Martin Aitken & Co Ltd News & Developments

Martin Aitken & Co: news and comment
18 minutes reading time (3535 words)

Charity Acuity Spring - 2020

charity word cloud banner v2

Topical accounting, finance and tax matters facing charity trustees, finance directors and financial managers.

Click on the links below to read the full articles and briefing notes. We do hope you find the information and forewarnings contained within this edition useful.

If you would like to discuss any of the issues addressed in this edition, please get in touch us by email: This email address is being protected from spambots. You need JavaScript enabled to view it. or by calling us on 0141-272-0000.

19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 07Getting more from your annual audit: In Scotland a charity requires an audit if its gross income is £500,000 or more, whereas in England & Wales the income threshold was raised a few years ago from £500,000 to £1,000,000. > read more

 

19942 MACO Tax Planning 32Mibbes aye, mibbes naw: charity risk management. A risk is something uncertain, it might happen or it might not, or using the Scottish colloquialism: is it likely to happen? Mibbes aye, mibbes naw. >read more 

 

MACO TPL financial structureCharity Finance + Governance workshops 2020: We are delighted to announce that we will be continuing to work alongside Glasgow Social Enterprise Network (GSEN) offering six free workshops for GSEN members during 2020.

 

Outlook iconLooking ahead to the new decade: Doing business and working in the 2020s, our thoughts and perspectives on what could be up ahead. >read more

 

19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 19MTD for VAT: the soft landing period ends: For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) your accounting systems must use digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software.

 

MACO investReduce debtor days to improve cash flow: Cash flow is king in any charity with a trading subsidiary or social enterprise. Yet cash flow is one of the areas that many struggle to manage. >read more

 

Adrienne Airlie 2019Obituary: Adrienne Airlie CA - We are very sorry to inform you that our former Chief Executive, Adrienne Airlie passed away suddenly on Thursday 5th December 2019.

 

The Gathering 2020Charity finance update 2020: good governance and risk management

Date: Wednesday 19 February Time: 2.00pm to 3.00pm

Room: M2 to M5

Hosts: Gavin Curr, Emily Jackson and Iain Johnston, Martin Aitken & Co

What will the session cover? 

Governance – what is it and what’s involved e.g. organisational purpose, leadership, board behaviour, control and effectiveness (taking into account the Scottish Governance Code for the Third Sector) 

Directors and Trustees roles and responsibilities. 

Financial controls and risk management – establishing the right foundations that will enable the enterprise to become sustainable and resilient. 

Getting the principles of good governance embedded into the organisation.
Financial accounting, external audit requirements and the Directors/Trustees annual report. 

VAT rates + reclaims: VAT for charities and Social Enterprises is a bit of a minefield and there seems to be a lot of confusion in this area. In this session we will look at common pitfalls and provide more information to the different types of charitable income and which are within and outwith the scope of VAT > Find out more 

Back to top

Getting more from your annual audit

In Scotland a charity requires an audit if its gross income is £500,000 or more, whereas in England & Wales the income threshold was raised a few years ago from £500,000 to £1,000,000 albeit that the asset test remained unchanged (income of £500,000 and assets of £3.26m or more still require an annual external audit).MACO performance

Only a minority of charities in Scotland require an audit with more than 8 out of 10 charities falling below the income threshold. However, many charities that fall below the threshold are required by their governing document, or due to a condition imposed by a funder, to have their finances audited.

There is a strong argument why charities and social enterprises (especially those that are not registered charities) that fall below the threshold should voluntarily submit their accounts for inspection by a qualified auditor.

Although we appreciate that there would be a cost impact of doing do, the benefits to the charity or social enterprise far outweigh the cost.

An audit provides increased confidence regarding reported financial figures; general financial health; the financial basis trustees or directors have for making decisions about strategy, operations and finances; the reliability of the charity’s accounting system, controls and procedures and the management information the systems produce.

An audit also provides increased credibility. Adding an audit report and opinion from a recognised charity auditor to a set of charity accounts increases their credibility. This will help the charity when it is dealing with OSCR, HMRC and other Government departments; donors, other funders and other grant making bodies; suppliers of goods and services; and with recruitment and retention of trustees, employees and volunteers.

