Invest now and reap the reward

With the general election just around the corner, there’s an element of uncertainty over how the tax regime will change. Accountant David Wilson of Barnett & turner thinks that now may be an excellent time for businesses to make investments in fixed assets. In their Green Budget published earlier in 2015, the Institute for Fiscal Studies analysed the growth in overall tax take following general elections. Perhaps unsurprisingly, the think-tank found that there was a strong tendency for taxes to be hiked in the period following the poll.

One area which may come under scrutiny when a new government is formed in May is the Annual Investment Allowance (AIA), which gives qualifying businesses 100% tax relief on the purchase of qualifying fixed assets. The allowance covers most items of capital expenditure although two notable exceptions are building structures and cars.

The AIA is an allowance which has never been so good, as the cap is currently at £500,000 – a figure many small businesses are unlikely ever to approach and which offers a lot of scope for larger enterprises too.

The policy is understandable in the aftermath of the recession, as it’s an excellent way of stimulating investment and boosting the wider economy. But the increase is only temporary and is due to expire in December 2015. The Chancellor announced in his Budget speech, delivered on 18 March 2015, that it “would not be remotely acceptable” for the AIA to reduce to the previous limit of £25,000 and that a new limit will be set at “a much more generous rate”.

This leaves business owners with uncertainty as to the level of revised AIA commencing January 2016. The Chancellor indicated a better time to address this relief will be in the Autumn Statement. So we are all left waiting…

The UK economy is generally a lot stronger now than two or three years ago. It’s a time when investment is on a lot of people’s agendas. My strong suggestion is that if you are considering making capital investments in the near future, it might be best to move ahead now, while you can maximise your tax advantage within the published regime.

You may be one of the many business people who are familiar with the idea of the AIA, but not necessarily keeping a close track of the changes in the cap rate. If so, it is time to talk to your professional adviser about getting the most out of your allowances while the rules are stacked in your favour.

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

How to boost businesses tax efficiently

Investing in smaller, start-up businesses can be more risky, which is why the government offers tax incentives through specialist schemes. Jono Wilson of Barnett & Turner guides us through some of the rules. When you’re selling a business or shares in a qualifying company, it’s fairly well known that it’s possible to claim entrepreneurs’ relief, which will help limit your capital gains tax liability to just 10%. What’s more, if assets are being sold because you need to replace them, you may be able to avoid CGT liability with an application for ‘rollover’ relief.

As the economy picks up, it may be that you’re looking to dispose of investments or non-business assets which are increasing in value. The problem is that, if you’re a higher earner, your gains will be taxed at 28%. Unsurprisingly, many clients ask whether there might be a way of lessening the blow.

One tax-planning option is simply to use your spouse or civil partner’s annual exemptions, as well as your own. It’s usually a sensible approach, but the savings are never going to be huge. The joint maximum figure will be £22,000, so the most you can save is approx. £6,000. Also, if your spouse or civil partner does not already use the whole of their basic rate tax band then it might be possible to reduce tax on part of the gain to 18%.

Another possibility is that you take advice from an IFA and consider options such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which are designed to encourage support for small, unquoted companies.

The government recognises that if you invest in up-and-coming businesses, there’s a greater degree of risk attached, which is one reason why they offer relief on both income and capital gains tax, provided certain conditions are met.

With EIS, where the maximum investment is £1m, you can obtain 30% income tax relief on the total amount invested in the tax year (which can also be carried back to the previous year, if preferred). Remember, you can’t have been an employee or director of the business and your interest in the company must be less than 30%. The relief is deducted from your income tax liability, which can be reduced to zero, but no further.

On the capital gains tax front, you can defer payment by reinvesting in EIS shares up to one year before – or three years after – your liability arises. In fact, the tax can be deferred until the point you dispose of the EIS shares and can be deferred again if you make a new EIS investment. If the gain is still deferred at the time of your death, then it won’t come back into charge. What’s more, EIS shares are themselves exempt from CGT on their disposal, provided income tax relief was obtained on the investment and you have held them for a minimum of three years.

SEIS was introduced in 2012 and is designed to support companies that are perceived as slightly riskier investments. If shares are acquired within two years of the business starting to trade, 50% income tax relief is available on the total amount invested in the tax year (or, again, a previous tax year if that’s more desirable). In this case, the maximum investment is £100,000, providing relief of up to £50,000, which is deducted from your income tax liability. As with EIS, it can only be used to reduce your tax liability to zero.

