Technical and Insight
Ten common tax elections and claims

We look at some of the more common elections and claims which are useful tax planning or compliance tools.


We look at some of the more common elections and claims which are useful tax planning or compliance tools.

 

Some of these claims have strict time limits which should be given due consideration to avoid missing any deadlines.  

 

1.     Form 17 (Declaration of beneficial interests in joint property and income)
Income and gains from jointly owned properties are usually taxed equally on spouses (or civil partners) regardless of the actual ownership of the property. Completion and submission of this form specifies a different apportionment for tax purposes (based on actual proportion of ownership), which can be useful where owners are subject to different rates of income tax. The declaration will take effect from the date that the last spouse signs it, provided that the form is submitted to HMRC within 60 days of that date.

 

2.     Holdover relief claim s165 TCGA 1992 and s260 TCGA 1992
Hold-over relief is available under s165 TCGA 1992The gift must be of `business assets'. The transferor and the transferee must claim jointly within four years from the end of the tax year in which the disposal occurs. The time limit for claiming gift hold-over relief is four years and 10 months from the end of the tax year of disposal. Hold-over relief is also available under s260 TCGA 1994, where the disposal is a chargeable transfer for Inheritance Tax purposes, but not a potentially exempt transfer. Cases where there is no liability to Inheritance Tax, because the value transferred is within the zero-rate band, qualify for hold-over relief.

 

3.     Main residence nomination s222 (5a) TCGA 1992
Taxpayers with two or more residences may choose which property is to be treated as their main residence for capital gains tax purposes by lodging an election under TCGA 1992, s222(5). The election must be made within two years of acquiring a second (or subsequent) residence unless there is a delay in occupation, in which case the date of moving into residence is the trigger event. Once an election has been made it can be varied at any time and so even where the facts would suggest that a nomination is not necessary, it is prudent to make one to leave the door open for a variation at a later date.

 

4.     Claim to reduce income tax payments on account - SA303 
A claim to reduce tax payments on account can be made by a  taxpayer at any time up to 31 January after the end of the tax year concerned if they believe that their tax liability will be lower than the previous year. The taxpayer must make the claim by notice, giving reasons why the payments on account should be reduced. If a taxpayer deliberately makes a claim to reduce the payment on account for the benefit of obtaining a cash flow advantage when they know that their tax liability for the year would be higher than the amount paid, then HMRC reserves the right to charge a penalty. 

 

5.     Deed of variation s142  Inheritance Tax Act 1984 (IHTA 1984) and s62 (7) TCGA 1992
If the variation includes a statement that the parties to the variation intend that the provisions of section 142(1) Inheritance Tax Act 1984 and section 62(6) Taxation of Chargeable Gains Act 1992 are to take effect for inheritance tax, capital gains tax or both, the variation is treated as if the deceased had made it. In other words, the changes are treated as having been made by the deceased and as having taken effect from the date of death. For a variation to take effect for inheritance tax, capital gains tax or both, it must be made within two years after the death, be in writing and signed by all the beneficiaries who would lose out because of it.

 

6.     Negligible value claim s24 (2) TCGA 1992 
Under this legislation a taxpayer who holds an asset which has become of negligible value may make a claim to be treated as though the asset had been sold and then immediately reacquired for an amount equal to its value. When a negligible value claim is made the taxpayer may wish to specify an earlier time, falling in the two previous tax years, at which to treat the deemed disposal as occurring. The taxpayer has to meet all the necessary conditions for the claim at that earlier time as well as at the time of the claim. The effect of crystallising such a 'paper' loss, without actually selling the asset, can often be useful for reducing income tax, corporation tax or capital gains tax.

 

7.     Share loss relief set off against income tax s131 ITA 2007
Under this section a taxpayer may be able to reduce income tax liability by making a claim to offset losses on disposal of shares acquired by subscription in a qualifying trading company (or following a negligible value claim for such shares), against other income in the current or previous year.

 

8.     Payment of capital gain tax by instalments s281 TCGA 1992
Where hold-over relief is not available, or only partial relief is available, and the asset is:

  • land and building
  • shares in unquoted companies
  • shares in a quoted company on which the donor had a controlling interest before the gift

 

the taxpayer can make a claim under s281 TCGA 1992 to pay tax in 10 equal yearly instalments.

Also under s280 TCGA 1992 if any of the consideration is payable more than 18 months after the date of the disposal the tax due may be paid in instalments. The period over which the instalments are paid would be agreed with HMRC but cannot exceed the lesser of eight years and the point when all of the consideration is paid. The unpaid instalments carry interest.

 

9.     Short-life asset election s85-s86 Capital Allowance Act 2001 (CA 2001)
An asset that is expected to be used in the business for a period of eight years or less, and have a nil or low disposal value, can be elected (under s85-s86 CA 2001) to be treated as a short life asset.  De-pooling these items into a separate short-life asset pool will accelerate the tax relief. 

 

10.   Election by non-UK domiciled spouse or civil partner to be treated as UK domiciled for Inheritance tax purposes.  IHTA84/s67ZA(3)
From 6 April 2013, a person can make an election to be treated as UK domiciled for IHT provided that during the period of seven years ending with the date on which the election is made, the person had a spouse or civil partner who was domiciled in the UK. Any transfers between spouses or civil partners made after that date qualify for full spouse or civil partner exemption.

 

 

Covid-19 – Latest changes on the CJRS and SEISS support

The CJRS has been extended until the end of March 2021 – all you need to know.


The CJRS has been extended until the end of March 2021 – all you need to know.

 

The previously announced Job Support Scheme that was due to replace the CJRS (Coronavirus Job Retention Scheme) has now been withdrawn and CJRS has been extended until the end of March 2021.

 

This will be accessible by employers putting staff on furlough in any part of the UK. Crucially, it will be available for employers and employees who have not previously used the furlough scheme in its earlier versions.

 

Under the extended CJRS, for claim periods running to 31 January 2021, the UK government will pay 80% of employees’ usual wages for hours not worked, up to a cap of £2,500 per month. The UK government will review the policy in January to decide whether economic circumstances are improving enough to ask employers to contribute more.

 

It is important to note that employers and their employees do not need to have used the scheme before to claim for periods from 1 November.

 

The claim portal for the extended CJRS will be opened on 11 November 2020. A change is that there are now monthly deadlines for claims. Claims for periods on/after 1 November must be submitted within 14 calendar days after the month they relate to, unless this falls on a weekend, in which case the deadline  is the next  weekday – submit any claims for periods from 1 November before no later than 14 December.

 

HMRC intends to publish details of employers who use the scheme for claim periods from December, and employees will be able to find out if their employer has claimed for them under the scheme.

 

CJRS claims for periods up to 31 October need to be submitted on or before 30 November. Claims for periods up to 31 October will not be accepted after 30 November.


At the same time, it was also confirmed that the Job Retention Bonus (JRB) will no longer be paid in February 2021, as CJRS will be available at that time. An alternative retention incentive will be put in place at the appropriate time.

 

View HMRC's latest guidance and the latest guidance from ACCA

 

 

Self-Employment Income Support Scheme (SEISS)

Claims under the first and second tranches of the SEISS scheme are now closed.

 

The good news is that the government has also announced an extension to this scheme, to keep in line with the extension of the CJRS, from 1 November 2020 to 30 April 2021.

 

A third tranche of the grant will cover a three-month period from the start of November until the end of January. The UK government will pay a taxable grant which is based on 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500. This is a welcome increase in the overall level of the next SEISS grant from 55% of trading profits, as was announced earlier.

 

A further (fourth) tranche of the grant will cover the period from February to April. The government will set out further details, including the level of that grant, in due course.

Full details on eligibility and the claims process will be published on GOV.UK around 23 November.

 

In the meantime, while practitioners will not be directly involved in making the SEISS claims for their clients, they should communicate details about the availability of further grants to their self-employed clients as soon as possible.

 

View ACCA’s updated guidance on the details known so far

 

 

Self assessment support – common adjustments in tax returns

As practitioners prepare to deal with the final months of the current self-assessment season, we highlight some of the areas which may receive extra scrutiny by HMRC.


As practitioners prepare to deal with the final months of the current self-assessment season, we highlight some of the areas which may receive extra scrutiny by HMRC.

 

In order to save time and costs in dealing with such adjustments, it would be advisable to be aware of some of the common areas of concern and ensure that the correct treatment has been made in the tax returns prior to submission.

 

Here are ten common adjustments that may arise in connection with the tax treatment of the following expenses.

  1. Pre-trading expenses
    Expenditure of a revenue nature incurred in the seven years preceding the commencement of a trade, profession or vocation is deducted from profits in the first accounting period, provided that the expenditure would have been allowable if incurred after the trade had commenced. 
  1. Expenditure on food or drink for consumption by the trader
    The cost of food and drink consumed, and accommodation used, by a trader is not, in general, an expense incurred wholly and exclusively for the purposes of the trade since everyone must eat in order to live, and such costs are therefore usually disallowed.

