Daily Insight: VAT exemption for sharers and... don't look after the pennies
It's been a busy week here at Daily Insight, where we've been touching on heady topics such as cryptocurrencies, the Big Four and the BBC. Today the focus is more on a bread-and-butter issue for accountants - VAT.
Following several recent European cases, the HMRC has produced a new brief on VAT exemptions for cost sharing groups (CSGs). It's aimed at smaller businesses that function in the public interest that can't by themselves afford to buy certain assets. Now they'll be able to form a CSG with other like-minded businesses and purchase a big item for their mutual benefit ... and be exempt from VAT.
The HMRC says: "This exemption allows small providers who can’t afford to acquire assets on their own account to benefit from the same overall VAT position as larger providers who can afford to purchase the assets themselves. Thus the more members of a CSG there are, the greater the potential savings and lower the costs per member of operating the relevant CSG.
"The CSE applies only in very specific circumstances and won’t cover all shared service arrangements." The exemption groups are:
- Postal service (Group 3).
- Education (Group 6).
- Health and welfare (Group 7).
- Subscriptions to trade unions and professional bodies (Group 9).
- Sport (Group 10).
- Fund raising by charities (Group 12).
- Cultural services (Group 13).
Tantalising question
And as it's Friday, I'm going to leave you with a tantalising question: Should the UK get rid of 1p and 2p coins? For what it's worth (about 17p), I'm all in favour. And so is Larisa Yarovaya, lecturer in accounting and finance at Anglia Ruskin University.
She argues: "Around 8 per cent of coppers are thrown in the bin every year. According to the Royal Mint, there are 11,430m 1p coins (worth £114.29m) and 6,714 2p coins (worth £134.273m) in circulation so 8 per cent would lead to substantial waste. Millions more end up behind sofas or tucked away in tins and forgotten about. Replacing them is surely a waste of money."
Quite. And that's before we even get to cryptocurrencies!
Have a great weekend.
Daily Insight: accountants and cryptocurrency; women in business
Let's forget MTD and GDPR for a minute, the first item on today's agenda is accountants and cryptocurrency. More specifically, it's about a story on the Conversation website under the headline: "Why accountants of the future will need to speak blockchain and cryptocurrency if they want your money."
It's a fascinating piece by lecturer in accounting and finance, at the Open University. And it goes as far as any I've read toward shedding some light on this slightly murky area.
He explains blockchain technology as "an open access shared ledger that keeps a record of all the transactions between parties and allows all users to agree on its contents. New information is added in blocks linked to the previous blocks, resulting in a chain of blocks being built."
Ledger is verified
"This ledger is verified by “miners” to make sure it’s true – and so creating an audit trail. Past records can be viewed but not altered without the consent of the majority. And it is this technology that is behind cryptocurrencies such as bitcoin – the value of which rose almost 1,400 per cent in the past year, but has at times, also fallen massively too."
The World Economic Forum reckons that 10 per cent of global GDP will be stored on blockchain technology. That's a lot. Anwar adds: "It it easy to see then, why accountants of the future will need to educate themselves about Bitcoin and other cryptocurrencies if they are to account for transactions denominated in it.
Transactions in the blockchain
"The profession will evolve and adapt massively over the coming years. And in fact, auditors have already started auditing transactions in the blockchain." I'm still unsure as to why blockchain technology has to be related to cryptocurrency and couldn't just be used to verify transactions using "regular" currencies.
But still on planet crypto... some of the world's leading economists are today announcing plans to their own currency, Saga, to rival the likes of bitcoin.
According to the FT, the aim is "to avoid the wild price swings of many cryptocurrencies by tethering itself to reserves deposited in a basket of fiat currencies at commercial banks".
Saga aims to avoid anonymity
"Holders of Saga will be able to claim their money back by cashing in the cryptocurrency. Saga also aims to avoid the anonymity of bitcoin that raises financial crime concerns with regulators and bankers. It will require owners to pass anti-money laundering checks and allow national authorities to check the identity of a Saga holder when required." The plot thickens.
