Why you should automate your anti-money laundering system Posted 12/12/2022 by AAT Comment & filed under Anti-money laundering, Automation, Members. Automated anti-money laundering systems are more secure, but accountants will remain involved in the vetting process. Why automate AML systems? Accountants have a duty to ensure their customer due diligence and anti-money laundering (AML) processes are compliant with UK regulations. Vetting all clients’ identities and addresses, and continuing to monitor their behaviour for suspicious activity, is demanding. However, software can do much of the heavy lifting, more robustly and cheaply than via traditional methods. Indeed, more than that, vetting clients in the traditional way – physically checking passports and proofs of address, for example – is fundamentally less secure than doing so through using software. According to Ali Jaw FMAAT, co-founder of Severn Accounting, AML systems can monitor in real-time, offering an extra layer of security and assurance. They are more attuned to flag up certain financial transactions or suspicious activities that may be subject to reporting requirements to certain regulatory bodies. Other key benefits With more data comes deeper insight. AML software allows accountants to pull together a huge amount of information about their clients. Stuart Hurst, director at Accounts & Legal, says software allows accountants to interpret and be guided by data in decision-making – especially if they’re well acquainted with the client’s trade. Accountants then have two levels of insight: what the data says, and what their expertise tells them. AML systems can also automatically raise red flags. They surface a great deal of relevant data during the onboarding process and on an ongoing basis. This could include new shareholders, structural changes to the company or a fundamental change in trade. The system will pick it up if a client switches location or points of trade, which should raise professional scepticism. Gauging risk Software can tell you if someone is a low, medium or high risk based on the data it finds online. It can be hard to vet international clients, meaning risk can be higher – but software can help with that process. Apps and insights New app-based banks, such as Tide, Starling or Monzo also use these checks and balances. To open an account with these banks, prospective customers scan their passports or driving licenses and record a short video in which they say their name. It’s a similar process for large transactions and for forgotten login credentials, with customers recording a new video, which is then compared against the original. Customers no longer need to go into their bank or accountancy firm with their passport and proof of address. Hurst argues this system is more secure, as users set up their proof of identity directly in the app, and the software cross-references details including addresses and professional history to verify them. Common issues to avoid Data gaps can emerge and no matter how advanced the AML software is, it’s only as good as the data available. If some information is out of date or missing that can affect the system’s output, either by throwing up red flags or by clearing the client. It can simply be a case of someone failing to update their address after they’ve moved, but it can still lead to complications where the system’s output is correct based on what is on the public record, and the client’s details have not been updated. Overreliance on a programme, and insufficient professional scepticism, are also perennial dangers. Automation can lull users into a false sense of security. Interrogating information to avoid false positives is vital. Jaw had to exercise professional judgement with one client, despite a lack of flags from his AML software. Severn Accounting decided against working with the client because there was the potential for future issues. “They were VAT registered, but they didn’t submit any VAT before they came to us and we were seeing huge transactions with no VAT being accounted for. When we raised it with them, they didn’t engage with us, and we just weren’t comfortable with it.” Humans have the final say There are a variety of reasons that a client could be flagged by AML software, though some changes in circumstance may take some time to be picked up by the system. One of those is the introduction of sanctions against a particular country, as with Russia’s invasion of Ukraine. Accounts & Legal held a review on whether it was practical to carry on with a Russian client. The firm decided not to go ahead even when the system said they’d be cleared, as the timing of a report can affect the system’s output. Hurst explains, “You can run it on the first of the month and it’ll come back approved but if something fundamental changes, it may not be approved when you run it again on fifth of the month.” Future-proofing with AI and machine learning As with so many areas of accountancy, the consensus is that artificial intelligence and machine learning will be increasingly adopted in the AML process. The appeal of this stems from vast amounts of data involved in AML compliance, and the increasing complexity of criminal methodologies, which increasingly demand agility in response. The US-based Financial Action Task Force (FATF) focused on AML AI compliance tools in a 2021 publication on the Opportunities and Challenges of New Technologies for AML. The publication examines AI’s ability to help firms analyse and respond to criminal threats by adding automated speed and accuracy to the compliance process. In particular, it highlighted machine learning as having significant potential due to its ability to learn from data without the need for extensive human intervention. That human element won’t completely disappear, though, for the reasons above. Hurst is certain that the way the profession is and the way the professional bodies are, they will always want a human being in ultimate control.
