FINANCE SUPER-HUBSA new ACCA report looks into the future

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Highest number of business start-ups

London

Brighton 52.1

Grimsby 48.3

Lowest numberof business start-ups

Middlesbrough 22.1

Plymouth 21.3

65.0

Milton Keynes 50.1

Aberdeen 47.7

Stoke 23.2

Mansfield 21.7

Sunderland 16.8

START-UP CITIESBusiness start-ups by region

London

South East 38.6

Midlands 29.0

65.0

South Midlands 38.3

Yorkshire & Humber 30.5

North East 22.0

North West

32.0

East of England 31.5

Northern Ireland & Scotland 33.2

South West & Wales

32.3

Cities with the...

Salary Guide and Market Insight 2013

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2 NQ Magazine Spring 2013

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Giving you the whole pictureThere are some really big stories around at the moment that just don’t seem to be talked about. Maybe they are too big, but not for NQ magazine, because we think you need to be

properly informed. For example, IFRSs really could be illegal – if some legal opinion is to be believed – and accountants could also have a legal obligation to offer clients tax avoidance advice, irrespective of their conscience. They are slow burning stories, but at any time could suddenly spark into a real flame.

With NQ magazine, like PQ magazine, we tap into the whole profession, not just the body you are a member of. We don’t think a single body can provide you with all the answers you need. That is why NQ magazine wants to give you the whole picture. Nothing through rose-tinted glasses here – sorry!

To this end, we have CIMA talking about innovation, the ACCA looking at the rise and rise of super-hub finance centres, and ICAEW qualified Zarin Patel giving her tips for success. Now Patel has had to perform in the pressured environment of the BBC – she was CFO until recently – and stories that are leaking out of the Beeb don’t make pretty reading.

We haven’t, of course, forgotten how much you love tax, either. We have something on VAT and the implications of Scotland being able to set its own tax rates.

So we think we produced something that is a good read, but also tells you something you didn’t know already. The idea is that we can help you look just that little bit better in front of your colleagues – and the boss!

Graham Hambly, Editor (graham@pqaccountant.com)

EDITOR’S COMMENTS

COMMENT

THIS ISSUEUnderstanding the finances You can’t be an expert in everything – unless you go on a Kaplan course. Page 18 explains how to get knowledge and at the same time get yourself even more qualified.

NEWS

4 NQ Magazine July 2013

Are IFRSs illegal? A group of powerful investors has called for a full review of the process of setting accounting standards after being given a legal opinion that they distorted banks’ annual accounts and may also fall foul of company law.

The Local Authority Pension Fund Forum (LAPFF), Threadneedle Investment and Royal London Asset Management are arguing that the ‘fair value’ system introduced in 2005 by the International Financial Reporting Standards allowed banks to hide poor loans.

It has been suggested that more than £50bn of dividends distributed by British banks may have been paid illegally.

The legal opinion, which comes from George Bombas QC, states that directors must now override the IFRSs in order to comply with existing company law. It also says that directors may need to ignore the legal advice obtained by the FRC.

LAPFF chairman Kieran Quinn said: “Over the past two years LAPFF has repeatedly made clear its view that the IFRS framework is legally faulty. The FRC has consistently denied that. However, this opinion suggests that something has indeed gone very badly wrong in the standard setting process, leading to the conclusion that IFRS should be overridden.”

The opinion was submitted to the Parliamentary Commission on Banking Standards.

Don’t turn a blind eyeAn ICAEW member who ‘ignored’ her husband’s fraudulent behaviour despite her suspicions has been excluded from membership for two years.

Lai Keun Looi was found guilty at Southwark Crown Court on one count of helping her husband launder millions of pounds from a mortgage fraud. She was sentenced to 12 months’ imprisonment, suspended for two years, and ordered to undertake 100 hours of unpaid work. Her husband, Adesina Somoye, was given a four-year sentence for his part in the scam.

Looi told an ICAEW tribunal her husband had said the money in the company account was to pay for VAT advice given by a firm. He then transferred the money to an account used to pay household bills and school fees. She asked him what he was doing and he simply told her it had been ‘agreed’ with a Dubai company.

Looi told the tribunal that her husband looked after the bank accounts and whenever she asked him questions about what was going on he gave her logical explanations. In hindsight she admitted she should have asked more questions.

Handing down their verdict, the ICAEW tribunal said it took into account that she had informed the institute of her sentence and shown genuine remorse.

Fast-track to entrepreneurship For years, London has been a launching pad for students looking to specialise in business, finance and other traditional careers. However, the fact that it provides easy access to European start-up hubs – as well as to its own ‘Silicon Roundabout’ – means that London is fast becoming a popular destination for professionals looking to develop their own business ventures.

Although there are countless success stories of entrepreneurs without formal education, there are an increasing number of businessmen for whom education and entrepreneurship go hand in hand. Former LSBF ACCA student Rafael Laky is a perfect example, having launched his start-up in 2011. He founded his company, a social network focused on bringing together professionals who work in the financial markets, whilst studying at LSBF.

