NQ magazine, July 2019

NQ magazine July 2019

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THE VOICE OF ALL NQs Contact us

email: graham@pqaccountant.com twitter: @pqmagazine facebook: @pqmags call: 020 7216 6444

IR35 SPOTLIGHT HMRC loses highprofile case against TV broadcaster

ALL THE NEWS YOU NEED

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and a whole lot more Pages 4&5

TAX HAVENS LATEST NEWS FROM THE BIG 4 FIRMS Page 6

THE UK IS PART OF ‘AXIS OF AVOIDANCE’, DEPRIVING GOVERNMENTS WORLDWIDE OF MUCHNEEDED CASH, SAYS PRESSURE GROUP P8

GET CONNECTED Why it pays to embrace the technology at your disposal

CMA VERDICT

Competition and Markets Authority wants big firms to split audit & consultancy functions Page 22

PATISSERIE VALERIE: A CASE FOR INTERNAL AUDIT? P10

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COMMENT

NQ magazine EDITOR’S COMMENTS

An ‘axis of avoidance’ There is little doubt that tax has finally become sexy. Yes, I said it!

But what we don’t like to hear is that the UK is such a big player in the tax avoidance game (see page 8). Our Overseas Territories and Crown Dependencies are helping the corporate giants avoid tax on a grand scale.

The Tax Justice Network says these satellite tax havens represent “an extension of the City of London” finance centre, and this half-in, half-out relationship helps to muddy the waters.

All this is happening while Chancellor Phil Hammond, with his French counterpart, have introduced an internet sales tax to try to get the US tech giants to pay their fair share. This move has brought the US back to the table and, along with the rest of the G20, they have recently agreed to a major overhaul of the global tax code. That’s going to happen soon too – by the end of 2020.

It is interesting too how often I am now having to try to justify the work accountants do. Many people – young and old – think they are part of the axis of tax avoidance and evasion. “They don’t seem to have any ethics at all,” one NHS worker told me. Another said they only seem interested in the money, and we aren’t talking about looking after it here. To too many people accountants are seen as the people who help the criminals or money launders clean their ill-gotten gains. I argue that good accountants are essential for UK plc to be successful. But it seems that accountants have now joined us journalists at the bottom of the ‘most trusted’ professional league table, just above politicians!

There is a lot of talk about an ‘expectation gap’ when it comes to audit. I would argue many people think there is an expectation gap with the whole profession when it comes to ethics.

Graham Hambly, NQ Editor (graham@pqaccountant.com)

NUMBER CRUNCHING

£35.2m

ACCA’s deficit for the year ended 31 March 2019 P4

27%

Increase in proportion of FTSE 100 CEOs with a background in technology P5

£390bn

Amount governments worldwide are estimated to lose in tax each year due to corporate tax havens P8

of disputed £1.2m Amount tax liability in the dispute Lorraine Kelly tax case P12 of 1,700 Number organisations around the world adopting integrated reporting P14

70

Percentage of accountancy firms’ websites with content that’s been copied from other websites P18

NEWS

Laundering loophole worries over the UK property market The Registration of Overseas Entities Bill does not do enough to deter money laundering in the UK property market, says the Joint Parliamentary Committee scrutiny report. It believes international criminals laundering their cash though the UK property market will be able to exploit the ‘significant loopholes’ without changes to the planned legislation.

The committee points out that the UK is valued for its democratic political environment, its independent legal system, and its rigid financial protections. While these attributes have made the property market popular for legitimate investors, it also appeals to money launderers who use property to conceal or clean illicit funds.

The committee pointed out that in 2017 some 160 properties worth over £4bn were identified as being purchased by high corruption-risk individuals, and 86,000 properties in England and Wales have been identified as owned by companies incorporated in secrect jurisdictions.

Committee chairman Lord Faulks QC said: “We welcome this much-needed legislation as one of the vital tools required to create a hostile environment for money launderers who want to use the UK property market to hide unlawful funds. The legislation is well drafted, but there are

still some loopholes in the draft Bill that, if unaddressed, could jeopardise the effectiveness of this important piece of legislation. In the current political climate, anti-money laundering may not seem an immediate priority. But the evidence we took shows there’s a huge problem, and it’s not going away.”

ACCA unveils £35.2m deficit Uber in dock over VAT ACCA has unveiled a £35.2m deficit for the year ended 31 March 2019. This is way above the £14.8m planned deficit for 2018-19.

In a strategic performance update for members, ACCA CEO Helen Brand stressed that the ACCA’s balance sheet remains healthy and she expects the association to return to a pre-tax surplus for 2019-20.

Helen Brand Three factors helped push up the deficit: A one-off accounting adjustment relating to ACCA’s defined benefit pension scheme amounting to £12.5m.

Timing of investment in IT infrastructure and digital transformation, amounting to £6.1m.

A combination of smaller items, including the adoption of IFRS 15 revenue from contracts with customers.

ACCA also reported a membership growth of 5% to 219,031.

PQ numbers were also up 4.8% to 527,331. Member, affiliate and student overall satisfaction rates remain high at 79.1%.

HMRC is investigating Uber over allegations the ride-hailing company owes £1bn in unpaid VAT. Uber argues that it is exempt the tax because it merely acts a digital intermediary between its 60,000 self-employed drivers and passengers.

And, like black-cab drivers, Uber says it is not liable for VAT because its drivers earn under the £85,000 threshold.

However, if HMRC rules that Uber is a transportation company and should be paying VAT it would face the biggest tax big ever levied on a digital giant in the UK. Tax barrister Jolyon Maugham QC is due to file legal action against HMRC for what he believes is its mishandling of Uber’s VAT case.

