Will HMRC’s new service speed up VAT registrations?

Posted by & filed under Members, Tax.

HMRC rolled out the VAT Registration Service (VRS) to agents and accountants from 1 August as part of the ongoing Making Tax Digital (MT|D) drive. The system is intended to speed up the VAT registration process as well as enhance security.

Accountants note the following changes:

•  Every taxpayer/VAT-registered business will be automatically registered for MTD under the new system.

•  Real-time checks carried out on details and information entered.

•  More details are required during registration such as Corporation Tax information and director details.

So what do accountants think? Will the new system speed up VAT registrations? And what are the implications of the new system around workload and service delivery?

The new system requires a lot more information and detail

Adam Lloyd, Tax Manager, Monahans

The new process is not dissimilar to the old registration process. You’re still directed to the Government Gateway and then required to answer questions to establish eligibility for an online application.

The process is no better or worse than before. However, one difference is the uploading of documents. Previously you were able to upload additional information as part of the process, now these need to be emailed across separately. Whilst this can be slightly more time-consuming, it does mean that you are not forced to pause the entire process if there are any issues with sourcing additional information.

The main challenge however, is the amount of information the system requires, and often results in a lot of unnecessary back and forth with the client. As usual there are also initial glitches that are still being ironed out.

Next steps:  Follow the links precisely. If you end up logged in as anything other than an agent you will get asked security questions you won’t know the answer to.

Verdict: System isn’t too different, but a lot more information and detail is required.

Teething problems are causing delays and increased workloads, but real-time functionality offers benefits

Alison Horner, Partner, Indirect Tax, Macintyre Hudson

The new system is similar to the old one but requires more data such as Corporation Tax details and director details. It also links with different tax systems such as NI numbers and checks in real time.

However, there are many teething problems which means that workloads for accountants have significantly increased.

These include issues with saving data and connection issues with the ASA (Agents Service Account) resulting in very long delays. There are also problems for overseas businesses wishing to register and the security protocols required by HMRC. Questions asked by the application process can result in dead ends for certain partnerships and businesses not yet trading. The system works well for simple VAT registrations but not for complex situations. HMRC are urgently reviewing this process and working closely with governing bodies.

Finally the old process had a document upload functionality but now, additional documents need to be sent by email or post. It is well-known that HMRC are having many problems with turnaround of post so it seems a very big step backwards to take this function away.

Right now, the new system is actually slowing things down. Perhaps when all the recommended changes are implemented then the real time data checking will help speed things up.

Next steps:

  • Have all the information you need to hand- draft registrations are only available for 7 days.
  • Ensure the client is ready to approve and can respond to the HMRC security text.
  • Increased involvement with the client to work together is also essential.
  • Feedback to HMRC about any issues.

Verdict: Teething problems are causing delays and workload issues but real-time functionality will hopefully improve things in the long-run.

Processing time has increased from 30 days to 8 weeks while removal of some key functions makes the new system more cumbersome

Harshjeet Vaghani, Tax Advisor and Trainee, Oury Clark

There are no major changes to the type of information collected under the new system. However, the UTR number is now mandatory for VAT registration applications for UK entities.

There are some pros and cons of the new system:

• The benefit under VRS is that it will automatically register the taxpayer for MTD (Making Tax Digital) once the VAT number is allocated.

• However, the VRS does not allow the user to save the draft application and only allows one to saves the YES/NO questions which is cumbersome.

• The is also no longer the option to upload documents. Instead, documents have to be emailed or sent by post which is quite regressive.

• Additional checks on VAT registration application for a non-established taxable person takes more time to get than for a UK established entity.

• Progress of the applications filed is not visible on VRS after 7 days.

In my view, the new service has not sped up VAT registrations. It’s actually taking longer. Processing time has increased from 30 days to 8 weeks.

Overall, I preferred the legacy service (old portal) as it was easier to navigate and much more efficient.

Next steps: The new system requires a lot of patience while initial teething issues are ironed out, so be prepared for longer processing times.

Verdict: Processing time has increased from 30 days to 8 weeks and the removal of some key functionality makes new system more cumbersome.

Differences are only superficial, but benefits are yet to be seen

Greg Timson, Chief Accountant, inniAccounts

For the most part, there are only superficial differences between the two systems and their forms: it’s presented differently but the content is the same.

However, we understand that the UTR number is now required for new companies which could cause delays. It also means we can’t register for all taxes at the same time – for example, we now have to wait for VAT.

At the moment, I can’t really see the incremental benefit of this new system – yet. The old system worked, but perhaps in future there will be benefits in terms of streamlining processes in the background. For instance, it could speed up HMRC processing times.

Next steps: Don’t worry about the changed look to the form, generally content is the same and it works well. As ever, have all your company and personal details to hand when you start and ensure you have the UTR number.

Verdict: There are only superficial differences between the new and old system but benefits of the new system are yet to be seen.

Making Tax Digital for the self-employed

Posted by & filed under Tax.

This content is brought to you by Xero.

Everything you need to know about the upcoming Making Tax Digital for Income Tax Self Assessment changes.

The next phase of Making Tax Digital (MTD) is on the horizon, with MTD rules extended to income tax from 6 April 2024. This means that 4.2 million taxpayers earning above £10,000 from business and property will need to sign up ahead of the deadline. The new rules will affect self-employed people including freelancers, construction workers, side hustlers, and landlords.

VAT-registered sole traders will already be familiar with Making Tax Digital, but many others will need to get cloud-based accounting software in place so that they can comply with MTD for ITSA. Here’s everything you need to know about supporting your clients with the upcoming changes.

How will Making Tax Digital affect your self-employed clients?