The college has recently launched its School of Entrepreneurship with people like Rafael firmly in mind. The School of Entrepreneurship offers executive programmes,

short courses and postgraduate degrees specifically tailored to meet the needs of inspired self-starters in need of essential business skills. LSBF Chief Executive Prof Maurits van Rooijen said: “LSBF was founded on the principle of entrepreneurship, so we know exactly what it takes to start and grow a thriving business. Our programmes provide the tools and confidence students need to run their businesses, generate ideas and develop them into business plans, using real-life examples to inspire and inform.”

To mark the opening of its School of Entrepreneurship, LSBF premiered a video interview with entrepreneur Sir Richard Branson, which can been viewed at LSBF.org.uk/StartUp

Richard Branson, Aaron Etingen & Professor van Rooijen

banks’ annual accounts and may

Fund Forum (LAPFF), Threadneedle

Asset Management are arguing that the ‘fair value’

despite her suspicions has been excluded from membership for two years.

found guilty at Southwark Crown Court on one count of helping her husband launder millions of pounds from a mortgage fraud. She was sentenced to 12 months’ imprisonment,

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NEWS

7NQ Magazine July 2013

‘Accountants must recommend tax avoidance’ The accountancy profession has been thrown into turmoil after a High Court judge ruled that practitioners have a duty to advise wealthy clients how to avoid tax.

The case involved Iranian refugee Hossein Mehjoo. He built up a multi-million-pound fashion business and successfully sued his accountants for £1.4m after they failed to advise him to enter an offshore tax avoidance scheme.

Mr Justice Silber found a ‘reasonably competent’ accountant should have known as a ‘non dom’ their client was eligible for tax schemes not available to normal UK citizens.

He said: “The defendants had a contractual duty to advise the claimant that non dom status carried with it potentially significant tax advantages.”

The judge felt Mehjoo should have been told to enter a scheme called the Bearer Warrant Scheme. Until it was closed in 2005, the scheme allowed non doms to transfer ownership of a company to an offshore trust, which could then sell the company while avoiding capital gains tax.

A concerned Richard Murphy of Tax Research UK said: “The time has come for the Government to protect ethical accountants. These Bearer Warrant Schemes were based on an incredibly dubious premise – it was a load of make-believe.”

The accountancy firm who lost the case are appealing against the judgement.

It’s time for transparencyUK companies can no longer ignore public demand for greater transparency about their tax affairs, says leading UK tax expert John Dixon.

Dixon, the tax chief at Ernst & Young, said that mounting concern about avoidance had created a ‘tipping point’. In a recent report, ‘Tax Transparency’, he says that by seizing the initiative companies can rebuild trust and hopefully avoid mandatory changes.

Dixon claimed that the recent debate around ‘fair tax’ has raised the bar in terms of the expectations of the level of tax information provided by multinational companies. And the public is waiting for a response.

Multinationals are worried that increased disclosure would create an administrative burden, as well as mean divulging commercially sensitive information – all without necessarily adding to public understanding of the issue.

He stressed that in his view if there is not a step change in the level of voluntary tax transparency reporting, there is a material possibility that mandatory changes will follow.

Dixon refuted the Public Accounts Committee (PAC) claim that the Big 4 firms promote artificial schemes. He stressed the firm does not offer advice on tax evasion, non-disclosure

or artificial schemes and would always refute to act for companies requesting advice in this area. “What we do is offer legitimate tax planning to clients, which is disclosed to HMRC and other regulatory authorities,” he said.

Promoting integrityThe Financial Reporting Council (FRC) has prohibited the use of internal audit staff on the external audit team. By prohibiting auditors from using internal audit staff as ‘direct assistance’ members of the audit team, the FRC is seeking further to ensure the independence of the external auditor and promote greater confidence in the integrity of the audit for investors. The prohibition comes into effect for audits of financial statements for periods ending on or after 15 June 2014.

FRC board member Nick Land said: “Prohibiting direct assistance supports stakeholders’ expectation that external auditors should be free from threats to their independence. In determining the effective date of the prohibition, the FRC has taken into consideration that planning the use of the work of internal auditors may take place early in the financial period being reported on.”

He told me to do it

Occupy London: a protest against tax avoidance

8 NQ Magazine July 2013

A new international CGMA report from AICPA and CIMA has revealed how finance professionals at Coca-Cola, Royal Dutch Shell and other global

innovation leaders are helping to drive new advancements.The research finds that management accountants,

led by the CFO, play a vital and growing role in driving advancements at some of the world’s most innovative companies.

In these successful businesses, the CFO and finance team are deeply embedded in the process of innovation and have a clear framework to let new ideas take shape. They partner early with other departments to identify concepts with market potential, replace rigid financial metrics with staged measurements to avoid eliminating ideas too soon, and accept that failure is a tolerable outcome for projects along the path to commercialisation.

