With the average SME owed around £38,186 and many expressing concerns that if this figure was to increase to £50,000 they’d risk bankruptcy, the scale of the late payment problem doesn’t look like it’s going away any time soon. And given that SMEs account for more than 99% of private UK businesses, it doesn’t take an economist to work out that this poses a potential threat to the current growth we are seeing.

So the measures to bolster the Prompt Payment Code (PPC) outlined last month by Business Minister Matt Hancock, were welcomed pretty much across the board. These measures, which stipulate a 60 day limit on payment of invoices, after which the company will be ‘blackballed’ from the PPC, and require companies working in the public sector supply chain to lead by example, are designed to encourage best practice.

But in our view the late payment culture that we seem to accept as the norm these days, can only be tackled if political agendas are reinforced by practices undertaken by SMEs themselves. In fact one of our biggest concerns about the PPC is that it risks creating a false sense of security, whereby SMEs step down their own efforts to tackle late payments, safe in the knowledge that it is being addressed at a higher level.

Few issues threaten the financial stability of SMEs as much as cash flow. Yet we are genuinely surprised at how many organisations still view it as something which is outside of their control, and therefore cease to take steps to reduce its impact.

As a company which works with many thousands of SMEs, we see first-hand the frustrations and ramifications it creates. Those organisations which take our advice, and implement a few simple steps to strengthen credit management capabilities, achieve a substantial reduction in debt levels. This might take the form of automating many levels of debt correspondence, reinforcing letters with e-mails, or workflow to flag debtor days before they spiral out of control.

So while the new measures in the PPC clearly represent a positive shift, as we see it, in isolation, they are simply not enough. We strongly believe that SMEs have to take responsibility to ensure they are doing everything within their power to add rigour to their credit management and speed up payments.

This approach, supported by the PPC, stands to create a more stable balance sheet and reduce the level of supplier risk which is currently endemic across industry.

Stakeholder groups concerned new tax could discourage training and apprenticeships.

THE COUNTRY’S BIGGEST BUSINESS GROUPS have launched a scathing attack on the Conservatives’ tax proposals ahead the party’s conference in Manchester, which commences on Sunday.

Formal submissions sent to the government by the Confederation of British Industry (CBI), manufacturers’ organisation the EEF, British Chambers of Commerce (BCC), and the Institute of Directors (IoD) particularly call on the party to row back on proposals to introduce an ‘apprenticeship levy’.

Chancellor George Osborne (pictured) first raised the prospect in his Summer Budget address, suggesting the imposition of the new tax on larger businesses, with the proceeds funding training schemes at smaller companies.

CBI deputy director-general said: “A new levy won’t be welcomed by business, so we want to see a new politically independent levy board setting the rate based on clear evidence with the funds ring-fenced.”

She went on to warn there is a “high risk” the move could “undermine the system, not strengthen it” at a time when firms are “already investing over £40bn a year on formal training and increasing apprenticeships”.

There has yet to be any detail released on the proposed rates, or the threshold at which firms would become affected.

However, the BCC said there is a “significant risk” the levy would cause businesses to focus on compliance “rather than the voluntary adoption and promotion of apprenticeship training”.

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A round-up of the key points from 2015’s party conference season

THE SEASON of party conferences typically emphasises rhetoric above solid policy, and 2015 has not deviated too heavily from that trend.

That said, some substantive moves were made on the tax and business front, stirring the lobby groups’ commentators and press offices into life. The Conservatives, for their part, have drawn the ire of business over proposals to introduce an ‘apprenticeship levy’.

Formal submissions sent to the government by the Confederation of British Industry (CBI), manufacturers’ organisation the EEF, British Chambers of Commerce (BCC) and the Institute of Directors (IoD) call on the party to row back on the policy. The groups say the move could “undermine the system, not strengthen it” at a time when firms are “already investing over £40bn a year on formal training and increasing apprenticeships”.

George Osborne first raised the prospect in his Summer Budget address, suggesting the imposition of the new tax on larger businesses, with the proceeds funding training schemes at smaller companies.

Alongside that, Osborne promised further devolution of tax powers to the UK’s regions, allowing councils to retain business rates raised in their area and set their own business rates.

