7 reasons why you need to stand for AAT Council this year

Posted by & filed under AAT news, Members.

Are you a professional member of AAT? You could be the game-changer we are looking for on AAT’s Council.

Nominations are open now for elections –  here are seven reasons you should put yourself forward.

1. You can shape AAT’s vision

AAT is in a time of change. Sarah Beale (pictured), our new CEO, is leading the team to develop a long-term strategy to modernise the organisation and make it even more transformational, modern and relevant.

We’re looking for members who can help realise the vision by bringing their insights, experiences, constructive challenges and ideas.

Apply now

2. You can accelerate your professional development

“Being on Council is like free CPD. You learn about governance, pensions, all sorts. I’m exposed to top-level management disciplines such as corporate governance and best practice: things that many professionals my age (I’m 29) rarely get to do,” says Andy Murray, Finance Executive at Lindenmeyr International.

“In terms of personal growth, it is so valuable. I learned so much from being involved,” agrees past President John Thornton, Directo e-Resources.

Apply now

3. It’s your chance to give something back

“We are looking for AAT members who believe in the organisation and are ready to get even more involved,” says Sarah Beale. “AAT is ­an organisation that changes lives and has a huge impact socially and in education. We are looking for people to be custodians of that and ensure we continue to go from strength to strength.”

Apply now

4. You’ll get great support

You’ll be joining a council of passionate people, many of whom are from the profession and some who have skill sets in running large organisations.

We’ll make sure you understand your role and how you fit into governance. If you have experience, that’s valuable too. AAT will support you.

Apply now

5. You could broaden AAT’s skill base

AAT wants to attract a broader cross-section of its membership through elections, especially from larger organisations, industry and the public sector.

“We are looking for all kinds of people from all kinds of experiences to help us shape AAT,” says Sarah Beale.

Apply now

6. Gain experience as a trustee

As part of AAT’s Council, you will be exposed to the operational running of a complex £35 million organisation.

“One of the best things is that the AAT’s executive team, including the CEO, sit on every Council meeting,” says Heather Durell, founding Director of London-based accountancy firm Ask the Boss.

Apply now

7. You could change something!

“I’ve only been on AAT Council for six months, but we’ve helped bring about change on everything from vice-presidential nominations to next year’s pricing through to altering CPD requirements for licenced members,” says Heather Durrell.

Andy Murray agrees: “Having the opportunity to promote inclusivity around mental health is one of the most rewarding aspects of being a Council member.”

Apply now in 3 simple steps

Applying to stand in the Council election is simple. And quick!  

  1. Complete this form with your membership details.
  2. Provide an up-to-date digital photo.
  3. Provide a short statement (maximum 200 words) explaining why you want to join Council and what skills you think you could bring.

Send the above to [email protected].

That’s it!

If you need more details, they can be found here.

The closing date is 17.00 (UK time) on Thursday 7 July 2022.

Three quotes to get you going:

Putting off an easy thing makes it hard, and putting off a hard one makes it impossible.

George H. Lorimer

Time wasted is existence; time used is life.

Edward Young

Procrastination is opportunity’s natural assassin.

Victor Kiam

How is your accounting knowledge?

Posted by & filed under CPD refresher quiz, Members.

You were once proud to attain the AAT qualification, but have you managed to hold on to what you learned?

Let’s find out…

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Preparing your clients & practice for Making Tax Digital for Income Tax

Posted by & filed under Making Tax Digital.

This content is brought to you by Xero.

Making Tax Digital for Income Tax (MTD for ITSA) is drawing closer and now is the time to start preparing for it, ensuring your practice is ready for the coming changes.

What does Making Tax Digital for Income Tax mean for accountants and bookkeepers?

As new rules for Making Tax Digital for Income Tax come into play, self-employed people and landlords earning above £10,000 will need to submit quarterly updates, one End Of Period Statement (EOPS) and a Final Declaration each tax year. Those affected by the rule change will need to use Making Tax Digital compatible software to keep their records and send updates to HMRC.

Accountants and bookkeepers will soon have the opportunity to take on a substantially larger advisory role for their clients. This will include helping them with their quarterly submissions, educating them on how to use cloud-based accounting software, and making sure they remain compliant with digital record-keeping rules.

As their accountant, you’ll still be able to make submissions on their behalf, however you’ll no longer use the HMRC website to do so. Instead, you’ll be required to send updates to HMRC via your clients accounting software.

Simple steps to start preparing your practice for Making Tax Digital for Income Tax

To make the process as seamless as possible it’s important to start preparing your practice as soon as possible. Below are a few simple steps that you can take to make the transition smoother.

1. Educating your team on Making Tax Digital for Income Tax

HMRC are fully aware of the effect these changes will have, and they have been incredibly proactive in releasing guidance on MTD for ITSA. It’s important you take the time to read these updates and share them with your practice.

We recommend appointing a Making Tax Digital for Income Tax guide in your practice. It will become their responsibility to provide updates to the team when appropriate. These updates could be delivered on bi-weekly or monthly basis, depending on what works for your practice.

2. Evaluate your client base and segment them

For future efficiency, it’s important you take some time to bucket your clients into those who need to follow MTD to ITSA rules and those who do not.

