The Secret Accountant: What does the 2018 budget mean for you?
Following the chancellor's budget this week, there are, of course, many aspects worth mentioning. I will focus on a few of the key ones:
The government had promised that the tax-free personal allowance would increase to £12,500 and the higher rate threshold to £50,000 in April 2020.
Philip Hammond said that these rates would come into effect from April 2019, a year earlier than proposed. The changes will reduce income tax for millions. And they are intended to encourage more individuals to enter employment.
Income tax rates remain the same as previous years with the basic rate of 20 per cent, higher rate of 40 per cent, the additional rate stays at 45 per cent on income over £150,000.
The dividend rates also remain the same, and the tax-free dividend allowance is to continue at £2,000 for 2019/20.
IR35 for the private sector
The IR35 changes discussed in my previous article have been confirmed as going ahead. They will be implemented in the private sector in April 2020. This gives contractors a further year of relief and time to prepare for these changes.
However, the rules are only planned to come in to effect for "large and medium businesses" with small companies remaining unaffected for now.
It is not yet clear how HMRC will define which companies classify as small and large for the purposes of this legislation we shall wait for additional guidance over the coming months.
Good news for business owners is that entrepreneurs' relief on qualifying capital gains is staying.
Significant change to this relief
The most significant change is that the qualifying ownership period has increased from 12 months to two years. This, while adding another year to the ownership period, will not affect the more standard business owners who are selling their businesses after years of hard work or are taking retirement.
The aim of this being to restrict the relief to those individuals who have a true material stake in the business rather than those investing in short-term high-risk ventures.
Capital investments
The Annual Investment Allowance (AIA), which allows businesses to write off 100 per cent of the cost of plant and machinery purchased against profits, has been increased temporarily from £200,000 to £1 million for the next two years starting 1 January 2019.
This increase aims to encourage companies to undertake capital investments in new assets such as plan and machinery or commercial vehicles.
Overall this budget feels to be a positive one, with the government in good stead to fulfil their promise of "an end to austerity".
However, we will soon see the outcome of Brexit and it is hard to predict where we will stand following that deal and the financial impact the EU departure will bring.
I hope this is useful and offers some positivity... please look out for the next article, coming soon!
To advise or not to advise? That is the question
I spent an enjoyable day with "Nick Kay". Nick is a progressive sole practitioner, based in the Ramsey, near Cambridge, and we were discussing the arrangements for one the first Business Growth Clubs in the UK, which Nick is organising for his client base and I am delivering.
Nick takes his learnings from a wide variety of sources. He is CIMA qualified, and a previous client of mine at PANALITIX. Before starting his own business, Nick delivered management information for a national retailer, with over 800 shops.
He is currently shaping his practice to offer a wide range of “advisory” services, using tools from around the world and offering a selection of stack of services to potential clients – these can be seen on his differentiated website.
Progressive sole practitioner
Nick is also a reseller for The Gap, recently launched Business Development program in the UK.
So as progressive sole practitioner, who has a clear vision on the services that he wishes to offer clients, he's very close to having finished his preferred design of business.
Having now painted a picture of his business, I wanted to share a story, which is commonplace to 99.9 per cent of accountants in the UK.
Nick was chatting with a retail client, who has an underperforming business. It’s a repeating annual conversation. Want to change, but the business has no money – or in sales teams yet to feel the real pain, which will induce action. That is – engage Nick to deliver “advisory services.”
Quick overview
With a background in retail, Nick asked to have access to the EPOS system. This was offered as a quick overview, to see if any data jumped out at Nick.
Nick very quickly identified that with some minor adjustments to the two shops' opening hours and a change in the team's shift patterns, that productivity could be improved instantly.
One shop opened at 7am, to sell to early birds – but the figures clearly show that no sales take place between 7-8am.
One shop stayed open between 4-5pm – to catch the after-school trade. But the figures clearly show that no sales take place.
Commercial madness
Both shops shut on Mondays. Commercial madness, as the owners were losing out on 20 per cent of the working week.
So, Nick agreed a 90 day plan, and the results would dictate any additional engagements.
Within seven days, revenue had improved.
But the rub is, that Nick did not charge for this advice.
Improvement in results
I’m sure that any accountants reading this piece will be able to recount similar tales.
“Well they are only small”, “they are struggling” and "they are one of my first clients” are some of the reasons that justify not charging for this advice and immediate improvement in results.
