For the second year in a row, Microsoft has crowned Cooper Parry IT world-beaters. And as was the case in 2019, it’s all down to their excellence in innovation and implementation of the cloud-based business management solution, Dynamics 365 Business Central.

For this year’s awards, Microsoft received no less than 3,500 entries, from 126 countries across the globe. And with over 25,000 Microsoft Partners in the UK alone, being named as a finalist for the 2020 Microsoft Dynamics 365 Business Central Partner of the Year puts CP IT in a very, very select group.

How did we raise the bar from last year?

We created Dynamics Angels – our global P2P (Partner 2 Partner) program focused on making Business Central accessible to more and more customers. It’s a worldwide network of partners with CP IT at the centre, built on standard fixed price, outcome, deployment and support packs, with technology that allows a non-dynamics partner to deliver the entire process.

Vicky Critchley, COO at Cooper Parry IT, said:

“We’re delighted to be globally recognised for our Business Central offering again – especially as it’s unprecedented (can we use that word yet?) for a partner to be named two years in a row. For me, that shows we’ve got something special, and the team have done an amazing job bringing Dynamics Angels to life and keeping us right at the top of our field. Now, it’s time to focus on the next evolution, because three years in a row has a nice ring to it.”

David Warner from Microsoft said:

“It’s been a wonderful experience working with the CP IT team this past year as they strategically expanded their business from overseas, setting up a U.S. operation. They have quickly made an impact in the U.S. market, bringing an innovative go-to-market strategy that’s changing the way partners and customers sell, buy and manage Business Central. I’m proud to have played a role in their expansion, and excited to see what’s next with CP IT in the years ahead!”

Marie Abery, Microsoft Dynamics Group Director, said:
“CP IT does it again, with sustained excellence in supporting customers implementing ERP without the stress, and leveraging their accountancy background for sage advice. With their Dynamics Angels proposition they can support many more resellers in building a Business Central practice with tiered and standardised delivery, and support which will bring Business Central to many more customers.

Many congratulations Vicky and team!”

Rob Pope, Dynamics Angels Global Channel Director at Cooper Parry IT, added:

“Microsoft World Partner of the Year Finalist. Wow, just wow. That is an amazing validation of the model. Dynamics Angels builds on the success that CP IT had in 2018/19 with opening up the routes to market for Dynamics. What started with reach and scale, built on fixed price/outcome solutions, has evolved into a model that supports a worldwide ecosystem using innovative IP and our secret sauce to help partners sell and crucially deliver Dynamics in a standardised scalable manner – bringing Business Central to the world.

In conjunction with Ingram, we are standardising sales and delivery capability and increasing scale to support more new customers and grow the Dynamics ecosystem around the world.”

Contrary to what may be your first thought on reading the headline, this is not a ‘blaze of glory’ resignation post.  I love my job, and I love my team, they’re brilliant and great at what they do.

But the comment (albeit made in a slightly tongue-in-cheek fashion) is an important point; we’re not competent professionals and it’s important our clients know that.  [Note: I’m not saying we’re INcompetent either – although people’s opinion of how far along the scale I am might differ… 😊]

The thing is, when it comes to R&D tax relief, we’re not supposed to be and it’s not possible to be.  And here’s why.

The R&D tax relief rules contain the notion of “a competent professional”.  They don’t, however, define that term.  Instead, they state that qualifying R&D for tax purposes can occur when:

“knowledge of whether something is scientifically possible or technologically
feasible, or how to achieve it in practice, is not readily available
or deducible by a competent professional working in the field”

The recent R&D tax case (HMRC vs. AHK Recruitment) highlighted the importance of ensuring that the company making the claim:

Most companies I speak with are more than comfortable with (a) and (b); it’s normally a “Head of Engineering”, “Development Lead”, “System Architect” or “Founder and MD”.

When it comes to (c) though, they start to get a little nervous; after all, isn’t that what they’re paying us for?

The answer is ‘sort of’.  When I talk to my clients, I (and my team) will absolutely explain what R&D for tax purposes is, and what it isn’t.  We’ll provide industry-specific examples of what has been successfully claimed for, and what hasn’t.  The purpose of this is to achieve (c) – that the company is comfortable assessing its own activities.

If that sounds a little slopey-shouldered, consider this analogy.

Imagine you want to sell your house.  So, you appoint an estate agent.  What happens if they not only explain to you the current market conditions and suggest a range of guide prices, but then make the decision about what to put it on the market for and what level of offer to accept, without any input from you.

Would you be happy with that service?  It’ll likely come down to whether their assessment and yours matched.  Likely, you’d question whether the sale had taken place with your best interests at heart, or the agent’s.

When it comes to advice for R&D tax relief, it’s a similar relationship.  As agents, we (should) represent your best interests.  It’s not our job to say “this qualifies” or “we’ll claim this”, and it becomes dangerous for claimants when R&D advisors assume the mantle of being the competent professional.

HMRC vs. AHK Recruitment Limited

The full decision runs to 21 pages, and can be found here if you really want to get into the detail but, assuming you don’t want to read all of that, I’ve cantered through a brief summary of the case below.

The company made R&D claims for two periods, for qualifying expenditure totalling approximately £300,000 across both years – so not a huge claim, but not insignificant either.

After what can only be described as a convoluted back-and-forth between HMRC and – at various stages – the company, its tax agent and its R&D advisory firm, HMRC denied the claims.  Importantly, these claims were denied not because HMRC disputed that the activities were within the definition of R&D – instead they were not supplied with evidence to allow them to agree that they were within the definition of R&D.

The company appealed and took it to the First Tier Tribunal.  There, the company gave evidence through its R&D advisor alone – without testimony directly from the company or indeed anyone who worked in a field similar to the one the R&D activities were being claimed in.

