition, the Annual Investment Allowance (AIA) has been permanently increased to £1 million, which is expected to meet the investment needs of 99% of UK businesses, according to official Government estimates. There’s also the introduction of 75% business rates relief for retail, hospitality and leisure businesses. But are these measures enough to counteract the potential impact of corporation tax increases? And how concerned are businesses about these increases? It’s a good time to invest thanks to rate increase, AIA and additional expenses provision Nigel May, Tax Partner at Gravita The increase in corporation tax was a long time coming. In addition, the greatest complaint we’re hearing – aside from the increase itself – is simply how small the relief from the increase is for small businesses. The 19% corporation tax rate is only being preserved for companies with profits up to £50,000, with the average rate reaching 25% when profits reach only £250,000. However, the combination of the rate increase and the annual investment allowance alongside the 2023 budget full expensing provisions, actually makes it a good time for investment to build your business, at least from a tax cash flow viewpoint. It’s obviously important for businesses to understand the tax relief they will gain from the investments they plan to make and to understand the projected returns on those investments, particularly as the tax burden is increasing. In times like this, businesses need clear and proper projections, cash flow forecasting and budgeting. These are all extremely important and can be much more daunting for smaller companies, particularly when there may well be only a very limited internal accounting function. This is where the role of accounting firms comes into play to ensure that businesses aren’t surprised by tax liabilities. Verdict: The combination of the corporation tax rise and AIA alongside the full expenses provision actually makes it a good time to invest. Tax increases will lead to reduced investment Bev Flanagan MAAT, Director, Bev Flanagan Financial The corporation tax rise will have a significant impact on businesses, particularly those with large profits. It’s likely to reduce the amount of money businesses have available to invest, make it more difficult for businesses to raise finance as investors are more likely to invest in businesses subject to lower tax rates and could also hinder business growth. Ultimately, it could lead to more businesses moving operations to other countries with lower corporation tax rates. Other potential impacts may include: • Reduced investment: businesses may have less money to invest in new products, services, and infrastructure. • Higher costs: businesses may have to pass on the cost of the higher corporation tax rates to their customers, leading to a decline in demand. • Reduced profits: businesses may see their profits decline as a result of the higher corporation tax rates. • Job losses: businesses may be forced to lay off workers in order to save money. While the Government argue corporation tax rises are necessary to fund public services, businesses say the rise will damage the economy and lead to job losses. Verdict: Corporation tax increases could lead to reduced profits, increased business costs and ultimately reduced investment. Corporation tax combines badly with instability and inflation Nick Blundell, Partner, Moore Kingston Smith Many businesses we’ve spoken to are concerned about the corporation tax increase – it hasn’t been as high as 25% for more than 10 years. However, it’s not the corporation tax rise by itself which is making companies nervous – it’s a series of events in combination. Brexit, political instability, high inflation, questions over the economy have all impacted firms’ willingness to invest. The impact of the corporation tax rise depends on business size and profit margins. For big, capital-intensive businesses, the rise is likely to have a bigger impact, particularly if a lot of money is spent on fixed assets, R&D or even both. Yet for these companies, tax deductions can be used which will massively reduce the 25% rate. It’s therefore primarily an issue for those in the middle. SMEs, including service companies, that don’t already spend money on fixed assets or R&D will be hit hard as there will be nothing to offset corporation tax against. But the reality is that the UK tax regime remains pretty competitive in comparison to many countries and that is what the Government is gambling on. While corporation tax has increased, it’s not high enough (yet) to become uncompetitive on a global level. We’ve been providing support for owner-managed SMEs and doing a lot of modelling around salaries and Corporation tax and what’s the best way to receive earnings. When it comes to modelling investments, there’s still decent tax incentives for those wanting to invest. Verdict: It’s not corporation tax by itself which is causing concern, but tax rises in combination with Brexit, political instability, high inflation in combination. Higher corporation tax will achieve the opposite of what the Government wants Toby Ryland, Corporate Tax Partner, HW Fisher The increase in corporation tax rates was very disappointing, even