I’m vendor agnostic on Onboarding tools, but the great benefit that Go Proposal, Practice Ignition and Pricing in the cloud bring to the profession is the structure that they bring to a firm.
All team members understand that they have to price for all services and work delivered and price up front which ensures consistency across the business and no scope creep.
Now Nick is a sole practitioner and can run his business how he wants. It’s also a lead generation tactic to offer the advice, prove that it works and then sign up the client. This is not designed to be a detailed analysis of Nick’s sales approach.
Proceed quickly
I’ve used similar approaches myself, as long as there is commitment to proceed quickly, on proof of results. Nick is after a long-term project, where financial analysis and accountability will be delivered.
However, the point of the piece is to prove that many accountants are offering the advice that “thought leaders” are telling them too. It’s the pricing of the advice that needs to change.
Delivering his initial offer, with statements such as:
Improve the business
If I see opportunities in my quick 10 minute look, you agree to a meeting where we discuss how we can work together on a monthly basis, with agreed targets, to improve the business.
As this is a quick 10 minute look, I will not be charging, but my normal fee for this is £xxx.
The last client I worked on in this situation, was delighted to pay the monthly fee, because I delivered increased revenue of £xx
This piece has not been written to criticise Nick and his approach, far from it, but to highlight:
- Accountants are offering advisory every day.
- Accountants are not charging for this service
- Accountants need to fine tune their approach, to ensure clients have an expectation that accountants offer these services and they should expect to pay for them.
The next time this situation arises, Nick will be able to position himself, more positively.
Nick has seen this article before publishing and agrees that no accountant called Nick has been harmed during its writing.
Accountants: Feeling overwhelmed? Cloud, Apps, advisory, MTD and GDPR causing you headaches? Looking for a cure to the above issues and then grow your firm, while spinning all these plates.
I can be contacted via LinkedIn, @LangdonHamblin or [email protected]
How to dissolve a company in a pain-free way
No business will last for ever and the reality is that most companies last less than five years.
In 2018 alone there were 483,800 companies removed from the UK company register.
While there were 634,116 companies formed in the same period it means that for every 100 new companies formed, about 75 reach the end of their life.
There are many reasons why people may voluntarily dissolve their company and look for support from their accountant to do so.
Take on the business
The business may have already served its purpose or the owners might want to retire but can’t find anyone to take on the business. It might be a subsidiary that’s no longer needed or an idea that just never got off the ground.
Section 1003 of the Companies Act 2006 gives the directors the right to apply voluntarily to strike off the company.
Once it’s struck off, the company legally no longer exists, a fact that can be verified by searching against the company name on the public register at Companies House.
Dissolving a company voluntarily?
The voluntary dissolution option is only available where the company is solvent. More specifically:
- It must have no outstanding liabilities – so all of its outstanding creditors must have been paid.
- There must be no outstanding petition to wind up the company, insolvency proceedings or other type of order under the Insolvency Act.
- There cannot be any existing agreements with creditors – for example a Company Voluntary Arrangement or other compromise agreement.
Furthermore, to use the voluntary strike off procedure the company must not in the last three months have:
- Traded (or in another way carried on in business).
- Sold property or rights owned by the business which it sold while trading.
- Changed its name;
- Engaged in any activities other than those required to dissolve the company, conclude its affairs or comply with a legal requirement.
What steps need to be taken?
Firstly, the directors need to tidy up its affairs. While these will depend on the nature of the business, tax affairs will typically need to be settled with HMRC (alongside submitting final accounts and a company tax return) and any business assets distributed between the company’s shareholders. Any bank accounts should be closed.
Companies House form DS01 must then be completed and signed by a majority of the company’s directors (which means all of them if there are only one or two directors appointed). A cheque or postal order for £10 made payable to Companies House must be submitted alongside the form.
Who must be told?
Within seven days of sending form DS01 to Companies House to dissolve the company, a copy of that form must also be sent to interested parties. Legally, therefore, a copy should be sent to any person who is:
- A shareholder (or other ‘member’ of the company).
- An employee of the company.
- A creditor.
- Any director who didn’t sign form DS01.
- The manager or trustee of any pension fund established for employees
What happens next?
If the form is completed to Companies House’s satisfaction, a notice will be published in the London, Edinburgh or Belfast Gazette (depending on where the company is based) giving notice of the intention to strike off the company.
