AAT argues stability is the most important change for the UK taxes Posted 08/02/2022 by AAT Comment & filed under Members, Time for change. AAT CEO Sarah Beale argues the country needs stability and a long-term strategy for taxes. The past five years have also seen new taxes introduced including the Apprenticeship Levy, Soft Drinks Levy and Digital Services Tax, with several more new taxes set to be introduced imminently. These include the Plastic Packaging Tax, Health & Social Care Levy, Building Safety Levy, Residential Property Developer Tax and Economic Crime Levy. That’s to say nothing of the various changes planned for existing taxes e.g. increases in National Insurance Contributions and Corporation Tax, Scottish Income Tax thresholds and so on as well as variations around applicability e.g. VAT on compensation and termination payments, the end of temporary VAT reductions for hospitality and leisure, a new regime for late payment of VAT and late filing of VAT returns and of course new Making Tax Digital requirements. Against this backdrop, the most important change we need to see is a period of stability. Imagine if we were to have a sustained period with no new taxes, no changes to thresholds, no changes to the applicability and criteria of any tax. Such a period of certainty would benefit businesses large and small as well as their accountants, and it would also greatly benefit an increasingly stretched HMRC. Some may argue that to do so would mean missing out on improvements for reform and improvement. Indeed, over the past five years, AAT has made numerous recommendations as to how the tax system could be made more effective, fairer and where possible, simpler. Many of these policy recommendations have subsequently been adopted by Government, for example introducing a Stamp Duty surcharge for overseas investors who purchase residential property (fairer) and making online platforms such as Amazon and eBay liable for VAT collection and remittance (fairer and more effective, as well as being simpler for traders). Likewise, additional complexities have been prevented such as the 2018 attempt to introduce a “shared occupancy” test for rent-a-room tax relief. Furthermore, an exemption was secured for small businesses from the new £100 million annual Economic Crime Levy. These policy decisions avoided unnecessary complexity and ensured greater fairness than originally proposed. There are other AAT recommendations that have not yet been implemented which have stimulated considerable debate. For example, switching Stamp Duty liability from the buyer to the seller, which was briefly championed by former Chancellor Sajid Javid; scrapping fuel duty, VAT on fuel and Vehicle Excise Duty and replacing them with a tax on car usage based on telematics technology, an idea that was adopted by the Transport Select Committee earlier this year, and halving Inheritance Tax (IHT) from 40% to 20% whilst simultaneously ending most IHT reliefs and exemptions. One thing that unites these, and the recommendations put forward by various other individuals and organisations, is that they are rarely, if ever implemented quickly, often for good reason, sometimes less so. Therefore, were we to have a period of 3–5 years of no tax changes, perhaps even the lifetime of a single Parliament, many improvements could still be recommended and considered. The timeframes to consult widely, pilot and test would be extended to such a degree that problems and unintended consequences are reduced and the chances of success are likely increased. The economic and social benefits of little or no further changes are clear but the politics of such a commitment would admittedly be challenging. The switch to a single annual fiscal event was difficult enough to achieve given the desire of successive Chancellors to stamp their mark on the economy. Ruling out any significant changes for the lifetime of a Parliament would be uniquely bold and challenging. However, this new idea builds on something that AAT has long recommended, that Government should publish a clear tax strategy and, as far as possible, stick to it. By setting out Government priorities and its approach to tax at the beginning of each Parliament, the public, politicians and other stakeholders could better hold the Government to account. Just as importantly, a coherent tax strategy would also provide greater certainty for tax and accountancy professionals and their millions of clients, whilst assisting Government and especially HM Treasury and HMRC in providing an agreed direction of travel. The Government has previously published a road map for Corporation Tax and last year a 10-year strategy for building a trusted, modern tax administration system was published too. These are small steps in the right direction but what’s really needed is an overarching strategy for the tax system. Scotland appears to have stolen a march on the rest of the UK with the launch of its own ‘Framework for Tax’, setting out the purpose, principles and objectives of devolved tax policy over the course of this Parliamentary session (please see the Kate Forbes MSP contribution to this AAT Time for Change report). When surveyed in 2017, providing a clear tax strategy was the number one change that AAT licensed accountants wanted Government to deliver. Five years on, there has been little progress. Given the failure to adopt a coherent overarching strategy, perhaps a simpler and almost as effective change would be a commitment to add no new taxes to the statute book and no wholesale changes to the applicability or operation of existing taxes for the next 3–5 years (beyond what is already planned). That would surely be one of the simplest means of delivering a more effective tax system for all. About Sarah An AAT qualified Chartered Accountant who worked as Chief Finance Officer, Interim Chief Executive and then Chief Executive at the Construction Industry Training Board (CITB) between 2013 and 2021, Sarah Beale (MAAT) joined AAT as Chief Executive in November 2021.