Further, there are a range of factors that can influence the quality of the audit and benefits the organisation will receive from the follow-on financial improvement action plan.MACO TPL business finance chart

The experience and expertise of the audit staff and their knowledge of charity finances and the wider not-for-profit sector and the specific nuances is paramount. The direct relationship between time spent on the job and audit quality is also well understood, so you should ask for a complete breakdown of the number of hours the auditors anticipate spending on the audit and working with you during the year.

Your auditor’s culture and focus on professional scepticism and consultation with trustees, directors and management team members. Are your trustees involved in the process and to what degree? Did they challenge the auditor about the professional scepticism applied in the audit’s key judgment? You should also ask your auditor to explain any contentious issues and their approach to auditing revenue, especially the approach taken to fraud risks and the possibility of management overriding controls.

Working alongside the auditor you should be able to find ways in which to improve the accounting and reporting process to make it more agile and responsive to your needs. Your auditor should also be in a good position to suggest improvements to systems and controls that can cut down on time and the costs involved day to day, as well as looking at the organisations structure and recommending changes where appropriate to minimise potential future tax and VAT liabilities.

Back to top.

Mibbes aye, mibbes naw: charity risk management

A risk is something uncertain, it might happen or it might not, or using the Scottish colloquialism: is it likely to happen? Mibbes aye, Mibbes naw.Risk

Either way it matters, as if it does happen, it is likely to have an effect on the charity’s ability to achieve its vision and objectives. Effective management of the risks facing the charity has many benefits, not least on the charity’s ability to achieve what it has set out to achieve with income and reputation intact and service delivery and expenditure controlled.

Effective risk management is a continual cycle of assessment, action, monitoring and review. How often the Board and senior management team review these risks will vary according to the size of the charity and the complexity of your operations.

Risk management however is more than just creating a long list of risks that the charity faces and ranking them according to their likely impact and discussing them at quarterly board meetings.

Instead, Trustees must have a clear and unambiguous understanding of the level of risk that is acceptable to the charity in order to achieve its charitable purpose. Within this, Trustees should make a clear distinction between the charity’s risk appetite and risk tolerance.

This should be documented in a formal risk policy and this policy should be attention to detail 2communicated and embedded throughout the charity so all staff, management and board members understand what needs to be taken into account when making decisions.

The policy should also clearly state who is responsible for monitoring and managing risk, how risks should be documented and reported, and to whom, and how new risks and emerging issues that could impact the charity and how these new threats and issues should be reviewed and assessed.

Do all of the charity’s trustees and senior managers understand risk and the range of potential risks the charity could face?

As a starting point risks facing charities are split into five areas:

  • Governance risks – risks that could impact the board’s decision making capabilities.
  • Operational risks – risks that affect the day to day running of the charity.
  • Financial risks – most risks will have a financial impact, both positive and negative. There will always be areas where the charity will be prepared to take risks in order to achieve its charitable purpose.
  • External risks – these risks include political, environmental, economic, social and technological factors that can impact the charity’s ability to achieve its objectives. More often than not these risks are outside the control of charity and therefore more difficult to anticipate and manage.
  • Regulatory and compliance risks – these risks relate to the wider regulatory framework relevant to the charity.

Risk Registers

There are a wide range of approaches to document risk and facilitate effective monitoring by a Board. In my experience, charity trustees are much more likely to engage with a high level analysis of the strategic risks if they are small (and focused) in number. A number of risk registers I’ve reviewed, whilst very comprehensive and detailed have often missed the strategic risks the charity faces.

The following areas should be considered and examined by the Trustees when reviewing the impact of issues for the charity and assessing risk - Effectiveness, Financial Health, Brand & Reputation and Compliance. 

Financial Controlsforecasting

Putting in place robust financial controls will help the charity to identify and manage risk. The charity’s risk policy should refer to these controls and the boundaries that have been set to minimise and/or mitigate risk.

Some charities also find it helpful to set up a sub-committee for Finance & Risk. At these additional meetings Trustees, charity employees, and their advisers can provide a detailed scrutiny of all areas.

In summary, there should be an understanding of risk that permeates all levels in the charity, with the tone being set by the Trustees and the rhythm being constantly monitored and acted upon when necessary by managers, staff and volunteers.

For further reading, the Institute of Risk Management has produced a useful publication ‘Getting started guidance and how to develop risk management in your charity’ which contains a range of useful pointers. 

Gavin Curr, Emily Jackson and Iain Johnston from Martin Aitken’s charity audit and accounting team will be covering Governance and Risk Management at The Gathering 2020. Find out more and book your place. 

Back to top. 

Growth support

Charity Finance + Governance workshops 2020

We are delighted to announce that we will be continuing to work alongside Glasgow Social Enterprise Network (GSEN) offering six free workshops for GSEN members during 2020.

Getting to Grips with the finances: 18th February, 11th June and 10th September 2020. >find out more

This session has been designed to give directors and managers from social enterprises the understanding they need to: improve their financial knowledge and confidence; make more effective decisions; and to know which bits of the business are working (and profitable) and which bits are not (and making losses) and to develop corrective actions to get back on track.

Good Governance: 25th February, 18th June and 17th September 2020 >find out more

Do all of your directors and/or trustees understand governance and the range of potential risks that the enterprise could face? Does the enterprise have appropriate controls, strategies and action plans in place to address the identified risks? In other words, are you governing the enterprise effectively and will it stand up to challenge?

Back to top.

Looking ahead to the new decade

Doing business and working in the 2020s, our thoughts and perspectives on what could be up ahead

Outlook

Doing business in the 2020’s

As we move into 2020, businesses will have to adapt in a world that places greater emphasis on sustainable business practices. People will want to work for firms that take care of their employees in terms of their physical and mental health.

Technology will continue to be the key enabler to allow us to work flexibly, remotely and more effectively. It looks like 2020 is set to be a busy year for businesses in the UK and internationally.

Customers are becoming more environmentally aware. Companies like Beyond Meat, the maker of plant-based, protein-rich foods or Everlane, which creates clothes from recycled fibres and plastics, are gaining traction. People are trying to reduce their carbon footprint and are making buying decisions on the basis of the environmental credentials of businesses.

As a result, businesses are responding by focusing on their environmental and sustainability policies. Many firms are adapting their CSR activities to include environmental projects in order to help drive the green agenda in local communities. As we move into 2020, this trend is likely to accelerate.Onshore wind

The leading accountancy bodies have also called for company reporting to address progress towards the UN’s Sustainable Development Goals (SDGs). They are attempting to establish a best practice for corporate reporting on the SDGs to enable more effective and standardised reporting and transparency on climate change, social and other environmental impacts.

This would require relevant and material disclosures about the factors that influence long term value creation (or destruction) for the organisation and society, or that have an impact (positive of negative) on the achievement of the SDGs.

On the technology side of things, machine learning and artificial intelligence (AI) are continuing to advance. The AI industry is growing and businesses have access to more powerful tools in order to create new customer experiences. For example, music-streaming service Spotify uses AI to make the listening experience more personal by creating customised play-lists for each user. See next article.

Younger workers are putting greater emphasis on physical wellbeing and their mental health. Employers will need to adapt in order to attract the next generation of talented employees. Flexible working and wellness programmes are high on the list of priorities for Millennials and Generation Z employees. The businesses that really embrace these new trends will attract the best people.

Working in the 2020s

There is a lot of jargon out there around “the future of work”. What does it really mean for businesses?Outlook icon

There is a lot of buzz around trends like artificial intelligence (AI), machine learning, blockchain, remote working, agile working, augmented reality (AR) and various other new concepts. As technology improves we have new opportunities to automate tasks.

If we leverage new technology effectively, it will free us up to focus on other tasks. Understanding the future of work involves understanding how automation will play out and how that will affect the way we work in the years to come.

There are two levels of automation at play. Assisted Intelligence, where systems and technology help us to perform a task. A good example is how GPS helps us to navigate to a destination. Autonomous Intelligence is where the technology takes the task off our hands entirely. For example - a driverless car, which navigates itself to its destination without any input from a human driver.