Gazettes are the UK’s official newspapers of record, where both recent and history notices to strike off companies can be viewed.
The Gazette notice gives interested parties the opportunity – usually in a period of two months – to make an objection as to why the company should not be struck off.
Valid reasons for objecting include tax fraud or another offence by the directors, an outstanding legal action or evidence that the company has failed to follow the rules for voluntary strike off (e.g. the directors have failed to inform interested parties of the proposed dissolution).
Can the dissolution be stopped?
The dissolution won’t proceed further if:
- An interested party makes an objection which is upheld by the Registrar before the notice period has expired.
- Companies House are informed by HMRC that the company has an outstanding tax liability; or
- The directors of the company file form DS02 to halt the dissolution.
Otherwise, the Registrar will strike off the company within about two months from the notice in the Gazette. At that point, a second notice will be published in the relevant Gazette and the company will no longer legally exist, with any assets that haven’t been distributed to shareholders becoming the property of the Crown.
Can the company be restored?
Sometimes, well after a company has been removed from the register, a forgotten asset turns up that had been owned or was due to the company. To take proper ownership of this asset requires the company to be restored to the register. This is not a quick or simple process – always double check that there are no assets unaccounted for before concluding the dissolution process.
- Figures quoted in this article have been taken from Inform Direct’s 2018 Company Formations Survey based on data from Companies House and the Office for National Statistics.
- This article originally appeared on the ICPA website. Check it out here.
Will investigation and AI shake up the audit world?
The audit sector is set for a massive shake up, I feel, as the Competition and Markets Authority (CMA) begins a major probe, with the spotlight clearly fixed on the Big Four — PwC, EY, KPMG and Deloitte.
This review signals the beginning of the levelling of the playing field between the biggest of the of accountancy firms and the rest of the industry.
The 'top dogs' are under more scrutiny than ever, with the CMA writing to government about the problems it is investigating.
The fact is, thanks to major technological advances, the time is now perfect to loosen the Big Four grip and let other firms seize the opportunity to thrive in the auditing marketplace.
Far greater insight
Specifically, Artificial Intelligence (AI) enables professionals to gain far greater insight without replacing any human intelligence. In fact, these tools enable accountants to apply critical thinking (which AI cannot) to provide detailed insights and add value to their client relationships.
While the Big Four have poured development funds into the technology, it has been difficult for accountancy practices to invest in AI... until now.
Companies such as IRIS are bringing AI to the rest of the accountancy market, so they are now ready and available to take advantage. These tools can level the playing field for accountants, whose frustration has been swelling over the significant advantage they feel the Big Four have over everyone else.
Market is failing
The final outcome of the CMA probe will be fascinating, especially because investigators have left open all possible actions if it ultimately concludes the market is failing.
The CMA says its first focus is on choice and switching - specifically that the largest UK companies “still turn almost exclusively” to one of the Big Four when selecting an auditor to review their books.
All this comes amid strong criticism of the sector from the Financial Reporting Council, which has just revealed that 27 per cent of the audits it looked at needed “more than limited improvements”.
Officials revealed a significant decline in audits achieving a good standard in the FRC annual report – just 73% compared to 81% in 2017. This was due to “an unacceptable deterioration in quality at one firm, KPMG”.
Powerful band of firms
We shouldn’t underestimate the significance of the CMA investigation. It shows this powerful band of firms are not beyond reach and hopefully encourages more practices into auditing the larger FTSE100 companies.
AI is a great way for medium-sized firms to scale up their operations to tackle much larger audits, enabling a review of 100 per cent of transactions rather than a select sample. It’s like having a digital in-built senior auditor and it has the potential to be a game-changer.
In essence, firms using the AI technology can compete and offer more comprehensive audits to larger companies whilst utilising fewer staff.
We’re confident that accountants who use AI will be the ones who achieve the most success in coming years.
We hope that accountants across the UK have the confidence to take advantage of the evolving audit situation and it’ll be fascinating to see how the CMA probe develops in coming months.
MTD-ready spreadsheet for cash-based businesses
Hot on the heels of Clear Books’ September product enhancements, a new feature has been released that makes Clear Books Micro more efficient and intuitive to use for cash-based businesses.
