It is now time to consider the UK tax relief available on building projects, writes Eugene Moore. To stimulate international investment in the UK, the then-Chancellor, Phillip Hammond, presented his 2018 Autumn Budget to the House of Commons. In it, he announced the introduction of capital allowances for capital expenditure incurred on the construction, renovation or conversion of most UK and overseas buildings and structures. The Structures and Building Allowance (SBA) applies to contracts entered into on or after 29 October 2018. Construction projects that may qualify for the SBA are now starting to be completed, with the structures and buildings coming into use. It is now, therefore, time for the current owners and their advisors to consider the significant tax relief available on such capital projects and how best to mitigate the risks of making an invalid claim. The relief Relief is available for UK and overseas structures and buildings where the claiming business is within the charge to UK tax. The SBA was introduced at a rate of 2% straight-line basis on qualifying expenditure over 50 years. The rate was increased to 3% in the Budget and the change will take effect from 1 April 2020 for UK corporation tax and 6 April 2020 for UK income tax. The relief commences with the later of: The day the building or structure is first brought into non-residential use; or The day the qualifying expenditure is incurred. Once qualifying expenditure is incurred, the first use of the structure or building must be non-residential. Subsequent events, such as change of use to residential or the demolition of the structure or building, will impact the availability of the SBA. A period of non-use immediately after a period of non-residential use is deemed as non-residential use, and the SBA continues to be available. Qualifying activities The structure or building must be for a qualifying activity carried out by the person who holds the relevant interest. Qualifying activities include: trade; an ordinary UK property business; an ordinary overseas property business; a profession or vocation; the carrying on of a concern listed in ITTOIA05/S12(4) or CTA09/S39(4) (mines, quarries and other concerns); or managing the investments of a company with investment business. Qualifying expenditure Capital expenditure incurred on the construction or purchase of a structure or building (including professional fees and site preparation costs) is qualifying expenditure. Excluded expenditure covers: the cost of the land or rights over the land; the cost of obtaining planning permission; financing costs; or the cost of land remediation, drainage and reclamation. Abortive costs, such as architect’s fees associated with a structure or building that is not completed, do not qualify for the SBA. Commencement date As the SBA was introduced to stimulate investment from 29 October 2018, allowances are not available on structures or buildings where the contract for the physical construction work was entered into before 29 October 2018. For projects under a construction contract, the commencement date for the SBA will be the date of that contract. HMRC is of the opinion that contracts can take different forms; it gives the example of email exchanges, which confirm that works will take place. Where no contract is in place, the date of the commencement of physical works represents the commencement date for the SBA. This is also the case where physical works commence, and a contract is subsequently put in place. Site preparation According to HMRC, the cost incurred in preparing land as a site is treated as expenditure on the construction of the structure or building that is then built upon that site. This includes cutting, tunnelling or levelling land. On the plus side, these costs are not excluded as expenditure for the SBA. On the downside, the timing of these costs could drag the entire construction project into an invalid claim position for the SBA if they are incurred before 29 October 2018. HMRC states that the following does not impact the commencement date: separate preparation and construction contracts; replacement of preparation contracts; preparation works ceased then recommenced; and preparation work redone. Demolition or enabling works incurred before 29 October 2018 do not in themselves make the entire claim invalid for the SBA unless explicitly linked to the actual structure or building. Practical issues Before an SBA claim can be made on a UK income tax or UK corporation tax return, the current owner of the relevant interest in a structure or building must create and maintain an allowance statement. Where the current owner incurred the qualifying expenditure in relation to the structure or building, the current owner creates the allowance statement. Where the current owner acquired the relevant interest in the structure or building from another person, they must obtain the allowance statement from the previous owner. An allowance statement means a written statement, which must include the following information: information to identify the building to which it relates; the date of the earliest written contract for the construction of the building; the amount of qualifying expenditure incurred on its construction or purchase; and the date the building is first brought into non-residential use. CPSE.1 (Ver. 3.8) General Pre-Contacts Enquiries for all Commercial Property Transactions now contains questions concerning the SBA and requests explicitly the allowance statement. In summary The SBA may result in significant tax relief for UK businesses that construct or purchase non-residential structures and buildings where previously, there was none on such expenditure. Careful consideration should be given to the commencement date of the project, and detailed evidence must be created and maintained by way of an allowance statement to avoid invalid claims.   Eugene Moore ACA is Corporate Tax Manager at BDO Northern Ireland.

David Duffy discusses recent Irish, EU and UK VAT developments. Irish VAT updates VAT compensation scheme for charities eBrief 21/20 contains updated guidance in respect of the VAT compensation scheme for charities. This scheme is now open in respect of VAT incurred by charities in 2019. The deadline for submitting such claims is 30 June 2020. Charities must satisfy various conditions to make a valid claim and there is a formula for calculating the claim. The total fund available for all claims is capped at €5 million and, if exceeded, this amount will be allocated between valid claims on a pro rata basis. There have been no changes to the scheme, but the guidance provides further details on the terms “total income” and “qualifying income”, which are relevant to the calculation of claims under the scheme. VAT on telecom services On 31 January 2020, the Tax Appeals Commission (TAC) published a determination in a case (16TACD2020) involving a mobile telephone operator (the appellant). The case considered the VAT treatment of the appellant’s cancellation charges, unused data, and non-EU roaming on bill-pay mobile phone services, as well as the time limit for making VAT reclaims. The appellant was unsuccessful in arguing for a VAT refund on three counts but did succeed in a claim for a VAT refund on non-EU roaming services. The key points of TAC’s determination were as follows: The appellant was liable for VAT on cancellation charges to bill-pay customers for early termination of their contracts. This followed a similar decision by the Court of Justice of the EU (CJEU) in MEO (C-295/17). The appellant was also liable for VAT in respect of customers’ unused data included in the price of their bundle. The appellant’s argument that VAT refunds should extend back further than four years was also rejected. The appellant had sought to argue that it should be equivalent to the five-year refund period available for other taxes, but this was rejected. The appellant was successful in arguing for a VAT refund to the extent that its bill-pay customers used its telecom services outside the EU. Revenue had sought to argue that refunds for non-EU roaming should only be available for pre-pay customers, but this was rejected by the TAC. While the case is principally relevant to the telecoms sector, some of the principles regarding cancellation charges and equal treatment could have wider application. The determination (which is available on the TAC’s website) is, therefore, a useful read. Time limits The question of time limits for VAT refunds was also the subject of a TAC determination (03TACD2020). The taxpayer was engaged in a VAT-exempt business but was entitled to partial VAT recovery on its dual-use input costs to the extent that its services were to non-EU recipients. However, during 2009, the taxpayer had not been aware of its entitlement to partial VAT recovery and therefore had not taken any VAT recovery on its costs. Upon becoming aware of this entitlement, the taxpayer submitted a claim on 31 December 2013, which included VAT incurred before 1 November 2009, which would ordinarily be outside the four-year time limit. The taxpayer sought to argue that this VAT was still within the four-year time limit because, in the taxpayer’s view, it was an adjustment of its partial exemption VAT recovery rate review for 2009 (which fell due after 31 December 2009). However, the TAC disagreed as the taxpayer had not applied any VAT recovery rate to dual-use inputs during 2009. The TAC concluded that only VAT incurred from 1 November 2009 onwards was correctly included in the claim submitted on 31 December 2013. While the facts of the case are quite specific, it emphasises the importance of following the appropriate procedures and paying close attention to time limits when submitting a claim for any historic VAT. EU VAT updates VAT treatment of boat moorings Segler (C-715/18) was a German non-profit-making association whose objective was to promote sailing and motorised water sports. It maintained boat moorings, some of which were used by members of the association and others were used by guests. Segler applied the reduced rate of German VAT as it believed the letting of the moorings fell within the meaning of “accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and the letting of places on camping or caravan sites”. The German tax authorities argued that the standard rate of VAT should instead apply. The CJEU concluded that the reduced rate could not apply, as the letting of the boat mooring was not intrinsically linked to the concept of “accommodation”. UK VAT updates Budget 2020 The UK’s Chancellor of the Exchequer announced several VAT measures in Budget 2020, which was presented to the UK parliament on 11 March 2020. The key updates are summarised below: The 0% rate of VAT will apply to e-books and online newspapers, magazines and journals with effect from 1 December 2020, bringing them in line with the rate applying in the UK to physical books and publications. The standard 20% rate has applied heretofore. Interestingly, however, the UK Upper Tribunal had already held that the 0% rate correctly applied to such publications in the Newscorp decision, but HMRC has indicated an intention to appeal that decision. Consequently, the position applying before 1 December 2020 remains to be clarified. As a cash flow-relieving measure following the implementation of Brexit, postponed accounting for import VAT will be introduced for all goods imported into the UK with effect from 1 January 2021. Postponed VAT accounting will enable UK VAT-registered businesses to self-account for import VAT under the reverse charge mechanism. From January 2021, 0% VAT will apply to women’s sanitary products. David Duffy FCA, AITI Chartered Tax Advisor, is Indirect Tax Partner at KPMG.

Colm Davitt, CEO at Dental Care Ireland, discusses life at the helm of the five-year-old dental business he founded with his brother. What do you most enjoy about your current role? My role involves acquiring dental practices and helping them achieve their full potential. It combines my background in business and accountancy with a passion for the healthcare sector. I love seeing the practices grow and evolve as we invest in facilities, services and management support structures. Our 15 practices are located all over the country, which means a fair amount of travel, but I enjoy getting out of the office every week to meet with current and potential practice teams. What has been your career highlight thus far? Two career milestones stand out. First, I passed my final admitting exams to become a Chartered Accountant at age 21. My qualification has been the foundation and bedrock of my career achievements to date. Second, a major highlight was the opening of our first branded Dental Care Ireland practice. I first came up with the Dental Care Ireland concept in 2014 with my brother, Dr Kieran Davitt. Our vision was to create a group of established, high-quality dental practices nationwide. It has been a hugely rewarding experience to see that idea become a reality in just five short years. How do you stay productive day in, day out? I am a firm believer in setting goals. We have ambitious growth plans for Dental Care Ireland, so I review our objectives and targets at least every six months. I am also fortunate to have built a highly motivated team around me. Our head office is located beside the sea and close to home, so I can walk to and from work. When I’m not on the road, it gives me some guaranteed fresh air and headspace. I try to balance work with plenty of family time too. I dedicate my weekends to watching my kids in action on the sports field or catching up on GAA.  What changes do you anticipate in your profession in the next five to ten years? I expect to see the large-scale automation of routine accounting and data processing over the next ten years. It will be essential for Chartered Accountants to remain commercial and value-focused. In general, I think the need for flexibility in the workplace will continue to grow, and employers will have to adapt accordingly. In the dental sector, we may see fewer dentists willing to run their own businesses due to increased compliance and administration requirements. What is the best advice you’ve ever received? Stay true to what you really believe in. Being a CEO can be a lonely place, and there are many ups and downs along the way. If you believe in what you are doing, you will gain respect and trust from those around you. Over the years, I have had the privilege of working with several great mentors and CEOs. They all had the ability to create a small but very loyal team, which is probably the most important lesson I have learned. Working with a talented and supportive team makes the days much more enjoyable and fulfilling.