Call for ‘Simple Consolidated Tax’ A new report from the Centre of Policy Studies, entitled ‘Think Small’, recommends that companies with revenue of under £1m should be given the option to replace corporation tax, business rates, VAT and Employer’s National Insurance with a simple levy on turnover, charged on a cash basis – the Simple Consolidated Tax (SCT).

Because the SCT would be voluntary it

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is being suggested that no firm would have to lose out; those who would be worse off under the new system could simply keep to the old one.

Extensive modelling by Capital Economics shows that the SCT would be revenue-neutral for the Treasury at a rate of between 11.5% and 13.5%.

The report says moving to a SCT

would help make life a lot easier for small companies, 75% of whom said the current tax regime is too complicated.

Other innovative suggestions to help small businesses and sole traders include a three-month NI holiday on new hires for any business with eight or fewer employees and tax relief for self-funded training for sole traders.

NQ Magazine July 2019

NEWS

Finance Time to bring PAYE into the modern world and IT key The UK’s PAYE system needs a major overhaul to bring it into the modern world, says a new report from the Office of Tax Simplification (OTS).

The OTS is calling on the government to create a more joinedup approach between employers, tax agents and HMRC. Bill Dodwell, OTS tax director, said: “HMRC data shows over 70% of small businesses use a tax agent to help them with their tax compliance.

However, HMRC does not (as yet) provide tax agents with access to the same information as their clients to enable them to carry out a very wide range of tax transactions for them.

This costs everyone time and money.”

He felt that HMRC could do more to leverage the support agents can bring in making the tax system work for millions of taxpayers. He claimed: “Ensuring the valuable role of agents is

to the top

built in to all new or redesigned systems would go a long way to support small businesses – and support HMRC, too.”

The proportion of FTSE 100 CEOs with a background in technology has increased by 27%, according to new data from Robert Half.

The results of the annual Robert Half FTSE 100 CEO Tracker found that 14% of CEOs now have a background in IT. However, financial experience has seen a resurgence amongst the UK’s FTSE leaders. The number of bosses with financial backgrounds has increased from 40% in 2018 to 52% in 2019. Finance then remains the most common route to the top.

The Tracker found diversity among CEOs remains mostly unchanged. The average age for a FTSE CEO is 55, 18% are Oxbridge educated, and the number of female CEOs is 6%.

Some 46% of CEOS were also promoted internally, up from 40% in 2018.

BIG 4 NEWS

New executive structure for KPMG KPMG UK has unveiled a new governance structure in direct response to recommendations from the Competition & Markets Authority’s call for an operational split between the Big 4 firm’s consultancy and audit businesses.

Effective from 1 June 2019, the new structure will introduce more separated performance management and governance of the firm’s audit practice, with a primary focus on driving quality, says KPMG. A new Audit Executive Committee will assume responsibility for the audit businesses performance, risk and control management. The firm’s Head of Audit will be Jon Holt; KPMG’s current Head of Audit, Michelle Hinchliffe, will join the firm’s UK board as Chair of Audit (a newly created role).

KPMG stresses that these changes do not mark the separation of the firm’s UK audit practice from the rest of the firm, but will “deliver on many of the recommendations proposed by the CMA and the BEIS Select Committee in their recent reports on the profession”.

Bill Michael, chairman and senior partner at KPMG UK, said: “We’re serious about making changes to restore trust in audit. We understand concerns that the profession’s operating models have become too opaque and we are taking action to tackle these.

“The sole aim and focus of our Chair of Audit, our new Audit Executive and our Audit Oversight Committee is to drive audit quality, via strong leadership, good governance, rigorous controls, independent decision-making and separate performance management from the rest for the firm.”

However, these changes do fall short of a split of audit and consultancy. A CMA spokesperson said that while the changes are welcome they do not “address all of our concerns”.

Bullying allegation denied

PwC give audit £30m boost

In a rare insight into the workings of the Big 4, a senior male partner at KPMG has been sent on a leadership training course and been forced to formally apologise over the way he spoke to colleagues.

The Financial Times recently reported that two senior female partners had resigned over the way the Big 4 firm handled bullying allegations against a senior male partner, who it did not name.

KMPG has now confirmed the partner in question was Sanjay Thakkar (head of deal advisory). It has also pointed out that an internal investigation found his behaviour, while requiring improvement, did not amount to bullying.

PwC UK is introducing a package of measures designed to ensure it delivers consistently high quality audits that meet the needs of investors, companies and wider society.

The firm has said it is investing an additional £30m annually as part of a wide ranging action plan to provide greater focus on the quality and public interest responsibilities of PwC’s statutory audit services.

The plan, announced in early June, has three key areas: additional investment in training, people and technology; further alignment of the firm’s audit business behind audit quality; and a reinforced focus on culture and quality control.

Head of Audit Hermione Hudson said that PwC will be creating a new national digital audit team, focused on the development and application of innovative technologies.

The firm will also be hiring more than 500 additional experienced auditors across the UK.

IN BRIEF KMPG fined for Co-op bank audit

The FRC has fined KPMG £5m (discounted for settlement to £4m) and severely reprimanded over the audit of the financial statements of the Co-op Bank for the year ended 31 December 2009. The firm will also pay £500,000 towards FRC’s costs. KPMG audit partner, Andrew Walker, has been fined £125,000 (discounted to £100,000) and severely reprimanded. The FRC has also separately considered the conduct of the CFO of the Co-op Bank. He has previously admitted misconduct and was excluded from membership of the ICAEW for six years.

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Blockchain Analyzer

EY recently announced in New York the launch of the second generation of EY Blockchain Analyzer, its blockchain analytics tool. The first generation tool was designed to facilitate EY audit teams in gathering an organisations entire transaction data from multiple blockchain ledgers, to reconcile that data to EY client books and records and to perform enhanced analytics, including trend analysis and identification of outliers.

The new upgrade is now available to EY teams and nonaudit clients as a business application that is accessible anytime and helps enable financial reporting, forensic investigations, transaction monitoring and tax calculations.