The Tribunal found that the company hadn’t proved that they were doing R&D.  Most notably from the decision:

“We are not willing to accept the assertions made by [the tax agent] on behalf of the Appellant”

And:

“We do not attach weight to their assertions as to what technology was and was not readily available during the relevant periods.”

That is to say that the judgement specifically called out the R&D advisors as not being the competent professionals.  As they were not contemporaneously involved in the project and neither had sufficient background in the sector relevant to the claim, their testimony was discounted.

Is it time for regulation of the industry?

A Google (other search engines are available) of “R&D tax relief” brings up a number of firms who quote one or more of a scarily common list of reasons why they should be the one chosen by a company looking to make an R&D tax relief claim.  But behind the impressive-sounding headline, there’s a murky number of shades of grey – and all may not be as it seems.

“We have a claim success rate of 100%”

Are those claims all agreed in full?  Or have they agreed it at a lower value than originally claimed?  It might sound semantic, but it can be a very important difference.

“You’ve got nothing to lose”

What about your wider relationship with HMRC?  If you overclaim, and HMRC aren’t comfortable that you did so in good faith then penalties can apply – up to 100% of the amount that you claimed for.  So you could actually lose quite a lot – and you might not be able to afford to.

“Let us tell you whether it’s R&D”

Only the competent professional can make this judgement.  The courts have stated that we, as R&D advisors, are not competent professionals.

I’m a Physicist by background, and have spent a number of years working as a research scientist in the fields of aerospace & defence and medical technology.  But, in a courtroom, I wouldn’t feel comfortable holding myself out as a subject matter expert on any of those three topics.  The pace of technological change means that practitioners’ knowledge gets dated relatively quickly.

Instead, I and my colleagues use our backgrounds to talk to clients in language they understand and to demonstrate that we’re not just spreadsheet wizards (even though we’re that too).  Our background ensures we get the level of detail we need from our clients through questioning, to help them get comfortable enough to make the assessment of whether their projects qualify for R&D tax relief or not.

Ultimately, if we can’t get a client comfortable claiming for a project – even if experience tells us that the activities would almost certainly pass the tests – then the claim doesn’t go in.  Simple as that.  It’s not our claim, it’s theirs, and it’s their neck on the line if HMRC come knocking.  We’d rather have a better relationship with our clients built on honesty and trust than try to make them a quick buck on something they don’t believe in.

Andrew Hubbard, editor-in-chief of Taxation Magazine, asks in the latest issue (2 July 2020) whether there should be an accreditation of advisors.  In an ideal world it needn’t come to that but, sadly, we’ve seen so many cases where a company has had such a bad experience with their R&D advisor that it feels like the time might be right for regulation.

Countless cases of bad service from R&D advisors don’t make it to Tribunal – the claim’s either completely retracted on enquiry, mired in endless back-and-forth that gets nowhere, or the R&D advisor simply vanishes and moves on to the next client, leaving the company to pick up the pieces and try to repair its reputation with HMRC.

The FRC (Financial Reporting Council) have made some big changes to the Ethical Standard around auditor independence. 

These changes impact businesses of all sizes. And they may impact the non-audit services which your auditor can provide, including tax, secondments and accounting support, meaning you might need to explore relationships with other advisers to meet your non-audit needs.

This news comes after increasing scrutiny on the audit industry following high profile failures such as Carillion, and the direction is clear: to separate audit from non-audit services, improving independence and transparency in the industry.

The Big 4 audit firms have been given a deadline of 2024 to operationally separate their audit practices from non-audit services, and the FRC have now introduced further restrictions on the nature and extent of additional services your auditor can provide.

So, what’s changed? And what does all this mean for you?

THE SHAKE-UP: WHAT’S CHANGED?

From 15 March 2020, the following non-audit-services are prohibited for all audit clients, meaning your auditor can no longer provide:

  1. Internal Audit Services – unless there is a direct link to the statutory audit
  2. Secondments – your audit firm can no longer loan or second staff to you to support your business
  3. Information Technology Services – where the systems designed, provided or implemented would be relied upon as part of the audit
  4. Tax advocacy services for any audit clients where the audit firm would be acting as an advocate on your behalf. For example, supporting you in defending a tax treatment under enquiry
  5. Contingent fee arrangements for all services provided to an audit client – for example, R&D or capital allowances claims

There are also restrictions around the level of accounting services that your auditor can provide where matters require a high degree of professional judgement. For example, giving advice on the implementation of new or upcoming accounting standards.

OK, SO DOES THIS APPLY TO ME?

The new rules apply to all audited entities.

If you are classed as a ‘SME Listed Entity’ or an ‘Other Entity of Public Interest’ there are some further changes, too.

SME listed entities provision

Previously, special provisions existed for ‘SME listed entities’ which exempted them from the full non-audit service rules which applied to larger, listed businesses. In the new standard, those special provisions have been removed.

This means that all AIM and other listed businesses face further restrictions on what services their auditors can provide, including accounting services and preparing the current and deferred tax calculations.

OEPIs

‘Other Entities of Public Interest (OEPI)’ is a new category the FRC has introduced, and entities within it include:

Except for a very narrow list of audit-related and regulatory reporting services, all non-audit services are prohibited for OEPIs.

WHEN DOES THIS APPLY FROM?

This Ethical Standard took effect for periods commencing on or after 15 March 2020, except in the case of ‘Other Entities of Public Interest (OEPI)’. Here, the restrictions will apply to periods commencing on or after 15 December 2020.

Transitional provisions

If you agreed engagement terms around previously permitted non-audit or additional services before the transition date, that’s fine. The work can continue until it’s completed in line with those original terms, subject to the application of appropriate safeguards where work has already commenced.

WHAT SHOULD I DO NOW?

With the rules in effect, you should act now to review the current services provided by your auditor to assess if there are any independence concerns. Speak to your auditor and get their advice on whether any non-audit services provided by them fall under the new restrictions.