Under the plan, councils will be able to cut rates to attract new investment and jobs. At the moment, rates are calculated by multiplying the rental value of a property by either the standard rate of 49.5p or the lower rate of 48p, before subtracting any relief.

Osborne vowed to spark a “devolution revolution” by allowing local governments to keep the rates they collect from businesses. Currently, local authorities collect the rates before they are sent to Westminster for redistribution after central government has taken its cut.

Central government currently takes in about £11.5bn in business rates and redistributes £9.4bn in grants.

Business groups gave the policy a warm reception, with Institute of Directors director-general Simon Walker claiming businesses are “excited about the prospects for devolution”.

Labour’s shadow chancellor John McDonnell used his speech to put plenty of emphasis on the need for a review of HM Revenue & Customs and a ‘Robin Hood’ tax on stock market transactions.

The coalition government fought hard against moves to introduce such a tax during the last parliament, by mounting a legal challenge to the so-called Tobin tax.
The 0.01% levy proposed last term was aimed at shares, bonds and derivatives across the whole EU, and is intended to prevent speculative trading and prompt the financial sector to pay back some of what it received from governments during the financial crisis.

McDonnell is to consult with shadow business secretary Angela Eagle on the tax, but believes it could rein in the excesses of the City and help pay for improvements to the NHS and other public services.

He told BBC Radio 4’s Today programme: “Robin Hood tax at the moment is Labour Party policy on the basis of if we can introduce it globally, and that’s been Labour Party policy for some time now.

“However, what we are saying is that today we are going to launch a review of our taxation system, we are going to bring the greatest economic minds in the world to bear on that issue, we are going to consult with the British people, and then we will arrive at a decision on the way forward.”

McDonnell also announced a review of HMRC to establish how the tax authority can be bolstered in its efforts to collect taxes, particularly the billions lost through avoidance, evasion, fraud and error every year.

He said he intends to examine its “operations, effectiveness and also look at its range of policies and the instruments that it has available to it to ensure that we maximise our tax take and, at the same time, that it’s done on a fair and just basis”.

During his Labour leadership campaign, Jeremy Corbyn claimed the tax gap – the shortfall between tax due and tax collected – stands at £120bn, enough to wipe out the country’s deficit without cutting welfare or spending.

Written By Calum Fuller, Read more.

The average UK annual report reaches 135 pages as growth in narrative offsets efforts to streamline financial statements

ANNUAL reports of UK listed companies have grown in length for a sixth consecutive year, according to new research from Deloitte.

This year the average UK annual report reached 135 pages, up three pages on last year – despite companies making positive inroads in ‘clear and concise’ financial statements which dropped by an average of two pages.

Front-end narrative reporting is driving the overall page increase, with non-GAAP alternative performance measures taking greater prominence.

“There is a growing trend for companies to harness their annual report as a channel in conveying their story around strategy, culture and external impact. This storytelling is a key component of the strategic report and one companies are actively embracing,” said Veronica Poole, partner and head of corporate reporting at Deloitte.

According to Poole, 7% of the companies have either embraced integrated reporting, or are en route to do so.

“This builds on the efforts of over half the companies who are now talking about a wider range of inputs and outputs as part of their business model in a move towards integrated thinking,” she said. “The use of alternative performance measures continues to be an essential part of telling a company’s story.”

The FRC has previously voiced concern around over-prominent presentation of non-GAAP measures. Poole said worryingly 54% of companies gave more prominence to these adjusted measures than to the statutory numbers.

Also, 42% of those companies adopting alternative performance measures as key performance indicators did not reconcile these clearly to their financial statements.

Written by Richard Crump.

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You are only as good as your client list. But one AccountingWEB member’s relationship with their clients has led them to ask: Where have all the good people gone?

AccountingWEB member taxwizard turned to Any Answers in despair, complaining about how their clients are ‘rude’ and aggressive’. Furthermore, taxwizard grumbled that their clients are devious, conniving, and they “seem to hide information”.

A few AccountingWEB members nodded their heads in agreement: Abaco blamed clients’ lack of manners on the cynical viewpoint society has taken to accountants. “Half the trouble is that “a good accountant” is regarded by much of the wider world as someone who will come up with and participate in the execution of a foolproof method of unlawfully evading tax; usually at a knock down price into the bargain,” abaco said.

