Episode 6: Big Questions for Accounting - with Jack Sales of TN Accountancy

In this episode, I talk with Jack Sales of TN Accountancy.   We discuss the usual Big Questions, and come to some interesting conclusions.

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Transcript

Kirsten Gibbs: [00:00:00] Welcome to the pioneer accountants podcast, where pioneering accountants, answer Big Questions about Accounting, and I occasionally introduce them to people you should know. I'm Kirsten Gibbs and I help accountants to build an autonomous practice they can step up with or away from whenever they want without killing themselves or their business in the process. Today, I'm really pleased to be talking to Jack sales of TN Accountancy.

Jack is the director of TN Accountancy based in Tunbridge Wells. He offers tax and accountancy services to individuals and small businesses. His specialist area is personal tax. Hes a chartered tax advisor and an associate of the Association of Taxation Technicians. And try saying that in a hurry. He's been in the tax and accountancy industry for nearly nine years now and has been running TN Accountancy for 20 months.

Before setting up on his own. Jack worked for large accountancy firms, both in Tunbridge Wells, and in London. He set up TN Accountancy because he didn't want to be bogged down in the red tape that hinders large firms so much and wanted to do things in a much more efficient manner. Welcome Jack. It's nice to have you on this podcast and, nice to see that, all your networking and stuff has been paying off. Cause I know you're really busy.

Jack Sales: [00:01:30] Yes. Yeah. Thank you for having me Kirsten. yeah. And it's certainly, it's been a bit of a roller coaster 20 months. I mean, we know each other from. from networking, and we met last year, didn't we? and, and have obviously spoken quite a bit since, yeah, an interesting journey setting up your own business.

but yeah, it's been, it's been really good so far and, you know, lots of it, lots of exciting times ahead as well. 

Kirsten Gibbs: [00:01:53] Brilliant. Okay. So I'm going to dive in and ask the first of the big questions and it is quite a big question. 

What is accounting for?

Jack Sales: [00:02:04] Blimey Kirsten, you don't mess around with your questions do you?,

So accounting, what's it for? So from my perspective, I guess there's two main areas. one is, what a lot of people consider it to be is, you know, accountants do people's accounts, and then do their tax returns and tell them how much tax they need to pay at the end of the year. So for one purpose is basically determining the amount of tax a individual or business is due to pay. The other purpose. and this one's, you know, certainly the, the thing that's where it becomes useful, is, is more actually looking at what a keeping track of, of how your business is doing. doing the accounting properly, provides you with data, that you can then use to see where the business is performing well and where it could be doing better. and you can plan off the back of your historic data. and yeah, it's basically a, it's a, it's a method of, you know, analyzing your performance, basically. 

Kirsten Gibbs: [00:03:10] Yes. With a view to improving it, adjusting it, you know, you know?

Yeah. It's not a static thing, a business, isn't a static thing. Is it? It's not a snapshot. It's a, it's constantly moving and you want to be sure you're moving in the right kind of directions or at least an acceptable direction, perhaps. 

Jack Sales: [00:03:30] Yeah. Yeah, absolutely. Absolutely. 

Kirsten Gibbs: [00:03:33] Okay, brilliant. So is that what it should be for?

Jack Sales: [00:03:38] essentially, yes. I think a lot of people see accountancy as a necessity, because, or a lot of people see it as a burden. but you know, it is a necessity, you know, if you, if you want to do well, you need to know how well you're doin , at the end of the day. So, yeah, I think, yeah, that is essentially what it should be for.

Kirsten Gibbs: [00:04:03] Okay. So then maybe I'm asking. Maybe that's the wrong question. Maybe what I should be asking is if that is what it's all about, could we be doing those two things better than we do at the moment? So could we be measuring business performance better than we do? And could we be measuring how much tax we should be paying better than we do?

Jack Sales: [00:04:29] Well, the short answer is yes to both. so with, with, looking at business performance, that very much depends on what as a business owner, your attitude is. So I have clients, if you like across the spectrum, some who keep themselves very much up to date. And do what I essentially do, what I do, which is, you know, have a good bookkeeper, good have good technology available to them.

do things regularly, review things regularly. and you know, at any, you know, from, from my own perspective, I know on any given day exactly what my financial position is, you know, how I'm doing, who I owe, who owes me, and, and, you know, off the back of. Off the back of that. I can then plan for the future as well and I'm, you know, I'm able to determine exactly what I can spend or can't spend or whatever. Other end of the spectrum. some people, they have no interest as long as they've got money in the bank, so to speak, that's all they really seem to care about. And they it's difficult to get them to engage with anything.