19 reasons to attend AAT Future Finance 2022 Live: 19 October Posted 08/02/2022 by Hannah Dolan & filed under Future Finance. We’re excited to bring you the next evolution in learning – AAT Future Finance Live from Birmingham. Join us for a full day of learning, skills development and networking live and in person. Whether you’re working in practice, just starting off in finance or are an established professional, AAT Future Finance Live is the unmissable opportunity for you to finetune your skills. Build your own unique programme from the variety of sessions listed below. AAT Future Finance Live is back, this time in-person Following the success of AAT Future Finance Online, we’re excited to bring you the next evolution in learning – AAT Future Finance Live from Birmingham. Create your own unique programme from the variety of available sessions – register today to be the first to book your place. Register now 1. A new chapter for AAT Sarah Beale, who was appointed as AAT’s new CEO in November 2021, will outline why she believes there couldn’t be a better time to be an AAT member as well as detailing her vision and some of the ways in which AAT can become more significant to members in the years to come. 2. That’s VAT Join VAT expert Simone Hurst as she looks at some of the most common pitfalls that businesses fall foul of, as well as a review of the most important changes from the last 12 months. 3. Financial wellbeing and creating peace of mind With many continuing to feel the pinch of the cost-of-living crisis, having greater control of one’s personal and business finances has become increasingly important. In this session, Jack Silk, Wealth and Financial Management Consultant will outline how both individuals and businesses may be more financially efficient. 4. Personal impact for professional success While qualifications are all very important in business, in today’s market you need more to excel. How we interact with others at work, both internally and externally, is key to individual career progression and business success. In this session, Joanna Gaudoin looks at the importance of professional relationships. 4. Employment law: The essential update 2022 In this session, HR expert Toni Trevett will take you through some of the recent developments in UK employment legislation that may have an impact on businesses both small and large. Toni will also review some of the most interesting key cases from the last year. 5. Creating change in the fight for prompt payment In this session, Liz Barclay, who was appointed the role of Small Business Commissioner in July 2021, discusses her goal to crack down on poor payment practices which cause thousands of small businesses to close every year. Liz will also share how accountants can create change in the fight for prompt payment best practice. 6. UK GAAP: update and pitfalls to avoid In this session, join Steve Collings, a member of the UK GAAP Technical Advisory Group at the Financial Reporting Council, for an update on the periodic review of UK and Ireland accounting standards, deferred tax, and the increase in the corporation tax rate to 25% and the suitability of FRS 102 or FRS 105. 7. How to confidently sell and deliver advisory that works In this session, Shane Lukas will share with you the exact proven steps that you can take to become a great business advisor to your clients that makes a profound difference to them, and as a happy consequence, you get well rewarded both financially and emotionally. 8. AAT Talks: Coaching conversations – a crucial leadership skill In this session, coaching specialist Toni Trevett will use the GROW model to show how formal and informal coaching conversations can be structured to give maximum benefit to both parties. AAT Future Finance Live is back, this time in-person Following the success of AAT Future Finance Online, we’re excited to bring you the next evolution in learning – AAT Future Finance Live from Birmingham. Create your own unique programme from the variety of available sessions – register today to be the first to book your place. Register now 9. AAT Talks: Unlocking the power of professional apprenticeships In this session, Katherine McKenna, Head of Employer Engagement at Mindful Education, will explore the benefits of hiring an apprentice, the funding options available and how hybrid/blended learning can be used to meet the needs of employers and employees. 10. Keynote address: the future of work Small business expert Carl Reader will share some of the future issues facing the workplace and practical ways to deal with them for yourself and your team. 11. Avoiding payroll pitfalls Payroll is one of the most important functions of an organisation, however, it can be very complex and sometimes hard to keep up with the fast pace of change. Small payroll mistakes can lead to major headaches — fines, penalties, and hectic year-ends. Hosted by payroll expert Alexandra Durrant, this session is designed to highlight some of the key payroll pitfalls. 12. ITSA coming With MTD for ITSA fast approaching, accountants and bookkeepers have genuine concerns about how some of the new rules and regulations will be implemented, and what the impact will be on them and their clients. Looking for direct answers, we take your questions straight to HMRC, Sage, and fellow practitioners to uncover insights. 13. The secrets to successful finance business partnering Finance business partners (FBPs) are accountants who work closely with a particular business unit to create a real and active partnership with both operations and management. This panel will discuss the key elements of being a truly great, value-adding FBP, drawing on fresh perspectives and real-life examples. 14. Strengthening public financial management In this panel debate, we’ll focus specifically on big issues within the public sector. If you work within the public sector or have an interest in current issues within the sector, this is a must-attend session. 15. Topical tax tips and problems Finance professionals agree tax is always a hot topic. That’s why this session is designed to take you through some of the key issues affecting tax right now and support you to overcome them. Chartered Accountant, lecturer, author, and all-around tax expert, Rebecca Benneyworth, will discuss the hot tax topics of the moment as well as the issues causing you problems. 16. Presenting with impact In this session, professional actor, director, and presentation skills coach, Jonas Cemm, will share his insights from the world of theatre on how to deliver an engaging and powerful presentation. This entertaining and interactive workshop is not to be missed, especially if you’re a regular presenter. 17. Accelerate your career with CPD In this practical and informative session, a qualified coach and trainer Rosilda Clark will help you prioritise growth and learning in your job, define your career goals and aspirations undertake a personal audit, and reflect on how to use and develop your strengths to reach your career goals. 18. Managing mental health at work It’s important for all of us to be able to spot signs of mental ill health and thankfully talking about mental health is becoming more and more common. During this inspirational session Amanda Chadwick, an expert in the field of HR and wellbeing will cover what mental health is and why managing it is so important plus the signs of poor mental health. 19. Networking opportunities Aside from the key sessions listed above – attending AAT Future Finance 2022 live will give you the opportunity to network and swap ideas with your peers and industry experts. It’s a day not to be missed! Full session and venue details available here.
