HigherEducation NewsApril 2012 US GAAP compliance HMRC revise NIC rules The United States Department of Education has HMRC have undergone a consultation in respect stated that those overseas institutions that receive of the role of the Social Security Regulations (the US students are required to convert their annual ‘Regulations’) in relation to lecturers, teachers or financial statements from UK GAAP to US Generally those in a similar capacity in the modern education Accepted Accounting Principles (‘US GAAP’) either or training environment. annually, or every three years depending on the As a result of the consultation, the Regulations will amount of loans each university receives in respect be repealed with effect from 6 April 2012. HMRC of those students. concluded that since the Regulations were established in There are considerable differences between the two 1978, the changes in the way instruction is delivered accounting frameworks. In addition, the US equivalent have evolved and the limited ‘positive contributory of the Higher Education SORP (known as the Financial benefit implications’ means the Regulations are no Accounting and Reporting Manual) will need to longer necessary. be complied with. Finally, the US GAAP financial This change will not make any difference to an statements will need to be audited and filed six months individual’s employment status, and will not affect any after the year end (the first submissions was made by individual who is an employee, but this will simplify the those universities affected by 31 January 2012). treatment of those who are self-employed and should Grant Thornton UK and US have been assisting a make it easier and reduce the administration burden of number of UK institutions which are affected by these engaging any individual in a self-employed capacity. requirements. We have provided model accounts, a conversion template and training. This has been provided in conjunction with Grant Thornton Higher Education specialists in the United States. Subarna Banerjee, Grant Thornton Assurance Director, recently attended a US Department of Education conference in Las Vegas and held meetings with senior US Department of Education officials and sought a commitment that, when the UK Higher Education sector converted to International Financial Reporting Standards, no US GAAP conversion would be required. As yet, the Department has yet to make a determination on this point, but has noted our views on David Barnes the matter. Head of Higher Education
What has happened to pension deficits over the past year?Despite the gains resulting from the RPI to CPI pension However in compromising with the trade unions, theincrease change, recorded during 2010/11, market changes will be less extensive than originally proposedturmoil has continued to have negative effects on and the level of savings for public sector employerspension scheme deficits, which are generally larger is likely to be well below initial expectations. Giventhan last year. continuing improvements in life expectancy, it is difficult Equity markets have been relatively flat, whilst to see how the current proposals offer the sustainable longquantitative easing and the sovereign debt crisis have term solution the Government is seeking.pushed UK bond yields down, resulting in significantincreases in pension liabilities. Is there anything that can be done to mitigate the As an illustration, corporate bond yields on which impact of pension costs?pension liabilities are based, are around 1% lower than Employers may be able to address the issue to somea year ago. For a typical scheme this might lead to an extent, by closing their scheme to new, and in some casesincrease in liabilities in excess of 20%, with an even existing, members. However they will need to look at thegreater proportional increase in the deficit. basis on which they participate in their pension scheme as closure may not be an option. Any movement towardsWhat other developments are affecting pensions closure would also need careful management as pensionsin the sector? are currently an extremely live issue, as evidenced byThe key issue facing pensions in the sector is the the recent strikes across the public sector. ConsiderationGovernment’s plans to reform the main public sector should also be given to the impact of closure on funding;pension schemes. The Government is aiming to it is important to open a dialogue with the schememake the schemes more sustainable in the long term from managers and the actuary to avoid short term increases ina cost perspective. The likelihood is that they will be employer contributions.changed from Final Salary schemes to cheaper “CareerAverage” plans and that members will see their owncontributions increase.Living within your means – how you can help secure your university’s futureThe current economic climate continues to put pressure to cut costs dramatically which leads to poor quality, aon universities and as a result they need to focus deterioration in standards and ultimately may threaten thetheir awareness around reducing costs to enable their future of an institution. Any efficiency initiative should beestablishment to run more effectively. carefully planned and coordinated to ensure that reductions The two main areas we encourage your finance teams are