KPIs to help you plan for the cost of business crisis Posted 12/08/2022 by AAT Comment & filed under Members, Practice management, Run your business. Accountants are under pressure to forecast more accurately and in greater detail to help businesses survive. Since the COVID-19 pandemic, economic and market uncertainty mean finance teams are looking at their finances more strategically. Scenario forecasting and crisis planning have become essential tools for businesses of all sizes. Some accountants have noticed an increase in clients requiring these kinds of services, including those that previously operated from tax bill to tax bill. Key performance indicators (KPIs) are essential components in forecasting and allow accountants to measure business performance and predict future scenarios. Typical KPIs may include: forecast accuracy or forecast errorworking capitaloperating cash flowdebt to equity ratiocustomer acquisition to lifetime value We asked accountants for their favourite go-to KPIs when it comes to planning and forecasting. Here’s what they told us. Favourite KPI: debtor days help manage cash flow Sam Mitcham, SJCM Accountancy Many of my clients are now asking for cash flow planning and forecasting services. They don’t necessarily know what they’re asking for, but when I translate it for them, that’s what their needs amount to. They might ask: “what is my VAT bill likely to be next quarter if sales continue at this level?” or “If XYZ happened, what would my cash flow situation look like?” I saw this trend a lot during the pandemic – clients wanting to know what’s coming up. Previously, small business owners tended to live from tax bill to tax bill. Clients are now asking for services that they previously weren’t interested in. They’re starting to think much more strategically and looking into future-proofing. It’s brilliant because it means we can plan together and ensure a more secure future. My favourite KPI for this purpose is tracking debtor days. So many businesses let their customers get away with paying late and this can easily become habitual and therefore have negative impacts on cash flow management. Debtor days is an important measurement to ensure cash flow security. Verdict: Late payments can become habitual and can have a negative impact on cash flow. A debtor days KPI can help tackle this. Favourite KPI: gross profit and working capital are good measures for manufacturing and retail businesses Clare Bowen, Director, Monahans Businesses are much more open to scenario planning than before given the turmoil and rapid changes we have seen over the last three years. They know that a business with a flexible approach to change, that can create a survival plan for the worst-case scenario is going to fare better in the long run than a short-term, reactive business. Our task of ensuring businesses have financial contingency plans in place is made easier now that business owners understand that, since you can never see what’s around the corner, having a plan is always beneficial. My favourite go-to KPIs hugely depend on the type of business. For a manufacturing or retail business, gross profit is the figure we start with to ensure that their rate of sales provides enough GP to cover overheads. But then working capital is needed to allow the bills to be paid. Sales without income are of no use in paying the bills. Our job as accountants is to see the picture of a business that all KPIs give, identify the weaknesses, and correct them. Verdict: Accountants need to make use of many KPIs to give a full picture of business performance. Favourite KPI: Use a blend of financial and non-financial Mahmood Reza, Founder Pro Active Resolutions I am doing more one-to-one business financial forecasting and cash planning with clients these days. Having a plan has many financial and non-financial benefits, and also reduces stress and anxiety since business owners get more clarity and certainty as to what the future looks like. When things are hitting the fan and you are looking at crisis planning, then your most effective KPIs are a blend of financial and non-financial. Financial KPIs Cash is that commodity that will keep your head above water, it’s your business life jacket. Ignore revenue, it’s called a vanity measure for good reason.Cash balances: you need to have up to 13 weeks’ minimum net operating cash flow. If customers don’t buy, you have a three-month safety cushion.Profitability and gross profit margins are your friends. Monitor and manage them, this is what covers your running costs.Break even: This gives you a sanity check and a target to aim for in terms of what you need to sell to cover costs, which is a good milestone.Working capital cycle, this is your business ATM. It’s made up of debtor collection in days, plus stock turnover in days, minus creditor payment periods in days. Non-financial KPIs Website conversions: if you are getting decent web traffic, you want to see how many people are engaging.Average spend per customer and frequency: this highlights loyalty and customer behaviour. Verdict: The most effective KPIs are a blend of both financial and non-financial ones, including gross profit margins, profitability, working capital cycle and website conversions.
8 tips for success – Career advice from accountancy experts Posted 12/07/2022 by Marianne Curphey & filed under Career. Accountancy is changing, and so are the people that work in it. Far from being number crunchers, the accountant of tomorrow will need to bring a wide range of communication, strategic and business advisory skills, as well as a deep understanding of the principles of accountancy. We talked to successful and established accountants to find out what worked in their careers and what advice they had for AAT students. 1. Be flexible and prepared to take chances Christina Earls (FMAAT) took up the role of President of AAT in September. Having never had the opportunity to study with AAT when she was younger, her accountancy route came via working in the public sector and membership of CIPFA. “What worked in my career was being flexible in what I did, the roles I had, in the workplace within the finance wider area of work,” she says. “I was a manager before I became an accountant, as I was not given the opportunity to do accounting when I first got a job. I worked my way up in a different career first, and that gave me the experience to develop teams and delegate. Also, knowing where my red lines lay – so that I could sleep at night.” Reflecting on her career, she says there were a few things she wished she had done differently. “I wish that I had been prepared to take more chances in roles,” she says. “I never went for roles I did not think I could do 150% first.” She also felt that, on occasion, she had relied on managers who claimed they supported her, only to discover that she should have relied on herself and her judgement alone. 2. Find your niche and be yourself It can feel as though you need to fit into a specific mould in the accountancy world, and that was certainly how Carl Reader felt when he first started out as an accountant. Carl is Chairman at d&t and Head of Accounting (EMEA) at Practice Ignition. He serves as Chair of the Practitioner Panel at ACCA. He left school at 15 to start as an apprentice hairdresser and admits he “fell” into accountancy after that didn’t work out. “One of the biggest things for me that I didn’t know at the start of my career is that it is good to stand out,” he said. “It actually helped me far more than it hindered me. But in the early days, I didn’t realise that was the case because accountancy is all about compliance and following systems and processes. He says that the skills that today’s students need are completely different from the skills that were needed in the past. They are different from the skills that the people who are recruiting them need to have in order to succeed in their own careers. “Rather than being a processor of data, they need to become a translator of data. They need to not only understand the technical nature of what’s going on, but actually, they also need to understand the emotions behind the recipient receiving the information, whether that’s a colleague in house or the client in practice.” 3. Develop your communication skills His comments are echoed by Liz Sebag-Montefiore, career coach and Director of 10Eighty, who says that while automation has taken some of the strain of repetitive tasks, professionals realise that leadership qualities, soft skills and emotional intelligence are even more important. “Given they have visibility over the whole operation, they are well placed to become trusted advisors and provide insight and input at leadership levels providing they cultivate the skills and qualities that will be needed to work at this level,” she says. “A focus on a more holistic advisory role means accounting professionals need to understand change management and risk management in conjunction with good communication skills both oral and written.” 4. Understand how software can enhance your role Many accountants are considering moving to the cloud, but it will also take time for their clients to be comfortable with a paperless office. Neil Parsons, Managing Director, Wolters Kluwer Tax & Accounting UK, reflects that when he started out, software was not available to accounting practices or businesses to help them run their operations. “Yet here I am some years later, managing a business which enables accounting practices to succeed using software solutions. This gives me a great lens on the market, and I certainly empathise with the pain points felt by those within practice,” he says. For anyone considering a career within the profession, he says it is really important to get a solid grounding in the principles of accountancy and to spend time honing your skills. “Embrace the fact that accountancy is a constantly evolving environment and invest the time to ensure you stay up to date with the changes in your chosen field. Remember that accountancy is a global qualification, so it could also help you to see the world.” He also suggests that finding a mentor can be a great way to develop both yourself and your career. A mentor will act as a source of knowledge, will help you to set goals and, critically, will hold you accountable for those goals. 5. Become more commercial and analytical Chris Goulding is Managing Director of specialist finance and accountancy recruitment firm Wade Macdonald, a firm founded over thirty years ago and now works with Blue Chip companies across the UK. An ex-Hays plc Director, Chris has over 20 years of experience in accountancy recruitment and talent solutions, regularly featuring in AAT, ICAEW, Business Leader, and Global Recruiter with industry insights and career advice. He learnt early on in his career that accountancy was a discipline that required a regular update of skill sets, flexibility and readiness for change. The latest update to the sector is automation, and artificial intelligence (AI) and Chris is often asked by both candidates and clients about the impact AI will have on the future of finance. “My answer is that while the systems are highly advanced and superseding human efforts, they do not replace human intelligence. Yes, in accounting, automation is taking away much of the data entry and analysis that accountants have spent years mastering, but it isn’t a case of ‘one or the other’. Accounting professionals need to recognise the strengths and limits of AI and start to build an understanding of the best ways for humans and computers to work together.” New skill sets need to be developed to fit the way in which information is arrived at, interpreted, and presented, he says. With large volumes of data, you need people to interpret it, put forward recommendations, and analyse its implications. 6. Not standing still but developing skills “There is a gap in this, however, as there is an increased need for experienced and specialist skills and AI is a relatively nascent model – we’re early into the integration of it into finance and accountancy,” says Chris Goulding. So how can we ensure entry-level staff are gaining the skills needed for future careers? A UK survey of 1,000 finance professionals showed 62 per cent said there was a significant skills gap within the industry – strategic thinking, financial forecasting, and the ability to use technological software were amongst those in high demand. “Another reason why budding finance and accountancy professionals need to be constantly looking ahead, forecasting future needs and evolving their skills accordingly,” he says. 7. Be curious and open-minded Christina Earls recommends that AAT students be open-minded and develop new skills and new areas of working in different areas in finance because all roles and experiences are an opportunity. Equally important is building your professional contacts and maintaining a lifelong curiosity about your work. “Network, network, network – meet different people, listen and explain to them,” she says. “This builds great communication skills as well as confidence. Be curious, ask questions and develop that professional scepticism that will be essential to you in making professional judgements – this is definitely a superpower!” 8. Networking is key “I found that building a network of contacts of likeminded individuals, not just in the workplace but outside of it, extremely valuable,” says Heather Hill, immediate Past President of AAT, a member of AAT for over 32 years, and currently serving as a non-executive Director and Trustee of AAT. “A good place to start is AAT’s branch network, where you will meet a cross-section of people who are employees or have their own businesses and who work in different sectors. Heather’s tips for AAT students on developing their career As your career progresses, identify what further studies you need for your own professional development Look at the resources available to you through your professional membership and use them Build a strong network of professionalsTake all opportunities possible to attend branch and other events for networking and CPD purposeAdhere to the code of professional ethics; Find out more This new world of accountancy means that training needs to change and adapt to the new demands of the role. As an awarding body, AAT has reviewed the qualifications we offer and Qualifications 22 is the result of our research and development of the AAT qualifications suite. Further reading: From AAT student to Chief Financial Officer – Marina Chase’s meteoric riseStarting your career in financeIs finance right for you?What’s it like being an accountant or a bookkeeper?
Lack of care taken to protect clients’ data Posted 12/06/2022 by AAT Comment & filed under Anti-money laundering, GDPR, Members. Accountants beware: breaching data regulations leave companies at risk of millions in fines. Finance has emerged as one of the worst offenders for data breaches, according to an ongoing report by the Information Commissioner’s Office (ICO). The data security report shows how businesses have been conforming to GDPR since its inception in 2019. Finance, insurance, and credit made up just under 1 in 10 cases. This amounts to around 2,929 data breaches out of the total 32,541. Breaking down finance’s failings Data breach experts Hayes Connor analysed the ICO’s report for types of data that had been breached within the different sectors. Basic personal identifiers being breached came up top within the finance sector, at 74%. Unsurprisingly, the second-highest form of data breaches involved economic and financial data, at 37%. The findings also showed the different incident types behind the data breaches. The number one cause within the finance sector was data being emailed to incorrect recipients, in a total of 569 cases. On a related note, there were 509 cases of data being posted or faxed to the incorrect recipient, while 415 cases were caused by phishing. This demonstrates an alarming lack of care taken by employees to protect their client’s data. In our experience, this tends to be down to: Lack of knowledge surrounding GDPR.Lack of employee training within companies on GDPR and how to avoid phishing scams.Careless behaviour and lack of attention to detail. Businesses in the sector also took too long to report data breaches. As part of the 2018 GDPR regulations, data breaches must be reported within 72 hours – a stipulation unmet in 37% of cases. Such failure can result in a fine of up to £8.7m, or 2% of the offending organisation’s global turnover. Worst offenders The percentage of data breaches associated with the worst-affected sectors up until the third quarter of 2022 were: 1. Health, 19% 2. Education & childcare, 14% 3. Finance, insurance & credit, 9% 3. Retail & manufacture, 9% 3. Local government, 9% Taking data privacy more seriously Businesses and individuals should report any data breach activity to the ICO without delay. It’s also important to hold internal investigations and risk assessments to find out whether the data breach was down to systemic fault or human error, and identify potential hazards. Above all, regular employee training surrounding GDPR is a must. With so many of these data breaches being caused by human error, and such substantial sums at risk, businesses need to rethink their data handling practices now. About the author Christine Sabino is Legal Director at leading UK data breach solicitors Hayes Connor. You can read Hayes Connor’s recent study for further information on data protection flaws in the finance, credit and insurance sector.
Hybrid apprenticeships are transforming how employers train their teams Posted 12/06/2022 by Mindful Education & filed under Members. This content is brought to you by Mindful Education Since the pandemic, there has been a huge shift towards long-term hybrid working across most sectors. Employers that have moved to a hybrid working model have benefited from improved levels of staff well-being. For these employers, a natural next step is to identify hybrid learning solutions for their workforce. Supporting employers every step of the way At Mindful Education, we specialise in blended learning, delivering flexible courses and apprenticeships in accounting, management, law and human resources. We partner with over 65 training providers across the UK, and offer tailored training solutions based on individual business needs. Mindful Education supports employers across the public, private and third sectors. Our partners include NHS Trusts, local government bodies, accountants, solicitors and charitable organisations. “We have used apprenticeships to upskill our workforce, which is where the big wins are for us as an organisation. When I first looked for an apprenticeship package, I wanted an online platform that would provide everything the apprentices needed. The flexibility in the platform and the variety of information has been really helpful. For us, the blended option will always be the preferred option, because of the flexibility it offers to all parties involved.” Emma Hart, Deputy HR Director, Ambitions Academies Trust Professional qualifications Mindful Education’s online learning platforms are structured to cover the knowledge component of each apprenticeship, including the embedded or related professional qualification. The following apprenticeships are available through the Online and On Campus model: AAT Level 2 Accounts/Finance Assistant ApprenticeshipAAT Level 3 Assistant Accountant Apprenticeship AAT Level 4 Professional Accounting Technician Apprenticeship Achievement rates for Mindful Education’s courses are outstanding; 80% of Mindful Education learners who complete their qualification achieve a merit or distinction grade and pass rates are 10% above published AAT worldwide averages. The need for flexibility Our professional apprenticeships have been crafted to make teaching and learning fit in and around work commitments. All our courses have been designed to make learning as engaging, enjoyable and flexible as possible, with on-demand access to materials. Our apprenticeships enable the delivery of high quality, flexible training that empowers learners, minimises disruption to employers and delivers tangible results in the workplace. “Working with Mindful Education has really helped us to innovate our provision. Our employers love it, the platform really offers us flexibility and gives us an opportunity to provide quality as well.” Ben Norrish, Business Account Manager, Strode College On Campus sessions are carefully scheduled to integrate with online learning and we will create a bespoke training calendar that works for your team and your business. Each cohort of learners works to a unique calendar which is agreed in advance with the employer and training provider. Our courses are structured and paced, with lessons released to all learners in the group according to the agreed timetable. Mindful Education’s unique user analytics enable employers, tutors and assessors to track the progress of learners in extraordinary detail. The Mindful Education academic team works closely with our training providers to ensure that all learners are progressing as expected. We send an alert to learners if they are not on track with their learning; any significant issues are raised quickly with the tutor or manager to ensure early intervention to manage any concerns. Our courses are based on high-quality video lessons which are written and presented by our academic team. Learners can pause and re-watch sections of each video as often as they wish, ensuring they fully understand complex concepts. Lesson materials can be downloaded and accessed offline, allowing students and apprentices to apply what they have learnt to real-life work situations. Each video lesson is accompanied by motion graphics to bring concepts to life. Key learning points are clarified and given emphasis through the careful use of our unique animations and Illustrations. After each video, there is a series of questions to help consolidate the key learning points. Online studies can be accessed on demand from any device, so apprentices can log on to study during quiet periods at work, which counts towards the 6-hour off-the-job requirement “The Online and On Campus approach to the apprenticeship has been perfect for me. Doing an apprenticeship as an adult and having a family and a full-time job is quite difficult to manage. Having the flexibility to incorporate the study within my working week is fantastic.” Micha, Finance Manager, Level 3 Accounting Apprentice ————————————————————————————— To arrange an initial discussion or a demonstration of our learning platform, please get in touch: [email protected] This content is brought to you by Mindful Education
The top 10 accountancy books for 2023 Posted 12/06/2022 by Sophie Cross & filed under Students. 10 books to put on your Christmas list that will give you different perspectives, as well as better insight and understanding of technical, and financial practices. 1. How to Build a Better Business Plan: A hands-on action guide for business owners by Alastair Thomson Alastair Thomson has been a CFO for over 30 years, and How To Build A Better Business Plan is a no-nonsense and easily understandable guide to creating a brilliant business plan. It will give you valuable insight, whatever stage you’re at in your business, from idea conception to getting prepped to exit. Find out the biggest source of competition for most businesses, the real value of preparing a business plan and how investors and lenders really read a business plan. Buy the book 2. The Bookkeeper Rises: Build a successful bookkeeping business that works for you and gives you the life you really want by Jo Wood and Zoe Whitman Jo and Zoe are champions of the bookkeeping industry who run The 6 Figure Bookkeeper Club. Their best-selling book is focused on helping you to see yourself as a business owner as well as a bookkeeper. This book will help you to: start a bookkeeping practice that is right for you, find great clients, design services that transform your clients’ businesses, charge more than you think bookkeeping is worth, and build a practice that grows with you and your clients. Buy the book 3. The Finance Book: Understand the numbers even if you’re not a finance professionalby Stuart Warner and Si Hussain This book lays out a huge amount of useful financial information in a simple format to help you make sense of terminology and concepts of business finance. Buy the book 4. The First Minute: How To Start Conversations That Get Results by Chris Fenning A successful finance professional will be a successful communicator. It’s so important to get your team and clients on board with you and to be to source the information from them that you require. This book will help you to get people’s attention to get your message across in the workplace. Buy the book 5. Cash Flow Surge: 101 No-Cost and Low-Cost Fast Action Strategies to Boost Your Business Cash Flow by Alastair Thomson Alastair Thomson specialises in helping businesses increase revenues, reduce costs and build stronger cash flow. In this ‘dip in anywhere’ book, he gives 101 ideas and real-life examples to build sales, reduce costs and conduct a five-minute check of a business to pinpoint any big strategy problems. Buy the book 6. Bookkeeping and Accounting All-in-One For Dummies by Jane Kelly This popular book gives a plain English overview of basic bookkeeping, as well as daily, monthly and quarterly tasks, preparing financial statements and managing the business in order to keep things in order to comply with UK standards. It also goes through options for the latest available bookkeeping software and accounting practices. Buy the book 7. The Weird and Wonderful World of Accountancy by Holly Close and Marvin Close Fighting against the nonsense notion that accountants are boring, this book explores fascinating facts and stories that will make you never look at finance in quite the same way. From Ancient Rome to the French revolution, the invention of bubblegum to celebrities who can also do double-entry bookkeeping. Buy the book 8. No One Would Listen by Harry Markopolos No one would listen is a true financial thriller which explains how Harry Markopolos and his team uncovered Bernie Madoff’s scam (the largest ever Ponzi scheme, which defrauded thousands of investors out of tens of billions of dollars over 17 years or more) years before it made headlines and how they desperately tried to warn the government, the industry, and the financial press. Buy the book 9. The Psychology of Money by Morgan Housel With almost 30,000 reviews on Amazon (94% of them 4 or 5 stars), this really is a must-read book about money. The book offers a clear and concise method of how to have a positive outlook in an increasingly complicated financial environment. A practical finance book that gives a unique perspective on money from the lens of human psychology. Buy the book 10. Warren Buffett and the Interpretation of Financial Statements: The Search for a Company with a Durable Competitive Advantage by Mary Buffet and David Clark Written by those with true insider knowledge, this book details Warren Buffett’s interpretation of financial statements with anecdotes and quotes from the master investor himself. It does a good job of breaking down the financial parts of a company, providing insight into income statements, balance sheets and statement of cash flow. Buy the book Further Reading Catch up on the latest from Accounting Technician magazineAAT accountancy resourcesHandy excel tips and tricks
What happens to our digital assets when we die? Posted 12/05/2022 by AAT Comment & filed under Cyber security, Members, Technology. Our digital footprints are larger than ever, and we have to consider them in our end-of-life planning. The digital footprint of the average person is constantly increasing. While much of it is disposable social media output, large portions of it are very valuable to us, either from a sentimental or financial perspective. While the percentage of the population actively online climbs ever upwards, strikingly little thought has been given to what happens to our data and digital assets when we pass away. Nor, indeed, to how we access it. Financial assets For our financial assets held online – whether that’s cryptocurrencies, non-fungible tokens (NFTs) or more vanilla holdings such as online savings accounts – the issue is practical, rather than legal. “There’s no issue claiming them, as long as you trace them,” explains Gary Rycroft, partner at Joseph A Jones & Co Solicitors. “The job you have when someone dies is to find the assets and pass them on to the right people. Clearly, one of the most important factors in that is knowing where to look, and when things are online, you have to know they’re online and be able to log in and find them.” James Norris is the founder of the Digital Legacy Association, which campaigns for a greater framework around death, digital assets and our online footprint. He gives the example of gambling accounts, which are often overlooked, but frequently hold the deceased’s cash, which could range from very little to a large amount. “Very often gambling companies charge inactivity fees, so they won’t know if somebody has died,” he explains. “They charge £2 per month and that continues until the money has been depleted.” Legal problems “Our digital assets are increasing and the value of these digital assets from monetary, cultural and sentimental perspectives is also increasing,” Norris explains. “They’re fragmented across a variety of online accounts and devices, and each platform and each device that we use has its own terms of service set by the service providers in terms of data sharing. “Most platform providers or manufacturers don’t offer these services or products thinking that their customers will at some point die. Most of the organisations that hold our data are private companies and their purpose is to make money, not to ensure that your account remains active to maintain sentimental value – although they do tend to understand there is a responsibility to be able to pass on digital assets of value after somebody dies.” With each platform having its own terms of service, the way in which data can be transferred differs based on how that platform operates. Many providers are now playing catch-up trying to ensure that data can be passed on once somebody dies. “When it comes to helping somebody with their digital assets, it’s important that professionals are able to have conversations with their clients, especially as it’s a new area and there isn’t much of a history to it. It’s not something that springs to mind and that people plan for.” Logging in “A few years ago, a large insurance company put out a press release which said the best way to safeguard your passwords was to make a list of them, put it in a sealed envelope and give it to your solicitor, which sets up a whole range of issues in terms of breaking your terms of service,” says Norris. While that may not be advisable, it points to a real issue faced by a large number of people when it comes to handing over access to their loved ones: logging in. “On the Digital Legacy Association website, we have a template that allows people to really gain understanding of what they have and to share what their wishes are for those specific accounts. Password managers are an effective tool and some of them allow you to share with family members if you pay for a premium version. In some circumstances, you’d be allowed to grant access depending on the platform, but for some services you could risk breaking your terms of service.” “There isn’t a right or wrong way to plan for death digitally,” Norris adds. “There are millions of pounds of lost financial assets every year that aren’t retrieved because people don’t move their cash out of these accounts. It’s really important people understand which platforms they use. They might want to grant joint access, you might want to transfer assets and that’s individual choice.” What if I do nothing? Sadly, this isn’t as much of an option as one might think, as it leaves open a variety of risks. Fraud is the most obvious. Allowing detailed social media accounts and financial assets to remain online untouched provides would-be fraudsters with rich sources of information with which to either attempt to access unclaimed cash, or commit identity theft. A less nefarious outcome is that businesses may use the deceased’s information to train algorithms. “There is a means for someone with due legal authority to go along to these companies and say ‘I am the right person, here’s my proof’,” explains Rycroft. “Some tech companies are more cooperative and accept that grant, while others still hide behind customer privacy.” “I can see accountants and lawyers being the receptacles of this kind of information in an encrypted way,” says Rycroft. “I can see it’d be a very good thing in terms of business development for accountancy professionals and legal professionals to be the receptacle of people’s digital assets, as long as they can protect them sufficiently.” Useful services Tell Us Once: This is a service provided by the UK government, which enables relatives to notify most government departments of a loved one’s death in one go, rather than repeatedly having to tell them all separately. My Lost Accounts: A platform that allows users to enter their details or those of a loved one and, once validated, search for all bank accounts where money might reside. My Lost Accounts searches all UK banks for matches to the details entered and pulls them all into one view. Users can then be sent a cheque for the cash value of the holdings in each bank.
How R&D tax relief reforms will affect accountants Posted 12/05/2022 by AAT Comment & filed under Anti-money laundering, Members, Tax. Accountants worry reforms will discourage innovation and undermine messages about the UK being a good place to invest. One of the major changes announced in Jeremy Hunt’s Autumn Statement 2022 included a significant overhaul of the Research & Development (R&D) tax credit system, as part of continued R&D reforms first announced in Budget 2021. Currently, UK businesses that have invested in research and development activities including new and/or existing product development and/or systems or processes are eligible for tax relief. Tax relief is available for any UK business that pays Corporation Tax. Companies receive either a cash payment from HMRC or a reduction in Corporation Tax. Larger companies claim for R&D Expenditure Credit (RDEC) while R&D tax relief is aimed at small and mid-size enterprises (SMEs). The reforms, which will take effect from April 2023, primarily target the SME part of the scheme, and involve: Reducing the deduction rate for SMEs from 130% to 86%.Reducing the credit rate from 14.5% to 10%. However, larger companies eligible for RDEC are set to benefit from an increased rate from 13% to 20%. The proposals have been met with widespread criticism from SME business groups and industry bodies, which say it could cause many SMEs – and especially start-ups – to struggle to survive. We spoke to accountants across the UK to find out how the reforms are likely to affect their clients. Reforms will have huge repercussions for genuine SMEs involved in R&D Claire Lea, Director and Head of Advisory Tax, Prime The Autumn Statement included measures intended to reduce abuse of R&D tax claims by cutting the deduction rate for the SME scheme to 86% and the credit rate to 10%. This will have huge repercussions for genuine SMEs, many of which plough the money generated from the R&D credits straight back into business, reinvesting in staff recruitment and capital equipment to grow and develop. It appears the new chancellor is trying to balance the impact this will have by offering a 7% increase in RDEC expenditure credit. RDEC is a tax relief primarily used by larger companies and a small minority of SMEs where they do not qualify for the more generous SME scheme. R&D relief has been a lifeline for some of our SME clients who have struggled following the pandemic and it’s a shame to see this support being curtailed when we have seen it help to keep fledgling, innovative SMEs on their feet. At a time when the Government itself is championing innovation in particular, it seems