An introduction to Q2022 Posted 07/27/2022 by Hannah Dolan & filed under Students. Qualifications 2022 is the exciting new updated suite of qualifications from AAT that has been updated to reflect the changing role of the accounting technician. The job of an accountant is changing rapidly. Many of the repetitive number-crunching jobs can be carried out by technology and automated computer software. This opens up new and exciting opportunities for accountants to play a more strategic and business advisory role for their clients. An updated industry Instead of simply presenting a set of accounts every year or every quarter, they can help business owners actively engage in growing and developing their companies, using real time data insights to analyse sales and income patterns and make informed decisions. COVID has massively impacted all areas of every industry and changed many traditional roles in business. Accounting is no different. Overall, the effect has been to move to digital a lot quicker. Accountants were not able to go in and see their clients and so everything had to be online. Many businesses adopted cloud accounting and digital processing so they could continue their business during this challenging time. Qualifications 2022 is a new and exciting version of our suite of qualifications from AAT Level 1 through to AAT Level 4, and it introduces some teaching and learning around cybersecurity, cloud computing and business analysis which will be valuable for students as they progress into their first jobs and subsequent accountancy career. Why has Qualifications 2022 been introduced? Q2022 is the updated suite of our qualification. We review typically our qualifications every four to five years to make sure they are up to date and reflect what employers and businesses need. However, this doesn’t meant that the current ones are no longer fit for purpose. They remain valued by employers and provide the skills and knowledge students need. For students who are working and studying, they will be absorbing many of these life skills and changes to the working environment as part of their daily lives at an accountancy practice or in a busy finance department. It’s important to note that completed qualifications on AQ2016 are not taken away from students with the introduction of Q2022. The development of this qualification has really honed in on how the role of the technician is moving forward, and the skills that will serve them now and for the future within a broad range of roles. It provides a broader skill set and aims to produce more rounded individuals, which is what employers are saying they want. The qualification sizes are the same, and the level of the content is similar. Existing students will be learning these skills on the job if they are working and studying at the same time, so they are going to be absorbing this new culture and skills while they are at work. Key themes to enhance industry knowledge Based on the outcome of research undertaken as we started to consider the development of content for the new qualifications, there were four key themes which were identified as being important. These skills and qualities have always been at the heart of the AAT qualifications, but this iteration of qualifications has enhanced them. They cover ethics, communication, technology and sustainability. How will the new fee structure work? With the launch of Q2022 we’re changing our payment/fee structure. Students will not be required to pay an annual student membership fee for the Q2022 qualifications. Instead, they will pay a one-off registration fee at the point the register onto the new qualification of choice. This will give them access to the qualification for its lifetime, typically four to five years. Registration will give them access to the study support resources and the ability to be scheduled for assessments. What is the tutor experience going to be like? Tutors may need to adapt their teaching style to accommodate the new business awareness units. For some, they will be teaching the technology units for the first time. Teaching of the soft skills like communication will be embedded within the course, and business awareness looks at communication and learning to deal with different people across businesses. Students will also be studying how a business is structured in order to understand how they work, how limited companies are different from sole traders, for example. Students studying for the Accounting qualification will need to be aware of the last synoptic assessment window dates, if they still have this assessment to sit. *Note – lapsed students can reinstate/rebuy access to an AQ2016 they started but didn’t complete up until 2pm Friday 29 September so they can sit the remaining assessments. They will need to consider how many assessments they have remaining to complete and the length of time this will take to ensure the reinstate/rebuy access with sufficient time. More information Find out more about Qualifications 2022 and the exciting new opportunities Watch the videos on why these changes to the qualification have been made More resources and information on Qualifications 2022 (login to view)
From AAT student to Chief Financial Officer – Marina Chase’s meteoric rise Posted 07/27/2022 by Marianne Curphey & filed under Career profiles. Marina Chase MAAT is Chief Financial Officer at Caribbean Airlines Ltd, the largest airline in the Caribbean. She is the first female CFO of the company. In our interview, she talks about how she decided to study for her AAT qualification because she was unable to stay on at school to complete her A levels; how she has found the AAT qualifications practical and invaluable as a springboard to fantastic career opportunities; and how technology and communication skills are an increasingly important part of an accountant’s job. What is your role? I am chief financial office CFO of Caribbean Airlines Ltd, the largest airline in the Caribbean and the first female CFO of the company. Currently it is a very challenging time for the airline industry because of the volatility in fuel prices, the sudden spikes in Covid infections which mean countries close their borders, and the war in Ukraine. All these are challenging scenarios and mean that there is a lot of uncertainty. The AAT Level 4 accounting technician qualification really helped propel my