if not entirely unexpected. Fortunately – and despite the brief U-turn under the Truss administration – the increase in the rate had been announced well in advance, which enabled companies to include it in their cash flow forecasts. We note that comments from inward investors looking to invest in the UK have been critical – many have expressed surprise that the UK has eroded the competitive advantage that a low corporation tax rate offered. When coupled with the effects of inflation and rising wages, the increased tax burden has clearly had an impact on the availability of funds for investment. Companies are consequently being far more targeted in their spending and are critically reviewing expenditure before committing. We have been increasingly involved in financial modelling to assist clients with tailoring their investment plans and to ensure that the companies retain sufficient working capital to support the business. This means that decisions on capital expenditure are often being deferred to later years unless absolutely essential. Whilst the new rules on expensing capital expenditure are welcome, they are not sufficient on their own to prompt companies to accelerate spending. It will take some time to adjust to the higher corporation tax burden and this will inevitably have an impact on capital investment – which is precisely the opposite of what the Government has stated it wants to encourage. Verdict: Modelling higher corporation tax for clients is leading them to defer investment – precisely the opposite of what the Government wants.
Basis period reform: what you and your clients need to know Posted 05/31/2023 by Xero & filed under Tax. This content is brought to you by Xero. HMRC is changing the income tax basis period. From April 2024, sole traders and partnerships will need to use the tax year instead of their accounting year as their basis period. For accountants and bookkeepers, this will likely mean an increase in workload. Especially during the transitional year. In this short guide, we go over the timeline for basis period reform and explain what the new rules will mean for your practice and clients. Basis period reform 101 Basis period reform is a measure that brings the basis period for income tax in line with the tax year. Instead of reporting profits from a client’s accounting year on their income tax return, you’ll report the profits generated during the tax year. The new rules will impact sole traders and partnerships, specifically those who don’t use the tax year as their accounting period. Note: HMRC accepts 31 March – 5 April accounting dates as tax year aligned. Basis period reform timeline The new rules will come into place over two years. The 2023/24 tax year is a transitional periodClients with a year-end that doesn’t match up to the tax year will have a longer basis period for the 2023/24 tax year. As their accountant or bookkeeper, you’ll need to apportion profits from their two accounting periods that fall within the tax year to file their income tax return. The 2024/25 tax year is when the measure comes into full effectYou’ll need to use the tax year basis for all sole trader and partnership clients. Some clients might choose to align their accounting date with the tax year to simplify things. For clients that don’t want to move their accounting date, you’ll need to continue apportioning profits from both accounting periods that fall within the tax year. Let’s contextualise this with an example: Your client, Maria, has a 31 December year-end. For Maria’s 2023/24 tax return, you will need to report profits from her accounting period, plus the transitional period up to the end of the 2023/24 tax year. So that’s 1 January 2023 – 31 December 2023 (Maria’s accounting year) plus 1 January 2024 – 31 March 2024 (the transitional part). If you’ve already done the maths, you’ll know this is a 15-month basis period for Maria’s 2023/24 tax return. Tax bills for clients that don’t already use the tax year basis period are likely to be higher than usual. Naturally, some of your clients might be concerned about cash flow during this time. You can reassure them that HMRC is allowing taxpayers to spread overlap profits over five years, to ease the burden on businesses. Overlap relief Many sole traders and partnerships are double-taxed during the early years of business. As a result, they could be entitled to overlap relief – which you can claim on their behalf during the transitional year. But finding these figures has proven to be a challenge. If clients submitted paper returns or started their business before the modern self-assessment system, those additional tax amounts could be hard to trace. Fortunately, HMRC is developing an online form you can use to request clients’ overlap profit figures directly. And once the new rules are in place, overlap relief claims will be a thing of the past. The impact of basis period reform for your practice and clients Practices can expect an increase in workload as basis period reform comes into place. There’s also a chance that the legislation will complicate some financial matters for a handful of clients, too. For example, if you have clients who choose to keep their accounting date, you might need to