Kick-start your Accounting career by studying AAT online

Posted by & filed under Students.

This content is brought to you by Training Link

If you want to gain an AAT qualification but are worried about how to balance your studies with work and family commitments, studying online with Training Link is the right option.

Training Link is a specialist Accounting & Bookkeeping distance learning provider.

It’s all we do.

And this means we have a laser-like focus on this subject and we relentlessly seek out ways to improve what we can offer you.

That’s why we’ve won over 20 awards for academic excellence. It’s why our pass rates smash the AAT worldwide averages. And it’s why we’ve helped thousands of people change their careers.

Study at your own pace – whenever and wherever you want

The key benefit of studying AAT with Training Link is that you are in charge.

If you want to fast-track your studies – you can. If you want to take your time – that’s OK too.

It’s ideal if you’re balancing a full-time job or a busy family life. The flexibility means you don’t even need to stick to the same schedule week in and week out (perfect if you don’t have a fixed working pattern).

Everything you REALLY need to succeed is included

We want to help you kick-start your Accounting career. And our course packages are designed to help you do exactly that.

We don’t include unnecessary ‘free’ gadgets or shiny new technology. We only include things in our course package that are designed to teach you Accounting and get you through the exams.

Included in Training Link’s AAT courses

✔Training Link’s printed AAT study manuals contains: lessons, examples, activities and assessments
✔Videos – on-demand tutorials and explainers
✔Online resources to help fast-track your studies
✔Award-winning Tutor support by e-mail and phone
✔Exam preparation including our own mock exams
✔Student services department – 7-days a week
✔Talk with tutors and students on Student Street

The study manuals are our own. Our tutors continually create extra study resources. Our online systems were designed specifically to deliver accounting qualifications. And we have enough tutors to make sure you don’t wait long for a reply.

In short, we include everything you really need for successful AAT studies.

No gimmicks. Just Exceptional AAT pass rates

You may be tempted to compare providers on the basis of ‘what’s included.’ But as features get piled high it can quickly distract from the one vital question that you should ask any distance learning provider…

“What are your pass rates?”

This question trumps any argument about features, freebies, and gadgets. Because the answer is about results – the ultimate evidence of real people, achieving qualifications and boosting their careers. And isn’t that what you’re looking to do?

To add extra context, you should also ask: “How many assessments were taken?”

After all, what good would a 100% pass rate be if only a single student had taken an assessment?

Here are the most recently published Training Link pass rates and our assessment numbers.

Course LevelWorldwide AverageTraining Link+/- worldwide averageAssessment Numbers
AAT Level 2 Accounting81.3%93.2%⬆️ +14.6%1231
AAT Level 3 Accounting73.8%92.3%⬆️ +25%744
AAT Level 4 Accounting65.2%91%⬆️ +39.5%167

The pass rates shown are for all AQ2016 assessments completed between 1 July 2021 and 30 June 2022.

The most vital element of a Training Link AAT course

This is the most vital part of any AAT distance learning course package… but it’s not deemed exciting so providers rarely talk about it.

These days, we’re all drowning in content. Podcasts, apps, videos, live streaming. But while it can be tempting to talk about the flashier parts of a course, I want to focus on one basic but utterly essential element.

But first, I have a question…

What if I said that we’d created a study resource relied upon by thousands of successful AAT students?

You can use it anywhere. You don’t need an Internet connection. And it makes zero difference whether you’re running Windows or Mac OS, or use Android or iPhone. And best yet, it leads to pass rates much higher than AAT’s worldwide average.

Do you know what it is?

Our study manuals.

Simple. Basic. And far more essential to successful studies than any shiny new piece of technology.

You’ll spend the majority of your studies working through our study manuals. Perhaps reading them at the kitchen table on a morning before you go to work, or scribbling notes in the margins after dinner.

A top-quality study manual remains the essential ingredient of a distance learning course. But not every distance learning provider writes their own study manuals.

In fact, it’s perfectly possible to buy or licence individual elements from a multitude of different suppliers and package that together as a ‘course’.

But that’s not what we do.

All of our study materials are produced by us. And we can sum up our reasoning in one word…

Control.

We have total control over all of our study materials and this means we can change them, tweak them, and improve them. Every time we get an exam result, we try to work out which area seemed to cause difficulty for a student. We look again at the material- does the topic need extra examples, videos, or additional tests – or does the study manual itself need to be revised?

Because everything can be improved. It would be extreme hubris to say otherwise.

But if you don’t create your own study materials, then all you can do is tinker at the very edges of the study experience. And for us, that just won’t do.

Crafted by award-winning educational writers

Each element of a Training Link AAT course is carefully crafted by our team of award-winning educational writers and tutors.

The most important element of our course pack is our study manuals (which you will not find anywhere else). And the writing process is a rigorous one.

The writing and proofing go through several cycles until our Head of Education is, finally, satisfied. And that’s a tough ask (woe betide anyone unfortunate enough to use the word ‘fine’ in his presence, if something is ‘fine’ then it’s simply not good enough).

It’s the same process for all of our materials. For the extra tests, the additional resources, and our suite of videos. And they all work together to deliver a cohesive study experience.

This is why our pass rates smash the AAT worldwide average for each level.

Road-tested on the new syllabus

The new AAT syllabus was released in August 2022.

But back in February 2022, Training Link was one of only two distance learning providers to help AAT trial this overhauled syllabus with students. This regular feedback over the following months was invaluable in helping us to improve our material before the wider launch.

And so our study material has been used by students for a longer period of time than most other distance learning providers. It’s been thoroughly road-tested by actual students, and we poured over the results of each assessment, each mock exam, and each AAT exam to identify ways to further improve it.

Our students are supported by full-time AAT tutors

Our tutors are tasked with quite a lot.

The first priority is always you, the student. To answer student emails speedily and accurately.

That could be answering a student’s question, providing assessment feedback, or even offering sympathetic and constructive advice to help you maintain your motivation.

When they’re not busy directly working with students, they’re busy writing study manuals, creating videos, and writing mock exams.

That’s a lot of work. And that’s why there are no part-time tutors at Training Link.

This hard work has been recognised with four of our tutors winning ‘Tutor of the Year’, and an Editor’s Special Award for Michele Baker at last year’s PQ Awards.

Ready to get started?

You can enrol on our website right now.

Throughout January there are special offers available on all AAT Accounting and Bookkeeping courses. And with monthly payment plans available as well, it’s never been more affordable to study with Training Link.

Testimonial quotes

“It was nice to know that there was someone there who could answer my questions. And I always felt like the tutors came back quite quickly and gave clear and useful answers.” – Hannah Greyson-Gaito studied levels 2, 3, and 4 with Training Link and earned Distinctions at each level

“Without having to attend classes I had a more flexible program and this enabled me to study and work at the same time.