NQ Magazine July 2019

IT NEWS

Time for an ethical framework We urgently need an ethical framework for the use of big data or we risk undermining the social purpose of financial services, says the ICAEW. The accountancy body is calling for businesses, consumers and regulators to work together to protect vulnerable people from being exploited by the growing use of data and artificial intelligence. Big data (which includes data from social media, video watching habits, location data and photos to satellite images, traffic flows and data from smart devices) and AI are increasingly changing financial products like credit cards and insurance policies – as well as the business models of the companies that provide them.

There will be winners and losers as a result of these changes.

However, the ICAEW says banks, insurers and other financial service providers need to start managing these tensions now, before products and services spiral away from their true social purpose.

Without an ethical approach to using big data, people could be unfairly or illegally excluded from vital financial services, leaving them without access to insurance or credit, owing to factors they cannot control like gender, ethnicity, where they live, or health conditions. This will also be influenced by factors like where they shop, whether they use cash instead of cards and other information.

Nowhere to hide

Are you ready for big data?

Connect, HMRC’s sophisticated IT system, is being used more and more to identify income and gains that have not been declared, according to accountants Blick Rothenberg.

“Connect completely changes the dynamic of how HMRC commits investigation resource to risk and enables thematic and risk-based enquiries across the taxpaying population,” said the firm’s director of tax risk, Jessica McLellan.

She added: “No taxpayer can hide from the sophisticated electronic searches available to HMRC. It’s not just about identifying income and gains; the searches are being used to provide key information about wider lifestyle questions.

CIMA has launched a new learning resource centre and fundamental series to help all finance professionals take advantage of the growing opportunities emerging technology presents to the finance function and their organisations.

The new resource centre provides free learning covering the ‘fundamentals’ of digital disruption – automation, blockchain, cyber security, data analytics and ethics.

Designed to help develop a digital mindset, the topic blocks come on stream from April through to October 2019.

A quiz for accountants is also available to test your current level of knowledge. Go to https://quiz.cgmastore.com/

HM RC

Enquiries & Powers

SPECIALIST NEWSLETTER (6 ISSUES PER YEAR)

The go-to publication if your clients have an investigation or enquiry hmrctaxinvestigation.co.uk For more information go to https://hmrctaxinvestigationco.uk/

TAX

CORPORATE TAX HAVEN INDEX – 2019 RESULTS This ranks the world’s most important tax havens for multinational corporations, according to how aggressively and how extensively each jurisdiction contributes to helping the world’s multinational enterprises escape paying taxes, and erodes the tax revenues of other countries around the world. It also indicates how much each place contributes to a global ‘race to the bottom’ on corporate taxes, says the Tax Justice Network. Here are the worst offenders:

The ‘Axis of

Avoidance’

The Latest Corporate Tax Haven Index will make for hard reading for many in the UK

W

hen it comes to multinational corporate tax the UK (and its overseas corporate tax network), the Netherlands, Luxembourg and Switzerland have become the ‘axis of avoidance’, says a damning new report.

Together, they are responsible for half the world’s corporate tax avoidance risk.

So it’s hardly surprising these countries dominate the top of the latest Corporate Tax Haven Index produced every two years by the Tax Justice Network.

It is estimated that governments around the world lose over $500bn (£390bn) in tax each year due to these corporate tax havens, says the Tax Justice Network. The IMF thinks the figure is more like US$600bn (£465bn).

The group feels the UK has much to answer for, as the report says: “The UK, with its tax haven network, has single-handedly done the most to break 8

down the global corporate tax system, accounting for a third of the world’s corporate tax avoidance risks.”

It said the UK effectively outsourced the corporate tax haven game to a ‘spider’s web’ of Overseas Territories and Crown Dependencies. Despite having powers to impose and veto law making they allow these territories to act with impunity.

The Tax Justice Network claims that these satellite tax havens represent “an extension of the City of London” financial centre. The half-in, half-out arrangement allows the City to benefit from often nefarious activities run out of these secretive jurisdictions, while allowing the government to maintain distance when scandals arise.

The Netherlands was found to be the second biggest contributor to avoidance after Britain, but was said to be accountable for around only NQ 7% of the problem.

1) British Virgin Islands* 2) Bermuda* 3) Cayman Islands* 4) Netherlands 5) Switzerland 6) Luxembourg 7) Jersey* 8) Singapore 9) Bahamas** 10) Hong Kong 11) Ireland 12) UAE 13) United Kingdom* 14) Mauritius** 15) Guernsey* 16) Belgium 17) Isle of Man* 18) Cyprus 19) China 20) Hungary

*Overseas Territories (OTs) and Crown Dependencies (CDs) of the United Kingdom where the Queen is head of state; laws must be approved in London. **British Commonwealth territories whose final court of appeal is the Judicial Committee of the Privy Council in London.

NQ Magazine July 2019

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PATISSERIE VALERIE

Patisserie Valerie:

a case for internal audit

BDO looks at the Patisserie Valerie fraud and the perils of neglecting independent assurance

I

n October 2018, the AIM market was shaken by the news that shares in Patisserie Holdings Plc had been suspended following the revelation of a black hole in the finances of the business of around £40m. In a statement to the market the Board confirmed that “there is a material shortfall between the reported financial status and the current financial status of the business. Without an immediate injection of capital, the directors are of the view that that is no scope for the business to continue trading in its current form.”

PwC was appointed by the Board to undertake a forensic investigation. Following the initial investigation, the Board confirmed that “historical statements on the cash position of the company were misstated and subject to fraudulent activity and accounting irregularities”. Then, hours later, the Board made the fresh announcement that it had just become aware of the winding-up petition by HMRC for £1.14m against Stonebeach Limited, a key trading subsidiary of the business.

