Autumn Statement 2014 – Tax predictions

Taxation & Payroll

With the Autumn Statement being delivered on 3rd December 2014, our Tax Partner Alastair Wilson shares his predictions…

There are certain things that I think will be included in this year’s Autumn Statement. They are as follows:

  • The Chancellor will be able to point to strong growth in the UK economy (unlike the Eurozone economies).
  • A more obviously populist approach as we head towards an election with the emphasis on increasing the “take home pay” of as many voters as possible so that they feel their standards of living are improving – including more giveaways on Income Tax and NIC allowances.
  • Detailed proposals for the devolution of more tax powers to the Regional Assemblies of Scotland and Northern Ireland. This will impact the North East as those other Regional Assemblies will be given powers to adjust taxes at a local level, which may affect our ability to attract external investment into the North East.
  • More freedom and choice for people in regard to pensions – this will be a positive for those who want to save for retirement and will also reduce the reliance on the state pension (which costs the UK taxpayer an increasing amount every year).
  • Changes to Business Rates for SMEs to reduce the impact of the Business Rates on SMEs.
  • A continued focus on fighting ‘Tax Avoidance’ to plug the economic deficit, including a greater focus on what is perceived as cross border tax ‘avoidance’ by large multinationals.

Additionally, if I had a wish list, I would suggest the following:

  • Increased incentives for job creation and training for SMEs
  • Increases to tax incentives for investment in SMEs
  • The ability to provide more tailored local incentives within the English Regions e.g. what works for job creation in London or Manchester does not necessarily work in Newcastle as our industrial backgrounds are very different – there should be flexibility at a local level

To discuss any of these points in more detail, please contact Alastair Wilson on 0191 285 0321 or email alastair.wilson@taitwalker.co.uk.

New ICAEW guidance on donations by a company to its parent charity

NOT FOR PROFIT

It is common practice for companies that are 100% owned trading subsidiaries of charities to donate all of their taxable profits to the charitable parent company. By doing so, as long as the donation is paid within 9 months of the year end, the subsidiary company can claim Gift Aid tax relief and reduce their Corporation Tax liability to nil.

Gift Aid payments out of company reserves

In some cases, taxable profit can exceed the accounting profit of a company (e.g. due to depreciation exceeding capital allowances, or disallowable items such as client entertaining being added back). Where a subsidiary of a charity makes a Gift Aid donation in this situation, part of the Gift Aid payment is effectively coming out of the company reserves.

The problem

Under Companies Act 2006, a company is not permitted to make a distribution of an amount greater than its profits. Previously the Charities Commission endorsed the opinion that Gift Aid payments were not akin to a distribution, therefore Gift Aid payments made exceeding profits available for distribution were still lawful.

The ICAEW has questioned this position and, after seeking counsel’s opinion, have issued new guidance in this area. In short, it is their view that:

  • A payment from a subsidiary to a charity is a distribution; and
  • It is unlawful for a distribution to be made in excess of the profits available.

Impact of the new guidance

In our opinion, most subsidiaries of charities will not be affected by this change in guidance. This is because the majority of subsidiary companies make Gift Aid payments within distributable reserve amounts.

Subsidiary companies that are most likely to be affected are those with low or negative reserves which generate a taxable profit and would normally make a Gift Aid payment. These companies must consider the impact of the guidance on both past and future distributions and decide upon what action to take. For example:

  • It may be prudent to contact HMRC to ask for assurance that they won’t seek to recover tax where historic Gift Aid claims have been made under the previously accepted guidance.
  • It may be necessary to take steps to increase the distributable reserves of the subsidiary company.

If you would like any further information on the new guidance, please do not hesitate to contact Louise Barker at louise.barker@taitwalker.co.uk or another member of Tait Walker’s Not for Profit team at advice@taitwalker.co.uk

What you need to know if your employer becomes insolvent

TURNAROUND AND INSOLVENCY

When an employer becomes insolvent employees are often owed money. Employers and employees should be aware of the following:

  • An Insolvency Practitioner (“IP”) or the Official Receiver (“OR”) is usually appointed to deal with the employer’s affairs.
  • If an IP is appointed they will provide all employees with an RP1 form to enable a claim to be made. Generally this form needs to be returned to the IP and NOT the Redundancy Payments office.
  • Claims made are subject to a statutory limit – any claim exceeding the statutory limit can be made against the company itself. However, this amount will be a claim within the insolvency procedure and may be paid only if there have been sufficient funds received into the insolvency to enable payments to be made to the creditors.
  • The IP will pass on the claim forms received to the Redundancy Payments office allocated to deal with that case file, but this cannot take place until such time as the company is formally insolvent. For example if the company is going into liquidation, the RP1 forms cannot be forwarded until after the meeting of members and creditors have been held – as a result there may be a delay in an employee’s forms being issued to the Redundancy Payment Office (dependent on when they were submitted and the date of appointment).
  • The Redundancy Payments Office is responsible for calculating the money due to an employee based on the information provided. This is based on a combination of information provided by both the employer and the employee provided via the IP.
  • The current statutory limit is £464 per week.
  • The Redundancy Payments office state they aim to pay 80% of claims within 3 weeks and 93% of claims within 6 weeks of receipt; employees should note the date of receipt will be after the date of the formal insolvency procedure being put in place.
  • Funds due back to the employee may be paid in respect of the following:-

Redundancy

This is only payable if you have had 2 years continuous service with your employer.