Where the new rules impact your business, consider talking to other advisers to retender those non-audit services as soon as possible. See here for more detail about changing advisers in this current climate.

Furthermore, many larger businesses are now considering that it is ‘best practice’ to separate their audit and non-audit services, even where no formal restrictions exist.

HOW CAN WE HELP?

We’d be delighted to have an initial discussion with you about how we might be able to support you with non-audit services going forwards. From accounting support, internal audit and secondments, to business tax and R&D, we’re here to help.

So, if you have any questions or you’d like some support or more detail, get in touch with your usual CP contact, Sarah Kirkby or Cat Kelly.

As a business owner, you’ve probably found the last 3 months all-absorbing. Managing the significant challenges your business has faced takes time. And a lot of it.

Of course, you’ve still got plenty to think about business-wise, but are you taking enough time to think about yourself?

Start talking about you

Recent events have made many of us focus more than usual on our own mortality. Are we spending our time on the right things? Have we done all we can to protect the wealth we’ve built up and leave a legacy?

Now may be the time to self-review and put plans in place. Your priorities will be unique to you, of course, but it could be worth considering the following:

Tax often plays a part

Whilst never a driver, tax considerations will often play a key part in any personal planning. The government support packages have been a lifeline for many individuals and businesses, however, the impact on public finances will need to be balanced.

That could mean tax cuts in the short term to stimulate the economy, but it’s likely that tax rises are on the horizon. Amongst many possible changes, we could see increases to income tax and capital gains tax, and a possible reform of wealth taxes – with speculation suggesting the latter may involve the loss or reduction of the exemption from inheritance tax that is currently available for some business assets (which we covered here).

Because possible tax changes could influence your thoughts on the appropriate ownership of your assets and succession, or the timing of any actions you may take, they should always be considered in the context of your plans.

To start thinking about yourself and talk through what’s on your mind, get in touch with your usual tax contact, or Krista Fox at kristaf@cooperparry.com.

Cat Kelly, our Partner and Head of Retail, recently spoke at the ICAEW’s (Institute of Chartered Accountants in England & Wales) webinar. The topic? Innovation in retail and the role of the accountant in this brave new world.

COVID-19 has shocked the retail sector to its core. That’s no secret. But it’s the businesses that have innovated and adapted to the restrictions they’re facing that will come out the other side of the pandemic flying.

Ashley Gatehouse, CMO & Board Advisor at QUANTIC, joined Cat to discuss some of the most exciting innovations we’re seeing in retail technology, and the importance of shipshape, sure-fire systems and processes to tie it all together.

You can watch the whole thing back here, and if you’ve got any questions for Cat, she’d love to chat: catherinek@cooperparry.com

The Cooper Parry Corporate Finance team has completed another high-profile healthcare deal, advising WestBridge on their £9.6m investment to support the MBO of Bespoke Health & Social Care.

Established in 2011, Bespoke is a specialist nurse-led service provider, with over 50 employees and 620 trained carers who enable and empower individuals with complex health and social care needs to be supported within their own homes and communities.  Bespoke works in partnership with its clients, their families, circles of support and multi-agency teams, to support children and adults with physical disability, mental health conditions, learning disability and autism. The company is committed to driving the Transforming Care agenda, which aims to provide care in homes, not hospitals.

Headquartered in Nottingham and with a strong reputation for the quality of its provision, the company currently manages contracts from 58 of the UK’s Clinical Commissioning Groups (CCGs).

The deal sees Bespoke founder Paul Sais retain a significant share of the business and take a seat on the board. Craig Rushton has been appointed as chairman, and he will work closely with the incumbent six-strong management team, led by managing director David Hatton, to take the business forward.

This investment by WestBridge, an award-winning private equity house, will underpin Bespoke’s future growth and development.

Tim Whittard, Partner at WestBridge, said:

“We are very pleased to have completed our investment in Bespoke and it was a pleasure working with the Cooper Parry team on this transaction. Their dedication and commitment throughout the process coupled with their strong private equity expertise and strong knowledge of the health and social care market was instrumental in helping us to get the deal completed in this unprecedented environment. We look forward to working with them again in the future.”

Andy Parker, Partner at Cooper Parry Corporate Finance, said:

“Bespoke is a great business which has been growing rapidly and has responded strongly to the current pandemic. We are delighted that our healthcare knowledge and private equity expertise have been instrumental in driving through this investment by WestBridge.”

Niall Chantrill, Associate Director at Cooper Parry Corporate Finance, added:

“We are delighted to have advised on another high-profile healthcare transaction. The investment from WestBridge is a great opportunity for the Bespoke team to continue to build on a very successful business renowned for providing high quality care.”

Over the course of June, the Education and Skills Funding Agency (ESFA) has been very, very busy. They’ve published two key regulatory documents for the academies sector; the Academies Accounts Direction 2019 to 2020 (AAD 2020) and the Academies Financial Handbook 2020 (AFH 2020), as well as publishing some much-awaited guidance on claiming funding for the exception costs incurred in responding to COVID-19.

So, we thought it would be helpful to detail the key changes from these documents and guidance and share our insights into what actions you should take away from them.

COVID-19 EXCEPTIONAL COSTS FUNDING

The ESFA have now published some updated guidance on the funding for exceptional costs incurred in relation to COVID-19, including the process for claiming the funding.

In terms of timing, the online claim form must be completed by 21 July 2020, which will be for all exceptional costs incurred up to that date. The ESFA then expect to make payments of the funding at the beginning of September. A further claim window will open in the autumn and further details on this will be provided by the ESFA in due course.

One of the questions we have received from many academies is whether the claims are at an individual school level or a trust (MAT) level. Our understanding from previous discussions with the ESFA was that this was at an individual school level and the additional information and guidance provided by the ESFA now confirms this.

