January 2023
Clare Bentata says keeping up-to-date with current affairs can help accountancy students better understand the subjects they are studying.
It is a familiar refrain of accounting and business lecturers that students should be reading the business news to aid their studies. I think many are intimidated by the perception that this involves reading those free copies of FT from cover to cover each day.
I’d like to make the case that being aware of current affairs, business and otherwise, benefits learning. As you progress through your professional accountancy exams you find a general decrease in the number of marks available for rote learnt computations and an increase in the importance of applying your knowledge to given scenarios. This application of knowledge often requires pulling together things you have learnt on different topics and even on different papers.
Some students find this transition difficult, wanting instead to learn ‘the answer’ without having to tailor it to a particular scenario or really think it through for themselves. Given the pressures of professional exams, it is understandable that the focus is on what scores marks and exam technique. However, some of those final level exams are specifically designed to elicit your very own thoughts and opinions. And guess what – that takes practice.
Seeing how the rules you’ve learned play out in the real world can really help with this type of thinking. What seems dry in the classroom can come to life a little when you see real people affected by it.
Recently, I was listening to a news report regarding the increasing number of people working from home since the pandemic and how some of those people are actually working from holiday homes overseas. There followed a brief discussion of the potential consequences of this, and I was struck by how almost every point made was relevant to my tax students, being either something they had learned in the past or were studying now; all packaged neatly together in one scenario.
Working from home in the UK could entitle an employee to deduct any expenses wholly, exclusively and necessarily incurred in the course of employment, such as the cost of phone calls or heating the work area. Evidence would be required for such costs or a fixed deduction of £6 per week can be claimed.
However, the availability of such deductions depends on whether an employee has to work from home (available) or chooses to work from home (not available).
The income tax rules suggest that it could be attractive to set aside an area of the home for exclusive business use (in order to claim expenses). However, this could potentially cause an issue for claiming PPR relief for capital gains tax. If an area of a home is used for exclusive business use, then the part of the gain related to that area would not be covered by PPR relief.
Although, this is very unlikely to be an issue for anyone working from their spare bedroom.
And what if an individual is working from home, but that home is overseas? This raises a whole host of other issues, now you really need to think. Do they spend enough time in the UK to still be considered resident? How many visits do they make? Where do they stay when they’re here? Could the individual be treated as resident in the overseas country? It’s possible that tax could arise in both the UK and overseas, in which case double tax relief would be available.
Or there might be a double tax treaty which prevents double taxation. It really depends what country they are in.
There would also be legal questions to consider.
Does the individual actually have the right to work in the overseas country in that way? Does their contract of employment allow them to work outside of the UK? There could be potential issues regarding social security contributions. Most countries separate their tax and social security systems. Even if there is no overseas tax to pay, the individual could still be liable to make social security contributions if they are effectively living there, and if the individual is liable, then their employer could be liable to make payments too!
The employer may have concerns about their own position. Does their insurance cover employees working remotely from overseas?
Are they caught by any reporting requirements of the overseas territory? Are there any issues relating to data protection, national security or confidentiality? Could an individual working from their home office overseas actually constitute a Permanent Establishment? It is unlikely, but nevertheless a possibility if that employee is habitually exercising their authority to conclude contracts on the employer’s behalf.
Finally, what if the individuals in question were the directors of the company? Is it possible that the effective management and control of the company would now be taking place outside of the UK? This would mean the company itself is no longer UK resident and the change of residency would trigger the migration rules.
As you can see, I have raised more questions than answers, but that is the beauty of considering an issue outside the confines of an exam question. It gives you the freedom to let your own thoughts run wild without being constrained by ‘how many marks is that worth’.
It is also good practice for those multi-tax scenario questions.
Of course, you don’t have to read the newspapers. The news is everywhere and it’s easy to make it part of your daily habits. Pick up on stories you’re interested in, discuss them with friends and family. Having a conversation is an excellent way of practising recall and a fast way of discovering whether you can put your thoughts in to words – a key exam skill.
There are hundreds of podcasts and Ted Talks at your fingertips. I hear that listeners to Radio 4 are in decline and that their average listener is 56 years old, so they clearly aren’t attracting students. However, there are some excellent business programmes on there such as: ‘The Bottom Line’, ‘In Business’ or a recent series for the tax lover ‘How to Raise a Trillion’. Why not stick it on next time you’re doing the washing up. It could even help you make small talk with the over 50s!
• Clare Bentata, Lecturer in Accounting & Taxation, Henley Business School