“The role of finance in all of this is multifaceted,” Royal Dutch Shell CFO Simon Henry explains in the report. “A finance function needs to be able to understand the business well enough to know what is a worthwhile activity but also, in this part of the business, to have a bit more of an open mind.

It is less mechanistic and has the ability to live with ambiguity, to identify risk and to manage it.”

The report recommends five areas where finance professionals should take action:◗ Create an innovation-

centric mindset: Develop a framework in which innovation can thrive and accept that sometimes projects will fail.

◗ Nurture creativity: Explore ideas like ring-fenced budgets that offer more flexibility for the innovation process.

◗ Prepare the path to profits: Finance can be a valuable part of innovation teams – for example, helping build more robust business cases to secure further backing.

◗ Match metrics to the stage of development: Finance leaders shouldn’t put metrics used in the operational business around nascent or experimental initiatives. Consider a phased approach to give an idea room to breathe.

◗ Take a balanced view on innovation risk: Companies increasingly employ a portfolio of strategies to drive innovation. Management accountants should seek to create an opportunity framework that promotes clarity, transparency and discipline across the total portfolio.

The checklist opposite fleshes out these areas and is a useful tool to guide finance professionals when it comes to innovation.

INNOVATION

Time to innovate

Finance professionals must act as the catalyst for innovation, according to CIMA CEO Charles Tilley

9NQ Magazine July 2013

INNOVATION

INNOVATION CHECKLIST

Create an innovation-centric mindset:◗ Ensure your CFO is actively engaged

with the business and helping to drive innovation.

◗ Consider how your company’s financial management processes – including reporting cycles, remuneration and KPIs – can be structured to support innovation, and not hinder it.

◗ Structure your incentives and performance measures to reward innovation and promote an appropriate risk appetite.

◗ Consider adopting a portfolio approach to innovation, combining organic innovation with openness to external ideas.

Respect and nurture the innovation process:◗ Understand where good ideas come from in

your organisation, and how finance can help that process.

◗ Learn to balance good financial management and discipline with the uncertainties inherent in innovation.

◗ Encourage finance professionals to move around the business and gain exposure to the innovation process.

◗ Balance the freedom to experiment with the right checks and balances once the innovation has reached an appropriate stage.

Help your business plan the path to profit:◗ Check that you have the tools to model the impact of a

product or idea in various markets and against a range of scenarios.

◗ Understand your wider organisational strategy and where your company gains its competitive advantage.

◗ Embed financial professionals in the innovation process to help build the business case for upcoming ideas.

◗ Proactively advise on different options for funding business proposals.

Apply the right metrics at the right stage of development:◗ Consider using an appropriate stage gate

process to allocate budgets, targets and metrics on a phased basis.

◗ Help quantify and assess the results, successes and failures of innovation across the organisation.

◗ Incorporate a blend of quantitative and qualitative measures to help assess the progress of ideas through your innovation funnel.

Take a balanced view on innovation risk:◗ Ensure that your risk appetite is reinforced by

the company’s governance structure, risk and reward structure, and reporting cycles.

◗ Ensure your risk strategy helps identify innovation opportunities as well as threats.

◗ Consider the soft risks of not innovating, as well as the hard risks of innovation.

◗ Consider adopting a portfolio approach to risk, balancing more and less risky innovations over various timescales.

10 NQ Magazine July 2013

REED FINANCE

What could you be worth?So you have fi nally made it. With Reed Finance’s help we can tell you what you are worth. And then there’s the future…

There’s more to look at in the Reed Finance Salary Guide & Market Insight 2013 – more regional breakdowns of salaries and even more industries!

SCOTLAND

ManufacturingNQ – £28,204-£37,605Finance Manager – £32,905-£51,707Director of Finance – £57,383-£112,815

Energy & UtilitiesNQ – £30,113-£40,150Finance Manager – £35,132-£55,207Director of Finance – £60,000-£120,451

Creative & MediaNQ – £29,314-£39,085Finance Manager – £34,199-£53,742Director of Finance – £59,641-£117,254

WEST COUNTRY

ManufacturingNQ – £24,876-£37,287Finance Manager – £30,185-£44,478Director of Finance – £46,949-£81,659

Energy & UtilitiesNQ – £26,560-£39,811Finance Manager – £32,228-£47,488Director of Finance – £50,127-£87,187

Creative & MediaNQ – £25,855-£38,755Finance Manager – £31,373-£46,228Director of Finance – £48,797-£84,873

There’s more to look at in the Reed Finance Salary Guide & Market Insight 2013 – more regional breakdowns of salaries and even more industries!

reedglobal.com

Highest number of business start-upsLondon

Lowest numberof business start-ups

65.0

Milton Keynes 50.1

Aberdeen 47.7

Stoke23.2

Mansfield 21.7

Sunderland 16.8

START-UP CITIESBusiness start-ups by region

London

38.6

29.0

65.0

South Midlands38.3

Yorkshire & Humber 30.5

22.0

32.0

31.5

Northern Ireland & Scotland33.2

32.3

Cities with the...