SEIS shares can be exempt from capital gains tax, but the gain and the SEIS investment must be made in the same year, subject to limited carry-back rules. A difference with EIS is that up to 50% of the gains reinvested in the SEIS are exempt from CGT rather than simply being deferred.

The investments mentioned above can in some circumstances have Inheritance Tax advantages but that should be considered as part of a larger IHT planning exercise.

This information is published without the responsibility on our part for the loss occasioned to any person acting or refraining from action as a result of any information published herein.

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

Your accountant as your new best friend – part 2

In the second part of a two-part blog (part one is here), Jono Wilson of Barnett & Turner, explains the role that accountants can play in offering their clients business advice. I’ve already outlined how important accountants can be to a business owner or manager when the company is just getting started. As your enterprise grows, however, there are plenty more opportunities for your accountant to act as a trusted and influential adviser. Critically, they will be able to ask you questions and challenge your strategy from an impartial perspective.

Most straightforwardly, there will be those regular meetings in which you review accounts and look back at what has been happening over the past year.

Perhaps the accountant spots that you’ve taken on sub-contractors? They appear at first glance to be self-employed, but might the Revenue argue that they’re effectively employees, leaving you liable to pay their national insurance contributions and additional penalties? Maybe there has been an increase in advertising expenditure in the same period. Is there a reason for this and is it possible to demonstrate that it’s been effective at bringing in new business?

All kinds of other issues might arise, of course. In the age of cloud computing, maybe it’s pointless to invest in costly new IT equipment. Your accountant may be able to provide some expertise in this area and draw on the experiences they’ve gained through supporting other clients. What about your insurance policies? Are you covered in the event of key people within the business moving on or becoming incapacitated?

Most fundamentally, your accountant can look at your profit figures and help you to set them in a wider context. Is the market shrinking or growing? What are competitors doing? It might be that you need to look at refocusing your business on areas that are most profitable.

Your accountant should be aware of important legislative changes – pension auto enrolment, adjustments to retail rates relief and so on. They should also help you look to the future and think about strategies for organic growth, acquisition and the raising of finance.

Last, but by no means least, you may want advice on an exit some years down the line. Do you need to think about succession planning? Or consider the respective merits of a trade sale against, say, a management buy-out?

Whatever the size of your business and your long-term goals, your accountant really can become an adviser, impartial sounding board and friend. So make the most of them!

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

Is your accountant your new best friend?

Accountants aren’t just there to look at the numbers, argues Jono Wilson of Barnett & Turner. They act as a useful of source of general business advice too. In the first segment of a two-part blog, he outlines the specific ways they can help your company to prosper. If you think that accountancy is all about compliance work – tax returns and the preparation of formal accounts – then you’re probably underestimating the degree of help that your professional adviser can give you.

It’s worth remembering that accountants are typically dealing with a number of different businesses of varying sizes. These companies will have reached stages of development and maturity and they will operate in a diverse range of sectors. As a result, the accountancy firm will be picking up useful insights which may well be relevant to the issues you’re facing in your own business.

Let’s face it. As busy manager or owner, you often don’t have the time to sit back and reflect on the priorities and future direction of your business. It’s great to have some impartial advice and someone who can act as a sounding board. Your bank is one option, of course, but very often the relationship will be transactional and you’ll end up discussing your overdraft facility.

When you first set up a business, an accountant may be one of the first people you speak to. And right from the start of the relationship, they’re likely to be going beyond the figures and giving you advice. When an individual chooses whether they should become a sole trader or incorporate as a limited company, for instance, it’s not only a question of the tax differential. Simplicity and flexibility might be just as important in determining the decision as the bottom line.

As the business develops, you’ll start confronting a whole range of other issues. Employment law, commercial questions, IT provision and the raising of finance. While your accountant may not be an expert in any one of these areas, they are an excellent first port of call, as the chances are they will have useful contacts and be able to make recommendations.

Next time: how your accountant can challenge you and help you prepare for the future.

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

Converting to limited company status? The choices just got harder.