While support for diversity and inclusion is welcome, it is now time for business leaders to instigate meaningful change, writes Rachel Hussey. In the past ten years, diversity of all kinds – but gender diversity in particular – has become an area of focus for almost all business leaders. In what can be interpreted in many ways as progress, the 30% Club, which I currently chair, has been asked more frequently if 30% is a sufficiently ambitious goal. 30% Club Ireland is a group of Chairs and CEOs of 260 Irish organisations who agree with our goal to ensure that 30% of board members and senior management in Irish businesses are women. The Club was founded in the UK in 2010 by Helena Morrissey, and the Irish chapter was established in 2015. The 30% title was adopted because 30% is the critical mass that a minority must reach in a group to have an effective voice. And 30% is very much a floor and not a ceiling in terms of our goals and ambitions. I am a lawyer, but law firms and advisory and accounting firms face the same challenges around inclusion and diversity. In this rapidly changing world, with new careers emerging all the time, professional services firms have to find ways to stay attractive to graduates (both men and women) and to retain them once they have been trained. In other words, diversity may be a moral imperative, but it is also a necessity for business. Today’s graduates expect to find diversity where they work. That wasn’t the case in the 1990s when I started in practice. There was no discussion about diversity in business back then. There was a concept of ‘equality’, which was confined mainly to pay and conditions. The feminist movement was a social one, focused on issues like contraception. The Women’s Political Association was advocating for more women in politics, but the business world was separate to all of that. And I think many of the women who were in that business world either didn’t focus on the lack of diversity or were too isolated to speak up in any meaningful way. I was, of course, aware of the social movements while I was in college, but I assumed that the world was mostly a fair place and that if you were good enough, you could do whatever you wanted to do. Women were very well represented in the top of my class in Trinity. I didn’t even notice when I was doing a master’s degree at Harvard Law School that only a quarter of my class were women. After I qualified, however, a few incidents surprised me. When I attended an event with my then-boss, and we met his sister, she asked me how long I had been my boss’ secretary. When I was pregnant with my first child and was the primary breadwinner, I realised that I was going to have to rely on social welfare payments to survive. And then I had to make – and saw other women having to make – career decisions that weren’t decisions, as there was no choice. Spurred on by all of this, my women partners and I came together in 2008 and came up with plans to empower the women in our firm. And when I saw Helena Morrissey speak in Dublin in 2013, I knew the 30% Club was a real game-changer because it had clear goals, was business-led and – most importantly of all – included men, without whom no real change will ever be possible. There has been some progress, but perhaps we in professional services firms need to take some bolder steps now – for our men and women. We need to recognise the needs of a more modern workforce and find ways to integrate family life and absences into a career path rather than separate to, or an exit from, a career path. That includes better career planning built around family absence and greater recognition and accommodation of the needs of men in their desire to play an equal part in family life.  We need to recognise the potential for 24-hour demands in a digital age and become more agile in how we work and how we rest – as individuals, as parents, as carers and as human beings – and we need to demonstrate and practise this, starting from the top. We all state our commitment to diversity and equality of opportunity. It’s now time to prove our commitment. Rachel Hussey is Chair of 30% Club Ireland and a Partner at Arthur Cox.  

The ability to judge the mood music of society could be our greatest asset in shaping how the profession is perceived, writes Dr Brian Keegan. If you happen to be an auditor and are of a sensitive disposition, look away now. Apparently, you are not a member of a profession. This is just one of the suggestions of the Brydon review into the quality and effectiveness of audit, which was published at the end of last year. Brydon’s work was prompted by public disquiet over high-profile business collapses in the UK, where it was believed that the auditors should have done better. The standard response of politicians everywhere to topics that make them uncomfortable is to commission a review. In that way, action is seen to have been taken and the discomfort is spread around. There are many reasons, of course, why Brydon is wrong about auditing not being a profession. An audit is, after all, about the exercise of intellectual skill and knowledge. It is an unfortunately flippant conclusion in a study that otherwise has a lot going for it. Worse, in the court of public opinion, many people won’t necessarily make a distinction between what an auditor is and does, and what an accountant is and does. It is therefore inevitable that the profession often finds itself in the uncomfortable position of having to explain itself. It doesn’t matter that our most immediate stakeholders – board members and investors – know perfectly well the contribution of the audit and the role of the auditor. Government policy in any area is not exclusively formed by listening to, and then following, the views of knowledgeable stakeholders. The perception of the accountancy profession can be contradictory. Surveys conducted by Edelman (admittedly commissioned by this Institute) report that the level of confidence in accountants among financial decision-makers is high relative to the level of confidence in other professions. Yet public opinion is all too willing to jump on the bandwagon when they think we get it wrong. For instance, the response to the exclusion of the former Chair of Anglo Irish Bank, Mr Sean Fitzpatrick, from Chartered Accountants Ireland was heavily skewed. Much of it focused on the length of time our proceedings appeared to take. No one seemed interested that the Director of Public Prosecutions wanted the State’s actions in the matter to conclude first, hence a seven-year delay. Understanding this lack of interest is important because the effective communication of what the profession is and does relies heavily on the receptiveness of the public audience. There are lessons here from politics. Prime Minister “Get Brexit Done” Johnson and President “Make America Great Again” Trump are widely lauded for their communication skills, but that misses the point. The genius of the messaging of Prime Minister Johnson and President Trump is not in their capacity for articulation – it is in their capacity to read the mood of the public. During the recent hustings in the Republic of Ireland, the major political parties would have fared better using slogans like “give people homes” or “hospital beds, not trolleys” instead of plaintive murmurings about futures we can look forward to, or an island for all. Like the more successful politicians, the accountancy profession has to get better at reading public opinion and responding to that mood. If we fail to get across the ethical value and the competency involved in the work that accountants do, and the wider contribution made to society by virtue of that, future government policy towards accountants and auditors will be shaped by the negativity that is already out there. Much is made of the challenge to the profession from things like artificial intelligence and robotic process automation. You can add to that list the suspicion with which the profession is viewed. We now know that some don’t even consider that auditing is a profession at all. Dr Brian Keegan is Director, Advocacy & Voice, at Chartered Accountants Ireland.

Against a backdrop of underinvestment, housing will remain a key economic concern for the new Government, writes Annette Hughes. With 2020 well under way, some of us have already broken our New Year’s resolutions and had our focus shifted to the plethora of election resolutions and promises which emerged over the past four weeks. With the election now behind us, political leaders will need to focus on delivering on those election promises.  Governments generally have a five-year term to fulfil their promises, but experience tells us that some of the policy commitments promised in party manifestos may never be implemented. The new Government faces both challenges and opportunities in steering a sustainable economic path as it embarks on a new term. One of its key functions is to administer public policy and deliver high-quality public services and infrastructure across a range of areas including housing, health, education and transport. Notably, housing was the topic that received the most attention during the election campaign and it remains the Government’s number one priority. There continues to be underinvestment in both private and social housing, and the demand for housing significantly exceeds the current supply. Much has been made of the doubling of housing stock from 2016 to 2019 with 21,000 new homes, however the national annual housing supply requirement is closer to 35,000. We were informed during the election campaign that 6,000 new social housing units were built in 2019. Yet, data from the Department of Housing, Planning and Local Government shows that there were 2,003 new social housing units built in the first nine months of 2019, or 2,229 units when local authority vacant units brought back into the stock are included. Adding acquisitions (1,533), units leased from the private sector (630), households supported under the Housing Assistance Payment (12,853) and the Rental Accommodation Scheme (717), implies that a total of 17,962 social housing households were accommodated in the first nine months of 2019. This may be in the region of 24,000 for the full year. This total is in a year in which the latest assessment of housing need reported that there were 68,693 households across the State (43.2% in Dublin) on the social housing waiting list.  In the meantime, the shortage of affordable accommodation to rent and buy continues to create challenges for Irish policy makers, notably, the escalating homelessness problem, and rising rents and property prices, although the rate of growth has moderated in recent months.  Some of the solutions proposed included building more social and affordable homes, preferably on State-owned lands, which has implications for the level of capital investment on housing (€2.03 billion in 2020), the second largest allocation after transport (€2.5 billion). Other measures included rent regulations, which have proved to have a range of unintended consequences for tenants, including a negative impact on new and existing supply, as well as the potential for lower quality stock. The issue of the decade will undoubtedly be climate change and this too will impact on housing stock. With an estimated two million residential properties across the country, the potential cost of retrofitting to improve energy efficiency could be in the region of €10,000 to €30,000 per home, depending on its age and quality.   The one consensus during the election campaign by all parties was that there needs to be a substantial and fundamental change in housing policy, given the failure by all to address a number of issues over the past decade. The new Government clearly has its work cut out. Annette Hughes is a Director at EY-DKM Economic Advisory.