I would like to take this opportunity to thank Training Link and my tutors Michele and Jennifer who played a big part on my successful AAT journey!” – George Tampakas studied with Training Link and passed AAT levels 2, 3 and 4 in just 11 months

Learn more about studying an AAT course online with Training Link

Further reading:

This content is brought to you by Training Link

Look who’s hiring – companies who are recruiting now

Posted by & filed under Look who's hiring, Students.

Despite the difficulties this year, many businesses are still looking for school leavers and apprentices and there are some amazing career opportunities available.

Some are recruiting now, while others are asking students to get in touch with a view to starting next spring. So the positive message is that employers are still hiring and there are lots of jobs out there even during an economically difficult time.

Why employers are still hiring

Smart companies know that future talent comes from the young people they recruit and train, and so the best businesses are still committing to hiring school-leavers and using AAT qualifications within an Apprenticeship.

It is important for employers to focus on succession planning and building their talent pipeline, even in these tough times. Indeed, many employers are keen to keep hiring trainees, having learnt lessons from the 2008 crash.

Moore Kingston Smith

Moore Kingston Smith is a firm of chartered accountants and leading business advisers and has six offices in London and across the South East: the City of London and West End of London, Heathrow, Redhill, Surrey, Romford, and St Albans. It is in the process of recruiting new AAT trainees to commence apprenticeships early next year.

“When you join Moore Kingston Smith, you will become part of a team that strongly encourages individual thinking and an entrepreneurial attitude,” says Natalie Hannan, Early Talent Manager. “The environment is friendly, stimulating, and progressive. You are treated as a person, not a number. With 650 people across seven offices, the firm is are large enough to provide you with exposure to a huge variety of opportunities and responsibilities, but small enough to know who everyone is.

Moore Kingston Smith is an AAT accredited training firm and is committed to giving each person that joins first class training within a personal and friendly working environment. Support, guidance, and encouragement are always on hand from an allocated training Manager, training Partner, and dedicated People team.

As a new recruit, you will train initially as a general practitioner, not as a specialist. This enables you to gain a broad range of experience from the beginning of your training contract working on different sized clients in various businesses.

The key skills that Moore Kingston Smith is looking for and will assess through the recruitment process are:

  • Building relationships:  In every aspect of the role, you will need to collaborate with others in order to get the job done. You will also need to be confident dealing with clients in a friendly and professional manner. 
  • Creativity and innovation: Candidates who are keen to get to grips with a range of different challenges and bring a fresh perspective. You should enjoy learning new systems and technologies and not be afraid to suggest new ways of doing things.
  • Initiative and drive:  You’ll need to be able to make decisions, solve problems, and see a task through to completion. You’ll also need to be ambitious for your own development, setting yourself high standards, and striving to excel.
  • Flexibility and adaptability: During the programme, you will experience a variety of projects of differing durations. You’ll need to be adaptable as you work with different teams and different clients. You’ll need to pay close attention to detail but also be able to think about the bigger picture. 
  • Presenting and communicating:  We recognise the value of hearing diverse views, one of which will be yours. You’ll be analysing information, and writing, and presenting to various audiences in a clear, concise, and persuasive way.
  • Commercial awareness: In order to best support our clients you need to understand their business. We are looking for candidates who take an interest in how industries and businesses work. Who keep abreast of current affairs and think about how they might impact the clients we work with and the services they need.

Moore Kingston Smith is planning to recruit around 50 trainees per year – this will be a mix of school leavers and graduates.  If you are interested in this opportunity please visit their recruitment page here. Applications for March can be made here.

Grant Thornton

Grant Thornton UK LLP is part of the Grant Thornton network of independent assurance, tax and advisory firms in over 135 countries.

Across its graduate and school leaver programmes, the business is hoping to recruit 400 people to join the trainee programmes in 2021 and of this, between 80 and 100 will be school leavers.

“We are looking for a host of different skills and behaviours that we believe are important to support our trainees with successful careers at our firm,” says Joanne Ritchie, Head of Early Careers, People & Culture at Grant Thornton.

“We look for candidates who demonstrate our CLEARR values which are Collaboration, Leadership, Excellence, Agility, Respect and Responsibility,” she says. “We want to work with people who connect to our firm’s values and we measure this throughout the assessment process.

During the recruitment process the following strengths and competencies will be assessed:

  • Self-management – People who can successfully manage various priorities, deadlines and stakeholders. They are comfortable working with a mixture of different clients in a short period of time. They are naturally organised and enjoy the variety of work and regular changing client environments. They confidently manage their own workload and successfully keep their work and projects on track and to a high standard.
  • Co-creator – People who are collaborative thrive in achieving results through teamwork. They can leverage collective expertise and enjoy supporting their peers and juniors. They understand that delivering quality work involves managing their own workload whilst thinking of the overall team objectives. They are confident in their own approach and comfortable developing, mentoring and coaching others in the team.
  • Driven to succeed – People who are driven to succeed are self-motivated and push themselves to achieve. They naturally take pride in their work, holding themselves and others to account. They inherently have high standards and a desire to deliver quality work. They demonstrate persistence and resilience, positively working through challenges and dealing well with pressure. They face adversity with confidence and are driven by their focus to succeed and always deliver quality work.
  • Growth mindset – People who have a growth mindset seek out opportunities to learn and gain feedback, striving to improve themselves and those around them. They have a desire for learning and upskilling themselves and others to ensure they can deliver the best client service. They are curious, ask sensible questions and apply their learning/theory in a meaningful and solutions-focused approach.
  • Naturally Analytical – People who are logical thinkers take a methodological approach in understanding the root causes of problems, which they then use to inform solutions. They regularly think of the bigger picture and how everything fits together – they know and appreciate that by fully understanding the client and our services they will be able to provide better client work. They can spot details, errors or inaccuracies easily and think critically about the information available to them. They enjoy analysis, working with numbers and applying their professional studies to client work.
  • Relationship Maker – People who are relationship builders are proactive in forming lasting relationships and understand the importance, in business, of building relationships with, and meeting the needs of, colleagues and clients. They won’t be afraid to challenge clients when they need to and will be able to ask difficult questions to get the heart of the issue.
  • Effective communication – People who can communicate successfully both verbally and written. They understand the need for accurate and clear documentation and the impact this has on client work. They understand the importance of effective communication with internal colleagues and clients in order to provide quality work. They ask sensible questions to gather the necessary information to deliver, and they are confident to challenge and manage expectations when required.

If you are interested in applying you can visit the website to get lots more information about the trainee programmes and to apply directly. 

Here you can learn about the different opportunities available and also get employability support. The AAT application page can be found here.

Scrutton Bland

Scrutton Bland provide financial advice, insurance broking & tax accounting and have offices in Cambridge, Colchester, Diss and Ipswich.