    However, expenses incurred by a trader on food and drink whilst travelling on business will be allowable where the business travel is, itself, allowable and the trade is, by its nature, itinerant or involves travel to a place only occasionally visited and not as part of the trader’s normal pattern of travel for the trade. Where a business trip by a trader necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible.
  1. Premiums payable by a trader for business premises where the premium is treated as a property business receipt by the landlord
    Where land used in connection with a trade is subject to a taxed lease, the tenant under the lease is treated as incurring a revenue expense. ITTOIA 2005 / s277(4) expresses the amount of the premium to be treated as rent in the formula: P x (50-Y)/50. Where P = the premium and Y = the number of complete years in the term of the lease apart from the first. The amount of the expense for each day is equal to the amount of the taxed receipt divided by the number of days in the receipt period. 
  1. Expenditure on qualifying courses for retraining past or present employees for future employment elsewhere
    Under s34(1) ITTOIA 2005 expenditure is disallowed if it is not incurred wholly and exclusively for the purposes of the business in question. However, the existence of some non-business benefit arising out of expenditure does not cause it to be disallowed if, in fact, the expenditure is incurred exclusively for business purposes. So, expenditure on the training and development of staff whose relationship with their employer is limited to the employment itself is allowable. This remains the case where the expenditure is on the development of an employee's skills and attributes which may not be directly related to his or her current job with the employer. Where, on the other hand, an employee on whom the expenditure is incurred has a significant proprietary stake in the business, or is a relative of those who do, there is obviously a much greater chance that expenditure may have been incurred not, or not wholly, for business purposes, but to provide the employee with some personal benefit. If that is the case, then the expenditure is not deductible - the business purpose has to be the exclusive purpose. To take an extreme example, there could be no allowance for the educational costs of the business proprietor's son who is employed in the business during university holidays. In such cases, you need to assess whether the expenditure would have been incurred on an otherwise unconnected employee doing the same job.
  1. Training costs of the taxpayer
    Costs incurred in maintaining, updating and developing existing skills while qualified are allowable, because there is a direct link between the expense incurred and income received. The cost incurred in the acquisition of new expertise is not allowed.
  1. Fees and subscriptions
    Any annual subscriptions that are not made to a body shown in the official list 3, as approved by HMRC, will be disallowed.
  1. Accountancy fees
    HMRC will not allow a deduction for the cost of preparing an individual’s personal tax return. However, accountancy fees for the preparation of business accounts are allowable expenses. Where fees are being charged at an all-inclusive rate, practitioners should ensure that the element relating to personal tax return work has not been claimed as a deduction against income.
  1. Relocation expenses
    If the business is not moving to larger premises such expenses are allowed. However, if the business is moving to a significantly larger location, such that removal costs will be an ‘enduring benefit’ to the trade, the expenses are capital in nature and not allowed.
  1. Fines and penalties
    Penalties/fines for a breach of regulations, or as the result of a prosecution for a trader’s breach of regulations, will not be an allowable expense. However, payments for damages that are compensatory rather than punitive are tax deductible. That includes, for example, damages for defamation payable by a newspaper company, where such claims are ‘a regular and almost unavoidable incident of publishing’.

    Also, where an employer pays fines that are the liability of an employee, so that the employee is taxable on the payment as employment income, the cost to the employer of paying the fines is allowable in computing his/her trading profits.
  1. Entertaining and gifts
    Expenditure on business entertainment or gifts is not allowable as a deduction against profits, even if it is a genuine expense of the trade or business.  However, if the total cost of all assets gifted to the same person in the same basis period is not more than £50, and the gift bears the business name, logo or a clear advertisement, and the gift does not include food, drink, or tobacco, it is allowed.

    The cost of staff entertaining is specifically allowed (ITTOIA 2005 s46).

 

60 second survey

With the self-assessment deadline fast approaching please complete our 60 second survey on how you and your clients are dealing with the workload.

 

 

 

 

Self assessment support – provisional or estimated figures

Advice on a common area of concern around the use of estimated or provisional figures during self assessment.


Advice on a common area of concern around the use of estimated or provisional figures during self assessment.

 

As the self-assessment deadline approaches, a common area of concern for most practitioners will be the use of estimated or provisional figures. This is especially likely to be a greater worry if clients have not kept adequate records.

 

In its internal manual SAM121190 HMRC makes a distinction between:

  • A provisional figure, which is one that the taxpayer has supplied pending the submission of the final / accurate figure. If a provisional figure is used, the taxpayer is required to tick box 20 of the ‘Finishing your Tax Return’ section of the tax return (page TR6, or equivalent in a return for an earlier year).

  • An estimated figure, which is one that the taxpayer wishes to be accepted as the final figure because it is not possible to provide an accurate figure. This might be the case where the records have been lost. If an estimated figure is used, the taxpayer is not required to tick box 20 of the ‘Finishing your Tax Return’ section of the tax return.

 

Provided that provisional figures are reasonable and take account of all the information which is available at the time of completing the return, they are acceptable in cases where waiting for information to be available means that the tax return would otherwise be late. The expectation is that taxpayers should include either a best estimate or a provisional figure.

 

The taxpayer should not either leave a box blank or enter ‘details to follow’ as HMRC will regard this as an incomplete return and the taxpayer will be liable to penalties for late filing. HMRC also expects that final figures will be provided once they become available and will take appropriate action to obtain these (ie via an enquiry).

 

It should be added that HMRC does not accept that the use of estimated or provisional figures is justified if the taxpayer makes little or no effort to obtain the final figures before the filing deadline and may challenge the completeness of the return if it is suspected that this may be the case. If an amendment is made to the return following an enquiry into the return, there could be a penalty payable on the additional tax assessed.

 

The penalty regime for inaccuracies on tax returns is based on behaviours such as reasonable care, careless, or deliberate, etc. and guidance is available in HMRC’s Compliance Handbook at CH81000 onwards.

 

Note that HMRC states in its manual referred to above ‘where it appears that a particular agent is filing a significant proportion of returns with provisional or estimated figures, you should inform the Compliance Manager’.

 

Members should also fully bear in mind the requirement of Professional Conduct in Relation to Taxation (PCRT) and AML legislation.

 

 

60 second survey

With the self-assessment deadline fast approaching please complete our 60 second survey on how you and your clients are dealing with the workload.

Self assessment support – record keeping, estimates and valuations

Taxpayers should be reminded that they are required to keep any records and documents that they have used on completing entries in their self assessment return.


As the self assessment tax return deadline is approaching, taxpayers should be reminded that they are required to keep any records and documents that they have used on completing entries in their self assessment return.

 

Retention period
Periods for retaining records and documents are as follows.

 

For individuals, trustees and partnerships:

  • with trading or rental income, five years and 10 months after the end of the tax year; and
  • otherwise, 22 months after the end of the tax year.

 

For companies, LLPs and other corporate entities:

  • six years from the end of the accounting period.

 

A longer retention period is required if the tax return was filed late or if HMRC has started a check of a return, or if a taxpayer is buying and selling assets. For more information, please see HMRC guidance here.

 

Where a practitioner is holding records for a client these should be returned to the client. You will find retention clauses in Engagement Letters and advice in the rights of access factsheet. The taxpayer will need to retain the appropriate records.

 

Most of these records will be from the tax year or accounting period to which they relate, or soon afterwards. However, taxpayers will sometimes need to refer to records that are already several years old. For example, if a taxpayer disposes of an asset (such as land, shares or a valuable chattel, for instance a painting) that they have owned for a long time, they may need to have older records to calculate a capital gain or loss. This is further explored below.

 

What happens if a taxpayer doesn’t keep adequate records

If HMRC checks a tax return for any reason and the taxpayer is unable to show the records that they used to complete the return, they may have to pay a penalty.

 

If records are kept on computer

The records can be kept on a computer or a storage device such as CD-ROM, USB memory stick or a network drive. There is no need to keep the original paper records as long as the method used captures all the information (front and back) on the document and allows the information to be presented in a readable format, if requested.

 

VAT registered businesses with a taxable turnover of more than £85,000 must follow the rules for ‘Making Tax Digital for VAT by keeping some records digitally. Further guidance can be found here.

 

What a taxpayer should do if their records are lost or destroyed

If the records are lost or destroyed and cannot be replaced, the taxpayer should tell HMRC what has happened and do their best to recreate them. Taxpayers should tell HMRC if they have used any provisional figures in completing their tax return.