Still with the FT, the media group today publishes a special report on Women in Business. It covers a wide range of topics, from Fox News whistleblower and anti harassment campaigner Gretchen Carlson to the legal profession's glass ceiling. Well worth checking out, as is Accounting Insight News's Women in Accountancy group.
Real-time solution can find a balance for freelancers and sole traders
Did you know that clients can now open a bank account that automatically summarises income and expenditures, and is mooted to be Making Tax Digital ready, with automatic downloads to the client’s digital account with HMRC?
Are we about to witness the transfer of compliance activity, normally the job of accountants and bookkeepers, into hybrid banking solutions?
Coconut is a challenger software group offering this service to freelancers and the self-employed. It's basically a real-time banking app that estimates income tax owing.
More and more routine analysis work is being automated, either by an accountant’s own software or third-party solutions. So there's a case for selling advice rather than providing processing skills.
Specialist skills
No doubt these changes will take time to unwind but, in the meantime, it's a good idea to develop of specialist skills where “automation” cannot contribute, at least not soon.
As an example, consider the requirement for all businesses to be GDPR compliant on or before 25 May 2018. If you take the time to review your practice systems that cover the management and security of personal data, why not offer these acquired skills to your clients?
Like all endangered species, the future for the accountancy profession depends on its ability to adapt to changing environments. We will probably need to abandon activity offering minimal returns and concentrate on specialist advice. After all, a coconut has limited usefulness if its main purpose is to act as a glorified adding machine.
Informanagement is on stand 846 at Accountex
Daily Insight: Big Four break-up debate, BBC probe and council tax call
Should the Big Four accountancy firms be split up? This question has been floating around for some time, but now things are getting really serious.
The Financial Times is getting stuck into the issue big time, and today publishes a thoughtful 'Yes-No' analysis. On the 'Yes' side, Natasha Landell Mills, head of stewardship at asset manager Sarasin & Partners, argues that such a move to separate consulting and audit would prevent conflicts of interest.
"Multiple market failures need to be addressed. The most obvious problem is that audit quality is invisible to those whom it is intended to benefit: the shareholders, " she argues.
Impose meaningful sanctions
Natasha, in a well-argued piece, concludes that "the accounting watchdogs must be far more robust on audit quality and impose meaningful sanctions. Even the best intentioned will struggle against a broken system."
On the 'No' side, author Jim Peterson acknowledges that recent corporate scandals involving auditors are "deeply worrying". But he believes that a break up would neither improve competition nor boost competition.
Reshaping the way we gather information
He notes: "The enthusiasm for cutting up the Big Four also fails to recognise how the world is changing. The rise of artificial intelligence, blockchain and robotics is reshaping the way information is gathered and verified. Auditors will need more — rather than less — expertise.
"Warehouse inventories, crop yields and wind farms will soon be surveyed rapidly and comprehensively in ways that could easily displace the tedious and partial sampling done for decades by squadrons of young audit staff. But to take advantage of these advances, auditors need to have the scale, the financial strength and the technical skills to develop and offer them."
The FT is inviting people to join the debate by submitting their thoughts in less than 250 words. Why not get involved?
Personal service companies
The BBC is going to take a look at the "personal service companies" situation after criticism from presenters who said they were forced into setting up PSCs.
Four Beeb workers – Liz Kershaw, Kirsty Lang, Paul Lewis, and Stuart Linnel – appeared in front of the culture select committee examining BBC pay. Kershaw said she was offered radio work, but had "no choice but to agree to form a PSC".
PSCs hit the headlines after BBC news presenter Christa Ackroyd lost an IR35 appeal and faces paying back about £400,000. The Beeb says it plans to set up a dispute resolution process to see whether or not it should pay employers' NI contributions.
Regressive council tax
And finally, the Resolution Foundation is calling for "regressive" council tax to be scrapped.
The think-tank's senior economic analyst Adam Corlett points out: "Typical council tax bills for the most expensive homes are only three times as high as for the cheapest. By contrast, the typical values of those top homes were nearly seven times as high.