One of the key issues with the previous guidance was around the eligibility for the funding and the updated guidance also provides some clarity around this. The key points to note on this are:

With claiming for the other exceptional costs outside of the 3 specific areas, these will be subject to further assessment by the ESFA and so are not guaranteed in any way. Key to note here is that the guidance from the ESFA specifically sets out that this will not cover costs associated with opening schools to more pupils from 1 June, additional staff costs or loss of self-generated income.

While the maximum amount of funding that can be claimed will be subject to the limits set out in the guidance, if the actual costs incurred are in excess of these limits, then there is scope to claim the higher costs incurred, but this will again be subject to further assessment by the ESFA and so again is not guaranteed in any way.

One of the questions we have also had from a few academies is about recognising this income in the 2019/20 year. Based on the income recognition principles under the Charities SORP, it would be appropriate to recognise this income in the 2019/20 year if a claim has been submitted by the 21 July deadline. In terms of how much to recognise as income, it will depend on the value of the claim and also whether you are claiming for other costs outside the 3 specific areas or indeed for amounts over the funding limits. However, given the funding is expected to be paid in early September, the safest option is to wait and see what amount is received and then accrue this in your 2019/20 year accounts.

All the details of the claim process and the updated guidance can be found here.

ACADEMIES FINANCIAL HANDBOOK 2020

The AFH provides an overarching framework for the implementation of effective financial management and control in academies and is one of the keyways the ESFA set out what they expect from academies in using public funds.

The AFH 2020 is effective from 1 September 2020 onwards and as always, compliance with it is a condition of all academy trust’s Funding Agreements.

The full AFH 2020 can be found on the ESFA’s website here.

More ‘musts’ for 2020

One of the key aspects of the AFH 2020 is the ‘musts’ which set out each of the financial requirements that are mandatory for academies to follow.

As always, there is a useful section in the AFH (Part 8) which summarises all the ‘musts’. For the real enthusiasts out there, in the AFH 2020 there are 103 ‘musts’ which compares to 97 in the current AFH! Some of the additional ‘musts’ are clarifications around areas that were previously expected but just not clearly spelt out, while others represent some new additional requirements, especially in terms of the expectations of Audit and Finance Committees.

What’s clear from it all is the ESFA’s continual drive for the highest standards of financial management and governance in academies.

So, what are the key changes? These are conveniently summarised on page 9 of the AFH, but we’ve expanded on these a little further here.

Governance changes

Members

One of the key changes is around members of the trust and specifically, who can be one. Under paragraph 1.4, employees must not be members but what’s been added is that this now also extends to being an employee on an unpaid voluntary basis.

This requirement is effective from 1 March 2021, which means existing academy trusts which have a provision in their Articles of Association allowing employees to be members are going to have to revise their Articles to reflect this requirement.

Members and trustees working together

There is also some extra emphasis around members working with the trustees and paragraph 1.8 now sets out that it’s important for members to be kept informed about the trust and its business so they can ensure the trustees are exercising effective governance, and that this must now include providing members with the annual trustees’ report and audited accounts.

What’s going to be important therefore is that trustees ensure there is a process for a regular dialogue with the members throughout the year. This is particularly important where there is a large degree of separation between members and trustees, which is the ESFA’s preference anyway.  This could be achieved through an annual meeting with the members or through providing the members with copies of the minutes of trustee meetings through the year.

Going concern

This has been a very topical area in recent years, especially in those end of year accounts discussions with your auditors!

Paragraph 1.14 now sets out that in addition to the trustees’ responsibility for ensuring regularity and propriety in the use of public funds, they must now also take ownership of the trust’s financial sustainability and its ability to continue as a going concern.

This is particularly important with ongoing funding pressures and uncertainty around some aspects of funding going forward, including funding for costs incurred in dealing with the current COVID-19 pandemic. The ESFA have previously produced a good practice guide on going concern to assist trustees in understanding what going concern means and how to challenge this in their trusts more effectively. The ESFA’s good practice guides can be found here.

Appointing a clerk to the board of trustees

One subtle but important change is in paragraph 1.40 which sets out that trusts must now appoint a clerk to support the board of trustees. Previously, this was a ‘should’.

Updating registers of interest

While it’s still a mandatory requirement to maintain a register of interests for all members, trustees, local governors, and senior employees, what’s new now in paragraph 5.46 is that the register of interests must be kept up to date at all times.

What most trusts would do is update the register of interests on an annual basis, often at the start of the academic year. It’s clear this is now no longer sufficient. Trusts are going to need to ensure they have a process in place for capturing any changes in interests for those relevant people throughout each year, and then ensuring they update the register of interests as published on the trust’s website.

Executive team changes

Employment status of the Accounting Officer and Chief Financial Officer

A key change in the AFH 2020 is around the Accounting Officer and Chief Financial Officer (CFO) and specifically their employment status. In paragraphs 1.26 and 1.36, it’s stated that both the Accounting Officer and the CFO should be employees of the trust, but then it goes on to say that the trust must obtain the ESFA’s prior approval if they propose appointing someone, in exceptional circumstances, in these roles who will not be an employee.

So, it’s pretty clear that the ESFA really want these roles to be filled by employees! This is therefore going to be an important consideration for trusts whose existing Accounting Officer or CFO are not currently employees, as they are likely going to need to obtain the ESFA’s approval prior to 1 September 2020 for these roles to continue.

CFO experience and qualifications

The ESFA have also provided some expectations around the particular skills and experience the CFO should have, which are set out in paragraph 1.37.  Essentially, it encourages larger trusts (defined as those with more than 3,000 pupils) to consider whether the CFO should have a recognised accountancy qualification from a professional body such as the ICAEW, ACCA, CIMA and CIPFA (which includes the qualifications developed in partnership with ISBL).

We’ve certainly seen larger trusts moving this way anyway, as the requirements and expectations of CFO’s in larger trusts have really moved on from the more traditional business manager roles.