Clear Books CFO and head of product David Carr explained; “Most accounting software is created for ‘pay me later’ businesses that issue an invoice and request a BACs settlement.
"These systems recognise income when the invoice is generated and allocate transactions recorded on bank statements to the invoice when it is paid.
"Whilst this is useful for many small businesses, it neglects those ‘pay me now’ businesses like cafes and shops who have no need to generate invoices.”
Makes accounting easy
The new cash-based business feature in Clear Books Micro makes accounting easy for ‘pay me now’ businesses by eliminating sales invoice and bill/expense entry.
Instead of using invoice generation to recognise business income, it guides the cash-based user to explain daily takings directly from a list of bank transactions - while still posting all the required double-entry accounting transactions behind the scenes.
The user interface for ‘pay me later’ businesses has three tabs and allows businesses to record a sales invoice and ‘allocate’ a bank transaction to it when the payment is made.
The new user interface for ‘pay me now’ businesses has only one tab and allows businesses to ‘explain’ takings directly from their bank feed.
David Carr said that the usability enhancements are evidence of Clear Books’ commitment to provide a clear & simple user interface that helps small businesses easily keep on top of their record keeping for MTD VAT returns.
Bookkeeping framework
“Clear Books’ online spreadsheet gives small businesses that all important bookkeeping framework in a familiar format. The tabs and column headers guide them through the bookkeeping process by showing what they need to record and where, and the sums, sorts and filters automate all the calculations in the background.”
Information entered into Clear Books Micro by either ‘pay me later’ or ‘pay me now’ businesses is available immediately to accountants who use their feature rich Clear Books Practice Edition to adjust the journal, and to create and submit MTD VAT returns to HMRC.
Accountants and Clear Books Micro users can switch their clients to the new ‘cash based view’ by disabling ‘sales invoices’ and ‘bills’ tabs in the settings menu.
The Secret Accountant: the 2018 Budget and all that
Theresa May told the Tory party conference that people deserve a break from the long spell of austerity and claimed this would soon be coming to an end.
The PM's bold words have, of course, put pressure on the chancellor to ensure that his (third) Budget on Monday reflects this ... and brings hope for the future.
The Budget affects everyone in the UK and often beyond, from individuals to large corporations. With Brexit on the horizon, this makes Philip Hammond's next statement more relevant than ever.
This is the final budget before the UK leaves the EU and, with a lot of uncertainty surrounding Brexit and how the economy is prepared to deal with this, the government’s exit plan will be a significant and closely watched part of the speech.
Enterprise Management Incentive
One specific area likely to be affected by Brexit is Enterprise Management Incentive (EMI) schemes. EMIs are approved by EU state aid rules, and it is uncertain whether these will be re-approved following the UK’s exit from the EU.
Fuel duty is an area that hits many of us and, although it was speculated that this would go up for the first time in nearly a decade, the PM has confirmed that this will remain frozen for the ninth year in a row, which is positive news for motorists.
Another positive for business-minded individuals is that the government is encouraging entrepreneurs by committing to a significant investment in Research and Development (R&D) funding, with over £4.7bn planned to be invested over the next four years.
IR35 legislation
Another area the Budget may affect is the ‘contractor’ sector with potential further changes to IR35 legislation, with the recent reform and views of this within the public sector also now moving into the private sector.
Those individuals using a PSC (Private Service Company) to trade through, are generally viewed to be operating in this way to avoid National Insurance contributions and other tax, therefore a stricter look at a company’s IR35 status will be extended to those in the private sector as well as public.
An impact of this move could be more individuals moving to full-time employment rather than trading through a company, where they will likely pay similar amounts of tax anyway resulting in a minimal gain from this legislation.
Following the Budget release on Monday, I will revisit the key topics and what the results actually mean for each of us.
How AI can help accounting stay afloat
The UK audit market is awash with tension. A variety of factors are redefining the landscape, but most prominent are the widespread scrutiny of auditing practices and high-profile allegations of malpractice.
As a result of these tensions, trust in accountancy is falling – with both the public and politicians questioning the role and responsibilities of the audit profession.
With the sector braced for major reforms, this is a time of significant change. The combination of a market in flux and transformative technology means that this is the perfect time for those in the field to re-evaluate their status quo and charter their way to success.
Despite the rising problems, the sector’s response to the predicament has, to date, been underwhelming.