"This lack of variation in tax bills is compounded by regional differences that mean tax rates tend to be higher in poorer parts of the country. As The Economist puts it, “Buckingham Palace attracts a council-tax bill of £1,400 a year, around the same as some flats in Bradford."
QuickBooks boosts open-platform approach
Intuit has announced that QuickBooks Online Accountant (QBOA) now allows UK accounting professionals to manage all of their clients within the product – even those that don’t use QuickBooks.
The development enables accountants to organise and view client information, notes and details in one consolidated place.
“With this new capability, QBOA continues to evolve as the one place for our accounting and tax professionals to meet the needs of all their clients, no matter what accounting product or spreadsheet tool they use,” said Rich Preece, leader of the Accountant Segment, Small Business and Self Employed Group at Intuit (pictured, above).
Manage that client
QBOA users can add their non-QB clients in two ways. The first is to simply click on the “Add client” button on the QBOA home page, enter the client’s contact information and select “no subscription right now.” The second option “Quick add,” enables accountants to add clients in three clicks while creating workflows to manage that client.
Accountants click on the Work tab, select “Create project” or “Create client request,” and then click “+Add new” to create a new project or request for their client. The new client task will be added to the accountant’s practice management dashboard so the firm can engage and manage client work immediately.
Once a non-QB client is added to the accountant’s client list, the accountant can then add client notes as well as create, assign and track projects and tasks. The accountant can also send client requests for source documents, such as bank statements, through QBOA as well as store those documents within QBOA.
The result is a complete client list within the dashboard from where accounting professionals can track, monitor and perform tasks from one place to ensure nothing falls through the cracks., says the company.
Six startling statistics about GDPR
In May 2018, a new European data protection law, the General Data Protection Regulations (GDPR) will come into force. The new law will see how personal data is managed and processed change for ever. Most, if not all businesses will be affected by this change.
A recent study sheds some light on how people are feeling (or not) towards GDPR.
- 44 per cent do not know what the GDPR is: so that’s just under half of HR and payroll professionals are not aware of GDPR. Ultimately, we can presume that those respondents are not be taking essential steps to prepare for the deadline.
- 77 per cent HR and payroll professionals believe they are liable. Although, 23 per cent either don’t think they are or are unsure as to their own liability.
Information required
- 83 per cent believe their internal HR team has the experience and information required to be GDPR compliant.
- 81 per cent think they will be fully GDPR compliant by the May 2018 deadline. 19% believe that either they won’t be fully GDPR compliant or are unsure. Shockingly, this means that one fifth of businesses are likely to not be compliant before the May deadline.
- Slightly over half (55 per cent) of respondents believe that GDPR is a risk to HR and payroll departments, with just under 40 per cent believing that GDPR is not.
- 71 per cent of people in the HR and payroll departments agreed that "improved data security" would be the biggest benefit from GDPR.
BrightPay is exhibiting at Accountex, Stand 430
What can UK accountants learn from Down Under?
I often get asked: "What are other firms doing?" It is an interesting question – is it about strategy in dealing with the client? Or the changing legislative environment – MTD and GDPR? Or is it about the dramatic changes happening in the software industry relevant to accountants? Or does the relationship of clients with their software vendors make accountants vulnerable?
In most cases I can look at the accountant I’m speaking with and understand what they are asking. But I always respond with “what type of firm are you”? Let me explain.
Aussie accountants are quick to embrace change
I love working with accountants and delving into their stories. It is a time of massive change, with more coming. And client expectations are rising – they want to do more, they are more knowledgeable, more business smart, and they want more specialised ‘fundamental’ business advice. But is the average accountant ready to take on that responsibility? Or can they? What tools are there to help them and how are they being educated to provide such an advisory role.
Before chatting about the UK, let’s see what’s happened Down Under and in the US, and whether those experiences are likely to play out here in the UK.
I personally think Australian accountants are now quick to embrace change. Two game changers in thepast 10 years have been Financial Planning and Xero. They were quick to become financial advisers (which has now been legislated to prevent poor advice). Once they worked out Xero was converting clients from under their noses, they quickly chose to get paid to sell Xero to them. But it wasn’t always that way! The incumbents MYOB and Sage Handisoft had the playing field to themselves for many years prior.