James Tucker, partner at Scrutton Bland says: “We currently have just under 30 trainees and we very much believe in ‘growing our own’.  I do think that we have a responsibility to play our part in offering high quality roles to young people in the communities we serve especially in the current climate. 

“One of the fundamental tenets that we live by is that we empower clients and our people to achieve their goals.  We are definitely not a sausage machine, we treat everyone as an individual and design roles around people’s strengths and interests so that our people enjoy their work and thrive in their careers.

“I often start interviews with ‘what makes you want to become an accountant?’ and the response invariably involves quite a lot of commentary about maths.  It comes as a surprise to some that accountancy is far more about people than numbers – yes you need to be able to understand and interpret numbers but it is the relationships we build with the clients that allow us to use the what the numbers are telling us to help them run and grow their businesses”.

“We normally take on between four and six trainees across our two main offices in Ipswich and Colchester every year and whilst we have not yet finalised our numbers for next year I do not expect it to be very different.”

The website contains lots of detail on what you can expect from an apprenticeship with Scrutton Bland and how to apply. You can find more information about apprenticeships here. You can apply here for the 2021 Apprenticeship Programme here.

Case study: Worcestershire Council

Although Worcestershire Council is not currently recruiting, it has hired 10 apprentices whilst going through the pandemic.

“We set out to recruit a number of apprentices who would bring with them a drive to learn and develop into confident future finance professionals,” says Steph Simcox, Deputy Chief Finance Officer (Service Finance) Finance at Worcestershire County Council. 

“We were looking for ambition, commitment, a sense of wanting to learn new things and a general focus on being inspired to work in the public sector finance world. We weren’t just looking for academic achievement, although a general requirement to have GSCE level results was important, we were looking for people with great personalities and willingness to work together to achieve great things for Worcestershire, the County Council and its Finance service as well as being able to make a difference and push themselves to grow.

“We initially set out to recruit six apprentices, but based on the number of excellent candidates we interviewed, we extended the recruitment and offered 10 posts across the whole of the finance service. “We offer an excellent career average pension scheme, paid annual leave, study leave to attend college and to take exams and prepare for them as well on the job training and development.”

Each apprentice has another apprentice as a “buddy” and a senior manager as a mentor to support their development. They have weekly apprentice meetings where they take turns to chair meetings to give them the experience of managing meetings and an opportunity to share ideas, experiences and ask questions of a senior manager who also attends to support them. 

Once they have completed their apprenticeship they will have the demonstrable experience to apply for finance posts not only in the council but within our partner District Councils and other public sector organisations. Once in a permanent role, they will be offered further opportunities to study for final level AAT exams and then other qualifications such as CIPFA, Institute of Internal Audit, Business Administration qualifications, project management and other qualifications relevant to their particular role.

Further information on working for Worcestershire County Council can be found here.

For employers

If you are committed/interested in hiring new Accountancy Apprentices this year, please get in touch with our team on [email protected].

Download the SME apprentice ebook nov 2020.

Further reading:

Digital transformation will be crucial to retaining accountants in 2023

Posted by & filed under Automation, Digitisation, Members.

Experts at accounting automation company FloQast predict how organisations will deal with continued economic volatility.

Digital transformation

Adam Zoucha, Managing Director EMEA 

“2023 is not going to be the time for business as usual. As recession bites, businesses must consider making strategic investments to support productivity, innovation and to remain competitive. Whilst many may cut back, those businesses pushing ahead with digital transformation will drive greater efficiencies and productivity in a volatile economy. This will place them in a stronger, more competitive position in the long term.”

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Retention

“In a challenging economy retaining the right skills is critical to company performance and productivity. Chronic workplace stress and burnout remain high amongst accountancy teams, and with recession comes additional demands from leadership. Digital transformation will be a central component for the retention of accounting teams in 2023. Adopting the right technology will improve workload and boost productivity – meaning it can also improve employee retention. Provided employees understand the purpose and goals of any technology being implemented, it will improve efficiencies and contribute to greater job satisfaction.”

A strategic CFO

Razzak Jallow, Chief Financial Officer

“With recession comes increased pressure to deliver agile, accurate reporting. CFOs will need to employ the right combination of intelligent automation, deep visibility, and genuinely people-centric collaboration tools to support their team. When the burden of highly-manual, repetitive tasks is removed, CFOs can focus on strategic initiatives to drive the business forward in challenging economic conditions. This will allow teams to do more with less and ensure CFOs have robust real-time financial insights to support decision making.”

Tech to enable the CFO

“Tech adoption was hugely accelerated during the pandemic and this will continue into 2023 with challenging economic conditions squeezing finance teams harder than ever. Digital transformation must be a priority for CFOs looking to build more robust, efficient processes whilst simultaneously lowering costs and increasing productivity.”

Fintech and technical proficiency

Cullen Zandstra, Co-Founder and CTO

“Financial teams deal with sensitive data every day, so hybrid working has elevated security risks with endpoint management being an ongoing challenge. It’s likely that engineers at Fintech organisations will increasingly carry a greater responsibility for engineering products with top security protocols built into their solutions. Working closely with customers will be pivotal to tackling the security challenges faced.”

About FloQast

Tech unicorn FloQast delivers workflow automation software enabling organizations to operationalize accounting excellence. Trusted by more than 1,900 accounting teams – including Twilio, Los Angeles Lakers, Zoom and Snowflake – FloQast was built by accountants, for accountants to enhance the way accounting teams work. FloQast enables customers to streamline processes such as automated reconciliations, documentation requests and other workflows that impact the month-end close, financial reporting and payroll, and is consistently rated #1 across all user review sites. Learn more at FloQast.com.

University Hospitals Birmingham is currently hiring: Here’s what they’re looking for

Posted by & filed under Career.

If you are looking for a career that offers great development opportunities, a chance to make a genuine difference to other people’s lives, and the experience of working within a supportive team, you could consider an accountancy role within the University Hospital Birmingham (UHB).

The University Hospitals Birmingham NHS Foundation Trust is recognised as one of the leading NHS trusts in the UK. With more than 22,000 members of staff, it is committed to the development, health and well-being of people. Birmingham is a vibrant and affordable city to live in. It has great amenities and entertainment facilities, is a centre for sports and arts, and has excellent transport links.

What does the UHB Finance & Accounting Function do?

An NHS accountant uses their skills to help the hospital get the most out of its funding, maintain financial records and analyse spending and budgets.

“The NHS is a fabulous place to start your career,” says Sue Lyddon, UHB Finance Workforce Manager. “It is a great work environment and very supportive. You’ve got career development, there’s real opportunity to learn on the job and gain professional experience.

“There are currently 37 finance apprentices at UHB studying at Level 3, 4 and 7 and many are already looking at Band 4 pay scales, which is equivalent to around £24,500 per annum. You will get lots of great experience – our finance department has the same functions as in industry and we follow the same accounting procedures. We have the same month end processes and protocols.