 

Capital gains and losses

The records that a taxpayer should keep will depend on their circumstances, but some examples of what it would be useful to keep are:

  • contracts for the purchase or sale, lease or exchange of the taxpayer’s assets
  • any documentation the taxpayer has describing assets they acquired but did not buy themselves, for example, assets received as a gift or from an inheritance
  • details of any assets the taxpayer has given away or put into a trust
  • copies of any valuations taken into account in the calculation of gains or losses
  • bills, invoices or other evidence of payment records such as bank statements and cheque stubs for costs claimed for the purchase, improvement or sale of assets

 

It would also be sensible for the taxpayer to keep correspondence with purchasers or vendors leading up to the buying or selling of assets. The taxpayer might want to use an asset, such as their home, for both business and private purposes, or may let out all or part of it at some time. If so, the taxpayer will need to keep sufficient records to work out what proportion of any gain they make is potentially taxable when they dispose of the asset.

 

Post-transaction valuation checks for capital gains - CG34 form

HMRC provides a service to allow individuals, trustees and companies to have valuations for capital gains purposes checked after the transaction has taken place but before the relevant return is submitted. This can be done by completing ‘post transaction valuation checks’ form CG 34.

 

All types of asset may be included in the service, for example land, quoted or unquoted shares or chattels. There is no charge to customers for the service.

A request for a post transaction valuation check can be made at any time after the transaction has taken place but before the return is filed. Requests for pre-transaction valuation checks cannot be accepted.

 

HMRC has undertaken to check valuations, either to agree the valuation put forward or to provide an alternative that they can accept. If necessary, HMRC valuers will enter into negotiations to reach agreement to a valuation. But customers must put forward a valuation to be checked: the service is not to be used by customers to obtain valuations on request.

 

If a valuation has been agreed, HMRC is bound by it unless there are any material issues that were not brought to their attention that affected the basis on which the agreement has been reached.

 

Please note that the agreement does not bind the customer in using that valuation. In rare cases, if the taxpayer discovers that a relevant fact has been overlooked or feels on reflection that the agreement was inappropriate, they do not have to use the agreed valuation on the return. However, HMRC would expect a note drawing attention to the change of view.

 

Costs of negotiation

The costs reasonably incurred by a customer in making any valuation or apportionment submitted for a post transaction valuation check are allowable deductions. However, any costs incurred in actually making the submission or in furthering subsequent negotiations are not deductible in computing the gain or loss on the relevant disposal.

 

 

60 second survey

With the self-assessment deadline fast approaching please complete our 60 second survey on how you and your clients are dealing with the workload.

Do your clients see you as ‘just’ an accountant?

Many accountants believe that business advisory work has become a kind of holy grail. Let’s look closer…


Many accountants believe that business advisory work has become a kind of holy grail. Let’s take a closer look…

             

Many accountants believe that business advisory work is the way ahead for the profession. As compliance work becomes less and less valued by business owners and brings in lower and lower returns, business advisory has become a kind of holy grail.

 

And those forward-thinking accountants are right. Your skills with numbers can make a big difference to a business, helping them to understand their figures, to grow and generate better profits. But all too often, business owners don’t see that you can offer them anything other than a set of accounts and a tax return.

 

Why is that? And what can you do about it?

 

Bear with me if I digress a little.

 

You will be all too painfully aware that the economy has suffered a massive blow from the Covid-19 pandemic. Thousands of employees have lost their jobs as businesses across many different sectors have been forced to close or make redundancies. While some of the newly unemployed will be searching for (and hopefully finding) new jobs, others have decided to set up in business for themselves. You can see the appeal: it’s an opportunity to take control of their working lives and make their own decisions.

 

And of course, it’s easier than ever to set up in business. Website designers, virtual administrators, content writers, and anyone else you can think of, are only an online click or two away. Technology, and the ease of outsourcing, means that anyone can set up a business in their spare room and build a website that includes e-commerce to sell their products or services in a matter of days. Next, they simply need to create ads on social media or – using only their smartphones – create a sales video to drive people to their websites.

 

Or at least that’s the way it seems. Even before the current crisis hit, the reality for most of these business owners was a little different. Very few of them survived more than five years and, of those that did, very few did more than just survive. In fact, the majority were barely ticking over, with their owners gaining no enjoyment from it whatsoever. In the situation we’re in now, the potential for failure is higher than ever.

 

So what do these new business owners need in order to flourish and grow, so they can employ more people and help to raise the economy up again? They need help to understand their business, to understand their cashflow, VAT, tax, running costs, debts and payroll, otherwise they’ll be shutting up shop again pretty quickly. And the good news is that – as we said earlier - as an accountant you’re in a wonderful position to provide this help. But first there are a few hurdles you need to overcome.

 

Chief amongst these, perhaps, is that your clients and potential clients see you as ‘just’ an accountant.

 

If you appear overworked and too busy to respond to them within working hours, then they’ll see you as not being in control of your time and just as frantic as they are. If your fees are rock bottom they won’t really value the service you provide.

 

If this describes your position, to suddenly offer them advice on running a better business wouldn’t only come as a surprise, they’d also probably question what – if anything – an overworked ‘mere’ accountant could teach them.

 

That’s why I intend to help you reach a position where not only are you practising what you preach, but where you can demonstrate to clients and prospects that you’ve created a successful accountancy business that enables you to work fewer hours for a better income.

 

Accountants often tell me they hide their income and success. I’ve even known some who, having two cars, make a point of visiting clients in the older one so that they can’t be accused of overcharging! As an anecdote, it’s mildly amusing. As a strategy, however, it’s completely mistaken. Whether it’s working fewer hours, having a nicer house or taking more holidays, always let clients see your success.

 

If, as a result, they accuse you of overcharging, politely point out that they’re being short-sighted. If they’d like, you can help them to achieve the same.

 

After all, would you rather take advice from someone who looks like a failure, or someone who’s living the dream? I know which I’d choose, and I’d pay good money for the privilege, too.

 

This article is based on Chapter Two of my Amazon best-selling book, Putting Excellence Into Practice, and you can download your copy here.

 

Shane Lukas – Director, AVN

Free capital advisory guide for accountants

Build strength and resilience in your clients' business by assisting them to raise, recover and protect their capital - all through one platform.


Build strength and resilience in your clients' business by assisting them to raise, recover and protect their capital - all through one platform. 

 

Capital advisory is about going beyond the numbers and helping your clients get their balance sheet match fit. Strengthening your firm's services with capital advisory readies your firm to advise upon the whole business lifecycle. 

 

Research by the capital advisory platform Capitalise.com highlighted that 90% of accounting firms name business advisory as a top strategic priority. Yet, the majority identify time as a key challenge in making it a success.

 

Capitalise.com has created a capital advisory guide, offering up the shortcuts to getting set up and the opportunities available for your firm. 

 

Download this free guide now  

 

Nigel Adams from Ad Valorem

Changes to R&D SME tax relief

Guidance on changes to R&D SME tax relief, which will be legislated in Finance Bill 2021.


Guidance on changes to R&D SME tax relief, which will be legislated in Finance Bill 2021.

 

Alongside the Finance Bill we have the draft legislation for the R&D SME scheme PAYE/ NIC cap. The design of the PAYE cap will include the following features:

  • a company making a small claim for payable credit below £20,000 will not be affected by the cap
  • a company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap and these will be subject to the 300% multiplier
  • a company’s claim, of any size, will be uncapped if it meets two tests. These tests require that a company’s employees are creating, preparing to create or actively managing intellectual property (IP) and that its expenditure on work subcontracted to, or externally provided workers provided by, a related party is less than 15% of its overall R&D expenditure.  

 

The changes to R&D SME tax relief will be legislated in Finance Bill 2021 and will have effect for accounting periods beginning on or after 1 April 2021. The government welcomes comments on the draft legislation by 7 January. 

 

 

Are you a traditional or a forward-thinking accountant?

How exactly do we define a ‘forward thinking’ accountant?


How exactly do we define a ‘forward thinking’ accountant?

 

When you see as many accountancy firms’ websites as I do, it soon becomes apparent that everyone has their own definition of what the term ‘forward thinking’ means. Often, ‘forward thinking’ or ‘proactive’ are just labels for an accountancy practice that actually does exactly the same as the traditional practice next door.

 

As I discussed in my previous article, business owners need your help. They want an accountant who understands their business and can help them with the challenges they face; someone who is genuinely forward thinking. But it’s not enough just to say it, you have to live up to the label. Business owners will soon realise it’s just the same old compliance service unless you can show them you really are different.

 

So, are you genuinely forward thinking? Or are you really a traditional accountant? Let’s find out...

 

Traditional Accountants…

Forward Thinking Accountants…

Functional

 

Simply deliver a commodity by performing a legally required function for a business.

Vital

 

Deeply involved with the business as a whole. By seeking to understand their clients’ goals, they’re able to spot and to present opportunities to make sure they achieve them. The forward-thinking accountant is a vital component of the business they work with.