produce two sets of accounts for them. One for their internal reporting, and another for their HMRC tax reporting. Also, if your client has an accounting date that falls later in the year, finalising their accounts ahead of the submission deadline might not be possible. HMRC has confirmed that you will be able to provide provisional figures if this is the case, and finalise estimates on the following tax return. Which effectively means doing two tax returns per client, per year. Note that pension planning will also be more complex for these clients. If you provide provisional figures on their returns, then the finalised figures won’t be known until the next tax return is due. This means clients could have less clarity over the pension contributions. Continuing to apportion profits and provide provisional figures will place a higher demand on your resources. Having cloud-based accounting software in place to automate day-to-day bank reconciliation and reduce manual data inputting will increase efficiencies and give you more time to focus on your clients. How to prepare your practice and clients for basis period reform With basis period reform and the first stage of MTD for ITSA coming into place at a similar time, accountants and bookkeepers could be juggling estimated figures and migrating clients to MTD software all at once. Here are a few steps you can take to prepare for the tax year basis: 1. Get your practice up to speed Make sure your team feels confident talking about basis period reform with clients. Identify which clients will be affected by the measure, so you can figure out who needs support. As a reminder: sole traders and partnerships that already align their accounting with the tax year won’t be affected. 2. Provide targeted support Start having conversations with clients today about basis period reform. Every client’s basis period for the transitional year could be different, depending on their accounting year end. Tailoring your support to individual clients will be the best approach, so take things on a case-by-case basis. Clients might also have industry-specific questions. For example, farming or creative artist clients will want to know if basis period reform affects averaging rules. 3. Reassure your clients A longer basis period for the transitional year might be worrying for your clients. Reassure them that they can spread this bill over five years and keep cash flow on track. Make sure they know this is a one-off transitional period, and they’ll only need to include 12 months of tax year profits on their returns going forward. It’s estimated that only 7% of sole traders will be affected by basis period reform – though 33% of partnerships and LLPs will feel the impact. Make sure your clients know they don’t have to change their accounting date if there’s a genuine commercial reason for them having a different year-end. HMRC will reach out to clients who have a non-tax year accounting date. But don’t wait until your clients are contacted – start preparing them for basis period reform today. This content is brought to you by Xero.
HMRC issues scam warning to tax credits customers Posted 05/30/2023 by AAT Comment & filed under Anti-money laundering, HMRC updates. Accountants can help by spreading the word on various scam strategies, and how to report them. HMRC warns tax claimants should be on their guard against fraudsters, detailing the latest tactics being employed by scammers. Criminals use deadlines – like the tax credits renewal deadline on 31 July – to target their victims and the department is warning around 1.5 million tax credits customers to be alert to scams that mimic government communications to make them appear genuine. How to report suspicious activity Typical scam examples include emails or texts claiming an individual’s details aren’t up to date and that they risk losing out on payments that are due to them emails or texts claiming that a direct debit payment hasn’t ‘gone through’ phone calls threatening arrest if people don’t immediately pay fake tax owed claims that the victim’s national insurance number has been used in fraud emails or texts offering spurious tax rebates or bogus grants or support Tax scams come in many forms and we’re urging customers to be alert to the tactics used by fraudsters and never to let yourselves be rushed. If someone contacts you saying they’re from HMRC and asks you to give personal information or urgently transfer money, be on your guard. Search ‘HMRC scams’ advice on GOV.UK to find out how to report scams and help us fight these crimes. Myrtle Lloyd, HMRC’s Director General for Customer Services Scam messages can be convincing, and individuals may be pressured into making rushed decisions. HMRC will never ring anyone out of the blue making threats or asking them to transfer money. According to the National Cyber Security Centre, HMRC was the third-most spoofed Government body in 2022, behind the NHS and TV Licensing. HMRC is also urging tax credits customers to be alert to misleading websites or adverts asking them to pay for government services which are free, often by charging for a connection to HMRC helplines. HMRC is also warning people not to share their HMRC login details with anyone