From VAT to Corporation Tax, there are a few to remember. Streamlining your tax and auditing process will help to keep you compliant in the eyes of the law and minimise the amount of time you have to spend on it.

Digital recordkeeping

Many of the tax systems are changing and digital recordkeeping is becoming part of being compliant. Using accounting software does make taxes and recordkeeping easier, as it is all stored online and in one place. Long gone are the days when filing cabinets needed their rooms for business records.

Using accounting software can also help to reduce errors as any calculations will be done by the software, although you will need to be careful when entering the data manually.

Regular financial health checks

Although there is no definitive way to define financial health, there are several factors you can regularly look at. You may find it easier to incorporate this as part of your quarterly or yearly review, as you will have all the information to hand already.

Liquidity is a major factor to consider for financial health. The more money or assets you can cash in easily, the better your liquidity. Essentially, your business will be able to meet its debt obligations.

Collaboration with tax professionals

When it comes to financial and legal compliance, it is always beneficial to utilise accounting services. Having a team of professionals scrutinise your records will help to prevent you from making a step wrong.

The right accounting team will work with you to make sure you file any returns on time, make the correct payments, and pay your staff’s taxes appropriately. This will prevent you from being slapped with any late filing penalties or non-compliance fines.

The fines for non-compliance can be large. For Corporation Tax, you can be fined £100 if it is a day late, increasing to £300. HMRC will estimate your bill and add a 10% fine if you are late by 6 months. For repeat offenders, the initial fines will start at £500.

Employee training and awareness

Taxes and auditing are a team effort, so your whole company must be aware of any requirements or processes you have. When hiring new staff, make it part of their induction training so that they are set up for success from day one.

With existing staff, you may want to offer periodic compliance training as a refresher. You should always implement these sessions if you change a process or your legal responsibility changes as well.

By ensuring everyone is on the same page you will reduce the chance of inadvertent errors occurring, and therefore non-compliance.

In response, Congress passed programs as part of the CARES Act to provide financial assistance to companies affected by the pandemic. One of these programs was the Employee Retention Credit (ERC)—a tax credit that most CPAs are at least somewhat familiar with.

In short, the ERC gives eligible employers payroll tax credits for wages and health insurance paid to employees during the pandemic. Unfortunately, many businesses did not take advantage of the program due to confusion surrounding qualifications. Since the IRS (Internal Revenue Service) issued guidance related to eligibility in 2021, the confusion around ERC qualifications has decreased, and business owners have become more aware of the tax credit. However, misconceptions about the ERC remain and have made the filing process difficult to navigate without qualified assistance. 

ERC scams have become such an issue that the IRS has issued multiple warnings for businesses to carefully choose who prepares their ERC application and added ERC mills to the Dirty Dozen list. Given the high amount of fraud surrounding the ERC, it comes as no surprise that the IRS has begun scrutinizing ERC applications more closely—meaning audits are more likely.

Here's what CPAs need to know about ERC audits and how qualified advisors can support clients’ ERC claims. 

The Employee Retention Credit Audit Process

If the IRS flags your ERC claim, it will perform a preliminary inquiry into your claim rather than a full audit. Typically, the preliminary audit will happen before your credit has even been issued, or they may deny your claim instead of performing a full audit. 

If the IRS decides to pursue an audit for your claim, you will receive an audit notice. The notice will explain the type of audit, the issues being audited, and potential next steps. Here are the main types of ERC audits:

• Correspondence. You mail the auditor documents that back up the details on your payroll tax return. The majority of this type of audit is conducted via mail. 
• Desk. The audit notice instructs you to schedule a phone meeting with the auditor. You then send in the requested supporting documents.
• Field. The auditor comes to your place of business to conduct the audit. This is a rare occurrence with ERC audits but possible.

Often, the notice will include an Information Document Request (IDR). The IDR outlines the documents you need to provide and tells you where to send them—an audit is essentially a way to obtain more documentation. The IRS may have no more questions after the initial investigation, or the audit could be over.

Supporting information for an ERC claim, such as eligibility substantiation, is not required to be submitted to the IRS in conjunction with the 941-X filing to claim the tax credit. Using its approach, the IRS has to sift through millions of filings to detect illegitimate claims or fraudulent actors. So, an IRS inquiry or audit doesn’t mean your claim is automatically incorrect; it just means that your claim is being reviewed and may require supporting information to substantiate the filing.

For most ERC audits, backing up the information on your tax filings should be easy if you’ve kept accurate records and receipts. Unfortunately, this can be a bit more challenging with an ERC audit because you may not have all the details you need in your records. Here are some common supporting documents:

• Government orders affecting your business during COVID-19. 
• P&Ls and Tax returns that demonstrate a decline in gross receipts. 
• Wage records and payroll register.

Failing an audit can lead to penalties on your client’s account. If the IRS has reason to believe that you were negligent in following the tax laws, it may apply a 20% accuracy-related penalty. This is 20% of the underreported tax. In cases of fraud, the penalty is 75% of the tax. The IRS can also bring criminal tax fraud charges against people who attempt to defraud the government by illegitimately claiming false tax credits. This is rare, but the consequences are hefty—prison time and up to a $100,000 fine for individuals and a $500,000 fine for corporations. 

ERC Red Flags for Auditors

White-collar crime and Wall Street scandals have been a catalyst for random audits—especially for tax programs that are more susceptible to fraud, like the Employee Retention Credit. While random audits are unavoidable, there are a few factors that may put businesses at a higher risk of being audited after they apply for the Employee Retention Credit.

Mathematical Inaccuracies. Simple miscalculations can lead to discrepancies between your claimed employee retention credit amount and other financial or tax-related information, such as payroll records, financial statements, and other tax filings.

Industry. Certain industries are at a higher risk of being audited based on how sales and tax regulations impact their business. The more complex the tax rules, the higher the chance that errors occur. 