 

Performing a Job

 

Focus on delivering the core service of compliance work and are either deeply involved in doing this themselves or in double-checking the work their employees do.

 

Making a Difference

 

Help clients to grow their business and as a consequence change lives. That’s why they’re able to spring out of bed every morning knowing they’ll be making a profound difference

Replaceable

 

Performs a function that anyone (or at least any accountant) can do and is easy to replace. Business owners will always seek the cheapest alternative.

 

Sought After

 

By raising both their online and offline profile they’ve become known, liked and trusted – including by business owners they haven’t yet met in person. Their reputation for making a difference means that business owners will do whatever they can to remain one of their clients.

 

Overworked

 

Default position is to take on any client, however large or small, and allow themselves to be negotiated down to rock-bottom fees. They then have to work with a high volume of clients in order to achieve an acceptable income. In short: they’re overworked.

Choose Their Role

 

Their clients aren’t interested in which of a forward-thinking accountant’s team physically produces the work; they’re interested in having the meaningful conversations that result from it. That’s why forward-thinking accountants are always happy to delegate work – it frees them up to deliver business advisory solutions to clients.

 

All Things to All People

 

By taking on any client, traditional accountants are forced to accommodate so many different wants and needs that they run themselves ragged – and all for very little appreciation or respect.

 

Rigid on Ideal Client Profile

 

Take time to work out who they most like to work with, the type of business or circumstances their skills are best suited to and – most importantly – the type of personality they prefer to work with. Once they’ve done this, they can choose to work only with those who fit the bill and to refer on any others.

 

Resist Change

 

Reluctantly catching up with technology, but they’ll always be several steps behind. (And not only with technology. They also lag behind with the types of services and support they offer.)

Keep Evolving

 

Keep up to date with new technology. ‘Making Tax Digital,’ for example, was something that forward-thinking accountants readied their clients for early on.

 

Fear the Future

 

The future looks bleak for traditional accountants. The rate of change for technology, legislation and the environment in general is rapidly increasing. The new strains of entrepreneur want – and need – a lot more from accountants.

Embrace the Future

 

Forward-thinking accountants are excited about what the future holds – for both themselves and their clients. They’re tapping into the likes of AVN because they know it will help them develop an accountancy practice which is able to thrive in the years to come.

 

 

Where do you stand now and, more importantly, where do you want to be in the future?

 

This article is based on Chapter 3 of my book, Putting Excellence Into Practice – you can download a copy here.

 

Shane Lukas – Director, AVN

Delivering advisory services – the digital firm way

Will Farnell explains why it is crucial to get the blend right between technology, people and process if you want to unlock new capacity and capability in your firm.


Will Farnell explains why it is crucial to get the blend right between technology, people and process if you want to unlock new capacity and capability in your firm.

 

Last month we recapped the first half of the digital firm series of articles and went on to conclude the topic of process.  Getting the blend right between technology, people and process will unlock new capacity and capability in your firm.  Once we can do this in our firms, we have to look at ways to fill that spare capacity. We can go after new clients and deliver more of the same to those or we can look to new services to deliver to our existing clients.

 

Compliance is dead, long live compliance!

I am very sure you have heard the rhetoric that compliance is no longer enough to keep accountants in business and that we have to ‘shift to advisory’.   Ask 100 people ‘what is advisory?’ and you will get 100 different answers.  Despite the doom and gloom of this rhetoric you will be pleased to hear compliance is going nowhere anytime soon.  However, it is changing, and we have to rethink how we do it and how we lever the value of compliance to find new ways to support our clients.

 

When I speak on stage around the concept of the digital firm I present a case for change which goes something like this…

 

True or false?

  1. The market is seeing downward pressure on compliance fees
  2. Technology is contributing to automation of compliance work
  3. The pace of technology developments is getting quicker
  4. Making tax digital is driving adoption of technology across the industry
  5. If we accept the four statements above, we need to find ways to supplement compliance income.

 

Do you agree?  What I see is commoditisation of compliance work driven by technology and automation, so we have to find ways to deliver efficient and effective compliance and use data to deliver new value.  This is where advisory or non-core compliance work comes in.

 

So what is advisory?

We have already said that 100 people would give you 100 different definitions of advisory.  Mine, as with most of my views, is pretty simple!  My firm will be doing ‘advisory’ when every client we have picks up the phone and asks every question they have got.  Now that’s probably more a mission than a definition but it is the steps we take to arrive at that destination that is really the heart of advisory.  More on these steps shortly.

 

What advisory isn’t is selling another software solution and looking to disseminate the benefits of understanding your cashflow or whatever else it is the software advisory solution might offer.  Advisory comes from knowing your client: the person and the business.  It comes from understanding their objectives, goals, aspirations, challenges and helping the client achieve or solve these. 

 

Is advisory new?

Of course it isn’t, so why all the fanfare about it now, why are we being told to stop being accountants and become ‘trusted advisers’? The cynic in me would say because it sells software.

 

Accountants have delivered advisory services for years.  As long as I can remember firms have positioned themselves as Chartered Accountants and Business Advisers.  Most firms do advisory now.  The problem is that it is often reactive and in lots of cases not charged for. Much of this comes down to poor management of scope so an easy problem to solve.  Simply by working out what’s included in the compliance fee and what isn’t and building a process to ensure non-compliance work is identified and quoted will make a significant difference for firms.

 

If we go back 25 years accountants had great relationships with their clients.  They got invites to birthdays, wedding and funerals.  Clients would pick up the phone for every question they had because of the relationship.  What’s changed this, why have those relationships drifted?  Something got in the way and diverted our attention.  That something is called compliance.

 

Compliance got so complicated.  Self-assessment, RTI, AE, GDPR, FRS102, MTD - the list of acronyms goes on.  The focus of the accountant become one of keeping clients out of jail at the cost of the good old-fashioned relationships we used to have.  All is not lost though.  Technology can help and is helping us deliver compliance more efficiently and provides us the opportunity to once again rebuild those relationships and hopefully the invites to birthdays, weddings and funerals will come again.

 

What are the steps to delivering advisory?

It starts with the relationship.  If you recall the digital firm wheel I shared in the first article and the recap last month, client experience sits at the heart of the wheel.  Great client experience is about great relationships with clients.  Advisory is simply having great relationships and a system of ensuring you charge for the value you deliver.

 

In my own firm, the start of the advisory relationship comes from increasing the number of touchpoints we have with our clients.  The primary way we achieve this is by delivering daily/weekly bookkeeping for a significant proportion of our client base.  By doing so we create weekly touchpoints with the client.  We have a discussion of some form with them every single week.  This provides us an opportunity to understand their pain points.  If you don’t know what these are for your clients, you cannot support them in the way you should be.

 

I can trace this approach back to the very beginning of my firm in 2007.  The first recruitment I made was someone to manage payroll for clients.  Many of the clients were director payrolls.  We could have just filed an annual return.  However, the payroll team member would email every director their payslip every month.  It created a client touchpoint.  Clients would often email back and thank Vicky for the payslip and follow up with a “by the way, can you help me with….?”

 

OK, this was and is reactive but it’s a start.  The bookkeeping approach we have now is far more deliberate in the conversations we have with clients and leads us to the second point.  If you want to deliver any kind of advice to clients, you have to have good quality data to base that advice on.  Ensuring we deliver live up to date information to our clients enables them to make the business decisions they need to and allows us to understand what is going on in a client’s business.   This is where software tools can be useful in helping us pinpoint and understand the things we should be discussing with clients based on the data we have.

 

The final element is we have to carry on this approach of deliberate advisory in the conversations we have with clients.  At the point you take on a new client we need to build in the process to ask the important questions, so we understand the goals and objectives of both the business owner and the business itself.  Build this process into your client's onboarding and also use this as an opportunity to set expectations around what is in scope and the things you can do to support the client beyond the routine scope.

 

Practical steps to advisory services in your firm

What do you need to do to build the process of delivering new revenue from your existing client base, whilst growing the value in the relationships at the same time?  These six steps should help you on your way.

 

  1. Build great relationships
  2. Have deliberate advisory conversations
  3. Build processes to get to KYC (know your client) as part of your onboarding
  4. Use daily/weekly bookkeeping to build in regular touchpoints and useable data
  5. Charge for the additional value you deliver
  6. Stop selling what you think the client wants to buy and sell what THEY want to buy, you might be surprised.

 

In next month’s article we will look at the topic of marketing.  I am regularly asked how firms should go about winning new work.  We will discuss the importance of vision and values, brand, getting out the right message and why it is easy to grow a firm and much harder to scale one.

Starting your own accountancy practice in the UK (part 3)

An overview of the core systems which are a key component of any accountancy firm.


An overview of the core systems which are a key component of any accountancy firm.

