Regulation 1 - Definition of being in practice

For the purpose of these regulations, a member is in practice if they provide services:

1. as a sole trader
2. as a partner (whether salaried or equity) in a partnership, including a limited liability partnership*
3. as a Director, including a shadow Director, of a limited company*
4. as a principal in any other corporate entity*.

*and they hold at least 5% of the shares of that company or entity. Shares belonging to anyone in the member's household or family are treated as belonging to the member.

Guidance to regulation 1 - Being in practice

If you are a full or fellow AAT member offering accountancy, taxation or related consultancy services to clients, as a sole trader, in a partnership (including limited liability partnership), as a director of a limited company or principal of any other corporate entity and you live and work in the UK, Channel Islands or Isle of Man, you must join AAT’s scheme for members in practice.

If you provide one of the services listed in schedule 1 as a partner in a partnership (whether salaried or equity), a director of a limited company or a principal in any other corporate entity and hold at least 5% of the shares of that partnership, company or entity, then you must join the scheme for members in practice. To find out which services are covered by the scheme, please refer to the section below on services covered by the scheme for members in practice and schedule 1 to the regulations. For the purposes of AAT, you are deemed to be in practice if you provide any of the services covered by the scheme regardless of the way you operate.

Joining AAT’s scheme for members in practice will add credibility to the services you offer. It will also demonstrate both to the general public and the accountancy profession, that you are competent, highly trained and committed to maintaining the highest standards of ethics and professionalism. It also enables us to confidently promote your services, credibility and professionalism.

The diagram (PDF) will help you to establish whether you need to join the scheme for members in practice.

There is an initial application fee to join the scheme for members in practice as well as annual fees. Fees charged will depend on the annual gross fee income you derive from your practice work (please refer to schedule 3 of the regulations for a definition of gross fee income and how you should calculate it). If AAT is your supervisory authority for the Money Laundering Regulations, a money laundering supervision fee will also be charged.

Services covered by the scheme for members in practice

Each of the services are described, to give an indication of what is included in that service area rather than being a prescriptive and exhaustive description of each service. This is in order to assist members and for the purposes of AAT’s scheme for members in practice.

The services covered by the scheme are as follows:

Accountancy

Bookkeeping (BK)

Bookkeeping is that part of accounting which deals with the recording of actual transactions in monetary terms.

This classification only includes recording and not the calculation of actual transactions. For example, the calculations of depreciation, accruals/prepayments and work-in-progress are not included. Effectively, this means the preparation of accounts up to trial balance without any adjustments.

The scope of bookkeeping is limited. Therefore, it is expected that a member who is approved to offer bookkeeping will also be approved to offer Financial Accounting and Accounts Preparation or Management Accounting or both.

Financial Accounting and Accounts Preparation (FA and AP)

Financial Accounting is the preparation of the full and abbreviated accounts that are required for statutory purposes by the prevailing Companies Acts and prepared using the relevant Accounting Standard(s).

Financial Accounts are sometimes referred to as “published accounts” or “annual accounts”. A member approved to offer Financial Accounting and Accounts Preparation but not approved to offer Limited Assurance Engagement, must not provide any additional assurance of the accuracy of the information included with the financial accounts over and above stating in the accountant’s report that: “these accounts have been prepared based on the information and explanations supplied by the principals/directors/trustees”, or in accordance with prevailing legislation where the accounts prepared are of a statutory nature.

A member approved to offer Financial Accounting and Accounts Preparation but not approved to offer Limited Assurance Engagement can provide information to banks and buildings societies in support of their client’s mortgage or loan application.

Note: there are risks when providing information on behalf of a client to a bank/building society and members are advised to take steps to manage these risks. For further assistance please refer to the document titled covering letter to a bank or building society (sample) which is available online from the MIP Zone. 

Budgeting and Forecasting (B and F)

Budgeting includes the preparation of financial reports prepared before the accounting period(s) usually showing planned income, expenditure, capital employed or cash flow.

Forecasting is the prediction of relevant future factors affecting a business and its environment and may be used as the basis for preparing budgets, for example a sales forecast or cash flow forecast.

Management Accounting (MA)

Management Accounting is the preparation of financial reports required by the owner or management team of a business, often on a more frequent basis (for example quarterly, monthly or weekly) than financial accounts.

Some examples of management accounting reports are:

• monthly profit and loss statement
• monthly sales analysed by product or division
• standard costing reports.

Payroll (P)

Payroll includes the calculation (manually or by computer) of net pay of employees by deducting Income Tax, National Insurance and other deductions from the gross pay. In the UK this is often referred to as Pay As You Earn (PAYE).

Independent Examination (IE)

The Charities Act 1993 introduced the concept of an Independent Examination as an alternative to an audit for unincorporated charities whose gross income fell within a specified range. The concept is being extended to include incorporated charities and the specified range is changing (and may be subject to further changes), therefore please refer to the Charity Commission website to establish the accounting and external scrutiny requirements for your charity clients.

For the purposes of these guidelines and regulations and in respect of the Charities Act 1993 section 43(3) (a), reference to “a member of the Association of Accounting Technicians” in the Charities Act is defined as “a licensed member in practice (licensed to carry out Independent Examinations)”. Therefore, only licensed members in practice (licensed to carry out Independent Examinations) are permitted to undertake independent examinations for the larger charities permissible by virtue of AAT’s inclusion in the Charities Act 1993. AAT members who are registered on the scheme for members in practice or are exempt from it are only permitted to act as Independent Examiner for the smaller charities.

Limited Assurance Engagement (LAE)

In a Limited Assurance Engagement the accountant expresses an opinion regarding the organisation’s financial accounts which is intended to be relied upon by third parties (thereby creating a duty of care between the accountant and the third party).

AAT members may be able to undertake Limited Assurance Engagements on private sector organisation. However, at the moment AAT members are not allowed to undertake a Limited Assurance engagement on public sector organisations.

It is a mandatory requirement that licensed or registered members in practice undertaking a Limited Assurance Engagement use the following wording in the accountant’s report “... nothing has come to our attention to refute the principals’ confirmation that the financial statements give a true and fair view…”. The member is allowed to add additional caveats as they deem necessary to further reduce the level of risk, for example by specifying which third parties can rely on the financial statements.

For the purposes of AAT’s guidelines and regulations, the area of Limited Assurance Engagement specifically excludes Independent Examinations, as it is a separate service area (even though an Independent Examination may be perceived to be a form of assurance engagement).

Forensic Accounting (FoA)

Forensic Accounting is the area of accountancy that results from actual or anticipated disputes, litigation or legal proceedings where the Forensic Accountant is engaged:

• to investigate, examine or analyse financial information and relevant non-financial information and inform the client of their findings
• where required, to give expert evidence in legal proceedings.

The services of a Forensic Accountant may be required in, for examples, personal injury claims, matrimonial disputes, criminal cases, commercial dispute, insurance claims, professional negligence claims and so on.

As a member in practice offering Forensic Accounting as a service you should ensure that:

• you make your Professional Indemnity Insurance provider aware that you are offering this service
• your Professional Indemnity Insurance policy covers your work in this area.

Taxation

Value Added Tax (VAT)

VAT is the tax levied on goods and services at the standard rate, reduced rate or zero rate and does not include exempt goods and services.

This classification includes the preparation of VAT returns, dealing with HMRC on behalf of a client, advising what VAT rate should be applied to the goods or services of the business.

A member practising in this area of work can be expected to provide their client with:

• an explanation of the principles of VAT
• calculations of the VAT to be paid to, or receivable from, HMRC
• advice on VAT planning.

Personal Income Tax (PT)

Personal Income Tax is the calculation of an individual’s personal Income Tax liability taking into account relevant prevailing legislation and the taxpayer’s income arising from all sources including:

• business
• earned
• savings and investments.

This classification includes the completion of all relevant HMRC returns and will include the calculation of tax credits unless otherwise specified in the letters of engagement.

A member practising in this area of work can be expected to provide their client with:

• an explanation of the principles of Income Tax
• calculations of their Income Tax due or repayable
• advice on the mitigation of Income Tax.

Business Income Tax (BT)

Business Income Tax is the tax liability on the profits/losses of a business, operated either by a sole trader or by partners under Income Tax legislation, as distinct from Corporation Tax.

This classification includes the completion of all relevant HMRC returns.

A member practising in this area of work can be expected to provide their client with:

• an explanation of the principles of Business Income Tax
• calculations of the Business Income Tax due
• advice on Business Tax planning.

Corporation Tax (CT)

Corporation Tax is the tax liability arising on the taxable profits of an incorporated business under the prevailing corporate tax legislation.

This classification includes the completion of all relevant HMRC returns.

A member practising in this area of work can be expected to provide their clients with:

• an explanation of the principles of Corporation Tax
• the calculations of the Corporation Tax due
• advice on Corporation Tax planning.

Capital Gains Tax (CGT)

Capital Gains Tax is the tax liability arising on the chargeable gains made by a taxpayer, their business(s) or a corporate entity.

This classification includes the completion of all relevant HMRC returns.

A member practising in this area of work can be expected to provide their clients with:

• an explanation of the principles of Capital Gains Tax
• calculations of the Capital Gains Tax due
• advice on Capital Gains Tax planning.

Inheritance Tax (IHT)

Inheritance Tax is the tax payable either on the advent of a person’s death, or at the time of making a chargeable lifetime transfer.

This classification includes the completion of all relevant HMRC returns.

A member practising in this area of work can expect to provide their client with:

• an explanation of the principles of Inheritance Tax
• calculations of the Inheritance Tax due
• advice on Inheritance Tax planning.

Consultancy

Business Plans (BP)

A member in practice in this area of work might be expected to provide their client with a comprehensive business plan which may be used for the purposes of, for example, obtaining government grants or business finance.

A business plan is a comprehensive report which could contain:

• the organisation’s mission statement
• a written report summarising the business plan
• market research
• budgeted expenditure and sales forecasts
• budgeted profit and loss account
• cash flow or funds flow statement.

Computerised Accountancy Systems (CAS)

This area would include a consultant who demonstrates, installs or provides training of accountancy and accountancy related software.

A consultant’s activities could include the set-up, supply and maintenance of:

• accountancy software to produce financial or management accounts
• payroll software
• software for the calculation of a client’s tax liability.

Company Secretarial Services (CSS)

In the context of a member in practice providing company secretarial services the duties may include some of the following examples:

• filing Companies House forms and returns
• maintaining the register of directors and secretary
• issuing share certificates and recording transfers of shares
• maintaining the register of members and debenture holders
• arranging for charges to be registered and recorded in the register of charges
• recording the minutes of board meetings.

Download regulation 1 (PDF).