Salary Guide and Market Insight 2013

NORTH EAST

ManufacturingNQ – £26,065-£33,000Finance Manager – £32,582-£37,237Director of Finance – £53,900-£104,076

Energy & UtilitiesNQ – £27,830-£35,000Finance Manager – £34,788-£39,757Director of Finance – £57,548-£111,120

Creative & MediaNQ – £27,091-£31,930Finance Manager – £33,864-£38,702Director of Finance – £56,021-£108,171

CENTRAL LONDON

ManufacturingNQ – £42,571-£56,762Finance Manager – £52,031-£70,952Director of Finance – £71,855-£190,546

Energy & UtilitiesNQ – £45,453-£60,604Finance Manager – £55,553-£75,755Director of Finance – £76,719-£203,444

Creative & MediaNQ – £44,246-£58,995Finance Manager – £54,079-£73,744Director of Finance – £74,682-£198,044

MIDLANDS

ManufacturingNQ – £28,547-£34,993Finance Manager – £36,835-£47,885Director of Finance – £60,200-£101,296

Energy & UtilitiesNQ – £30,480-£40,000Finance Manager – £40,000-£51,126Director of Finance – £64,275-£115,000

Creative & MediaNQ – £29,671-£40,000Finance Manager – £40,000-£49,769Director of Finance – £62,569-£115,000

NORTH WEST

ManufacturingNQ – £30,261-£37,827Finance Manager – £37,659-£47,283Director of Finance – £59,966-£107,012

Energy & UtilitiesNQ – £32,309-£40,387Finance Manager – £40,208-£55,000Director of Finance – £64,025-£120,000

Creative & MediaNQ – £31,452-£39,315Finance Manager – £39,141-£55,000Director of Finance – £62,325-£120,000

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12 NQ Magazine July 2013

ACCA REPORT

A new ACCA report envisages a concentration of accountancy talent in ‘super hub’ cities

Finance ‘super hub’ cities to draw in top talent

Finance

13NQ Magazine July 2013

ACCA REPORT

Emerging finance ‘super hub’ cities are likely to attract the world’s best emerging finance and accounting

talent, while traditional finance career hierarchies could be disrupted as the hunt for the next generation of finance leaders changes course in the wake of the changing face of global finance operations, says a new report from ACCA.

The report, The future of finance talent, reveals a glimpse of how businesses may make the most of their finance capabilities in the near future, senior finance leaders from organisations such as IBM, Accenture and Deloitte, have told ACCA the search for and retention of talent in the sector is likely to evolve as the footprints of global finance functions change, pointing to the possible emergence of finance delivery ‘super hubs’ – cities that attract and hold strong talent.

Jamie Lyon, ACCA head of corporate sector and co-author, says: “With finance transformation, and the growth of shared services, outsourcing, and increasingly global business service operations, much of tomorrow’s finance talent of the future in the largest businesses may emerge from these super hubs where shared services and outsourcing is established in a handful of cities that become magnets for career progression. It may even be the case that some future CFOs start their careers in these environments, particularly as more core finance operations migrate to the centres. Concentration in fewer locations may also push the transformation of finance delivery to further embrace technology and encourage even greater levels of innovation.”

Deborah Kops, managing principal of sourcingchange.com and co-author of the report, points out: “Finance leaders are realising that the future looks quite different to what they experienced when they climbed the career ladder. The move towards increasingly global business models and the expanding remit of the finance function creates a need for new capabilities. Add changing demographics and on-going technology developments, and the talent equation looks quite different.”

However, there could be a downside to the emergence of these finance centres. The report points out that other cities aspiring to build a reputation as good locations in which to base transactional finance processes – because of the numbers of local graduates – may find it difficult to compete with the market leaders.

Jamie Lyon adds: “New contenders may be excluded from the finance delivery map. Young finance professionals in these aspiring ‘hubs’ might find fewer opportunities as the largest businesses concentrate in a few key cities for most of their finance operations. There is also of course a concentration risk with further consolidation of finance operations into particular locations.”

A shift from cost to capability?The report also suggests that access to talent may take precedence over cost as one of the primary drivers for where businesses decide to locate themselves in the future. This would also significantly alter the demographic profile across global finance functions.

Deborah Kops highlights: “We are already seeing 24-year-olds in India and Malaysia taking on job responsibilities that it took baby boomers in the West 20 years or more to learn. They are now managing accounts, processes and teams, replacing managers who may be as much as twice their age. There will be more pressure on finance organisations to be more proactive in giving these new professionals the skills needed to become complete finance professionals and one day emerge as finance leaders on the global stage.”

How does your organisation compare?ACCA has developed a Talent Benchmarking Tool that can be used to assess current talent practices in finance functions that operate shared service operations. The tool uses the results from the ACCA 2012 study Talent Management in a Shared Services World as the benchmarked data. See also www.accabenchmarkers.comHER RESOURCES

Watch a video interview exploring the role of talent management within shared services and outsourcing. Sally Fisher, partner, people and programme finance transformation lead at Deloitte, talks to ACCA about talent management in shared services and outsourcing.

