Banking on the right decision

Jono Wilson of Barnett & Turner argues that you need heavy-hitters on your side when you approach a bank with a view to getting finance for investment. When a client needs to persuade a bank to make a substantial investment in their business, I always recommend that they get their professional advisers involved at the earliest possible stage. Unless you have your accountant on board and get some support in presenting your case, there’s a danger you may end up shooting yourself in the foot.

Banks can be notoriously difficult to impress and can fall back on a tick-box mentality when it comes to deciding on finance. They’ll look at the recent figures and overheads, but can fail to take into account the bigger picture and the great opportunities that can come with investment.

In my own practice, we had a client with a good track record, but they’d been through three or four tough years for perfectly explicable reasons. This family business was looking to make a substantial investment in state-of-the-art technology. The loan was going to be large, but we could demonstrate the payback in terms of efficiency and the halving of labour costs over time.

Even with our involvement, the process of convincing the bank isn’t always easy. Different potential funders often ask for information in varying formats. Sometimes banks – despite the preparation of a detailed business case – seem as if they don’t quite ‘get’ it.

As well as a paper analysis of where the business is heading, you may need to support your pitch in other ways – a video that demonstrates the advantages of technology, for instance, and tours of the current facilities.

It’s also important to set out your stall right at the beginning. Ask the bank’s local representatives whether they are actually able to make a decision. If you know the green light will have to come from someone further up the hierarchy, politely request that they come down to your client’s site and have a face-to-face meeting.

At the end of the day, a successful request for funding is going to come from a partnership. On the one hand, there’s your expertise and knowledge about your business and market place. On the other, there’s the guidance and advice of your accountants and other advisers, who know from experience the best strategies to employ during the negotiations.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Investors: here’s some real food for thought

Jonathan Wilson, of Barnett & Turner Chartered Accountants, says that we can learn a lot about investment strategy by turning on the TV. If you have ever tuned in to MasterChef, you will know that contestants face a series of cooking challenges. There are so many things that can – and do – go wrong. From problems with low-quality ingredients through to inadequate preparation to poor implementation.

I tend to think investing can be much the same.

There are generally two broad approaches. The first is a traditionally active one, where managers attempt to find mispriced stocks and shares or seek to time their entry and exit points from various parts of the market. This approach is akin to the challenge in MasterChef of having to invent a dish within a set time frame. The supposed advantage is the flexibility of concept. What usually happens, however, is that the chef ends up racing against the clock and is locked into certain ingredients to create a single dish. Of course, it may work out, but if they lose attention for even one second, the dish is ruined and they have nothing to fall back on.

Similarly, in the investment world, the traditionally active manager locks in on their best ideas and tends to find little flexibility to move. They are constricted by time when trying to trade on information they believe is not yet reflected in prices. If it doesn't work out, there might not be a Plan B!

The second approach to investing is when the manager seeks to track a commercial index, such as the well-known FTSE-100. The goal here is not to stand out, so the manager will be trying to avoid deviating from the benchmark. It’s an approach which is more akin to the MasterChef challenge where contestants have to cook a standard popular dish with set ingredients. The focus in this case is not on creativity, but rather on following a set process.

Of course, the recipe must be followed and created in a set timeframe. The other disadvantage of this dictated menu (or commercial index) is that it may not suit the clientele (or investor). For instance, it may be the world's best lasagna made perfectly to order, but if your diners don't care for Italian food, then you have a problem.

Now, what if we had a third approach and a system that combined the creativity of the first approach with the simplicity of the second? In this challenge, the focus shifts from being different for its own sake or following someone else's recipe to drawing from a range of ingredients to produce a diverse menu suiting a range of tastes. In this third approach, our contestants do not face unnecessary constraints either in terms of time or ingredients. Instead, they assemble a broad selection of dishes from multiple ingredients, which are suitable for the season and can be selected at times of their choosing.

This third way is the optimal approach. When it comes to investing, you don't have to outguess the market to get a good result. Neither do you have to lock in on a couple of your best ideas and hope they turn out for the best. Above all, you don't have to throw up your hands and contract the job out to a commercial index provider.

The third way is smart and sensible. Call it the MasterChef method of investing!

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Five ways to measure business health

Keep on top of how well your business is performing by monitoring some key indicators, writes Jono Wilson of Barnett & Turner. There’s an old adage in accountancy: turnover is vanity, profit is sanity and cash-flow is reality. It’s a way of saying that there are numerous measures you can apply when measuring the financial health of your business, but it’s often good to have a rounded picture.