Cormac Lucey argues that accountants need to discuss one of the most unjust outcomes of Government profligacy – the over-taxing of the State’s high earners. The UK electorate recently faced a general election where, under the leadership of an Islington Marxist, the British Labour Party was offering its most left-wing proposals for a generation. It proposed raising the rate of income tax on earnings above £125,000 (equivalent to €146,000) to 50%. With the 4% UK rate of PRSI, that would have required Britain’s top earners to pay a marginal rate of deduction of 54%. In the Republic, those of us of a right-of-centre political disposition are lucky not to have to face the prospect of barely diluted Marxism as a real policy prospect. Here, government control switches pretty seamlessly between right-of-centre Fine Gael and right-of-centre Fianna Fáil-led administrations. That’s the theory. The reality is something very different. Down south, top earners must already face a 52% (income tax 40%, universal social charge 8% plus 4% PRSI) rate of deduction on income above €70,000. Indeed, if a person is self-employed, they face a marginal rate of 55% on income above €100,000. In terms of top tax rates, high earners in Ireland already face marginal rates of deduction in excess of 50% at incomes of around twice the national average that the UK Loony Left was only contemplating applying on incomes of about four times that average. Largely unnoticed, the contours of the Irish tax system have changed very substantially since 2007. Income tax receipts are up €9.3 billion, or 68%, from 2007 levels. They have risen from 29% of total tax receipts to an expected 40% this year. Thirteen years ago, income tax proceeds were slightly lower than VAT receipts. Last year, they exceeded VAT receipts by 52%. The Organisation for Economic Co-operation and Development (OECD) has concluded that Ireland has the second most progressive income tax system among its 36 member countries and the most progressive among its EU members. In other words, high earners pay disproportionately more in income tax here than in nearly every other developed country in the world. Revenue’s Budget 2020 Ready Reckoner document reveals that the top 1% of income earners (those earning more than around €250,000) contribute more than a fifth of all income tax receipts, while the top 5% of income earners (those earning more than about €125,000) contribute more than 40% of total receipts. By contrast, the bottom 75% of income earners (those earning around €55,000 or less) contribute a mere 18% of total income tax proceeds. The top 1% lose an average of 42% of their income in State deductions while the bottom 75% lose an average of 9%. One might accept this dramatic soaking of high earners if it was required to save the State from imminent insolvency, but the Troika left town in 2013. Large rises in tax revenues since then have been used to fund dramatic increases in State spending rather than to reduce the national debt. When the Government first officially forecast total 2018 Government spending, it expected a total spend of €60.3 billion (according to the 2014 Stability Programme Update). In reality, the Government ended up spending €76.8 billion in 2018, 27% more than its original forecast. High earners are being soaked, not to save the State from bankruptcy or to secure minimum levels of State spending but, rather, to indulge a fiscally incontinent and gruesomely inefficient Government apparatus. It strikes me that we (as a profession) and Chartered Accountants Ireland (as a representative body) should speak more loudly about the clear errors and short-sightedness of this approach.  Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

The resourceful con artist has now moved to online scams, but old advice still holds, writes Des Peelo. Confidence and a presence are often perceived as necessary for business or personal success. This resonates with me in the context of recognising con artists, better described as fraudsters, whom I have encountered. The most outstanding was an approach from a gentleman, intending to be my client, who lived in a suite in one of the great London hotels. Of indeterminate nationality, his occupation – or the source of his apparent wealth – was not evident. Happily, I withdrew from involvement early in the saga but became aware of subsequent events. A mine of false information This gentleman was promoting an opportunity for investment, which was highly confidential, in newly discovered vast ore resources adjacent to a previously worked-out mine in Ireland. The geological studies and supporting paperwork (all forged) was there. The scam worked for nearly £3 million. British aristocracy and London financiers, amongst others, came on board. Subsequently, this gentleman was arrested in the UK. He was refused bail as the police said they found nine passports in his suite. After one year on remand in a London prison, the charges were inexplicably dropped, though an accomplice and a UK solicitor were subsequently jailed. No monies were recovered. During that year in prison, my almost-client managed to have meals delivered from the hotel, paid monthly in advance. He also started a charismatic movement and a choir. On learning of his imminent release, he called the hotel manager, who reportedly said something like “wonderful news; we will send a car” and he moved back into his suite. That was not the end of the story. Some years later, on watching an investigative programme on UK television, there was my almost-client being named for a stunt involving investors and coffee futures in Central America. This time, still based in London, he allegedly had a prestigious commodities brokerage office in Miami. A load of beeswax Older readers may recall the origin of the description ‘widget’. It was first used in an amusing film, loosely based on a real event in the 1950s, about a Texas con artist launching a widget company on Wall Street. None of the financiers knew what a widget was or wouldn’t admit they didn’t know, but the word was that the oil industry was very excited about it. Hence the contemporary use of the word ‘widget’ when nobody understands the product. The modern equivalent of a widget, on occasion, might be a ‘tech disrupter’. My possible ‘widget’ moment involved another gentleman from London. He arrived in Ireland sporting impressive achievements, connections and qualifications (all bogus), including being a medical doctor. His business card showed an address on the famous medical Harley Street in London (which turned out to be a temporary post-box). Accompanied by a self-described titled lady, he rented a country mansion near Dublin and quickly entertained his way into the bloodstock and racing fraternity. He claimed to be developing a product akin to Viagra, long before it was invented. The connection with Ireland was that the magic ingredient could only be sourced from the blood and urine of top-bred horses. State agencies expressed interest, impressive international names were mentioned as possible directors, suitable sites were inspected, and so on. All that was missing, of course, was the millions necessary to bring it all together. Fortunately, shortly before substantial monies changed hands, a sceptical stud farm owner and the IIRS (then a State scientific agency) analysed a prototype unbeknownst to the bogus doctor. It was largely beeswax. The gentleman concerned managed to depart Ireland in time, leaving large unpaid bills. He was last heard of as being in Lebanon, again something to do with horses. Don’t be fooled The world has now changed for the con artist. The old scams are easily identified with instant access to history, profiles and technical information. However, the resourceful con artist has now moved to online scams. If an investment is too good to be true, it is. This adage has never changed. Des Peelo FCA is the author of The Valuation of Businesses and Shares, which is published by Chartered Accountants Ireland and now in its second edition.

Peter Vale and Christopher Crampton outline some expected changes to international taxation in the coming year. 2020 is set to be a busy year for international tax. For Ireland, it’s a key period. While international tax reform to date has been good for the country, the changes being looked at in 2020 pose challenges.   Global tax changes – Pillars One and Two The outcome of meetings in January are key to the OECD’s plans to reach consensus on both the Pillar One and Pillar Two proposals. While the Department of Finance expects the ultimate outcome to be a reduction in Irish corporate tax receipts by up to €2 billion, it’s a very difficult one to call. Pillar One examines a reallocation of profits to market jurisdictions. While this does impact on our corporate tax base, it should not prove fatal on its own. However, recent pronouncements from the US suggest that getting consensus on the Pillar One changes could be difficult. Pillar Two looks at a global minimum effective tax rate and is, perhaps, of more danger to Ireland. A tax rate of 12.5% was suggested by the French Finance Minister in December. While at first glance this would look positive from an Irish perspective, the devil is in the detail.   The most recent OECD draft proposals look at an allocation of profits to individual countries based on a group’s consolidated financial statements. This could provide a distorted result for groups with large intellectual property (IP) migrations to Ireland, in particular, and potentially lead to an effective tax charge significantly lower than 12.5%.  The early months of the year should provide key signals as to the direction of travel on both Pillars, with the outcome critical to the relative attractiveness of our corporate tax regime in the future. We should not rule out the EU taking matters into its own hands, particularly if reaching a consensus looks like being a protracted affair. Transfer pricing Finance Act 2019 saw the introduction of OECD 2017 guidelines into Irish tax legislation. One of the biggest impacts of the guidelines will be more onerous documentation requirements in 2020 for Irish companies, although many will already be maintaining similar documentation on a group-wide basis. At first glance, this might seem to cause disruption for Irish subsidiaries of US multinationals with significant IP in Ireland. While these groups typically have significant substance here, many of the IP functions are carried out outside Ireland; often in the US. Another key change in Finance Act 2019 was the introduction of transfer pricing for Irish small- and medium-sized enterprises (SMEs). While it is expected that the documentation requirements will be more relaxed for SMEs, the extension of transfer pricing will create further administrative requirements on Irish businesses. On the positive side, the extension of transfer pricing to SMEs is subject to Ministerial Order, which we might see later in 2020. Any transfer pricing requirements will apply from that date or later; they should not be retrospective to 1 January 2020. For businesses within the scope of transfer pricing now, more focus from Revenue in 2020 can be expected.   IP migrations 2020 will see the final year of “double Irish” migrations, with 31 December 2020 marking the end for groups with IP currently housed offshore in Irish incorporated non-resident entities. After that date, those entities become regarded as Irish tax resident. While many groups have already moved their IP onshore (much of it to Ireland), a significant number of groups have yet to do so. Hence, we expect many IP migrations to take place in 2020. When an IP migration takes place, the market value of the IP determines the amount of tax allowances available in Ireland. This number is often large, and so we expect to see Revenue examine these IP valuations closely. Interestingly, when these tax allowances expire then, all other things being equal, a significant increase in Ireland’s corporate tax receipts at some point in the future would be expected. However, a lot could happen in the intervening years! Revenue audit focus Aside from the focuses identified above, we don’t expect significant change in the nature of Revenue audit activity in 2020. We expect Revenue’s focus to remain on PAYE and VAT for SMEs, which tend to be the areas of greatest non-compliance.   On the corporation tax side, we have seen Revenue increasingly look for back-up supporting tax losses carried forward, which can prove challenging where the losses were generated some time ago but are being used presently. Businesses should be aware of this when considering document retention policies. Budget 2021 While Budget 2020 has just passed, it’s worth noting that this Budget was based on a more negative outlook than now appears to be materialising. This could mean we finally see more meaningful movement on our high marginal income tax rates later in the year, or possibly a reduction in capital taxes. Of course, a lot can happen between now and then, including a new government, further global tax changes, and six months of known unknowns! And, that’s all without mentioning Brexit. In summary, another year of significant developments on the international tax front looks likely, with the outcome critical for Ireland. Peter Vale FCA is a Tax Partner at Grant Thornton. Christopher Crampton ACA is an Associate Director at Grant Thornton. Brass Tax -- new year, new tax rules by Leontia Doran Since we’re fast approaching a new tax year in the UK (from 6 April 2020), let’s take a look at what is on the horizon for practitioners. IR35 rules From 1 April 2020, the IR35 rules in the public sector are being extended to the private sector with an exemption from the rules only available to “small” businesses. The IR35 legislation is designed to combat avoidance by individuals who are supplying their services to businesses via an intermediary (such as a company) but who would be an employee if the intermediary wasn’t used. Making Tax Digital From 1 April 2020, the UK will join the ranks of France, Italy, Austria, Turkey and Malaysia when it introduces its own digital services tax.  Making Tax Digital (MTD) for VAT continues. Some businesses are now able to apply for an extension to meet the digital links requirement once the one-year soft-landing period ends on either 1 April 2020 or 1 October 2020. However, the criteria to do so is strict, as set out in the updated VAT notice.  Corporation tax The rate of corporation tax is also legislated to fall from 19% to 17% from 1 April 2020. However, the Government has stated that it will remain at 19%. As it’s already on the Statute books, legislation will be needed to reverse this.  And therein lies the rub. The next UK Budget isn’t taking place until 11 March, which means the related Finance Act likely won’t be enacted until several months later. Retrospective legislation is never a good thing. Leontia Doran FCA is UK Taxation Specialist at Chartered Accountants Ireland.