 

In parts one and two of this series, we focused on the compliance and regulatory side of starting your own accountancy practice. Today we examine the core systems which are a key component of any firm.

 

Technology is playing a bigger and bigger role in the world in general. This has been accelerated even more as a result of the Covid-19 pandemic where, all of a sudden, remote working had to be implemented by many businesses; this led to new applications being used by many accountancy practices. Many of these are now classed as a necessity for firms in the future.

 

You may also want to consider the plans and strategy for your business and how it will develop in the companion series by Will Farnell. This will help when looking at the investment in the core systems we are discussing below.

 

Microsoft 365 or G-Suite

One early decision that will be needed is if the firm is going to use Microsoft 365 or G-Suite. This really will come down to personal preference as both have very similar functionality and include email, online storage and applications including spreadsheets and presentation software. Another key consideration is pricing and also what packages are available and if these meet the needs of the firm both now and in the future.

 

Communication

How to use communication in order to remain in contact with staff and clients is a key consideration for any new practice.

 

For a long time, emails were considered adequate as staff were mostly office-based and, if necessary, email access could be accessed via the employee’s mobile phone. However, emails are a more formal and time consuming way of communication. When staff are working remotely or have a quick question, a more immediate and less formal option is usually preferable. Therefore, online collaboration tools such as Microsoft Teams and Slack are popular choices.

 

Which option is chosen really does come down to personal preference and what staff prefer. Both are accessible on mobile phones as well as on the computer and both have the ability for group and 1-1 chats and have additional features such as video calls.

 

Another form of communication which is becoming more popular is WhatsApp and this is now quite commonly used for both staff and client communications. WhatsApp is a free service that allows both text and voice messaging and can be accessed through both desktop and mobile devices. WhatsApp groups for specific teams or clients can be created and this allows for immediate communication and updates to be issued. One downside of WhatsApp is that it can become quite hard to manage where a lot of content is being posted frequently.

 

Video

Communicating via online video calls has been a consideration for a number of years but, again mainly as a consequence of remote working during the recent pandemic, this has become a key consideration for a new practice.

 

A range of options is available. What forms of communication the firm plans to undertake are key factors when deciding which option to choose and include formats such as group webinars and meetings using breakout rooms. Popular choices for video conferencing include Google Meet, Microsoft Teams and Zoom.

 

Newer meeting applications such as Connect4 also are available. These allow for online meetings where participants login to a specific meeting room which can store notes and videos from previous sessions and provide templates and agendas for more productive meetings.

 

IT equipment

As well as the software, what equipment you need in the firm is something that needs to be addressed. For remote working, laptops are a necessity but it also worth considering if staff need to be issued with a work mobile phone too.

 

For the days they are working from home, you also will need to decide if you will provide monitors to give them a larger screen to work on and, potentially, two screens which many people prefer.

 

For days when staff are in the office, it is necessary to consider how they will work. They could use a desktop PC, their laptop or use their laptop in conjunction with a docking station and separate monitors.

 

Other equipment needed will be a printer and scanner. This will vary with the size of the firm and where teams are located. The use of paper has reduced substantially over recent years and scanners have become a necessity. It is important to consider what the scanner will be used for when picking one as this will help determine the features required. For example, small more portable and faster scanners would be preferred if they are to be used to scan client receipts for bookkeeping purposes; a common choice for this purpose is the Fujitsu Scansnap range.

 

Security and back up

It is also critically important to address security and back up when selecting the applications and IT kit for the firm. It is essential to ensure that the firm has security policies it follows and tools for password management (such as LastPass) or single sign-on applications are often used. It is also important to ensure that frequent back-up is taken of all files and these are stored in a safe and secure location.

 

It is advisable to consult with an expert when it comes to cyber security and it is also essential to ensure that security policies and procedures are regularly reviewed and updated.

 

Document storage

A new firm will need to decide how documents are to be stored to ensure that all files are secure and accessible to staff. Points to consider include:

  • online collaboration
  • workflow management
  • syncing of files
  • security.

 

There are specific document management applications for accountancy firms for document storage and also tools such as Microsoft 365 OneDrive and GDrive are popular choices. This would be an area where consultation with an IT specialist could assist when deciding what is suitable for your firm.

 

Practice management

Practice management software specifically designed for accountancy firms is popular and really is a necessity for a growing practice. The software has many advantages over the more general job management tools as it is designed around the key considerations for an accountancy firm including filing deadlines, document review processes, integrations with other software and workflows.

 

There is a range of practice management applications and it is definitely worth researching the options before deciding which one to use. Also ensure that you set time aside for set up and customising the application from day one to ensure you get the maximum benefit.

 

The range of applications available varies on functionality and size of practice with tools such as Pixie more suitable for a smaller firm and others such as Karbon and Senta being designed more for a larger practice.

 

Other considerations

There are other considerations for a new accountancy practice when deciding on systems and these include applications for PDF creation and editing, software for e-signature and online calendar applications. Not all firms will need these from day one but probably will in the early stages of growing the practice.

 

There are a lot of areas to consider when deciding on the software applications to be used to run the practice and the hardware required. These will need to be addressed early in the process of setting up the practice. Cost will be a key consideration and the advice of experts can really help when choosing the tools to use in your firm.

 

In the next issue, we will examine the other accounting applications and apps used by an accountancy firm that need to be addressed when setting up a new accounting practice.

 

Caroline Harridence ACCA – Co-Founder, C-Squared Finance Limited

 

 

 

 

 

 

 

 

 

 

 

 

Brexit - useful information

New guide outlines key dates to look out for - plus other handy resources ahead of Brexit.


Our latest guide for members covers post-Brexit UK Border Controls. This document provides an overview of the UK government’s phased approach to the new Border Operating Model.

 

Download your copy now

 

You will find many other resources on gov.uk and we've also picked out the following for our members:

 

Buyer beware - Fidelity Guarantee Insurance

What is Fidelity Guarantee Insurance (FGI) and why is this cover currently in the spotlight?


What is Fidelity Guarantee Insurance (FGI) and why is this cover currently in the spotlight?

 

With PI cover costs increasing some providers are reducing the cover available - which leaves members exposed to claims and also breaches the Practising Certificate Regulations, and so is an area ACCA monitors. Here Lockton highlights the issues and concerns, what to look out for and the offer of a free health check.

 

What is Fidelity Guarantee Insurance (FGI) and why is this cover currently in the spotlight?

FGI exists to safeguard your firm or organisation against theft of the firm’s own money, securities or property by an employee, partner, contractor or volunteer. FGI can also be known as first party fraud, theft or employee dishonesty cover. The ACCA Regulations require that member firms in public practice with more than one member of staff have at least £50,000 cover in place for any one claim, to help protect the business and enable it to continue trading following a fraudulent act.

 

FGI has traditionally been covered by a separate section or clause within the professional indemnity insurance (PII), with ACCA practising regulations stating that ‘FGI may, but need not, form a single policy with such PII and all such PII and FGI must remain in force for all of the period during which a relevant practising certificate is held’, notwithstanding the requirement to hold cover for a period of another six years following cessation of practice.

 

Importantly, FGI cover should not be confused with third party fraud and dishonesty cover. Third party fraud and dishonesty refers to theft of the client’s money, as opposed to the accountancy firm's own money, and is usually covered within the main insuring clause (civil liability) of a professional indemnity policy.

 

Why is FGI cover causing concern?

Fraud claims have increased in both frequency and value in the past few years. There are several reasons for this, but the main factor is that online banking makes it so much easier to fraudulently transfer money. Lockton has handled numerous claims for first and third party fraud; in one case, a long standing member of staff was able to transfer funds from both the accountancy firm’s own bank account and those of its clients directly into the bank accounts of their close relatives. This took place over a period of eight years and over £600,000 was misappropriated. The member of staff held a trusted position as a bookkeeper within the firm.

 

In order to reduce their exposure to fraud losses, some insurers have altered their policy coverage and others have applied particularly onerous terms and conditions.

 

A number of insurers will only offer FGI on an aggregate basis, rather than any one claim. This limits the amount insurers are exposed to in a policy period, as once the aggregate limit is eroded by losses, they will not be required to pay any more. This kind of aggregate cover would not be compliant with ACCA regulations as cover must meet the £50,000 limit for each and every claim.

 

It’s important to look carefully at the policy conditions – do these state that the accountancy firm’s own accounts must be independently certified or audited on an annual basis for FGI to apply? Since most firms don’t otherwise need their accounts audited, this has the effect of excluding first party fraud losses, thereby becoming non-compliant with ACCA’s regulations.

 

It’s becoming more common for insurers that offer FGI to ask for dual authorisation for any financial transactions over a certain amount. For example, insurers may insist that there are two independent signatures on cheques or that any electronic transfer of funds is witnessed and documented by another director or employee. If this second authorisation check is not made, any subsequent first party fraud may not be covered by the policy and insurers may refuse the claim.