career to the highest level – to be CFO of a company. It was the foundation that gave me the flexibility to develop What qualifications do you have? I am AAT Level 4, a Certified Chartered Accountant, a fellow member of the ACCA and the Institute of Chartered Accountants. I am also a Certified Treasury Professional (CTP) having attained credentials from the Association of Financial Professionals of the USA. Also, I have conducted studies in Business Management having attained my Diploma in Management from Cipriani College. Overall, my extensive background broad in the accounting and corporate finance field spans over 35 years with over 27 years at corporate Level. What prepared you for this current high level role? It is a combination of my qualifications, my years of experience, not just in the airline industry but my roles in Treasury and company operations, and my ability to relate to people. People skills are very important. Why did you decide to follow this career route? I come from quite humble beginnings, and I left school at 17 and did not have option to complete my A levels because of my family situation. I looked for an opportunity to start studying for a professional qualification in accountancy as a springboard for my career. I studied for AAT Level 4 over three years by going to accountancy school in the evenings after I had finished my work for the day. How has AAT helped you? The AAT Level 4 accounting technician qualification really helped propel my career to the highest level – to be CFO of a company. It was the foundation that gave me the flexibility to develop my skills in a variety of fields. I have had roles in business management, data management and cash management as well as people management. After completing my AAT Level 4 qualification, I gained MAAT status and was promoted and became assistant accountant. Then I gained further promotions to become account controller and treasury senior manager. How is the role of the accountant evolving? Technology is changing the role of the accountant. Machine learning and AI means that the role of the number cruncher will disappear. As a result of Covid these trends are moving very fast. A robot can now process the figures and disseminate that information for you – so the accountant’s job has become one of analysing and communicating that information. It is important for today’s accounting technicians to think broadly about the kind of roles they are interested in because there is a broad range of opportunities, and not just in traditional accountancy. What do you like most about your job? I like risk management which is a key area in my present job. I would recommend this area to new accountants because it is very rewarding and can be quite lucrative. I also enjoy the corporate finance side of the CFO role. It is important for today’s accounting technicians to think broadly about the kind of roles they are interested in because there is a broad range of opportunities, and not just in traditional accountancy. What skills do you need in your current role? You need soft skills – emotional intelligence and people skills, and you need the hard number skills. You need to be able to communicate effectively with people, display empathy and influence. Another important soft skill is relationship management and being able to maintain positive relationships withr both internal stakeholders and external stakeholders. In short, you need to be able to relate to people but also make things happen. At the highest level of CFO you need to be able to look at the financial data and be insightful and analyse the numbers. You need to be able to project growth and understand where value has been added and make projections for the future. What tips would you give to students who are starting out? When you are working or studying, think about where you would like to be in the future. Take time to research what is happening now, how technology is changing the role, and get a sense of what you really want to do. Marina Chase’s CV 2019 Chief Financial Officer, Caribbean Airlines Ltd 2007 Senior Manager, Treasury & Financial Management 2006 Finance Manager, Tobago Express 1985 Regional Financial Controller, McCann Port of Spain Further reading Starting your career in finance Is finance right for you? What’s it like being an accountant or a bookkeeper? The benefits of working in finance
How to master the art of difficult conversations Posted 07/22/2022 by AAT Comment & filed under Communication, Members. Difficult conversations handled badly can undermine your business. Here’s how you can make sure you handle such conversations the right way By Doug Aitken, associate, Remarkable Practice It’s easy to avoid difficult conversations, whether it’s challenging a key employee about falling results, chasing an outstanding invoice with a large and important customer or, indeed, a variety of other things. The risks of handling such conversations are high. If the conversation isn’t handled the right way, the key employee might walk. The large and important client might take their business elsewhere. In short, there is a lot at stake, which is why many people fail to have those same difficult conversations. Yet the risks are also high of not having those conversations. After all, what impact does you not addressing falling performance have on others within the team? What does it say about your credit control standards to your team if you continually bend them for that important client? A key facet of successful businesses is their ability to not only set high standards, but to stick to them. Many businesses will enthusiastically agree they have high standards. Yet when the chips are down, how many really adhere to those standards? And by bending the standards, you’re sending mixed messages to your team, to your clients and to the wider business community. Learning conversations dissolve difficulty What is the purpose of the conversation? If your purpose is unclear or not constructive, then no matter how you handle a difficult conversation, it’s going to go badly. When conversations go badly, sometimes it’s because we approach them as blame delivery exercises. What if, instead, we approached them with a genuine curiosity – as learning conversations instead of blame delivery? Think of your purpose as establishing three truths – your truth, their truth, but also a third