Provider. The IRS warns consumers about exploitative promoters and other third parties, sometimes called “ERC mills,” which use advertisements to promote ERC refunds. Filing false claims—even unknowingly—can lead to audits, credit repayment, interest and financial penalties, and criminal liability. 

Partner with a Trusted ERC Expert

Because the consequences of being audited are so high, it's important to partner with Employee Retention Credit experts. An ERC expert will be prepared for an audit before your client even submits their claim. 

To ensure your claim is accurate and that your client is protected in the event of an audit, your organization should choose to work with ERC experts who understand the ERC from end to end. 

The right ERC partner should be on board with a proactive approach to the Employee Retention Credit process, from gathering documentation for the application to full-scale audit support. 

Here are some key indicators of proactive ERC service providers:

• Start-to-finish assistance. Assistance should be available throughout the entire process of filing for the ERC, including calculations, documentation, submitting the application, and audit support. 
• Tax insurance experience. ERC experts should have strong, well-established relationships with insurance brokerages that can identify tax insurance policies.
• IRS experience. Experience in dealing with and proactively preparing for IRS audits is imperative to ERC's success.
• Law firm relationships. Access to tax and legal professionals is an important part of mitigating the risk of an audit. Attorneys can help ensure compliance with ERC eligibility requirements and provide peace of mind.
• Thorough reporting. Thorough documentation capabilities and the ability to anticipate potential questions from the IRS during audits should be a top priority for ERC applicants.

Employee Retention Credit expert and CEO of EZ-ERC Kenneth Dettman weighs in on the lack of transparency surrounding the tax credit audits:

“Based on what we have seen to date, audits are happening but not on a large scale. The two primary areas of focus we’re hearing about are the partial suspension of operations reliance and large employer credit, which allows large companies to take credit only on wages paid to people while they weren't working. The latter credit has been subject to quite a bit of abuse, but we are hearing a lot of the auditors admit that this is new to them too. As these things are taking a while to evolve, we're not clear on what type of hard lines are going to be drawn.” 

Consulting with experienced, qualified tax and legal professionals is the first step to determining ERC eligibility and filing a legitimate claim for the credit. Expert ERC firms are led by certified public accountants and tax attorneys with extensive experience in the legal test related to the ERC, as well as navigating IRS audits. You can set your clients up for ERC success by partnering with a qualified advisor.

Want more help from qualified Employee Retention Credit experts? Refer to this practical audit guide created by ERC experts at EZ-ERC.

Interested in partnering with qualified experts to help your clients? Check out their CPA referral program. 

Audits can take many different forms, including financial, compliance, tax and more. Most UK businesses are legally required to have their annual accounts audited by an external firm unless they are exempt.

While a necessary evil to guarantee data quality for clients, financial reporting is complex and can trip up even the most experienced professionals.

If your business fails an audit, the results can significantly damage your company and lead to financial loss, reputational damage and regulatory scrutiny. In short, it’s best to avoid mistakes and failure where you can. Here are the most common financial mistakes and how you can avoid them:

Robust Financial Recordkeeping

Having inadequate financial records and documentation makes audits more challenging and could potentially lead to non-compliance penalties. A lack of supporting documents, records of company procedures and evidence of adhering to accounting policies makes the job more difficult for your accountant and more likely for material misstatements to be made.

Maintaining robust financial recordkeeping is the key to accurate tax determination and will save you a lot of time and money in the long run. You can boost trust in your organisation’s processes by establishing documentation standards that align with the business’s policies. Staff should be provided clear directives on how to document and organise documentation.

Regular Internet Audits

A lack of awareness by employees about their responsibilities and understanding of company financial processes is another common threat to auditing. Regular internal audits are critical for monitoring your business assets and ensuring they are safeguarded from threats. These programs provide objective insight into day-to-day operations and ensure legal compliance.

The internal audit process mainly involves detailed interviews and document analysis aimed at senior management and board management, depending on the size of your business. Many accountant firms provide an auditor who will summarise their findings and recommendations in a report. It is then up to the company to decide whether and how to act on these results.

You’ll receive useful information regarding your business reputation, growth, environmental impact and employee welfare.

Professional External Auditors

Having a professional auditor who has no previous affiliation with an organisation helps to boost the accuracy of account management and increases the likelihood of systematic errors being highlighted. It also boosts your credibility as a business owner as it allows the verification of financial records and statements and commitment to transparency.

This in turn increases an organisation's likelihood of receiving funding for a new project and encourages new investors.

The objectivity and expertise brought to the auditing process improve overall company decision-making and identify business risks before damage is incurred.

The BEIS white paper draws on the UK Government’s response to the recommendations from three independent reviews into auditing; Sir John Kingman’s 'Independent Review of the Financial Reporting Council’, the Competition and Marketing Authority’s (CMA) 'Statutory Audit Services Market Study’ and Sir Donald Brydon’s 'Independent Review of the Quality and Effectiveness of Audit'. Some of its recommendations focus on moving the audit process beyond standard reporting, by creating bespoke reports that are tailored to the business in question. Sir Donald Brydon argues that audits should be more informative and user friendly. Brydon also highlighted the need for company directors to play a more active role in the audit process, by offering insights into key areas of risk for the business and future forecasts. Making them more accountable for the audited accounts, will ensure greater sharing of responsibility with the auditor. Another significant change mentioned within the reviews is the proposed introduction of an assessment of the effectiveness of a company’s internal controls, akin to the Sarbanes Oxley Act of 2002 (SOX), which is currently in place in the US. The introduction of this measure could help to mitigate the risk of errors slipping through the system, helping businesses to identify possible insolvency scenarios before it’s too late.