Find out more about ACCA’s Finance Transformation theme here.

NQ

14 NQ Magazine July 2013

CAREER FAST TRACK

Ivy League credentials

You can never have too much knowledge, and management courses can help fast track you to a successful career

N ewly qualified accountants are always in the look out for opportunities to take their career to the next level. For many, a comprehensive

programme such as an MBA is an excellent option. For others, however, a short course or executive programme can be just right.

“The main advantage of executive programmes is the fact that you can easily fit them into your work life. You don’t have to compromise your job or your performance in order to get an exceptional qualification,” says Professor Maurits van Rooijen, Chief Executive of the London School of Business and Finance (LSBF).

Maruf Aripdjanov, an ACCA member who now works for one of the Big 4 accounting firms in London, saw his career develop quickly after studying towards a qualification at LSBF to complement his ACCA accreditation. “Having both the ACCA accreditation and a further qualification gives you unique opportunities whether you want to be an accountant in a firm or you want to be a consultant,” he says.

Earlier this year, LSBF and eCornell, the e-learning arm of Cornell University, launched an exclusive range

of online executive programmes to meet the needs of finance professionals across the UK. Designed by Cornell University’s Ivy League professors, the Financial Management certificate takes a hands-on approach,

providing practical experience and cutting-edge thinking for professionals looking to take their

careers to senior and managerial levels.Ranked among the top 20 universities

worldwide, Cornell University provides the benchmark for the tuition of courses in the finance industry. Financial management is just one of the eCornell specialisations including hospitality, human resources, system design

and marketing – all delivered via an award-winning e-learning platform.Delivered 100% online in three

to six months, the courses allow employed industry professionals to

participate and study at times that suit them. Francisco Rodríguez is the General Manager of Capital

Hoteles, a hotel chain with a major presence in Spain and South America. He found the course helpful for his career in the hospitality industry, saying: “The online experience was a great opportunity for me to improve my knowledge of

– at the click of a mouse

15NQ Magazine July 2013

CAREER FAST TRACK

NQ

revenue management, forecasts and pricing, with a great institution such as Cornell University. I had the chance to study with the help of an extremely interactive system.”

The Financial Management programme provides an accelerated education in the critical skillset necessary for the field. “It teaches you to make smart business decisions. It equips you with the expertise to interpret financial information, recognise risk and return in capital budgeting and evaluate capital investments,” adds van Rooijen.

As Andre Erasmus, General Manager at Anantara Xishuangbanna Resort & Spa, explains: “All course materials and curricula proved highly relevant with immediate benefits, directly applicable in practice. One of the greatest advantages is the continuous interaction with fellow industry professionals from around the world.”

The possibilities for strengthening postgraduate

qualifications don’t end there. The eC ornell courses can even be combined with other LSBF courses. This makes them ideal for graduates and professionals looking to boost their career with an accreditation from one of the world’s top universities.

Today, a good idea is not good enough — managers must demonstrate that their idea will deliver measurable results to the bottom line. Graduates who wish to extend their academic training can now do so while maintaining full professional involvement in the fi nancial sector through fl exible and engaging online learning.

Dont’t forget you can sign up for your own free NQ emagazine

Take a look at what you missed!

Subscribe

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16 NQ Magazine July 2013

TAX

Scotland’s William Wallace moment: a brave move over tax?

Mike Fleming CTA. TEP, Tax Director at Straughans Chartered Accountants, examines the impact of the Scottish Rate of Income Tax

Tax Director at Straughans Chartered Accountants,

O n – or shortly after – September 18, 2014, we’ll find out whether the United

Kingdom, as we know it, will be changed forever. A ‘yes’ vote in the Scottish independence referendum will see a sizeable chunk of the UK go it alone, with elections scheduled for May 2016, should Alex Salmond and co. get their way.

Already, we’ve had cross border skirmishes over issues such as Trident and more recently, the SNP’s desire to keep the pound and establish a ‘sterling zone’ – cited by George Osborne as a ploy by Scottish nationalists to lessen public anxiety over the independence project. And the debate will only intensify as next September approaches.

What has slipped under the radar,

however, is that a major change in the Scottish tax system is already taking place, a change with huge ramifications on both sides of the border.

Under The Scotland Act 2012, from 2016 the Scottish Parliament will be obliged to set a Scottish Rate Of Income Tax (SRIT). Forming part of the UK tax system and administered by HMRC, it isn’t a fully devolved tax, but is nevertheless a fundamental shift in how the country manages its tax affairs, gifting the Scottish Government unprecedented powers.

The SRIT will apply to ‘non-savings income’, including employment, rental and pensions income, with the rate added to the main UK rate bands by the Scottish Government after the

income tax rate applying

to Scottish taxpayers is reduced by 10p. Scottish taxpayers will be issued with a tax code prefixed by an ‘S’, before the start of the 2016/17 tax year and the SRIT applies to Scottish taxpayers no matter where their employer is based.