truth, which moves you both towards resolving the issue or conflict. Think of this third truth not as mutual agreement, but a mutual or collective understanding. Remember, you’re talking about feelings Feelings are an unavoidable part of every difficult conversation. But in business – and in life – we can find it difficult to talk about feelings. If you fail to get your colleague to express their feelings, they will not hear you. People stop listening because they are thinking about how they are feeling. As a result, it’s unlikely they’ll want to, or be able to, understand you. Fail to express your feelings and your feelings could prevent you from listening and also from understanding. To reach mutual understanding, that ultimate third way, both parties must feel listened to and understood. All are important steps in clearing the decks for that final stage three – reaching a mutual understanding. Transformational skills that improve conversations Building the key skills to handle difficult conversations isn’t easy, but it can be done. When faced with a challenging situation in future, and once you’ve decided that it cannot be ignored, try this approach instead: 1. Seek first to understand You need to learn their truth, so at the outset see your role as to ask questions. Set out to learn what happened from their perspective and how they feel about it. When they feel you understand them, they’ll be more open to understanding you. The three key skills to develop are: a) Ask great questions; b) Listen purposefully; and c) Demonstrate understanding. 2. Share your truth Express as well as you can what is important for you to say. Share your views, your intentions and your issues. But avoid blame at this stage – it’s the equivalent of throwing petrol on a barbecue! So instead of venting your spleen, state your feelings carefully from your perspective. 3. Solve the problem together Seek a third way. Now it’s time to work together towards a mutual understanding that you then turn into a new solution for both of you. Your ‘make it happen’ checklist Difficult conversations can be constructive or destructive. Make a leap towards making them more constructive by following these steps. Decide whether or not to have your difficult conversation If handled well, will the conversation move your business forward? If not, perhaps there is a case that it should be dropped. Have a clear purpose for your conversation Make your purpose to seek understanding. Be curious. Make your conversations learning conversations. Accept that both parties contribute to the difficulty in some way Joint responsibility shows you’re serious about reaching a satisfactory solution. Avoid the blame game Accept responsibility for contributing to the difficulty. Be curious about their story Their truth and their feelings. Share your story Your truth and your feelings. Pursue a solution together “When conversations go badly, sometimes it’s because we approach them as blame delivery exercises.”
It’s time to clamp down on repayment agents Posted 07/22/2022 by Phil Hall & filed under Accountable. The use of repayment agents – those who claim tax refunds on behalf of taxpayers – is becoming an increasing problem for taxpayers, for HMRC and the tax advice market. Some taxpayers think they are dealing directly with HMRC when they use a repayment agent to obtain a tax refund. Others have no idea they are going to be charged a fee, due to the often obscure pricing policies used. And many don’t realise that they might sign over the rights to all refunds, not just the refund they think they are claiming for. High volume repayments – where repayment agents submit thousands of claims when no repayment is due – not only cost HMRC time and money, but also result in significant delays processing genuine claims. In fact, HMRC is already failing to pay tax refunds within their target time of 15 days in almost a quarter of all cases. The scale of the problem To give some indication as to the scale of the problem, HMRC has suspended just eight agents, but this is estimated to have avoided over 400,000 ineligible claims. The poor behaviour of many repayment agents is a stain on the regulated tax and accountancy sectors who seek to ensure the right amount of tax is paid at the right time, and that consumers are protected. The situation has prompted the Government to consult on solutions (via a public consultation until 14 September 2022). HMRC has proposed a partial ban on the use of assignments and a new obligation that will require repayment agents to register with HMRC. AAT believes that the use of assignments by tax repayment agents should not just be restricted, but abolished. Although the limiting of assignments is a step in the right direction, it would be reasonable to go further and ban their use outright, given they were never intended to be used in this way and are causing problems for both taxpayers and HMRC. Agents could instead rely on the perfectly reasonable “nomination” process that more respectable agents already use. Another vital area of focus in cracking down on repayment agents relates to Anti-Money Laundering (AML) regulation. The current situation – whereby repayment agents are required to be regulated for AML purposes, but are not required to register with HMRC – is an obvious loophole that must be closed. HMRC also admit most repayment agents are not members of a professional body (and are therefore not being supervised for AML either). Regulating through membership AAT asks why is it only repayment agents need to be regulated, rather than the wider tax advice market? AAT has consistently campaigned for all accountants to be accountable for the quality of their services. A considerably cheaper, more effective and more broadly supported change would be to require anyone providing paid-for tax and accountancy services to be a member of a relevant professional body, as already happens in more than 200 professions across the UK. This would not only substantially improve the situation with repayment agents, but also with wider tax advice market issues ranging from tax evasion, egregious avoidance and money laundering to inaccurate, poor and misleading advice. This would better protect consumers, save taxpayers money and raise standards and credibility across the sector. This is a change AAT continues to recommend at every available opportunity.
