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Recently the Scribe Academy™️ saw our very own Head Accountant, Hannah Driver, talk through the basics of local council finance and how to streamline processes in the "Local Council Accounts - From Zero to Hero" webinar.
First we ran a poll asking attendees which aspects of council accounting they struggled with the most. With it being the beginning of July it was not surprising that Time came out on top, following a busy Year End period and completion of the AGAR. With confidence being the next runner up and VAT also making an appearance!
Let’s take a look at some of Hannah’s advice on these topics…
#01 Understanding Your Accounting Approach
The financial year for local councils is a 12 month period from 1st April to 31st March, and is used as the basis for preparing the Annual Governance and Accountability Return (AGAR) - a mandatory document that local councils are required to complete and submit to the relevant authorities. There are two approaches that can be taken when completing the Accounting Statements section of the AGAR, and it's important to know which approach you'll be using.
Receipts & Payments is a simple form of accounting, sometimes known as cash accounting, which records receipts and payments at the point they are received or paid. This is regardless of when they relate to.
Income & Expenditure is sometimes known as accruals accounting and records transactions on the date to which they relate, rather than when they were received/paid.
Councils are required to work on an Income & Expenditure basis when their gross income, or gross expenditure, exceeds £200,000 for 3 consecutive years. However, councils can also voluntarily opt to complete Year End in Income & Expenditure if under this threshold - this often is done as a result of the Clerk/RFO or a Councillor having a background in finance.
#02 VAT Returns or Form 126 Reclaims
Knowing when you need to be VAT registered is important. If you provide goods or services and receive additional income on top of your precept income, you will need to consider the amount of VAT that would be incurred on taxable supplies if you were VAT registered. If VAT incurred would reach £1000 or more for the financial year, you will need to become VAT registered.
As Making Tax Digital is now mandatory for all VAT registered councils, you will need to ensure you have sufficient software that allows you to keep VAT records, and submit VAT returns, digitally. Usually VAT returns will be submitted on a quarterly basis and it can be useful to have these quarters fall in line with the regular financial year quarters to keep things easier at Year End – this is also relevant to non-VAT registered councils who claim back VAT using Form 126.
If it is a long or onerous process to produce a VAT return or claim, this should be addressed. Think about how you can make this easier – would recording suppliers VAT registration numbers when adding the transactions help? If claiming VAT back via Form 126, consider adding the invoice date when entering the transaction to save you having to trawl back through paper invoices later on.
Take a look at our recent blog post on Demystifying VAT, written by Steve Parkinson, Partner at the Parkinson Partnership.
#03 Lack of Time
This often comes up when we ask Clerks & RFO's about their accounting challenges. Especially towards Year End, where the regular to-do list doesn’t get any smaller, and you’re needing to complete your Year End of accounts, undergo an internal and external audit, sign off and publicise the accounts, all within a specific time frame.
While it would be great if we could wave a wand and stop the clock, it's simply not possible. That being said, there are tools and techniques that can aid productivity, help you to prioritise tasks and (hopefully) reduce the overwhelm of what can feel like a never-ending to-do list.
Here are some interesting techniques you could try:
But let's also have a look at areas you can keep on top of now, that your future self will thank you for when it comes to Year End....
#04 Ensuring an Up-to-Date Cashbook
Think about your cashbook, are you up to date in entering transactions? If you are a couple of months behind, book a few hours in your calendar throughout the week to get your transactions entered to date - consider how far behind you are, and the number of transactions that need entering when setting aside this time.
Check the accuracy of your transactions - have they been allocated to the correct budget heading and VAT rate? Corresponding paperwork can help with this, such as invoices and receipts.
If you don't already, we also recommend getting into the habit of reconciling monthly, even if it's only a handful of transactions. Ensure your last bank reconciliation is balancing before moving on to the following month. This means if you do discover a discrepancy, you only have one months worth of data to look back on.
#05 The Asset Register
The Asset Register supports the information for your Box 9 on the AGAR, and generally the asset is added to your register at the original purchase value. The basic key information needed when recording an asset is the date & cost of acquisition, location and useful life of the asset, however it's worth noting and gifted or community assets should be entered with a nominal cost of £1.
Top tip: Councils do not depreciate their assets.
If you do find yourself with a little bit of spare time following Year End, and before Budgeting/Precept Setting season, it's worth ensuring your asset register is up to date. Have assets been disposed of throughout the year and correctly updated on the asset register? Have you purchased new assets throughout the year and added these to your asset register?
A lot of questions tend to arise around the asset register, have a read of Eleanor Greene's, Chief Accountant at Do the Numbers Limited and Secretary at the Parish Council Internal Auditors Forum and SLCC Hampshire, top tips on the asset register.
#06 Reserves
It's essential that Council's have adequate reserves to cover both their day to day financial obligations as well as future projects. Reserves should ideally be reviewed multiple times throughout the year, particularly if you have projects and need to track the spend.
Generally there are three types of reserves:
Earmarked reserves (EMR): These are funds set aside for specific projects, initiatives, or expenditures. These reserves allow councils to allocate resources based on their priorities, such as improving infrastructure, investing in community projects, or purchasing new equipment.
Capital reserves: Generally being funds kept separately for a specific purpose of capital purposes only (e.g. purchase/enhancement of fixed assets, repayment of loan, proceeds of disposals of fixed assets (over £10k only)).
General fund: This is the remaining fund held by the council that is not earmarked or capital. You may have a general fund held for cashflow/contingency in case of unexpected events, and it should be equivalent to between 3 - 12 months expenditure (closer to 12 months for smaller councils and to 3 months for larger councils).
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