From winning IPO of the year in 2015, a business valued at around £450m one day before the shares were suspended was now unable to confirm whether it could meet its liabilities.

Despite considerable efforts to save the business – including the injection of £20 million by the founder and a further £15m raised from institutional investors – Patisserie Holdings Plc went into administration in January 2019 and the business was sold the following month.

Details of the nature of the fraud have begun to emerge as the initial findings of the PwC investigation have been leaked to the media. It is alleged that the accounting records contain thousands of fraudulent entries going back several years, including fabricated invoices, double-counting of voucher sales and manipulation of cheque payments between accounts to inflate working capital at year end. Board resolutions and directors’ signatures had also been allegedly forged to provide the authority necessary to open ‘secret’ bank accounts and overdrafts that had not been included in the accounting records.

The fraud therefore appears to have involved a comprehensive manipulation of the financial records of the 10

business. The volume of fraudulent transactions and the extent of the deception required the collusion of several individuals with access to the accounting systems. The Finance Director of the business was arrested within days of the fraud coming to light. The Serious Fraud Office has opened an investigation into his conduct and recent media reports suggest that a further five members of staff are also being investigated.

Why was the fraud not detected?

It seems remarkable that a fraud of this scale could have been committed in an AIM listed company required to report regularly to the market – a company that had adopted many of the recommended features of effective financial governance including financial reporting to the Board, an Audit Committee and an annual external audit.

The Board and management must take much of the responsibility, and those innocent directors and managers who have been caught up in this are probably asking themselves why they didn’t challenge the financial reporting with more rigour, or act upon any suspicions that they may have had. More importantly, the financial governance framework established and relied upon by the Board appears to have failed in a number of key respects.

Much of the focus has been upon the role of the external auditors, given that the accounts for the business had been consistently signed off with unqualified audit opinions. This has been the subject of numerous articles in the media and follows on from recent highly publicised business failures including BHS, Carillion and Conviviality.

The Financial Reporting Council is currently investigating the audits of Patisserie Holdings Plc undertaken for the past three years. There will be considerable interest in their findings once these are published.

The Audit Committee has also rightly come under the spotlight, with questions raised as to how it met its primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the group was properly measured and reported on. Internal controls do not appear to have been challenged sufficiently and whistleNQ Magazine July 2019

PATISSERIE VALERIE

blowing procedures – another area of Audit Committee responsibility – also appear to have been entirely ineffective.

The Committee comprised three individuals who certainly had the skills to challenge and question the controls over the business effectively. One was a qualified accountant and two had considerable industry expertise, including the Executive Chairman and founder of the business. Two of the Committee members were non-executive directors (NEDs).

However, with hindsight it appears that the Committee took more comfort than was appropriate from the work of the external auditors in respect of the financial controls of the business. It also accepted representations from management without seeking independent assurance. The Committee had not established an internal audit function to provide this assurance.

Had corporate governance best practice been followed in full and an Audit Committee comprising three fully

independent NEDs been appointed, a more robust challenge of controls may have taken place.

Internal audit and identifying fraud An internal audit function may well have been able to identify that fraudulent activity was taking place. The existence of such a function within the business may also have acted as a deterrent.

However, the fraud appears to have been well concealed with extensive collusion. The internal audit function would have needed to be well-supported by the Audit Committee and the Board, independent and properly resourced in order to overcome the likely challenges and efforts made by the finance team to prevent or restrict its access to the financial systems and controls.

Without the full backing of the Audit Committee it may well have been successfully diverted away from reviewing financial controls at all or its scope of work restricted to only those areas that the fraudsters wished it to see.

Internal audits and best practice In the US, it is requirement of NYSE listing rules for all listed companies to establish an internal audit function. Although it is recommended under the UK Corporate Governance Code and the Quoted Companies Alliance Code, the establishment NQ Magazine July 2019

of an internal audit function is not mandatory.

Instead, Audit Committees are only required to explain in the company’s annual report why an internal audit function has not been established and to describe the other sources of internal controls assurance obtained. As a result, there is a danger that many Audit Committees – like the Committee at Patisserie Holdings Plc – may rely too much on management representations about the operation of controls instead of gaining independent assurance over those representations.

As Patisserie Holdings Plc has demonstrated, for a business with a market capitalisation of £450m, operating a cash-based business across 180 stores, reliance on management assurance alone is not sufficient and left the business and its shareholders seriously exposed. NEDs and Audit Committee members elsewhere should now be reconsidering the arrangements in place at the companies where they have responsibility to make sure that they are receiving all the assurances that they require to fulfil their duty to monitor the quality of internal controls.

Where an internal audit function is in place, Heads of Internal Audit should be reviewing their plans to make sure that the risk of fraud has been considered sufficiently. NQ

Thanks to BDO for this article 11

IR35

That’s entertainment!

Andy Vessey analyses the recent Lorraine Kelly decision and its implications for IR35

A

fter their success in the Christa Ackroyd Media Ltd case last year, no doubt HMRC believed they were on to another winner in deciding to defend Albatel Ltd (Lorraine Kelly’s PSC) appeal at the First-tier Tax Tribunal.

For the past few years HMRC have been pursuing TV and radio presenters from a starting position that they are all caught

by IR35, twisting the facts to match that predetermination. This appeal highlighted that partisan attitude, with HMRC relying on the contractual terms because the facts didn’t aid their cause.

Albatel Ltd was formed in September 1992 by Stephen and Mrs Lorraine Smith (professionally known as Lorraine Kelly). No previous IR35 challenge had been made by HMRC despite an enquiry into the company’s 2009 return which was eventually closed with no amendments.

ITV contracts HMRC were interested in two contracts. The first ran from September 2012 for two-anda-half years under which Ms Kelly provided her services, via Albatel, to ITV Breakfast Ltd on the television programmes ‘Daybreak’ and ‘Lorraine’.