As the new UK Government has been formed by the Conservative party with a significant majority, its policies will set the tax agenda for 2020 and the following four years. Claire McGuigan summarises the main proposals. Business taxes In Finance Act 2016, the rate for corporation tax for 2020/21 was set at 17%. As this rate is set in legislation, it is the rate (excluding the UK banking corporation tax surcharge of 8%) that companies must use for their deferred tax calculations. However, during the election campaign, the Conservative party pledged to maintain the rate at 19%. Therefore, once this change is enacted, businesses will need to revisit their deferred tax calculations. The Chancellor is expected to stick to the existing plans to introduce restrictions to payable research and development (R&D) tax credits from April 2020 to reduce the scope for tax avoidance by small- and medium-sized enterprises (SMEs). However, the Conservatives have pledged to increase the value of the R&D expenditure credit (RDEC) for larger companies from 12% to 13% and review the project qualifying criteria to establish if it can be widened to include R&D on cloud computing and data. They also committed to increasing the relief available under the new structures and buildings allowance to 3% a year. Both of these changes are likely to take effect from 1 April 2020. The Conservative party confirmed its commitment to introduce a Digital Services Tax (DST) from April 2020, although it is not clear if there will be enough time to finalise the necessary legislation by then. Also, at the time of writing, the OECD has asked the UK to postpone implementation of this tax to allow for a standard approach to be considered across all countries. During the election campaign, all three main parties promised to review the impact that the IR35/off-payroll labour changes will have on private sector businesses. Given that these changes were longstanding Conservative party policy, it is unlikely that they will be abandoned entirely. However, delaying the changes until 2021 or committing to a ‘post-implementation review’ may feature in the Budget. Similarly, the outcome of the Loan Charge Review is expected. Again, for the Government to abandon this tax enforcement action seems unlikely, but the Chancellor may announce much more flexible payment terms for individuals facing the charge. Finally, for business taxes, the Conservative party manifesto contained a promise not to raise the rate of VAT during the next parliament. Brexit The promise to “get Brexit done” was central to the Conservatives’ election campaign. With a transitional period operating until 1 January 2021, most operational laws and cross-border arrangements will remain in place until that date. During 2020, the new Government will aim to negotiate a post-Brexit trade deal with the EU that will take effect from 1 January 2021. However, some uncertainty will continue: in the election campaign, the Prime Minister promised not to extend the transition period beyond 1 January 2021 so, theoretically, there may still be a ‘no-deal’ Brexit if a trade deal is not agreed. Alternatively, an extension to the transition period may be possible if a post-Brexit deal takes longer to agree. Employer issues Although the Conservative party committed to ending freedom of movement on Brexit day, under the transitional rules, EU citizens would be able to come to the UK to live and work without any formal application process. If those individuals wish to remain in the UK after 31 December 2020, they can apply for “temporary leave to remain” in the UK which, if granted, will allow them to continue living and working in the UK for 36 months from the date it is granted. From 2021 onwards, the Conservatives plan to introduce a points-based immigration system. Despite the national insurance contributions (NIC) changes for individuals, the Conservatives pledged not to increase NIC for employers and, to help small employers, they also plan to increase the NIC employment allowance from £3,000 to £4,000. Employers should prepare for a significant increase in the national minimum wage (NMW) from April 2020. The Conservative party has pledged to increase it in stages to £10.50 over five years – this equates to a 5% increase from April 2020 and each subsequent year of the parliament. Personal taxes During the election campaign, all the main parties proposed changes to capital gains tax, although the Conservative party proposals were the least radical. The Conservative manifesto did pledge to “review and reform” entrepreneurs’ relief (ER). While it is perhaps unlikely that the valuable ER rules will be immediately repealed, there may be some interim changes to the rules announced in the Budget, pending the outcome of a more fundamental review during 2020/21. The Conservatives intend to raise the annual NIC starting threshold for employees to £12,500 over the next parliament, with an immediate increase to £9,500 from April 2020. The rates of NIC will be frozen for the duration of the new parliament. The Prime Minister also made an election commitment not to increase income tax rates during the new parliament. Past political controversy over pension tax relief perhaps influenced politicians not to make specific commitments on the topic during the election campaign. However, because of the impact the annual allowance charge is having on senior NHS clinicians, the Government has already announced temporary measures to ensure that where they take on additional hours, such individuals would not lose out overall. The ‘quick fix’ compensation arrangement announced during the election campaign is unlikely to be sustained for the long-term, and a review of the underlying rule is likely to be announced in the Budget as it can trigger tax charges for many workers in the public sector (and private sector). On tax avoidance, they propose a new package of measures including doubling the maximum prison term to 14 years for individuals convicted of the most serious types of tax fraud and creating a new HMRC Anti-Tax Evasion Unit.   We await the Government’s first budget, scheduled for 11 March 2020, with anticipation. Claire McGuigan is Director, Corporate Tax, at BDO Northern Ireland.

Becoming a partner in the firm is often the goal when accountants go into practice, but it’s not a walk in the park. Jackie Banner outlines four key steps on the road to making partner. Making partner is the end goal for many who go into practice. The status, financial compensation, and endorsement of one’s skills and expertise are all obvious draws to progressing to this level. Then there is the opportunity to effectively become a ‘business owner’ with responsibility and influence over how the firm is run. This latter piece sounds simple in theory but requires the right considerations and capabilities to execute.  We can’t gloss over the technical competency that is required to make it to partner. Possessing exceptional domain knowledge in your chosen area of expertise is fundamental to any move upwards. Eagle-eyed attention to detail and a holistic view of the business as a whole are also required to consider yourself technically sound. With a rapidly changing business landscape, the burden of knowledge is significant, and can lead a potential partner to focus too heavily on the technical side alone.  The most common missteps that senior level accountancy professionals make in the race to partner have to do with the investment in their own leadership ability,  relationship management and ability to think like someone who’s running a business or a profit-and-loss account. Here’s how to tackle these key steps to making partner. Invest in your leadership ability Over the last six decades, leadership scholars have conducted more than a thousand studies to determine the definitive characteristics and personality traits of great leaders. Out of all the research, not one unanimous, best practice leadership archetype has emerged. Prevailing opinions on the best leadership styles are replaced as quickly as the latest iPhone. However, there are some common through lines in many of them that you can draw from. Whether it’s Six Sigma, values-led leadership, contingency theory (which in itself says there is no one ideal leadership style), communication methods, humble leadership or any number of other theories and best practices, be sure to establish a combination of leadership qualities that best align with you as a person and as a leader.  Signalling that you have the right level of ambition necessary is also required. This is demonstrated by how you carry yourself, your communication style, and interactions and relationships with colleagues and clients. Combine these with that aforementioned oft-ignored investment in yourself to build your own definitive leadership style.  Vision and strategy The most common piece of feedback we hear from nomination committees or hiring partners about unsuccessful final interviews is that the candidate lacked vision in their pitch. At this level, technical competency is assumed. You will be speaking to peers who are equally, if not more skilled than you. They want a business leader to sit alongside them; someone with a new perspective that can bring energy and excitement that will contribute to business growth.  Presenting a forward-thinking, clear vision that will grow not only your business unit but add to the company is perhaps the most valuable thing you can do to be perceived as someone ready to make partner. In practical terms, that vision should translate to an actionable business plan.  When preparing, think strategically about how you’re going to generate earnings, develop a client pipeline, and hit the figures that justify your being chosen as an equity partner. A partner needs to ascertain what those expected figures are for the firm with which they are interviewing. This means crafting a realistic three-year plan to grow revenues at a level that a partner needs to be commercially viable, which is firm dependent.  Relationship management We all need a sounding board to bounce ideas off of or to go to for advice. Therefore, your network and your professional relationships should be a priority on the road to partner. Partners, no matter what age or level of seniority, should have a mentor.  As Chris Outram discusses in his book, Making Strategy Work, you need ‘co-conspirators’ on whom you rely to give their support when it comes to internal decisions and information-sharing across business units. This extends to stakeholder management both inside and outside your firm.   Putting it all together In an increasingly “what have you done for me lately?” world, contextualising the human side of the job is key. Trust your team to deliver while driving them towards a coherent vision by demonstrating effective leadership and building a sustainable pipeline of business.  Sounds easy when you put it on paper, right? There is no doubt it is a huge challenge to make the leap but having a clear idea of what is required and how it should be presented is the first step on the road to partner.    Top tips on the road to partner 1. Have a plan – Set targets and milestones for yourself to track your progress and professional development. Decide what you want out of your career and then work towards achieving it.    2. Invest in upskilling – Find opportunities to develop your technical and soft skills. Invest in as many areas as are available to you.     3. Specialise your skill set – Practice experience is broad and often provides exposure to a wide range of skills and experience, which is great. However, drill down and become a subject matter expert where possible. Be the go-to person in your network for a particular subspecialty.   4. Be flexible – In any business, targets move, circumstances in your or your clients’ business can change quickly. When unexpected events arise or a strategy or project scope moves, always think of yourself as a support for change and not a barrier.   5. Say “yes” – There will always be an element of a job or a particular client you’d rather steer clear from, but don’t. Always say “yes” when asked to take on something new or different.   6. Define your client portfolio and market opportunity – The more distinct your client portfolio is from your peers or your partners, the more likely you are to become a destination for referrals, hold client relationships, and see significant fee income potential in line with expectations for equity partner level.   7. Find a mentor – Find a peer who you admire and who has made choices you respect. Someone who is willing to be your sounding board and provide advice on how to achieve what you want in your career.  Jackie Banner leads Practice Recruitment for Azon Recruitment Group.