However, member NH partly disagreed. “I can only speak for my own clients and I would say that 90% of them are friendly, honest and polite. They appreciate the advice I give and usually follow it.”

But NH’s clients’ civility could be systematic of his rigorous recruitment process. AccountingWEB user Stewie Griffin had similar thoughts as taxwizard until they weeded out their rude clients. “Life is much better without them and oddly, once you set your stall out that you won’t be treated in that way, you seem to attract less of the timewasters,” he said.

Griffin advised taxwizard that good clients attract good clients, and likewise, bad clients will follow bad clients.

We approached Finola McManus for advice on how to deal with bad clients and what you need to do in order to attract the type of clients that you want to be doing business with. McManus encouraged practitioners to go back to the basics and draft a clear business plan.

Your ideal client

Without a business plan, McManus said that these practitioners will attract bad clients because:

• they don’t set out what their ideal business client profile is
• they don’t know enough about their own business to actually identify which are the good clients that are making profit
• what is it about them as a practitioner that people come to them for?

McManus sympathised with the struggles of the AccountingWEB members lumbered with bad clients. When you’re starting off from scratch, McManus said that you take every opportunity you have in order to fill the time, but you soon realise that you are attracting clients not worth your time. “You realise that you’re working stupid hours and you have rubbish clients who aren’t paying you. And you have no time either to get the clients that you should have, and then you get into this downward spiral,” McManus said.

If you’re in the same position as taxwizard and you’re juggling unappreciative clients, McManus nudges you to identify which of your clients you enjoy working for and generates the highest margin. McManus advocated grading your clients on:

• whether they listen to you
• if they take advice
• whether  they bring their records in on time
• They pay promptly
• Refer any businesses to you

Now that you have taken the due diligence to visualise a picture of your ideal client profile, McManus explained how going forward you will be able to quickly assess whether the prospective client knocking on your door fits within your ideal client profile.

Sacking your clients

McManus advised that practitioners should set aside an hour a week to start grading their clients and formulating a vision for their practice. “By doing this, you will never feel so empowered or good about themselves to the point when they sack the first client they don’t want,” she said.

Naturally, some practitioners may be reticent in purging their client base. McManus clarified that practitioners shouldn’t sack all their bad clients as soon as they have assigned their client grading. “You start at the bottom,” McManus explained, “your C/D grade clients.” By using this strategy you will ship out the bad clients and gradually see how you can replace them with better clients.

But your grading system shouldn’t hammer the death nail into your relationship with your client. “There’s going to be some in the middle, B/C grade ones, and with a bit of focused help you can move them up a higher tier,” McManus said. But she warned that the churning process takes time. McManus used the example of a firm she worked with who was in the same situation: It was a sole practitioner and out of 600 clients they identified 400 they needed to sack. It took him six years, but he did it.

And while you are grading your clients, you have to be reflective about your own abilities. “What is it about you that make clients want to come to you, and makes them stay with you? It’s not just about the price or doing the basics because anyone can do that,” McManus said.

Client/servant relationship

Taxwizard described his clients in the Any Answers post as lacking good manners and displaying a distinct lack of respect.

“Sometimes practitioner’s feel like they are being bullied by clients and the master/servant relationship is twisted,” McManus said.

But dealing with unruly clients will become easier once the practitioner has got to grips with their ideal client profile and become empowered by getting rid of their nuisance clients. McManus sets out the simple steps to summoning the confidence and starting accumulating good clients.

• Get a clear vision in your head
• Sack your first client
• Realise that you are the adviser. You’re in control of the business and they are working for you

McManus summed up by reiterating: “Don’t take on anymore dross, focus on your client profile and if they don’t fit that – don’t take them on”.

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As pay awards and the economy start to pick up, FDs and HR teams are looking to see if they can get “more bang for their buck”, writes Chris Warmoll

GETTING to grips with what best motivates, rewards and engages employees is a fine art. As the economy expands, Financial Directortakes a look at what are some of the most powerful stimuli for recruiting and retaining staff and what role finance should play in ensuring that corporates derive the most value from the cost of incentivising colleagues.

