Accountant Manager Skill Matrix

Let’s look at a few basic questions around what accounts are for, and some of the reasons why you have to produce them or have them prepared for you.

Also, why do we accountants often seem to do a lot of work in and around transactions which appear to you to be more complex than is necessary, or perhaps even completely irrelevant?

The usual reasons trotted out may include some, or all, of the following:

• management information
• performance measurement
• keeping your finger on the pulse of your business
• failing to plan is planning to fail
• good stewardship
• best practice
• proof of performance in preparation for a sale
• record of value
• the bank wants accounts in support of your loan(s), overdrafts, equipment leases, etc

Whilst each of these is a valid reason, the two primary or most important reasons are:

1. First, the Companies Acts provide the legislative framework for incorporated businesses, and these apply to public and private companies alike. Therefore, accounts are required to be filed not only as a record, but also an examination of the Directors’ stewardship of the company for the benefit of the shareholders. This is because in larger and public companies, the vast majority of the shareholders are not involved in day to management, or will even work in the company at all, and the Directors may not be shareholders. To that extent, there is no differentiation between the size or type of company, so small owner managed companies are equally caught by the provisions. There are also similar Laws and Regulations governing Partnerships, sole traders, and other types of business entity.
2. Second, let’s follow the money, and ask ourselves this question. Given that we are for the most part, small or medium owner managed businesses, and probably know reasonably instinctively whether we are profitable and how our businesses are doing, who or what are the real beneficiaries of the requirements to produce and file accounts, if not you?

Not us accountants, but Her Majesty’s Revenue and Customs on behalf of their Masters, HM Government. I had the privilege and pleasure of undertaking some occasional work with an old school tax barrister. He didn’t ever call HMRC/HMG by their given name(s). He always referred to them collectively as ‘The Forces of Darkness’. If he was particularly stressed by them, he would preface that with ‘Vile and Evil…..’

The sole and real primary purpose of formal accounts production for small companies and other unincorporated businesses is the assessment and collection of taxes – being corporation tax, income tax, national insurance, value added tax, taxation on capital gains, and a myriad of other taxes and duties which apply to specific sectors which many people won’t have heard of, but include exotica like petroleum revenue tax, all the different stamp duties incorporating every different real property transaction, import duties and export duties, unit trusts, oeic’s, securities, loans, debentures, mortgages, and virtually every civil court document you can think of, Landfill tax, Aggregates Levies, and Climate Change Levies, and so on, ad infinitum.

In the past there have been taxes levied on bicycles (some will remember that), dog ownership (licences), on houses according to the number of windows they had, milled and/or malted grain, but not raw unprocessed grain.

These last two examples were possibly the foundation stones of tax avoidance and tax havens. The first, window or glass tax, was supposed to collect more tax from bigger houses, the reasoning being that big houses had more windows, glass was very expensive in those days, so they could very obviously afford to pay more tax. Avoidance was a bit crude, but very logical, and most effective. People bricked up their windows, so when the local assessor came to count them, they had fewer to tax. You can still see examples of Georgian houses bearing that type of very visible scar.

The second, the tax on milled grain spawned probably the first tax haven dodge. Raw grain (no duty or tax) was shipped to Jersey. It was milled and/or malted, and re-exported to the UK. There were no import duties in those days, so the tax was avoided. A significant proportion of the flour used in the South East for bread was milled in Jersey, and a very large proportion of the grain used in malt scotch production was malted there for the period that the tax lasted. It was scrapped as unworkable because of the avoidance scheme.

Collectively, we (as in not HMRC/HMG) represent the Forces of Darkness’ sole source of income. We feed them. We sustain them. Without our taxes, they have no budgets to spend. Be assured that the Forces of Darkness will do their very best to relieve us of as much of our cash as possible through every form of taxation they can think of.

A French Finance Minister, Jean-Baptiste Colbert, once famously declared that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” A very succinct explanation of public policy as applied by any Government Treasury.

As a direct consequence, the assessment and collection of taxes has heavily influenced how accounts look, how individual items are accounted for, and how we, as accountants, have to analyse and prepare our financial statements. This is especially so around the division of capital and expenditure, or revenue items. On behalf of the Forces of Darkness, their taxing authorities will always want to make you treat as much expense as possible as capital expenditure. Capital items are not allowable as an expense against trading income, and therefore this keeps your taxable profit higher.

In order to standardise the reporting of company performance, again principally driven by the regulatory needs of large public company reporting, there are many different pieces of legislation which impact on financial reporting. These are then often reflected in the rules of:

• Trade associations (e.g. ABTA bonded Travel agents)
• Statutory requirements around specialised vehicles (charities, cic’s etc)
• Regulatory requirements (FCA etc.)