Too often, in a lot of smaller businesses, owners see the annual accounts process as a necessity to satisfy HMRC and possibly their bank. For that reason, it can be left to the last minute. In effect, this can often be nine months after the end of a particular accounting period. So by the time they get an insight into how well their company is doing, the information is no longer up to date.

My advice is to talk to your accountant about receiving management accounts on a monthly or quarterly basis. Then, you need to start looking at the following key indicators:

CASH-FLOW

Everyone talks about it, but how many people really understand its importance? The balance of the money flowing in and out of the business needs to be positive and you can help achieve this with accurate, up-to-date forecasting. You can then start to analyse the reasons for any discrepancies between projections and your actual figures.

TURNOVER

Here you should be interested in any differences between your projected turnover and the actual figures. If there are variances, it’s worth having a discussion with your accountant and talking through the likely implications for your business.

GROSS PROFIT

In a nutshell, your gross profit margin is your income, less cost of goods sold. If this figure isn’t high enough, you won’t be able to cover your overheads and ultimately make yourself a profit.

OPERATING PROFIT

Your operating profit figure is the gross profit less your overheads, but will exclude tax and interest. If operating profit is too low and you haven’t yet taken money out of the business, you may have nothing to show for your endeavours.

NET PROFIT

This is your total income, less all expenses including interest and tax.

With cloud accounting now becoming increasingly common, it’s actually possible to monitor all these critical indicators in real time. This means you can make comparisons to the same period last year and see whether any improvements you’ve made to your business practices have achieved results.

As with many things in life, timing is everything so the earlier you can monitor and address any unexpected numbers, the more likely you are to have a positive impact on your business, making sure that your resulting net profit is where you want and need it to be!

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Back to the future (Part 2)

In the second of his articles on ‘reverse planning’ and the need to avoid end-of year surprises, Jono Wilson of Barnett & Turner turns his attention to businesses and the self-employed. If you have responsibility for staff, it really pays to be keeping track of the latest changes in the tax and NI regime. Rather than wait until the last minute, do some planning in conjunction with your accountant. You’ll find that it can reduce your levels of stress and inconvenience quite noticeably.

Here’s one particular talking point from April 2015. If you employ someone who’s under 21, you will no longer have to pay employers’ NI if they earn less than the Upper Earnings Limit of £815 per week. It’s something you’ll need to take into account when dealing with your payroll. And from next April, this tax break will be extended to the wages paid to apprentices under the age of 25. These tax breaks can impact upon the plans a business may have for recruitment, so taking note of them at the earliest opportunity is very wise.

I’ve also been highlighting a new exemption that was to have been introduced from April 2015 for trivial benefits in kind. It would have allowed you to pass non-cash gifts of up to £50 a year to your employees without any tax liability arising. Ideal for recognising birthdays and similar events, whilst creating some good feeling with your staff along the way.

Unfortunately, the Government decided to delay the introduction of the new rule – perhaps concerned about the amount of time available in the run-up to the general election. More information should be around later in the year, but it’s possible you might be able to come to some kind of informal arrangement with HMRC in the meantime. Uncertain, but worth considering and perhaps posing the question.

If you’re self-employed, meanwhile, direct debits of Class 2 NIC should stop after the last payment for tax year 2014/15, which would be around 10^th July 2015. It’s important to check that you’re not inadvertently still making payments from your bank account and therefore it could be wise to cancel the direct debit after the final payment. Of course it should also be noted that there will be an increase to your usual tax bill in future returns because HMRC will now use the                self-assessment system to collect Class 2 NIC.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Back to the future (Part 1)

Jonathan Wilson of Barnett & Turner says that the best way to avoid end-of-year panic is to think about reverse planning. Planning your tax year in reverse sounds like a strange idea, but that’s exactly what I sometimes advise my clients to do if they want to avoid unnecessary stress. Very often, they’re trying to do things at the last minute, when they really should have thought about them a lot earlier e.g. making best use of tax allowances, reliefs and exemptions.

Take married couples, for example. On 6^th April, new rules came into force that allow one spouse or civil partner to transfer 10% of their personal allowance to their other half, providing that neither of them pays tax above the basic rate. It’s a good opportunity in a situation where one partner has a low income and would otherwise have wasted their allowances. It does involve contacting HMRC immediately though and asking for the allowance to be transferred and tax codes to be updated.

And what about the child benefit charge? When one member of the family has an ‘adjusted net income’ of £50,000 or more, the benefit starts to reduce. And once the income exceeds £60,000, you lose it altogether. That could mean a gap of up to £1,800 a year if you have two kids. But if you think ahead and plan, the limits can be extended – through personal pension contributions, for instance, or gift-aid donations.