Such changes could reshape the audit profession, by requiring the auditor to examine more than just numbers, broadening the scope of their activities. For example, this could possibly include the assessment of non-financial KPIs, such as a business’ environmental impact and overall resilience. As the role continues to evolve, it is also expected that there will be more of a focus on the technological aspects of auditing. The pandemic has already accelerated the development of companies’ accounting systems and as these become ever more sophisticated, auditors will need to rely on software and other technologies to automate areas of their role.

The audit industry is also facing significant challenges when it comes to recruiting new talent. While giving auditors a broader role would be positive for the profession, it would also create more work within the sector, forcing firms to go on a hiring spree. As the role of the auditor evolves, firms will need to intervene to attract more candidates and nurture development of the right skills in order to avoid a resource shortage.

A number of factors have influenced the reputation of the audit profession over the years. In particular, when corporate failures occur, the finger is often pointed at auditors, who are often scrutinised by the media. Careers in audit currently come with a high level of professional and personal risk, particularly for those in senior-level positions.

Reform within the audit profession could be a step in the right direction when it comes to boosting the industry’s attractiveness. Some of the recommendations currently under consideration could help to rebalance the personal and professional risk faced by auditors. It has also been recommended that auditing becomes an entirely separate profession from accounting. This could help to raise the profile of the profession by requiring new entrants to gain a specific, regulated audit qualification.

As their role develops and they take on a broader remit, auditors could find they are stretched too thinly, potentially leading to more errors slipping through the net. While change is vital for attracting new talent and restoring confidence in the industry, it is important that standards are not allowed to slip as part of this process.

Yet according to PwC, this form of fraud is the second-most commonly reported economic crime in the world, ranking above bribery, corruption and even cybercrime. The question is – who should lead counter-fraud efforts? This week Finance Monthly hears from Laurent Colombant, Continuous Controls and Fraud Manager at SAS, to explore the ins and outs of procurement fraud.

Worryingly, businesses seem unclear on the answer. Our latest research report, Unmasking the Enemy Within, found there was no clear leader or common approach to procurement fraud prevention across businesses. Indeed, almost a quarter (23%) of business leaders have no clear owner assigned to the task or can’t say who is responsible.

Finance in the firing line

What’s not in question, however, is who’s held responsible for the damages that fraud inflicts. While CFOs might not be involved in day-to-day anti-fraud operations, they are frequently first in the firing line when procurement fraud is uncovered. In 2014, for example, Sino-Forest Corp CFO David Horsley was fined C$700,000 by regulators for failing to prevent fraud under his watch. Furthermore, he was permanently banned from being a public company officer or corporate director, and was ordered to pay $5.6 million to the company’s investors following a class action settlement.

While they are unlikely to coordinate fraud efforts single-handedly, 31% of companies place ultimate responsibility for fraud in the CFO’s hands - more than any other role. That’s hardly surprising, given that fraud has a direct impact on the bottom line, with over half of businesses (55%) reporting losses of up to €400,000 per year.

While we are not arguing that the finance department should be the command and control centre for anti-fraud efforts, it’s clear that the CFO has a crucial role to play in tackling procurement fraud. They are the ones who guide purchase decisions, who oversee risk management or audits and, ultimately, have the final say in what anti-fraud capabilities a company is equipped with.

Even so, it’s unfair to expect the finance department to shoulder the entire burden themselves. Just as IT security in the organisation is everyone’s responsibility, so too must accountability and responsibility for fraud be embedded throughout the workplace.

Invest for success - modernising the detection process

Yet there is much that the finance department can do to help uncover incidents of fraud – not least conducting regular audits. Around half businesses (46%) claim to hold regular internal audits, but many of these exclude procurement fraud from their remit. More worrying still, more than one in 10 (11%) organisations admit to either doing nothing to audit for procurement fraud or are unable to say what they do. A further fifth (22%) fail to audit for procurement fraud at all.

That one in three companies aren’t actively searching for procurement fraud, or don’t know what processes cover it, suggests a blind spot that potential fraudsters could easily exploit.

Finance needs to look at areas where existing auditing process are letting them down. When we look at how organisations deal with procurement fraud, 29% validate procurement applications manually while a further 30% rely on staff to inform them of any wrongdoing. Both carry a high risk of human error, potentially minimising or masking the true scale of the problem.

Ultimately, the buck stops with the CFO, which is why they should consider a new approach to auditing based on continuous and automated detection. This is only possible with a strong foundation of advanced analytics that assists investigators in pinpointing the needles in the haystack. A company’s ability to identify and prevent fraud rests, to a very great extent, on the good judgment of the CFO in selecting the right systems to prevent fraud from happening in the first place and deterring anyone with ill intentions.

Continuous, data-driven detection represents the best way to fight procurement fraud and identify errors, enabling companies to pre-empt signs of fraudulent activity rather than discover it after it’s taken place. This limits costs, saves time as well as reputation and prevents losses.

Yet only a small minority of organisations are using advanced analytics (14%) and AI (nine%) technologies in their anti-fraud efforts. The most common obstacle to adoption is the perceived cost of the technologies, but this could well be short-term thinking on the part of the CFO. While there is an upfront cost implicit in any implementation, an effective fraud detection tool will quickly make its money back in the losses it prevents and the monies it helps recoup.

The finance department should not be afraid to make the case for investment in the latest advanced analytics and AI solutions. Procurement fraud is too serious and too costly to make short-term capex savings in favour of the long-term ROI offered by analytics-enabled security. After all, the buck stops with them.

How has the wealth management landscape developed recently and what has influenced this?

The thing I love the most about our industry is that it is always changing. In addition to changing market conditions, there are new products developed and made available on an ongoing basis, and most significantly - clients’ expectations, needs and objectives are always changing too. For investors entering or being in retirement, there are more potential solutions available today than ever before. From low-cost and no-load insurance products to ETFs and separately managed accounts focused on paying a reliable income stream from high-quality dividend paying stocks. It takes a lot of research and dedication to sift through it all, determine the best in class solutions, tune out the noise from product salesmen and advertisements, all the while knowing that a changing market environment may require a complete rethinking of the current strategy.