The age-old mantra that cash is king may well hold sway in the kingdom of instant gratification. And just such a stance is certainly borne out from research conducted by the Chartered Institute for Personnel and Development (CIPD). Its Show me the money: The behavioural science of reward report found that “money has a powerful effect on behaviour, over and above those arising purely from its value, and including unintended and distorting effects”.

But delayed reward – an über-gospel that is much adored and puritanically practiced by the self-denying middle classes – also has its fan base. And it appears that a natty fusion of the two approaches is part of the solution.

However, it now goes way beyond the employer pension contributions and gym memberships of old, as Apple and Facebook have demonstrated. That duo of high-tech sassiness now offers its female employees the opportunity to freeze their eggs in a bid to both recruit and hold on to those with all-X chromosomes.

Apple said it would start to offer the mildly leftfield benefit to its US-based staff at the beginning of this year, arguing that it was “always looking at new ways” its health programmes can meet employee needs. The move is part of the iPhone maker’s expanded benefits offering for women which includes extended maternity leave alongside cryopreservation and egg storage.

Orwellian overtones

Fellow tech giant Facebook also offers egg freezing payments to its female employees of up to $20,000 (£13,000) alongside adoption and surrogacy help and a range of fertility support for both sexes.

While some may baulk at the somewhat Orwellian overtones of the offering, its history as a benefit can be traced back to it being made available to cancer patients prior to them embarking on courses of chemotherapy which damage a woman’s eggs. This then morphed into the concept that, by removing and fertilising eggs when women are in their 20s, they could – on paper at least – lengthen the window of opportunity to fall pregnant and start a family over the next couple of decades.

But the CIPD report notes that such tangible rewards could run the risk of undermining the desire to do a good job. “They appear to work best in areas where little intrinsic motivation is present, and when the incentives support individuals’ need for autonomy and a sense of competence,” it notes.

Overall, the research finds that employers can tailor their offerings more favourably by being more aware of how employees react to benefits and reward. And while the allure of cold hard cash may work as the best motivator, more is not always better when considering other benefits. In fact, while wider benefits can be highly valued, the report makes a case for keeping these additional benefits to a minimum and ensuring they are as well targeted as possible.

“Other benefits, such as healthcare, company cars or gym membership, can form an important and effective part of a reward strategy. Where there is an element of flexibility, they may additionally support diversity and autonomy, but employees may in fact perceive having to make a decision as a cost,” it finds.

“Avoiding a choice may lead to inertia, retaining a form of benefit that is no longer valued. There is thus a case for minimising the range of benefits offered and simplifying the process of selecting them. It is also worth noting that the subjective value of a benefit to an individual can lessen over time, resulting in a perceived loss, as does the removal of a benefit. Such losses are experienced as greater than the original value of the benefit. We argue employers should refresh the benefits offered, try to avoid offering benefits that may need to be taken away and think carefully about whether removal is necessary.”

While this may appear somewhat obvious to the more seasoned benefits professionals, it gives good foundation to closely analysing take-up and actual usage of benefits rather than purely relying on the wish list resulting from staff surveys. The report also reveals that additional employer pension contributions are frequently undervalued and good regular communication of these is required.

“Traditionally, there has been wide support for offering pension contributions above the required minimum, in particular because of the benefits seen in staff attraction and retention,” it says.

“Evidence from behavioural science suggests employees tend to significantly undervalue the employers’ contributions except in very late career, suggesting that, like deferred incentives, pensions don’t punch their weight as an element of reward. However, proactively and regularly communicating the value of pension contributions can help counter this.”

However, it is in reference to pay structures that the report brings the biggest conclusions.

Self-worth

It finds that individuals have a subjective view of their own worth which varies over time – affected by elements such as the wider economic climate and how they compare their own reward and skills to those of peers.

Too frequently, this is put down to the “tendency to overvalue our own skills in relation to others”. This, the report notes, can play out in various ways, which include potentially losing people at the top of pay scales perceive when they face barriers to pay progression.

“Having more flexibility in base pay structures can help counter such examples of endowment bias,” it suggests.