Following changes to the rules around partnership and LLP structures, many businesses have been looking to convert to limited company status, writes Jonathan Wilson of Barnett & Turner. But the announcement in the Chancellor’s Autumn Statement on goodwill has now left people scratching their heads. When the Chancellor announced changes to entrepreneurs’ relief in the Autumn Statement, it came as something of a bolt out of the blue. With more and more clients in partnerships and LLPs looking to convert to limited company status, the news that relief would no longer be granted on the sale of goodwill caused many owners to revisit their strategy.

The context, of course, is a series of moves which have made partnership status less attractive. For many businesses, a partnership structure has the flexibility needed to bring new people in to an equity stake. Recent changes mean that ‘salaried members’ have to go on to the payroll and the use of ‘corporate partners’ is, in many cases, prohibited, leading to potentially very high tax rates being suffered irrespective of whether profits are available to be drawn out.

As a result, many accountants and advisers have been helping clients to make the transition to a limited company. Although this structure is more rigid, one of the clear benefits of the change of status has – until now – been the ability to pay only 10% tax on a profit from the sale of goodwill to the limited company.

When the Chancellor announced that this would no longer be possible, it was mentioned within the general context of closing loopholes on tax avoidance. The decision has, however, caused a great deal of concern – particularly to businesses which were in the middle of the conversion process. For some it’s a “double whammy”, because as well as removing the availability of entrepreneur’s relief, any deduction within the company for amortisation relief has also been removed.

With a little time to reflect, it’s clear that the decision to convert to limited company status is now much more finely balanced, but many clients may still decide to make the change. There’s always the option of gifting goodwill on incorporation rather than selling it. It’s also important to look at the question of whether you have ‘base cost’ in your goodwill, in circumstances when it might have been bought from previous retiring partners. If so, there may be a small tax advantage still, although it’s fairly marginal.

Ultimately, the circumstances which were provoking LLPs and partnerships to change their company structures haven’t gone away. It’s just that the Chancellor has removed one of the attractive carrots that was previously dangling in front of business owners. Your accountant will be able to look closely at your circumstances and give you appropriate advice in light of all the recent changes.

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

A mentor could be a motor for your business

Forward-thinking businesses will often recognise the need to offer their FDs and senior executives independent advice and guidance, writes Jono Wilson of Barnett & Turner. And it may be that accountancy firms are uniquely placed to step into the role of mentor. Let’s imagine a scenario in which someone has newly been appointed as Finance Director of a business, perhaps after a number of years as an accountant. The company sees their potential and knows they’re ready for a new leadership role, but it’s not always a straightforward transition to make. The advice of an impartial mentor can be a great confidence boost and help to solve a number of practical issues – at both a tactical and strategic level.

Accountancy firms will often be able to offer a mentoring service to their clients. Five key areas in which a mentor can help a busy FD or business owner include:

Setting the company’s financial scoreboard – not merely looking at the accounts, but communicating meaningful information to the wider management team.

Forecasting financial requirements – thinking about cashflow, the input that may be coming from external funders, dealing with the bank and addressing invoice finance.

Managing the accounting function – building a team, although not necessarily working within it.

Liaising with external professionals – providing the tools to help in proactively managing professionals such as lawyers, bankers and financial advisers.

Managing corporate finance and capital requirements – overseeing the investment of venture capitalists, as well asset and bank finance.

In practice, there are a number of different ways of managing the relationship with your mentor. It can be as structured and formal as you need it to be.

You can meet together for, say, an hour and a half on a monthly basis and simply tackle the biggest issue that’s currently on your agenda. But you can also use the session to start drawing up a road map for the next six months. Or look ahead over a three or five-year timescale if you happen to be, for instance, the owner of a small business who’s looking for an exit strategy.

Ultimately, though, you can think of a mentor as someone who can help to grow your business and be a sounding board. Perhaps they’ll make a very obvious difference – helping you to access money from a venture capitalist when a bank refuses to lend, for example. Or it may be that they’ll simply offer you sound, impartial advice that will allow you to make steady progress month by month.