What are common misconceptions you find that clients have towards wealth management?

One of the first discussions I try to have with clients is about what they want versus what they need. Wants are often heavily influenced by personal biases and predispositions towards one type of strategy or another. Needs are driven by circumstances and personal expectations. It’s rare that these two align, so one of my jobs is to make sure everyone is on the same page.

Secondly, I explain and illustrate to clients that predicting outcomes in the short-term is nearly impossible (or at the very least based on luck not strategy), and that in order to be a successful investor, one must have a consistent replicable process to guide us in the decision-making process. If you trust the process, then you won’t be distracted by short-term events that can derail a sound long-term strategy.

If you trust the process, then you won’t be distracted by short-term events that can derail a sound long-term strategy.

Can you outline how you go about auditing a client’s needs and then designing a successful wealth management plan? What would you advise the first course of action to be?

Naturally it starts with a discussion on what brings them to me. Understanding a client’s concerns, goals and objectives has to be the first step. Then, comes the review of their existing portfolio and understanding why they are invested the way they are. By gaining insights into their past decision-making process, their current objectives and needs, we are able to tailor a set of solutions that addresses these issues.

How does your parent company, Bruderman Asset Management, assist in enhancing GGFS’ services?

Bruderman Asset Management has been deeply rooted in the asset management business since 1879 and has worked with some of the wealthiest families in the world. Because of their broad expertise and our ability to tap into these resources, we are able to provide sophisticated solutions and money management services to investors who might typically not be able to access these services. Of course, sometimes the simple solution is the best solution, but if something more complex is required, we have access to the expertise and tools required.

Do you expect any changes in wealth management in the US in the upcoming years?

A lot of advisers are retiring, and that will impact both clients and the industry. One of the reasons I developed our firm’s mentorship program almost a decade ago, is because we recognise the need to develop talent and we want to ensure that in 10 or 15 years our clients will receive the same level of expert advice they are getting today.

Market conditions and product availability will change, but what shouldn’t change is a well-thought-out, consistent, replicable and reliable investment process.

What are your top tips for wealth management in 2019?

Same as always, trust the process! Market conditions and product availability will change, but what shouldn’t change is a well-thought-out, consistent, replicable and reliable investment process. Don’t allow short-term events and ‘noise’ from the media to distract you from your long-term goals.

You recently spoke about trade deficits in the US. Can you briefly summarise how they hurt the economy?

In the short and sometimes intermediate term, tariffs act like a tax on consumers, as they raise prices. The real question is what will the long-term result be? If, this time next year, the United States has been able to negotiate better trade deals with China and Europe, as we already have with Mexico and Canada, then the short-term pain may be well worth it. From an investment perspective, it simply means that your process should guide you towards investments that are less susceptible to the impact of tariffs or the trade war – that’s our approach.

Website: http://www.ggfs.com

Tajudeen Akande is Senior Partner at PKF Nigeria (PKF Professional Services) and a member of PKF International - a global network of legally independent accounting/business advisory firms bound together by a shared commitment to quality, integrity and the creation of clarity in a complex regulatory environment. Here, Mr. Akande tells us about the transformation of the tax system in Nigeria, as well as the challenges of providing tax advice in the African country.

What would you say are the challenges of providing effective accounting and tax advice in Nigeria?

The main challenges of providing effective accounting and tax services in Nigeria include:

• The Economic situation of the country, which has constrained people’s ability to pay for professional service, having to, in most cases, resort to use of quacks and unqualified people.
• Regulators – Professional accountants in Nigeria are regulated by the Financial Reporting Council of Nigeria (FRCN) as well as two professional accountancy organisations operating in the jurisdiction—the Association of National Accountants of Nigeria (ANAN) and the Institute of Chartered Accountants of Nigeria (ICAN), and of course there is the Chartered Institute of Taxation. The multiplicity of bodies saddled with the responsibility of regulating the practice of accounting and taxation is a challenge to practitioners in terms of proper monitoring and discipline of erring members.
• Challenges in the area of tax practice include:
• Lack of clarity on taxation powers of each level of government (There are three tiers of Government in Nigeria);
• Insufficient information available to taxpayers on tax compliance requirements thus creating uncertainty and non-compliance;
• Use of aggressive and unorthodox methods for tax collection by tax authorities;
• Failure by tax authorities to honour refund obligations to taxpayers.

How has the tax system in Nigeria transformed throughout the years?

Nigeria’s tax system has evolved a lot over the years - from the pre-colonial era to the latest tax reform codified into a National Tax Policy.

In the traditional Nigerian society, the formalisation of taxation was practically non-existent. Citizens were only exposed to a variety of levies as dictated by paramount rulers and different traditional rulers created their different forms of taxes and levies.

To achieve conformity and uniformity in taxation, Raisman Commission was set up in 1958 by the colonial Government, which advised that basic income tax principles should be introduced and standardised across the country, which was accepted by the Government. Thus, direct taxation was incorporated into the constitution of the Federal Republic of Nigeria, after which the Companies Income Tax Act and Income Management Act of 1961 were established. This marked the foundation of Nigeria’s modern tax laws.

As a result of the increasing complexities in commercial transactions and glaring issues relating to practical interpretations of the laws, the Acts were repealed and reenacted giving rise to Companies Income tax Act CAP C21 LFN 2004 and the Personal Income tax Act CAP P8 LFN 2004, as well as other tax regulations which have changed the face of tax administration and practice in Nigeria.

Nigerian taxes are currently administered through the three levels of Government, as outlined in the Taxes and Levies (Approved List for Collection) Act (Amendment) Order of 2015.

The National Tax Policy (NTP) was first published in 2012, as part of the efforts to entrench a robust and efficient tax system in Nigeria. This was reviewed in 2016 in response to the rapidly changing commercial environment and persistent low tax to Gross Domestic Product (GDP) ratio.

