The press and Twitter have united in outrage at the news that Big Society-endorsed charity, Timebank, is to have its funding cut.  The cuts, amounting to a quarter of its income, "will mean drastic cuts among its 35 staff, a scaling down of its workload and potentially closure." The charity has responded by encouraging people to write to their MPs about it.

Like so much on the Internet, there's more to this story than meets the eye. In order to fully unpack it, you need to turn to Timebank's accounts for the year ended 31 March 2010. This shows that they had total income of £1.909 million for the year (down from £2.636 million in the previous year). And they spent £1.366 million of that on staff costs (down from £1.425 million in the previous year).

One employee received a salary of "between £60,000 and £60,999 during the year". OK, so it's fair to assume that the chief executive of an organisation ought to receive more than other members of staff. But, even excluding this member of staff, we can calculate that the other 36.9 full time equivalents were paid an average of £31,496 ¹ each. This looks pretty generous, considering that it's an increase of nearly 6% on the previous year ². Had they frozen salaries, as so many private sector employers have, they could have saved nearly £66,000, some 13% of the £500,000 shortfall they are said to be facing as a result of the Office for Civil Society's decision. People often say that they would gladly take a pay cut for the warm glowy feeling they get from working for a charity. Here's a chance to prove that it's not just hollow rhetoric.

The accounts also show that they have already absorbed a £500,000 shortfall in the previous year, which they managed to accommodate. It's sad that they can't do everything that they want to. But if they're unable or unwilling to find the income or make the savings themselves then it's not very Big Society-like to demand that the taxpayer make good the shortfall.

Filed under: Current issues, Exclusives, Politics with tags big society, independent, timebank, twitter, ukuncut
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The moral panic caused by Barclay's apparent 1% tax rate has sent the left-wing luvvies into a tizzy. They've been so overcome by Pavlovian outrage that many of them have suggested that all right-thinking people should shut their Barclays accounts forthwith and move to the Co-Op.

It would seem only fair, therefore, to apply the Guardian's (flawed) methodology to the Co-Op so that we can double-check whether they really are the nice, kind organisation Guardian readers seem to think they are.

Looking at their 2009 financial statements, we find that income tax paid in 2009 was £3.1m ¹ and that profit for the financial year (after significant items) was £164.6m ². That makes their 'effective tax rate' under the Guardian's preferred metric a measly 1.9%. A case of "out of the frying pan and into the fire", if you may.

I expect Chuka Umunna to be hauling the Co-Op's chief executive in front of the Treasury Select Committee next week!

Filed under: Current issues, Exclusives, Politics, Taxation with tags barclays, chuka umunna, co-operative bank, guardian, idiots, treasury select committee
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It appears the ICAEW's finance director, Daniel Quint, is moving on. Although there's no official announcement from the ICAEW as yet, I'd suggest that this job advertisement is pretty good evidence that he's not sticking around.  You have to love the Internet.

On his LinkedIn page, he still describes himself as FD at the ICAEW, but who updates their LinkedIn regularly, eh?

Of course, I'm slightly upset that they didn't think of me before advertising the job publicly, but there's still time for them to give me a call.

Filed under: Exclusives, Institutes with tags daniel quint, icaew, linkedin
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I have a deep problem with the current approach for carbon accounting. We measure carbon emissions and list how much they are.

Unfortunately, most people just aren't calibrated for carbon. It doesn't mean anything to us at all, so we ignore them (80g of carbon emissions in a 30g bag of crisps?). And, unfortunately the figures present only one aspect of the carbon cycle.  Even worse, as Nigel Hastilow has pointed out in Talk Accountancy recently, the numbers are often wrong.

Carbon accounting even lets companies get away with downright lies, such as Southern Trains's claim that their new trains "reduce CO₂ emissions".  They're supported by the Carbon Trust in their lie.  Think about it - self-evidently, the train actually increases CO₂ emissions.  It's only when you think about the old trains they used to run that you could even begin to make such a statement.  Yet they allow such misleading advertising to continue.

In this post, I set a novel approach to carbon accounting that avoids some of these flaws. In doing so, it creates some of its own, which I acknowledge below. However, I hope that this can trigger a discussion of how we can take the current framework forward.

Carbon is a cycle. Apart from any radioactive freakery, it isn't created or destroyed. It just goes around and around. We have observed a number of sinks for carbon which store the world's carbon. And carbon can be transferred between these sinks.

The main sinks, again with thanks to Wikipedia, are:

• The atmosphere
• The terrestrial biosphere, which is usually defined to include fresh water systems and non-living organic material, such as soil carbon.
• The oceans, including dissolved inorganic carbon and living and non-living marine biota,
• The sediments including fossil fuels.
• The Earth's interior, carbon from the Earth's mantle and crust is released to the atmosphere and hydrosphere by volcanoes and geothermal systems.

Mankind is mostly responsible for one type of transfer - from all the other sinks into the atmospheric sink.  For example, oil companies move carbon out of the sediments sink and convert it into fuel, whereby it ends up in the atmosphere (or, if a disaster happens, it ends up all over the American coast).

But wait - this sounds rather like what accountants do when we perform double-entry book-keeping.  We instinctively want to transfer between accounts rather than deal with something being presented as if it's created out of nothing.  And you could, theoretically at least, account for carbon on the same basis - as a description of what the company has done to move carbon between sinks.