But then, you know, that those same people will get to the end of the year. The last bit to do their accounts. and then they will be, I'm always surprised at how much their tax bill is. Cause they realize that they actually earn more money perhaps than they thought they did because they've just gone and spent it because they had the money in the bank.

So that that's, you know, that, that side of it very much depends on your attitude or the technology's there. 

Kirsten Gibbs: [00:06:03] Yeah. Yeah. 

Jack Sales: [00:06:06] I mean, I've been, I've been in this industry for nine years and even in that time, I've seen a massive change. you know, it doesn't need to be time consuming. It doesn't need to be boring. You know, the technology's there that actually, you know, with, with bank feeds and good bookkeeping software and automation and, an AI, you know, things can be done relatively quickly. And then you have access to loads of information that will help you run your business. So that side of things, it very much just depends on your own personal preference, I guess. 

From, from the other side, so from HMR C's point of view, could they improve the way they do things? Yes, massively. I, I deal with them on a day, day by day basis and yeah, it's, quite quite painful sometimes as you know, probably anyone who's listening will probably agree. They, 

Kirsten Gibbs: [00:06:55] they're trying, 

Jack Sales: [00:06:56] they are trying, they introduced making tax digital for VAT last year, which... has pushed the industry on certainly the tech side of it, because things have to be reported to them for VAT purposes in a certain way. but there's an awful lot of things with HMRC that still needs to be done with a paper form. 

Kirsten Gibbs: [00:07:18] Right. 

Jack Sales: [00:07:20] You know, often, things that need, need to be sensitive, have to have, they still have, the old policy, of it needs to have an original ink signature on it.

Kirsten Gibbs: [00:07:29] Oh, wow. 

Jack Sales: [00:07:30] So, you know, you can't take a copy or anything like that. You can't send it to a portal or email or anything like that, which is really frustrating. so there, there are certain aspects of the tax system that are a bit archaic still. They are trying, I mean, it's obviously a huge undertaking. you know, they, they deal with millions of taxpayers a year and having to change the way they do things, so drastically, particularly with Brexit and coronavirus in the background its not easy. they're trying, but yeah, there's a long way to go. Definitely. 

Kirsten Gibbs: [00:08:01] It does sound as though, it could possibly do with. A bit of an overhaul. 

Jack Sales: [00:08:06] Yeah. And even, even looking at, looking at it from a different perspective, you know, I think if we didn't put in technology to one side, you know, looking at the way people are taxed and tax legislation, it's just, it is way too complicated.

There's very much a system of having a lot of tax legislation is quite old. 

Kirsten Gibbs: [00:08:29] Yeah. 

Jack Sales: [00:08:30] And you know, the world has changed a lot since a lot of this legislation was first written. Whats been done, has been sort of patchwork on it in a bit new, new, pieces of new sections of legislation have been in is the Vince or slotted in and, and, you know, they're just trying to fill the gaps really. And it's resulted in, I mean, at the moment, well, I read something last year, actually. It's quite interesting that there are 10 million words in UK tax legislation. 

Kirsten Gibbs: [00:08:56] Wow!, 

Jack Sales: [00:08:57] which, makes it nine and a half times more wordy than all of the Harry Potter books put together. 

Kirsten Gibbs: [00:09:03] And I wonder who has the time to read all those 10 million words?

Jack Sales: [00:09:09] Well, as a tax advisor, who does it for a job. I'm not even, not me. 

No. Oh, that must make things very difficult. 

Yeah, absolutely. It's just, it's just the case of, you know, if the tax system was a bit more up to date and a bit more well thought out and a bit more streamlined and there you'd have some fundamental roles, and you know, the rules are a bit more well thought out and there aren't so many exceptions at the moment because there's such, a lot of tax legislation.

There's just so many exceptions to each rule. 

Kirsten Gibbs: [00:09:42] Yeah, I think, I think we have, I think actually that's a general problem with the way we do legislation here, at least, which is everything has to be completely itemized. And if it's not in the list, it doesn't count. You can't have this kind of general. It's very hard to have a rule that says everything, you know, everything works like this.

You have to kind of specify every particular. Case. 

Jack Sales: [00:10:11] Yes. 

Kirsten Gibbs: [00:10:12] Otherwise somebody says, and every time somebody says, Oh, well, my case is not on that list so it doesn't apply to me. That that's when you get all these sticking plasters and things being put on. Cause you've got to add that case. 

Jack Sales: [00:10:25] Yeah. Yeah, absolutely.

Kirsten Gibbs: [00:10:28] There must be. Yeah, there must be a better way of doing it. Somebody must do that, Beth. I don't know what it is cause I'm not a lawyer, but 

Jack Sales: [00:10:36] yeah. Yeah, absolutely. Absolutely. I mean, you know, other countries, I mean, from what I understand, for the same article said that Hong Kong had 150,000 words in their tax legislation and they, you know, they seem to be doing okay. So yeah. I don't know. It's possible. It's possible. Yeah. It's one for the policymakers, not little old me. 

Kirsten Gibbs: [00:10:57] Okay. Okay then. So next question. Do we think, do think accounting can help to solve some of the really big problems that you know, we have as a global society today, you know, things like inequality, poverty, climate crisis, could it even help us to come out of coronavirus in good shape do you think? 

Jack Sales: [00:11:24] I, well, the short answer is yes. And so it comes down to, data and information account accounting provides us with provided it's done, right. accounting can provide us with an awful lot of data and a lot of information. so, you know, looking at. I guess. So you mentioned inequality, at the moment, it seems to, in my opinion, we're, we're in a society where actually the technology, particularly now the technology is there for lets use HMRC or the tax authorities, as an example of a, of a, of someone who would be looking at data. 

So you know, the technology is there for them to know an awful lot about a company. But things are still being done, so to speak in the old, old fashioned way. So, you know, company accounts, the information that gets given to HMRC, there's not an awful lot.

And I mean, it's, it's more say, for the smaller companies, you know, realistically, 

Kirsten Gibbs: [00:12:26] Well, your company, my company. 

Jack Sales: [00:12:28] Yeah. They don't know much. 

Kirsten Gibbs: [00:12:30] You cant tell anything, really 

Jack Sales: [00:12:32] no, no, no. So from a, from an inequality perspective, you know, if you're looking at say whether the contribution, let's say you have a company which has a few employees and those employees get paid a particular wage, and then the owner of the company makes a certain amount of profit and takes dividends of a certain amount. 

Is it fair? that's obviously a much bigger question than just, you know, the sort of thing I look at, but it's, it's impossible to have that discussion if you don't have the data to begin with. 

Kirsten Gibbs: [00:13:09] That's true. 

Jack Sales: [00:13:10] That's where accountancy comes in. And you know, it's down to the policymakers to say, well, If we want to tackle, say inequality, then we need to know more information to allow us to make more informed decisions on, on how to do things and it's up to them to actually police it as well. So this is another, and this is sort of almost segues on to coronavirus, for example, the furlough scheme, that's been talking to the press on, I think from, the chancellor where. They worry that people have or company, some companies have become a bit addicted to the furlough scheme. And so, you know, basically as long as your company has just, it's very broad brush.

If you're a company, if you employ people and you then say to those people, you cannot work for at least three weeks. Like we tell you, you cannot work for three weeks, and your company has been affected by coronavirus and there's no measure of how. 

Kirsten Gibbs: [00:14:05] How affected or even whether it might have been positively.

Jack Sales: [00:14:09] Well, that's another point entirely as well. Absolutely. And then you're eligible to apply for the, for the furlough scheme. So I, you know, conversations I've been having, you know, I do know that there are companies out there who have basically temporarily laid off 20% of their workforce because the coronavirus has conveniently become for them a quieter time of the year.

So. You know that 20% of the workforce that's then 20% of the wage bill that's then essentially subsidized by the government. and the company in three, six months time can just go back to normal and the, and then the owner has benefited from that. so yeah, it's, it's difficult. Whereas if, if. Things were done in a slightly different way and there was more data available to the government. They might have made the furlough scheme a little bit more selective. and if they had the resources to police it properly, then you know, there might be a little bit less, kind of, mick-taking yeah, yeah, absolutely. 

Kirsten Gibbs: [00:15:13] Yes. Yes. And it does seem that, At the bottom level it does seem, there's an awful lot of people that have kind of fallen through the net for no other reason in a way than that, as you say, the data, isn't there for them.

Some people aren't the kind of contracts they're on. I mean, they're just not measurable. So they've missed out altogether. 

Jack Sales: [00:15:37] Yeah, absolutely. I mean, certainly with, with IR35 legislation, you know, if someone's, so obviously there's the self employment income support scheme, which has been available to people who are registered as self employed.

But a lot of people who are effectively self employed yeah. Have, because of IR35, have been forced to operate through a limited company as a contractor when they do work for a big company. because that's the big company have stipulate that's what they need to do if they want to have the contract. 

And then as a result of that, they've effectively fallen through the cracks cause they're not eligible for, self-employment and if they're doing anything to try and get work, they can't furlough themselves. So they, they are eligible for nothing basically. Which is unfair because they've, you know, been in that position where if they were self-employed properly, they could probably still do some work, and, and at least look for work and, and try and generate business for themselves. 