Once identifying those who must comply with Making Tax Digital for Income Tax, get familiar with how they’re currently keeping their records. You’ll likely find the changes will mean some clients will be using cloud-accounting software for the first time and as a result may need extra support from you.

Others may be more comfortable using bridging software, in which case, it’s important you advise them on the benefits and potential pitfalls of this approach. One thing to note is using bridging software for MTD for ITSA is more complicated than using it for VAT.

3. It’s essential you have an Agent Services Account and authorisation

Firstly, if you want to sign clients up to Making Tax Digital for Income Tax, you’ll need an Agent Services Account (ASA). Note, practices only need one ASA as they are able to service all of their clients with a single account.

Next, it’s imperative you request authorisation from your client, via your ASA. You can find out more about doing this here.

 

Is MTD for ITSA an opportunity to grow your practice?

The answer to this is a resounding yes. These changes are definitely an opportunity for your practice, with landlords and self-employed people looking to you for advice and guidance over this period. This is due to the fact that they’ll be required to send more frequent updates to HMRC, meaning they will likely need more help every quarter instead of just yearly for their returns.

Increased digitalisation within your practice will also naturally increase your efficiency, affording your practice the time to offer a wider array of services to your existing clients, such as advisory (e.g. business and future planning).

For practices that are more focused on compliance, the shift to digital record-keeping and cloud-based accounting will allow you to handle clients in a much more cost effective way, opening up time for you to spend on growing your client base.

Knowing which clients will be affected by Making Tax Digital for Income Tax

From April 2024, all self-employed people and landlords who earn over £10,000 will be subject to following MTD for ITSA rules. Currently, HMRC have stated that the changes won’t apply to limited companies or limited partnerships, but from April 2025 general partnerships will join the ITSA scheme.

When will Making Tax Digital for Income Tax begin for  clients?

Originally, Making Tax Digital for Income Tax was due to begin in 2023. However in light of the pandemic and in order to give those affected more time to prepare, HMRC confirmed it has delayed the initiative until April 2024.

6 April 2024 is the point at which those affected will need to begin following MTD rules for ITSA. This is being referred to as the ‘digital start date’.

Do clients who are Making Tax Digital for VAT registered also have to sign up to Making Tax Digital for Income Tax?

VAT and Income Tax are two separate taxes with two different systems, therefore clients will need to sign up for both separately.

What information will clients need to submit for Making Tax Digital for Income Tax?

Those who are landlords and/or self-employed will be required to submit:

  • A ‘Final Declaration’ and full payment by January 31st
  • Four quarterly updates containing details of their income and expenditure
  • An ‘End Of Period Statement’ at the end of the fourth quarter

It’s important to remember HMRC can change these requirements, so keeping an eye out for changes is imperative. Stay updated by visiting gov.uk.

Simple steps to prepare your clients for Making Tax Digital for Income Tax

Below you’ll find three steps to help prepare your clients for Making Tax Digital for Income Tax.

1. Ensure they are in the know about digital record-keeping

One of the major features of MTD is the digital links rule, and non-compliance could be penalised. Show your clients how to remain compliant with their digital records and make sure they know where digital links are required.

2. Keep your clients on top of changes to Self-Assessment

Going from one annual submission to filing four updates a year will feel like quite a change. Clients may now need more support and will therefore likely be in touch more regularly throughout the year.

Thankfully with the introduction of this new system, they will need to submit less information for each update. It’s important to let clients know about the reporting requirements and make sure they know when the submission deadlines are.

Make sure their software is Making Tax Digital for Income Tax compatible

To make the transition smoother, guide clients to utilise a compatible software solution that works for you, them and their business.

Start preparing your practice & clients for Making Tax Digital for Income Tax today

The changes are an opportunity for you to deliver even more value to your clients. The earlier you start preparing, the more you can support them on their journey to becoming Making Tax Digital ready.

For more information about MTD and what it means for your practice, check out our resources for accountants and bookkeepers.

This content is brought to you by Xero.

Needs an accountant: behind the collapse of the Kids Company

Posted by & filed under Members.

Kids Company’s collapse in 2015 demonstrates that perception can matter as much as reality, particularly when it comes to charitable organisations.

At the time of Kids Company’s demise, a great deal of attention was on the charity’s founder Camila Batmanghelidjh. This was understandable, given that she was the driving force behind its rise and had the ability to gain support from high places, including from former prime minister David Cameron. 

Founded in 1996 in south London, Kids Company provided practical, emotional and educational support to up to 36,000 deprived and vulnerable inner-city children and young people. It employed more than 600 people. 

Allegations swirl

But as its fortunes waned in 2015, allegations of mismanagement began to swirl around Batmanghelidjh. Last year, though, a three-and-a-half year legal battle came to an end when the court threw out claims by the official receiver that Batmanghelidjh and seven former trustees failed to properly manage the charity in its tumultuous final months. 

The judge added, too, that while the charity had experienced cash flow difficulties, its board had taken steps to ensure it had a plan to manage the challenges it faced, and the charity might have survived had it not been brought down by unsubstantiated allegations of sexual abuse. 