For example, thinking about our oil company again, it would account for the extraction of oil as a transfer from one sink to another.  For the purposes of this exercise, we might need to introduce an additional 'suspense' sink to account for the carbon temporarily held in human systems.  If we do this, then oil extraction becomes:

DR Sediments  X

CR Human systems   X

You could then present a table showing how the company's activities affect the balance between sinks.

This would be quite neat, as it would allow us to focus our scientific efforts on a really important question - how resilient are the various sinks to shocks?  Just how much additional inward transfer can the atmospheric system take without becoming overburdened?

We could consolidate several companies together to get a better idea of how particular industries or countries are ameliorating or contributing to global warming.

However, this approach isn't perfect.  It would be susceptible to the same game-playing and mismeasurement that Hastilow identifies in his article.  This would need some careful regulation or external assurance (although this post shouldn't be read as a job creation scheme for accountants).

An additional, potentially more serious problem would be that companies would have to account for the full carbon impact of all their activities. This would include things that aren't ordinarily captured within the company's accounting systems, such as employee transport. Conceptually, we would expect a company that - for example - makes it easier for its employees to cycle to work should be able to report a more beneficial position to one where its employees all drive many miles. However, this sort of measurement is likely to be an intrusive and fairly arbitrary exercise, making it difficult to audit effectively.

Are these problems insurmountable?  I don't suppose so.  In the early days of the accounting profession, there were no standards either.  Accountants got together and worked some out.  I don't doubt that we can crack these problems too.  And it's worth doing, because I believe my approach is a significant improvement to the way carbon accounting is currently dealt with.  Your comments are, as ever, welcome.

Filed under: Accounting, Exclusives with tags carbon footprint, double-entry book-keeping, icaew, nigel hastilow, southern trains, sustainability
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So, the AICPA (American Institute of Certified Public Accountants) has launched a brand new website. And it looks pretty good, all in all.

However, there is one amusing feature. On most pages there is a function that allows you to rate each page. As of the time of writing, this function is broken, meaning that every page has a ranking of 0.5 stars out of 5.0... i.e. fantastically unpopular. Even pages that have only one user ranking have an average of 0.5, so it must be a bug. It's a pretty funny and unfortunate error on what's otherwise quite a neat site.

Filed under: Exclusives, Institutes, Technology with tags aicpa, fail, website
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Over the last few days, I've become increasingly unhappy with the quality of journalism over Lord Ashcroft's tax situation. What upset me most was the Lib Dems' claim, made by Chris Huhne, that Ashcroft has personally avoided UK taxes of £127 million as a result of his non-domicile status. How could the Lib Dems know such a thing? Their reputation is built on a fine heritage of shambolic calculations, such as the farcical local income tax debacle that cost them countless seats in the 2005 general election, and St Vincent of Cable's idiotic, swiftly-repudiated idea for a mansion tax. Surely they couldn't have goofed again?

I e-mailed the Lib Dems to ask them how the £127 million was calculated. No answer. So I left a comment on Les Bonner's blog to ask whether the number had been simply made up. He has subsequently amended his original article to provide the basis for the calculation. It's also available on Chris Huhne's website. And it's a corker:

How the taxpayer has missed out £127.6M

Lord Ashcroft’s fortune is estimated at £1,100 million by the Sunday Times Rich List.

A 5% annual return is £55m. If he kept 80% offshore taxpayers would miss income from £44m.
He can split his tax between capital gains and income tax.

At 18%, capital gains tax on £22m = £3.96m, plus 40% income tax on £22m = £8.8m. That’s £12.76m a year or £127.6m in 10 years

So, the figure is not based on a detailed knowledge of Lord Ashcroft's tax affairs. They've simply taken his net worth and concluded that a man of great fortune must be generating 5% annually. They've then arbitrarily decided that 80% of it is being generated offshore and that his wealth accrues equally in income and capital gains.

Let's not mince words here - this is crap. It's a complete steaming load of rubbish. And this is honestly the basis for the Lib Dems' assertion on tax? It would appear so.

Error 1. Lord Ashcroft is an entrepreneur. He has made his wealth from building up companies. Therefore you would expect the bulk of his wealth to be in companies, rather than in income-yielding assets. Those companies may indeed pay him a dividend. But they may not. In order to stop entrepreneurs deferring tax forever, we force companies to pay corporation tax (yes, I'm aware that Ashcroft has a special agreement with the Belize government to pay no corporation tax for 30 years). So it's a fallacy to presume that his wealth generates income at a rate of 5%.

Error 2 is that they've ignored the impact of the UK-Belize double tax treaty. Broadly speaking, the idea of a double tax treaty is to ensure that UK citizens get some relief for tax paid in other jurisdictions. And there is one in place between the UK and Belize. Ashcroft would be able to offset any tax paid in Belize against the UK tax liability. And this wouldn't be tax avoidance or tax dodging, it would be a legitimate relief, recognising that the Belize government has first claim on income earned there.

Taken together, this demonstrates that there are serious deficiencies in the Lib Dems' calculations. The Lib Dems should retract their false claims immediately and write to Ashcroft to apologise for their mistakes. It really is the least they can do.

Filed under: Current issues, Exclusives, Politics, Taxation with tags chris huhne, domicile, fail, les bonner, liberal democrats, lord ashcroft, pwned, tax avoidance
6801 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F03%2Fexclusive-the-dodgy-dossier-chris-huhne-has-used-to-calculate-lord-ashcrofts-underpayments%2FEXCLUSIVE%3A+The+dodgy+dossier+Chris+Huhne+has+used+to+calculate+Lord+Ashcroft%27s+%22underpayments%222010-03-03+20%3A31%3A36Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D680