Sole traders and landlords earning above £10,000 need to have MTD for ITSA compatible software in place before Making Tax Digital for Income Tax Self Assessment (ITSA) comes into effect on 6 April 2024. They will need to keep digital records and submit quarterly updates to HMRC, as well as an End of Period Statement (EOPS) at the end of the fourth quarter, and a final declaration that includes all other taxable income by 31 January every year.

Accountants will still be able to submit returns on behalf of their clients, but will no longer be able to do this from the HMRC website. You’ll need to send updates to HMRC via clients’ compatible accounting software. This includes your clients’ quarterly updates, EOPS and final declarations.

Your self-employed clients may already be familiar with MTD rules if they are VAT registered. As of April 2022, all VAT registered businesses are now required to keep digital records and submit VAT returns with MTD software.

When does MTD for ITSA start for self-employed clients?

MTD for ITSA rules apply from 6 April 2024.

Sole traders and landlords can sign up ahead of time to start getting used to MTD rules. Find out if clients are eligible for early MTD ITSA registration here.

What about clients that don’t follow the tax year?

For clients who follow the tax year, the digital start date is 6 April 2024. For clients that don’t follow the tax year, the digital start date is the day their accounting period begins, which will fall on or after 6 April 2024.

Will all your self-employed clients have to go digital?

All self-employed people and landlords with a total income (from business or property) above £10,000 will need to follow MTD rules for ITSA from 6 April 2024, unless digitally exempt.

If a client has multiple businesses or sources of property income, the income earned from all of them contributes to the £10,000 threshold.

Sole traders earning below this threshold can continue to use the old HMRC system for filing their returns.

What will clients need to submit for MTD for ITSA?

Starting from 6 April 2024, your self-employed clients will need to keep digital records of income and expenditure. There are three parts they’ll need to submit for MTD for ITSA:

  1. Quarterly updates. These are summaries of business income and expenditure.
  2. End of Period Statement (EOPS). They’ll need to submit one of these per year, for each source of income.
  3. Final declaration. This is where clients will share details of all other taxable income, including investments and savings interest.

Can you sign clients up for MTD for ITSA?

Yes. To sign clients up to MTD ITSA, you’ll need an Agent Services Account (ASA). You can manage all your clients through a single account. Your client will need to have MTD for ITSA have compatible software in place first. You’ll then need to request authorisation from your client, via your ASA. You can find out more about how to do this on the gov.uk website.

Can self-employed clients opt-out of MTD for ITSA?

No. If a client is earning above the MTD ITSA threshold of £10,000, Making Tax Digital is not optional from April 2024. However, those that are digitally exempt do not need to follow MTD rules. This could include people who are elderly, have a disability, or live in a remote location. Requests to be exempt from MTD ITSA can be made on the gov.uk website.

Will self-employed clients need MTD software?

If they are not already doing so, your clients will need to start keeping digital records with MTD compatible software. Using MTD compatible software will also enable sole traders and landlords to submit their quarterly updates and annual submissions directly from the platform. By using software with additional features clients can also reduce the administrative burden of digital recordkeeping, like invoicing and expense capture.

Can self-employed clients use spreadsheets for MTD?

Some clients may wish to use bridging software, in which case you should advise them on the pros and cons of this. Using bridging software for MTD for ITSA is more complicated than using it for VAT.

Bridging software was popular during the first phase of MTD for VAT because it allowed businesses to continue using their spreadsheets for VAT returns. With MTD for ITSA, the self-employed will need to submit quarterly statements, EOPS and a final declaration, not just a single yearly return. This makes keeping all of the relevant records in a spreadsheet more difficult. Clients also need to keep to the digital linking rules.

There’s no risk of losing, deleting, or corrupting spreadsheet cells in cloud-based accounting software. HMRC recognised software acts as safe storage for all your clients’ financial records and will also help ensure compliance with MTD.

Do self-employed clients need to sign up for MTD for VAT and MTD for ITSA separately?

Yes. The systems are separate, so they may need to sign up for both. Some sole traders will need to sign up for MTD for VAT and MTD for ITSA, whereas others will only need to sign up for MTD for ITSA.

How should you prepare your clients and practice for MTD for ITSA?

The MTD for ITSA deadline might seem a little way off – but the sooner you start preparing your practice and clients for the change, the easier it will be to make the transition.

Steps you can take now include educating your team on MTD for ITSA, assessing your client base to see who needs to follow the new rules, and ensuring you have an Agent Services Account.

You should let your clients know about the changes, educate them on digital record-keeping and ensure they have MTD for Income Tax compatible software in place in plenty of time.  It is also worth considering signing up some clients early and testing the processes. The more time your clients can spend getting used to new digital tools, the easier you’ll both find the transition to Making Tax Digital.

Want more information on Making Tax Digital? You can keep up to date with the latest on MTD by bookmarking Xero’s Making Tax Digital for ITSA resource hub and MTD for ITSA page.

If you’re not yet a Xero partner, visit our Xero partner programme where you can find out more about becoming a partner and join over 100,000 accountants and bookkeepers using Xero in their practice. Get the tools and resources you need to succeed.

This content is brought to you by Xero.

HMRC promises one-day response to overdue CT claims

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

HMRC is introducing a change to help Corporation Tax customers claim their repayment faster if they have waited for longer than 8 weeks since making their claim. 

From 5 September 2022, following a successful trial, HMRC will aim to respond to all progress chasing calls for Corporation Tax repayments within one working day, where the customer has waited more than 8 weeks since submitting their claim. Corporation Tax advisers will escalate these cases to a technical adviser in real-time. Where a technical adviser is not available to respond in real-time, the customer will be added to a list to be worked by a technical adviser within one working day. 

This should particularly benefit customers with complex cases and those who are in receipt of a high-value repayment, and will significantly reduce the number of times a customer will have to contact HMRC to progress their Corporation Tax repayment claim.

From AAT student to finance manager at one of the largest UK supermarkets

Posted by & filed under Career profiles.