Recently, Nigerian tax administration has been reshaped and expanded to focus on international tax. Various measures have been put in place to curb base erosion and profit shifting, so as to improve government revenue. Some of these measures include Transfer Pricing Regulations, Double Tax Treaties and Multilateral Agreements. Also, the tax payment system has been automated. Tax payers can now pay, generate receipts and even file tax returns and obtain Tax Clearance Certificate (TCC) online.

What are PFK Professional Services’ philosophy and top priorities towards its clients? How has this evolved over the years?

PKF is a global family of entrepreneurial minds working together, pooling our collective resources, experience and skillsets to add significant value to clients. We combine our understanding of local regulations, international perspectives and grasp of niche markets to create a simple, seamlessly executed approach. When you engage with PKF, you can be confident that the work will be carried out by dedicated and experienced professionals. We know the importance of having teams who have real sector experience.

The PKF ethos is about working together. We believe in giving teams the same encouragement as the individuals within them. We pursue a philosophy of shared responsibility and shared success. The most distinctive feature of PKF practice is our attitude towards our clients. Our people are good at building and developing relationships. This means getting to know our client’s organisation to understand their long-term needs.

Website: https://www.pkf.com/pkf-offices/africa/nigeria/pkf-professional-services-ng-lagos/

Based in Germany, Westphal+Partner offers a wide range of independent tax, accounting and audit services, specialising in small and medium-sized foreign-owned enterprises doing business in Germany. Besides that, the firm acts as a controlling unit for the investor ensuring oversight. As CPAs, Westphal+Partner’s accounting operates risk-oriented detecting and avoiding misstatements during the accounting process, preventing changes at the annual financial statement. Finance Monthly speaks to Partner Ingrid Westphal-Westenacher, who tells us what clients expect from an accountant and shares the challenges that her firm faces.

From your experience, what do clients actually want from an accountant?

Our customers have decided to hire experts to solve a problem that has nothing to do with their core business. They want to focus on their business idea without losing sleep thinking about tax payments and accounting. Once entrepreneurs decide to outsource bookkeeping or get help from a tax advisory, they expect viable solutions enabling long-term success. And they are right to do so. An outsourced bookkeeping must be objectively and legally correct at any time, while also being up-to -date. Since corporate tax in Germany tends to be quite complex, especially for people with scant knowledge of the local tax codes, clients should expect their tax adviser to explain tax issues in a comprehensible manner, so they can make the right decisions.

How do you make sure to keep up with you clients’ expectations?

Communication - not just with the business owner, but with the management and the staff too.

What challenges would you say you and your firm encounter on a regular basis? How are these resolved?

One challenge that we face is knowing our clients’ business, plans, expectations, and needs. Only by knowing all of them, you are truly able to advise clients on a rational basis. One way to resolve this issue is to build a relationship of mutual trust. In order to do so, we firstly articulate what customers can expect from us, clearly defining our services and explaining our proceedings. With this certainty, customers know what to expect from us, so they can focus on their businesses without worrying about taxation or accountancy standards.

Foreign clients add a cultural dimension to the customer relationship - an aspect often underestimated and frequently resulting in underlying frictions. People from different parts of the world have different cultural preferences and backgrounds; i.e. some people from China have a different attitude when it comes to taxation, when compared to people from Germany. The essence of it is to avoid pointing out the differences, but instead, to make sure that both sides fully understand how the other side’s processes and systems work. To avoid any kind of misunderstandings, we not only pay close attention to these differences, but, for example, we also have colleagues in our team who are Chinese or have lived in China and are familiar with the culture.

How are these challenges set to change, in conjunction with the advent of technologies and the potential future needs of clients?

Both challenges will persist, even with the advent of technologies. However new technologies are already disrupting audit and bookkeeping. Today, clients can check the books at the end of the month online and see how their business performed. In the future, bookkeeping will be a fully automated process with real-time results, by the day, enabling better oversight and steering and even fewer costs due to AI-powered accounting software.

As a long-term former Chairwoman of the working group Quality Assurance SME at the Institute of Public Auditors in Germany (IDW), I’m convinced we will see significant changes in the field of auditing. Tool-based data analytics will enable us to read out process data and check them by sophisticated data algorithm. This will put auditors in an unrivalled position to consult the client on strategic decisions.

What’s your piece of advice to our readers?

When the decision to outsource bookkeeping has been made, try to hire an accounting firm run by CPAs. Accounting firms with a pure background in tax sometimes tend to disregard the code of commercial law, focusing narrowly on tax law; thereby causing problems with the mandatory preparation of the balance sheet under the German commercial law, and insofar causing unnecessary trouble and costs. Finally, trust your gut feeling when hiring an accounting company - it is very important to feel at ease and understood by your adviser. Be cautious of people hiding behind technical jarring.

Website: https://www.westphal-wp.de/

Finance Monthly speaks to James Butler – experienced practitioner, business adviser to SMEs and Consulting Partner at GBW – an Irish company that wants to make sure that a choice exists for those smaller businesses that require a more hands-on approach than that offered by the larger firms.

What are the key services that GBW offers to clients?

We are a mid-tier firm of accountants and business advisers with varying specialties and backgrounds. Our services range from assisting with Audit, Assurance, Taxation and Accounting, through to Business Advisory and Corporate Recovery. Our cross-border service offering, business approach and sector expertise is primarily designed to support Small and Medium-Sized Enterprises, or organisations of equivalent scale, with existing or planned international operations.

GBW is an independent member of TGS – a global accountancy and legal network of independent firms specialising in the provision of accounting, audit, tax, business advisory and commercial legal services.

Tell us more about TGS?

Not all networks that are part of the group are the same. TGS member firms are all independently owned and share an entrepreneurial approach to their own and clients’ businesses. We have a shared commitment to the highest levels of technical expertise and professional standards. Our clients enjoy a rapid access to quality assured in country experts across the world, via a single point of contact.