In any business, some tasks are completed by people and some by machines / technology. The future of work is concerned with the ever-increasing amount of work that needs to be done and the fact that work is becoming more complex.Choice 2

For example, due to increasing levels of regulation, businesses need to comply with increasingly complex rules such as GDPR or changes to taxation. Rather than hire more and more people, which is expensive, businesses need to leverage technology in order to get everything done, while still managing costs.

So, the future of work is all about machines and technology taking repetitive tasks off our hands so that we are freed up to do the work that machines aren’t good at.

This includes leadership, creativity, innovation and collaboration. In order to make this transition successfully, businesses need to become learning organisations. In a learning organisation, the firm needs to focus on nurturing talent and developing new skillsets in order to create a more successful business. The future of work looks set to be interesting, challenging and full of opportunity, for those who embrace change.

Back to top. 

MTD for VAT: the soft landing period ends

For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) your accounting systems must use digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software. That is the end of the current 12 month “soft landing” extension.cloud concept

Businesses with complex or legacy IT systems may require a longer period to put digital links in place. These businesses can apply to HMRC for additional time to put the required digital links in place. If your business qualifies then the additional time will be granted as a specific direction from HMRC.

If, for example, your company purchases another business it may take additional time to digitally link different software applications or packages to meet the MTD legal obligations.

HMRC will consider an application to extend the digital link deadline longer than the “soft landing” period. That would mean the businesses would continue to be able to “cut and paste” during the extension period.

Reduce debtor days to improve cash flow

Cash flow is king in any charity with a trading subsidiary or social enterprise. Yet cash flow is one of the areas that many struggle to manage.

Customers are reluctant to part with their money, even if it's to pay for your goods or services. As such, it can take a while for them to pay their invoices.

While longer debtor days might not be a big issue for huge international corporations, for the rest of us, it can be a very real source of stress. You need your customers to pay you as quickly as possible so you can continue to run your business, so it's easy to find yourself working extra hours, chasing up late-paying clients.19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 17

Here are a few tips to help you to reduce your debtor’s days.

Be clear and concise

When creating an invoice, think about your messaging. Is the due date easy to see on the page, does your invoice state exactly how much payment is required and have you clearly outlined the various payment options that you accept (such as bank transfers, cash, cheque, etc.)? Options such as “pay now”, “pay by instalments” or “pay on the due date” should be clearly set out.

Offer incentives

Sometimes offering a small discount can motivate your clients to pay on time. Offering say, 5% off the total bill for clients who pay within 2 weeks of the invoice date can help a business to get cash in quicker. Setting this type of incentive out at the beginning of a client relationship can go down well as clients can see the early payment discount as a “value add”.

Charge fees for late payment

Incentivise customers to pay you on time by charging a fee for late payments. If you communicate the terms and conditions around late fees clearly, clients will not be surprised if they are charged for late payment.

If you are going to charge clients for late payment, it is usually effective to give some sort of warning. It may be helpful to send clients an email saying that “payment is due in 10 days time and if it isn’t received, a late payment fee will be applied.” This gives the client an opportunity to respond.

Embrace technology

There are a vast array of systems, and add-on applications for your cloud accounting software, available to help businesses to track invoices, monitor payments and manage clients who have missed payment deadlines. With an automated accounts receivable system, you can keep track of the status of each invoice, who has paid and what is outstanding. You can set up automatic reminders at crucial moments in the payment cycle and significantly reduce your administration time.

By implementing the above strategies, you can reduce debtor days in your business and ensure that you are getting cash in as quickly as possible.

Back to top. 

ADA MACO Jun 17

Obituary: Adrienne Airlie CA

We are very sorry to inform you that our former Chief Executive, Adrienne Airlie passed away suddenly on Thursday 5th December 2019.

She was an inspirational leader and a truly kind and considerate individual who devoted her career to helping and supporting her clients and colleagues to achieve their ambitions and to get the most out of life.

Adrienne has been an integral part of Martin Aitken’s businesses and growth story and she will be sadly missed by everyone here in the accountancy and financial services businesses. >Adrienne Airlie Obituary read more

 

%MCEPASTEBIN%

 

Seminar: Principals Question Time 2020