In February 2014, the agreement was amended so that Kelly was to personally provide her services as a lead presenter on both programmes up to 10 April 2014. From 11 April 2014 – 15 July 2017 this activity was confined to the ‘Lorraine’ programme.

With the contracts generating annual fees of in excess of £1m, there is little wonder that HMRC selected Kelly for enquiry. In return for such handsome reward, Kelly was to provide her services for 42 weeks each year, excluding bank holidays.

Enquiry During the course of the enquiry a meeting took place at ITV studios in July 2015 between HMRC officials and ITV representatives 12

to discuss aspects of Kelly’s working arrangements.

In January 2017, tax and NIC assessments were finally varied to give a combined liability in excess of £1.2m.

Having reached an impasse with HMRC it appears Kelly sought to resolve the issue by Alternative Dispute Resolution (ADR), but to no avail. She was then left with no option but to take her appeal to the tax tribunal.

HMRC’s case At the tribunal hearing HMRC did not rely on any witnesses, preferring instead to base their arguments on the contractual arrangements, which the department believed reflected the true contract between the parties.

Mutuality of obligation (MOO): As the contract provided for services for up to 42 weeks, allowing for holidays in the same manner that employees would be entitled, it was consistent with a contract of employment.

Furthermore, Kelly was obliged to perform if called on to do so by ITV and regardless of whether they did so or not, ITV were obligated to pay Albatel.

Right of control: When it came to this status test HMRC were always going to draw parallels with the Decision in Christa Ackroyd, where the Tribunal found that the BBC retained the contractual right of control over the presenter.

The Revenue accepted that Kelly used her own judgement during the presenting of programmes. However, during live broadcasts there was no way ITV could determine what Kelly would say before she spoke. Such a practical inability to control the decisions at the moment of delivery of skilled work, such as a surgeon or footballer for example, was not inconsistent with employment.

Editorial control was given over to ITV by the terms of the contract which also required Kelly to co-operate with instructions from ITV, which included matters ancillary to the shows.

While ITV might listen to Kelly’s suggestions, it is the editor who has overall authority for NQ Magazine July 2019

IR35

putting the ‘Lorraine’ programme together.

ITV is ultimately responsible for the output and has the right to reject both guests and editorial suggestions made by Kelly.

The television programme guidelines laid down

by OFCOM were another example of control.

It was accepted by Kelly that ITV controlled the timings. The contract also contained rights and restrictions on Kelly which was relevant to the ‘what’ element of control.

The ‘how’ aspect was fulfilled by ITV’s contractual right to edit the programme and for the producer to make reasonable requests of Kelly.

Integration: Kelly had worked for ITV for over 30 years and was part and parcel of the “ITV family”. Viewed in its entirety, HMRC considered Kelly’s situation to be one of substantial parttime employment.

Counter arguments and Decision The eminent Keith Gordon, representing Lorraine Kelly, conceded personal service was a feature of the contract as Kelly could not send a substitute. He did not, however, yield on the MOO test, although the Tribunal found it existed but only in as much to establish the existence of a contract and no more.

The main focus of Kelly’s case was the ‘what’ element of control, and if it could be proved that there was a lack of sufficient control that would be fatal to the existence of an employment relationship. Unlike the Christa Ackroyd case, where the BBC could direct Ms Ackroyd to present any programme of their choice, ITV had no right to tell Kelly what to do.

The role of OFCOM as a regulator was irrelevant to the control test as it applied as a professional body to everyone in the industry.

HMRC have been defeated on the point of industry standards on many an occasion but they still don’t listen!

Kelly was given a free rein and controlled the format of the programme and therefore there was insufficient control to point towards an employment contract.

ITV was not employing a “servant” but rather purchasing a product; namely, the brand and personality of Lorraine Kelly. This distinguished her from that of just a presenter. While there were other factors considered, this was enough to see off IR35.

With the amount of tax and NIC at stake and the importance of this case to similar enquiries HMRC are currently running, it will be interesting to see if the department appeal this decision. If the Eamonn Holmes decision goes against them too, HMRC will truly have their NQ nose bloodied.

Andy Vessey is Head of Tax at Larsen Howie NQ Magazine July 2019

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INTEGRATED REPORTING

Telling the whole tale

Integrated reporting should be about telling a company’s entire story, nad not just the positives, says ACCA’s Yen-Pei Chen

A

rapidly changing world is placing companies worldwide under pressure to ensure their corporate reporting provides the full story.

So how are firms going about this? Some such as FedEx and Coca-Cola have published their corporate citizenship or sustainability reports which aim to highlight the value they are creating beyond their balance sheets.

Some 1,700 organisations around the world are taking this a step further by adopting integrated reporting.

Since the publication of the International Framework, integrated reporting has emerged as a way to help restore corporate trust. Its multi-capitals model is a way for the business to demonstrate that its goals, and the goals of wider society, are often more closely aligned than one might expect.

It does this by providing a framework for a company to communicate how it is exercising stewardship over all the resources that it uses and affects.

For example, short-term cost savings in terms of staff costs could have longer term impacts on the value a company can create in terms of customer relationships or reputation. A key difference with sustainability reporting is that an integrated report is focused on the company’s strategic objectives, addressing ESG issues not as separate corporate responsibilities, but as part and parcel of business success.

The annual thought-leadership series from ACCA, Insights into Integrated Reporting, examines how some of the most forward-thinking companies worldwide are implementing integrated reporting.

ACCA’s third report in the series emerged from reviews of integrated reports produced by 48 organisations in the IIRC’s Business Network. It profiles best practice examples from 10 companies around the world as they strive for authenticity in their integrated reports. Interestingly, it also reveals how the financial sector is leading the global adoption of integrated reporting.

The purpose of integrated reporting is to make information available to investors and other stakeholders to enable a more efficient and productive allocation of capital – focusing on value creation, and the different resources used and affected by the business to create value over time.

Compared with previous years, this year’s study reveals 14

2018 Business & Sustainability Report

integrated reports are becoming more concise, embracing innovative practices including reporting on companies’ commitments on climate and UN Sustainable Development Goals, and some are subject to advanced levels of assurance.

Yet despite the great strides that leading practitioners have achieved, integrated reports are not immune from criticism over a perceived lack of balance: a sense that positive performance is reported more prominently than negative performance, that it is difficult to assess whether strategic objectives have been achieved, that risks and opportunities are not fully explained, and that business model disclosures don’t clearly describe how a company NQ Magazine July 2019

INTEGRATED REPORTING

Multiplying Opportunities 2019 Global Citizenship Report

Cape Town 33.9249° S, 18.4241° E

creates value.

ACCA’s report draws on interview insights with eight leading integrated reporting practitioners, to propose recommendations to overcome this very human bias to favour positive news over negative news, and past achievements over future uncertainties. These recommendations include systematically reporting on the trade-offs involved in strategic decisions, using the reporting process to inform risk management, and involving staff from different parts of the business in the preparation of the reports.

The research highlights the importance of authenticity – reporting in a transparent way about missed performance targets and future challenges, and providing a complete picture of how an organisation creates value over time.

There is often a reluctance among executives to make claims that are too ambitious before the desired levels of performance have been achieved. However, in these times of low corporate trust, authenticity - being honest about the organisation’s mistakes and challenges - is increasingly important for the credibility of integrated reports.

I hope the best practice examples and practical top tips in the report help to drive further improvements in NQ Magazine July 2019

integrated reporting and thinking around the world.

The International Integrated Reporting Council (IIRC) has developed the International Integrated Reporting Framework for companies across the world to adopt integrated reporting.

Speaking following the launch of ACCA’s report, Richard Howitt, chief executive of the IIRC, said: “Every year I am inspired by the innovation and leadership displayed by the participants of the integrated reporting business network as they push the development and effectiveness of their reporting to the next level.

“Reporting practice is by no means perfect and we have a long way to go – as some of the areas highlighted for improvement in this research from ACCA demonstrate.

However, I am confident that we are travelling in the right direction.”

For more information on integrated reporting, or to read ACCA’s report in full, visit https://www. accaglobal.com/gb/en/technical-activities/ technical-resources-search/2019/may/ integrated-reporting.html.

NQ

Yen-Pei Chen is ACCA’s subject matter manager – corporate reporting and tax

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GET CONNECTED

Get yourself connected Being a connected accountant is an essential part of today’s always on world

W

e have never been more connected than we are today. In a world that’s always online, it’s possible to communicate with family, friends and colleagues at any time of the day and from anywhere in the world. Digitisation is driving this enormous change and opening the doors to new opportunities. Now, a data connection means that it is possible to work alongside clients using cloud accounting applications wherever they happen to be in the world, to hold virtual meetings without either the client or accountant having to leave their office and to use social networking platforms to attract new clients. Location no longer holds any boundaries.

Accessibility and responsiveness are key requirements for operating in this highly competitive climate and new software is able to facilitate ongoing communication with high value clients that increasingly expect their accountant to meet them where they spend most of their time: on their smartphones and tablets. Making conscious decisions about how best to connect, serve and influence via this medium is vital as accountants need to be at the heart of the action and mobile is impossible to ignore.

Do clients want more digital interaction?

Some interesting findings from a recent study in the legal sector can be applied to the accounting profession.

The study, which drew on the views of thousands of consumers and 500 UK law firms, found that clients want more digital interaction. The report finds that new ways of communicating are being welcomed as clients demand more immediacy; they don’t want to wait days for paper documents to arrive in the post or for an email to come through with the answer to a question that could be easily resolved with an instant message or automated response.

This study carries an important message that clients expect their advisors to digitally engage with them in the way that they want, need and expect. And one way of enabling digital engagement and capturing client data in this new online world is with a digital platform developed specifically for the accountant in practice for powerful one-to-one conversations.

The power of personal digital conversations These online conversations can be topical, such as budget 16

updates, or they can provide an opportunity to upsell, informing clients about other services.

The beauty of this approach is that the messages can be automated, in which case the accountant does not have to do anything at all.

Those practices already using ‘automated client communications’ report that they are able to increase the number of touch points substantially and keep clients updated with crucial information without having to burden the team. One of the key benefits is that the accountant sending the update ‘appears’ to the client to be available 24/7, even when the office is closed.

Another highly effective way of using mobile on a one-to-one basis is to incorporate ‘push notification’ messages into the firm’s communication strategy. These simple text messages are already used extensively in our personal lives but now they can be used to help communicate with clients and contacts quickly and easily. Delivery can be automated to individuals and groups, which almost immediately ‘ping’ onto the home screen of client’s mobile devices.

They have a 93% open rate which means that these messages are almost always read – typically, within minutes of delivery – and research indicates that push notifications are particularly effective in the financial services sector. This functionality is an opportunity for firms to automate the distribution of content, ranging from reminders about tax deadlines, to news on services and invites to webinars.

There is no doubting that one of the greatest challenges facing the profession is how best to re-engineer accountancy practices for the digital age. Crucially, grasping the digital lead provides immediate and ongoing NQ Magazine July 2019

GET CONNECTED

THE CONNECTED ACCOUNTANT A term first coined by the Bay Street Group, the ‘Connected Accountant’ is defined as an individual who can deliver an increased level of responsiveness, client service and efficiency to meet the demands of this increasingly connected, always on, faster moving and more competitive marketplace.

benefits to firms and clients alike and will future-proof communication strategies without absorbing valuable time or requiring significant upfront investment.

Get access to a new report on how to become a ‘connected’ accountant in a digital, mobile world.

‘The Connected Accountant’ features 28 pages of factfilled content and is available as a free download from https://www.myfirmsapp.co.uk/the-connectedNQ accountant/

Thanks to MyFirmsApp for this article NQ Magazine July 2019

17

TECHNOLOGY

Hitting

the front

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NQ Magazine July 2019

TECHNOLOGY

We explain the most common SEO issues keeping accountancy firms from a good Google ranking

N

o one knows Google’s ‘secret ranking sauce’, so to speak – the exact combination of ingredients that Google uses to decide who ranks on the first page and who is banished to the graveyard of pages after that. However, most marketers will understand a great number of factors that need to be aligned to give you the best chances of featuring on that coveted first page.

SEO experts at Reboot decided to take a look at the issues faced by firms in a competitive field – accountancy – when it came to ranking on Google.

To do this they used SEMRush to take the first three pages of firms’ rankings for a competitive keyword and conduct technical SEO audits for each company.

They wished to explore the most common technical SEO issues faced in the industry, and what the common issues were for firms located on pages two and three that may be holding them back from achieving page-one greatness.

cases, blog posts contained chunks of copied content.

The third most common SEO issue found on accountancy websites was a lack of internal linking, with 67% of the sites analysed forgoing internal links. This is important for SEO as it helps Google understand the structure of your site, and relationships between your content.

A further 60% did not optimise their pages fully for a focus keywords, or at times any keywords at all, and 44% exhibited a below average page speed, according to PageSpeed Insights.

Main improvements to be made for page three-plus ranking companies: (issues with the largest % disparity between page three and page one) • User experience (only 30% of page three had ‘good’ user experience, compared with 62% of page one).

• Meta tags (30% of page three results had ‘poor’ meta tags, as opposed to only 12% on page one).

• Keyword optimisation (80% hadn’t done this to max effect on page three, opposed to 30% on page one).

• Internal linking (90% of page three results had no internal linking, compared with 66% of results on page one).

It’s not all bad news, though.

Accountancy websites scored well when it came to the EAT (Expertise, Authoritativeness, Trustworthiness) of a site. Reboot looked at a website’s auxiliary information such as contact info, about us page, and that they had links to social media pages to further improve the extent to which one perceives the brand as trustworthy.

It was calculated that 84% had this information readily available, although it should be noted that over onequarter (27%) had no social media presence – increasingly important in today’s world. Some 20% also had not secured their site with an SSL certificate, meaning they were exposing their visitors’ sensitive NQ information to hackers.

Five most common technical SEO issues found on accountancy sites (percentage of sites with this technical SEO issue, flagged during an SEO audit) • 73% had poor backlink quality.

• 70% featured duplicate content.

• 67% exhibited a lack of internal linking.

• 60% lacked proper keyword optimisation.

• 44% were victim to slow page speed.

Looking at the first three pages of the search engine results page (SERP) it was clear to see that many accountancy businesses needed to work on building their backlink profile, as 73% had low-quality websites, or in some cases no websites, linking to them. Many relied on links from directories – a very early SEO tactic that Google has become privy to.

Also, surprisingly, many companies (70%) feature duplicate content on their website – having copied legal definitions of words like ‘VAT’ and ‘Payroll’ from other websites. In some NQ Magazine July 2019

19

MSc

Be a Master of your destiny Enhance your professional qualification to an MSc in nine months, with Robert Gordon University

R

obert Gordon University’s (RGU) MSc Accounting & Finance Professional Top Up course is an exciting opportunity to enhance your professional accounting qualification with a Master’s degree from a globally recognised AACSB accredited business school. According to the Higher Education Academy’s Postgraduate Taught Experience Survey 2018, students choose to study a Master’s degree for a number of reasons: 58% – Progress in a current career path.

56% – Improve employment prospects.

48% – Develop a personal interest.

A Master’s degree is highly regarded by employers and when it is also accompanied by a professional qualification and relevant work experience, it will provide a vital competitive edge in the crowded jobs market. Your Master’s degree will distinguish you from other candidates and demonstrate your drive, determination and that you have the ability to commit to a higher level of study.

Engagement with the MSc Accounting & Finance Professional Top Up course at RGU will enhance your employability by improving your organisational and time management skills. In addition, you can also expect to further develop your transferable skills in areas such as communication, project management, data analysis, independent thinking, critical thinking

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and problem solving.

Through your professional accounting qualification, you have already demonstrated that you have the technical accounting and business knowledge required for a successful career, and so this online Master’s programme focuses on developing your research and analytical skills through one Capstone module.

The Capstone module is worth 60 credits (SCQF level 11) and encompasses training on research and analysis methods. You will choose an area of Accounting or Finance to research – an area that interests you – and a supervisor will be allocated to support you through this exciting research journey. The Capstone submission can take the form of either a traditional dissertation or a business consultancy project. It is up to you which style of project and output is more relevant for you, your academic journey and your career.

This course is fully online and you are therefore encouraged to engage with your supervisor and the course team as often as you need to using forums on the virtual learning environment, CampusMoodle and by email or Skype where this is available. This flexible mode of study works effectively with your current role as part of an accounting team, allowing you to balance work, study and family life.

The online resources are designed to support you at all stages in your

research journey. The initial stage of deciding on a topic can seem quite daunting, but you will be presented with a step-by-step toolkit to help you narrow down your areas of interest to the one you will research for the next nine months. There are a variety of online resources designed to allow you to consider research design; how to construct a literature review and research questions; sampling techniques and qualitative and quantitative research methodologies.

Your supervisor will be able to support and guide you through all these steps and assist with academic and formal writing style.

In just under a year, the MSc Accounting and Finance Professional Top Up programme will enable you to acquire and develop academic and communication skills. These skills are vital when you need to show current and potential employers that you are able to investigate current issues and communicate your findings in a professional manner. This MSc will instantly give you a competitive advantage in your accounting career.