Some firms have taken a passive approach by abandoning any audit work due to the fear of repercussions, but this is a drastic measure, especially when there are more positive and proactive ways to tackle the problem. By grabbing on to the life raft of new technologies and methodologies, accountancy can weather the storm and break through this new wave of scandals.
The need for change
The current pressures on the accounting industry are symptomatic of a changing environment. The rapid proliferation of digital channels is transforming business operations and redefining consumer expectations.
Big Data is no longer a future prospect, it’s the new normal. As datasets grow in size and complexity, organisations must strengthen their infrastructure to manage data effectively.
As the internet enables client businesses to transact on a global scale, accountancy firms are adapting their organisational structures to cope with the inherent complexities in data management and the use of multiple ERP systems across the global enterprise is only exacerbating their challenge.
The growing volume of information flowing across modern accounting practices naturally brings increased risks around data integrity. These risks typically manifest themselves in the crucial audit phase where the ability to detect financial anomalies is critical. Unfortunately, the traditional tools of audit are ill-equipped to handle the explosion of data and leave accounting practices worryingly exposed.
However, whilst the world around them changes inexorably, the audit methodologies applied by accounting firms have barely shifted. The repercussions are there for all to see.
As trust in the profession erodes, the ‘expectation gap’ between what an audit is officially required to do and what society has come to expect is growing wider. Firms holding up their letters of engagement and declaring that they’ve met their requirements is necessary, but no longer sufficient.
Society expects more. It’s incumbent on the industry to bridge that gap. Thankfully, transformative tools that leverage the powerful combination of human and artificial intelligence are helping proactive firms to modernise audit processes and mitigate the risk of accounting error.
Transformative technology
The recent rise in accounting scandals is clear proof that the old tools of audit are no longer capable of interrogating the tsunami of big data.
Outdated, rules-based computer-aided audit tools (CAATs) and sampling practices present major barriers to detecting anomalies in financial data.
The use of CAATs is widespread and familiar, but assisted scripting tools rely heavily on technical skill-sets to manually script rules. Not only are these skill-sets in short supply, the rules themselves can easily be circumvented.
Fundamentally, the CAAT-based approach commonly results in limited coverage across large and proliferating datasets, making it difficult to detect errors, unusual transactions or anomalies.
In addition, sampling methodologies can only detect lack of evidence in the subset of the data. Sampling methodology is an extremely weak indicator that the whole dataset is free of error, leaving to chance the uncovering errors in the vast majority of the dataset.
Combined these two constraints make practices vulnerable to significant, and avoidable risk. There is a better way.
AI – augmented intelligence
The application of artificial intelligence (AI) to auditing processes is revolutionising financial analysis for accounting firms. AI tools allow practices to perform rapid, risk-ranked analysis on all transactions.
The approach leverages AI and machine learning algorithms, in correlation with multiple testing criteria, to analyse entire datasets quickly, efficiently and reliably. This comprehensive methodology, which provides a view of every data point by user, vendor, transaction or risk, significantly bolsters organisations’ capacity to detect financial irregularities.
Moreover, far from the fear of technology replacing humans, AI enhances and supports accounting practices’ capabilities. Crucially, AI tools don’t make decisions – they simply highlight data for human intervention and provide a rationale that helps accountants form and justify decisions. AI isn’t replacing humans, it’s augmenting them, and serving as a capacity multiplier.
The use of AI eliminates the risk of traditional sampling methodologies. What’s more, because the best tools don’t require any scripting, accountants are freed to spend more time providing value to clients.
This presents a huge opportunity for competitive advantage. Because fundamentally, whilst the ability to reduce risks is hugely beneficial, AI technology is not solely about detecting error and fraud.
The smartest tools offer sophisticated data analytics and powerful visualisation to help firms provide enhanced value to clients in real-time.
This moves client engagement beyond the constraints of the annual audit, enabling accountants to identify potential problems and provide proactive advice – moving the analysis from hindsight, to insights to foresights. In the process, this can help practices build better partnership-based relationships that ensure clients avoid unwelcome surprises at year-end.
The adoption of AI can be a major differentiator in a crowded, competitive marketplace. In the past, smaller organisations have shied away from large-scale deployments, put off by the perceived cost of implementation. The advent of cloud-based services has levelled the playing field, creating a platform for AI that is affordable and accessible to everyone. Auditing tools, powered by the AI in the cloud, provide organisations a competitive advantage and the chance to become leading-edge overnight.