“The real difference and what’s really exciting, is that we work closely with our clinical and operational colleagues and our decisions directly impact on patient care. So there’s real value in the work and it is a very rewarding career in which you can make a real difference.”

What roles are available?

As an accountant at UHB you might work on the monthly finance reporting in line with accounting standards.  This may mean compiling spreadsheets, graphs and written data from receipts, invoices and purchase orders and engaging with the audit process on submission of the annual accounts.

You might help plan next year’s budget, work with a team allocating funding for different departments, analyse spending, and suggest ways to save money.

You may analyse financial records, review spending trends, identify future unavoidable risks to expenditure whilst analysing and providing information to budget holders which will help them most effectively use the resources available to them.

You may be involved in evaluating available capacity to establish the activity that can be delivered through it in order to inform the activity plan and the income associated with it.  You may also be involved in negotiating those activity plans with the commissioners whilst analysing differences between the commissioner and UHB’s assessment of delivery against them.

You may be involved in capital investments and service developments, delivering improvements to patient care and pathways whilst maintaining evidence that the investment / development is value for money. 

What does a career at UHB offer?

University Hospitals Birmingham NHS Foundation Trust (UHB) is a first-class and inspiring organisation, offering a unique employee experience. UHB has more than 22,000 members and a Board of Governors which includes members of the public, patients, staff and stakeholders, who have been elected as representatives. Decisions are taken locally, which means foundation trusts are more responsive to the needs of their patients.

Working at UHB offers a comprehensive benefits package, the flexibility to maintain a great work-life balance, and the opportunity to achieve your full potential.

What are the advantages of a career with UHB?

“UHB offers a clear career path, support, team work and an opportunity for learning outside of your daily role,” says Sue Lyddon. “For our finance apprentices, we have additional training around personal development and careers. There is the opportunity for hybrid working and we are located in a city centre location which makes it easy for people to access us.

“We are members of the Healthcare Financial Management Association (HFMA), the professional body for finance staff in healthcare and we attend their conference and can access all their resources.”

What is UHB looking for in a finance apprentice?

“Apprentices can come from all walks of life and include school leavers, career switchers, and mature students, as well as those looking to upskill,” she says.

You can teach anyone with the right attitude to be a great finance professional. In our scheme, we recruit apprentices in groups of four to six so they’ve got buddies to work and learn with. Last year we took on ten finance apprentices and they have all developed and gained skills very quickly.”

What is the starting salary for a finance apprenticeship?

“Apprentices start on a salary of around £10,000 but they do have a study package and time to go to college where they learn live online,” says Sue Lyddon. “All our recruits are gaining promotion really quickly and they are fully involved in the department and they play an important role from the beginning. They are integral to us delivering our month end and year end processes. We can tailor the support programme to enable each individual develop to the best of their ability.”

Applicants need to have five GCSE exams at Grade 5 or above including Maths and English.

“We are always really interested in the additional skills the person has gained on their journey which set them apart,” she says. “Have they been a prefect at school? Do they volunteer or get involved in fundraising, have they had work experience or a complete career change, be involved in a youth group such as Scouting or the National Citizen Service, or been in a responsible role in a Saturday job. It’s not just about the academics – it is about the bigger picture and what really makes them stand out.”

What benefits are available?

Once you have completed the apprenticeship, a full time job at UHB offers great perks including pension, generous holidays and the opportunity to make a real difference and to be part of something much bigger. You’re not restricted on which way your career path can go. There are huge opportunities and great job security.

Why does UHB support AAT qualifications?

“We use AAT for Level 3 because it gives an excellent grounding and breadth of knowledge for our apprentices,” says Sue Lyddon. “It enables them to consolidate the theory they are learning whilst studying with real life experience on the job.”

What is it like to be a finance apprentice with UHB?

“Coming out of Sixth Form I knew I would like to go down the Apprenticeship route,” says Harry Wright, Senior Financial Management Assistant at UHB and currently studying an apprenticeship.

“I applied for the apprenticeship at UHB and I was lucky enough to get it. I was attracted to working for UHB as it is part of the NHS which is such an important part of this country. The chance to work with such a large Trust within the NHS was attractive for me.

“I feel that I have been able to balance my work and study quite well during my time at UHB. Studying the AAT course gave me the base level accounting knowledge which then allowed me to understand my day to day work to a better level. I am hoping that my ACCA qualification will follow a similar trend.

“I have always felt supported through my studies and my managers have always been very understanding. I have benefited from the policy to allow study days to ensure that I am as prepared as possible for exams. Other staff members have all been very approachable in helping me decide whether to go down the ACCA or CIMA route for further study.

“I am really pleased that I did the AAT qualification because it gave me a solid foundation of knowledge. I am working towards being fully qualified. Longer term, I would like to progress higher within management accounts at UHB to a more senior level where I could become a mentor to junior staff.”

Further reading:

New Energy Bill Discount Scheme is a dim light in the dark

Posted by & filed under Energy crisis, Members, Policy.

Accountants voice concern over scheme that “barely makes a dent” for small businesses.

A new government scheme for businesses, the Energy Bills Discount Scheme (EBDS), will soon be available for all eligible UK businesses, charities and public sector organisations until 31 March 2024.

EBDS will begin on 1 April 2023 once the previous Energy Bill Relief Scheme (EBRS) ends and will provide discounts for businesses struggling with high energy bills.

Businesses in energy-intensive sectors such as manufacturing, mining or those running certain visitor attractions will receive higher level of support as part of the pre-existing Energy and Trade Intensive Industries (ETII) scheme.

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The government say EBDS will help businesses that have been ‘locked’ into expensive energy contracts which were made before the fall in wholesale energy costs.

But the scheme is less generous than its predecessor and fewer businesses will be in scope.

  • The discount only applies to wholesale prices rather than having costs capped.
  • Only businesses paying over £107 per MWh for gas and £302 per MWh for electricity in wholesale prices will be eligible for EBDS.
  • Unit discounts provided by the scheme consist of (up to) £6.97/MWh for gas bills and (up to) £19.61/Mwh for electricity bills.

So what impact will this have on businesses, particularly small and micro businesess? We spoke to accountants for their thoughts.

Discounting bills instead of capping will causes budgeting and forecasting issues

Ashley Ritchie, founder, Campbell Ritchie Chartered Accountants

EBDS provides discounts of wholesale prices to eligible non-domestic customers who have a contract with a licensed energy supplier. However, the previous scheme placed a price cap on what users would pay and the government paid the difference to the suppliers. Under the new scheme, a discount is applied if the contract energy price is above threshold price (wholesale price of £107/MWh for gas and £302/MWh for electricity). This offers less protection to the consumer from volatile energy markets.

Small businesses, which arguably need the most help, are not receiving like-for-like support. And is it fair to leave entire sectors out of receiving additional support? Agriculture, for example, is one of the most energy dependent sectors (after manufacturing) but this sector will not receive the additional support offered to those which fall under Energy and Trade Intensive Industries (ETII).