General controls and transparency changes

The AFH 2020 has certainly increased the expectation around what controls trusts should have in place and the level of transparency going forward. These are all largely detailed in Part 2 of the AFH 2020 and now include:

One of the key changes in the AFH 2020 in this area is around the publication of executive pay, which is essentially any employees whose benefits (which means gross salary, other taxable benefits, and termination payments) are more than £100,000. Under paragraph 2.32, a trust must now publish on its website the number of employees whose benefits exceed £100,000. This information should be as an extract from the disclosure included in the trust’s financial statements for the previous year and should be reported in £10,000 bandings.

What this means in practice is that from 1 September 2020, a trust will need to publish the required information on its website based on the most recent financial statements disclosure, which will mean the information included in the financial statements for the year ended 31 August 2019. Once the financial statements for the year ended 31 August 2020 are published, the information on the website should then be updated for that information.

Internal scrutiny changes

Internal scrutiny continues to be another hot topic in the academy sector and as expected, there are some further changes and clarifications around this in the AFH 2020. It’s quite clear the ESFA are continuing to strengthen this area and encouraging trusts not to just look at a basic approach in relation to internal scrutiny but to look at a much wider and holistic approach so they can ensure their internal controls and procedures are fit for purpose, are being complied with and that risks are being managed appropriately.

The AFH 2020 has now clarified the scope of internal scrutiny work and that this must now cover both financial and non-financial controls. As trailblazers in this area, we have been doing a lot of work with trusts over the last 12 to 18 months looking at much wider areas than pure financial controls. We’ve looked at trust’s governance arrangements and structures, reviewed trust’s risk management plans and risk registers, reviewed trust’s central services structures and basis of charging central services, reviewed trust’s growth capacity plans and even done some initial IT systems review work.

The key changes

A key change introduced in the AFH 2020 is to emphasise that in line with the Financial Reporting Council’s revised Ethical Standard for auditors, audit firms are no longer able to provide internal scrutiny services to a trust were they are also the external auditors. Whilst there are some transitional provisions around this which allow any existing engagements for internal scrutiny services at 15 March 2020 to be completed, what it effectively means in practice is that from the beginning of the 2020/21 academic year (i.e. from 1 September 2020), trusts will need to appoint a separate organisation to provide their internal scrutiny services (or of course look at one of the other options for doing internal scrutiny as set out in the AFH).

When considering options for undertaking the internal scrutiny, the AFH 2020 also now emphasises that trusts can use other people / organisations when covering non-financial controls, so it’s not just about using one provider for all the work but using the right people and expertise for the right area.

With this, if non-financial controls have been reviewed as part of a trust’s internal scrutiny work for a particular year, then the findings from this should also be incorporated into the annual summary findings report submitted to the ESFA by 31 December each year.

The AFH 2020 also now provides a link to the good practice guide produced by the ESFA on internal scrutiny, which you can find with all the other ESFA good practice guides here.

Annual accounts and external audit

The key change here is the addition of the expected remit of the Audit Committee (or equivalent) in paragraph 4.17.

A trust’s Audit Committee must now:

So, some important aspects here for Audit Committees (or equivalent) to be aware of!

Delegated authorities

While there are no changes in the delegated authorities for academies, which are all set out in Part 5 of the AFH 2020, there is a subtle emphasis change to note in relation to leasing.

Everyone knows academy trusts are not able to borrow, which includes entering a finance lease or bank overdraft arrangement, without the specific prior approval of the ESFA.  Whilst there is no change here, there is a very subtle change in paragraph 5.25 of the AFH 2020 which sets out that taking up a finance lease is linked to the general borrowing restrictions under the AFH. What this effectively means is that where there is an agreement in place to lease an asset which represents borrowing which is to be repaid from grant funds or secured on assets funded by grant funds, the ESFA approval is required.

There is also a link to the ESFA’s good practice guide on leasing.

It’s also worth referring to the update we provided earlier in the year here which provided a reminder about finance leases and the issues to look out for.

ACADEMIES ACCOUNTS DIRECTION, 2019 TO 2020

The AAD is the reference pack for academy trusts and their auditors to use when preparing and auditing academy trust financial statements.  The 2019 to 2020 AAD applies to financial periods ending on 31 August 2020 and compliance with the AAD 2020 is mandatory for all open and operating academy trusts.

The full AAD 2020 can be found on the ESFA’s website here.

While there are a few changes in some of the disclosures required in the financial statements, most of the key changes in the AAD 2020 are in the trustees’ report and related governance and regularity statements, so we have outlined these in a bit more detail.

New reporting requirements in trustees’ reports

There are some important new statements and narrative required to be included in the trustees’ reports for the period ending 31 August 2020. Some of these new requirements may be quite onerous for some trusts, so it’s important for trustees and management teams to start looking at these as early as possible.

Most of these changes apply to those academy trusts which meet the definition of a large company under the Companies Act 2006, so it’s important to understand what a large company is.

An academy trust will qualify as large for the purposes of this reporting where it satisfies two or more of the following in two consecutive financial years:

Reporting on the academy trust’s business relationships

Under The Companies (Miscellaneous Reporting) Regulations 2018, all large companies must include a statement in the trustees’ report describing how the trustees have had regard to the need to foster business relationships with suppliers, customers and others, including its effect on the principal decisions taken during the year.

In the context of academy trusts as charitable companies, when reporting on this it’s important for trustees to consider expanding this to cover their relationships with other stakeholders, such as pupils, parents, key funders, and the wider community.

Reporting on promoting the success of the academy trust

Under section 172(1) of the Companies Act 2006, the trustees already have a responsibility to act in a way most likely to promote the success of the company, and in doing so must have regard to:

Under The Companies (Miscellaneous Reporting) Regulations 2018, all large companies must now also include a statement in the “strategic report” section of their trustees’ report describing how they have had regard to the matters detailed in section 172(1) above.

In the context of academy trusts as charitable companies, when reporting on the success of the company, this should be focused on promoting the success of the trust in achieving its charitable educational purposes.