Yet, it agrees there is a balance to be struck as people valued fairness in pay. When coupled with incoming demands on employers for greater pay transparency, it is clear that this could be a challenge.

CIPD research adviser Jonny Gifford explains: “The key is having a flexible reward package that takes into account behavioural nuances and doesn’t rely solely on a wad of cash as the only means to motivate staff. It’s a change in direction for many but should also be welcome news for organisations that, in a challenging economic context, need to be more creative with their rewards package.”

Duncan Brown, head of HR consulting at the Institute for Employment Studies, says the landscape of employee benefits has changed since the tight employment market of the early 2000s when a flexible and wide array of benefits were all the rage.

“Post-recession, there’s a lot of different models emerging. You’ve got the Sports Direct zero-hours contracts with a very small elite on a good package and high incentive and you’ve got traditional employers like John Lewis, which somehow – with a very expensive package, pretty good pay for a retailer and amazing benefits – is very successful. Most organisations are somewhere in the middle,” he explains.
Such a scenario has left the traditionally paternalistic world of the pensions and comprehensive benefits packages somewhat in the doldrums, says Brown, “The finance director says, ‘Well, what are we really getting out of this?’ – and in some cases, it’s left HR departments struggling to justify that”.

But what should FDs do?

“Ask themselves what the aim of the benefits package is,” says Brown. “Is what you offer any better than if you just gave them cash and let them buy their own benefits? FDs need to look at the total package cost. Break it down and look at the philosophy of the organisation. Is it a professional, added-value business or a low-margin, low-cost business? To what extent is the benefits package in line with that?”

While most research indicates that, when joining a potential employer, the prospective financial remuneration, in terms of salary and any bonus, is the pre-eminent force in decision making, “most evidence is that isn’t what differentiates why you want to stay at a place and bust a gut” once firmly embedded in an organisation.

It’s “more down to ‘it’s a cool place to work’, ‘I have a great manger’, ‘brilliant feedback on how I’m doing’, ‘I get loads of development’, or ‘get told when I do a good job’”, says Brown.

“It’s a combination of the financial and non-financial that the most successful organisations are able to leverage to get a really high contribution from their workforce. There are studies that show a secure package can work, but again, what’s the model? John Lewis gets away with a relatively high-cost reward model that cuts its turnover but means it can deliver good customer service which means people spend a lot of money, so it pays off. But it would put another retailer out of business.”

First cut is the deepest

As the recession began to bite and companies began to shed employees and extricate themselves from costly, but paternalistic defined benefit plans, companies also introduced pay freezes. Some cut their benefit packages too deeply, says Brown.

“Some have probably not looked enough at the whole package; some will have over-reacted to cost increases on pensions and done some short-term cost cutting when they should have looked at the whole context and the impact in the longer term. A reward package is part of a transaction, part of an employment relationship and you can quantify those aspects of that – and others you can’t,” he explains.

Now that pay awards and the economy are both starting to pick up, FDs and HR teams are looking to see if they can get “more bang for their buck and motivate staff more at an equivalent or reduced cost level”, continues Brown.

Improving communications is also key, argues Brown, as employee focus groups often report negative feelings towards their benefits package – but they’re far more receptive to the benefits once reminded of what they actually get.

“Most organisations do a poor job of communicating, despite communications technology getting a lot cheaper and sexier,” argues Brown. He says a lot more work needs to be done in terms of getting employers to let their employees know what their package is worth – particularly if giving them a choice.

So what needs to happen at the senior management level in terms of a road map to employee benefit success?

“Putting the hard and the soft sides together – and that implies HR and finance working together,” concludes Brown.

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Average pay rises in Germany are expected to be closest to the UK level, at 2.9%

BRITISH workers are set to enjoy a boom in real-terms pay increases in 2015 after several years of muted pay rises at or below the level of inflation.

That’s the bold claim from professional services oufit Towers Watson in its latest Salary Budget Planning Study.

The study, primarily covering private sector companies, reveals that the average UK pay rise of 3%, coupled with record low annual inflation of 0.2%, will outstrip those enjoyed by workers in all other major European economies.