Rob McClay has had an interesting and varied career in finance, working for large corporates and start-ups. He is currently on a short career break to travel around Spain and Portugal before he moves into a new role.

Here he tells us about his career journey and what it’s like working in finance for different types of companies.

Could you tell us about your recent roles?

Right now, I’m on a short career break, so I can take some time to recharge and do a bit of travelling before starting a new job. My last role, which I was in for 18 months, was Finance Manager working for one of the big grocery retailers in the Grocery Finance team. This role was split into two areas; the first was supporting my buying team with anything and everything they needed from a finance point of view, sort of being their CFO.

The other area was being the face for my buying team to the rest of the finance division and making sure the performance of my buying category was well understood. Before that, I spent two years working for a start-up drinks brand (called No.1 Living) as Finance and Operations Manager. I reported to the CEO and was responsible for all the financial and operational aspects of the company; everything from AP, AR, payroll, VAT, P&L, balance sheet, and cash-flow forecasting to production forecasts, packaging, insurance, IT, HR and legal to name a few!

What did a typical day look like in your last role?

Monday mornings are a big deal in grocery retail. I used to get up early (I was sometimes online for 7am) to kick off the reporting and analysis of the performance of the prior week. The world has been so volatile for the past couple of years (to put it lightly!); there are so many factors affecting performance. Covid skews our year-on-year metrics, not to mention inflation and global supply chain issues, which constantly affect the market. It was my job to piece it all together and pull together a story. The rest of the day was spent getting updates on company performance.

Whilst I was only responsible for my grocery category, it’s helpful to understand what’s going on in other areas and get a general overview of the business and market. On other days I could be supporting my category with their monthly forecasting of sales and profit for the rest of the year, or sitting in on strategy or project meetings that affect my category.

What was the best part of your job?

Everyone uses supermarkets, and groceries are an important part of everyone’s lives. This made my job so relatable and interesting, especially throughout the turbulent times we’re living through. Getting under the skin of how Brexit, Covid, inflation, heatwaves, etc. affect UK shopping habits is fascinating.

Why did you decide on a career in finance?

I got into finance by chance. It wasn’t my plan, but I got given an opportunity that I jumped at. I was studying Chemical Engineering in Manchester and was working part-time at a supermarket. I think it was safe to say I wasn’t giving my course as much focus as I should have been, and I ended up dropping out. I went full-time in the supermarket and was initially pursuing a career in retail management however, an entry-level opportunity came up to work in Finance Operations. With my maths and science background from college and university, finance felt like a career option where these skills would be transferrable; plus, I’ve always loved a spreadsheet!

What skills do you need to work in finance?

A willingness and openness to learning is a definite must. AAT provides a solid foundation for working in finance, but then systems, processes and how you might look at a set of numbers will vary massively between teams and organisations, so you need to be able to learn new ways of working as you move along your career journey to build up a repertoire of knowledge and experience along the way.

What are some of the myths about working in finance?

That you need to be as good as Rachel Riley (or Carol Vorderman) in Countdown! Despite getting an A in A-Level in Maths, I am personally terrible at mental arithmetic. What is needed is an understanding of how to get to an answer mathematically, not necessarily being able to work it out in your head – we have spreadsheets for that!

What aspects of accounting work are there that people might be surprised to hear about?

The usual stereotype is that we’re very introverted and process driven, but as a finance business partner, you have to be very engaging and communicative with the people you work with to help to translate finance for non-finance colleagues.

Accountants are also stereotyped as always wanting certainty however, over the past few years, we’ve had to become very comfortable with uncertainty – working with ambiguity and being able to provide financial support with very little information to base it on.

Why is finance a great career?

I love working in finance because it is such a varied career. Most, if not all, companies have a finance function, so there are always loads of career options wherever you are based in the world, and you can work for companies of any size. You also get a chance to work with a wide variety of business functions such as marketing, supply chain/logistics, IT, HR, legal, and buying, so you can make your journey as varied as you want it to be. And finance is such a transferrable career. I’ve seen many finance colleagues move into other areas such as buying, marketing, operations, supply chain, logistics, HR and teaching.

Is finance a good career for a young person or for someone considering changing careers?

Definitely! It is such a learning-based career that you can pick it up at any stage in your journey, whether it be straight from school or college, after university (regardless of what degree you did) or part way through your career. Any experience could be relevant to a job in finance. For example, I worked in a supermarket for seven years before I went into finance, and there was loads of knowledge that I could bring from that to working in finance.

What different benefits do you get working in a start-up versus a large business?

With a large business, there is a lot of variety in the different types of roles you can do. I started in finance operations, working in several roles that allowed me to build up my reconciliation skills, debits/credits and systems knowledge, and learned the importance of working within a control framework. I then took the opportunity to apply for a role in commercial finance. Commercial finance is an area that I think I would have struggled to get into without any commercial experience if I was applying externally, but the benefit of working for a big company is that I was given a chance to try something new even if I didn’t necessarily have experience in that area.

Working for a start-up allowed me to have loads of variety within the same role. My role at No.1 Living was so broad, and it was great to be able to apply my experience from all my roles working for a large business. I had so much responsibility and accountability and learned so much in my two years at No.1 Living.

Further reading:

Weighing up the risks of cryptocurrencies

Posted by & filed under Cryptocurrency, Members, Policy.

As the Treasury Select Committee holds an inquiry into the opportunities and risks crypto-assets bring to both consumers and businesses in the UK, Phil Hall AAT Head of Public Affairs & Public Policy, takes a close look at what has rapidly become a multi-billion pound industry.

As a Treasury Select Committee inquiry gets underway, Phil Hall analyses the benefits and drawbacks of crypto

Innovation vs Regulation

In April 2022, the Government confirmed it wishes to ensure Britain becomes a global hub for crypto assets technology and investment. This bold approach could provide many opportunities but equally comes with inherent risks.