There’s another planning opportunity worth mentioning too. In April, the starting-rate tax band increased to £5,000 and the rate went down to zero. If you are a married couple or civil partners and you have relatively low pensions or earnings, but a higher amount of investment income, you need to consider your options. You could for example receive pensions to the value of around £10,600 and another £5,000 in gross interest without paying tax.

If you talk to your accountant at the earliest possible stage, you’re always better prepared to take advantage of opportunities. So don’t end up with a last-minute scramble.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Forget the Lamborghini. Park yourself in front of an IFA

New pension rules aren’t just about people acquiring fancy sports cars, writes independent financial adviser David Wilson of accountancy firm Barnett & Turner. They also have big implications for financial planning. Much of the coverage in the press about the new pension reforms has been a little bit caricatured. There has been a lot of focus on the ability of savers to cash in and buy a Lamborghini, which probably won’t be top on the list for most people approaching retirement. Considerably less has been said, however, about how the new rules affect financial planning.

In the past, when I’ve advised clients on retirement and how to structure income, I have been confronted with a restrictive set of rules. The key factors were the tax implications – both during the retirement period and at death. We didn’t have a great deal of flexibility. There might have been situations where it would have been appropriate to strip out the pension to reduce the pot before the client died, but this action had serious income tax implications.

Things have now moved on, as a worst-case scenario at death is now perhaps a 45% charge, where the figure might once have been as high as 82% or lost entirely with annuity purchase. So leaving your money in your pension pot is not necessarily such a bad thing anymore. Pensions should be considered as part of mainstream unencumbered assets, which you can use as an income source and valuable tax planning ‘wrapper’.

Using your pension fund alongside other investment wrappers such as ISAs, you’re able to maximise net spendable income for the smallest amount of capital spend. Since the advent of the new rules, we may choose to take less out of a fund in many circumstances and make use of other assets for income, protecting the pension fund to pass it on to the next generation.

In short, we’re being presented with a great opportunity to maximise client assets. We can now plan more efficiently in relation to tax, capital preservation, succession planning and income. So if you’re keen to live a better lifestyle and pass on more to beneficiaries, then it’s definitely important to start a conversation with an IFA. Your accountancy firm may well have someone qualified to advise you or will be able to make a recommendation.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Bridging a gap in knowledge could bring huge relief

If you thought that R&D meant lab coats and test tubes, it’s time to think again. As Barnett & Turner’s Jo Tye explains, the definition is far broader. And HMRC actually wants you to ask for the tax relief. Research & Development. The words sound lofty and conjure up images of multinational pharmaceutical businesses. The reality, however, is that R&D takes place in all kinds of settings – from software and technology companies through to the food and beverage industry. In fact, even if you’re a specialist butcher investigating new seasoning mixes for your sausages, you have a perfectly legitimate case. According to HMRC, however, as few as 25% of businesses entitled to support actually claim it.

As an accountant, when I’m speaking to my clients, I’m always looking at the work that they’re doing within their business and considering R&D relief. I can then help them to construct a detailed report, outlining the case, which is simply returned alongside their Corporation Tax return.

You certainly need to gather data to make your claim. HMRC will want to see evidence, for instance, of the number of hours worked by key staff on the project. The effort is well worth it though, because for every £100 a small or medium company spends on R&D, it receives £225 of tax relief.

For a government agency which is usually so focused on recovering tax, the Revenue’s encouragement for people to make claims is somewhat surprising. The government, naturally enough, is keen to promote innovation as a general motor for the economy. That means there’s effectively a pot of money there – in the form of a tax incentive – for people who are ambitious enough to pursue it.

Critically, your R&D doesn’t need to produce concrete results. It’s the fact that you’ve made the attempt to fill a gap in knowledge or technology that’s important. You simply need a problem and a methodology to tackle it.

Of course, if you’re not actually aiming to make an advance, but merely developing an existing product, you’re not going to qualify. But it’s worth sitting down with your accountant and looking at the way in which you could take advantage of what is very generous tax relief for doing something that is going to benefit your business anyway.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Expand in a disadvantaged area and you could receive a tax break

If you’re looking for new premises, it’s worth widening your range of options, writes Jono Wilson of accountancy firm Barnett & Turner. By choosing to renovate a derelict building in a disadvantaged area, you could benefit from a significant tax break. Not many people are aware of the Business Premises Renovation Allowance (BPRA), but it’s certainly worth finding out more if you’re in the market for a new office, factory or business site.

When you buy a derelict building, you’d obviously need to undertake renovations to ensure it’s in a usable state. When you do, it’s not deemed to be a ‘repair’ for tax purposes, but is seen instead as a capital cost. Tax relief against profits are minimal (possibly related to integral features, such as electrics and plumbing).