else. Someone using these could steal from the account owner or make a fraudulent claim in their name and leave customers having to pay back the full value of any fraudulent repayment claim made on their behalf. HMRC’s advice Protect criminals are cunning – protect your information take a moment to think before parting with your money or information use strong and different passwords on all your accounts so criminals are less able to target you Recognise if a phone call, text or email is suspicious or unexpected, don’t give out private information or reply, and don’t download attachments or click on links check on GOV.UK that the contact is genuinely from HMRC do not trust caller ID on phones. Numbers can be spoofed Report if you’re unsure about a text claiming to be from HMRC forward it to 60599, or an email to [email protected]. Report a tax scam phone call on GOV.UK contact your bank immediately if you’ve had money stolen, and report it to Action Fraud in Scotland, contact the police on 101 by reporting phishing emails, you help stop criminal activity and prevent other people falling victim Tax credits and other help HMRC is currently sending out tax credits renewal packs to customers and is reminding anyone who has not received theirs to wait until after 15 June before contacting HMRC. Customers can renew their tax credits for free via GOV.UK or the HMRC app. Help and support is available on GOV.UK to help renew tax credits claim. HMRC has a video explaining how tax credits customers can use the HMRC app to view, manage and update their details. How do I use the HMRC app to manage my tax credits? By the end of 2024, tax credits will be replaced by Universal Credit. Customers who receive tax credits will receive a letter from the Department for Work and Pensions (DWP) telling them when to claim Universal Credit. It is important that customers claim by the deadline shown in the letter to continue receiving financial support as their tax credits will end even if they decide not to claim Universal Credit. The Government is offering Help for Households. Check GOV.UK to find out what cost of living support individuals could be eligible for.
Is omitting small business from ‘failure to prevent fraud’ legislation a cause for concern? Posted 05/25/2023 by Annie Makoff & filed under Anti-money laundering, Members. Dealing with SMEs could soon come with higher risk of fraud as criminals may target exempt businesses. New anti-fraud legislation known as the ‘failure to prevent fraud’ offence is due to become law, but it will not apply to small businesses. The new offence rules, which form part of the economic crime and corporate transparency bill, are intended to crack down hard on fraud in large firms while removing the burden on small businesses. Small businesses will still remain accountable to existing anti-fraud laws such as the ‘failure to prevent bribery’ law and tax evasion offences. The large organisations and businesses in scope of the legislation will include corporate bodies, partnerships and not-for-profit organisations that employ more than 250 employees, have more than £36 million turnover and have more than £18 million in total assets. Stand for AAT Council We are searching for a diverse range of people from AAT’s membership to help us shape the future. Could that be you? Read more The proposed legislation aims to: Make it easier to prosecute fraud committed by an employee for the benefit of the business. (For example, dishonest sales practices, false accounting or purposely hiding important and/or relevant information from customers, clients or investors.) Hold companies to account, particularly those that do not have reasonable fraud prevention policies in place. There will be no requirement to prove company bosses knew about or encouraged fraud. Inevitably, there are concerns around the exemption of small businesses: One MP warned exempting small businesses could make it easier to “circumnavigate the law” while campaign group Spotlight said it sent the “wrong message” that fraud was not prevalent in SMEs. So what do accountants think? What impact might this have on the businesses and HMRC’s fraud targets? The initiative could lead to organised crime groups running small, fraudulent businesses Simon Smith, Partner, Wellers At the moment, the details of the changes are still very vague so it’s difficult to understand the full complexities and extent of the legislation. The definition of small entities will be key. If the Government aligns its definition with Companies House, we are actually talking about companies with a turnover of up to £12 million, which isn’t that small. For genuine small businesses, changes to the anti-fraud legislation would lessen the burden of red tape, which would be welcomed, especially as small business owners are already crushed by lots of bureaucracy which takes away from the day-to-day running of their business. The initiative could however be exploited by fraudulent businesses such as modern organised crime. Whilst these tend to be large businesses, they could break up their entities into multiple smaller ones to get around HMRC’s anti-fraud red tape and go unprosecuted for longer. This would cause a separate issue for HMRC in the