In making this statement, there is likely to be some overlap with the narrative detailed above around the trust’s business relationships, so it’s important to avoid just repeating that narrative but will be quite acceptable to cross-reference the narrative where appropriate.

The statement under section 172(1) must also be published on the academy trust’s website. This can be published as a separate statement on the website but as academy trusts must also publish their full annual trustees’ report and financial statements on their website, this will satisfy this requirement.

Reporting on the academy trust’s engagement with its employees

Under The Companies (Miscellaneous Reporting) Regulations 2018, for all companies with more than 250 employees, the trustees must now also include a statement in their trustees’ report summarising how they have engaged with employees, and how they have had regard to employee interests, and the effect of that regard, including on the principal decisions taken by the academy trust during the financial year.

The statement must describe the action that has been taken during the financial year to introduce, maintain or develop arrangements aimed at:

For each of the new reporting requirements outlined above, in addition to the information in the AAD, the Charity Commission has also published a guide: Charities SORP Information Sheet 3: The Companies (Miscellaneous Reporting) Regulations 2018 and UK Company Charities, which can be found here.

Streamlined energy and carbon reporting

The final, and probably the most significant, new reporting requirement relates to the streamlined energy and carbon reporting required in the trustees’ report under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.

These regulations require large companies which consume more than 40,000kWh of energy in the UK in a reporting period to include certain information about energy efficiency measures.

The information required to be disclosed includes the following:

In determining whether the 40,000kWh threshold is met, academy trusts must consider, as a minimum, all the energy from gas, electricity, and transport fuel usage they are responsible for.

If the threshold is met during the reporting period, but the academy trust does not meet the large company criteria, then no statement is required in the trustees’ report. However, a statement including all the required information will need to be published on the academy trust’s website by 31 March 2021.

If an academy trust consumes less than 40,000kWh of energy in the reporting period, whether it’s also deemed to be large or not, it does not need to include any statement in the trustees’ report or on the website provided that the trustees’ report states the reason why this information has not been disclosed (which is essentially that its consumed less than 40,000kWh of energy in the reporting period). In these circumstances, trusts are encouraged to make the disclosures on a voluntary basis, although this may be done on the trust’s website rather than in their trustees’ report.

Where it is not practical to calculate the required energy usage information for whatever reason, this should be reported in the trustees’ report and it should also explain what steps the trust is taking to calculate this information in the future.

The Government has published guidance on how to approach these new disclosure requirements which is available here.

The ESFA have also produced a good practice guide to assist academy trusts with this reporting requirement, which can be found with the other suite of good practice guides here. This includes a worked example and an illustrative disclosure table for inclusion in the trustees’ report.

Recommended statements in the Governance statement

There are two areas where trustees are now encouraged to provide some additional narrative in the Governance statement as follows:

Governance Handbook and Competency Framework for Governance

Although the DfE’s Governance Handbook and Competency Framework for Governance are not mandatory guidance for trustees, trustees are encouraged to review and take account of these documents as part of their roles. As such, trustees are now encouraged to state in the Governance statement that they have reviewed and taken account of this guidance, so it’s something we would certainly encourage all trustees to review if they haven’t already done so.

The guidance can be found here.

Internal scrutiny arrangements

In reporting on the academy trust’s internal scrutiny arrangements, trustees are now also encouraged to set out in the Governance statement what action they have taken (if any) in relation to internal scrutiny arrangements as a result of the revised Financial Reporting Council’s Ethical Standard for auditors.

We’ve covered the impact of the changes in the revised Ethical Standard in the section on the AFH 2020 earlier in this update and so what this means is that trustees will need to detail how the trust’s internal scrutiny arrangements are impacted by the revised Ethical Standard, either for the 2019/20 year or future years.

Updated reporting requirements in the Regularity statement

The AAD 2020 includes clarification that when instances of irregularity, impropriety or non-compliance are noted in the Accounting Officer’s statement on regularity, propriety and compliance, the statement should include details on the relevant monetary amounts involved (if known).

This also applies to the reporting accountant’s assurance report on regularity as the details of any instances of irregularity, impropriety or non-compliance noted in the Accounting Officer’s statement should be aligned with the details in the reporting accountant’s assurance report.

In the context of the Accounting Officer’s regularity statement, it’s also important to note the ESFA have provided clarification that where an academy trust has closed (e.g. all school(s) have been transferred to another trust) during or after the year end and the Accounting Officer has left, the trustees remaining must appoint someone else as the acting Accounting Officer to sign-off the regularity statement.

Changes in financial statement disclosures

The changes in the format and content of the financial statements were very minimal and the changes are detailed in the introduction section of the AAD 2020. Two key changes to note however are:

There was also clarification that where an academy trust has two or more subsidiary companies, they may only be excluded from consolidation if they are not material when taken together.

AAD 2020 Update Bulletins

In publishing the AAD 2020, the ESFA have said that “further bulletins on the Academies Accounts Direction 2019 to 2020 may follow and would have the same status as the AAD 2020.” So, watch this space.

Our understanding of this is that an update bulletin will be issued which deals with specific matters relating to COVID-19, including:

We’ll provide a further update on this once the update bulletin has been published.

A quick word on the ESFA reporting deadlines

At the moment, the deadline for submission of the Trustees’ report and audited financial statements for the period ended 31 August 2020 to the ESFA is 31 December 2020. From discussions with the ESFA, our understanding is they are reflecting on the submission deadline and whether this should be extended or modified in light of the impact of COVID-19, so there may be some further announcements on this over the coming months.

If an academy trust has a shorter accounting period (i.e. an accounting period that ends before 31 August 2020 because a trust has now been wound up), the submission deadline will be 4 months after the period end.

With the Academies Accounts Return, the guidance for the 2019-20 year return hasn’t been published by the ESFA yet, but the usual deadline for submission of these is mid-January. Depending on any changes in the deadline for submission of the audited financial statements, this deadline could also change.