Demands grow, donors go

When Kids Company closed in August 2015, the charity said its finances had become stretched because of the number of children “pouring” through its doors for help. But donors had been steadily withdrawing support, alarmed by the stories of alleged mismanagement. 

Earlier that summer, the charity had said it wanted to restructure and had sought new funds from the Government and donors. 

But it closed, with ministers Oliver Letwin and Matt Hancock saying they wanted to recover a £3m grant they had given to the charity a week prior. 

Batmanghelidjh said a private donor, who had pledged to match the Government grant, pulled out after hearing the Metropolitan Police were investigating abuse claims. 

And that was that. The reputational damage, along with the existing cash flow issues the charity was facing, were too much for it to ride out. 

The key lesson to take from Kids Company’s issues is that, while the truth certainly matters, perception is almost as important, particularly when it has the potential to have an impact on revenue streams, as it did in this case. 

Case outcome

Certainly, Mrs Justice Falk’s findings that there had been no dishonesty, bad faith or personal gain on the part of Batmanghelidjh or the trustees will be some vindication, but it came six years too late to save the charity. 

Following the case’s conclusion, Batmanghelidjh told The Guardian: “I’m so relieved, for the children, for the staff, the trustees, for the volunteers. They have been shamed by the many false stories about Kids Company over the years. I’m so glad I stood up against it and didn’t back down. This judgment brings tears to my eyes. I’m so glad that finally the facts won.” 

The story is a reminder of the financial and operational havoc that reputational damage can cause. Companies must not only be in the right, they must be able to demonstrate they are doing right – or they could suffer the consequences.

Understanding the crypto crash – and what comes next

Posted by & filed under Cryptocurrency, Members.

Cryptocurrencies remain a serious investment vehicle – albeit with many challenges for accountants

From a geeky fad dominated by rookie investors looking to turn a fast buck to a form of investment and finance teetering on the mainstream, the rise and fall of cryptocurrencies hit the buffers once again last month following a crypto crash, which saw half a trillion dollars wiped from the total market cap overnight.

Crypto has seen huge institutional adoption over the last 12 months, which has increased signs of correlation between crypto and equities, explain Ben Lee, a Partner at PKF Francis Clark and head of Blockchain and Cryptocurrency at the firm. “Increased interest rates have caused investors to consider less risky alternative investments and uncertainty around regulation in the US and other jurisdictions is also taking effect,” Lee says.

Crypto crash: investors get the jitters

However, the volatility sweeping the market since the start of the year – fuelled by inflation, rising interest rates and the war in Ukraine – has undoubtedly left investors jittery. The market crash in May can be directly attributed to the destabilisation of TerraUSD (UST), a stablecoin (that is a digital asset designed to maintain a stable valuation).

Some stablecoins are pegged to the price of another asset, for example USDC is pegged to the US dollar, and reserves of currency are kept by projects to maintain peg. Others such as UST are algorithmic stablecoins, where the value is maintained by code. “Certain transactions led to UST losing its peg to the dollar, so the team behind UST dumped approximately $3bn from their Bitcoin reserves to defend the peg,” Lee explains.

Crypto crash: there’s a longer-term view

But, crypto has been there before and the longer-term trends tell a very different story. At the end of 2017, the bitcoin price breached $20,000 promptly followed by crypto winter, a period of low prices that lasted almost 18 months, with prices dropping to $3,236 by the end of the year.

Bitcoin’s value is currently around $30,000. Last year in May, we witnessed a similar crash with value dropping from $58,000 at the start of the month, to $35,000 by the end (it would seem May is not a good month for crypto). In May 2020 it was $10,000. In May 2019 it was $6,000.

“Whilst these fluctuations may not be attractive to some investors, Lee likens adoption of digital assets to internet adoption in the 90s, when many considered the internet to be a fad. “I don’t believe this is the end for crypto, this is still the beginning.”

Regulators: could crypto be more conventional?

Today, wrangling between regulatory bodies and crypto organisations supports the suggestion that crypto is going mainstream as regulators seek to inject some centralized order into this seemingly unruly and rebellious world.

Financial services regulator the FCA last month hosted a two-day CryptoSprint event to explore how the evolving world of cryptoassets could be regulated in the UK. AAT-qualified Joe David is a “Crypto accountant” and Founder and Managing Director of Nephos Group and MYNA, a dedicated blockchain and cryptocurrency advisory firm: “Regulation is being discussed a lot. The FCA is considering many different use cases. It is likely that stablecoins – crypto pegged to a fiat currency – will be regulated first.”

With more and more countries legalizing cryptocurrency, and even some looking to follow El Salvador’s footsteps in making crypto legal tender, the rise and rise of crypto looks set to continue; analysts predicted last year that the cryptocurrency market would triple in size by 2030 at a valuation of around $5 trillion.

HMRC shuns the currency question

In the meantime, HMRC also published a detailed Cryptoassets Manual to guide people on how to file taxes on cryptocurrency. “The taxman does not view cryptocurrency as a form of currency which broadly speaking means that the movement of digital assets falls within capital gains tax, but where businesses are dealing entirely with digital assets, or individuals are highly engaged in this space, there are thousands of transactions to consider, to which the pooling rules need to be applied,” Lee explains.