Appreciating the requirement to balance the need for regulation and the encouragement of innovation, AAT believes that more regulation (perhaps just better enforcement) is needed in this area.

For example, although the Financial Conduct Authority (FCA) states that 90% of crypto firms seeking FCA approval for anti-money laundering controls have either withdrawn their applications or been refused because they could not meet the required standards, this does not mean money laundering is being prevented, it simply means firms are unapproved.

At the same time, it is easy to sympathise with FCA Chair Charles Randell who recently said he was opposed to including crypto firms under the Financial Services Compensation Scheme (FSCS) as this would mean the fees paid by regulated financial services firms from banks to financial advisers would be available to compensate the victims of failing crypto firms.

Against this backdrop, the need for innovation and the need for regulation, the opportunities for the UK as well as the risks, it is essential that policymakers take an independent, evidence-based approach to this issue.

Cryptocurrency benefits

Job creation is often claimed as a benefit of increased investment in crypto, and has been frequently referenced by the UK Government as it attempts to turn the UK into a crypto hub. However, the loss of thousands of jobs in the cryptocurrency market over the last six months undermines this justification.

Another much-heralded opportunity is the possibility for investors to make outsized investment returns. Some consumers have been lucky enough to do so, but many have also realised substantial losses as a result of the inherently risky nature of crypto assets and the fact that despite being designed as a currency for payment, many consumers simply view private cryptocurrencies as an investment opportunity.

Historically low-interest rates have made crypto investments particularly attractive to those unable to obtain reasonable returns in recent years. Although this is now changing as interest rates repeatedly rise both in the UK and abroad, crypto investment may continue to be attractive as a means of keeping pace with record inflation.

The opportunity for short settlement times is clear but this is now increasingly the case with standard banking payment systems. Where crypto does have a tangible advantage is cost, given its comparatively low fees when used as payment.

Myriad crypto risks

In 2019, a report from the G7 on stablecoins found that they pose a serious threat to a range of public policy areas, including “challenges to fair competition, financial stability, monetary policy and, in the extreme, the international monetary system”.

The FCA and Bank of England have long warned that cryptocurrencies are such a high-risk investment. Therefore, if consumers invest in these types of products, they should be prepared to lose all their money. These words have not deterred UK consumers, over 2 million of whom now own digital currencies. A vast number lost significant sums when the cryptocurrency market lost more than 50% of its value in 2022.

Will cryptocurrencies ever replace traditional payment methods?

Private crypto-assets are unlikely to be used as digital currencies on a large scale in the short to medium term.

It is clear that the majority of the 2 million-plus consumers who hold cryptocurrencies in the UK are doing so as an investment opportunity rather than holding currency for utilisation as a payment method. 

The likes of Amazon and Microsoft have decided to accept cryptocurrency payment, as have EY and PwC in relation to accountancy services. But discussions with AAT Licensed Accountants – who provide tax and accountancy services to over 600,000 small businesses – reveal their belief that there is very little appetite for small businesses, especially small accountancy firms, to do the same.

This is primarily due to the high degree of risk involved given the wild fluctuations in price (although it could be argued this is little different to other currency exchanges).

The key question in determining whether or not cryptocurrency will become a widespread payment method, let alone replace traditional payment methods, is what additional or different benefits it can offer its users. That question is very difficult to answer because it is far from clear if there are any significant advantages.

Speaking to AAT Licensed Accountants, they report a small degree of client usage, and this is being driven by the end user, for example, digital-only businesses who felt it provided them with greater access to a specific consumer group but otherwise demand as a payment method was very, very limited.

Whilst private cryptocurrencies like Bitcoin and Ethereum may never replace traditional currencies, a Central Bank Digital Currency (CBDC) represent a very different proposition. Increased trust, reduced risk, greater stability and government backing make a CBDC a much more attractive proposition.

Advantages of Central Bank Digital Currencies

Replacing cash with a CBDC could reduce money laundering, tax evasion, and other illegal transactions, including the use of forged notes. In the first half of 2021 there were 58,000 notes taken out of circulation by the Bank of England (and many more that were not). In contrast, the largely cashless South Korean economy reported just 272 such notes. 

There would also be benefits for cross-border payments. In 2018, a joint study by the Bank of Canada, the Monetary Authority of Singapore and the Bank of England, concluded that a CBDC would lead to improvements in counterparty credit as well as a reduction in payment and settlement risks.

Improving the efficiency of processes to make payments is another factor, likely to be especially notable with regard to wholesale or large-value payment systems.

The eventual replacement of notes and coins would also save millions of pounds in production and transportation costs.

Notwithstanding the 2022 losses endured by many cryptocurrencies, as Bitcoin and other private cryptocurrencies continue to increase in usage, central banks are effectively losing market share, a CBDC could help reverse this

The risks of a CBDC

CBDCs are very different to private cryptocurrencies but the seriousness with which CBDCs are being treated inadvertently gives credibility to private cryptocurrencies.

Data protection and privacy risks are significant and whilst they may not feature prominently in countries like China, in the UK these could prove considerable.

Earlier this year, the World Bank asked what are the potential risks/challenges associated with introducing a CBDC. It concluded:

“The introduction of CBDC could disrupt the existing financial-intermediation structure. In addition, depending on design and country context, CBDC could pose risks to financial stability, financial integrity, data protection and privacy, and cyber resilience. Further, it can have implications for the legal and regulatory framework, increased responsibilities of the central bank, and could also lead potentially to currency substitution, especially in the context of cross-border CBDC.”

These are significant risks that provide food for thought for consumers, businesses and of course policymakers.