 

Often, an insurer will ask on their proposal form or statement of fact whether the annual accounts have been audited and if dual authorisation is in place. This acts to alert the firm that these procedures must be in place for FGI cover to apply. Other insurers will simply include these terms within the conditions or exclusions of their policy wording, so this should always be checked to ensure coverage is compliant to ACCA regulations.

 

As fraud becomes increasingly prevalent, many insurers are beginning to leave FGI cover out completely in their accountants' PII policies.

 

To ensure that you have cover that meets the ACCA’s requirements and to adequately protect your firm, we recommend:

  • Checking that your policy provides FGI – the policy should have a separate insuring clause or extension headed ‘Fidelity’ and the insuring clause should contain language along the lines of: ‘insurers will indemnify the Insured for any loss which the Insured shall first discover they have sustained by reason of any dishonest or fraudulent act or omission’
  • Check the policy wording to make sure that there are no onerous terms or conditions which must be fulfilled for FGI cover to be valid.

 

If you are in any doubt, please feel free to call the Lockton helpline 0117 906 5057 and we will be happy to assist and provide a free health check on your insurance.

 

As ACCA’s recommended and approved broker, Lockton offers an ACCA insurance scheme that is backed by Arch Insurance (UK) Ltd and fully complies with ACCA’s regulatory requirements.

 

Quotations can be obtained by calling the number above, emailing ACCAaccountants@uk.lockton.com or visiting our website 

 

 

 

 

 

 

How to focus your app research to find the right apps for your practice

With an ever-increasing choice of apps available for accountants, it can be hard to know how to begin in your search. Let App Advisory Plus help.


With an ever-increasing choice of apps available for accountants, it can be hard to know how to begin in your search. Let App Advisory Plus help.

 

Just as you have a process for preparing accounts and tax returns to help you consistently deliver a good quality service, there is a process to go through in researching apps to help you find the right apps for your practice.

Step 1: Understand and define your requirements (fact-finding)
This is an essential first step of your research process. It seems pretty obvious but if you get this wrong then you’ll cause yourself problems down the line.

 

Step 1.a: Prioritise areas to improve
There might be a variety of areas of your practice that you want to improve, so the starting point is to pin down these areas. Here’s some examples:

 

  • accounts and tax production
  • AML
  • bookkeeping
  • communications (internal/external)
  • credit control
  • document management
  • practice management (jobs)
  • proposals and engagement
  • onboarding
  • reporting.

 

You’ve got finite resources, so next you need to prioritise these. Try to determine your top three and set a date that you want the area sorted by, so that you have an outline plan.

 

Step 1.b: List and categorise requirements
Next, take the top problem and start scoping what your requirements are. Make a list of the requirements, including explanations where necessary, and this time categorise them by whether they are essential or desirable.

 

In getting that list together it is useful to consider the current problems in your process, as well as what is working well. The latter is easy to ignore because it’s not a problem now, but if you’re looking to change providers then it’s important to consider how those elements will work in a different system.

 

Process mapping can also be helpful here, as it forces you to consider what is happening and why, and therefore can highlight key requirements.

 

Step 1.c: Structure requirements
Structure your list of requirements by breaking down the overall area into smaller elements. This is useful for keyword searches in the research process.

 

Here’s a simple example using ClickUp. It’s easy to create, edit, add to, and collaborate on, which allows other people to contribute to the requirements if you’re working in a team.

 

The purpose of this is simply to give you a recorded scope of features you’re looking for, to help you assess and evaluate software.

 

It also provides a place for you to record information about each software. The example above follows a three step approach:

 

1. Does it appear to have the feature (checkbox)
2. How good is the feature (rating)
3. Notes on the feature (text box)

 

This could be repeated for each app you were evaluating.

 

Step 2: Conduct requirements-led research
Now you have your requirements you can start targeted requirements-lead research. This can be broken down into a two steps:

 

● Shortlist
● Evaluate

 

Step 2.a: Shortlist solutions
Your first task is to get a shortlist of options.

 

Ask for help

What you’ll probably want to do at this point is look for shortcuts. And of course the easiest thing to do is to ask someone else for a recommendation, perhaps on a Facebook group.

 

Be careful because recommendations are only useful if the recommender has understood your requirements. If they haven’t then you could get sidetracked and waste time.

 

If you submit a FREE support query to us then we will always ask for detailed requirements.

 

Search for apps
Search for apps using our App Directory or App Stack tool. When you’re using the tool you’ll be able to filter to get to a shortlist of potentially relevant apps.

 

We have filters including:

  • sector
  • category
  • integrations (accounting and non-accounting).

 

We also have a filter for price, but I would not recommend using this immediately; this is something to consider after assessing features.

 

Search for app information
The aim of this element is to further shorten the shortlist, by reviewing key information, including key features, without spending extensive time on research. This can be done using a combination of the app’s directory listing, website, and help centre articles.

 

The app directory listing will provide a quick overview of the product, key info, and key features. Aside from functionality it’s important to review things like support channels and availability, plus implementation support.

 

Usually apps are reasonably good at presenting high level features on their main website as well. But you might have to try key-phrase searches in their help centre or blogs to identify some features. If you can’t find information about a feature, it’s reasonable to presume it doesn’t exist.

 

Compare apps
Use our comparison tool to compare features of apps. At the end of this stage you should have a shortlist that you want to evaluate.

 

Step 2.b: Evaluate
At this stage you’re committing yourself to evaluate features and functionality in detail. This is going to be more time-intensive. I would suggest you start with the apps that on the surface appear to meet the most requirements from your initial research. It’s difficult to say exactly how many options you should consider. But I would advise on evaluating at least two or three options.

 

Demo
Reach out to the app and arrange a demo, providing the salesperson with your list of requirements so they understand what you want to cover. This will typically last between 30 minutes and two hours.

 

If they skirt around your requirements then it’s likely the software won’t meet them as you want, but there may be some compromises or workarounds, so be open to those - it’s unlikely the software will do everything you want, in exactly the way you want to do it.

 

Trial
If you’re happy with what you see and hear, take out a trial and play around with the software to test out the functionality and integrations. Then go back with any questions you might have.

 

Document
It’s important to document your research so that you can come back to it and compare solutions.

 

In conclusion
Finding the right apps for your practice is no easy task, but by sticking to your plan and following our process you’ll get to the right result for you faster.

 

If you’re interested in learning more about this topic, check out this on-demand webinar

 

Pension trustees must be ready for possible sponsor distress, says regulator

Trustees of defined benefit pension schemes should act quickly to protect savers if they spot the warning signs of employer distress or insolvency.


The Pensions Regulator has restated that ‘Trustees of defined benefit pension schemes should act quickly to protect savers if they spot the warning signs of employer distress or insolvency’, going on to highlight:

 

  • despite government economic support packages, Covid-19 continues to have a profound impact on the economy, challenging scheme sponsors and the pensions industry
  • trustees are the first line of defence for savers and their pension schemes. It is vital they actively monitor their employer’s health to look for warning signs and are ready to act as the economic impact of global events develop. They should also be prepared for any issues arising from Brexit.

 

Practitioners may wish to highlight these issues to employers and those acting as trustees.

 

TPR has published guidance urging trustees to prepare now for the possibility that  their sponsoring employer faces difficulties. It also highlights issues arising from corporate transactions (mergers and acquisitions) and how trustees should engage in these.

 

The rising danger of mini umbrella companies

HMRC is striving to combat a type of fraud which significantly reduces tax payments including PAYE, National Insurance and VAT.


HMRC is striving to combat a type of fraud which significantly reduces tax payments including PAYE, National Insurance and VAT.

 

HMRC has shared its concerns on the potential dangers posed to their business by Mini Umbrella Company (MUC) fraud in their supply chain. It has highlighted that this impacts every business which either places or uses temporary labour and has pointed out that ‘not only can a fraudulent supply chain lead to reputational and financial damage to your business, but your workers may not receive all they’re entitled to. MUC fraud also significantly reduces tax payments to HMRC including PAYE, National Insurance and VAT.

 

‘As an end user or provider of temporary labour it is your responsibility to be clear about who ultimately pays the workers and how they are paid. This is the only way to protect your business from becoming entangled in MUC or other supply chain frauds. Most MUC arrangements are considered to be fraudulent, so make sure you spot the warning signs to protect your business.’

 

Below are the warning signs and guidance HMRC has issued.

 

What is mini umbrella company fraud?

The MUC model is an employment intermediary model which presents an organised crime threat to the UK Exchequer The fraud is primarily based around the abuse of two government incentives aimed at small businesses – the VAT Flat Rate Scheme and the Employment Allowance. But this type of fraud can also result in the non-payment of other taxes such as PAYE, National Insurance and VAT. This is reducing vital funding for the public services we all rely on. MUC fraud is not limited to specific trade sectors and can be found in supply chains whenever temporary labour is used. 