Time for change
Despite rapid technological advances and a global revolution in consumer expectations, the audit profession has barely changed its methodologies in many decades. It’s time it did.
As confidence in the sector plummets, AI tools can bring greater transparency and transform the capabilities of accounting firms to navigate the sea of big data and in the process close the ‘expectation gap’ with the public.
Those that integrate AI solutions within their audit process will benefit from faster, more effective and reliable results that go beyond the rules and overcome the constraints of traditional sampling methodologies.
AI-based methodology gives practices the reassurance of full coverage analysis, enabling them to analyse every single transaction and escalate potential anomalies for closer human investigation. In addition, they offer enhanced data analytics and real-time visibility that can help accountants give their clients substantial added value.
Ultimately, AI presents a powerful opportunity to redefine accounting, mitigate risk and restore trust in the profession. At a time when the audit industry is facing public backlash due to various scandals and allegations, the smartest organisations will be those that take control by throwing overboard their old methodologies and use AI innovation as their anchor. AI based solutions offer a life raft to accountancy in the sea of perils to navigate the profession to a safe harbour.
How's your GDPR journey?
The day that every business was dreading finally arrived; data protection ‘D-Day’ came and went on Friday 25 May and, despite the GDPR hype hitting inboxes across the country, the world didn’t come to an end.
Now that the deadline has passed let's look at the impact of the changes so far and consider what will change for businesses in the next few months.
There has already been a flurry of data released which makes some interesting reading, including:
- Research by the Chartered Institute of Marketing (CIM) highlights that of the consumers that were polled, 48 per cent still lacked an understanding of how organisations use their personal data. This is an increase from 31 per cent since the same research was conducted two years ago.
- Only 41 per cent of individuals polled are aware of the new regulations, demonstrating that despite the hype there is still a lack of understanding of what the new regulations mean for people, and what their rights now are.
- When looking at businesses themselves, research commissioned by cybersecurity insiders found that only 7 per cent of those surveyed confirmed that they were fully compliant in time for the deadline. With consumers, of those surveyed 25 per cent admitted having no or limited knowledge of the new law.
So there is still a way to go to get the legislation fully implemented and understood.
Large brands the first GDPR targets
It was probably inevitable that major brands would be among the first targets for the regulators and within hours of the deadline Facebook, Instagram, Google and WhatsApp become the first brands to hit the headlines.
European digital rights group Noyb has filed a complaint against these organisations citing that their new terms of service do not comply with GDPR, as they did not allow users to consent freely. If the complaint proceeds, it could result in fines of more than £3bn.
Certainly, articles in the press about the size of potential fines struck fear into small businesses.
However, Elizabeth Denham, Information Commissioner, has confirmed that small businesses that did not make extensive use of customer data would not come under close scrutiny.
She was also keen to make it clear that the ICO are not on the hunt to persecute any misdemeanour in regards to the new regulations.
Does it mean small businesses are off the hook? No, but it does relieve concern that as long as businesses are taking steps to protect the data they hold the ICO will be sympathetic towards them. It is organisations who are ignorant of or deliberately disregarding data protection that need to be wary.
What’s next?
It is clear that there is still a way to go for businesses and consumers alike to get to grips fully with the changes and there are certainly likely to be further high-profile stories hitting the headlines over the forthcoming months.
The GDPR will continue to evolve, with another set of regulations on the horizon in the form of the updated Privacy and Electronic Communications Regulations (PECR), so data protection is going to be a hot topic for a considerable time to come.
PECR sits alongside GDPR and governs e-privacy rules. No official news has yet been circulated explaining how PECR could be updated following GDPR.
It’s not just a marketing issue
The focus in the run up to the 25 May was very much on the handling of marketing data, with consent emails landing in inboxes across the country by the thousands. However, what shouldn’t be forgotten is that GDPR covers more than just the personal data held by a business on its customers. Employee data falls within the regulations too, something that many businesses appear to have missed. Storing and sending salary and other personal information on employees (including payslips) needs to fully comply with the legislation and employees need to be communicated with and consent obtained.
At Qtac our new online portal has been designed specifically for this purpose. It enables businesses to securely manage and share their payroll data between the business, their payroll provider and employees. For a free demonstration call 0117 935 3500.