AAT will continue to make the case for tighter regulation where necessary and increased innovation where tangible consumer/business benefits are likely to follow. It’s a tricky balancing act but one that the UK could benefit from if properly managed.

Get into… charity accounting

Posted by & filed under Career.

Sian Broughton MAAT, chief executive of East Riding Voluntary Action, takes us through her journey of charity accounting, and how she supports the sector.  

My job

We’re what’s called an infrastructural organisation for charities. So we help them with funding, accounts, payroll, development work – a wide range of activities.

My specific role is a bit of a split role. I still maintain the financial management of the organisation, and I also do charity independent examinations and year-end accounts for some of the external clients, as well managing the organisation strategically.

I also have overall responsibility for HR, staff management. I’m the company secretary. It’s a wide-ranging role.

How to land the job

Essentials:

  • Full AAT qualifications
  • Excellent communication skills
  • Willingness to learn

Good to have:

  • Voluntary work at a charity
  • Further accounting qualifications, such as CIMA
  • ICAEW diploma in charity accounting, or similar

Salary

Accountant roles average £35,253, according to Indeed. Check here for live data.

Where you can go:

  • Fund accountant
  • Finance officer
  • Charity specialist in practice
  • Finance manager
  • Charity CFO
  • Charity CEO

How I got here

When I left school, I had no idea what I wanted to do, but I went on to do an HND in business studies. I then got a job in a Scunthorpe-based poverty charity called The Forge Project, doing admin. I also was given the responsibility for their accounts, so I decided to do AAT. From there, after about two years another job came up within a similar organisation, as a finance manager.

I then moved to my current company, I did the CIMA qualifications, and during the last year of that I also took the diploma and charity accounting exam through the ICAEW. In 2014, I was promoted to chief executive.

My challenges

Charity accounting is quite a specialist thing, because there are different types of charities. So you have general charitable associations and CIOs. They’re both types of organisations that are registered with the Charity Commission, so with regard to accounts, they have to follow the charity-specific legislation.

When they’re small charities they can do receipts and payments accounting, which is a simplified form of accounts, but as they get much larger or if they’re a limited company as well – previous to the CIO structure, that was the only way to be incorporated – those charities have to follow company law as well as charity law regarding the finances. And there’s been some considerable changes that came in with the change to FRS102.

So as I said, those large charities, those limited companies, they have to ensure that they comply with FRS102, and the Charity Statements of Recommended Practice (SORP). There’s much more structure around the way that the accounts are prepared. And then obviously there’s the Independent Examination Regime, and what actually is required from the charity independent examiner.

A lot of organisations rely on grant funding or contracts with the local authority. With austerity measures, unfortunately that income is reducing significantly, and that has a huge impact on charitable organisations being able to deliver their services at a level that is required. The flip side of that is that actually, more people require the services of charities, so it’s balancing that workload with the income pressures, they haven’t been able to deliver the level of services required.

Where the time goes

I work with a lot of people who fall into charity accounting. In a lot of the management committees and trustees of charities, the top people are volunteers. So I often deal with people who have been elected as the treasurer, and they’re not finance professionals. In that case, it’s about working with them, upscaling them, supporting them. They’re often doing it for their love of something, it depends on what that charity does. It could be it supports disabled children and that person has a disabled child, which is why they’ve got involved. It’s about looking at people’s reasons and meeting a wide range of people who are doing something good for their community. It’s very inspirational.

You have got to be confident but personable, because we deal with a wide range of individuals. They need to be able to communicate effectively. Being able to articulate your skills, and explain accounting information in a way that is easily understandable for people who are not accountancy trained professionals.

One of the things that we do here is a community accountancy service. We do accounts and payroll for groups, but we also give them training and support so that they can do their own accounts. We work with the treasurers to train them and support them so that they build up the skills and empower them so that they can do it themselves.

We also offer volunteering opportunities as well. We have some people who’ve completed their AAT who haven’t been able to find employment straight away, because although they’ve got the qualification, a lot of employers also want that experience. We offer them a chance to come in and work with us to develop that experience, and then we offer them a reference for a new employer. Within a lot of charities, you may only have one finance professional if any, so if you come across something that’s out of the ordinary and you need a bit of support, the support is generally not always there. So we allow people to contact us and we’ll support them with whatever those issues are.

My goals

When we had one of our groups that we were working with, they’d had issues with their finances, and their funding was a bit confused. We worked with them to get their funding system up and running again. We got a thank you letter from them which said that without our help, that organisation would have closed. They supported over 7,000 young people with holiday activities, and a lot of those had additional needs or disabilities. So it’s that sort of thing. Although you’re not on the front lines, the work that we do is valued and it supports a lot of organisations to continue to achieve their mission.

Capacity challenges and communication gaps – are we ready for MTD for ITSA?

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

Is HMRC doing enough to communicate the challenges to clients who face more work and higher fees?

As of April this year, all VAT-registered businesses are legally required to keep digital VAT records and returns using Making Tax Digital (MTD)-compliant software.

MTD for Income Tax Self-Assessment (ITSA) will follow in April 2024. It seems far off, but preparations are needed sooner than many think.

MTD ITSA is likely to increase workloads exponentially, putting pressure on accountancy firms and raising concerns over capacity issues, although in the long-run the new system should save time and provide new opportunities for clients and agents alike. 

A Sage report back in March revealed that over half of accountant respondents (58.7 per cent) view MTD ITSA as a new opportunity for business growth, despite increased workload challenges.

Currently, ITSA returns are filed once a year but increased reporting under MTD means there will be a minimum of four updates per year just for self-assessment alone as well as End of Period statements at the end of the fourth quarter for each separate income stream. This means that in many cases, businesses could face fifteen returns per year in total:

  • X4 MTD VAT returns (quarterly).
  • X4 MTD ITSA returns for self-employment income (quarterly).
  • X4 MTD ITSA returns for property income (quarterly).
  • X1 End of Period Statement for self-employment income.
  • X1 end of Period Statement for property income.
  • Final declaration.