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

Opening up in the UK: a guide for overseas businesses

With the right professional advice, you can feel much more confident about setting up a business in the UK, argues David Wilson of Barnett & Turner: Imagine you are setting up a business in an overseas territory. You may be establishing the venture to undertake a specific contract, or you may just be dipping your toes into new territorial waters. Either way, would you want to go to all the expense and hassle of trying to recruit a finance team overseas, when you don’t know anything about the local labour market or culture? Similarly, without the knowledge of the local legal, accounting and tax regulatory framework, setting up a business in an overseas location can be a daunting task.

The challenges are, of course, also true in reverse. An overseas business setting up in the UK will find itself confronted by the same issues. Professional advisers need to work closely together to provide the guidance needed at the beginning of the venture, including the selection of the most appropriate structure for the business, from both a legal and tax perspective.

Lawyers can assist with, among other things, company formation, appointment of directors and the issuing of shares, as well as commercial contracts for client and subcontractor agreements, company secretarial issues, annual returns and banking agreements. You can then turn to your accountants for advice and support on other matters.

If your business has employees, you will require assistance with UK employment legislation, contracts of employment for UK staff and taxation of inbound or outbound employees. There’s also the question of corporate benefits, which might be anything from medical and dental care through to maternity/paternity leave, death in service, salary exchange and pension auto-enrolment.

The lack of a local finance function can often be a challenge. An outsourced accounting and payroll provider takes away the hassle of bookkeeping, calculating and paying suppliers, employees and payroll taxes. They can also help with the submission of VAT Returns and the paying of any VAT due, the preparation of management accounts and the filing the year-end financial statements in accordance with UK standards.

With the advent of cloud-based bookkeeping and payroll software, your overseas head office can have access to live data that is maintained by the outsourced provider.

Outsourcing allows the directors and owners to concentrate on their ‘core’ function, while growing the business and customer relationships in the UK. It can also mean that less investment is required in IT and software to support the finance function and allow limited resources such as office space to be used for core activities. Outsourcing also gives you peace of mind on staffing issues such as training, sickness and holidays.

Taxation advice will also be important. As an overseas owner, you’ll need to understand your reporting obligations in the UK. Any employees you bring over to the UK, or subcontractors you engage to carry out work over here, will have UK tax reporting obligations. Your parent company will need advice on how to repatriate any profits made in the UK, while specialist input may be required when dealing in VAT, as well as Import/export.

One final thought to bear in mind is that although the UK company on its own may be considered ‘small’ for audit purposes, an audit may be required of a UK subsidiary of a medium or large-scale overseas group.

With the right support and advice in place at the outset, the challenges of establishing a UK business shouldn’t be insurmountable. So make sure you speak to your professional advisers at the earliest possible stage.

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

Business planning tips you can tap into

Jo Tye of my own firm, Nottinghamshire-based accountants and tax advisers, Barnett & Turner offers her five top recommendations for businesses looking to capitalise on the economic upturn. As we’ve moved out of recession over the past year or two and new opportunities are now presenting themselves for many businesses, it’s a good time to take stock of how your company is shaping up. Here are some suggestions for issues you might want to address, although it’s often good to seek out the advice of your accountants and discuss your plans together:

Rate your business as it is today

An obvious starting point is to examine the strength of your balance sheet and your level of profitability.

Look at your client relationships

Are your clients ‘blue chip’ in terms of their calibre? What’s the depth of your relationship with them? Another critical point is to consider whether they are providing you with a recurring income, or whether you’re often forced to seek out new customers.

Examine your supplier relationships too

It’s worth thinking about how far you’re able to control the supply and price of any goods or services you need to conduct your business. It may not always be possible to pass price increases on to your customers.

Manage your cash flow

What is your situation in relation to cash flow and working capital? Do you have sufficient headroom? It’s very difficult to make long-term decisions if you’re struggling on a daily basis to manage cash. Make sure you don’t have too much of it tied up in debtors and stock.

Write that business plan

This is about looking ahead and thinking about where you want to be and when. Are you hoping to exit? To pave the way for a successor? Or simply to grow the business over the coming five years? This is the time to get anything unnecessary off the balance sheet and ensure that your ownership structure is appropriate to your aims. While you might be able to produce a plan yourself based on, say, your turnover, gross profit margin, net profitability and the amount of money you hold in the bank, anything more complex will need the involvement of your professional adviser.

The real skill of running a business is dealing with these issues over a sustained period – challenging yourself, where necessary, as the journey unfolds. So do schedule regular meetings with your accountant to check on progress. In the meantime, a few hours of thinking time now could prove invaluable in the years ahead.

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

There’s great value to a proper valuation

Although valuation isn’t always an exact science, writes Barnett & Turner’s Jono Wilson, it can be an essential part of your long-term business planning. In my experience, clients can have any number of reasons to look for a valuation of their business. Sometimes it can be a personal matter – they’re going through a divorce, for instance, and need help with litigation. On the other hand, they may be thinking about changing the ownership or structure. We may, of course, need to value a business after death. And then there’s perhaps the most obvious reason of all: a valuation with a view to a sale and exit from the business.

It’s possible for a valuation to be conducted on an open-market basis, but you also get valuations for fair value and fiscal valuations too. It’s also important to consider the very particular issues presented by quite different types of business.

It’s actually quite usual for businesses to be valued in a number of different ways and it may well depend on the type of business we’re talking about. If I were valuing, say, the business of an Independent Financial Adviser or looking at an accountancy practice, I’d be calculating a multiple of recurring fees. With something like a pub or nightclub, on the other hand, it’s different. There, you’d be looking at the annual turnover and applying a multiple, while also taking into account whether the client had a freehold or leasehold.

As well as trade-specific bases, there are various other options. The most common is multiples of profit, but there is also dividend yield or a calculation based on net assets. No single valuation approach will fit all businesses and the rationale for valuing a business is not always the same. Each valuation presents different factors that need to be taken into account.

Ultimately, of course, a business is only worth what someone is prepared to pay for it. Sometimes, a business might be wholly dependent on the expertise or hard work of one person and actually there’s little intrinsic value once that person is taken out of the equation. With larger businesses, there might be brand value in a name – although that can be difficult to quantify – or perhaps a stream of revenue from intellectual property.

One thing I always stress to my clients is that it’s really worth investing in the due diligence that goes with a proper valuation. If you’re planning on using the figures to pave the way for an exit strategy in, say, five years time, they need to be as accurate as you can make them.

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

Key Person Insurance

A player hits the floor and they’re not faking. Is your business ready for the consequences? Jono Wilson of Barnett & Turner explores the world of key person insurance. With the new football season under way, we’re bound to be treated to some spectacular dives from players claiming injury. Amazingly, most will manage to dust themselves down and be back in action within a few minutes after their temporary histrionics.

But sometimes the player isn’t faking. Career-changing injuries really do happen. Players can find themselves out of action for six months or a whole season.

The same is true in any business, of course. That’s why it’s worth thinking about whether you’re prepared for a situation in which one of your key members of staff is seriously injured or signed off sick with a long-term illness.

Key person insurance is designed to compensate your business for financial loss if an important employee dies or becomes critically ill. Of course, at a moral and ethical level, all your staff are equally important, but some may be fee-earners, providers of loan finance or have some specialist knowledge that the company needs in order to survive.

Imagine if a partner died or became too ill to work, for instance. The insurance policy might provide the money to buy out his or her share of the business, allowing the other partners to retain control. In the event of the partner’s death, the full value of his or her share would be paid to their beneficiaries.

Thinking about the next level down within the business, a policy for an identified key individual will pay out the estimated financial loss to your company. Here are a couple of the common pay-out options available in this particular insurance market:

Multiple of salary – a straightforward calculation, but does it reflect the true value of the individual to your business?

Proportion of profits – taking into account annual salary, annual profit and the amount of time it would take to replace a key individual.

It’s also worth thinking about personal guarantors of a business loan. In the event of their death – or a serious illness – the lenders might be in a position to call in a loan, so insurance can be a useful way of providing peace of mind to both you and the guarantor’s family. You may also want to consider insuring against the loss of a key shareholder, although this is a particularly technical area, so it’s important to consult your accountant or financial adviser.

Terms of the policy can vary, but are normally based on five years’ cover. There isn’t any specific legislation that covers this type of insurance, but it’s worth bearing in mind that if the premiums qualify for tax relief, any benefits will be treated as a trading receipt. If the key person has a shareholding of 5% or more, tax relief is unlikely to be granted on the premium, as the policy is partly for the assured person’s own benefit.

The best advice is always to talk to your accountant before committing to any particular type of insurance cover.

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