I remember talking with a colleague in the software industry (from one of those incumbents) and he was adamant Xero was going to fail and joked about their losses. He couldn’t understand what accountants saw in the product, nor about their plan to build a subscription model based on the value proposition to both the business owner and the accountant. His eyes were targeted only on the accountant. Not only was he wrong, he had missed the point completely.
Impact of Xero’s ‘bottom-up’ go-to-market strategy
It wasn’t the accountant influencing change, it was the end client and their contractor bookkeeper. Xero had gone to the accountant initially in its go-to-market strategy and it didn’t resonate well. The feedback was consistently, “Why should we pay per client, when I can pay for one subscription and put as many clients on our existing bookkeeping system?” and, “I don’t want the client doing the bookkeeping, I want to. You are diminishing my role and my fee base” so in other words … go away.
Xero’s approach moved from top down (i.e. dealing with the accountant to get to the client) to bottom up (dealing with the client and the bookkeeping to get to the accountant). Sharp and ‘Xero friendly’ accountants saw the change coming – the tail was starting to wag the dog. And it did. Birds of a feather flock together. And that is what small business did. They talked about Xero and moved to the accountant that supported Xero. Then Xero played its trump cards – giving the accounting firm practice management for free, and the functionality to do financial statement compilation for free. This struck at the hearts of MYOB and Sage Handisoft.
But what made Xero so appealing to the end client? It was the simple web-based landing page and simple bank feeds. Suddenly the mystic and magic that was once performed by the accountant was gone. It was like the magician’s secrets had been disclosed.
The benefits of cloud software put another nail in the coffin. The client or bookkeeper was now able to work on Xero from wherever, whenever and on whatever device they chose. Real-time transparency to the business owner and the accountant and the rest is history.
Traditionalist, Converter or Millennial?
I wrote a paper last year on Traditionalists, Converters and Millennials:
- Traditionalists are the older practices that don’t like to change their ways and offer a complete service suite including audit.
- Converters have a young partner or director that has been given the authority to drive change and they have converted 15-20% of their client base to cloud based bookkeeping systems and converting more as fast as they can.
- Millennials – well they are small one partner firms where all their clients are using cloud based bookkeeping systems, and work with 40% of their clients for a monthly, fixed fee. Millennials’ clients are also very sticky. Why? Simply because their staff have multiple touch points with their clients all the time. How? Because they have embraced technology and use it. I also call them ‘cafe accountants’ because they meet their clients at the coffee shop.
The rise of the app
This leads to the rise and hype of apps. Apps for this, apps for that, apps are everywhere. And causing great confusion to the conservative accountant who feels bombarded and confused by them. Yet apps are simply software tools that connect through integration (another buzz word) to other software to push and pull data.
‘Entrepreneurial’ Converter / Millennial firms are promoting themselves as App consultants (coming back to the point earlier of adding value) and offer their client fundamental business advice on how to improve their clients systems and processes, and driven to do so by the cloud industry heavy weights Xero and QBO (Intuit QuickBooks). In fact the influence of vendors ‘market place sites’ on their websites is now having a dramatic impact as they fight for dominance, particularly as Xero goes head to head with QBO.
Clash of the titans
How do you upset a giant? Go piddle in their paddling pool! And that’s what Xero has done to QBO in entering US territory. It woke them up, and QBO has been playing catch up ever since and are now playing in Xero’s own playpen offering free practice management, and shadowing them into Xero’s new territories such as South Africa.
Right, back to the UK.
It’s interesting watching the incumbents here in the UK jostling for position, and working out their strategies. CCH, IRIS, Digita, Sage are all now rushing to work with Xero and QBO on integrations.
But where will Xero and QBO be in three years? Where will Sage be? That’s a topic in itself. And the recent news (or fake news) of IRIS being put up for sale by HG Capital was good for gossip.