Behind the scenes, AAT has been lobbying for an initial twice-yearly MTD for ITSA reporting requirement rather than quarterly to help ease the pressure on businesses.

A comprehensive and compact update on Financial Reporting

Presented by Steve Collings, this one-day mastercourse will give you the tools to tackle your reporting challenges, prepare you for the compliance period and help you to confidently advise your clients. Book your place now to capitalise on the new developments, be future-ready in this highly informative online course.

Book now

HMRC communications have been scant – there could be capacity issues

Tom Sheen, private client manager, Ashcroft

Businesses are as ready for MTD ITSA as possible, despite numerous system delays since it was first announced in 2015. During this period, communication from HMRC has been scant at best, leaving agents and software providers with the task of updating individuals.

The increased reporting under MTD ITSA means we are shifting from as little as one record request per year for our clientele to a minimum quarterly regime for self-assessment. This will cause capacity issues and mean a shift in our way of working as well as our clients.

Clients will face increased professional fees, software costs and time spent dealing with their own bookkeeping at more regular intervals, which HMRC have recognised in their policy paper.

At Ashcroft, we’ve ensured our software is MTD-compliant and staff have undergone in-house training.

Next steps: Notwithstanding any further delays, it is about communicating to clientele whether they will be affected and what the new regime looks like. Some responsibility also needs to lie with HMRC – they need to improve the way they communicate this significant change in tax reporting.

Verdict: Businesses are as ready as they can be, but HMRC communications have been scant.

Small sole traders and landlords are not ready – regular communication and expert support is crucial

Clare Bowen, Director of Business Services, Monahans


MTD ITSA will affect a broad selection of individuals, including around 2.6 million self-employed and 1 million landlords. But the scale of the challenge will make it impossible for everyone to transition within the final few months, so accountants and their clients should create a plan soon to anticipate any issues.

One of the challenges for accountants is to ensure clients see the benefits of the new system: it will be a much more efficient digital filing system which will help taxpayers avoid inputting errors and ensure records and knowledge of tax liabilities to be kept up-to-date. But the slow release of information from HMRC has made this difficult to communicate.

While large sole-trader businesses are ready for MTD ITSA, landlords and smaller sole traders are not. They still haven’t received enough information in which to understand the implications for record-keeping.

In addition, there should have been more of a phased-in approach for landlords first, including those with over £20,000 income, to differentiate between accidental landlords with just one property.

Next steps: Many firms are segmenting their clients to identify offerings for each group and determine solutions. Communication internally and with clients is key at this point so that everyone knows what they need to do now and in the future.

Verdict: Large sole traders are ready for MTD ITSA but small-scale traders and landlords are not – internal and client communications along with expert accountancy support is therefore key.

HMRC should consider interim measures due to the level of concern

Phil Hall, Head of Public Affairs & Public Policy, AAT

AAT has engaged extensively with members on this subject. While it is clear many are supportive of the MTD concept, they have genuine concerns about the manner of implementation and the likely impact on their businesses and those of their clients.

It could also have a negative impact on the overall credibility of the programme and a reputational impact on HMRC and Government. This would have implications for wider tax industry morale. The three main concerns identified by our members are:

  • Communications: a lack of communication about MTD direct to the 4million+ affected individuals and businesses
  • Workload: the resource implications of quadrupling tax submission requirements from an annual tax return to quarterly updates
  • Threshold: the inappropriateness of the £10,000 annual MTD threshold which means those with no tax liability will be required to submit quarterly tax updates

AAT, together with ACCA, has written to the Financial Secretary to the Treasury to make her aware of members’ concerns. We have suggested some approaches to overcome difficulties.  For example,  reporting six-monthly rather than quarterly from 2024-2026 to ease into MTD and raising the MTD threshold from £10,000 to match the personal allowance (currently £12,570). We are also regularly engaging with HMRC officials on the subject. The key message for members is to start preparing NOW, don’t wait, and make sure you are doing your utmost to raise clients’ awareness and understanding of what are now imminent changes.

Next steps:  HMRC should consider raising the threshold to £10,000 and using six-monthly reporting initially. But AAT members must act now to raise clients’ awareness and prepare.

Verdict: AAT and most of its members support the concept of MTD and want it to be successful but there are genuine concerns about the way it’s being implemented. We are therefore working very hard to deliver improvements on behalf of our members and their clients. Rest assured we will continue to do so over the coming weeks and months.

People are gearing up for MTD ITSA so let’s maintain momentum

James Poyser, CEO, Provestor, sister company to InniAccounts


MTD ITSA should happen as soon as possible without any phased-in approach or further delay as businesses have been gearing up for it. Let’s build on this momentum.

I am, however, surprised HMRC hasn’t started a public campaign aimed at taxpayers to help drive awareness.

There will be workload and capacity issues, but these will vary from business to business. Quarterly returns for income tax are wafer thin – just two numbers as a minimum. And if clients are already bookkeeping using electronic software there should be very little cost in making the transition. The advantage is an updated tax estimate every quarter – saving accountants a job – and hopefully reduced tax bill shock.

At Provestor, we’re digitally native, so the transition cost for us and our clients is near-zero.

Next steps: MTD ITSA will of course be harder for some clients, especially ‘brown bag’ clients, but accountants must ensure all clients come on this journey. Accountants also need to ensure they’re getting paid fairly for their time. However, I’ve known some accountants talking about a four-fold bill increase. But HMRC estimates MTD should cost clients around £11 per month extra – including software costs – so keep that in mind when considering price hikes.

Verdict: Businesses are gearing up for MTD ITSA so let’s keep up the momentum. Quarterly returns for income tax are wafer thin and won’t cause too many problems.