Meanwhile, the huge pace of change across the industry means that legislation and guidance is struggling to keep pace. “Often the interaction between the legislation and economic activity can create a multitude of tax points over a series of transactions that can lead to complicated dry tax charges arising,” Lee warns. 

How to account for crypto? …It depends

However, the absence of accounting standards relating to digital assets remains something of a moot point. With over 18,000 different cryptocurrencies on the market, not all are the same, Lee says. “Some may be a store of value, such as bitcoin. Some such as Ethereum are considered a utility token, and some tokens may offer security.

“As a result, digital assets could be considered to be an intangible asset, stock, or financial asset, depending on what purpose the asset serves, and how it is being used.” An understanding of the underlying asset is imperative for ensuring correct accounting treatment, Lee says.

Felix Honigwachs, CEO of cryptocurrency exchange Xchange Monster, says: “In terms of classification of cryptocurrencies in accordance with IFRS (International Financial Reporting Standards), there is no clear definition. What will become very important is the disclosure thereof within the notes of the financial statements.”

Can accounting software cope?

Keeping records of transactions is a challenge in itself as modern accounting packages are built around currencies, and do not have the capabilities to incorporate digital asset transactions.

While there are many cloud-based crypto tools to monitor blockchain activity for tax purposes, it means a separate record of digital asset movements needs to be maintained outside of usual bookkeeping software and incorporated within the books as appropriate.

Auditors may need to change

Having to refer to existing standards presents a problem, says Rick Deacon, CEO or blockchain security expert Interlock. “Traditional accounting maintains and stores records in a centralised ledger based on a double-entry accounting system, where only the accountant has access, whereas blockchain relies on a decentralised system.

Blockchain may, therefore, mean auditors have to shift from an analytical capacity to more of a programming role.”

All, in all, more work is needed (and soon)

In a recent interview, Pauline Wallace, Executive Chair of the UK Endorsement Board, said Cryptocurrencies would be an area of focus over the next few years, as the board grapples to define how they are used and therefore how to account for them. “We are not aware of that many UK companies that hold significant portfolios of crypto currencies. Nonetheless, once you start thinking about how people are using them as a means of exchange then you realise how little accounting support there is for that type of thing,” Wallace said.

While crypto assets are by their very nature volatile, Honigwachs believes current market conditions do not reflect the substance of the industry. “Overall, an opportunity exists to buy well-priced crypto assets at a larger than average discount and benefit from substantial yields when the market turns. These assets should be well researched and validated against peer review and analyst reports. As with any asset class, diversification within one’s portfolio is very important and one’s risk profile and risk tolerance evaluated.”

Hope ahead for accountants (if they stay the course)

For accountants, blockchain offers many potential benefits, not least data reliability and financial statement audits, Deacon says. “Crypto currencies could make earnings a lot simpler to track when it comes to using the public distributed ledger that underpins a cryptocurrency. Everything is visible on the ledger, but you also need to track transaction fees, plus fluctuations in the currency’s value and this often trips people up.”

The biggest potential pitfalls hinge on the complexity and rapidly changing crypto environment, David says. “It’s tough to keep up. The lack of clear guidance is a challenge for accountants who are not fully immersed in the ecosystem.” 

Meaty matters – it’s time for a broad-based food tax

Posted by & filed under Members, Time for change.

As the Government prepares to reveal its food strategy, Richard McIlwain, of the Vegetarian Society argues for a new tax approach.

This article is part of AAT’s Time for change, towards a fairer, more effective tax system. Download the report here.

Most people know the abattoir is not a nice place, may have seen the warnings about animal agriculture and its impact on global climate change or noticed the World Health Organisation’s warning linking red meat and cancer.

But does this awareness mean we are eating less meat?

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The National Diet and Nutrition Survey, a representative survey of our eating habits, does indeed report that between 2008 and 2019, meat consumption fell by 17%.

Which suggests some of the messaging is cutting through. But it’s not enough. We need to go further and faster, with additional cuts between 20% and 50% by 2030 being mooted.

The urgency is largely driven by our rapidly changing climate, with animal agriculture responsible for almost 15% of global greenhouse gas emissions. However, meat-heavy diets also impose considerable costs on our health. A recent Oxford University report suggested that excess consumption of red and processed meats is linked to a growing number of medical conditions, including heart disease and cancer.

So, how might we deliver a targeted reduction in meat consumption quickly but in a fair and proportionate way?

At the charity Keep Britain Tidy, I helped raise awareness around the littering of single-use plastic carrier bags. With limited effect. We then successfully lobbied for the 5p carrier bag charge. It created immediate, widespread behaviour change with a 90% reduction in single-use bags. Furthermore, evidence from other countries suggests that a deposit return scheme can substantially reduce littering and drive-up recycling of drinks containers. Our government is now proposing to introduce one.

So, well-designed fiscal measures, charges, levies and taxes, can clearly drive people to behave differently. But could a tax on meat help reduce current rates of consumption?