Brian Keegan considers the poignant parallel between Brexit and New Zealand in the 1970s. "Earthquake? Best thing that ever happened to us.” This isn’t the best response to the damage done to the city of Christchurch in New Zealand in the wake of the terrible earthquake in 2011. My man had the grace to acknowledge as much after he remembered the appalling loss of life and limb from this particular natural disaster. Nevertheless, as someone who was deeply involved in the New Zealand construction industry, he was all too happy to see the opportunities created by the devastation. It isn’t the first time that New Zealanders suffered due to powerful circumstances outside their control. While the memories of the 2011 earthquake are clearly fresher, there is also a folk memory among New Zealanders of the economic damage caused to them when the United Kingdom joined the European Union in 1973. For a country largely dependent on agriculture exports to its former Commonwealth headquarters, the British accession to what was then the European Economic Community some 40 years ago was a disaster. The economic disruption of 40 years ago is comparable to the threatened damage from Brexit to the food industry of Ireland – north and south. In the 1970s, New Zealand’s main exports were butter and lamb. Despite being on the other side of the world, the UK was a key market for these goods and, in fact, accounted for some 30% of New Zealand’s exports. Being members of the Commonwealth, New Zealand had preferential access to UK markets. That access was to be a casualty of Britain’s accession to the EU. In fact, so great was the problem for New Zealand that London committed to doing what it could to protect New Zealand’s vital interests in the course of negotiating the British accession treaty. The so-called Luxembourg agreement guaranteed limited access for New Zealand produce for a five-year transition period. The idea was to give New Zealand breathing space to negotiate free trade deals with other markets and diversify its export offering, but the economy tanked nevertheless. If all this sounds familiar, that may be because we are witnessing history repeating itself in a way that would have considerable entertainment value if the issues weren’t quite so serious. Leo Varadkar’s mischievous remark that Westminster should offer pay-per-view wasn’t that far off the mark. We may, however, be watching the wrong channel if we are to learn from this repeat – it’s the New Zealand experience we should focus on. In the 1970s, New Zealand wine was virtually unobtainable in Europe and kiwi fruits were a rarity. Now they are mainstream. 40 years on, New Zealand’s export destinations are Australia, China, the United States (US) and Japan in order of importance. The country’s volume of trade with the UK has declined by over 60%. Our Brexit discussions must now move on from brinkmanship and dead-in-a-ditch rhetoric. We are going to have to figure out how to co-exist and trade with our nearest neighbours, culturally and geographically. Business will have to work out how to diversify and establish new markets, and hopefully avoid a repeat of the worst aspects of the 1970s suffered in New Zealand. I doubt very much that any of us will ever be exclaiming, however thoughtlessly like my earthquake man, that Brexit was the best thing that ever happened to us. That’s because there’s one other point about the New Zealand experience. Even though it was clear for about a decade that the trading relationship with the UK would inevitably change in 1973, the New Zealanders seem to have done precious little about it until the hammer fell. Sometimes it takes a crisis to deliver change. Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.

Brexit deadline The 31 October Brexit deadline is fast approaching and clarity on the issue is as far away as ever. At the time of writing, many options seem possible, including a Brexit delay and a UK general election, but perhaps the most likely prospect is a no-deal or limited-deal Brexit. Both the Irish and British governments have urged businesses to prepare for Brexit, particularly those that import, export or transport goods, animals or animal products. It seems that the UK government is operating on the assumption that a hard border will return to the island of Ireland, as revealed in a UK no-deal contingency document codenamed ‘Operation Yellowhammer’, which was eventually published in mid-September after leaks to the press. The document warns of potential unrest in Northern Ireland along with road blockades, job losses and disruption to the agri-food sector, as well as an increase in smuggling and the potential for disruption to electricity supply. We must hope that this is a dire overestimation of a worst-case scenario. Meanwhile, in Dublin, Institute President Conall O’Halloran recently met with Minister for Finance, Public Expenditure and Reform, Paschal Donohoe TD, to discuss the post-Brexit scenario as well as the Institute’s 2020 Budget submission and other business issues. Brexit support Our Institute will do everything it can to support members and member firms at a time of great uncertainty. You can read our latest updates on www.charteredaccountants.ie, particularly in our Brexit Web Centre and our page dedicated to no-deal Brexit planning. We are encouraging businesses across Ireland and the UK to ensure that they can continue to trade with each other post-Brexit. Applying for a customs registration (an EORI number) is just the first step in the process. Getting an EORI number takes between three and five minutes and can be completed online. While some traders have experience in the customs formalities required to import and export outside of the EU, it will be a first for many – particularly smaller enterprises. Businesses need to upskill in the area of customs using Government supports. They should also assess whether they have gaps in customs knowledge. Revenue estimates that customs declarations are expected to increase from 1.4 million to 20 million per year post-Brexit. HMRC estimates that declarations will grow five-fold to around 250 million. It’s best to be as prepared as possible. New academic year As we move into October, our Institute is about to welcome a new crop of students following a campaign to recruit the brightest and best to the profession. A new programme of specialist qualifications covering areas as diverse as corporate finance and cybersecurity are also getting underway. A central part of our strategy is to train the very best business professionals so that they can make a significant contribution to the economy on the island of Ireland, and further afield. We’re working hard to ensure that whatever the economic climate, we’re providing high-quality Chartered Accountants who will make a valuable contribution to firms and businesses. On behalf of my colleagues in the Institute, I’d like to offer our best wishes to all of our new students as they start out on their Chartered journey. Barry Dempsey Chief Executive

Charities in Northern Ireland may have to provide more detail to the Charities Commission in the near future, but any initiative that restores the public’s trust is to be welcomed. By Angela Craigan On 27 August 2019, the Charity Commission for Northern Ireland opened a public consultation in respect of new questions charities must answer in their annual returns plus additional information that organisations applying for charitable registration online must answer. The proposed questions cover topics such as safeguarding, data protection, loans and payments to related parties, and the use of commercial fundraising partners. The Charity Commission NI advises that the questions are designed to help it gather important information on individual charities and the charity sector as a whole. The format of the proposed new questions requires each charity to reveal if any trustee owes money to it, whether any of the charity’s assets are leased from a trustee, and whether a trustee has been paid for carrying out their role. These questions are already asked in the annual monitoring return, but will now be asked when applying for registration. The Charity Commission NI also intends to ask charities if they have reported a data breach to the Information Commissioners Office in the past year. It will also collect information on what percentage of charitable expenditure relates to charitable purposes for organisations of less than £250,000 a year. All of the new and revised questions Charity Commission NI propose to include in the registration application and the Annual Return Regulations 2019 are available to view in the consultation document. The public consultation will focus on the most significant questions, and will allow an opportunity to voice opinions on the proposed changes. The consultation process will run for eight weeks, closing on Tuesday 22 October 2019. The changes will be of particular interest to members working in the charity sector and those who are trustees of Northern Ireland charities. The consultation has arisen as a result of increased risks within the charity sector including safeguarding, cybercrime and fraud. These increased risks have had a negative impact on the public’s perception of the charity sector. A key role of the charity commission is to increase public trust and confidence in charities. The commission is of the opinion that the additional questions will increase transparency and, as a result, public confidence in charities. The recent safeguarding failures in some high-profile charities have highlighted the importance of trustees being aware of their responsibilities and the safeguarding standards expected of them. The commission has added questions in relation to the ‘expression of intent’ form that is completed by those waiting to be called forward for registration. The commission also proposes to add more questions to the classification section of the charity registration form. In this section, applicants describe their charitable purpose, the focus of the charity and the beneficiaries of the organisation. It is important that trustees understand their responsibilities in respect of the information filed with the Charity Commission. Trustees may delegate the task of submitting an application or annual monitoring form, but they cannot delegate the responsibility of making sure they are accurate and submitted on time. If an annual monitoring form is late, the register of charities shows them as being in default. Once submitted, the register will read “Due documents received late”. This is of increased importance as funders are now using the register to check if forms are being returned late and will look less favourably on charities that file late when awarding grants. As an advisor to a large number of local charities, and as a trustee of Action Mental Health and New Life Counselling, I firmly believe that this sector is invaluable. I therefore welcome any move to increase public confidence in the charity sector.  Angela Craigan FCA is a Partner with Harbinson Mulholland, the accountancy and business advisory firm.