long term. Accountants have a responsibility and duty to report to the authorities anything that looks untoward in a client’s accounts. I am Wellers’ Money Laundering Officer so anything that doesn’t look right is reported to me. We have strict onboarding processes in place, part of which includes a risk assessment, to weed out any fraudulent activity by potential clients. This is particularly important for businesses that deal with higher amounts of cash than most, such as those in the hospitality industry. Verdict: The initiative could cause issues for HMRC in the long run as it could easily be exploited by organised crime groups running fraudulent businesses to avoid HMRC’s anti-fraud red tape. Working with small companies will come with an increased risk of fraud Mark Strafford, Head of Civil Forensic Accounting, Sedulo Omitting small companies from the legislation may send out the message that relevant authorities no longer consider small companies worthy of pursuing, possibly making the UK a more attractive proposition for those seeking to commit fraudulent activity. We have first-hand experience of the use of smaller companies in an intermediary capacity to facilitate fraudulent transactions in the context of multi-million pound frauds. It is reasonable to assume that the added layer of privacy for a smaller company was a factor in making this possible. Even in the case of large fraud matters, action from a criminal perspective frequently appears to lag significantly behind the time taken to investigate and act from a civil perspective. Excluding smaller companies from aspects of anti-fraud legislation is unlikely to improve the current position for smaller companies and would likely have the opposite effect. Given that small businesses will likely be exempt under the new legislation, it’s reasonable to assume there will be an increased level of risk when working with small companies. Verdict: Excluding small companies from legislation could encourage fraudsters to use such companies in an intermediary capacity. Therefore, dealing with small businesses could soon come with increased risk. Exempting small businesses won’t be an issue: processes elsewhere are tightening up for all businesses Jessica Middleton, Founder, Middleton Professional Accounting Services (MPAS) Exempting small businesses from anti-fraud legislation isn’t much of a concern. It’s much harder to deny knowledge in a small business compared to large businesses with many levels, managers and employees. Larger businesses often have the manpower to deal with the additional administrative procedures fraud may involve, whereas oftentimes, small business owners are juggling multiple responsibilities and wearing many different business hats. However, it does then fall to the SME to ensure they have water-tight procedures in place. Businesses that already have to do due diligence checks for anti-money laundering purposes, whether small or large, will face reforms to tighten the processes, from assessing to reporting to the NCA. Businesses will soon be required to file Profit & Loss accounts with Companies House, instead of SMEs filing a simplified balance sheet. Companies House will also have more querying power and will require directors to verify their identity and overseas companies will not be able to set up UK companies. Whilst this particular legislation may exclude SMEs on the wider scale of dealing with economic crimes and fraudulent accounting practices, the processes are tightening up, which is great. It puts investors, creditors, and consumers at ease and works to prevent fraud of any size from occurring. Verdict: Exempting small businesses won’t be an issue because processes elsewhere are tightening up as part of the wider anti-fraud drive. Excluding small businesses from anti-fraud legislation will come as a relief to business owners William Abell, Director, Transaction Services, Gerald Edelman The exclusion of SMEs from the new UK ‘failure to prevent’ fraud corporate criminal offence will come as a welcome relief to owners and managers of SMEs. They will not have to worry that their businesses could be criminally prosecuted (with the potential for an unlimited fine if convicted) for failing to prevent misconduct by an associated party (eg, employee or contractor), even if they were unaware of the misconduct. The exclusion also provides an administrative benefit to SMEs, as their documentation and record-keeping in respect of their compliance procedures will be less critical. That said, it is essential for all UK companies, regardless of size, to design and maintain appropriate compliance procedures to ensure that fraud and misconduct are prevented, given the financial and reputational damage they can cause. There’s also the potential for the SME exclusion from the new criminal offence to be removed in the future, which provides an incentive for SME owners/managers to ensure that their compliance procedures (including the related documentation and record keeping) are of appropriate quality now. Had the scope of the criminal offence been extended to include SMEs, it would have placed an additional cost (both in terms of time and money) on UK SMEs, decreasing the attractiveness of running