The answer is most likely yes. Apply a high enough tax rate to meat sales and basic economics suggests consumers will respond and reduce consumption. Of course, heuristics, our tendency to not comply with economic theory and instead short-circuit it, suggests we may find work arounds. Black market meat perhaps and clandestine imports. And if demand for plant-based alternatives increases, might their prices rise as a result, at least in the short-term, until the sector scales and reaches maturity. A double whammy for the consumer and an open goal to those vested interests who will decry that a meat tax would lead to job losses and hit the poorest in society.

Hardly inspiring stuff for any political party wanting a cross on a ballot paper on election night.

Instead, I suggest that rather than a meat tax in isolation, what we need is a complete review of our current food system and how good fiscal policy can drive positive change.

When it comes to meat, both the negative environmental and health impacts are currently externalised onto society. Taxpayers pick up the bill whether they eat meat or not. Surely, it would be fairer to focus on the producers and consumers? Producers are already subject to some carbon levies on energy and no doubt more could be done here. What is missing is a consumer-focused carbon tax, which could be priced to reduce the consumption of meat and other high-carbon goods.

Of course, this doesn’t tackle the health care risks associated with meat consumption. Hence, we need to be bold and develop a tax system which encourages not just environmental sustainability but healthy eating, driving producers to divest from unhealthy food and develop new healthier options, while also encouraging the consumer to buy food, not simply because its healthy but because it’s the cheaper option.

The Government has acted, albeit in a limited and piecemeal fashion, introducing the sugar tax. Following the logic behind my argument for a broader carbon tax, perhaps we need a health tax for food. Fat, salt and sugar are now displayed on packaging.

But with the UK’s diet recognised as one of the unhealthiest in the western world, awareness is not translating into behaviour change, hence I suggest an urgent need for a proactive food tax, which would be targeted at reducing our consumption of unhealthy food.

The revenue derived from both the environmental and public health taxes should then be deployed to support a subsidy of healthier and lower carbon options. This two-pronged approach is supported by an Australian modelling study from 2017, which suggested that both tax and subsidies were required to deliver healthier eating patterns.

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In summary, we must make radical changes to the way in which we consume, if we are to maintain the health and wellbeing of a growing population and the biodiversity, which we value and on which we all depend.

Now is not the time for piecemeal gestures. We need a joined-up policy to help drive transformational change.

It’s a brave government that will grasp this nettle but grasp it they must.

About the author

Richard worked at the Environment Agency before serving as Deputy Chief Executive at Keep Britain Tidy for more than a decade. Richard became Chief Executive of the UK Vegetarian Society, the world’s oldest vegetarian society, in 2020.

How a Proportional Property Tax could ease the effects of the cost-of-living crisis

Posted by & filed under Members, Tax reform, Time for change.

2022 will be remembered as the ‘year of the squeeze’ for millions across the country –  fairer property taxes would help, says Andrew Dixon, Founder and Chairman of Fairer Share.

Devastatingly, a triple threat of a cost-of-living crisis, higher interest rates and the removing of Covid-19 support schemes is going to hit lower and middle-income households the hardest. But the final nail in the coffin is our deeply unfair property tax system which has severe ramifications for households that are suffering the most.

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Give feedback

North-south divide

Unfair Council Tax rates means many people are already paying higher taxes for properties worth far less. For example, those living in Westminster pay just 0.06% council tax as proportion of property value, compared to 1.13% in Hartlepool or 1.17% in Nottingham North.

The recent pandemic and spiralling utility bills have exacerbated the problem even further. The Office for Budget Responsibility expects Council Tax bills to be 33% higher by 2026/2027 due to increased social care pressures. This is equivalent to around £435 extra per household. This is on top of thousands who are already unable to pay their Council Tax bill, leading to around £4.4 billion worth of existing debt.

It’s vital that we look to create a fairer, more transparent system which puts money back into the pockets of hard-working people. To stop the rise in Council Tax bills for millions of households who will be disproportionately impacted by the cost-of-living crisis. Now is the time for the Government to abolish Council Tax and Stamp Duty Land Tax (SDLT) altogether and consider introducing a Proportional Property Tax (PPT).

Property tax reform

The Fairer Share campaigns for the introduction of a PPT where all households pay a flat 0.48% of their property value, abolishing Stamp Duty and Council Tax for good. In addition, the obligation to pay the PPT moves from tenants to owners. The benefits are considerable – moving to this system would see tax savings for over 19 million households with an average saving of £435 every year. In addition to a 0.48% annual charge for all homes, there would be a surcharge on second, foreign-owned and empty homes that Fairer Share research suggests could raise an additional £4.5 billion.

A PPT would also be a fairer deal for younger generations who are confronted with an economic barrier unlike previous generations. Over 90% of people aged 25–34 would better off, as well as 85% of single working adults. On top of this, 98% of households in the most deprived constituencies would enjoy a tax cut.

Overall, a PPT would aid the country in rebuilding after Covid, would be a fairer system and would support the households that really need it. Covid-19 has already hit the poorest households hardest, the Government must now be committed to supporting them as prices, bills and other taxes continue to rise.