A comprehensive and compact update on Financial Reporting

Presented by Steve Collings, this one-day mastercourse will give you the tools to tackle your reporting challenges, prepare you for the compliance period and help you to confidently advise your clients. Book your place now to capitalise on the new developments, be future-ready in this highly informative online course.

Book now

Looking inward to find career potential

Posted by & filed under Career, Members.

Internal audit is thriving and can be an attractive career pathway for AAT members.

Words Santhie Goundar 

The audit profession has come under scrutiny due to episodes like the collapse of Carillion and the record £14m fine handed to KPMG. But internal audit is a vastly different world. Not only is it in better shape, it offers attractive carer pathways for AAT members.

The role of internal audit

Internal audit has “a broader scope” than external audit, explains Fehzan Mehdi FMAAT, internal audit manager at a large retailer. “In an external audit, your main focus is on ensuring the financial statements are free from material misstatement,” he says. “Internal audit, however, will cover areas of risk outside of finance – for example, reviewing health and safety procedures, which may not have an impact on the financial statements, but carry legal or reputational risk.” 

The stakeholders, too, are different: “In an external audit, your key stakeholders and responsibilities are to the shareholders or members of that organisation. You’ll typically perform an annual audit and leave management with any recommendations – whereas in internal audit, your reporting line is to the board or audit committee, and you’ll work more closely with management,” Mehdi says. 

The aim of the internal audit function, according to Allnex senior internal auditor Rebecca Pope FMAAT, is “to objectively evaluate a company’s risk management, governance and internal controls”. She adds that the work is “heavily based on a company’s internal control systems rather than the statutory accounts”.  

Pope believes an internal auditor’s work “should be conducted with a business partnering mindset, rather than a ‘policing’ mindset”. It’s important, she says, that internal auditors “build trust with auditees in order to improve business practices”. 

Paul Reynolds FMAAT, founder of Fair Account, a small firm providing internal audits for councils, agrees. In the local government sector his firm operates in – from small parish and town councils up to large-sized county councils across South and Southwest England – his work is vital, with public money at stake. “The internal auditor is not there to ‘catch an organisation out’ – you’re there to help improve its processes  so they can do a better job, and save money by streamlining certain things.” 

“Internal audit will cover areas of risk outside of finance – for example, reviewing health and safety procedures.”- Fehzan Mehdi FMAAT 

Providing a ‘professional safeguard’ to firms 

Internal audit “provides independent assurance that risk, governance, and controls are being managed effectively”, Fehzan Mehdi FMAAT, internal audit manager at a major retailer, says.  

“Typically, internal audit reports to the board or audit committee, which ensures that the internal audit function remains unbiased and free from management pressure.” An internal audit role can cover a range of areas, typically involving periodic reviews on controls and risk management, but “it’s also very likely you’ll be working on ad hoc projects outside of finance as directed by the board or audit committee,” Mehdi says.  

“As a result of this, internal auditors must have a wide range of skills, qualifications, and experience to draw on.” 

The role “acts as a professional safeguard”, Lindenmeyer International finance executive Andy Murray MAAT says, partnering with various departments “to ensure internal controls work, but also that they are fit for purpose – internal audit can test these internal processes and procedures, and provide feedback on any inefficiencies and any improvements that are required”. 

The internal controls of an organisation, he explains, should assist the business with risk mitigation, regulatory compliance and governance: “Internal audit also has a role to play in helping services to ensure operational effectiveness in emerging issues.” 

You can learn “so much more about a business than purely finance and accounting,” says Rebecca Pope FMAAT, senior internal auditor at Allnex. “It creates further opportunities to work with so many more people within the business – outside of finance – to really add value, especially partnering other functions.” 

‘Lucrative’ career opportunities in internal audit for AAT members 

“There are many lucrative opportunities” for AAT members interested in moving into internal audit, explains Paul Reynolds FMAAT, founder of Fair Account, which audits local councils in the south of England. “The newly-brought-in AATQB for qualified bookkeepers would be able to take on a council’s responsible financial officer role and work their way up, but MAAT or FMAAT licence-holders would be able to carry out and sign off the internal audit,” he adds. “There are a number of AAT people now working for local authorities – a lot used to work just for the big councils, but I’m finding now that when I pick up some new parish and town councils, fellow AAT members are working in those too. It’s encouraging – but there certainly could be more.”  

For some industries, internal audit manager Fehzan Mehdi recommends taking additional qualifications on top of MAAT: “In a lot of instances, experienced internal auditors will be chartered accountants, or members of the Chartered Institute of Internal Auditors (IIA), so for those interested in internal audit, I would recommend choosing the External Auditing module at AAT Level 4, as this will give you an introduction to risk and controls,” he says. Although internal audit has a large scope, Mehdi says “teams tend to be fairly small”, which can sometimes mean fewer opportunities than occur in external audit. 

“A common entry route is at the internal auditor level suitable for newly-qualified chartered accountants,” Mehdi adds. Senior internal auditor Rebecca Pope confirms: “I found that the External Auditing exam option (AAT) plus the Advanced Audit and Assurance exam option (ACCA), despite being more external audit-focused, helped me gain a good understanding of the principles of audit, which I was able to utilise when I moved into an internal audit role.”  

Finance executive Andy Murray MAAT says moving into internal audit can open AAT members up to the wider business world: “While it is rooted in financial thinking, the methodology can be applied to any business function,” he notes.   

“MAAT or FMAAT licence-holders would be able to carry out and sign off internal audits.”- Paul Reynolds FMAAT 

AAT requirements 

An organisation may carry out an internal audit to assess the effectiveness of management, financial controls and governance processes with a view to improvement. The person(s) who undertakes the internal audit may be: 

  • an employee of the organisation (larger organisations may have an internal audit department); or 
  • a suitably qualified external accountant engaged on a consultancy basis. 