a knock to those enterprising individuals who will ultimately make this possible. Verdict: This change will have huge repercussions for genuine SMEs involved in R&D. Cutting R&D is counterproductive and has little fiscal benefit in the short term Chris Denning, Corporate and International Tax Partner, MHA The Government bangs the drum regarding greater sector innovation but reducing the tax benefits of undertaking R&D in the UK is wholly counterproductive. It has little fiscal benefit in the short term and, coupled with the increase in Corporation Tax to 25% from 1 April next year, doesn’t send out the message that the UK is open for business and is a good place in which to invest. Verdict: Cutting R&D is counterproductive and has little fiscal benefit in the short term. The reforms aren’t there to disincentivise innovation, but they will impact genuine loss makers David Herd, Group Director, Champion Group There are two main drivers for the changes announced in the Autumn Statement: firstly, to tackle error and fraud and secondly, to simplify the scheme by reducing SME relief and increasing the RDEC rate to bring them more in line with one another. For profit-making companies with R&D claims, this isn’t particularly bad news: although the rate of relief has decreased, the increase in Corporation Tax to 25% sees overall relief on a per-£-spent basis actually increase. Loss-making companies, however, will see their relief cut greatly due to the sharp cash credit reduction, and this could severely impact start-up businesses. Companies that haven’t ever submitted a claim risk losing out significantly. Companies that don’t know about R&D tax relief, don’t act on it within six months of their accounting year-end or don’t make the required pre-notification in time will lose the ability to claim for that year. Companies do have the option of innovation grants, but these are targeted, project-driven grants and involve an all-or-nothing outcome based on a long list of conditions. Ultimately, the reforms are not there to disincentivise innovation, but they do impact genuine loss-makers adversely. Businesses that need to innovate to compete, such as software companies, will however continue to claim. It’s all about encouraging businesses to claim for the right projects for the right reasons, and ensuring specialist professional advisors operate with integrity and transparency – ultimately stamping out what HMRC describes as ‘rogue agents’. Verdict: The reforms aren’t there to disincentivise innovation but they will impact genuine loss-makers. Reduction in appetite for business to undertake R&D projects is likely but alternative funding options are available Rob Hackney, Tax Manager, DSG The Autumn Statement 2022 included changes to the rates of relief. For SMEs, the rate of additional deduction will reduce by a third and the rate of credit available for surrender of losses will reduce from 14.5% to 10%. For larger corporate businesses, the credit available under the RDEC scheme will increase from 13% to 20%. Business appetite for more speculative R&D projects is likely to reduce due to these changes, but there are still significant tax (and other) incentives for UK-based innovation. There are a variety of grant awards available to help fund R&D projects, particularly from Innovate UK – as well as various regional schemes. For companies where R&D activity includes an invention that the business can patent, the Patent Box regime can provide significant tax benefits, achieving an effective 10% Corporation Tax on revenue streams attributable to the patented invention. For capital expenditure on R&D, 100% first-year capital allowances are available, allowing immediate relief above the £1m limit of the annual investment allowance. Verdict: Reduction in appetite for business to undertake R&D projects is likely but there are still alternative funding opportunities are available. Reforms could hinder UK innovation and have big impact on SMEs Iain Wheat, Tax Manager, UHY The reforms will have a big impact on SMEs especially those carrying out R&D and surrendering the loss for a repayment, as they will be negatively impacted in the P&L and the bottom-line cash repayment – which has decreased from 14.5% to 10%. An alternative tax relief that companies can claim is Patent Box relief, which enables companies that have UK patented products to claim a beneficial tax rate on profits from the patented product. This is a very underused relief and can be very complex in its nature. Overall, I imagine that the reforms will hinder future UK innovation given that companies will have fewer resources with which to invest. Couple the R&D reforms with soaring energy costs and the cost-of-living crisis, and times will definitely get harder before they are to get better. Verdict: The reforms will have a big impact on SMEs and could hinder UK innovation due to reduction in tax credits. Businesses with genuine R&D tax relief schemes are penalised while tackling erroneous and fraudulent claims Sarah Gardner, Founder, Allegro Tax Although the R&D tax relief scheme is still available, the Corporation Tax reduction and the repayable cash credit will be significantly lower than at present. This will have a direct impact on the cash flow of businesses making the claims. Clients are understandably disappointed, and some are baffled by the motivation behind the changes. It does not appear fair that businesses making genuine, accurate claims in good faith are losing benefits due to attempts to tackle erroneous and fraudulent claims. The general consensus is that it would have made much more sense for HMRC to tackle the unscrupulous advisers and fraudulent claims head-on rather than simply making the scheme less appealing. Although there are still grants available to fund R&D, companies should be aware that receiving these can have an impact on the level of R&D relief available. Verdict: Businesses with genuine R&D tax relief schemes are being penalised in order to tackle erroneous and fraudulent claims, which does not appear fair. The rate of relief for SMEs is decreasing but it’s still worth claiming Stephanie Hurst, Tax Director for Corporate Tax Consultancy and Personal Tax Compliance, Monahans Any reduction in relief relating to R&D activities may cause businesses to re-think their activities, particularly those that are already in the midst of an innovative project. UK R&D businesses are generally small start-ups that are loss-making, so it’s likely they have been benefitting from the 14.5% payable credit option for SMEs. This payable credit is usually reinvested into the R&D project, so a reduction in the rate from April 2023 may impact plans to invest in further innovation or may delay certain stages of the activities. These reforms may spark some hesitation from new claimants, but the scheme still remains very competitive, providing a significant amount of tax relief and, in some cases, funding for innovative businesses. It is absolutely still worthwhile making a claim for R&D tax relief if you qualify. Businesses seeking alternative funding sources should always review the impact this has on any R&D tax relief claim. Verdict: The rate of relief for SMEs is decreasing but claiming is still worthwhile.