Not only is it fairer, but it also makes sense economically. Just recently, the IPPR think tank calculated that by removing Stamp Duty and facilitating more property sales, and by putting more money in the pockets of low-and middle-income households, reform could result in an increase in GDP of over £3 billion per year. A PPT will result in a tax cut for millions of households outside London, while demanding fairer contributions from the bankers, large landowners, and foreign investors in London and the South East who benefit the most from rocketing land values and will not be plunged into poverty as a result of rising costs.

A Proportional Property Tax has already been backed by think tanks across the political spectrum, and the House of Commons Housing and Local Government Committee called for it to be considered by the Government last year. As household costs continue to rise and the Government is running out of options to support those hardest hit, there is a overwhelming case for reforming outdated and unjust property taxes.

About Andrew

Starting his career in finance at Société Générale and Goldman Sachs, Andrew has spent over two decades investing in small and medium-sized businesses. Through ARC InterCapital, he has invested £20 million in over 40 British companies and his current portfolio employs more than 1,500 people. In 2020 Andrew founded Fairer Share to help reform England’s property tax system.

Penalties in play after the end of IR 35 honeymoon period

Posted by & filed under IR35, Members.

How to be ready, now HMRC’s soft-landing period for IR35 in the private sector is over.

HMRC’s grace period for IR35 penalties ended in April. This means that for any company that ‘accidentally’ breaks the rules, they are likely to be liable to face penalties of up to 100% of the unpaid tax due to their inaccuracies.

Since 6 April 2022, HMRC now charges penalties for inaccuracies based on the reason for that inaccuracy. The penalty regime breaks down as follows:

  • A penalty of 30% of unpaid tax if HMRC deems that you were careless about your employment status but did not know it was inaccurate
  • A penalty of 70% of unpaid tax if HMRC finds that you knew you were within IR35 and yet chose not to act
  • 100% of unpaid tax if HMRC finds that you have actively tried to conceal your IR35 status and underpayment of tax

Businesses can avoid a penalty if they can prove to have taken ‘reasonable care’. At its basic level, this means checking with a tax adviser or HMRC if unsure about anything. Other examples include using a specialist team to carry out all off-payroll working compliance activity (this is common in sectors such as financial services, and oil and gas).

HMRC may publish details of organisations that deliberately get their affairs wrong to encourage them to put their tax affairs in order, in certain circumstances.

In essence, the updated IR35 rules break down as follows:

  • The end user, in most cases, is responsible for determining whether the working arrangement is in scope of IR35 or outside it. 
  • If considered ‘in scope’ of IR35, the arrangement is considered by HMRC as full-time employment and subject to NICs and other employment rights.
  • If considered ‘outside’ of IR35, HMRC view the contractor as genuinely self-employed due to all or some of the following conditions:
    • The contractor chooses when, where or how they work.
    • They are responsible for their own taxes.
    • They have more than one client.
    • They may tender for contracts.

We spoke to accountants who specialise in IR35 and off-payroll working tax rules to find out how businesses can avoid facing penalties.

Mutuality of Obligation gives a strong indication of IR35 status

James Poyser, CEO, inniAccounts & founder of offpayroll.org.uk

The biggest challenge for IR35 is identifying if someone is truly operating as a business (thus ‘outside IR35’) or are actually a disguised employee (‘inside IR35’). One of the key tests a judge may consider involves Mutuality of Obligation (MoO): are you paid for simply being ‘available’ for work, even if your client has no work for you?

If you’re a contractor or consultant, then you may expect a client to hire you for a specific task with no obligation to provide you with further work once the contract expires.

The absence of MoO is a strong indication that someone is outside IR35, and many IR35 court cases have been won with this approach.

If an inside IR35 status is determined, HMRC will expect the fee payer to account and pay the income tax and NIC required via PAYE. HMRC can recover any unpaid tax or NIC from any ‘relevant person’ in the chain. This can include anyone above the fee payer.

Next steps: companies must ensure continuous review of status and ensure the full supply chain for employment is compliant. 

Verdict: Considering Mutuality of Obligation gives a strong indication of IR35 status.

HMRC can’t go easier on businesses

Joanne Harris, Head of Technical, Compliance and Payroll at SJD Accountancy 

End hirers/agencies must be seen to have exercised reasonable care in assessing the IR35 status of a contractor, and not doing so could risk them being issued a penalty. The percentage of the penalty will vary depending on whether the non-compliance was accidental or deliberate and is decided on a case-by-case basis. For any deliberate or concealed action, penalties can be as much as 100%.

The penalties are standardised and remain in line with the responsibility that was previously in place for PSC’s. In light of this, it would be unfair to have lighter penalties or be seen to “go easier” on businesses who likely have deeper pockets than individual contractors.

Penalty percentages can vary depending on whether the non-compliance was intentional or not, and honest mistakes should be treated fairly. HMRC have a charter outlining how they will behave in these investigations.

Next steps: As with any investigation it is essential that they seek professional advice as possible, liaising with a qualified tax advisor who can offer advice and work on their behalf to present a strong case is particularly important if they disagree with HMRC. 

Verdict: The penalties make sense – businesses need to give this serious thought and engage with tax advisors to ensure they are following the rules.

Send employment status determinations to agencies/workers and review regularly

Chris Barnard, Head Accountant, Accounts And Legal

 
From 6 April 2022, all public authorities and medium and large-sized clients outside the public sector are responsible for deciding if the rules apply.