Many small businesses are extremely concerned about their own longevity once the current scheme ends. Offering a discount on energy bills instead of a price cap means businesses cannot budget effectively. Growth plans for many of my clients have been put on hold as they can’t forecast their costs properly given the uncertainty around energy costs. This, in turn, has a knock-on effect for recruitment in the area.

Many businesses in the catering and hospitality sector now have extortionate energy bills along with increased food costs. The only thing keeping them afloat this past year was the Energy Bill Relief Scheme.

Verdict: Offering a discount on energy bills instead of a price cap means businesses can’t budget and forecast effectively, putting growth plans on hold and affecting recruitment.

Cash flow planning will be vital to businesses in the health and beauty sector

Ria-Jaine Lincoln MAAT, director, The Beauty Accountant

While I’m happy to see the scheme extended, it is hardly making a dent when businesses are still recovering from the pandemic, managing rising bills and loan repayments and navigating changes in customer behaviour.

The new scheme comes at a time when businesses are fighting their hardest to survive, especially with the cost of living and price increases being passed on. I do not think it goes far enough, especially where the health and beauty sector are concerned.

Health and safety requirements mean hair and beauty businesses are high energy consumers. It would therefore be good to see the government investing more in the sector and providing further support.

The next 12 months are going to be a matter of careful cash flow planning and serious review of pricing structures. If the energy prices are here to stay, the next challenge will come once the scheme ends.

Verdict: The scheme does not go far enough and the health and beauty sector in particular will struggle. To mitigate economic pressure, cash flow planning and rethinking pricing structures will be key.

The viability of small businesses will be called into question if support is withdrawn

Toby Ryland, Corporate Tax Partner, HW Fisher

The Government has stressed that wholesale energy prices have dropped and largely stabilised – hence why Government support is being reduced. However, this assumes that the energy companies will pass on these savings to their customers, which appears to be happening very slowly and does not assist businesses which are tied into contracts at higher tariffs.

The new scheme is aimed at businesses which are tied into high rate tariffs and those in particularly high energy industries (Energy and Trade Intensive Industries – ETIIs). ETIIs are largely manufacturing, food production and heavy industries (mining, steel, quarrying and similar) but also includes libraries, museums, historical sites and zoos.

Among the biggest losers will be leisure businesses with substantial energy requirements – for example, leisure centres and gyms with swimming pools. Additionally, restaurants will suffer due to the high levels of energy used by kitchens, and hotels due to high levels of hot water and heating usage.

Small businesses will inevitably be impacted. The reduced level of support will mean high costs remain and, coupled with increasing demands for wage increases, the viability of many small businesses will be called into question.

Overall, there remains significant financial pressure for many businesses.

Verdict: The viability of small businesses will be called into question if support is withdrawn. In particular, small businesses and the leisure and hospitality sectors will lose out.

Small businesses will be left vulnerable to surges in wholesale prices

Lee Murphy MAAT, managing director, The Accountancy Partnership

While support from the government in any form is positive, it is very much slimmed down from the previous scheme. Small businesses will be left vulnerable to surges in wholesale energy prices, which are out of their control. An unexpected hike in prices due to global factors such as poor weather conditions, currency fluctuations or supply shortages could put an SME out of business with little notice.

The increasing cost of overheads cannot be passed on to customers, who are already price sensitive and are tightening purse strings.

The government should consider tying to limit other factors such as inflation, to provide relief in other areas. An increase in the business rates relief cap would be very welcome for retail and leisure businesses who are under most pressure. Multiple streams of support would also prevent a ‘cliff edge’ when one scheme stops, giving small businesses more time to adjust.

Verdict: This scheme will leave small businesses vulnerable to surges in wholesale prices. To avoid a cliff edge, the government needs to increase support in other areas.

The scheme prioritises certain sectors at the expense of others

Ercan Demiralay, partner, Wellers

Wholesale energy prices are falling and prices are now below what they were before Russia’s invasion of Ukraine. That’s why the government is limiting support.

The new scheme offers greater discounts to high energy use businesses, such as steelmakers and manufacturing. It’s weighted towards those locked into fixed-term contracts at high prices. Trade and energy-intensive businesses are eligible for a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.

The businesses most likely to benefit are those already locked into fixed-rate contracts at high prices and those in energy-intensive industries. However, smaller businesses are likely to lose out, as are less energy-intensive businesses, with the government prioritising help for manufacturing sectors in particular.

Verdict: The scheme benefits those already locked into fixed-rate contracts at high prices and those in manufacturing, but industries outside of this and smaller businesses too will lose out.

The secret to tackling your synoptic

Posted by & filed under Synoptics.

Helen Pretty became an accounting revision coach so she could help more accountants finish the qualifications they started. Here, the former finance manager outlines a number of techniques to help you study and prepare for your synoptic assessment.

I’m not going to lie to you and say that AAT synoptic exams are easy – because they are not! I describe accounting exams as an emotional rollercoaster. They’re tough, but when you are sitting in that seat at the end of the ride and you join “the qualified club”, it’s so worth it.

The smug proudness you will have when you put your plaque up on the wall, or changing your name on LinkedIn to add those “MAAT” letters after your name, or getting that pay rise or promotion that you’ve been dreaming of… So worth it!

Remember the aim

Let’s take a step back and remind ourselves what AAT is examining you

on during a synoptic exam: “The synoptic assessment will ask students to apply knowledge and skills gained across the qualification in an integrated way, within a workplace context. You should demonstrate your knowledge of core accountancy skills and your ability to apply them in the workplace”.

So, these words make up the core and foundation of how you approach this synoptic exam.

Have this as your first thought when it comes to revision and your synoptic exam – it will really help laser focus your answers on proving to AAT (and yourself) that you know exactly what you’re writing about.

Also, remember why you are doing this. To become an accountant, to prove to yourself and AAT that you know your stuff and that you can apply it. I know some days it feels tough and you can forget, but trust me – please remember.

Smart revision, confidence and exam techniques are the three most important things you need. This is my focus for you today, so you can pass your synoptic exam in 2021!

Revision focus

Successful revision is about being smart. Study is learning and revision is practicing.

Practising how to answer the exam questions in the way AAT wants you to, is the smart way. You won’t prove you’re a smart accountant if you don’t know the knowledge, and you won’t pass the exam if you’re not being smart.

A smart accountant says YES! Smart revision is about saying YES! So that when you get your exam result, you can scream YES! Here is what I mean when it comes to saying YES to smart revision:

Y – You

You are the person who will pass this exam because you know the knowledge and you know how to answer the exam questions. That makes you the smart one, because you can do this. Put yourself first when you revise, at times that work for you, and in ways that work for you. Positively putting yourself first will give you the motivation you need to feel smart, prepared and confident.