 

In its simplest form the MUC fraud model involves splitting up a workforce into hundreds or thousands of small limited companies set up solely to enable the fraud.  The workforce is generally a temporary workforce who historically would have been paid by an employment agency or an umbrella company. The structuring of the MUCs is facilitated by a promoter business (sometimes also known as an outsourcing business) which may have other linked businesses to support the operation.  The creation of the MUCs and the complex layers of businesses within the supply chain help to facilitate the fraud.

 

For employees, who are often oblivious to these arrangements, the use of this model can result in the loss of some employment rights. Workers in MUCs are usually unaware of who their employer is and they can be moved regularly between MUCs to help maximise profits from the fraud.

 

How you can spot mini umbrella company fraud and protect your business

There isn’t a standard MUC fraud model and arrangements are constantly evolving as organised criminals are trying to hide their fraudulent activities from HMRC.

 

However, there are some common features which businesses might come across during their regular Due Diligence checks. Information from sources such as the Companies House register might help to spot warning signs when completing the quarterly Employment Intermediary Reports or the Key Information Document for Workers.

  1. Unusual company name - Often multiple companies are set up around the same time which have a similar or unusual name. These companies will often be registered at an address which does not seem suitable for the types of business activities.
  2. Unrelated business activity description - Does the nature of the business activities described in the Companies House entries seem compatible with the services provided by the workers?
  3. Directors being foreign nationals – Often foreign nationals are appointed as directors when an MUC is formed or they can replace a temporary UK resident director after a short period of time. Usually the directors   will have no prior experience in the UK labour supply industry.
  4. Unusually high movement of workers - Are workers moved between different employers who meet the above criteria for being MUCs on a fairly frequent basis?  
  5. Very short-lived businesses - The individual MUCs have a fairly short lifespan (often less than 18 months) before being allowed to be dissolved by Companies House as a result of their failure to meet their filing obligations. New MUCs will then take their place in the supply chain. You should notice this as you may find that you need to issue a new Key Information Document to workers on a fairly regular basis.

 

As the MUCs sit low down in the supply chain it may be challenging to spot them. HMRC advises businesses to remain vigilant, especially where the employer of the worker is not the umbrella company they may have a contract with.

 

It is important for businesses to consider the credibility of the supply, payment arrangements and other surrounding circumstances to help safeguard themselves from financial, operational and reputational risks. Guidance on undertaking robust Due Diligence can be found here: The supply chain due diligence principles

 

What is HMRC doing about mini umbrella company fraud?

Mini umbrella company fraud creates an uneven playing field for those employment agencies and businesses who follow the rules. HMRC’s Fraud Investigation Service is using both its civil and criminal powers to challenge those who are involved and facilitating this type of fraud. HMRC has recently made a number of arrests in relation to MUC fraud and has also taken steps to deny the right to recover input tax in cases where it has established that a business in the supply chain knew, or should have known, that there was fraud. 

 

HMRC is working with trade bodies and other government departments to raise awareness of the MUC fraud model and its risks more widely. HMRC is also currently undertaking a programme of activity to establish the levels of due diligence being undertaken by employment agencies and end users who use temporary labour. As part of this programme HMRC plans to issue advice on the levels of due diligence expected by businesses to help prevent them becoming a victim of the fraud.

 

Reporting concerns

If you have concerns about a supplier or engager of labour, or associated activities, contact the HMRC hotline on: 0800 788 887 (open 8am to 8pm every day). For more details see how to report fraud to HMRC.

You can also report someone if you think they’re evading tax.

 

Relief available on losses on loans to traders

The how, when and by whom relief can be claimed on losses.


The how, when and by whom relief can be claimed on losses.

 

Who is eligible?

Relief is available under section 253 of TCGA 1992 where a loan:

  • is made to a UK-resident borrower (if the loan is made before 24 January 2019) or to non-UK resident borrowers since that date
  • is wholly for the purposes of a trade or to set up a tradeas long as they start trading
  • has not been assigned by the lender any right to recover that amount
  • is between the lender and the borrower who are not spouses or civil partners or companies in the same group when the loan was made or at any subsequent time CG65951
  • becomes irrecoverable.

 

A trade includes ‘a profession or vocation’, but it does not include money lending. For example, if a director lends the money to the company for the purchase of an investment property, this loan will be categorised as a non-qualifying loan for claim under s253 of TCGA 1992 and relief may not be available. The general rule of capital losses is that they can only be offset against capital gains.

 

Who can claim?

Capital loss relief can only be claimed by the taxpayer who made the loan. It was decided in HMRC Execs of Mr Jeffrey Leadley [2017] UKUT 0111  by the Upper Tribunal (UT) where UT overturned the original decision of the First-Tier Tribunal (FTT) and established that executors of the deceased taxpayer were not entitled to make a claim under section 253 if the loan was already irrecoverable before the death of the lender.

 

Is your loan actually irrecoverable?

Relief is only due if the loan has become irrecoverable. HMRC looks closely at this type of relationship to ensure it meets the criteria for the relief. To satisfy the criteria, the claimant must be able to demonstrate:

  • that the borrower cannot repay the loan at the date the claim is made
  • that there was no reasonable prospect of the loan ever being repaid. If the borrower continues to trade this test is unlikely to be satisfied
  • that there was no indication at the time of lending the money that this would not be recovered
  • that the purpose of the arrangement involving the loan was not to secure tax relief.

 

 When can you claim relief?

The relief is given by treating the amount outstanding as an allowable loss. Normally, you cannot claim that only part of the amount outstanding on a loan has become irrecoverable. You can make a claim if:

  • the borrower has been placed in bankruptcy, receivership or liquidation
  • the receiver or liquidator has announced an anticipated dividend in respect of unsecured debts and has indicated that no further dividends are likely
  • the amount of loan has been written off or released by waiver.

 

Relief may therefore be claimed against capital gains of the year of claim or carried-forward to the first available gains of subsequent tax years.

 

After the loan has become irrecoverable, the loss needs to be claimed within four years of the end of the tax year in which the loss crystallises. The loss will arise:

  • at the time you make the claim or, if you want
  • for capital gains tax purposes, the earlier time falls not more than two years before the beginning of the year of assessment in which the claim is made; or
  • for corporation tax purposes, the earlier time falls on or after the first day of the earliest accounting period ending not more than two years before the time of the claim. 

 

On this basis, your client could make a claim for the current tax year (2019/20), but also for either of the two preceding tax years 2017/18 or 2018/19 if this were more beneficial, providing that it can be shown that the loan was irrecoverable in the earlier years.

 

Do you have to pay back if recovered in future?

If you recover any amount for which you have claimed relief the amount you receive is treated as a chargeable gain. The chargeable gain arises in the tax year the payment is received and at the time of recovery.

 

Full HMRC manual guidance can be accessed here

HMRC Talking Points – self assessment support

As the last few months of the self-assessment season for 2019/20 remain, here is a look at HMRC’s upcoming Talking Points webinars to support you.


As the last few months of the self-assessment season for 2019/20 remain, here is a look at HMRC’s upcoming Talking Points webinars to support you throughout this period.

 

To get more information about the webinar content and save your place, simply choose the date you can attend by clicking on your chosen link.

 

Income from property for individual landlords – part 1: This webinar looks at restricting finance cost relief and the cash basis eligibility and computational rules.

Wednesday 18 November 2020 – 12.45pm to 1.45pm

 


Income from property for individual landlords – part 2: This webinar looks at some of the main expenses and deductions, such as capital expenditure, revenue repairs and the property allowance.

Monday 23 November 2020 – 11.15am to 12.15pm

 


Off-payroll working rules from April ‌‌‌2021: This webinar gives an update to changes to the off-payroll working rules (IR35) from April ‌‌‌2021 for the public sector and medium and large sized organisations.

Tuesday 24 November 2020 – 2.15pm to 3.15pm

 


Capital allowances and vehicles: This basic webinar is part of our annual SA programme covering the rules for cars, qualifying expenditure, pools and rates, and vehicle hire purchase.

Thursday 26 November 2020 – 12.45pm to 1.45pm

 


Off-payroll working rules from April 2021: Contractors: This webinar gives an overview of the changes to the off-payroll working rules which come into effect on 6‌‌‌ April 2021. It is specifically designed to help contractors understand what these changes will mean for them.

Monday 8 December 2020 – 11.15am to 12.15pm

 

Covid-19 policy activity

Rounding up our latest engagement with government.


Government engagement

ACCA’s Policy Team is working to develop recommendations and lobby for government policy to support members and the businesses they advise. The team maintains close relationships with a number of government departments and ministers to ensure that members have clear and relevant guidance.