Claire Fitzpatrick FCA looks back on her career, from trainee auditor to the frontier of blockchain technology innovation. What’s wrong with me?” For someone who has enjoyed a varied and successful career in professional services and large corporations, it might come as a surprise to learn that Claire Fitzpatrick asked herself that very question in her 30s as she watched her peers move into senior roles. “You just need to get on the track,” she was told – a less than subtle reference to the perceived linear path to CFO/CEO roles. But as Claire readily admits, this isn’t how she operates. The Dublin native has made serendipitous career moves since leaving PwC in 2000 to work with one of her audit clients, Point Information Systems, but the draw has never been status or salary. Instead, her career has been guided by two things – people and culture. Venturing out While working as a PwC Audit Senior with Point Information Systems, Claire saw the culture she wanted to work in – ambitious, fast-changing and transformative. “I remember coming back after a year and the company had changed completely, whereas some other companies I audited would be the same year-on-year,” she said. “It was evolving at pace and the energy there just stood out for me.” Claire joined the company and her role expanded her knowledge base in a variety of new disciplines from engineering to sales and marketing. This diverse exposure would be of great benefit to her later in her career, not least when she returned from a working holiday with Nestlé in Australia and New Zealand to a role in O2. The company was in expansion mode at the time and Claire managed to experience the full life-cycle from early adoption to the sale of the business, which she was centrally involved in. From there, Claire moved to Wayra, Telefónica’s start-up accelerator, to accelerate digital embryonic businesses. As Claire recalls, it was a move that raised some eyebrows at the time. “A lot of my peers thought it was a step down for me in career terms, but I really wanted to get involved in the innovative digital space,” she said. “It reminded me of the energy and pace I felt in Point Information Systems and I had experience of both start-up and corporate environments, so I was able to bring a lot to the table.” Start-up life In her first three weeks in Wayra, Claire met with hundreds of entrepreneurs and developers across the tech ecosystem and this intensity continued unabated for three years. The hub was a success, investing €6 million in the Irish start-up ecosystem including 33 equity investments while returning the same amount. “For early-stage start-ups, that’s a great return,” she said. However, following the sale of O2 to Three in 2014, Telefónica ultimately closed its Wayra hub in Ireland and Claire decided to take on a new challenge.  The idea of starting her own business had never entered her mind, but the closure of Wayra meant that Claire and her two colleagues faced a fork in the road. “We saw real value in what we were doing at Wayra, and we were good at it,” she said. “So, we decided to set up Red Planet and to flip the accelerator model on its head. We started with the corporate to understand the problem it was trying to solve, and then sourced the best start-up talent to solve that particular problem.” The venture was successful and it achieved what Claire describes as “the holy grail” for start-ups – being sold to a large corporate. Red Planet was acquired by Deloitte in 2017 and Claire continued to work with the firm for 18 months. “Selling our start-up was a tough decision, but the right one. Deloitte was really good at the strategy piece and identifying the challenges facing their clients, while Red Planet was able to find the solutions in the start-up world and develop them to scale. We were very good at curating diamonds in the rough.” Blockchain calling At this stage in her career, Claire faced an inflection point. Not content to simply go with the flow, she began plotting her next move when an opportunity arose to join a new blockchain venture headed by the co-founder of Ethereum, Joseph Lubin. The company was founded in 2014 and was at the forefront of Ethereum blockchain technology innovation. It needed someone to establish its base in Dublin and build its team, and the company ultimately chose Claire as its Director of Strategic Operations. The Dublin hub, which is known as ConsenSys Ireland, is developing the products that will enable society and enterprises to advance to the next level of blockchain adoption. Claire is very excited about the bigger picture. “In the future, you won’t even know you’re interacting with blockchain. It will be just like the Internet where nobody really thinks about or considers the infrastructure or protocols – they just see the applications,” she said. “Blockchain will be as transformational as mobile telecommunications was 25 years ago. We are part of a new industry, a new technology, new products, and a market which we have to create and educate. That’s a big challenge, but a very exciting one.” Leadership style But amid the excitement and potential lies ambiguity, and it takes a certain type of person to thrive in an ambiguous environment according to Claire. “Given the nascent nature of blockchain technology, we’re continually refining our vision and new industries are constantly wanting to explore new directions with the technology. So, although everyone in the company has goals to achieve, some are set in stone and some evolve to meet the needs of our clients,” she said. “That’s no different to a traditional organisation but we do differ in that we could have to tell staff to drop projects and pivot in a new direction at a moment’s notice – and some people find that challenging.” Luckily for Claire, working in a maturing industry adds to the allure of her new role in ConSensys – one she believes will contribute to a decentralised, democratised future for individuals. “It’s a rollercoaster, but with experience and age comes perspective and balance,” she said. “And the most important thing for me, throughout my career, has been the people I work with. My colleagues today are not necessarily wired like me but we work well together in the good times, and the challenging times, to make something great happen. That’s what it’s all about.”   Claire’s advice for Chartered Accountants Chartered Accountants will have a central role in the deployment of blockchain technologies and rather than wait for mass adoption, Claire believes the time to upskill is now. “The conversation around blockchain has moved from proof of concept to pilot schemes so when we’re talking to clients, we’re discussing real systems as opposed to hypothetical ideas,” she said. “So, I wouldn’t recommend waiting to start blockchain projects because we will reach the point of mass proliferation quicker than most people expect.” “The first step for all Chartered Accountants is education. There are free educational resources through ConsenSys Academy and Blockchain Ireland is working to raise awareness of what’s coming down the tracks,” Claire added. “But it’s vital that Chartered Accountants realise that anyone can quickly become a laggard in this dynamic environment.” “Finally, I would stress the point that Chartered Accountants don’t need to worry about losing their heads in the weeds trying to understand the programming and coding side of things,” she said. “They should educate themselves with regard to the characteristics and applications that they can see for blockchain in their business.”

Could joint audit help improve audit quality and reduce market concentration? By Tommy Doherty Joint audit is a proven means of facilitating the emergence of a diverse audit sector and, in the case of France, has already led to the creation of the least concentrated audit market of any major economy. If undertaken in a spirit of collaboration, it can reinforce governance arrangements on the conduct of audits and deliver real improvements in audit quality. What is a joint audit? In a joint audit, two separate audit firms are appointed by a company to express a joint opinion on its financial statements. It is fundamentally different from a ‘dual’ or ‘shared’ audit, whereby one audit firm (or sometimes more) audit parts of a group and reports to another audit firm, which ultimately signs off on the group audit. Statutory joint auditors must belong to separate audit firms. Joint audits usually involve two audit firms, but a small number of companies have decided voluntarily to appoint three audit firms to perform their joint audit. Joint audit, audit tendering and rotation The 2014 EU Audit Regulation introduced incentives to encourage the adoption of joint audit by allowing joint auditors to benefit from a longer rotation period (i.e. a maximum tenure of 24 years with no tendering required). By contrast, sole audits are subject to tendering after 10 years and a maximum tenure of 20 years. The preamble to the Audit Regulation states that: “The appointment of more than one statutory auditor or audit firm by public interest entities would reinforce the professional scepticism and help to increase audit quality. Also, this measure, combined with the presence of smaller audit firms in the audit market, would facilitate the development of the capacity of such firms, thus broadening the choice of statutory auditors and audit firms for public interest entities. Therefore, the latter should be encouraged and incentivised to appoint more than one statutory auditor or audit firm to carry out the statutory audit.” Nine member states have decided to encourage joint audit through an extension of the maximum tenure allowed, including (in addition to France) Germany, Spain, Sweden, Finland, Norway, Belgium, Greece and Cyprus. Joint audit has long been regarded as a French peculiarity. But in the context of significant corporate failures and unsustainably high levels of market concentration, the UK’s competition regulator, the Competition and Markets Authority (CMA), is now recommending the introduction of mandatory joint audit. In April 2019, it published The Future of Audit report, recommending mandatory joint audit as part of a broader reform package for most FTSE 350 companies with at least one of the joint auditors being a non-Big Four auditor. The benefits of a joint audit From the company’s perspective, joint audit: Enables companies to benefit from the technical expertise of more than one firm; Encourages “coopetition” (cooperation and competition) between joint auditors, resulting in improved quality of service; Leads to a real debate on technical issues and offers additional scope for benchmarking; Allows for the smooth and sequenced rotation of audit firms, where appropriate; and Retains knowledge and under-standing of group operations, which minimises the disruption caused when one audit firm is changed. How joint audit works in practice The practice of joint audit is well-established in France, as it has been a legal requirement there for over 50 years and has gone through several phases of evolution to reach a level of maturity ‘signed off’ by the market. The following steps explain how the joint audit of consolidated financial statements works for the audit of large French listed groups like BNP Paribas, and how it could work in Ireland and deliver similar benefits. Joint audit of consolidated financial statements is the most common form of joint audit, and a professional French auditing standard exists (NEP-100). Step 1 Determine the annual audit approach: the yearly audit approach is jointly determined and includes the preparation of a joint risk-based audit plan. A single set of joint audit instructions (i.e. a manual of the audit procedures to be applied on a coordinated and homogeneous basis to the group’s subsidiaries by each joint audit firm or network) is issued. In practice, both joint audit firms contribute to these documents, which are consolidated before joint approval of the overall audit approach. The audit approach is almost invariably the subject of a combined annual presentation to the group’s audit committee by the joint auditors. Step 2 Overall allocation of work between the joint auditors: whatever the basis of appropriation, a balance between each of the joint audit firms is sought. This is provided for by NEP 100, which stipulates that the audit work required should be split between the joint auditors on a balanced basis and reflect criteria that may be quantitative or qualitative. If a quantitative basis is used, the split may be by reference to the estimated number of hours of work required to complete the audit. If a qualitative basis is adopted, the split may be by reference to the level of qualification and experience of the audit teams’ members. Step 3 Allocation of work on the different phases of the audit: for the accounts of consolidated subsidiaries, for joint and single audit, the parent company’s auditors are deployed as widely as possible over its subsidiaries worldwide. The allocation of subsidiaries to one or other of the joint auditors may be based on business, product or geographical location criteria. When geographical criteria are used (countries, zones, etc.), each joint auditor is deployed over one or several territories. In the case of significant groups, the joint audit approach is often applied within each of the group’s businesses to ensure oversight by ‘two sets of eyes’ for each business line. Step 4 Levels of group audit reporting: up to four levels of group audit reporting are distinguished: individual entities; geographical zones or business lines (aggregating several entities); group financial and general management; and those charged with governance. For individual entities, for example, the auditor in charge of each entity is responsible for reporting the audit conclusions by way of audit summary meetings with the local management and for expressing an audit opinion on the entity’s consolidation package. Step 5 The group audit opinion on a joint audit: the joint auditors prepare a joint audit report addressed to the group’s shareholders, which is presented during its annual general meeting. The audit opinion expressed is a single joint opinion. Special provisions exist in the event of disagreement between the joint audit firms as to the formulation of their audit opinion. In practice, they are rarely needed.  Step 6 Joint and several responsibilities: each joint auditor is jointly and severally responsible for the audit opinion provided. The exercise of joint and several obligations implies that each joint auditor performs a review of the work performed by the other. The sharing and harmonisation of the audit conclusions and the audit presentation prepared for the audited entity constitute the first step in that review. In addition, the audit summary memoranda and working paper files for the engagement are subject to reciprocal peer review. The two most common criticisms of joint audit relate to the cost and the additional risks involved. However, most of the tasks brought about by a joint audit situation are highly value adding as they are dedicated to the ‘professional scepticism’ necessary to express an audit opinion. In practice, the additional cost is borne by the audit firms involved rather than being passed on to the audited entity. The UK as a benchmark In 2020/21, the EU audit reform will be up for review. The UK reform will strongly influence the dynamic of this debate. Given the importance of its financial market, decisions in the UK will also have an impact beyond Europe. The Commonwealth countries look to the UK for best practice financial regulation and adopt rules that they consider beneficial for their markets. More countries are therefore likely to seriously consider joint audit as a measure to diversify their audit markets. Mazars believes that the UK will go ahead with the reform and that other countries will start to seriously consider joint audit for large corporates as part of a package of solutions to improve audit quality and reduce market concentration. Interestingly, on 28 May 2019, the prospect of Ireland preparing a similar report on The Future of Audit was raised at a Joint Committee on Finance, Public Expenditure and Reform. As an audit firm with a proven track record in joint audit, we believe that this is a solution than can provide tangible benefits to all stakeholders.   Tommy Doherty FCA is Head of Audit and Assurance at Mazars Ireland.

There is no active market for the sale and purchase of privately owned businesses. Any belief that there is a constant search by active purchasers is false. The reality is that many businesses – probably half, or more, of medium-sized companies – are likely not saleable. Erratic history, poor profitability, inadequate finances and uncertain prospects are the usual reasons cited for this circumstance. Realistically, the realisable value of a business to its owners may only be in its continuity. The surprise is that even profitable and well-run businesses are not necessarily saleable. Obviously, this is a disappointment for the owners and an enigma as to why this happens. After an initial flurry of interest in purchasing such a company, the closer assessment takes place. The cooler review by a potential purchaser is guided by the rule that there must be a worthwhile commercial reason to acquire a business, and not simply because it is for sale. Experience suggests that the principal reasons why one business acquires another are as follows: The acquired business is complementary to the acquiring business – for example, a light engineering business acquiring a metal fabrication business, or a transport company acquiring a warehouse business; The businesses share common characteristics that enable synergy and/or joint cost reductions as an added-value benefit to the purchaser; The acquisition protects and/or enhances an existing advantageous relationship between the two businesses; and The acquired business has knowledge, expertise, intellectual property or a location that provides added value to the acquiring business. It follows that the potential for the sale of a ‘standalone’ business (i.e. with none of the above reasons) is limited and only likely in the form of a management buyout. A further restricting factor, and this is true for acquisitions generally, is financing the purchase. Marketplace experience suggests banking caution on lending for acquisitions. There are many reasons why, not least that the underlying assets in the acquired company are not likely available as security due to company law and tax complications. The ‘asset’ being financed (i.e. the shares in the acquired company) is not tangible security, being no more than an expectation of future profitability. In any event, it takes time to sell a business. In an ideal world, the decision to sell would be made up to two years beforehand (although this will likely only be known to the owner). It isn’t that the best market conditions for a sale can be confidently predicted that far ahead; instead, there will be a readiness for sale that can be deferred if necessary, or brought forward if the pre-sale planning is in good order. As with most decisions, timing is important and good forward planning gives flexibility. This planning means not being your own advocate. An experienced corporate finance advisor is essential to a successful sale. Once a sale is contemplated, an informal discussion with an advisor will help you decide whether to sell or not and what will happen subsequently with regard to timing and process. Advance due diligence work means identifying and tidying up awkward circumstances that could derail a sale or adversely affect a sale price. The entire sale and purchase process, when commenced, will likely take between three to six months from start to finish.  It is the job of the corporate finance advisor to direct, coordinate and manage the process from start to finish. The advisor will operate in parallel with a legal advisor; and the same for the purchaser. The process, and the transaction itself, will generate an amount of legal and related documentation – all of which has to be identified, drafted, negotiated and completed. Third parties such as banks, landlords and regulators may also be involved and could, in turn, require documentation and cause delays. Properly done, the sale of a business is a backwards process known as ‘begin with the end’. In other words, the thrust at the outset is to identify prospective purchasers or sectors that likely fit one or more of the reasons for an acquisition, as set out above. Then, ensure that the information and sales approach is directed accordingly. Des Peelo FCA is the author of The Valuation of Businesses and Shares, published by Chartered Accountants Ireland and now in its second edition.

Claire Lord explains why it’s better to get your business’s record-keeping right in your own time and on your own terms. "Run your company like you are planning to sell it” was a piece of advice given to a room full of early stage companies attending a talk being delivered by a tech entrepreneur, who had successfully navigated the pathway from idea through development and scaling to a lucrative exit. He was calling it as it was: you are pursuing your respective endeavours to make money, so do everything you can to maximise that return. When great ideas are being converted into profit-generating businesses, the focus is often on the development of complex technologies, the routes to market, the sales strategies, the hiring of the very best employees quickly. Often the paperwork, the record-keeping, the ‘routine’ pieces of the puzzle are put on the long finger, to be dealt with when there is time. But rarely is there ever time and the longer the record-keeping is neglected, the harder and more expensive it becomes to put right. Irish companies are required by law to maintain a number of books and registers. These include proper accounting records that correctly record and explain the transactions of the company and that enable its assets, liabilities, financial position and profit or loss to be determined with reasonable accuracy at any time.  A company must keep registers of its members, directors and secretary, and disclosable interests. It must also keep copies of instruments creating charges and copies of directors’ service contracts. The Companies Act 2014 further requires companies to keep minutes of shareholder and director meetings. In respect of minutes from shareholder meetings, the minimum detail to be recorded is a summary of the proceedings of the meeting and the terms of the resolutions passed. In respect of minutes from board meetings (which includes meetings of committees of the board), the minimum detail to be recorded is the appointments of officers made by the directors, the names of the directors present, a summary of the proceedings and details of all resolutions passed. In the case of both meetings of the shareholders and directors of a company, the minutes should be prepared “as soon as may be” after the meeting has been held. Certain of the registers and documents required to be kept by a company can be inspected by the shareholders of that company. These are its registers of its members, directors and secretary and disclosable interests, and the instruments creating charges and directors’ service contracts. Members of the public are entitled to inspect a company’s registers of members, directors and secretary and disclosable interests. A company is permitted to keep any of these registers and documents electronically (other than minutes of meetings of shareholders) once it puts adequate measures in place to guard against, and detect, falsification and once they can be easily reproduced in legible form at a place in Ireland. When it comes to the day-to-day running of an Irish company, it would be unusual for a request to be made by a shareholder or a member of the public to inspect the registers and documents that the law permits them to inspect. On the other hand, if a company was the subject of an interested investor or acquirer, it would be most usual for them to require production of all these registers and documents for due diligence purposes without delay (subject, where the need permits, for obligations of confidentiality to be agreed and documented). When there is a gap in record-keeping, which is likely to occur when ‘the paperwork’ has been neglected, not only is the prospective investor or acquirer unable to satisfy themselves that they have the full history of the company in terms of its governance proceedings and compliance with its statutory obligations, but the impact in terms of cost on the target company and its owners to rectify that neglect under time pressure and the scrutiny of an impatient investor or acquirer can be significant. Record-keeping is one of the things that you as a business owner can control. Record keeping can be routine and inexpensive when the time is taken at the outset to get the processes, procedures and resources right. Even if you don’t have plans to sell your company, run it like you are planning to sell it. It’s better to get the record-keeping right in your own time and on your own terms, rather than it being one of the elements that undermines or adds unnecessary cost to that lucrative exit when it does come.   Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Could the fall in interest rates result in an economic ice age for western economies? By Cormac Lucey Across the developed world, interest rates have collapsed over recent decades. Yields on German government 10-year bonds fell below -0.7% this month while yields in Japan were hovering at -0.3%. Japan has struggled to combat low growth and low interest rates for 30 years. Only America, where rates on government bonds remain at about 1.6%, has avoided Japanification. So far. The trouble is the US may be headed that way too – its rate has halved since last October. Why have interest rates fallen so far, and where might they now be headed? Several factors influence underlying interest rates. The first is the rate of inflation. In theory, real interest rates (after we exclude the inflation factor) should be relatively stable. So, if inflation drops sharply, we would expect a sharp drop in interest rates. And inflation has indeed dropped sharply in western countries over recent decades since it peaked in the inflationary 1970s. Nonetheless, in recent times real interest rates have also dropped. It used to be the case that bank depositors got a rate of interest that exceeded the rate of inflation and provided them with real capital appreciation. That is no longer the case. Today, depositors get negligible or nil rates of interest income even though inflation persists and erodes the underlying value of their savings. There are other factors at play. The biggest cause of ultra-low rates is weak economic growth. If growth rates are high, there is substantial demand for investment funds which stokes demand for deposits (so that banks will have sufficient funds to lend) and supports higher interest rates. Low economic growth pushes interest rates down. Over the twentieth century, productivity per worker grew in the developed world at about 2% per annum. Since the turn of the century, underlying growth amounts to half or less than half of that rate. This problem has been described as “secular stagnation”. There has been extensive academic debate on the subject, but nobody has come up with a convincing explanation for this drop in underlying economic growth. Ageing populations are another factor propelling interest rates downwards. The longer we anticipate our life after retirement will be, the more we need to save to fund our retirements. If the supply of savings increases then, all other things being equal, we would expect the price of savings (i.e. the rate of interest) to fall. There are several problems with interest rates being this low. Central bankers have less interest rate-cutting ammunition with which to fight the next recession. It is notable that the European Central Bank is already contemplating monetary policy relaxation to fight the next downturn without having once felt able to increase its base rate of interest during the economic recovery since 2010. Commercial banks also have big problems as a significant element of their profits – interest income generated from current account deposits on which they pay no interest – has dried up in today’s low interest rate environment. That helps explain why the index of euro area bank equities has fallen in value by over 40% since January 2018. Albert Edwards, a strategist with the French investment bank, Société Générale, has long predicted this fall in interest rates and an economic ice age for western economies. He recently asked: “Do market participants really believe fiscal stimulus and helicopter money will save us from a gut-wrenching global bust that will make 2008 look like a picnic?” He argues that the current government bond rally is not a bubble, but an appropriate reaction to the market discounting the next global recession. This means that “the bubbles are not in the government bond market in my view. They are in corporate equities and corporate bonds”. Ouch! Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