an SME in the UK. Verdict: Excluding small businesses from legislation will come as a relief, but it will be essential for these companies to design and maintain appropriate compliance procedures to ensure fraud and misconduct is prevented. This legislation will protect smaller businesses targeted by other companies Miles Brooks, certified Public Accountant and Director of Tax Strategy, CoinLedger Small businesses are excluded from the legislation to lessen the challenges facing them and to support economic growth. Small businesses have long been victims of fraud perpetrated by other, larger corporations. Therefore, this move will actually protect small businesses best. Small businesses lose hundreds of thousands of euros yearly, and this anti-crime policy will protect them, encouraging them to grow, thus increasing their revenues and expanding the businesses, which translates into more job opportunities and better income for the government. In terms of future advice, companies might spend more reassessing potential fraud risks to know what needs to be revised. They might also incur more costs on training, seeking tailored training, and getting effective fraud audit/monitoring processes. They might also need more frequent systems and control reviews to remain compliant with the laws. Verdict: Smaller businesses are often victims of fraud perpetuated by larger companies, so this legislation will provide more protection. Stand for AAT Council We are searching for a diverse range of people from AAT’s membership to help us shape the future. Could that be you? Read more
Exports are Zero-rated for VAT aren’t they? Posted 05/25/2023 by Gill Myers & filed under Students. I was with a client the other day who’s just started trading internationally. His business manufactures and instals award winning greenhouses. “Exports are zero-rated for VAT aren’t they?” he said at one point. I opened my mouth to yes but then hesitated as the answer is actually a bit more complicated than a straight yes or no. He groaned but the honest answer is that it depends on what is being exported and to who, because those two factors determine where the location of the supply is deemed to be, and that governs whether VAT is chargeable and if so, at what rate. “That all sounds like it’s going to make my head hurt and I guess importing isn’t straightforward either” he said. So we grabbed a brew and went through it step by step. Place of supply The first thing to establish is whether the place of supply is in the UK or abroad. When goods are imported or exported the answer is easy; it is the county from which they are dispatched. However when the supply is a service, then its place of supply is determined by who receives it. If the service is supplied to another business, making it a business-to-business (B2B) transaction, then the county in which the customer is located is the place of supply. When services are provided to non-business customers (B2C) then the place of supply is the supplier’s country. Understanding the place of supply makes it easier to understand when UK VAT is chargeable. Exporting (selling overseas) Let’s think about exporting goods first. We know that the place of supply is the country of dispatch. So UK based VAT registered businesses will need to charge UK VAT on any goods they export. And just to keep it simple, VAT on any exported goods is charged at zero rate, regardless of the rate that would apply to sales made in the UK, like for example, on greenhouses. Now let’s consider exporting services to non-business customers. The place of supply is the country where the supplier is based, so again as that’s the UK, it means that UK VAT is chargeable. The rate however, now depends on the supply as it is charged at the rate for equivalent services in the UK. So, for example, as installing a greenhouse for a customer in the UK is a VATable service charged at the standard rate, this is the VAT rate that would be charged to a non-business customer abroad. Finally, there are the overseas business customers who buy services, for example, maintenance and repairs. As these are B2B transactions the country in which the customer is located is the place of supply. As that is not the UK, then no UK VAT is chargeable. However, we should check with the tax authority in that country, as for some supplies you may need to register and account for VAT in the country of supply. Importing (purchasing from overseas) The place of supply isn’t as important in relation to VAT on imported goods and services but the rules can still be a little confusing. Again, let’s start with importing goods. For example, imports of aluminium for greenhouse frames. VAT is chargeable as if the goods had been bought in the UK. So that’s easy enough. The issue here is how the VAT is paid and reclaimed. There are two options: VAT can be paid at the point of entry into the UK, for example at the airport or docks. It is then reclaimed, like any other input tax, via the VAT return. or Postponed accounting is used, which accounts for the value of the VAT due and the amount to be reclaimed on the same VAT return, meaning that no VAT is actually paid. The end result of both methods is exactly the same; which is that there is