sustainable.to look at are greater efficiency in procurement activity(utilities, bulk purchasing, contracts) and the restructuring Look at the big picture and have a planof support activities (Finance, IT, HR, Facilities, Substantial resource efficiencies can be made by revisitingProperty, General Administration). We have assisted the operating model for support. A simple review ofour clients in achieving significant efficiency savings where costs are incurred, the number of staff employedwithout compromising quality and in some cases seeing in providing support functions, and the quality of serviceimprovements in service delivery. provided, will provide a good guide as to where savings The key to successful cost management and cost may be found. Our clients have been amazed by the levelreduction is to look at cost in a coordinated way so that of savings that they have been able to achieve.any reductions made do not have a serious impact on yourprimary objectives of academic excellence. It is very easyIs the internet on your side? currently working with a Higher Education Institute on a pilot scheme to see how we are able to help the sector. IfGrant Thornton’s Internet Intelligence professionals you would like to work with us too please let us know.are recognised experts and have proprietary tools and To find out more about our team, go to the followingmethodologies to locate, categorise and analyse intelligence link: CLICK HEREoften unavailable through conventional processes. We are
Sharing costs and collaborating, will VAT still be a barrier?The VAT Cost Sharing Exemption (CSE) is to be Membership of the CSG does require a minimum levelimplemented in the UK in the near future although of exempt and/or non business activity, so restricts theHMRC has confirmed that businesses can rely on involvement of a private sector partner. The parties maydirect effect of the European legislation if they want to want a private sector partner to be involved to bring someform a Cost Sharing Group (CSG) now. The CSE offers commercial experience or to operate the CSG on behalf ofthe potential for not-for-profit organisations such as the other members or to share some services. Therefore,Education Providers (EPs) to share resources without VAT a private sector partner may need to charge VAT for itsbeing a barrier. A number of conditions must be satisfied services, thus potentially increasing VAT costs.the most important being:• those parties who want to share costs would need to Alternatives set up a “Cost Sharing Group” (CSG), which would If collaboration and cost sharing is to be done successfully be independent from its members. It is not possible outside the CSE, then potential additional VAT costs for the EPs to qualify for the CSE by entering into would need to be considered together with any financial more informal arrangements with each other to share benefits. It may be possible to collaborate and share staff, resources, and just recharge as necessary. However, one using joint employment contracts, as the recharge of member can control the CSG employment costs between joint employers is outside the• if back office and other general business services are to scope of VAT. This could be a useful arrangement if EPs be shared and recharged by the CSG exempt from VAT, want to work with a private sector partner. then exempt and/or non business activities need to be at However, joint employment arrangements need least 85% of all activities carried out by the recipient. to be carefully implemented, as the mere drafting of appropriately worded employment contracts alone is notOn the face of it, the CSE is going to require a significant enough. The employers who are looking to share staffcommitment by the parties who want to share because would need to be seen as actually acting like employers,the costs to be shared would need to be migrated into the which would include instructing and liaising with theCSG. This raises issues around transferring staff (for staff. There has been and continues to be case law in thisexample TUPE, reaction of those staff being transferred area, and any HEs considering this option shall thereforeetc), and deciding how the CSG can be set up and run to need to look into it in detail.the satisfaction of the members who own the CSG. Also Collaboration and sharing costs and resources isit is likely that irrecoverable VAT will still be incurred on becoming increasingly important and a necessary businessresources and assets being acquired by the CSG, and it model as financial challenges increase. Getting more fromis therefore important to consider whether goods should less and demonstrating innovation and new thinking isstill be acquired directly by the members to achieve some, going to be vital.albeit small, level of VAT recovery. Welcome to Sharon Gilkes, a new member of the education team Grant Thornton’s education team is joined by Sharon Gilkes, Associate Director heading the Birmingham Employment Taxes team. Sharon has worked with a number of universities, particularly in the area of salary sacrificeSharon Gilkes benefits, helping universities to design andAssociate Director implement a range of flexible benefits. We areT 0121 232 5259 looking forward to Sharon further developingE firstname.lastname@example.org our work in this area.