The UK’s Financial Reporting Lab recently spoke to companies and investors about what they wanted from cash disclosures, outside of the cash flow statement. This is what they found… By Thomas Toomse-Smith It has been said that investing is as much art as science. Numbers can tell you so much, but at the heart of every investment decision is a story – either that which the company tells or which investors interpret for themselves. But to allow investors to interpret that story correctly, they need disclosures that help them better understand the generation, availability and use of cash. This allows them to make an assessment of management’s historical stewardship of a company’s assets, as well as support analysis of future expectations. Cash and flow The core disclosure that supports investor needs on cash is often conceptualised to be the cash flow statement. However, while it clearly provides information about the flow of cash, does it do a good job of explaining how that cash is, and (more critically) will be, generated and used? Our discussions with investors suggest that the disclosures that help answer this question are often provided outside of the cash flow statement, and perhaps outside of the annual report completely. Our project focused on this supplemental, but nevertheless fundamental, set of disclosures; disclosures that are principally about the sources and uses of cash. What do investors want? Our discussions with investors concluded that what they want, at a high level, is an overall direction on companies’ cash position but that this should be supported by further details. We have summarised investors’ needs in the model outlined in Figure 1. A focus on drivers Companies note that communicating their strategy and performance are essential objectives of their investor communications. However, for many companies, their attention is on a number of performance-focused metrics (such as profit or adjusted profit) with cash metrics featuring as a supporting, rather than a leading, metric. While companies often do a good job of explaining some aspects of their wider performance, cash metrics and cash generation are often not fully explained. This wider cash story deserves better explanation. Both numbers and narrative are crucial for investors. However, the most effective disclosures are those where numbers and narrative are combined in a way that shows how future cash generation is underpinned by current cash generation. Two ways in which we saw companies trying to communicate this was through better disclosure around selection and use of key performance metrics (in line with the practices suggested in our recent KPI report), and through the use of narratives (that bring all the cash-related elements together). A focus on sources of cash Understanding the link between the operations of a company and its generation of cash is a key objective for investors. However, it is something that is not always easy to do from the information a company discloses. Investors that participated in our project noted that this lack of clarity is prevalent and that it can be challenging to understand how the operations of businesses are generating cash. Key areas where further enhancements would be welcomed include working capital and groups. While the generation of cash is important, to fully understand the health of a business, investors also need to understand their approach to working capital. Disclosures that provided more clarity were narratives about differing working capital requirements, cycles and metrics within different elements of a group, and disclosures detailing less common approaches to financing such as factoring or reverse factoring. While investors are interested in the overall capacity of a group to generate cash, it can also be important to understand where within the group the cash was generated, especially for credit investors. This is an area where there remain limited examples of good disclosures in the marketplace, but an area where investors were keen to obtain more information such as how much capacity was within the group and how the group manage capital and cash between its subsidiaries. Uses of cash Once investors have considered how a company generates cash, and the quality and sustainability of that generation, they then want to understand what a company intends to do with the resulting resource. While many investors feel that, in general, disclosure about the use of cash is relatively well-reported, they would like more information that supports their assessment of the future use of cash – namely, understanding priorities and the risks attached to them. Setting priorities for generated and available cash At its simplest level, capital allocation is a balance between maintaining and growing a business. However, there is a significant nuance in how these various priorities are balanced within any business and at any point in time. Differing considerations of the relative priorities will lead to a very different view when assessing a company. That is why information about how companies prioritise different stakeholders is useful. Many businesses have therefore taken to creating more formal disclosure, often in the form of a capital allocation framework. This approach is particularly popular with companies that are launching a new or refreshed strategy. While the disclosure of a framework often provides only a high-level picture of a company’s allocation priorities, it can serve to focus investor and management conversations on key aspects of the business. As such, investors often welcome such disclosure. Priorities in action Once investors are clear on management’s priorities, they then want information that supports their understanding of how those priorities are represented in the period, and how current decisions might impact future flows. Detail regarding capital expenditure, dividends and other returns are critical to achieving this understanding as they help establish whether management actions are aligned to the priorities. Variabilities, risks and restrictions To properly assess the future potential upside of a business, investors need to be able to assess the downside. Investors understand that returns are variable and should reflect the changing focus and priorities of the company, the call of other stakeholders and the availability of resources. Investors therefore value information that helps them understand the potential uncertainties and management’s reaction. When thinking about future availability of cash, they need information on: Variability of future outcomes: how does the company consider the range of possibilities for future cash use and how does that feed through to the prioritisation of decisions? Risks: what is the link between the risks facing the company and the outturn in cash generation, use and dividend? Restrictions: are there any restrictions on current or future cash, either through capital or exchange controls, availability of dividend resources or other items? Concluding message Overall, investors are not seeking to overburden preparers but they do want preparers to focus disclosure on the areas that are most fundamental to their investment story. The full Lab report is available on the Financial Reporting Council’s website, and gives more insight and examples. Thomas Toomse-Smith is Project Director at the Financial Reporting Council’s Disclosure Lab.  

Businesses in Ireland are working towards a low-carbon future, but the transition to a low-carbon economy needs to urgently accelerate. By Kim McClenaghan & Dr Luke Redmond Irish businesses are responding to the climate action challenge and to date, 47 companies in Ireland have signed Business in the Community Ireland’s (BITCI) Low Carbon Pledge. Signatory companies have committed to reducing their direct carbon intensity by 50% by 2030, and to report on their progress on an annual basis. The pledge companies operate in traditional carbon-intensive sectors such as agribusiness and energy/utilities, along with a range of other cross-sectoral companies from pharma/med-tech, beverages, transport, retailing, communications, technology and professional services. The pledge aims to demonstrate the commitment of Irish businesses to supporting the country’s transition to a low-carbon economy. The Low Carbon Pledge requires companies to reduce the intensity of their Scope 1 and Scope 2 carbon emissions by 50% by 2030. Scope 1 emissions refer to emissions produced directly from sources owned and controlled by a company, such as fuels used in boilers or vehicles, for example. Scope 2 emissions refer to those produced during the generation of electricity purchased by a company. The narrowing window of opportunity PwC was commissioned by BITCI to produce the inaugural Low Carbon Pledge Report. This work was conducted against a backdrop of mounting evidence that points to a rapidly closing window in which business and society can successfully tackle climate change and its principal driver: carbon emissions. The Environmental Protection Agency’s most recent pronouncements warn that Ireland faces an unfavourable emissions reduction environment due to ongoing challenges in successfully decoupling economic and emissions growth. Ireland is not on track to meet its 2020 and 2030 EU emissions reduction targets, and failure to achieve the 2020 target could result in financial penalties of up to €150 million. What’s more, the latest Intergovernmental Panel on Climate Change report estimates that countries and businesses have a window of just 11 years in which to successfully tackle the carbon challenge. Meaningful progress According to the PwC report, signatory companies have engaged positively with the decarbonisation challenge and have already delivered meaningful emissions reductions. The 47 pledge signatory companies have achieved an overall reduction of 42% in their absolute carbon emissions between the baseline period and 2018, and are on course to secure a 50% decrease in carbon intensity by 2030. Pledge companies have achieved a 36% reduction in average emissions intensity, in part by reducing their electricity usage by 60 million KwH between the baseline period and 2018. This equates to a cost saving of roughly €6.6 million. Energy efficiency-focused rationalisation and strategic investment programmes, coupled with an increasing use of electricity generated from renewable sources, has underpinned the emissions reduction activity to date. Upping the ante The PwC report, and the dataset that underpins it, provides a benchmark against which to assess the future carbon reduction efforts of the signatory companies. With an ever-increasing awareness of the risks of climate change and the importance of accelerating abatement activity, it is critical that the ambition of the Low Carbon Pledge also evolves. While the initial pledge group of 47 signatories is a significant achievement, it will be important to grow this number while extending the carbon commitment scope. Because of the significant intensity reductions over the baseline period to 2018, BITCI has upped the scope and ambition of the 2030 greenhouse gas reduction targets. A critical challenge for companies will be sustaining such reduction efforts and focusing on the delivery of further intensity improvements up to the 50% target and out to 2030, or an earlier date. Enhanced robustness To maintain the integrity of the Low Carbon Pledge, it is critical that businesses seek external assurance of their non-financial data. This is critical to enhancing the robustness of the emissions reduction actions and commitments reported as part of the Low Carbon Pledge. Seeking third-party assurance also provides companies with another opportunity to demonstrate their commitment to decarbonisation, while at the same time enabling companies to prepare for a transition to an increasingly onerous and transparent reporting environment. Scenario analysis The Low Carbon Report analysed four companies – Gas Networks Ireland, Dawn Meats, ESB and Heineken Ireland – to examine how companies are seeking to enhance the sustainability and decarbonisation of their business operations. The analysis found that senior management leadership is central to driving a meaningful response to the challenges of decarbonisation. Businesses should seek to embed decarbonisation and sustainability policies and actions in their business strategy, from both risk mitigation and value-enhancing perspectives. To test corporate strategies, scenario analysis should consider, for example, a high future carbon price, climate change impacts on global and regional GDP growth rates, or climate disruption within the supply chain. Evolving target-setting, coupled with the use of energy management systems and data analytics, can help ensure that companies make informed energy efficiency investment decisions. Strong leadership can help businesses prepare for a carbon-constrained world and ensure that their businesses are aligned with an increasingly carbon-conscious investor and consumer. While delivering carbon reductions through the procurement of electricity generated from renewable sources represents a positive mitigation action, companies could further enhance the integrity of such actions by procuring green-certified renewable electricity. Decisions by senior management to embed renewable energy sourcing targets, underpinned by green certificates, into company strategy could act as an important catalyst for driving further decarbonisation efforts. The case study analysis identifies investors as being increasingly interested in companies’ financial and non-financial metrics. For companies to truly demonstrate a commitment to decarbonisation and sustainability, it is important to place equal emphasis on their financial and non-financial reporting. Leading companies also seek to align the publication of their sustainability and annual financial reports. Such actions demonstrate that sustainability has become an integral part of the company’s core strategy, and associated metrics form part of the business’s key performance indicators.   Kim McClenaghan is Partner in Consulting and Energy, Utilities and Sustainability Lead at PwC. Dr Luke Redmond is Senior Manager, Strategy Consulting at PwC.