 

Members have been sharing a range of helpful insight and experiences which we have reported back in response to government requests for business intelligence and our targeted lobbying and we continue to welcome a broad range of views and insight from members to shape lobbying at UKPolicy@accaglobal.com

 

 

Meeting with Small Business Commissioner and response to Prompt Payment Code reform consultations

On 9 October ACCA brought together members from private sector, not for profit and education sectors for a discussion on the government’s proposed reform of the Prompt Payment Code (PPC). Special guest and Small Business Commissioner, Philip King, opened by talking briefly about how the PPC had been strengthened in recent years. Members went on to give perspectives on how to improve large scale adherence to the code.

 

Using member feedback in both the roundtable and an online survey, ACCA responded to the government consultation, highlighting the importance of prompt payment in addressing current heightened cashflow concerns and the need to highlight poor practice more visibly for suppliers needing to do due diligence on serial late payers.  

 

ACCA attends No10 business leaders call with Prime Minister and Chancellor of the Duchy of Lancaster

On 20 October, ACCA’s Chief Executive, Helen Brand, was invited to join a call with Prime Minister Boris Johnson MP and Chancellor of the Duchy Michael Gove MP on preparations for the end of the Brexit transition period.

 

Following on from this ACCA’s Policy Team attended a Cabinet Office and HMRC information session on border processes and intermediaries. We will use these information sessions to bring members up to date guidance and support any technical queries throughout the post-Brexit transition.

 

 

(Chancellor of the Duchy of Lancaster, Michael Gove MP addresses industry forum)

 

 

House of Lords Economic Affairs Finance Bill Sub-Committee

On 23 October, ACCA’s Head of Tax, Jason Piper, gave evidence to the House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee on the Draft Finance Bill 2020-21 and HMRC powers. Jason spoke about measures to prevent promoters of tax avoidance and simplification of the tax system to support HMRC work on compliance.  You can watch the session on Parliament TV here.

 

Consultations

You can read our latest consultation responses.

 

Get involved

  • Late payment: Continuing our work on tackling late payment culture, ACCA has been invited to feed into the government’s open consultation on the scope and powers of the Small Business Commissioner. Members can help shape ACCA recommendation via our member survey
  • Support for director dividends: Company director dividends have not been eligible for income support in any of the support packages announced by the Chancellor. Members were in touch on this issue since March and ACCA set up a meeting between Lib Dem spokesperson for business, Sarah Olney MP, members and the Forgotten Ltd Campaign Group to discuss how support could be extended for the three million businesses ‘left behind’. We are seeking to refresh our proposition to the Treasury about how these businesses dividend flows might be identified and support extended. Members are invited to get in touch with recommendations via UKPolicy@accaglobal.com

 

Members can access previous policy activity updates on ACCA UK’s Covid-19 hub for members.

NEWS
Webinars tackling the topics which matter

Delve into our latest series of free technical webinars for practitioners now.


Our current series of free technical webinars for practitioners is now available on demand. The series feature these webinars:

 

Inheritance tax planning available on demand

Speaker: Paul Soper, tax lecturer and consultant

Accompanying technical factsheet

 

Landlord reliefs and taxes available on demand

Speaker: Paul Soper, tax lecturer and consultant

Accompanying technical factsheet

 

Differences between realised and distributable profits and a recap of key areas available on demand

Speaker: Helen Kerrigan, Future Finance Training Ltd

Accompanying technical factsheet

 

Business recovery options available on demand

Speaker: David Fleming, Duff & Phelps

Accompanying technical factsheet

 

VAT issues with online trading available on demand

Speaker: Dean Wootten, Wootten Consultants Limited

Accompanying technical factsheet

 

 

Register for any or all of these sessions using this link. Each webinar will count for one unit of verifiable CPD where it is relevant to the work that you do.

 

Virtual chats for practitioners

Join us on 3 December to chat about rethinking business for a sustainable recovery.


Join us on 3 December to chat about rethinking business for a sustainable recovery.

 

ACCA UK has been running a series of virtual chats to offer members space to connect and talk with peers in specific industries. Through these virtual chats, members are encouraged to share their journeys of success, discuss challenges their business is facing and discuss their outlook for the future - identifying support needed from others and ACCA.

 

These virtual conversations support members in different sectors and we are now extending it to the practice sector.

 

The chats are based on interactive discussion and sharing of experiences.

 

The first session will be at 10.30 on 3 December on the topic of rethinking business for a sustainable recovery. To be a sustainable organisation means being committed to minimising environmental impact while putting social responsibility at the heart of strategy. Professional accountants have a vital role in building this sustainable world because sustainable businesses deliver financial returns while generating positive value for society and being environmentally responsible for the planet.

 

Jimmy Greer - Head of Sustainability at ACCA – will set the scene for the discussion before Yogesh Patel and Alastair Barlow from ACCA UK’s Practitioners’ Network Panel lead the discussion.

 

We will discuss:

  • What steps are SMPs taking to deal with the COVID 19 crisis and recover – both for themselves and their clients? What further steps can be/need to be taken?
  • What are the most pressing ethical and sustainability challenges of today for SMPs and their clients?
  • How can SMPs do business in a way that balances people, planet and profits? How can they help their clients to do the same?
  • What’s our role – what can we do, as professional accountants to create a more ethical and sustainable world?

 

Spaces will be limited so book your place now

 

 

Humanise The Numbers – a podcast for ambitious accountants

Hear Paul Shrimpling interview the leaders of small and large accounting firms seeking out and sharing best practice plus how these firms overcome the challenges they face.


ACCA is a proud sponsor of the new podcast - Humanise The Numbers – with podcast host Paul Shrimpling of Remarkable Practice Ltd. In these podcasts, Paul interviews the leaders of small and large accounting firms seeking out and sharing best practice plus how these firms overcome the challenges they face.

 

You'll hear key insights, key skills and key habits that are underpinning the success of these firms right now - insights, skills and habits that can underpin your firm's future success too. 

 

The first two podcasts feature ACCA members Peter Jarman of PJCO Chartered Certified Accountants, Will Farnell of Farnell Clarke, and Nigel Adams and Nikki Adams of Ad Valorem.

 

Subscribe to the podcast on Apple Podcasts, Spotify, Google Podcasts or Stitcher Radio and visit the website for more information.

 

Current Professional Courses events

Find training to suit your CPD needs now.


PRACTICE SEMINARS:
Time: 09:30-12:30
Fee: £60 + VAT (£72.00) per webinar
CPD: 3 units per webinar

 

FRS 102 practical issues – learning from others - 19 November
IR35 - how to prepare for 2021 - 26 November
Wealth and asset protection -  03 December
Auditing update - 15 December

 

Accounting and auditing refresher (Recorded webinar)
Anti-money laundering and fraud update (Recorded webinar)
Protecting your firm's and client’s reputation (Recorded webinar)
Inheritance tax planning (Recorded webinar)
Businesses in trouble – how to help your clients in times of crisis (Recorded webinar)

 

GENERAL TAX UPDATE
This live webinar provides a current tax update for finance professionals working across all business sectors.


Fee: £115 + VAT (£138.00)
CPD: 6 units
Time: 09.30-16.00

 

Dates:
14 December

 


ACCOUNTING STANDARDS UPDATE
This live webinar has been designed to update finance professionals on the recent developments in accounting standards.
Fee: £115 + VAT (£138.00)
CPD: 6 units
Time: 09.30-16.00

 

Dates:
30 November

 


COMMERCIAL, COMPANY AND EMPLOYMENT LAW UPDATE
This live webinar is aimed at accountants working both in private practice and in commercial settings generally. It is a general update of all legal areas relevant to such professionals.
Fee: £115 + VAT (£138.00)
Time: 09.30-16.00
CPD: 6 units

 

Dates:
08 December

 


Saturday CPD conference three for practitioners - 24-27 November
This conference consists of four sessions, which makes it a cost-effective way of staying informed about the latest technical issues.
Topics include:

  • Claiming allowances and reliefs for individuals and owner-managed businesses
  • Protecting your data and digital privacy
  • Autumn budget update
  • Cross-border VAT in 2020 and beyond

 

Fee: £115 + VAT (£138)
CPD: 8 units

 

 

Saturday CPD conference two for practitioners - Recorded webinars
This conference consists of four sessions, which makes it a cost-effective way of staying informed about the latest technical issues.
Topics include:

  • Construction industry tax update
  • Employment law update
  • Knock your socks off service in these challenging times
  • Accounting standards update

 

Fee: £115 + VAT (£138)
CPD: 7.5 units

What are your dreams for the future?

What are your dreams for the future? Please tell us all about your career ambitions and what matters to you!


What are your dreams for the future? Please tell us all about your career ambitions and what matters to you!