What went wrong at Cineworld? Posted 12/02/2022 by AAT Comment & filed under Members, News. UK-based cinema group Cineworld has filed for Chapter 11 insolvency protection in the United States as it struggles with huge debts and empty theatres Cineworld is the second-largest cinema group in the world after AMC Theatres, with 128 cinemas dotted around the UK and Ireland, plus 751 around the globe. Battling bankruptcy In August the group, which has racked up $4.76bn in debt, reported that its stock had crashed by more than 60%. Cineworld has struggled to finance its debts since its recovery from the Covid-19 pandemic proved slower than expected. “The pandemic was an incredibly difficult time for our business, with the enforced closure of cinemas and huge disruption to film schedules that has led us to this point,” CEO Mooky Greidinger said in a statement confirming Cineworld’s Chapter 11 status. Screening blockbusters such as Top Gun: Maverick, The Batman and Thor: Love And Thunder haven’t been enough to reinvigorate the business. Indeed, Cineworld noted in a statement to market that it did not expect the number of admissions through its doors to pick up until November 2022. With interest on its debt soaring, however, the business could ill-afford a slow recovery, something that has been exacerbated by fewer releases than usual. Over 2022, there were roughly one-third fewer wide-release movies in theatres compared with the years before the pandemic. That’s not to mention the competition posed by streaming services such as Netflix and Amazon Prime. On top of that, the chain is further weighed down by a $959m Canadian court judgement against Cineworld for pulling out of a deal to buy Canada’s Cineplex chain – a judgement that Cineworld is in the process of appealing. The show’s not over yet Despite these issues, the prevailing wisdom is that the business won’t disappear, particularly as it remains profitable despite its debts and due to the protections offered by Chapter 11. Chapter 11 is essentially a reorganisation bankruptcy, and does not mean the end for the company. It allows the business to continue to operate more or less as normal, and would have minimal impact on employees, Cineworld said. Firms including General Motors and Marvel Entertainment have in the past made Chapter 11 filings, only to bounce back later. Given Cineworld’s debts, a distinct possibility is that elements of the business, such as the Picturehouse brand, will be sold off in order to inject some liquidity and help service the liabilities. The lesson, then, is to not overstretch yourself and not assume the favourable conditions will last in perpetuity. Pandemics, of course, are aberrations, but unusual events can and do occur frequently, so it’s vital to be prepared so as to absorb their effects.
Case study: measuring carbon footprint Posted 12/01/2022 by AAT Comment & filed under Climate change, Members, Sustainable Business. How Net Zero Now gave direction and clarity to one firm’s efforts to do the right thing For Dan Harrison MAAT, founder and owner of Harrison’s Accountancy in Hertfordshire, Net Zero Now helps give direction and clarity to his firm’s efforts to do the right thing. His aims are clear: to reduce impact on the environment as soon as possible, make real changes with buy-in from the whole team and then purchase any offset to become a net zero practice. Harrison points out that while it’s easier to reduce the firm’s environmental impact at home – for example by recycling more, using less energy, walking rather than driving and so on – it’s more difficult as a business. Without knowing actual impact, attempts to offset carbon emissions have been estimates. The Net Zero Now project provides the opportunity to make a real difference in the business, and share findings with clients. So how does Net Zero Now help businesses? Arriving at an accurate measurement of carbon footprint is intricate, and smaller firms face difficulties. The protocol helps firms understand what to include, explaining the different scopes of emissions. Scope one encompasses the directly used fuels and gas at the building and through any vehicles; scope two, covers mains electricity; and scope three covers everything else. The platform has a sector-specific approach that takes in the varied nature of each business’s carbon footprint – how to account for it, how to measure success and how to achieve net zero certification. The system is simple: users enter their operational data onto the online SaaS platform, from which a real-time carbon footprint is generated. Analysis of the results provides more detail, followed by a reduction plan. If firms commit to and follow through on this plan, that can lead to certification. A better understanding For Harrison’s Accountancy, it’s been difficult in the past to understand the actual impact the firm generated – and even to get some buy-in to environmental matters. One of the firm’s biggest challenges was trying to reduce emissions in areas where it had no control, such as accounting software providers’ emissions. Cost is still a concern, but greener projects are worth more investment. The Net Zero Now platform lets you enter and update a huge amount of data to ensure you’re getting an accurate representation. Businesses can split up and segment their carbon usage to get a really detailed view as well as put in place effective measures to reduce emissions and adopt sensible offsetting measures. The system is very simple to work, and gives a sense of the direction in which the business is moving. The development of more intuitive analysis heralds a new era for businesses hoping to get on top of their emissions. Business benefits Adopting a more proactive approach towards achieving net zero may be driven by a number of factors. For Harrison the main driver has been primarily to ‘do the right thing’, given his passion for the issue. There are still business benefits, though – mainly through publicity as they can promote their net zero status. Once the firm has reached the necessary level of reduction the endgame is for businesses using the Net Zero Now platform to have access to recognised Certification Marks to communicate their progress to customers, employers and other stakeholders. It may also lead to additional services to offer clients, for example calculating their impact and reporting on their current position and improvements. AAT has been working with Net Zero Now, an online analysis and certification provider that works with accounting firms to understand, measure and reduce their carbon footprint. In developing a programme of protocols for accountants, the AAT worked with Net Zero Now alongside a number of other industry bodies to ensure the right impacts were measured, with corresponding mitigation measures calibrated to match.