If it is fake news, it certainly got people chatting about where in the VC cycle IRIS is. Xero’s impact on MYOB in Australia was the reason IRIS acquired Kashflow but has that worked for them? And everyone is piddling in Sage’s paddling pool, surely, they must be fed up sitting in it? Watch this space I am told!
Be part of the change
So what is on the horizon? My thoughts you ask? Just look at the home territories of QBO and Xero – both offer practice management, financial statement compilation and tax return filing…and more. Do you think they will offer it here in the UK, in time for MTD? You can guess my thoughts. Add HG exiting and my imagine starts running wild!
Add something else to your thoughts:the incumbents have gone from protecting their client bases to now opening them up with integrations. So transparency and visibility of client names and information (lucky GDPR is coming in) of the incumbents’ clients to Xero and QBO, and vice versa. Should Xero and QBO release financial statements here, well look at the blood bath that MYOB and Sage Handisoft has endured in Australia. It’s on the cards to happen here.
Where does that leave the UK accountant?
But where does that leave you, the UK accounting firm? What are you doing? Are you promoting cloud bookkeeping systems to your clients and taking a click of the monthly ticket? If so, which one(s). What apps are you promoting? And do you really know how they work? And how are you managing client work and collaboration within your practice?
Here at MyWorkpapers, we are making that the nucleus for how accountants work, and what they work on, in their practice. With client bookkeeping data feeding into us, together with collaboration and workflows in practices makes us the industry leader in Australia, UK and now Germany (through our partner, Datev)
So grab your popcorn, and watch the landscape change in 2018. Be aware of what your competitors are doing, get familiar with the apps making noise, and focus on how you can establish your own new identity and give fundamental business advice
MyWorkpapers is exhibiting at Accountex 2018, stand 526.
Drivers for change in an accountancy practice
Many of us find change challenging. We rationalise our caution by saying, “If it ain’t broke, don’t fix it”, which provides an easy justification for personal and organisational inertia.
But sometimes, change is unavoidable. Here are the main drivers for change that affect modern accountancy practices.
The economy
There’s not a lot you can do to stop the economy nose-diving. Or expanding, for that matter. But there are things you can do to protect yourself against the worst effects of a slowdown and exploit the opportunities offered by an upturn. New attitudes, new working practices and new technology should be an important part of your response.
Laws and regulations
Laws and regulations have a profound effect on how accountants work. GDPR, Making Tax Digital and FRS 102 are just a few recent examples of this kind of change. Be prepared to change the internal procedures and workflows within your practice together with your software and other IT systems in order to keep up.
Client demand
Over time, new clients will make new demands on you. Even long-standing clients will expect you to offer them more services, or expect you to deliver those services differently. Online accounting; mobile access to financial data; secure client portals; a social media presence… What technology will you need to meet these demands?
Staff expectation
To be the best, you have to employ the best, so your practice needs to be able to hire and retain talent. As well as flexible working, better work / life balance and a range of interesting and challenging assignments, staff these days want to be able to broaden and deepen their technical skills. They also expect to have access to the latest technology to help them do their job. Better make sure you’re providing it!
Self-development
Your staff, partners and managers aren’t the only people who may look for opportunities to extend their technical and other skills. Over the course of a working life you will naturally look for new challenges, both to develop your career and to explore your own potential. This kind of self-generated pressure can be an important driver of change.
Competitive pressure
Imitating your competitors is not always a winning strategy (“Tax returns for a fiver” anyone?) but neither is ignoring genuine competitive pressure. How will you respond if another accountancy practice offers something that you don’t, or can’t? These days, technology is often the key to unlocking new markets and opportunities and getting back your competitive edge.
Technology
As soon as any new technology becomes available, someone somewhere will exploit it to their advantage to do new things, or to do existing things better, more quickly, more cheaply or some combination of the three. The most radical technologies reshape the way we see the world – the iPad, for example, grew from a desirable consumer novelty to become a valuable business tool. What paradigm-shifting technologies await accountants in the near future?
Growing your practice
Even if you don’t want your practice to get any bigger, you need to continually take on new clients just to replace those you lose. To expand, you’ll need to take on even more, perhaps by employing more staff or by working more efficiently. To increase fee revenue, you’ll need to charge existing clients more for the work you already do, or get them to buy additional services from you. Better software can help you pursue these growth strategies.