But just who are ‘Scottish taxpayers’? Identifying them could prove problematic: what of the oil worker who spends most of their time in Aberdeen (or off its coast), but also has a house in England? Or the English stockbroker who boasts homes in both London and Edinburgh?

For the SRIT to apply, the taxpayer must be resident in the UK, and their sole or main residence must be in

17NQ Magazine July 2013

TAX

Scotland – if they have more than one residence in the UK, they’ll be a ‘Scottish taxpayer’ if they are resident for the longest period of time in Scotland.

Clearly, if the Scottish Government decides to reduce the income tax rate – for instance to aid businesses by encouraging people to spend more, then anyone with properties on both sides of the border might be tempted to learn the words to Flower of Scotland if they don’t know them already!

A wealthy Londoner, for instance, with a second property in the Scottish capital, may be tempted to ‘work from home’ in their Edinburgh pad a little bit more often to qualify as a ‘Scottish tax payer’. The savings might well make up for a few trips up and down the East Coast Main Line.

There are other complications too. Savings and dividend income will remain liable to the UK rate, rather than the SRIT, which muddies the waters somewhat.

In addition, the SRIT will apply to all three tax bands: basic, higher and additional. This means that the Scottish Government won’t be able to reduce income tax rates for basic rate tax payers while raising the rates for the better off.

Like any major change in taxation, the SRIT comes at a hefty price: the new IT systems needed to run it will cost an estimated £45 million, with the bill footed by the Scottish tax payer. Concerns have already been raised over the ability of the Scottish Government to hold HMRC to account, should any flaws in the new IT system

result in a loss of revenue – and thus have a negative impact on the Scottish Government’s Budget.

And as HMRC has recently been criticised by MPs for its “abysmal record” in customer service, Scottish tax payers might wonder just how well it will cope with as big a shake up as the SRIT...

The introduction of SRIT – even taking the independence referendum out of the equation – would surely have Edward I (otherwise known as Edward Longshanks, the ‘hammer of the Scots’) spinning in his grave. But politics aside, perhaps it was an area best left alone...

● Mike Fleming is Tax Director at Straughans Chartered Accountants – see www.straughans.co.uk

Scotland passes first tax bill in 300 years

The Scottish Parliament has voted to abolish UK stamp duty for property sales, replacing it with a new levy letting the country collect its own revenues for the first time in history.

Politicians at the national parliament in Holyrood voted to install the new levy – the land and buildings transactions tax – to ensure that the amount paid relates more closely to the value of the property.

The bill is Scotland’s first tax bill in 300 years, according to the government, and will come into effect in April 2015.

NQ

18 NQ Magazine July 2013

TRAINING

Understanding the financials

You can only make sound decisions for your business once you’ve understood the nuts and bolts of its finances

HELP IS AT HANDAt Kaplan Hawksmere we aim to demystify finance, make it accessible to all. We help managers consider ‘the external view’, to look at issues such as the accruals principle and the balance sheet dynamic along with cash flow, the management of working capital, income statements and the difference between profit & cash.

And we also focus on ‘the internal view’, on users and uses of management accounts, their format and the roles and responsibilities of the finance team.

And finally we look at the budget cycle, the difference between budgets and forecasts, highlight common budgeting errors, identify best practice and reveal how to review a budget.

Kaplan Hawksmere is running an interactive programme about understanding finance in Central London on the following dates:

Central London 13 & 14 August 2013 11 & 12 September 2013 17 & 18 October 2013 12 & 13 November 2013 9 & 10 December 2013

Participants completing the course will also have the opportunity to complete a short assessment in order to obtain the nationally recognised level 3 award in “Understanding Finance for Non Financial Managers” accreditation.

SAVE £100 on this course when you quote NQ100.I t may sound blindingly obvious, but it’s critical that you understand the financials of your business. You might be surprised how many managers don’t and yet

they have been playing along and bluffing for so long that colleagues (and even the managers themselves) believe they possess technical expertise that they don’t!

Learning the language of finance does not fall into the ‘fake it until you make it’ category. It needs to be studied, practised and understood.

Management of any business requires a comprehensive understanding of the financials to enable informed decisions to be made. Investors need them to analyse investment potential and banks to decide whether or not to lend money. Many companies even use the financials to ascertain the risk involved in doing business with their customers and suppliers.

Financial statements are generally put together by the finance department, a bookkeeper or the business owner. They will collate all the documents representing the transactions of the business including sales, payroll, purchases and loan agreements. These are then compiled,

classified and summarised into financial reports enabling financial statements to be produced on a quarterly, biannual or annual basis. Indeed, with technological advancements – and newly introduced regulation about real time reports for HMRC – companies are under pressure to produce meaningful financials on a monthly, weekly or even daily basis.

Higher up the corporate chain these financial statements enable management to make informed decisions, decisions which will affect the very success or failure of the business itself.