There you have it!

Plenty to digest, but hopefully a good guide of the area’s trustees, Accounting Officers and CFO’s need to start thinking about in terms of their 31 August 2020 year end reports and accounts and in terms of their financial and governance responsibilities from 1 September 2020 onwards.

As ever, if you have any questions on any of the details included in this update or just want more information, guidance or advice in relation to your academy, then please contact any of our academy sector specialists – Nick Simkins, Simon Atkins, Andy Jones, Glen Bott, James Taylor or Sarah Chambers.

18 months ago, our Not for Profit team consisted of four people. From September, that number will be 23. And we’re still on the lookout for more fresh faces.

We’ve made two key hires in the last two months alone. Nick Simkins joins us as Partner and Head of Not for Profit, having previously led the national NFP team at Moore Stephens, prior to its merger with BDO. And Glen Bott has also joined us as a specialist NFP Director.

Our NFP team was previously headed up by Simon Atkins, who will hand over the running of the team to Nick. Simon will continue working with his client base in his role as Partner, as well as taking on a wider remit as Head of Risk.

Now, the ambition is clear: to build on our position as the #1 NFP Auditor in the Midlands. And become the #1 in the UK.

At the end of last year, we recruited the Education Services team from Oxfordshire-based accountants, Whitley Stimpson. It was a big step forward for us, stretching our footprint across the UK with 25 new clients, and deepening our expertise with two senior hires in Director, Andy Jones, and Senior Manager, Sarah Chambers – both of whom have been working in the academy sector since its inception.

Our team don’t just have tons of experience. They’re all specialists in the NFP sector, too – which is rare. And with a number of the team acting as governors and trustees in academy schools and charities, they understand and appreciate our clients’ issues and opportunities, first-hand.

We’ve also built excellent relationships with the Association of School & College Leaders (ASCL) and the Institute of School Business Leadership (ISBL), increasing our influence in the education sector. And we’ve been helping our clients out with a broad range of services, from internal and external audit, VAT, direct taxation, governance and risk reviews.

Finally, a word from Nick Simkins, our Head of Not for Profit. He said:

“I am thrilled to join Cooper Parry at such an exciting time. We have brought together an unrivalled team of experienced specialists who are passionate and caring about the not for profit world.

“We are a firm with a unique culture that genuinely lives out its values for the benefit of our people and clients.

“It’s time for Cooper Parry to disrupt and reach our ambition to be the #1 NFP firm.”

Welcome to the latest edition of our regular business update on all matters VAT.

In this June edition, we cover:

(1) Time to pay arrangement for VAT

(2) Domestic reverse charge in the construction industry

(3) VAT liability of small business grant funding or Retail, Hospitality and Leisure grant fund

(4) Partial exemption method for hire purchase businesses

(5) Brexit: customs controls phased in from 1 January 2021

(6) Pay less Customs Duty and VAT if you are importing capital items into the UK from overseas

(7) Update on Making Tax Digital for VAT.

Time to pay arrangements for VAT and other measures to support businesses with their VAT liabilities

Relevant to: All VAT registered businesses that are anticipating financial hardship.

The Covid-19 VAT payment deferral is coming to an end on the 30th June, and based on current
announcements, don’t anticipate it will be extended. If you think you may struggle to pay your next VAT payment, HMRC may consider on a case by case basis other measures to support your business. These measures can include time to pay arrangements, a temporary suspension of the monthly payment on account regime or seasonal adjustment of VAT return stagger periods, or delaying the payment of import VAT and customs duties.

How we can help: We can support with analysing the best options for you and support your conversations with HMRC.

Further delay to implementation of the VAT domestic reverse charge in the construction industry

Relevant to: Any VAT registered persons that trades with or within the construction sector.

HMRC has announced that the domestic reverse charge VAT for construction services will be delayed until 1 March 2021. This was previously planned for 1 October 2020, (having already been pushed back from October 2019) so businesses have another 5 months to plan for its implementation.

Spring 2021 is shaping up to be a very busy period for indirect tax compliance… Brexit, MTD, settling VAT liabilities that had been deferred under the Covid-19 VAT deferral scheme and now the domestic reverse charge for construction services.

How we can help: We can provide further clarity on what the domestic reverse charge means and how to get the correct procedures and systems in place in advance of this scheme coming into force.

VAT liability of Small Business Grant Fund or Retail, Hospitality and Leisure Grant Fund

Relevant to: Any businesses that have received either the Small Business Grant Fund or the Retail,
Hospitality and Leisure Grant Fund.

As part of reliefs given out to help with businesses during Covid-19, in April 2020 the Department of
Business, Energy and Industrial Strategy announced two grant funding schemes for businesses: the Small Business Grant Fund; and the Retail, Hospitality and Leisure Grant Fund.

For VAT purposes, as the grants are given without an expectation of anything in return and comply with state aid requirements, they are not classed as consideration for a supply and are not subject to output VAT.

The fact that no output VAT is charged upon receipt of the grant funding does not automatically mean that this leads to a block on recovery of input tax. Each grant-funded activity should be reviewed separately to consider whether or not the grant is used for business activities. Where grants are received to support business activities, the normal input VAT rules apply.

How we can help: We can support your business by giving clarity on whether or not you can or cannot reclaim all of your input VAT in relation to the supplies provided by the grant funding.

Partial exemption method for suppliers of goods on hire purchase

Relevant to: Businesses who supply goods by way of hire purchase agreements.

Following on from a 2018 case at the Court of Justice of the European Union (CJEU) involving Volkswagen Financial Services (UK) Limited, HMRC has announced a change to partial exemption VAT treatment for businesses who supply goods by way of hire purchase (HP) arrangements. Where goods are supplied on HP, there is a credit element within the overall supply provided to customers, with this credit element being an exempt supply for VAT purposes. Due to this exempt element the total supply made to customers is a mixed supply for VAT purposes, which means that VAT costs incurred by the supplier in relation to the mixed supply will have an element of non-recoverable input VAT.