We recognise that every client is unique and our cost-effective solutions are tailored to our clients’ unique requirements. Whether they require a full suite of accounting and business solutions or a one-off specialist service, TGS Global can provide precisely what our clients require, no more and no less.

You have extensive experience in Insolvency & Corporate Restructuring, and have acted as liquidator in both creditor and member voluntary liquidations. What does your role within GBW entail?

In my role within GBW, I deal with banks and financial institutions in all areas concerning distressed property and non-performing loans. I’ve also been involved in debt management and refinancing for both companies and individuals.

Additionally, I am also an experienced practitioner in taxation and business advice for businesses in the area of the licensed trade, professional services and medical practitioners.

GBW’s Services:

Audit and Accounting

We aim to help our clients see the audit process as a benefit to their business, not just a cost.

Taxation

Our taxation department has expertise in all categories of taxation, both our corporate to personal clients.

Business Advisory Services

All businesses require planning – form start-ups to mature businesses. Our business advisory experts can assist with the planning and execution.

Accounting

Our Accounts department provides all types of assistance, whether be in-house or out sourced, we have the expertise.

Corporate Finance

If you are selling, buying or merging a business. If you are making an investment or raising finance – we can help with the decision making process.

Forensic and Litigation Support

In today’s changeable economic environment, business disputes are becoming more frequent and litigation is on the increase. At GBW, we draw on the firm’s wide expertise of our accounting professionals to advise our clients in claims assessment and provide independent expert accounting witness services.

Recovery and Restructuring

We are leaders in the provision of insolvency and restructuring services. Our team comprises of insolvency experts, forensic specialists and support staff who work together to provide a comprehensive and complete solution to any restructuring or insolvency project.

Website: http://gbw.ie

To hear about tax in Romania, Finance Monthly reached out to Florica Cira who is the Managing Partner and Founder of FinACo -an accounting and tax advice company.

Have there been any recent/upcoming updates or changes to tax rules in Romania?

There have been quite a few changes in Romania in the last few years. Some of them were needed, but others, in my opinion, simply increased the bureaucracy.

2017 was a very dynamic year in regards to changes in the tax rules in Romania. An amendment was published almost every month so tax advisers, accountants, managers, as well as business owners had a busy year.

A lot of things changed in labour taxation:

• The increase of minimum gross salary per economy to 1,450 RON. The previous change was made in May 2016, from 950 RON to 1,400 RON, therefore in less than 1 year, an increase of 50% affected several industries.

• The increase of Pension insurance for salaries higher than €3,000 a month.
• The employers pay additional tax for the part-time labour contracts.
• Stricter rules for the time sheet evidence and labour contracts conditions were activated. At the same time, the penalties increased.
• The disability fund paid by the companies was increased by 100%.
• Due to a new regulation published in November, as of January 2018, a new social security system will be applied by transferring the employer cost with social security to the employees. The employer will still be obliged to withhold on payroll the employees’ social security.

The main modifications refer to:

• Increase the employee social security from 16.5% to 35% and decrease the income tax from 16% to 10%.
• Decrease the employer taxes on labour from 22.75% to 2.25%.

The actual labour cost will not change much. However, in some sectors like IT and R&D, where the employees are exempted of income tax, this transfer of taxes will decrease the net salaries with around 7%.

This major change could have a negative impact on companies considering that the budget for the next year was approved beforehand.

In the long run however, these changes could be very beneficial for Romanian social security, since individual insurance will increase. Furthermore, the public funds for future payments to social security could be managed much better.

Still, business managers and owners ask themselves whether the Government guarantees to keep the labour taxation to 2.25% in the next few years.

The period of time for implementation, software updates, discussions, negotiations between employer and employees is very short and involves efforts by both sides.

Additionally, there have also been recent changes in regards to VAT - the so-called “split payment” of VAT which set-up a new method to follow-up collection and VAT payment, starting in 2018. The system implies that VAT tax payers will have the obligation to open a new bank account for managing only VAT payments.  The companies are forbidden to withdraw cash or use this funds for anything that’s not VAT payments. The fines and penalties are extremely high if the rules are not respected.

The Government’s main objective is to increase the level of collection and reduce VAT fraud. However, specialists note that this measure will increase operating cost and cause cash flow issues.

The business sector firmly rejects this new form of bureaucracy and economic experiment, hoping it will not be applied.

As of 1^st January 2018, there will be some major changes in regards to corporate tax too. Companies with a total in revenues under € 1mil per year, will pay tax on revenues:

• 1%, if it has employees.
• 3% if it does not have employees.

In the last five years, the threshold for this type of taxation has increased from € 65,000 in 2013, € 100,000 in 2016, € 500,000 in 2017 to € 1 mil, as of 1^st January 2018.

Because this form of taxation is mandatory, it could have a negative impact on industries with EBITA lower than 6%, as well as on investment projects, where the operating expenses cannot be deducted from the operating profit in the current year or in the next fiscal years.

What would you say are the advantages of setting up a business operation in Romania, in terms of tax?

Even though there have been many changes in tax regulations in the last few years, which has created challenges in setting-up a business strategy, there are still some fiscal advantages which are worth mentioning:

-Developers and employees from R&D projects are exempted of income tax on salary. This facility can decrease the labour cost.

-Small companies with a turnover under €1 mil, which report EBITA over 7% has an advantage by paying only 1% to their revenue.

-Companies which invest in equipment are exempted on tax on profit for the value of the investment.

What are some of the key challenges of helping clients with tax, accounting and payroll?

The SME sector have grown very quickly in the last years, partially because of the investments made with European Funds. Our role is to assist and help our customers with their goals and to be more competitive and dynamic in a market influenced that is more and more by new technologies, data volume and high speed of reaction. At the same time, a challenge that we face is ensuring that the accounting and reporting standards are respected as well as that the taxes are correctly assessed.

We assist our clients with finding new better solutions to optimise their activity. Some of our projects that we work on include:

-Assisting with setting up ERP systems in compliance with the local accounting and fiscal standards. The challenge is to localise the system, ensure that the reporting criteria is fulfilled, and ensure that the automatic processes are correctly set.

-A lot of small companies have gone through mergers or have split to better organise their activity or to sell the business. Such a project implies team work from managers, lawyers, accountants and advisers.

-Assisting and representing our clients to fiscal audits performed by Tax Authorities on field like: corporate tax, transfer pricing, labour tax, VAT.

-Project-based accounting and management reporting is requested more and more even by small companies, to optimise their cost, to measure and increase their performance.

What differentiates FinACo from its Romanian competitors?

We provide integrated services to our clients for projects regarding: accounting, budgeting, consultancy, and tax-related issues.

Where do you see the company in 2-3 years?

New technology will challenge us to find a new way of using our knowledge. Booking routine works will be taken over by machines. We must be prepared for new methods like cloud accounting, and learn to be more than an accountant and become an adviser on business environment.

Website: http://www.finaco.ro/

Ian Borley heads up KPMG’s Leicester and Nottingham offices as East Midlands Senior Partner and he’s also head of the firm’s Enterprise practice in the Midlands. By day, he’s an audit partner and leads several of KPMG’s client relationships with a wide variety of companies across the region. He qualified as a Chartered Accountant in 1989, having joined from Leicester Polytechnic - now De Montfort University, and he has worked in the Midlands for most of his career.

KPMG has a worldwide presence as one of the Big Four professional services firms, and its network of member firms provide Audit, Tax and Advisory services. In the UK, the firm has over 600 partners and over 13,000 outstanding professionals who work together to deliver value to clients across its 22 offices.

As a professional whose extensive experience covers a number of sectors – from accounting advisory and risk consulting, to tax planning and transfer pricing – how has the financial services industry evolved in the past two decades?

The two big changes over the last twenty years have been technology and regulation. Technology continues to change the way our industry works, and this is certainly a positive. The use of data analytics, for example, makes professional services more efficient because it’s now much easier to make sense of huge amounts of client data and we can even test the whole population, rather than just samples. IT also means that we can quickly get to the relevant reference material online. Developments like these enable us to be more forward-looking for our clients, and gone are the days of using pencils, calculators and huge sheets of paper to do forecasts, or looking up tax legislation in weighty tomes.

The second major change is regulation, particularly for accountancy and audit. Compared to how it was over a decade ago, the way financial services are regulated and supervised has been completely reformed. In many ways, this is in response to some of the high profile business failures of the past and, as a result, there are numerous restrictions now in place. Although this can be frustrating sometimes, it’s definitely a good thing for our clients, their shareholders and for confidence in capital markets generally.

What are the biggest challenges that UK businesses are facing in 2017? In your opinion, what lies on the horizon for them in the near future?

While most people are probably bored of talking about Brexit, I don’t think the Sterling devaluation that resulted from the UK’s vote to leave the EU has fully come through yet. A lot of manufacturing businesses, for instance, will have had stock in warehouses or in transit that they bought at higher exchange rates earlier in 2016. They may also have hedged, but not many will have hedged into 2017. As a result, raw material inflation is starting to come through, and this will probably ring true for other industries too, so a lot will depend on companies’ ability to pass rising costs onto customers. On top of that, many businesses are wrestling with labour inflation, and things like the Apprenticeship Levy, National Living Wage and Stakeholder Pensions will all start to hit around the same time. The cumulative effect of so much happening in a short space of time could be quite severe for companies that have a big workforce.

Above all, the biggest challenge for many businesses is unpredictability. As well as Brexit, our clients are trying to predict what will happen to oil prices, trade relations with the US in a post-Trump era, and continuing political turmoil in parts of the Middle East. Nevertheless, many management teams are still investing in capital expenditure and making senior recruitment decisions, and we’re seeing that the M&A market is still very busy. This is, in part, a response to the continued resilience of the UK economy and is also encouraged by the availability of relatively cheap finance. However, it may also be that people have stopped trying to predict the unpredictable.

Why do companies need to keep pace with technology? How would you say technological change is playing its part in driving change in the services KPMG offers?

 In virtually all of our clients’ sectors, there’s some disruptor or new technology that stirs up the mix in terms of production techniques, routes to market, supply chain or customer experience. As a result, traditional business models are being challenged and people are increasingly looking all over the World to find ways to do business more efficiently.

The tailored customer experience piece is also having a massive impact, not just on consumers but for B2B businesses as well, so being able to stay ahead of the curve is really important. Indeed, this impacts on our own sector and we are continually re-evaluating what we do at KPMG, and how we do it.

You joined KPMG over 30 years ago - what were your goals in driving change within the company?

Having been a partner for 20 of those 30 years, my goals were, and still are, to offer the best possible service to our clients. To do this we need to be a firm of talented, knowledgeable and trusted advisors, and a lot of my career has been about building and developing teams with these attributes. It’s also about keeping up with the fast moving world and how we adapt to meet different client demands, while providing services in an efficient way.

The work environment has changed massively since I first started working at the firm. It was a completely different world back then. Flexible working and the benefits our people have is really important, and we’ve come a long way with diversity and inclusion, but I don’t think any organisation has completely cracked it yet. It’s not for want of trying but it certainly looks a lot better than it did in 1985.

What has the impact of your role been as a head of KPMG’s East Midlands practice to date?

 When I took over as Senior Partner for the East Midlands, we were in a position where many of the older and more experienced partners were either at or near retirement. So we had to bring new partners and directors through, and I’m delighted that most of them are home-grown. I’m pleased that we’ve invested in the team and looked after our clients, and we’re still on that journey as I’d like to build the capability of the team even more.

What goals are you currently working towards at KPMG in the East Midlands?

We have a strong market share in the region but there are hundreds of businesses that we don’t work with in the East Midlands that we could really add value to. So it’s all about being proactive and sharing ideas with them about how we can help them, and this comes back to investing and growing the team, while we develop relationships with prospective clients.

Can you tell us about your involvement in the business community?

One of the great things about KPMG is that the firm is very supportive of people giving back to the community, which is one of our core values. Over the last few years, I’ve held non-executive director positions at the National Space Centre and King Richard III Visitor Centre in Leicester, and the National Forest. For a number of years, I was chairman of Leicestershire Voice and I also sit on the CBI’s East Midlands Regional Council. I really enjoy being able to contribute something to the wider business community through these forums but it’s also been a fantastic experience for me personally, enabling me to meet some very talented people and learn new things along the way.

What is the role and importance of the SME business community in the UK?

SMEs are the cornerstone of the UK economy, and you only need to look at the statistics* to see why. There were 5.4 million SMEs in the UK in 2016, employing over 16.5 million people, accounting for 47% of the £3.8 billion turnover from private sector UK businesses.

They’re particularly good at being able to respond quickly to changes in the market and their decision-making lines are generally short. While SME businesses are almost always very impressive at what they do, they also have their own challenges. Take management bandwidth as an example; smaller teams can really be stretched when unusual situations occur, such as an acquisition or entry into a new market - they need to respond but they may not always have enough people on board, or people with the relevant experience and skills. That’s why it’s so important at times like these to have a good professional advisor on hand to help.

In the past, SMEs have also faced challenges with access to finance and they’re no stranger to the skills shortage. In comparison to their larger business neighbours, who perhaps have the back office capacity to recruit and train new talent, SMEs don’t often have the time to do so. Despite this, the SME community continues to thrive and is crucial to the success of our economy.

* Business population estimates for the UK and regions 2016 from the Department for Business, Energy & Industrial Strategy

The next Thought Leader that we spoke to is a professional that frequently updates Finance Monthly and our readers on all things tax in New Zealand. Here Richard Ashby, who has been dealing with New Zealand taxation for over 29 years, introduces us to recent developments in the sector and shares his predictions for the year ahead.

What have been the hottest topics being discussed in New Zealand in relation to tax since we last spoke in September?

For the past few months there have been two separate taxation Bills, making their way through Parliament. Both Bills contain some fairly significant changes that will mostly impact the SME market (in a positive way thankfully), with one of the Bills also providing the required legislation to facilitate NZ’s commitment as a signatory to the Automatic Exchange of Information project, and the introduction of new disclosure rules with respect to NZ’s foreign trust regime. The latter has been the NZ government’s response to the release of the Panama Papers, which suggested NZ was being used as a tax haven by wealthy non-resident individuals. One of the Bills was passed last week and the other is expected to pass pre-31 March (NZ’s tax year end).

There has also been continual discussion concerning BEPS and where NZ is positioned with respect to the various Action Plan’s issued. Most of the commentary coming out of Inland Revenue in this regard, is that NZ already has appropriate legislation in place to apply OECD recommendations.

What do you anticipate for the sector in 2017? Do you believe that there is potential for any significant legislative developments in the next twelve months?

2017 is an election year for NZ, and with an expected budget surplus in May, the present Government is already hinting that there will be personal tax rate reductions, targeted at lower to middle income earners.  There are also likely to be further modifications to the present tax system, aimed at making it easier for taxpayers to comply with their obligations, thereby lowering the cost of compliance (which Inland Revenue has an ongoing project to continually reduce), although I would not expect to see any significant changes over the coming twelve months, bearing in mind the myriad of changes included in the recent two Bills.

As a thought leader in this segment, how are you developing new strategies and ways to help your clients?

 Listening to your clients and fully understanding their needs is essential to providing good, sound tax advice. You have to continually ask questions and ensure you obtain all relevant facts. Once the detail is obtained however, the key to developing new strategies and ways to help you clients, is knowledge of the legislation and keeping abreast of any changes, the opportunities that lie within it to assist your client in obtaining their desired result, and most importantly, the ability to maintain an open mind and constantly question how the rules relevant to your client’s scenario, can be applied to produce the best result.

When you first joined Gilligan Sheppard, what were your goals in driving change within the company?

 Actually, when I joined Gilligan Sheppard (just over 20 years ago), I had basically just completed an eight-year stint with Inland Revenue, and the first day on the job, I discovered I still had so much to learn. What was clear however, was that I now had an ingrained passion for dealing with NZ taxation. This connection had also transformed into a desire to spend as much of my time as I could, assisting clients with their tax issues, particularly as a problem solver, with a goal to obtaining the best outcome when dealing with whatever situation they had got themselves into.

Since becoming a partner of Gilligan Sheppard in 2005, my goal has been to develop a sustainable tax practice within the firm, which has started to become a reality in the past three years, when we decided to separate the practice into three separate business units, one being a dedicated tax team.

How would you evaluate your role and its impact over the last year or so?

In the past twelve months, we have started to promote a tax advisory service to other accounting firms who may not have their own internal tax resource. This has certainly been a learning curve as the nature of the advisory has changed from one of dealing with clients of Gilligan Sheppard who you have a natural relationship of trust with, to dealing with other accounting firms whom you are effectively in competition with for business services work, and the consequent need therefore to build a different type of trust relationship.

Do you have a mantra or motto you live by when it comes to helping your clients with audits and tax-related matters?

Communication is the key – never be afraid to ask a question, be an active listener and never be in a hurry to give advice just for the sake of giving it. When it comes to the Inland Revenue, always be pro-active in your dealings with them, and emotive reactions can be very costly, so always ensure your client focuses on the economics of any Inland Revenue dispute, and does not get caught up in the emotions of having to win.