So not only must you understand the language used by your finance teams but you must also be able speak it to others as well.

And most importantly even those working in finance need to understand the wider implications of what they do. NQ

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Save £100 on our new Understand Finance course

20 NQ Magazine July 2013

WOMEN IN ACCOUNTANCY

Times, they are a ‘changin’

The BBC’s ex-chief fi nancial offi cer, Zarin Patel, takes a look into the future and offers fi ve top tips for NQs wanting to get to the top

A s a trainee chartered accountant at KPMG, Zarin Patel can remember queuing at midnight at Charing Cross Station to get the Financial Times to

see if her name was on the pass list. She can also remember how exhilarated she felt when it was!

Today’s PQs discover whether they are an NQ by text message – “well, that’s progress for you”, she said.

That was just 30 years ago, and it was a very different world, she explains. There were no PCs; in fact, she was one of the first people who trialled a portable Apple Mac at KPMG. Portable? The thing was two feet high and a foot across and it weighed a ton. So no mobile phones, no emails, no internet. Fax machines were the height of sophistication in technology.

At the same time, Western economies were on the upswing. Growth in the UK was higher from 1985 to 1990

than at any time in the previous three decades. That growth spurt meant that corporate life was ‘active’ and there was plenty of exciting work for accountants like her.

She says that back in 1984 it was impossible to imagine the world as it is today. So what will the future be in another 30 years? What will our world be like in 2043?

Patel pointed out that today’s newly qualified has a life expectancy heading towards 110, so you will be spending more of those years healthy – and working.

Great medical and technological advances will help make this possible. Just think, you will have a microchip in your body linked to your smartphone – it will continually monitor your health. If it detects chemical changes in your bloodstream it will trigger your phone to ring your doctor.

You may all be wearing your ‘Google glasses’, which will not only record your every waking moment, if you wish, but give you access to almost all the world’s information in the blink of an eye.

You will be able to send a text just by thinking it – that is a dangerous thought, she said.

At the same time, the world order is likely to shift significantly in your lifetime, Patel stressed, with growth being driven by the ‘BRIC’ countries, not western economies. What will the implications be, she wondered. Thirty years from now the Chinese renminbi could be the world’s reserve currency instead of the dollar.

English could be deposed as the lingua franca of business. Even now there are more Spanish speakers and

21NQ Magazine July 2013

three times as many Mandarin speakers as native English speakers. Hindi and Arabic are not far behind. And as the economic centre of gravity moves, mastering another language will become essential.

Furthermore, population growth and global warming is starting to subject many areas to increasing flood or drought, and it’s likely, says Patel, that the future will see: conflict over water; food production coming under increasing stress; floods and drought affecting (and possibly displacing) an estimated 500 to 700m people (by 2020).

The pace of globalisation is being driven by technology, emphasised Patel, and innovation will be faster and faster as the world becomes super-connected. Billions of people with smartphones all able to connect with one another. The obstacles of geography, language and limited information will simply disappear, resulting in a new wave of human ingenuity, which will, hopes Patel, solve a fair number of the world’s problems.

So will the world need accountants? Journalists, musicians, and publishers are already finding their business models displaced by disruptive technology. Patel felt it is possible that the revolution in computing power will mean that we can automate accounting and auditing in line with some giant rule book of accounting standards.

So, how might NQs succeed in this futuristic world? Drawing on her experience Patel had five tips:

1 Search widely for the skills that will make you really valuable Back in the 1980s at KPMG where Zarin trained, NQs did everything: tax, audit, corporate finance and investigations. One day she would be working for Fabergé, the perfume company, the next for tractor manufacturer Massey Fergusson. It is very different today and accountants have to specialise earlier and earlier. But Patel wants to encourage NQs to grab every chance they get to gain different experiences. Take on projects. Work with different teams in different countries. Go on secondment. Work in a start up. She wants you to think about where work will be created in the next decade and be sure to build your experiences across different business models and environments. That means you will walk into the future with your eyes wide open.

2 Think global Now this is pretty obvious, she said, but it is also very important. Western economies are growing at an anaemic pace. China, India and Brazil are creating the wealth of the future. Economic activity will continue to shift elsewhere, and have an impact on everything that happens in the UK. Patel explained that the financial and regulatory is increasingly going international. That means you should think seriously about working abroad for a time, if you can.

3 Recruit your posseThat might be a bit ‘Ali G’, said Patel, but you have to think about building a network that’s stronger and more consciously managed than a list of contacts on LinkedIn. It must be people you really know, and can rely on to back you up. They will include your seniors and mentors, but also your peers. This ‘posse’ is a network that will be critical to building speed and agility in your life, and which will benefit you throughout your career. Start finding and cultivating yours now.

4 Bring passion to what you doPassion, and only passion, produces the best outcome, claims Patel. But you have to care about what you do, for the quality of work, but also for your personal fulfilment. No matter what you are paid, that’s what will get you bouncing into work each day. Patel stressed that the question she always asks at interview is: “What is it that makes you throw back the duvet in the morning and rush to work?” She wants to see what makes the person tick, but also wants to know how to create a working environment that will bring out the best in the NQ.