With BPRA, you can claim upfront tax relief for the costs of renovation if (a) the property is in a disadvantaged area; (b) the building has been unused for at least a year; and (c) the premises were previously used for commercial purposes rather than as residences.

It’s worth making a couple of points of clarification on these criteria. First, it’s possible to discover whether your proposed property is in an area considered to be disadvantaged by using a postcode checker on the Department for Business Innovation & Skills website. Second, the requirement for a property to be unused for a year doesn’t necessarily mean it has to be unused at the time of purchase. Provided a year elapses before any work starts, you can still qualify for BPRA.

As you might expect, the preferential tax arrangements are designed to stimulate business and help to regenerate areas that have previously been struggling. Under EU state aid legislation, costs of renovation are restricted to €20 million, although obviously many businesses will be making investments well within this figure.

It’s important to note that there’s no allowance for the cost of the land or for extending the premises, although you do get a 100% write-off for tax purposes on the other renovations. What’s more, it won’t be clawed back as long as you don’t sell the building within five years from the date it became available for use.

This relief is only available until 2017, so it’s important to think now about how you might take advantage of it in the next couple of years. It’s a specialist area, so ask to speak to a tax expert at your accountancy firm, who’ll be able to advise you.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Don't let customer debt get you down

You've identified a potential bad debt. You've sent the friendly reminder, the follow up letter seven days later. You've then phoned two or three times and sent a final notice. Still no joy. Where does it go from here? It’s a familiar scenario for lots of business people. What seems like a slightly overdue payment is starting to turn into a troublesome debt. You don't particularly want to start formal legal proceedings, as they've been a customer for some years but you're getting increasingly frustrated.

The phone rings. It’s the customer telling you about their cash flow problems. Things will apparently be resolved next week, so you agree to give them more time. But next week rolls around… nothing. The following week... still nothing.

You are now getting increasingly worried. You might be a key supplier and of course you could place their account on hold, but that could make the situation worse and actually reduce the prospect of payment. What you need is for the customer to engage with you.

A good first step in this scenario is to speak to your accountant. If they are not themselves an insolvency practitioner, the chances are they will have a good working relationship with one. When they are instructed by a creditor, they will write to the debtor to advise that they have been consulted. The message is usually that failure to either make payment, or provide an acceptable and deliverable payment plan, may result in the creditor taking matters to the next stage, which could ultimately be an insolvency event.

By issuing an unambiguous statement of intent, you make your position clear to the debtor and in doing so you'll invariably find they'll try to prioritise payments to you.

The involvement of a third party in these circumstances will often produce the desired result. If not, then an assessment would have to be made to ascertain whether it's financially viable to pursue matters further.

If you find yourself in this situation and would like to discuss your options, the best thing is to contact your accountant initially. Appropriate action can then be advised on a case-by-case basis.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

When you're saving, look for extra savings

Whether we’re young or old, the government is keen to encourage us to save. Interest rates, however, are at a record low, so it’s important to look for every possible advantage or tax break you can find. Here, Tracy Henson of Barnett & Turner explores the potential of the new savings allowance. Many people know about the NISAs or new ‘super’ ISAs that have been introduced, which should allow people to save up to £15,240 a year tax free in 2015-16. Savings allowances tend to receive rather less coverage in the press and on the TV and radio, however. While it’s true to say that the amounts involved are relatively small, they’re certainly not insignificant. Particularly if you’re someone who is on a modest income.

Up until the end of the 2014-15 tax year, some people with savings income of up to £2,790 would have it taxed at 10% rather than 20%. In a bid to boost savings, the government has pledged a £5,000 gross savings allowance for people with an income of up to £15,600 (the combined total coming from the savings and the personal allowance of £10,600).

To put this in tangible terms, this takes you from a maximum saving of £279 in the last tax year, to a £1,000 in the year head. Certainly not be sniffed at.

If you’re someone with earnings of, say, £12k, all your savings could be taxed at zero per cent, provided the combination of your salary and/or pension and your savings is under the £15,600 limit. On the other hand, someone who earns more than £15,600 can’t benefit at all.

In a scenario in which you have £14k income, but your savings take you above the threshold to perhaps £18k, it’s possible to claim a tax rebate on the sum between £14,000 and £15,600, but this has to wait until your self-assessment tax return, or form R40. If you fall neatly under the cap, however, you can register to receive interest paid gross.

All in all, it’s important to make the most of the allowances that are available and maximise the amount that’s due to you. If you’re trying to make a retirement income stretch further, for instance, it’s vital to keep up to date with the changes that are taking place. They’re definitely to your advantage.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk