Just like buses not a lot new seems to happen and then all the innovations seem to come along at once. You might be interested in some of the new things that have come across my desk that we have either adopted or are looking more closely at:
- Online accounting software: Nothing so special about that you may be thinking, however Xero Accounts seems to have taken a big slice of market share for two reasons. Firstly it is web based and fast, secondly it downloads company bank statements automatically thus putting the bank at the centre of accounts production, where it always should have been in our opinion. This saves time whilst eliminating input error and forcing the data processor to deal with the most important element of the accounts first, which is the bank reconciliation.
Using Xero Accounts a business has the duel benefits of accurate monthly management information with existing staff able to do much of the work.
At Parker Chartered Accountants we are currently trialling the software with a view to offering clients low cost monthly accounting and forward looking advice based on the monthly accounts and forecasts. We intend to train existing client staff on data input with us overseeing the process and finalising the management accounts on line.
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You have probably bought your last server: It seems that as companies servers fail, or get too old for purpose, they are choosing to go to a hosted solution for all software. This means basic terminals on the desk top and all software hosted off site in the “cloud” and accessed by internet. The thought of never having to load a windows update or do another back up or deal with an erratic hardware problem is compelling. I would expect the process to be restricted by internet speed, however having spoken to several companies using such systems apparently they are as quick as the old internal network. Sounds too good to be true! Funny it’s not that dissimilar to where computers started, with the mainframe. For many businesses there are financial advantages of going this route – less capital outlay and with the right provider a guarantee that you’ll have the right security safeguards in place and regular software updates.
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The compelling argument for low cost investments: On the investment side of our business the biggest change we have seen has been the compelling argument to hold equity investments in globally diversified, low cost institutional funds rather than their high cost, stock picking, actively managed alternative. Our blog Investment diversity today is all about the global economy explained this further.
The investment principles underlying this approach are that stock market prices represent the best estimate of company value at any point in time. All information known about a share is reflected in its price and stock market movements are a result of unexpected events. Hence simply hold the whole of the market in your portfolio at as low cost as possible. Funds with low annual management costs and low transaction costs are the answer in this investment approach.
I’m so convinced by this approach I’ve adopted this approach for my own investments.
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The rise in aggressive tax planning: For many the cost of extracting funds from a company is over 50% once corporation tax, national insurance and income tax are deducted. This in itself has lead to the rise in the tax planning industry.
We do a lot of tax planning in our office but only of the type that we know we can defend should HMRC ask any questions. An example of such non aggressive tax planning that we do a lot of is contribution into pension. Pay £8,000 into a pension as a higher rate tax payer you receive a £2,000 tax rebate and get a further £2,000 added to your pension fund by HMRC. In other words £10,000 is credited to your pension fund for a £6,000 outlay. Return £10,000/ £6,000 = 67% guaranteed and with the blessing of HMRC.
More aggressive tax planning requires specialist expertise and knowing the right people to instruct is key, if you are to get the best possible advice, understand the consequences of the advice you are given and be in a position to defend the tax planning strategies should they be challenged.
Once the current finance act receives Royal Ascent we expect a lot of activity in this space. As long as half of profits go in tax this industry will thrive.
Andy Parker
Chartered Accountant and Chartered Financial Planner, Birmingham