HMRC have announced that when a business is supplying goods on HP, input VAT recovery on its
residual overheads can be recovered where it is fair and reasonable, and has proposed an example
partial exemption method to address the recovery of such costs. However, this example method is not
compulsory and businesses can continue to apply any fair and reasonable partial exemption method
agreed with HMRC.

How we can help: We can help with calculating the appropriate partial exemption method to maximise the amount of VAT recovery.

Brexit customs controls phased in from 1 January 2021

Relevant to: Businesses who trade with the EU.

The Government has announced that the UK has formally notified the EU that it will not accept or seek any extension to the transition period. This means that from 1 January 2021 the UK will introduce its own approach to goods imported into the UK from the EU. Therefore, from 1 January 2021 new border controls will be introduced in three stages up until 1 July 2021.

From January 2021: Traders importing standard goods, covering everything from clothes to
electronics, will need to prepare for basic customs requirements, such as keeping sufficient records
of imported goods, and will have up to six months to complete customs declarations. While tariffs
will need to be paid on all imports, payments can be deferred until the customs declaration has been
made. There will be checks on controlled goods such as alcohol and tobacco. Businesses will also
need to consider how they account for VAT on imported goods. There will also be physical checks at
the point of destination or other approved premises on all high-risk live animals and plants.

From April 2021: All products of animal origin (POAO) – for example meat, pet food, honey, milk, oregg products – and all regulated plants and plant products will also require pre-notification and the
relevant health documentation.

From July 2021: Traders moving all goods will have to make declarations at the point of importation and pay relevant tariffs. Full Safety and Security declarations will be required, while there will be an increase in physical checks and the taking of samples for sanitary and phytosanitary commodities. Checks for animals, plants and their products will now take place at GB Border Control Posts.

How we can help: We can support your business to ensure you are ready and understand your obligations for trading with the EU as these new border controls come into force.

Pay less Customs Duty and VAT if you are importing capital items into the UK from overseas

Relevant to: Overseas businesses (companies, self employed and not for profit organisations) who are moving their business to the UK from overseas and carrying on a similar activity in the UK.

If you are transferring a business to the UK (where that business has stopped overseas and an activity
of a similar nature will be carried out in the UK), you can get relief from customs duty and VAT (if certain conditions are met) on capital items and other equipment such as office or shop equipment, computer equipment or means of transport used for the purposes of production or for providing a service.

How we can help: We can review whether the conditions are satisfied and how to claim the relief.

Update on Making Tax Digital for VAT

Relevant to: All UK VAT registered businesses.

As you are probably aware, HMRC announced that the soft landing period for Making Tax Digital (MTD) for VAT has been extended until April 2021. This means that all VAT registered businesses will have more time to put in place digital links between all parts of their functional compatible software.

On a recent MTD seminar, HMRC were keen to stress that although the soft landing had been extended, the need to be compliant still applies and taxpayers should continue to prepare. They mentioned that 15% of taxpayers who are required to use MTD are still not registered.

CIOT (the tax professional body), continue to request that where it is not possible to put a digital link in place, HMRC should consider whether additional controls can be inserted to achieve additional reassurance (similar to additional conditions imposed by HMRC when a taxpayer has had a penalty applied).

For now though, businesses are advised to review their VAT return processes (especially in relation to the use of spreadsheets and the consolidation of data) to ensure that their processes are digitally linked and they are compliant ahead of next spring’s deadline. Where this isn’t possible, early conversations with advisors and HMRC should take place.

How we can help: We can support your business to ensure you have the correct processes and
procedures in place for the period post the soft-landing phase.

That’s a wrap for June

Any questions?

Get in touch with Damian Shirley, our VAT Partner, at damians@cooperparry.com

With lockdown loosening, we’re expecting the volume of deals in the M&A market to start picking up. You can read all about our thoughts on the types of deals and the sectors they’ll be in here, but in this article, we want to focus on how we think those deals will be priced.

Lessons from 2008

After the global financial crisis, the market had a massive dip worldwide. Mega deals and international deals slowed down drastically, and the overall value of the transactions dropped significantly between 2009 and 2013, with far less multi-billion pound deals taking place.

Importantly, however, the mid-market deals involving the businesses backed by entrepreneurs continued to happen – albeit at a slower rate to before the GFC. And actually, the investments that were made in that period, particularly by private equity, proved to be highly successful and deliver really strong returns for the PE houses.

Fast-forward to 2020

We’re in another ‘trigger’ moment. An event that will make a lot of people rethink their businesses. But it’s important to note some of the key differences between now and 2008.

Because this is a health crisis, and not a financial crisis, banks are in a much better place now compared to 2008. High street banks are well capitalised, but they’re focusing on their existing portfolios and government initiatives such as CBILS, CLBILS and Bounce Back, so we’re expecting new debt opportunities for non-existing clients to be limited.

We’re also expecting leverage multiples to reduce in the short term, and pricing to increase. In 2008, the leverage levels were extremely high. Pricing for the last couple of years has been frothy, but it hasn’t been built on excessive leverage.

PE houses are keen to invest, but PE needs leverage in the deal structure to make their returns work, so availability and pricing of debt is likely to impact valuations in the short term. However, we’re hearing from the market that a number of PE houses will consider underwriting the debt and refinancing to get deals done.

The post-GFC period showed us that good, strong businesses, with a resilient business model and a great management team, are still going to be in high demand.

Short term, there is a risk of deploying both equity and debt capital, but longer term, given the position of the banks, we’re expecting leverage to bounce back.

There will still be opportunities coming out of this, and it will be those businesses that are already thinking about what the future looks like and how they’re going to seize those opportunities when they come around that will prosper the most.

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