AAT Licensed Accountants must use the whole phrase ‘internal audit’ and must not drop the word ‘internal’ in order to suggest they are qualified to undertake ‘audits’, as this can be construed as misrepresentation. 

How to beat the energy crisis

Posted by & filed under Energy crisis, Members.

The energy crisis is hitting businesses hard,  but thousands of pounds can be saved by negotiating fixed or pass-through terms and taking advantage of energy policy incentives.

As the energy crisis continues to bite, what could and should accountancy firms and their SME clients do to weather the storm?

Despite significant reliance in the UK on fossil fuels for electricity and heavy industry, the UK also has some of the lowest amounts of gas storage capabilities in Europe, making our domestic market uniquely exposed to the current supply crunch. Energy market volatility has caused SME’s gas bills to rise between 250% and 400% in the last year.

Red flag alert

Having emerged from the pandemic, many companies were hoping for an economic boom but instead many are now bracing themselves for recession as the combination of supply chain issues and the war in Ukraine have served to drive up raw material and energy costs, reducing both business and consumer confidence.

According to the latest Begbies Traynor “Red Flag Alert” report, the number of companies rated as being in “critical financial distress” continued to rise, jumping by more than a third in Q2 2022 compared with the same period last year to 1,957, and edging up 3% compared to Q1 2022.

“I am particularly concerned for those small businesses who operate in energy-intensive sectors, such as manufacturing, as some could simply become unviable. Without the benefit of an energy price cap, business energy tariffs have at least trebled, and for many it will be much worse,” says Julie Palmer, a Partner at Begbies Traynor.

SMEs must act

Despite the negative outlook, there are steps all businesses can take to manage energy risk and protect their budgets. Accountants’ close business relationships with clients mean they are uniquely positioned to guide them through the current crisis.

“One of the first things we would look at would be the client’s turnover and whether their prices could be raised to offset the increased energy costs or other costs that might be impacting on their business,” advises Patrick Tigwell, a Partner at accountancy firm Thomas Westcott.

Other overheads should also be reviewed to see whether savings could be made to compensate for the increase in energy costs.

Rick Smith, Managing Director at insolvency and business rescue specialist Forbes Burton, agrees that planning is critical. “Accountancy firms and their clients need to be forecasting where these rises are going to be and look to see if any savings can be made elsewhere.”

Negotiating the best contract

Having the most cost-effective energy supply contract is the foundation for energy cost control: “If your contract is coming to an end, it’s time to take action so you don’t roll over onto an expensive standard variable rate tariff,” advises Michael Dugdale, Managing Director, Trident Utilities.

Balancing short-term needs with long-term benefits is key, Dugdale adds, and thinking about your likely consumption profile over a three-year period will dictate whether you are better off on a fixed or flexible contract.

“Many SMEs are likely to have opted for fixed contracts for budget certainty but with the help of the right partner, and innovative purchasing framework solutions, flexible contracts and the benefits of increased purchasing power aren’t just for bigger businesses,” Dugdale says.

Contract conditions

An area that is often overlooked is non-commodity costs – all charges aside from the wholesale energy costs, Dugdale says. “There is the potential to make thousands of pounds of savings every year through negotiating fixed or pass-through terms and taking advantage of energy policy incentives and subsidies available to your business.”

Businesses should also turn their attention to cutting consumption. An energy audit will help clients to identify where energy is being wasted and where savings could be made. Meanwhile, encouraging employees to adopt best practice for energy conservation is an easy win.

Despite the current energy challenges, it’s important businesses don’t lose sight of the net zero goal for 2050, Dugdale warns. “While this may seem like a long way off, decarbonisation makes commercial sense now and is one way businesses can help manage overall energy costs.”

Organisations should look at whether they could increase energy resilience with energy-saving measures and on-site generation including solar PV, air source heat pumps, LED lighting and combined heat & power or systems that switch off automatically when not needed.

Capital allowances

Funding may be available to put towards renewable energy and it may pay off to hire a consultant to help with a plan to save energy, Smith says. “It would be pertinent to advise on the capital allowances available to the client on energy conservation materials,” Tigwell says. Bear in mind too that it is important to bring in a revised estimate for energy costs in the management accounts.

While businesses may be able to absorb some of the cost themselves, they may also look to pass the increases on to their clients, in which case effective communication is key, Smith warns, “At this point clients and customers are probably expecting to see some price rises, now may the best time to do it.”

Accountants should also be mindful that they are managing any potential impact on their own firm, Tigwell warns: “Accountants always complain that they are the last to get paid! So, it’s about identifying clients that are most at risk from their exposure to energy costs and make sure that your billing and payments are up to date wherever possible.

“You might want to consider bringing in a payment on account system or setting up a monthly standing order to spread the costs for the client. It’s also a good idea to contact your SME clients more often, to see how they are coping with increased energy costs in the current climate. You may also consider whether it’s appropriate to raise your fees to offset the firm’s increased costs,” Tigwell adds.

Don’t delay

What is increasingly clear is that inaction isn’t an option, bearing in mind that the energy crisis is happening against a backdrop of widespread cost increases, including pressure to increase salaries to fund, higher fuel prices and burgeoning raw material costs

“With a warning of a recession on the cards for later this year, the tipping point for SMEs can come incredibly quickly, so this cannot be ignored otherwise profitable firms are at risk of failing due to a cash crunch,” Tigwell says.

Although day-ahead prices for gas and electricity have seen some short-lived drops, rolling average prices support suggestions of an expensive winter ahead for business energy users and energy market signals suggest that wholesale price volatility could be around for a further 12 months at least. “But through being proactive, businesses can manage their risk and make a positive difference to their energy costs, Dugdale says. “The time to take action is now.”

Further information