There are also, among many:

• Financial Reporting Standards
• International Financial Reporting Standards
• The regulations of the Audit Standards Board
• And so on

So, it is not that we, as accountants, want to make your financial transactions appear more complicated than you think they should be. We are here to ensure that you comply with the many rules that govern you, and to try to help you apply them in such a manner that it minimises, as far as possible, your Whitehall maintenance/stipend payments to the Forces of Darkness.

So, do you actually need an Accountant? The answer is most emphatically no, you do not.

To most people, Accountants are a complete and very alien mystery. They often talk a

language you can’t entirely relate to, a little like speaking to an American – ‘Its English Jim,

but not as we know it.’ It’s as if you need subtitles, or a schedule of cross referenced

explanatory notes.  Accountants charge you a lot of money, and pretty much all do the same

thing, it’s only the cost that varies. You might justifiably question whether many Accountants

understand what it’s like to actually be in business, let alone have any insight into your

particular business.

Generally, we are working with your historic records after the event. The classic definition is

that an Accountant tours the battlefield after the fighting is won or lost, and bayonets the

wounded. To put it another way – apart from determining your tax liability, is the processing

and rearrangement of historical financial data really all that relevant to you or your business?

The most frequently quoted reasons for not needing an Accountant are:

• ‘It’s only numbers – I can add up and I’ve got a calculator if the going gets really

heavy.’

• ‘I can do my own tax return because I can read and, (see above bullet point), I can add up and use my calculator.’

• ‘If I have a query or I’m not sure about something those nice people at the Forces of Darkness/HMRC call centre will advise me for free.’

• ‘Accountant’s are too expensive, I know a book keeper who is dead cheap and can knock out some Accounts if I need them.’
• ‘The bank gave me the software when I signed up with them – it’s easy to use, I can even get an app on my phone.’

• ‘IT development makes bookkeeping really easy now, the software’s intuitive, and I’m very IT literate.’

If you have identified with any of the above six statements, or have had similar thoughts, you

might want to consider some of the following points.

The time you spend on the admin of ordering and entering your records, bookkeeping,

accounts and tax returns is time you are not spending making money at what you are really

good at. Your business.

You may be able to add 1 + 1 to get 2. If you ask an accountant for the answer to 1+1, you

should ideally receive a response along the lines of, ‘Let’s see what’s best for you.’

Apart from the considerations we’ve raised above, is using a Forces of Darkness/HMRC call

centre really an altogether sensible move?

The Forces of Darkness exist to collect as much of every type of tax and duty as is legally

possible, to fund public expenditure, including their own salaries, MP’s expenses, etc. As

you can imagine, they need to rake a lot of it in.

If you phone one of their helplines, you are speaking to someone who works in a call centre

replying from a standard menu of responses. There’s a Turkey’s and Christmas gag in there

somewhere. If the possible answers could legitimately lead to tax liabilities of £1000, £500 or

zero, zip, nada – what advice might their representative give? Hmmmmm.

On cost, you can always find someone to provide a service or sell you something cheaper.

The old adage of you get what you pay for holds very true. The utility of present day software

and use of apps is undoubtedly revolutionising record keeping and financial statement

production, but if the underlying process is not fully understood, errors in entry and posting

are easily made, and can be very costly in terms of tax overpaid or underpaid. Bear in mind

that you are responsible for the accuracy of what is submitted to the Forces of Darkness.

Ignorance of the law, or unintended error leading to negligent understatement of tax due is no

excuse. Whilst the penalties won’t be as high as deliberate evasion or hiding of income

sources, and so on, penalties and interest will still be levied on you if there are uncorrected

errors subsequently discovered.

The underlying proposition is you should stick to your knitting. We all make money doing

what we’re good at – our businesses, so the trade off against tying up valuable time engaging

in non-productive admin needs serious thought.

We said earlier, you do not need an Accountant, and you don’t. You need to be looking for a

firm you can communicate with and understand you, where you don’t feel the need for an

interpreter. A firm who can potentially add value, over and above dealing with historic

numbers after the event, a firm whose people have broad experience, perhaps of operating in

difficult and challenging environments, who can advise, mentor, and assist with development,

as well as produce the background basics to a high standard.

The C I Accountancy management team place a great deal of emphasis on ensuring that the managers dealing with our clients create the best line of communication with them as they possibly can, and why we strive to develop easy to use tools, and effective training for you and your staff, to help you to help us, and thus control your costs. We constantly seek to make the processes around your financial administration as easy and painless as possible, in the way that best suits you and your individual requirements.