For tax and accounting professionals, change is a constant fact of life. At some point – for any one of the reasons described above or a combination of many – the pressure for change in your accountancy practice will become irresistible. Your best chance of success in periods of rapid transition is to find a technology partner who shares your vision of future success.
Wolters Kluwer will be at Accountex 2018 on Stand 960.
Daily Insight: Carillion probe, women in finance, and MTD gets heated (again)
Morning all... Before we get into the serious stuff of Daily Insight, I hope you enjoy today's cartoon. It was one of many splendid caricatures drawn by our Accountex Summit North special guest Robert Duncan. And the good news is that Robert will be literally on hand to sketch for you at Accountex London 2018 on 23-24 May.
OK, to the news. Carillion is back in it (up to its neck?). The FRC will be investigating two former finance directors of the outsourcing group that so spectacularly collapsed in January.
The accounting regulator is looking at ICAEW members Richard Adam and Zafar Khan, and their role in preparing financial statements in 2014, 15 and 16.
As quickly as possible
The watchdog says the probe will take place "as quickly as possible".
Adam quit as FD in 2016 after 10 years in the job and received a payout of about £1.1 million. Kahn replaced him and lasted just over a year. He stood down four months before the collapse. His payout was £425,000.
Economia reports that 45 more companies have backed the Women in Finance charter, taking the total to 200 groups - after a bit of apparent initial reluctance to get involved.
BNP Paribas, Close Brothers, Crowdcube, Goldman Sachs, Invesco, Metro bank, QBE and UBS are the latest to sign up to the charter, which sets and monitors equality targets.
Fresh thinking and new perspectives
PM Theresa May has put her weight behind the Treasury initiative, saying it's a good move towards giving women equality in the workplace.
She says: “Time and again, I have seen first-hand how women can bring fresh thinking and new perspectives. And I know the commitment that women put into their jobs on a daily basis.
“But, of course, there is still more to be done and I look forward to seeing these companies really delivering on their targets over the next few years.”
Meanwhile, Accountex sales manager Rachel Gregory has joined the equality debate with a blog in Accounting Insight News. Check it out here.
Finally, I was interested to read the comments section at the bottom of accountingWEB's story about the latest HMRC move on MTD - that is to expand the pilot to the self-employed. Unanimous, shall we say, 'scepticism', from all 30-plus correspondents...
See you tomorrow.
How women can thrive in the digital era
As we marked International Women's day recently, I thought it would be a good time to reflect on the world we live in ... especially in terms of women in the workplace.
In my opinion, the digital age is by far the most exciting and fast-paced of all time. There is more opportunity for women than ever before. For instance look at the thousands of software companies launching their latest innovations almost daily.
The internet has been a key driver for changing society over the past decade, with bloggers and YouTubers sweeping the nation - and millions capitalising on the opportunities provided by this new 'profession'. So how can we as women take advantage of this?
Drive, ambition and desire
Here's a few thoughts... Believe in your ideas and dreams. If you have the drive, ambition and that burning desire to succeed, then you will!
Your voice is the most powerful tool you have, so never be afraid to use it. You’re your own personal brand; people buy from people; use social media as your base, build up followers, fans ... and be heard!
The beauty is that you could be sat on a beach sipping a cocktail anywhere in the world and publish a blog, a Facebook or LinkedIn post or a picture. You can communicate with the world 24/7!
Research your industry
Also, enhance your knowledge, research your industry, attend courses, and generally engross yourself where your passion lies.
I find it fascinating to read about all the success stories on LinkedIn and Facebook, and it just makes me want to succeed even more than I have already.
So, grab every any opportunity with both hands - and never doubt the woman you are, or the woman you’re going to become! Be inspired, connect, embrace, excel and be the best version of you possible!
Has my blog made you think about your career, or what you as a women would like to achieve?
Feel free to comment below and don't forget to check out Accounting Insight News's Women in Accountancy section, and the new group on LinkedIn.