5 Be brave Don’t be frightened to step outside your comfort zone, she said. Just do it. Some of her most formative experiences were gained by taking steps into the unknown. Stretching yourself early builds character and resilience. Patel emphasised that it was good to make mistakes, because that is how you learn. She believes that people will see that you have stepped up and respect you for it. NQ

areas to increasing flood or drought, and it’s likely, says Patel, that the future will

WOMEN IN ACCOUNTANCY

22 NQ Magazine July 2013

TAX

VAT on land and buildings made easy!

This is a topic many accountants find problematic but if you learn just a few key points it becomes easy, says Karen Bullen. She should know – she’s a Chartered Tax Adviser!

In VAT we see four types of supply:

Type of Supply VAT Treatment

Zero rate taxable supply 0%Charge appropriate rate of VAT and recover input tax on purchases used to make that taxable supply

Reduced rate taxable supply 5%

Standard rate taxable supply 20%

Exempt supply No VAT charged and no VAT recovery on purchases made to make that exempt supply

When it comes to land and buildings, only very limited supplies by a builder creating a brand new home are actually zero rated. Similarly, the only supplies that are at the lower rate involve homes, too.

The only supply of land and buildings that is standard rated is the supply of the freehold of a new, commercial building – the definition of ‘new’ is less than three years old.

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23NQ Magazine July 2013

TAX

Everything else is an exempt supply.

In summary:

ZERO RATED DOMESTIC i.e. SOME HOMESLOWER RATED DOMESTIC i.e. SOME HOMESSTANDARD RATED FREEHOLD + COMMERCIAL + NEWEXEMPT EVERYTHING ELSE

So if you learn these four scenarios you have the basic knowledge you need.

Illustration 1

S.R Z.R Exempt

1. The sale of the freehold of a 2 year old office block

Y N N

2.The grant of a 99 year lease in a brand new factory

N N Y

3. The sale of the freehold of a 5 year old factory

N N Y

4. A farmer rents out a plot of land toanother farmer

N N Y

1. The sale of the freehold of a two-year-old office block. This is a new building and it’s a freehold and it’s commercial therefore this is a standard-rated supply.

2. The grant of a 99-year lease in a brand new factory. A factory is commercial. It is “new” but it is not a supply of a freehold – instead it’s the grant of a lease. This is not a standard rated supply and because it is commercial rather than domestic property it is therefore an exempt supply.

3. The sale of the freehold of a five-year-old factory. Again, a factory is commercial, it is freehold, but it is not “new”. Therefore it is an exempt supply.

4. A farmer rents out a plot of land to another farmer. It is not domestic property so it is not zero-rated. It is not a new commercial freehold, so it is not standard rated. Therefore this must be an exempt supply.

In fact when it comes to commercial property there is another key phrase to know:

LEASES = EXEMPT SUPPLY

The clue is in the name; leasES = Exempt Supply

Whenever we see an exempt supply of land, or of a commercial building, there is one further rule to understand – the supplier can opt to tax the supply. This means instead of the supply being an exempt supply it becomes a standard rated supply. The option is made on a building-by-building basis and applies to all future supplies made with that building/land.

Say I am in business as a commercial landlord. I lease out several office blocks and these are all exempt supplies to my tenants (remember leases = ES). One office block needs a total refurbishment costing £1million plus £200,000 VAT. This input VAT is irrecoverable because I make an exempt supply with the building. So I opt to tax that building. From now on I am making standard rated taxable supplies with that building. This means I must now add 20% VAT as output tax on my rents and when I sell the building in the future I must charge VAT. However, I can recover my input tax on all my purchases including the £200,000 VAT on refurbishment as it now relates to a taxable supply.

Illustration 2

S.R Z.R Exempt Option to Tax

1.Freehold sale of 2 year old factory

Y N N N

2.Grant of a 21 year lease in a brand new office block

N N Y Y

3.A farmer rents out a plot of land to another farmer

N N Y Y

4.A landlord leases out 2 floors of a building to an insurance company tenant

N N Y Y

1. The freehold sale of a two year old factory is a new, commercial freehold and hence a standard-rated supply. An option to tax could be made, but would not have any effect as it is standard rated already.

2. The grant of a 21-year lease in a brand new office block is an exempt supply. As it is an exempt supply of a commercial building, the option to tax can be made.

3. A farmer rents out a plot of land to another farmer; renting out the land is an exempt supply. The option to tax can be made because it can be effective over an exempt supply of any sort of land.

4. A landlord leases out two floors of a building to an insurance company – it is a lease of a commercial building so it is an exempt supply. The exempt supply of a commercial building means the option to tax can be made.

I hope this article demystifies VAT on land and buildings.

• Karen Bullen is the Head of the Manchester centre for Tolley Exam Training, part of LexisNexis – call 020 3364 4500

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