no change in the overall net VAT position. The difference is to do with cashflow and timings. In the first option, the VAT is paid and then there is a delay before it can be reclaimed but in the second, no cash actually leaves the bank account to pay for the VAT element of the purchase. Using postponed accounting has the added advantage of avoiding goods being held in customs until VAT is paid. Finally, let’s deal with imported services. To be VATable they will always be B2B transactions. If services are provided by individuals who are not VAT registered then, just as in the UK, they won’t change any VAT so there won’t be any to reclaim. The same rule applies in terms of the place of supply as it does to B2B exports, which is that the county in which the customer is located is the place of supply. In other words, the UK, which means that UK VAT is chargeable. Again, it is not so much whether VAT is chargeable or not that is confusing but how it is accounted for. In this case, the supplier will need to provide its VAT registration number and reverse charges will apply. As the supplier is located, and registered for VAT, abroad, they cannot charge UK VAT. Instead it is the customer’s responsibility to self-assess the VAT, in effect charging themselves the VAT and then claim it back. In practice, this is the same as postponed accounting. Summary for UK based VAT registered businesses:
AAT’s Lifelong learning portal: the interactive resource to help you get ahead Posted 05/25/2023 by The content team & filed under Students. AAT’s Lifelong Learning Portal is home to a multitude of study support resources for students to use to supplement the material they are supplied by their training providers. It is free to access for all AAT student members. The Lifelong Learning Portal offers an interactive learning experience, where you can manage key resources, schedule learning to suit your personal study plans, and track and evaluate your learning progress. Lifelong Learning Portal: An interactive resource hub The study support resources available include practice assessments, and AAT qualification outlines and specifications (login to view) Access the Lifelong Learning Portal What resources are available in the portal? E-learning modules Drill down into some key topic areas, with a blend of easy-to-understand facts, interactions, and questions. The real-life scenarios contained in the e-learning modules will help bring together elements of what you’ve learned in each unit and tackle problems in an imagined workplace. Foundation e-learning modules Advanced e-learning modules Professional e-learning modules Videos The study support videos are a fantastic way to review a key skill in 5 minutes or less. The videos are presented for AAT students, by AAT students – featuring students speaking in their own words about particular topics or areas of study, using helpful animations to illustrate key learning points. Podcasts The podcasts feature interviews with experts in various fields, delving deeper into key areas that students have historically struggled with. Other topics discussed include study and revision skills, writing skills, dealing with exam pressure and exam management techniques. Green Light tests These question sets cover key areas within each unit. A traffic light system is used to highlight which areas in a unit you need to put more work into – scoring you red, amber or green based on your performance. Foundation green light tests Advanced green light tests Professional green light tests How do I use the portal? When you log on for the first time, you will see a series of welcome videos that will help you navigate the portal. These are great to help you get started. The dashboard will vary by student, depending on what you are studying. So you will see streams of content that are relevant to your studies. You will see your recent activity on the dashboard the next time you log in to the portal, so you can easily pick up where you left off. You can create a study plan and add particular activities to your plan. You can also add due dates so you don’t overlook your activities. The portal will reorder the activities automatically for you to help with your study planning. Another great feature is the ability to search for a keyword or phrase across all of the resources in the portal, so you can easily find help with a particular topic, for example, “ethics”. To help with your studies, you can create a goal, for example, to improve your writing or communication skills. Then you can add a series of activities that will help you achieve your goal, for example, read an article or listen to a podcast. You can also pull in articles from different online resources and add links so you can access these easily. Once you have achieved your goal, archive it so you have space to add new ones. Lifelong Learning Portal: An interactive resource hub The study support resources available include practice assessments, and AAT qualification outlines and specifications (login to view) Access the Lifelong Learning Portal Further reading: Lifelong Learning Portal: How to add a due date Lifelong Learning Portal: How to add a reflection to a completed unit 5 tips for successful independent study