And then also still get a grant from the government. So, yeah, it's, it's, it's a difficult one and it's just where. Yeah, they have fallen through the cracks, that data isn't there for them, as a result. And it's actually as a result, indirect result of IR35 legislation, which is the, the tax on intermediaries legislation where, you know, basically HMRC don't like these a limited company intermediaries.

And again, that all falls down, that all goes back to the point where the tax legislation's too complicated. You know, the reason why originally a lot of people operated through a limited company rather than being an employee was because it's more tax efficient 

Kirsten Gibbs: [00:17:28] for both sides 

Jack Sales: [00:17:29] for both sides. Absolutely. And instead of combating it by saying, okay, well, let's, let's look at how companies are taxed and make it more in line with an employee they've introduced legislation to basically. It's effectively an extra tax charge on that intermediary company. And then years down the line that's had the knock on effects that we're seeing now 

Kirsten Gibbs: [00:17:51] that's really interesting. It's a really good example of how you need to think through the potential impact of what you're measuring. Yeah. So that you don't get an unintended consequence. Basically. Nobody can foresee pandemics, well, you can, we know they happen. we just don't know when or what

Jack Sales: [00:18:16] and what form and what impact thats going to have, 

Kirsten Gibbs: [00:18:17] but we do know that we, we did know it was coming.

So, that's really interesting though, about how, yeah, it's a really good illustration. Brilliant. Thank you. 

So the, so the next question, which is our last question, I think weve sort of worked nicely towards, which is basically, Can accounting help to make the world a better place? 

Jack Sales: [00:18:43] Yeah, I agree. I think, I think we have actually worked towards that quite, quite conveniently.

The short answer's yes. You know, it, obviously people they hear accounts and see, and they just think, Oh, boring numbers. Yeah. But it's. And then there's, you know, some people will then go one, one, one step up from that is it's a necessary evil, but then I've actually been thinking about it in a slightly different way, which I think we kind of have demonstrated if you actually look at it as a, it's a necessity and it's a tool that helps, helps us look at how we're performing. 

Kirsten Gibbs: Yep. 

And it's a tool that helps society, tax authorities, etcetera, see what people are doing and how they're doing it. and you know, if, if they wanted to, you know, tax authorities could get an awful lot more data from companies and individuals, and if they did that, they then got that data to use how they see fit. 

Kirsten Gibbs: [00:19:39] Yeah. 

Jack Sales: [00:19:39] And then that, that goes back to your previous question about, you know, can it help us to solve inequality? Can it help, get us out of coronavirus quicker? Well, if it's, if the data is available and the relevant parties are sort of willing to use it then yeah, absolutely. And you know, off the back of that, yes. It can make the world a better place. 

Kirsten Gibbs: [00:19:59] Yeah, I think, yes. I agree. I think actually we've kind of over the last, I don't know, few decades. Quite a few decades, we've kind of reduced it to this, almost that first thing you mentioned earlier on of it's about working out how much tax I will have to pay and trying to reduce that as much as possible.

And then, only in a kind of secondary way, it's about how I want to perform as a business, but really where accounting came from historically surely was a kind of a really important role. In the whole of society to help, to help keep some of the biggest players in the world. You know, the biggest companies who could have a big impact on the world, it was actually about helping to keep them accountable.

Jack Sales: [00:20:53] Yeah. Yep, keeping them in check.

Kirsten Gibbs: [00:20:56] Yeah. And we kind of have lost that a little bit. I think in the way we look at accounting and accountants, like you say, we kind of go, Oh, boring, but actually it's not boring. It's really, really important. And yeah. The more important you make it, the more interesting it is. 

Jack Sales: [00:21:14] Yeah. 

Kirsten Gibbs: [00:21:15] Yeah,

Jack Sales: [00:21:15] yeah, absolutely.

Kirsten Gibbs: [00:21:18] That's a very nice conclusion to have come to. Thank you so much. I really liked that. 

Jack Sales: [00:21:26] It's ended up quite well. 

Kirsten Gibbs: [00:21:28] Brilliant. So, thanks so much, Jack. I really enjoyed that conversation. I'm looking forward to getting it up on the podcast. 

Jack Sales: [00:21:35] No problem at all Kirsten, and thanks for having me, much appreciated. 

Kirsten Gibbs: [00:21:39] Brilliant. Thank you.

Thank you for listening to the pioneer accountants podcast. Where pioneering accountants answer big questions about accounting with me, Kirsten Gibbs. If you're a pioneering accountant and you'd like to be part of this podcast, just head over to my website, www.gibbsandpartners.com and send me a message. I look forward to hearing from you.