The MSc Accounting and Finance Professional Top Up course is a fantastic opportunity to enhance your professional qualification. We hope you are ready to get started on this next phase in your NQ professional education.

Apply now and start in September 2019 – for details see www.rgu.ac.uk/ accounting-top-up NQ Magazine July 2019

MSc

A Master’s degree is highly regarded by employers and when it is also accompanied by a professional qualification and relevant work experience, it will provide a vital competitive edge in the crowded jobs market.

NQ Magazine July 2019

21

CMA

CMA joins call to split audit and consultancy The Competition and Markets Authority has released its proposals to ensure audit competition. It’s now over to the government to implement the changes

T

he UK Competition & Markets Authority (CMA) says legislation is now needed to address both the lack of choice and competition in the audit market. There is also genuine concern about the vulnerability of the industry to the loss of one of the Big 4.

The CMA is recommending the separation of audit from consulting services, mandatory ‘joint audit’ to enable firms outside the Big 4 to develop the capacity needed to review the UK’s biggest companies, and the introduction of statutory regulatory powers to increase accountability of 22

company audit committees.

CMA chairman Andrew Tyrie said too many audits fall short, with more than a quarter of big company audits considered sub-standard by the regulator. “This cannot be allowed to continue,” he stressed.

He went on: “The government now has three reports to hand. In large part, they come to similar conclusions.

Conflicts of interest cannot be allowed to persist; nor can the UK afford to rely on only four firms to audit Britain’s biggest companies any longer. Early action will require legislation – hence the CMA’s proposals.”

The CMA recommendations are: Operational split: Auditors should focus exclusively on producing the most challenging and objective auditors, rather than being influenced by their much larger consultancy businesses. Given the difficulties with an immediate global structural split. At this stage the CMA is only recommending an operational split of the Big 4’s UK audit work. This will require separate management, accounts and remuneration, a separate CEO and board for the audit arm, separate financial statements for the audit practice, an end to profit-sharing NQ Magazine July 2019

CMA between audit and consultancy, and promotions and bonuses based on the quality of the audits.

Mandatory joint audits: More choice and competition for audits of big businesses can and should drive up their quality, but the barriers to entry for ‘challenger’ audit firms are currently large. The CMA is recommending mandatory joint audits to help increase capacity at the challenger firms, choice in the market and thereby drive up audit quality. It believes challenger firms should work alongside the Big 4 in these joint audits and jointly liable for the results! There may be initial limited exceptions to the requirement, based on criteria set by the regulator, focused on the largest and most complex companies. However, any company choosing a sole ‘challenger’ auditor should be exempt, says the CMA. It is envisaged that the joint audit requirement should remain in place until the regulator deems that choice and competition have improved enough to address the vulnerability of the market to the loss of one of the Big 4.

Audit committees: The CMA says it is essential that audit committees choose auditors by seeking those likely to provide the most robust and constructive challenge to the accountancy practices of their

companies. That means the regulator should hold audit committees more vigorously to account. This may include ensuring that committees report their decisions as they hire and supervise auditors, and that the regulator issues public reprimands to companies whose committees fall short of adequate scrutiny of their auditors.

Five-year review: The regulator should review the effects of these changes periodically, in the first instance in five years from the full implementation date. It is then that they should look to see whether to go beyond the operational split already proposed, and how to fine-tune the joint audit remedy to adapt to market developments.

However, there is one professional body that isn’t happy with the CMA’s recommendations and is prepared to say so – the CBI. The UK’s premier business organisation says some of the CMA’s audit recommendations risk damaging UK plc’s world leader reputation.

It said that improving the quality of audit to enhance public trust and investor confidence is paramount. But CBI President John Allan said: “The guiding star for any reforms must be a focus on what works.” He felt that mandating joint audits will add cost and complexity for business, with no guarantee of better outcomes.

Brydon review now ‘open’ The independent review into the quality and effectiveness of audit – a call for views An independent review into the quality and effectiveness of the UK audit market is calling for views from all stakeholders.

The review, which is led by Sir Donald Brydon, directly follows on from the Kingman Review and the investigation by the Competition & Markets Authority.

Sir John says not everything is broken and many audits are conducted to a very high quality. He felt in lots of areas the

NQ Magazine July 2019

Operational splits could also restrict access to the skills required to carry out complex audits.

Allan suggested that other ideas, such as greater scrutiny of audit committees by the regulator have merit and could safeguard against highprofile corporate failures, which have rightly prompted searching questions.

He explained that with the Byron review yet to report a false move now could create yet more uncertainty and undermine confidence in corporate Britain.

It is also being reported that several of the Big 4 are now considering the options of a judicial review of the recommendations. They seem to be particularly worried about the introduction of mandatory joint audits.

This proposal ‘surprised’ many, given the level of opposition from companies in their submissions to the study, and the lack of evidence that such a move NQ improves audit quality.

UK has led the world in the development of audit, and he is mindful not to discard what is good in the search for what is better.

In the foreword to the ‘call for views’, Sir John stresses the result of the review must be a more useful and forwardlooking audit. He said the public interest is clear, and noted that while most people will never read an auditor’s opinion in a company’s accounts, tens of millions of people depend on robust and high-quality audits.

Sir Donald’s review will examine the existing purpose, scope and quality of statutory audit in the UK, in order to determine: • The needs and expectations of users of financial and nonfinancial corporate reporting.

• How far the audit process and product may need to improve and evolve to meet the needs of users and to serve the wider public interest.

• What specific changes to statutory audit model and wider regulatory framework for audit may be needed to deliver this, including any changes to company law.

• Whether other forms of business assurance should be developed or enhanced to enable shareholders and other stakeholders to assess better the future financial prospects and sustainability of companies.

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