This blog originally appeared on the ICPA website.
A glimpse into the crystal ball (of accountancy)
The business world is going digital and accountancy is no exception, driven by advances in technology and constant changes in regulation. The role of an accountant, once perceived as a number cruncher, has already evolved to encompass new skills, with even more of a focus on technology and relationship management.
To further explore the pace and impact of technological change over the next decade, in June of this year, Thomson Reuters commissioned research into the views of senior-level accountants in practice. Most of the 345 respondents work for accountancy practices with fewer than 10 staff and just over three-quarters hold a senior role.
In addition, Thomson Reuters also invited experts to share their views on the findings for their Accountant of Tomorrow report. The report explores accountants’ needs, wants and visions for the future.
Pivotal role in the future of accountancy
Over 95 per cent of the accountants surveyed stated that their role was likely to change due to technology. Some 74 per cent of these understand this change to be very likely; displaying an acceptance that technology will continue to play a pivotal role in the future of accountancy.
Stephen Pell, Pell Artists Accountants and one of the selected experts, sees technology as a positive for the profession. He said: “Technology is going to make life much more enjoyable and rewarding for an accountant, only bringing benefits to them as an adviser, and to their clients.”
However, many are concerned about the challenges that come with the digitalisation of accounting over the next 10 years. A significant 25 per cent of participants were concerned about making tax digital, for instance. About 16 per cent were extremely concerned about choosing the right software, while almost half were somewhat concerned with their software choices, giving the impression that digital tax is still a grey area for accountants.
Cloud technology
Thomson Reuters commented that with the significant progress in the next 10 years to move clients and practices online, cloud technology would be the most significant driver of change in the role of being an accountant.
The report went on to comment that, in the same way as the anticipated requirements for Making Tax Digital, one of the consequences of cloud accounting would be the use of real-time data and more in-depth analytics.
Reflecting this, when asked which three specific advancements in technology would change their role in the next ten years, 67 per cent of accountants cited cloud-based systems, while 52 per cent highlighted the use of real-time data and more in-depth analytics. Also featured on the list of advancements were greater integration between the applications we use and artificial intelligence (AI), or machine learning.
Digital influx
But how will this digital influx directly impact services, and will digital free up accountants’ time – or will it impede day-to-day tasks?
When asked if participants’ time spent on standard tasks would be more, less or stay the same, most agreed that compliance exercises would see a very considerable reduction in the time required per task.
Bookkeeping was viewed as the task that would most benefit accountants through digital technology. Personal tax and company tax were tasks considered to be eased the most following digital changes, whereas accounts preparation and VAT review and submission, albeit slightly less, were also deemed to be those that could be digitalised in order to free up accountants’ time.
Automation is key
Since the introduction of digital processes, many have fought with the emergence of technology – and have been arguing that ‘robots will take our jobs’. Instead of feeling threatened by automation, it should be embraced as a means to spend time on more challenging (and chargeable) work.
As Freddie Faure, co-founder at CooperFaure Accountants, argues: “Machines can only do so much, but they can’t think and they can’t interpret information. You would still need an accountant to do the critical assessments and understand how you can use that information to help the business in the future.”
When asked which critical accountancy tasks are most likely to become automated by technology in the next 10 years, bookkeeping came out top, with 78 per cent of those asked agreeing that it was the most likely.
Data collection
Other common choices for tasks most likely to become automated were data collection and tax return submission/filing. On the other hand, those tasks deemed least likely were client communication, business plan creation and auditing.
Each of these findings lead us to deduce that the introduction of digital software will not hinder an accountant’s workload, but will instead allow more time for advisory tasks, planning, business development and nurture of the client/accountant relationship.
While accountants predict that technology will indeed absorb more traditional accountancy tasks, those such as advisory services and business development will take more time – although accountants foresee advisory to be a critical knowledge area and one with the greatest potential for growth.
A future for change
Participants were asked how their role would evolve over the next ten years. Almost all agreed that they would need to integrate new skills and capabilities into their role, that their firm’s business model would be different in ten years’ time and that they themselves would become more efficient due to technology.
Just over 25 per cent agreed that their firm would outsource more compliance work in 10 years’ time. Some see this as positive – tasks absorbed through technology will ease their workload, whereas others worry that fewer accountants will be needed as a result. One thing all agree on: the world of accountancy will change.