Average pay rises in Germany are expected to be closest to the UK level, at 2.9% this year with slightly higher inflation of 0.6%. However companies in France, Spain, Italy, the Netherlands, Belgium, Ireland, Switzerland, Portugal and Greece have all budgeted for lower employee pay increases of between 2% and 2.6% this year.

Paul Richards, head of Towers Watson’s data services practice for EMEA said: “In 2015 many employees will feel the tide has turned. A combination of decent pay rises and record-low inflation means that British employees are starting to see a real rise in their income after years of frustration.The outlook in the rest of Western Europe is more muted in terms of pay rises, but in all of these countries pay rises are set to significantly outstrip inflation, which has not always been the case over the last few years.”

The outlook in the UK next year is very similar in terms of wage rises but with inflation anticipated to rise steeply from 0.2% to 1.5% meaning wage rises in real-terms will feel lower.

A similar pattern is expected across Europe in 2016, with the UK and Germany still expected to lead the region with pay rises of 3%, compared to 2% to 2.8% elsewhere. Inflation rates are also expected to creep up across the continent to between 1.2% and 1.6%, apart from in Spain, Switzerland, and Greece where inflation is expected to remain under 1%.

Richards added: “Even if inflation rises to 1.5% next year as expected, this is still an historically low level. By comparison, between 2011 and 2013 we were experiencing annual inflation of between 2.5% to 4.5% and pay rises that barely matched or were significantly below, so 2016 is still expected to see a healthy real-terms growth in wages.”

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Number of SMEs claiming for R&D tax reliefs has risen by nearly a quarter, official figures show.

According to the figures, the number of claims for R&D tax credits is up from around 16,000 in the previous year, to approximately 20,000. This represents a rise in the amount claimed from £1.4bn last year to £1.75bn.

The largest number of claims was made by SMEs, which rose 23% on last year, with claims by large companies up 4%.

All the regions showed increased numbers of claims made, with London, south-east and the east continuing to make the highest number of claims in the year – a total of 46%.

First introduced in 2000, R&D tax credits were designed as a tax relief to encourage greater R&D spending and innovation. Since then, almost 120,000 claims have been made, with more than £11.4bn claimed in tax relief.

Recognising their popularity and in a bid to further boost innovation, last year the chancellor announced an increase in R&D tax credits to 230%. This meant that for each £100 of qualifying costs, the corporation tax paid by SMEs on income could be reduced by an additional £130 on top of the £100 spent.

Colin Smyth, Baker Tilly tax partner, said: “These figures are great news for business, and show that real confidence is beginning to return to the UK economy.

“Using the tax system to incentivise and innovate business has been a smart move by the government, and one that is clearly continuing to give a much-welcome boost to the UK economy.”

Growth accelerates to 0.7pc in second quarter, suggesting that slowdown at start of the year was just a blip

Worst-case estimate for big corporate tax cases hits £42.8bn

HM REVENUE & CUSTOMS has more than doubled its worst-case estimate should it lose its most significant court cases, its latest accounts show.

The taxman is currently fighting several court battles over disputed tax payments, and in the worst-case scenario could be forced to refund as much £42.8bn to companies which believe they overpaid years ago.

Provisions where payouts are more likely than not rose by around a third to £7.2bn in the year to March 2015.

The largest portion of the estimate relates to ‘contingent liabilities’, where payments are considered possible, rather than likely. Contingent liabilities hit £35.6bn in the year to March 2015 – a rise of a fifth, after doubling the year before.

Companies involved include Littlewoods, the retailer, British American Tobacco, the tobacco group, and Prudential, the insurance group.

In June it emerged HMRC is seeking to appeal a ruling by the Court of Appeal to repay Littlewoods £1bn in VAT and interest.

The court found that the retailer’s case for compound interest on VAT overpayments that it made between 1973 and 2004 was valid – despite HMRC having already repaid the VAT with simple interest – and ordered HMRC to pay £1.2bn to the Barclay brothers-owned chain.

A spokesman for HMRC said: “HMRC wins more than 80% of cases at tribunal. We are required for accounting purposes to include an estimated contingent liability figure of potential repayments of tax. There is no question of this amount or anything close to this amount ever being repaid as the figure is based on our losing every single case currently being litigated, which is not going to happen.”