The first and most crucial point is to establish whether you are ’employed’ or ‘self-employed’ under HMRC’s terms. There are three main tests to decipher this – Personal service, Control and Mutuality of obligation. You need to pass one of the tests to be outside of the off payroll working rules.

Next steps: Businesses should speak to a professional advisor to make sure they are the right side of the off payroll working rules. It is important to send employment status determinations to agencies or directly to workers, then review if you are the deemed employer and responsible for deducting Income Tax and National Insurance contributions.

Verdict: Send employment status determinations to agencies/workers and review regularly.

Consult HMRC’s CEST tool and seek professional advice

Bev Wakefield, co-founder and director, Vibrant Accountancy

Medium-large companies are responsible for determining scope of IR35 but for small companies, it’s the responsibility of the freelancer themselves.

Many companies have taken a blanket approach to these rules but that’s not what should be done. Instead, reasonable care must be taken to assess each person and circumstance.

Next steps: To help companies and contractors ascertain IR35 status, HMRC have set up an online Check Employment Status for Tax (CEST) tool. While not ideal for every circumstance, it’s a great starting point. People should also consider seeking professional advice, too.

Verdict: Consult HMRC’s CEST tool and seek professional advice.

Meet the mentor: Lucy Cohen, co-founder of Mazuma Accountants

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Lucy Cohen is co-founder of Award-winning accounting firm, Mazuma. She chatted to assistant accountant Marelize Bott, who was keen to get some advice and hear about Lucy’s experience starting a business.  

Lucy, based in Bridgend, Wales, started her award-winning accounting firm Mazuma accounting in 2006, and now has 30 employees. Marelize Bott MAAT AATQB, known as Maria, recently completed all three levels of AAT in just 10 months. She started her own accounting practice, Add-Worth Accountancy, earlier this year. 

Lucy is also one of the panelists at the AAT Future Finance Online conference which you can register for below.

On-demand: AAT Future Finance 2020 Online

You can now access all 14 hours’ worth of webinars from AAT Future Finance 2020. Click the link to register for free access.

View on-demand

Spotting a gap in the market

Maria: How did you go about starting your own firm and turning it into the successful practice it is right now?

Lucy: For us and what we wanted to do, it was about spotting a gap in the market and then making sure that there was a market in that gap. From the very beginning, we were disruptors. We looked at pushing out the incumbent ways of working by coming up with a different way of working.

The next thing you need to look at is – what is your differentiator? What is it that you’re going to do that other accountants don’t? I think you would do well to identify really early on exactly who and what it is you want to work with and then stick to that. Then you can tailor all of your messaging and marketing, and the way that you talk about yourself can be tailored around that.

Finding your niche

Maria: So you said you spotted the gap, what is the niche that you are focusing on? 

Lucy: We focus only on micro and small businesses. We deal with a very high volume of clients, but they pay low fees. It’s both a safer and riskier model – it takes longer to build up a good income from it. If you’re going to look at that model, you perhaps need to have some reserves or some savings behind you to tide you over before you start making any money.

The other option you’ve got is to have a bespoke service – where you’ll have fewer clients, but the level of service you have to give them is that much higher and they will be paying a higher fee to you. So this is better in that you will start making money straight away. But obviously, if you lose one client then you’ve got to replace them very quickly, otherwise, that will be a big hit on your cash flow.

CPD is very beneficial

Maria: I think I have decided that I am done with studying. Do you think further study has helped you in being successful or do you think having MAAT is sufficient? 

Lucy: I think MAAT is sufficient. To be honest, you’ve got all the technical skills that you need. Another useful qualification to have would be taxation. As a lot of the conversations, you will have with clients will be around tax. I’m a big believer in continuous professional development and lifelong learning, so every year I’ll learn something new.

Maria: In the current situation that we find ourselves in, how are you helping your businesses through it? 

Lucy: At the moment, we are just being as supportive as we can be. We are communicating with them, we’re signposting them. Where possible we are helping them with making sure they can meet fees. And if you want them to be there at the end of this, you’ve got to stick with them through it.

Networking and getting to know people locally

Maria: Marketing-wise, how did you grow your business? 

Lucy: We started off by going to networking events and getting to know people locally. Over the years it’s evolved, so we’ve now got a marketing team and a sales team. In the first instance, if you don’t have a lot of cash behind you (we definitely didn’t), the best thing you can do is get out there and start introducing yourself to people. 

Maria: I’m still employed full-time and I’ve just started my own practice on the side, so I’m quite active on LinkedIn. Do you think that is helpful? 

Lucy: LinkedIn is good. Although you do get a lot of people on there that says, ‘oh we can generate you leads, we can do this and that and the other’, and maybe they can – but they cost a lot of money. If you can invest your time rather than money into relationship-building, I think that will go a lot further than spending money on marketing or advertising.

Adapting to the current climate

Maria: Are most of your staff working from home now? 

Lucy: We’ve got skeleton staff on-site – because HMRC are so old school and everything comes by post, so we need people there to open up post for clients. We also have clients that use our paper-based service, so we have staff who are opening up this and scanning it and getting it back to clients. Then when that’s done the majority of people are working from home. 