Jon Cooper, co-founder of CooperFaure Accountants, said: “We’re at the start of a pivotal 10 years, with the advances in technology and artificial intelligence only likely to accelerate. It’s a game changer that could cut down the headcount for both accountants and businesses with in-house teams.”
Prepare for the future
So how can the accountant of tomorrow prepare for the future? They must be open to changing core elements of their firm, such as technology, processes and their business model. Keeping clients compliant will continue to be at the heart of their offering, but much of the work to complete these tasks will be automated. More accurate and timely data will provide opportunities to offer more forward-focused services, and could cause accountants to adjust their business model.
Software partnerships will also be key in the digital age. As technology facilitates the digital world, Thomson Reuters is already working on the solutions needed to take accountants through the next 10 years, with the increasing use of real-time data and ever-changing regulatory requirements.
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- Thanks to Thomson Reuters for this article, which originally appeared on the ICPA website. You can find us at www.icpa.org.uk, email [email protected], by phone on 0800-074-2896.
How to build defences against late payments
The difficulty of managing cash flow and getting paid on time is a harsh reality for many firms in the construction industry.
In a sector responsible for 6 per cent of UK GDP, these cash flow gaps can hit the economy hard.
Nowhere is this more evident than with the fallout from the collapse of Carillion, which has caused cash flow gaps to reverberate around the economy since the beginning of the year.
The problem is serious enough that the government recently appointed a Small Business Commissioner whose remit solely consists of remedying this issue.
So a solution to cash flow gaps in the construction industry would boost the economy.
We argue that this could come in the form of cloud accounting technology, which creates a unique opportunity for construction companies to improve efficiency and to better manage collection of payments, alongside access to finance to cover cash flow gaps.
Long supply chain
But first, why are late payments so common in the industry?
Late payments are a particular problem in construction due to the sector having such a long supply chain, consisting of specialists and subcontractors.
This means that it can take time for subcontractors to get paid due to payment needing to pass through a number of different parties to reach them. It is estimated that Carillion owed £1bn to up to 30,000 businesses at the time of its collapse.
Mark Telford, director of Telfords Chartered Accountants, a firm that specialises in the construction industry, says: “If a client doesn’t pay his subcontractors on time each week they will often walk off site and look for work elsewhere. It can then be very difficult to get that labour back, which in turn affects the ability to deliver client work on time.”
He said that subcontractors waiting for payment are reluctant to take legal action due to fear of losing business.
How do business owners navigate this environment? Colin Kent, owner of Pembrokeshire based CK Roofing Contractors Ltd, issues all of his invoices on 30-day terms and frequently suffers from late payers. “I always send a reminder out straight away when invoices are late. However, some clients aren’t on the ball and often delay payment by a few weeks. This has knock-on effects for cash flow in the business.”
Speeding up payments
In the meantime, there may be opportunities closer to home to solve these problems. The development of cloud accounting software such as Xero and QuickBooks, alongside an ecosystem of add-on partners, makes it relatively easy for construction companies to access up-to-date information on their finances, as well as giving them tools to facilitate faster payment and issue invoices.
“We encourage our clients to get their clients to pay by direct debit. GoCardless and iZettle have revolutionised the way in which small businesses can improve their cash flow,” says Mark Telford.
The benefit of using these tools is to be able to issue invoices and collect payment on the go, while on a job as opposed to retrospective billing.
As well as improving cash flow these tools can significantly reduce the time spent on credit control.
Easy access to finance
A number of debt finance providers now also integrate directly with cloud accounting software, which makes it fast and hassle-free for construction companies to access finance to cover late payments.
Revolving credit facilities, such as iwoca, are similar to overdrafts in that they allow business owners to just pay fees on what is borrowed.
Robert Bailey of Swallow Hill Homes, a company that converts historic buildings into residential properties, uses iwoca to draw down on what he needs to pay on a daily basis. He lists its key benefit as the “money arriving straight away” into his bank account. This then allows him to log onto his business banking and have adequate funds to set up payments for his suppliers.
Cloud accounting software
Construction companies shouldn’t wait for changes to public policy to reduce late payments. Instead, they should be encouraged to take advantage of advances in cloud accounting software to manage their day-to-day finances and reduce the time they spend on chasing invoices. When the next Carillion collapses, we can all be better prepared.
This article originally appeared on the ICPA website.