E – Exam practice

Exam practise is the biggest part of revision. But not just any kind of exam practise, and definitely not cramming a week before your exam (that’s not smart). I want you to practise exam questions in full exam conditions, which means to time and with no notes. Remember, we want you to pass this exam, so like-for-like exam practise will make such a huge difference when it comes to being fully prepared and confident on exam day. 

S – Structure

If you only take one piece of my advice, make sure it’s to write and stick to a revision plan – with daily bite-size slots of smart revision. A revision plan will give you much-needed structure to boost your confidence, get you super-prepared for the actual exam, and motivate you every single day. My motto to my clients is “to be smarter at the end of the revision slot than you were at the start”. Use your revision plan to revise smartly.

Practice, practice, practice

But please be smart when you apply this. Revising for 12 hours on a Sunday is not smart. Writing exam answers when your test is online is not smart. Being too nervous to sit a few mocks in full exam conditions is not smart.

Yes, I give a big emphasis on revision practise, and this is because it makes such a difference – but with a massive caveat – practise in ways that make your exam answers smarter (with more markable sentences).  

What is smart?

Writing and sticking to a revision plan is the most important revision advice I can give you. A revision plan keeps you motivated and gives you a daily structure to keep you focused (on the right jigsaw pieces).

Consistently using a revision plan works, because having a daily plan keeps you on track and allows you to make bite-size progress every day, which is much smarter than cramming at the last minute.

If you don’t have a revision plan, then you have a blank piece of paper, and that never inspires anyone to get on with the work and take revision action.

How you should practice:

  • in ways that work for you
  • putting yourself first
  • committing to your revision.

You started this for a reason, so I empower you to commit to your revision phase, focus more on how to answer the exam question and less on memorising every word in the study text. Figure out what revision works for you – and do more of that!

Attitude

If you don’t believe you will pass your exam, you probably won’t! You could know every word in the study text and still fail this exam. As a coach, I speak to hundreds of qualifying accountants, and I know you are struggling with confidence and you find it hard to truly believe that you can really pass this exam. But trust me, you really can, and I need you to believe it.

AAT is testing you on your application and evaluation of your knowledge. Think of the synoptic exam as a fun quiz where you get to prove (and show off) that you know it – you know that fun, smug feeling!

Confidence and self-belief are fundamental pieces of a revision jigsaw and to pass any exam (especially a synoptic) successful revision is about putting the right revision jigsaw pieces together in the right way.

Make boosting your confidence a non-negotiable as part of your revision journey – work on it every day. If you are feeling less than confident, then it will show in your answers and energy. Let’s make your revision count.

Your journey

I empower you to do it your way, not like Sue Smith or Joe Bloggs, maybe not even the way the tutor told you to do it… Be real and honest about revising in the ways that work for you. Know what works for you and do more of that.

Be kind to yourself

The words and stories you tell yourself impact and affect you the most. Imagine telling yourself every day, “I am a smart accountant” and “I can and will pass this exam”.

A coaching technique that I would love you to try is to write these sentences on paper and stick them up by your study area – bonus points for saying them out loud.

Interview skills

As a previous finance manager, leading a finance team and recruiting AAT apprentices and qualifying assistant accountants, I cannot stress how beneficial an exam-style test is for your CV.

From a practical point of view, it gives you a rounded, practical mindset, plus analysing or evaluating scenario-based examples leads to financially-aware thinkers.

Accountants who can focus financially at work – with the added bonus of commercial awareness – are much-needed in a modern finance team.

I love interviewing accountants for my team who can give synoptic-style answers in an interview – it really shows their all-round financial abilities, which for me are super-important. 

Perspective

The perspective you bring to your synoptic exam will make such a difference to your revision.

Remember, you are in control of your perspective – so let’s focus on the positive, smart and amazing focus you need to embrace your synoptic exams with confidence, energy and fun.

On a technical note, the key to passing your synoptic exam, along with smart revision, high confidence and a positive perspective, is knowing what AAT wants you to say and why.

Don’t forget the build-up and journey so far to the synoptic, with your unit assessment exams, the jigsaw pieces you’ve passed already.

If you think, “oh this synoptic is such a big mountain to climb and pass”, then that perspective is going to affect your daily revision and motivation.

Let’s tweak your perspective to focus on the positives, because, why not? You are a smart accountant and you can pass this exam – remember!

The synoptic exam perspective I encourage you to focus on is that this exam is the cherry on the cake – it is your opportunity to finish off this level by proving your smart accounting application skills.

Having a positive perspective lets you see your revision in a smart way. Think about:

  • What do I need to revise today so I pass my synoptic?
  • How can I utilise my hour revision slot to be more knowledgeable?
  • What revision methods do I love?

Reframe your perspective to add your confidence by thinking about positive boosting words and actions, whilst building your confidence that you really are a smart accountant and can prove it.

I empower you to keep going, keep your head up and stick to your revision plan.

Exam technique golden nuggets

Your key revision tool is a revision plan, like I’ve explained. But one of your key exam tools is knowing and practising with a key focus on exactly what AAT wants to see. The golden nugget jigsaw piece for this is the exam syllabus.

AAT tells you: “Students should demonstrate knowledge of the core accountancy skills and be able to apply them in the workplace scenario”.

Guess what? Focus on that, with your smart revision practise. Have demonstration and application at the forefront of your mind and perspective when approaching this exam (and every revision slot).

Being tested on financial scenarios will make you a smarter real-life accountant, and that’s something you should positively shout about (especially in future job interviews).

Top tips for synoptic success

  • Stick to your revision plan. Have a daily structure that keeps you motivated and committed to your goal.
  • Believe in yourself – so that you walk into that exam knowing you can pass and walk out with your arms in the air!
  • Practice how to answer the exam question – the question actually set, not the one you wish was there.
  • Repeat after me: “I am a smart accountant and I can and will pass my synoptic exam”. Positive self-talk is key to revision confidence.

Hide your study text. Revision must be about your exam conditions practise, and putting “the comfort blanket” (study text) away, so you stop reading and start practicing (earlier than you ever have).

Further reading:

Why AAT thinks delaying MTD for ITSA is the right call

Posted by & filed under Making Tax Digital, Members, Policy, Tax.

Adam Harper, Director of Professional Standards & Policy, analyses the delay in MTD for ITSA and says the UK authorities must use the hiatus to increase understanding.

The week before Christmas was a busy time for government announcements. The biggest, at least from the accountancy profession’s viewpoint, was the news that HMRC has decided to extend the time period for the transition to Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). In summary, the Government has said that “The mandatory use of software is … being phased in from April 2026, rather than April 2024.” 

The Government also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. “The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations.”

 

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Bolstering business confidence

Governments are often criticised for U-turns and delays, but in this case, the decision aligns with our long-held view that a cautious approach to such a major change would help all stakeholders.  

HMRC has cited the ‘challenging economic environment’ as part of the reason for the delay, and it’s hard not to have some sympathy with this approach – UK businesses of all sizes are under enormous pressure from inflation, low growth and energy price fluctuations. Smaller businesses in particular are suffering, so delaying the introduction of what many believed would be an onerous and expensive obligation has to have some merit. Business confidence is a fickle thing and anything that threatens it should be very carefully considered – so the decision to adopt a phased approach and engage in wider consultation has merit.

More time to educate

The decision does make sense in a number of ways. We have been concerned about the level of understanding of and engagement with the changes that MTD will entail among those affected. That was borne out by a survey we conducted last year, which revealed that “Most AAT Licensed Accountants (85%) believe the current ITSA registration process is not well understood or only understood with the help of an accountant or other professional.”

Therefore, pushing the implementation back should – if done properly – allow regulators and other stakeholders sufficient time to better explain not just the mechanics of transition but also the underlying benefits that taxpayers should hopefully accrue.

And make no mistake, accountants will be central to the success of MTD. We have been clear in our support of using intermediaries to smooth the transition and this decision only adds weight to the idea that accountants have both the skills and appetite to take clients through the MTD journey.  

Indeed, our consultation last year revealed a membership determined to play its part, with an overwhelming 95% of AAT Licensed Accountants expressing a desire to register their clients for ITSA. As we said at the time, ‘This demonstrates a significant appetite for greater intermediary involvement and support for the registration process’.

Success stories

And for that to succeed, it would help if the UK authorities took our advice and looked beyond British shores to where other territories have successfully transitioned to a digital tax system. Singapore is the example often cited, and as such has become the ‘gold standard’. Singapore’s success in registering landlords in particular is something that HMRC can learn from given the extra timeframe allowed. It’s a sign of a strong and confident country that can look to others and learn from their experience.

Conclusion

Finally, an extension should hopefully allow software companies the time to develop solutions that truly meet the needs of taxpayers in the new digital environment. There’s widespread agreement that ‘baking in’ MTD-compliant tools and services will have an enormous impact on the scheme’s success.  

Software vendors are a vital part of this transition and we would like to see them engage proactively with regulators and professional bodies to ensure taxpayers suffer minimal disruption and aren’t subject to unnecessary delays or price hikes as they go online.  

This is the latest step in what is sure to be a journey of twists and turns. We remain committed supporters of the drivers behind MTD and will do whatever we can to make it a success. For that reason we are keen to consult not only with our members but also with the very businesses and traders who will be most affected by the changes of the next few years. As the New Year dawns, our doors remain open.  

Disappointing first impressions of HMRC’s Income Record Viewer

Posted by & filed under Digitisation, Members, Technology.

Missing data and poor user experience leave early users unimpressed.

HMRC launched the new Income Record Viewer near the end of last year. It’s intended to enable accountants to view clients’ personal tax accounts and income history to which they’d not ordinarily have access.

The new service is just available for accountants to view rather than edit, but provides access to a wealth of information such as:

  • PAYE information for the current year and the four previous tax years
  • employment history including time in employment, taxable benefits
  • record of income
  • pension information including state and private pension schemes.

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To view client records in this way, accountants need authorisation from their clients using the Government Gateway portal along with clients’ national insurance number and their date of birth.

Although the service was first announced in April with a corresponding information page on the Government website, the service wasn’t officially launched until November 2022.

We spoke to early users of the Income Record Viewer for their first impressions.

In theory the Income Record Viewer should be a great tool

Christina Nawrocki, managing partner, Wellers

HMRC’s new information view is generally a very useful tool, but we have already encountered incomplete and factually incorrect data.

We’ve had instances where the account simply states, ‘no details available’, and times where it shows only one record of employment for a client with a longer employment history. Disappointingly, we’ve even experienced state pension income displaying incorrectly. 

So whilst the Income Record Viewer does show some useful information, it’s not fully there yet. It still needs more attention from HMRC to work at 100% and in the meantime, we will continue collating details manually from clients.

Verdict: The Income Record Viewer displays inaccuracies so until these are fixed we must continue to collate manual details from clients.

The requirement to obtain authorisation for every single client is counterintuitive

Amelia Hook, director, Oury Clark

It’s still early days for HMRC’s new view-only portal, so we’re getting used to it. One obvious pain point we’ve seen already is the new authorisation provision. Even though we are already registered as agents for all our existing clients, we must complete new authorisation requests for them once again. This has to be repeated for each individual client, which is extremely time consuming. It’s an additional hoop for agents to jump through in order to complete this year’s returns, and it will ultimately mean more time spent doing each one.

Verdict: User experience needs work and until details such as authorisation are smoothed out, aspects of the Income Record Viewer will be time consuming and inefficient.

Faulty data undermines confidence in the Income Record Viewer

Alan Broome, MD Acumenica Group LTD

In theory, the Income Record Viewer removes speedbumps in the process of obtaining certain information from clients. In practice, there’s often data missing from the viewer, which undermines our confidence in what does show up. We then find ourselves liaising directly with the client anyway as a result.

Additionally, getting any kind of authorisation from HMRC systems is always difficult and this service is no different. Most if not all of my team have experienced issues with the authorisation process. It could be good if it was done en-masse rather than individually per client, but I don’t think that will ever be possible.

Verdict: The theory behind the viewer is great but it does not match up to reality.

Study tips: Understanding supply and demand curves (advanced level)

Posted by & filed under Advanced Diploma, Study tips.

The concept of supply and demand explains interactions between suppliers and consumers in a market.  For example, why do sellers continually adjust their pricing to remain competitive? 

If you are unsure of the answer, then read the first article in this series on supply and demand before continuing.

In the previous article, I wrote about my experience of looking for a new mobile phone.  Price was a major consideration but it is a very competitive market with lots of sellers and buyers, a huge variety of products, with a range of features, and lots of information available about each.  These all have an impact on the level of competition in the market and, consequently supply and demand.  That said, price is probably the most influential factor. 

When I first looked, the price of the handset I wanted was high.  When prices go up then, then demand for them is likely to contract.  When I looked again, prices had fallen so the expectation was that demand would expand.

The law of demand

This is called the law of demand and can be seen on a demand curve, which always slopes downwards and bizarrely is usually shown as a straight line not a curve!

If prices fell from £400 to £200 then demand would expand along the demand curve from 3 million to 6 million.

However, if prices then increased to £300 demand would contract back along the curve to 4 million.

The law of supply

The law of demand works in conjunction with the law of supply, which states that, as prices increase, quantities will increase and vice versa.  New suppliers will come into the market if they can see potential profit, and existing suppliers will want to maximise their profits by producing more goods. They can do this most effectively when demand for goods and services is high and consumers are willing to pay high prices. 

In this example for a different handset, if prices are able to increase from £100 to £200 then supply will expand along the supply curve from 20 to 40 thousand.  If prices drop, because consumers won’t pay the higher price, the supply will contract, as companies stop selling the product, perhaps withdrawing from the market, because they cannot cover their costs. That will be seen as a move back along the curve.

The supply curve relates to suppliers deciding to increase their output or to enter into new markets with high levels of demand, as long as there aren’t excessive barriers to entry.

The result of this though, will eventually be that supply outstrips demand, resulting in surpluses.  Then suppliers are forced to drop their prices in order to generate sales, although if demand then overtakes supply, shortages can occur.  This is because buyers want prices to be as low as possible and sellers want them to be as high as possible. 

Equilibrium

So, the market has to find a balance or equilibrium, in other words, a price that both consumers and suppliers are happy with.  This is the point at which demand and supply curves intersect. 

The price mechanism

The increasing and decreasing of prices caused by the laws of supply and demand, is known as the price mechanism.  It reflects the shifts along the supply and demand curves to constantly try and maintain an equilibrium price; where supply equals demand.

The price mechanism is not the only factor that determines prices, they are affected by the type of goods being sold, whether they are a necessity or luxury, can be substituted for a similar product or compliment another, as well as market forces.

Recap

Whilst changes in the price mechanism cause shifts along the curves, any other changes caused by market forces, such as consumer preferences or the price of substitute products, actually cause the whole curve to shift.

Impact of market forces

Let’s say that the handset I wanted was favourably reviewed on a prime-time television show and as a result demand for it increased.

On the demand curve below, you can see that the price has remained at £300 but demand has increased from 2 to 5 million because the whole curve has moved to the right.

Equally, if demand falls, due to something other than a price change, the curve will move to the left.

Wholesale shifts of the supply curve happen in a similar way. Decreases in supply, maybe caused by a problem with microchips resulting in a shortage of handsets, will cause the whole curve to shift to the left.

In the example below, you can see that the price hasn’t changed from £100, because consumers won’t pay any more, but supply has decreased from 40 to 20 thousand because suppliers cannot meet demand.

If supplies increase again, for example because changes in technology make the production process more efficient and therefore increase capacity, then the supply curve will shift back to the right.

Summary

The concept of supply and demand is fundamental to the macro-economic environment and it is important to understand how prices are determined by the price mechanism (represented by shifts along the curves due to price changes) and market forces (which cause shifts of the curves) and the impact of the type of goods (normal either necessity or luxury, substitute and complementary).  I’m now waiting for my handset to arrive so need to research a new sim-only deal, which is a good example of a substitute good because texts, calls and data are the same regardless of the supplier!

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Study tips: Understanding supply and demand

Posted by & filed under Foundation Certificate, Study tips.

Have you ever wondered why you pay the price for things that you do?  Why a bottle of shampoo costs £5 one day but £5.50 the following week? And what about when things are on offer?  Why is a mobile phone that has been retailing for £300 now available at half the price?

In broad terms, the answer is micro-economics.

Understanding micro-economics

Micro-economics is the branch of economics that considers the behaviour of decision-makers in the economy, such as individuals, households and businesses. Specifically, the answer relates to a key concept that operates in the micro-economic environment called supply and demand, which explains interactions between suppliers and consumers* in a market.  A market is where sellers and buyers exchange products and services in economic transactions.

Supply and demand is important as it impacts organisations’ output, products and services, and selling prices.  Prices have to cover the cost of raw materials and production or of delivering a service.  Plus, organisations need to make a profit. However, this is only part of the pricing picture.  The reality is that prices are influenced by the market because they have to be set at an amount consumers are prepared to pay.

Supply and demand in practice

A couple of months ago I started looking for a new mobile phone.  It is a very competitive market with lots of sellers and a huge variety of products, which means there are plenty of choices.  However, I didn’t want to pay an extortionate amount and was looking for a handset which I could buy outright, with some specific functionality.

I found the ideal phone, but it was either out of stock or more expensive than normal.  It appeared that I wasn’t the only customer who wanted one and that the demand for it was high, hence the increased price.  I decided not to bother and wait.

I looked again a few weeks later, hoping the price had reduced because I’d seen that a new version of the model I wanted was about to be launched.  High demand for the latest version should result in less demand for mine.  I also knew it was likely that sellers would want to sell off excess stocks of old handsets.

Impact on pricing

Sellers continually adjust their pricing to remain competitive because of supply and demand.  When there is abundant supply but low demand, sellers have to lower prices to generate sales. 

However, if there are shortages in supply at a time of high demand, sellers will be able to put prices up.  When prices get too high, consumers will stop buying, demand will fall, and sellers will have to drop prices to try and tempt buyers back into the market.

The profit motive

When demand is high, sellers can make more profit.  A fundamental goal of most organisations is to generate profit so that pricing decisions will be underpinned by ‘the profit motive’.  This is an economic term which refers to a business’s drive to do things that result in financial gain.  Mobile phone companies often run high-profile marketing campaigns well in advance of releasing new products in order to build demand.  Some products may be limited, either in terms of their quantity or the time for which they are available, in an attempt to make them exclusive and, therefore, capable of selling for a higher price.  However, as technology advances rapidly, products like mobile phones become obsolete quickly, and as demand and prices fall, so do profits.

Impact on production levels

Supply and demand not only has an impact on pricing, but they affect production as well.  The manufacturer of the handset that I wanted, probably reduced or stopped making the old version as it started manufacturing the new one.  The company will have had to carefully anticipate the market’s reaction to its launch.  If its marketing successfully generates high demand it will be able to increase both production and prices.  However, if the new handset receives poor reviews after its launch, maybe consumers think the old version was better, the pricing and production of both mobiles will need to be adjusted.

Increases in income generally lead to increases in demand

Most people think of a mobile phone as a necessity these days, just as we do food, utilities and housing costs.  However, they can also be seen as a luxury depending on the brand, version or functionality.   Demand for necessity goods is not as sensitive to price increases as demand for luxury goods is.  If the price of food goes up, we still have to eat, so demand will not fall but we might buy less or swap to cheaper alternatives.  However, the demand for necessities does fluctuate in line with income.  Generally, as our income increases, we buy more.  Plus, as it goes up, we spend a larger proportion of it on luxury goods, such as a high spec mobile phone rather than a basic model.

So if there is an increase in a household’s income it is likely to result in increased demand, which will lead to price rises and encourage businesses to increase supply (the opposite will happen if income decreases).  I’m still looking for a new phone by the way and keeping my eye out for a good deal.

*  A consumer is similar to a customer however, there is a difference.  A customer always purchases a product or service, but might not be the end user. A consumer is always the end user of a product or service, but might not have purchased it.  So for example, if I buy shampoo for my daughter I am the customer and she is the consumer.  If I buy it for myself, I am both the customer and the consumer.

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