Maria: With regards to taking clients on-board, obviously you’ve got your on-boarding documentation, do you do it mostly electronically? 

Lucy: 100% electronically, yes. To keep it sustainable. 

Maria: In times like this, when you have clients who may not be able to pay, obviously you want to help them – how would you deal with that situation? 

Lucy: On a case-by-case basis. At times like this, it’s all about listening to our clients. And seeing what it is they need and trying to help them with that. We’re well placed to be able to say to clients: ‘We can see your cash flow and you’ve got enough cash reserve left, which will last you 3 months – so we suggest you go to your mortgage company and ask for a payment break for 3 months of your mortgage, which then buys you 6 months’.  
We can give advice like that.   

On-demand: AAT Future Finance 2020 Online

You can now access all 14 hours’ worth of webinars from AAT Future Finance 2020. Click the link to register for free access.

View on-demand

Further reading:

21 things you can do while you’re studying AAT to help you get a great job at the end

Posted by & filed under Students.

Implementing a few of these 21 ideas will benefit you in the job marketplace. If you can get some of them done or started while you are still studying then you could be set for an accelerated journey into getting a role that you love when you are ready.

These activities can also be a great way to help you with your AAT learning in ways you might not have considered.

1. Be active on LinkedIn

A few years ago, LinkedIn was simply a site for searching for a job but it now has 310 million active monthly users and it’s a place to learn, connect with people, and share ideas as well as find out about and apply for jobs. You can add an Open To Work badge to your profile and make sure you send a personalised note with every connection request.

2. Research what you’re looking for

Spend some time thinking about and researching what sort of job you think would be ideal for you and if you have a preference of industry, location and benefits that you might be looking for. If you can start to narrow this down, it will make it a lot easier to direct your effort and attention in the right places. 

3. Choose some role models

Look for people you aspire to be like and find out more about them – what does their career journey look like (use LinkedIn) and can you find articles they’ve written or interviews they’ve done? The easiest way to get where you want to go is to surround yourself with the right people.

4. Make your CV stand out   

Dedicate a couple of hours to sitting down and working on your CV to get it bang up to date. Find a template of one you like and have someone else take a look at yours for you to give feedback before you use it to apply for roles.

5. Get a pro headshot done

Any photos you use of yourself in a professional capacity should convey the impression you want to give at first glance. Getting a pro headshot done is a worthwhile investment and it will make you feel more confident.

6. Go networking

Networking events come in all shapes and sizes now – online and in real life, small and large, with opportunities to learn and opportunities to speak. Test some different ones out and you’ll find a networking event and community that works for you. Go with an open mind and full of enthusiasm. Remember – your vibe will attract your tribe.

7. Start a blog

Sharing knowledge is a brilliant way to learn and what better way to demonstrate your passion for a topic than blogging about it?

8. Write a newsletter

Better still, start an email newsletter. You can grow your database of contacts and use it to talk about your career and study journey. It will help others which will, in turn, help you and will provide great talking points in an interview.

9. Ask for help

Tell everyone you know what you are doing and the sort of opportunities you are after. Write emails asking your contacts if they could point you in the direction of anything or anyone who might be able to help you

10. Get involved with your local AAT branch

There are 49 AAT branches run by over 300 members across the UK which all run courses and events, provide support and offer valuable networking opportunities. Find your local AAT branch.

11. Volunteer

Volunteer locally or with a charity to get some relevant experience on your CV and demonstrate that you’re proactive and caring.

12. Do some freelance work 

Offer your skills and services as a freelancer and earn some money while you study. Start by listing out the tasks that you could do.

13. Shadow someone in the role you want

Request to shadow someone in a similar role to the one you want for a day or a bit longer. You’ll learn more about what it’s actually like to do the job and you never know what contacts and opportunities it could lead to.

14. Get an internship

Internships normally last for anything between four weeks and four months and can be paid.

15. Find a work placement

Work placements are usually a more extensive commitment of up to twelve months.

16. Work part-time

It’s always easier to get another job if you’ve already got one and there will be transferable skills from any role. Regardless of the type of work you get, you might be able to get involved in the accounts side of things after you’ve been there a while if you express your interest.

17. Read books

Business books are fantastic when you apply what you learn from them. Make sure you’re not using them as a distraction device from taking action.

18. Listen to podcasts

There’s a podcast for absolutely everything. Use the search function to find niche episodes about anything from what it’s like to be an accountant to interview tips.

19. Learn how to improve your soft skills

Employers are looking for soft as well as hard skills these days, so if you can demonstrate that you’re proactive, reliable, a good communicator, enthusiastic and can meet deadlines, it is going to give you a huge advantage for getting a job.

20. Do things that push you out of your comfort zone

Getting comfortable with being uncomfortable and pushing yourself can be one of the most valuable skills to learn. Take small steps to get better at things you don’t like doing.

21. Have fun

Make new friends, exercise, get some fresh air, go to an exhibition, sit in a park and draw, take the next bus that comes along a random amount of stops. It’s amazing what ideas and inspiration you can get when you take a break and explore new places.

Further reading