How rising inflation is impacting the preparation of financial statements Posted 07/22/2022 by Annie Makoff & filed under Members. The rising cost of fuel, energy and raw materials along with ongoing supply chain issues, are having adverse effects on businesses, many of which are having to pass on increased costs onto consumers, albeit reluctantly. Rising inflation and the increased cost of living are also having a significant impact on financial statements, particularly in the following areas: Profit margins.Pricing structures.Going concern disclosures.Risk and cash flow forecastingDebts including variable-rate loans.Business rent.Investments. We spoke to several accountants across the UK to find out more about the issues at play and their tips and advice for dealing with rising inflation. 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 Revisit pricing strategies, renegotiate existing contracts and cut internal costs Frank Ofonagoro, MD Quantuma Rising inflation is having a fundamental impact on financial statements. Businesses that have been affected by covid-19 and whose cash reserves and balance sheet are not particularly substantial will be unable to pass on any inflationary rises. They may try to absorb the increases themselves with existing cash reserves. But their margins are likely to get absolutely destroyed by this strategy. In terms of going concern disclosures, it’s about balance sheet strength and the ability to withstand erosion of the bottom line. We’ve just come out of pretty torturous period due to Covid-19 with a lot of businesses taking on a lot of debt. This, coupled with interest rate rises and rising inflation will make debt more difficult to manage and will led to an increase in businesses with going concern issues. A lot of clients are also telling us they’re worrying about having conversations about price increases with customers and are seeing it as a last resort, preferring instead to cut costs internally. Businesses should instead adopt a ‘root and branch’ review of their entire business and take a holistic approach. Next steps: I’d advise the following as a holistic approach strategy Look at ways to make the business as lean as possible to be better able to absorb inflationary pressures.Review pricing models by engaging with customers and having those conversations.Look at existing supply contracts to renegotiate costs and lock in better price. Businesses need to encompass every aspect of their business from the cost side, revenue, overheads and pricing to give themselves the best opportunity to withstand what is hopefully medium-short term inflationary pressures. Verdict: Adopt a holistic approach to inflationary pressures: revisit pricing strategies, renegotiate existing contracts and cut internal costs where possible. Be prepared to put more work into going concern statements Martin Longmore, Partner, Monahans Directors signing off their accounts need to be aware that in doing so, they are implicitly stating that the company will continue as a going concern for the next 12 months. Because of the uncertainty inherent in the economy currently, auditors are having to undertake increased work to test whether the going concern assumption is sensible. They will be asking directors for far more evidence to support that assumption than usual. Directors are expected to produce budgets and cashflows for at least that period and these will need to be ‘stress tested’. Rising inflation only increases the risks behind these assumptions. Inflation is also having an impact on: Business and consumer confidence – which is clearly starting to take a tumble. This will only make life more difficult for directors and auditors when they are trying to forecast profit and loss and cash flows over the next 12 months.Supply chains. These have been under significant pressure over the past few years due to COVID-19 and Brexit and are now being exacerbated by the impact of inflation.Payroll costs and employee retention. Companies are finding it hard enough to retain staff in an increasingly competitive jobs market, let alone hire more workers to plug skills gaps. The focus now is headline rates of pay which is driving up costs. Next steps: Businesses should look to lock in prices as much as possible to avoid any future hikes (particularly exchange rates if heavily reliant on purchases or sales in foreign currencies). Additionally, companies will need to put a great deal more work into the budgeting and cash flow process that supports going concern assumptions. Verdict: Be prepared to put more work into going concern statements. Be honest with customers on reasons for price increases and be open to new ways to increase efficiencies Mandy Janes, Partner, HW Fisher Financial statements look at historical information, thus rising inflation can quickly make this information increasingly irrelevant. It is therefore important for directors to consider the impact of inflation in their strategic reports to ensure stakeholders are aware of the future risk and business impact. Profitability and cash flow will clearly be impacted by inflationary increases if the increase in costs cannot be passed on to customers. Many businesses have not had push-through price increases before and will find this challenging, particularly in highly competitive markets and for B to C businesses where individuals have less disposable income. Certain items such as cash and accounts receivable are held at historical value rather than market value and therefore lose their purchasing power as inflation rises. High inflation, therefore, impacts cash-rich businesses and those industries with long credit terms. Next steps: Be open to new ways of doing things to increase efficiencies, reduce costs or to extend revenue-generating activities within the business.Where necessary re-price any non-profitable work so if the work is lost, it does not have a significant impact.Ensure inflationary price increases are put through every year as standard.Be open and honest with customers on the reasons why prices will need to increase. Verdict: Be honest with customers on reasons for price increases and be open to new ways to increase efficiencies or reduce costs. 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
July/August issue of AT is out now – give feedback and win Posted 07/22/2022 by AAT Comment & filed under Members. The July/August issue of AT has just been published and is also available online to download. In this issue, we look at how to deal with sanctioned clients; the career possibilities of internal audit for AAT members; and why strategic management accounting will have you two steps ahead. Feedback and win We’d love to know what you think of the new issue. You could win a set of Third Generation Apple AirPods when you provide feedback! Congratulations to Matthew Clarkson MAAT from Grimsby for winning an Amazon Fire TV Stick after taking the March/April issue survey. AAT Content Team
The true economic cost of cross-border tax complexity revealed Posted 07/20/2022 by AAT Comment & filed under Brexit, Members. This content is brought to you by Avalara/ Nearly a year after the introduction of a wave of EU VAT reforms, new research from Avalara Europe shines a spotlight on an economic deficit of £47.6bn in 2021. Alongside their research partner, The Centre of Economics and Business Research (Cebr), in a survey of 250 business decision-makers from UK organisations that export to the EU, Avalara assessed the real impact of EU cross-border tax on UK exporters. In a year where we’ve seen an incredible rate of change across the sector, the Cebr report findings show that navigating the complexity of compliance and the administration of being compliant is causing a significant loss of revenue. Compliance complexity has stifled business growth Perhaps to no surprise, exporters find dealing with taxes stressful. This report has unveiled the extent to which perceived barriers to compliance has affected revenue: There is an estimated overall loss in revenue for UK exporters to the EU of £47.6 billion due to cross-border tax complexities in 2021. The biggest loss was recognised in the manufacturing sector, with £24.4 billion of missed revenue. Time spent on tax administrative tasks damages productivity; we estimate that this caused a loss of £386 million in gross value added (GVA) overall. Out of this, £53 million is considered to be lost due to time spent on understanding and implementing the new EU VAT schemes. 3 in 5 UK exporters have reversed plans to sell in some European countries over the fear of fines and compliance issues While these numbers are startling, there is sunlight on the horizon. Effective compliance unlocks business benefits Despite these startling figures, for those who have implemented EU VAT reforms, businesses have reported an increase in positive customer feedback. Since registering for the Import One-Stop Shop (IOSS) a whopping 94% believe their scores have increased with buyers recognising the lack of extra costs, and faster delivery of products. Additionally, 72% of respondents are planning to expand into another EU market; a significantly higher proportion than the 32% who are planning to exit from current ones. Whenever a new tax policy is being introduced, exporters need to spend time implementing new schemes. Businesses fear legal consequences and fines if they make a mistake, have a hard time understanding complex terms, and lose a significant amount of time that could have been invested elsewhere. In this report, we’ll give you access to exclusive data and ways in which you can navigate compliance so you can focus on growth. Download The CEBR Report: The cost of cross-border complexity now, to access the research and find out more about how you can overcome compliance challenges to unlock cross-border growth.
How strategic management accounting works (and why it’s on the rise) Posted 07/18/2022 by Annie Makoff & filed under Career, Members, Members in business. Most, if not all, accountants will take a strategic approach to their work, but not everyone will actively make use of strategic management accounting (SMA) techniques. And those that do won’t necessarily be aware that they’re actually practising SMA. As it is increasingly utilised, it has become a byword for modern management accounting methods. A quick search online shows that SMA was first defined as far back as 1981 as the “provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy”. Those principles remain, but it has developed. Forward-looking with a commercial mindset The general consensus is that there are two broad categories of management accountant: the classical management accountant deals with historic results, historic impact of activity, revenue and trading of the business and then reports that to stakeholders and management;the strategic management accountant is more forward-looking with a commercial mindset. According to Chris Biggs, Partner at Theta Global Advisers, the SMA will ask: “‘What are our most profitable revenue streams? What are our most profitable products? How can we see that changing in the environment and in the economy going forwards? What can we do to increase margins and revenues we see in the future?’” Careers – overview of strategic management accounting. In simple terms, SMA is focused on external factors such as competitors, the economic landscape and the customer and/or client base. It looks at pricing, business and/or market development, product development and merger and acquisition activity. “Usually, management accounting is focused on the internal element,” says Ali Jaw FMAAT, associate Director at Severn Accounting and finance and operations manager at MB Technical Services Ltd (pictured). “But as soon as you bring in the strategic element, then you focus on external factors as well. You are looking at the holistic view.” How the Strategic Management Accountant adds value SMA plays a critical role in business because it can help business leaders predict future performance while helping to sustain the business for future generations. “Strategic management accounting can help predict and plan your business for five, 10 or more years by utilising new techniques and innovative approaches,” says Dr Mohamed Saeudy, Director of the Research Centre for Contemporary Accounting, Finance and Economics (ResCAFE) at the University of Bedfordshire. “This will encourage business continuity, business growth and business sustainability.” Sustainability has various dimensions, he says. “Not just in terms of carbon footprint and emissions, but helping businesses to refurbish, recycle or update certain assets that have reached the end of their economic life.” Strategic management accountancy in action “Benchmarking is fundamentally quite difficult because not all companies publish their management accounts and you can only really benchmark against what you know,” says Joe Lennon, Partner at Wellers Accountants. “We have many clients in the hospitality sector, so we know it is a very margin-driven sector. Businesses succeed or fail on hitting those margins.” Lennon knows any hospitality business spending over 35% of their turnover on wage costs will struggle. This is where strategic decision-making comes in. One of his clients was spending 40% of their turnover on wage costs. Initially, Lennon raised concerns, but the restaurant explained they’d made the conscious decision to pay the head chef above the market rate in order to retain his expertise. This, says Lennon, is where the strategic piece comes in. “The workforce in the hospitality sector moves around a lot, so recruitment can be really difficult. The decision to pay this amazing head chef turned out to be the right one. They knew they had to overpay, but they were making savings elsewhere. Customers usually choose a pub or restaurant because they’re walking past it (so it’s got good footfall), but if it isn’t ideally located, it needs to have something else to recommend it, so that’s what they were doing. They therefore pay lower rates in rent because they weren’t in the city centre, but pay higher rates for great staff so it balances out.” Techniques used in strategic management accounting Benchmarking Through tools such as the SWOT analysis, which identifies a business’s strengths, weaknesses, opportunities and threats, benchmarking typically allows accountants to analyse business performance in comparison to competitors. According to assistant professor of accountancy Dr Xihui Chen, 75% of her interviewees used this technique during the pandemic. But interestingly, it was approached from a support and share angle rather than a competitive one. “Traditionally, benchmarking is a way to rate your performance in the sector and compare and compete but, during the pandemic, organisations were using the technique to share best practice, even sharing supplier contact details.” Customer profitability analysis This helps accountants identify those customers who generate the most income for a business. Armed with this data, accountants can develop a strategy around targeting this demographic from a sales and marketing perspective. Investment capital appraisal This technique helps identify which projects or assets will be the most profitable, how they will be financed and duration of ROI. Financial health is also an important factor. “For example, can you generate enough cash for the project or asset? Will the cash flow sustain your project team for the necessary duration or will you run out halfway through?” says Dr Chen. Strategic planning and budgeting Simply put, forward-thinking accountants will make use of external factors and big data to forward plan and forecast. Most larger companies will use rolling budgets, which are reviewed, evaluated and monitored on a monthly basis to forecast the following year. Data analysis In-depth data analysis to help with the reporting and monitoring of business strategy is also a key element of strategic management accounting, says Dr Xihui Chen, Assistant Professor of accountancy at the Accounting Research Centre at Heriot-Watt University. Dr Chen, who has conducted thorough research around the practice and its use during and after the Covid-19 pandemic, takes the view that SMA is more akin to business partnering and making use of big data to improve decision-making. “Based on literature and my own research where I’ve interviewed 26 accountants who are finance directors across the UK, it’s clear that big data is king to organisations, now more than ever,” she explains. “And it’s a lot about connection – connecting the information and data with the company’s performance and projected performance so they can provide a forward-looking plan. That is crucial for any business strategy.” Business benefits Ali Jaw’s coffee shop client, Worcester-based Francini Café De Colombia, was initially buying coffee from the UK, which was expensive. The owner was already growing his own coffee in Colombia, and discussions were had around whether to continue to buy coffee in the UK or import instead. Jaw and his colleagues conducted a cost analysis exercise while the owner trialled importing for one season. “Our analysis revealed that it was actually cheaper to grow coffee in Colombia and import it to the UK rather than simply buy coffee here,” Jaw explains. “When we looked at the value chain, it was clear that the cost per cup of coffee was cheaper. We also carried out competitor pricing and a strengths, weaknesses, opportunities and threats (SWOT) analysis. “We found that not only was our client able to offer a slightly lower price compared to its competitors and still make profit. Changing sources meant the quality of the coffee was actually better because it was grown fresh in Colombia so, in the end, he had a major competitive advantage.” “They knew they had to overpay, but they were making savings elsewhere.”