The number of weeks used to calculate your redundancy depends on both your age and length of service.

Notice Pay

This is payable if you do not work your full notice or you fail to get notice from your employer of your employment coming to an end.

You will get one week’s notice for each completed year – the statutory maximum is 12 weeks.

Holidays

You can be paid outstanding holiday pay for a maximum of 6 weeks up to the statutory limit.

Holiday is calculated in respect of your current leave year and is payable in respect of any holiday to which you are entitled that hasn’t yet been taken.

Arrears of Wages

Up to 8 weeks unpaid wages can be paid.

 

For any further insolvency advice, please contact Lynn Marshall on 0191 285 0321 or email lynn.marshall@taitwalker.co.uk  

Q&A with our new Senior Appointment, Chris McCourt

Chris McCourt 9

Our new Corporate Finance Associate Partner, Chris McCourt answers some of our new-starter questions and gives us a little insight into his professional and personal life.

  1. Describe yourself in three words, not forgetting to explain your choices.

    Practical – definitely one of those people where head always overrules heart.

    Approachable – being a professional adviser having the ability to get along with anyone is a key skill.

    Empathetic – it’s important to be able to put yourself in the position of other people involved in a project to understand their motivations.

  2. A large proportion of your role as Associate Partner for the Corporate Finance Team entails a lot of planning and strategic thinking – has this made you a holiday itinerary type of person or are you a laidback character out of office hours?

    Definitely a laid back character – I don’t worry about things I can’t affect and generally don’t let anything get me stressed or get me down.

  3. Prior to your appointment at Tait Walker you were the very first Chief Operating Officer at the North East Chamber of Commerce. What is it about this role you think will benefit you at TW?

    I’d say the experience of actually running and improving the performance of an SME business rather than just advising from the outside will give me a different perspective on issues which can come up during a CF process. The conversations I had with members about the issues they are facing will also be useful in helping to identify opportunities to work with businesses in my role with Tait Walker.

  4. What is it about Tait Walker that attracted you to the firm?

    Having worked in Corporate Finance in Newcastle for about five years, I’d surprisingly only really been involved in one deal that Tait Walker also worked on, so I didn’t really know much about the firm. I wasn’t looking to leave NECC when Andrew and Michael initially approached me so their ‘sell’ was what attracted me. The discussion really focused on three things:

  • The ambition of the firm to grow, and to bring in the right people where needed to help achieve that;
  • The focus on delivering straight forward, practical advice to clients which is genuinely partner led; and
  • The opportunity to work with North East businesses to help them achieve their objectives.
  1. How do you like to spend your down-time?

    I’ve got an 18 month old daughter so most of my spare time is spent in the company of Peppa Pig or reading the Gruffalo for the ten thousandth time!  When I get the chance I enjoy playing a bit of golf, watching a bit of football and – if we can find a babysitter – heading into town for night out with my wife.
  1. Are you an avid Tweeter or Instagram fiend and if so, what are your favourite accounts to scour?

    I’d describe myself as a lapsed tweeter. I went through a phase of being quite active on Twitter but just really got bored of it! Like most people I use Facebook but relatively passively.

  2. What is the best advice you could give someone who is looking to pursue a career in the accountancy/corporate finance world?

    Have realistic expectations. Working in CF is hard work, can involve erratic (often anti -social) hours and requires a great degree of patience and concentration. If you are numerate, good at managing your own time across multiple projects, enjoy the pressure of deadlines and can see beyond the numbers to understand what they are telling you commercially, then CF is an exciting place to work.

  3. Have you any guilty pleasures that your new co-workers would be interested to know about?

    Guilty pleasures – not really. I like a good whisky but I don’t feel guilty about it!

  4. Your house is on fire – which three items would you save (people don’t count)?

    Truthfully there is nothing I’m that attached to that can’t be replaced so it would be practical stuff – the backup hard drive with all the photos and music on, my mobile so I could keep in touch with people and, to drown my sorrows whilst my house goes up in smoke, the best bottle of whisky I had at the time!

Applying for funding for your business – a banker’s perspective

CORPORATE FINANCE

Steve Teasdale from HSBC gives his expert advice on applying for funding for your business.

Whether you wish to expand your company, develop new products, move into new markets or meet a short-term cashflow need, you are likely to need financial support at some point for your business.

There are a number of things you can do to support your application for funding that will improve your chances of getting approval. We like to know that you really understand your business and have solid plans in place. So a sound business plan and detailed financial forecasts will go a long way towards supporting your request with a considered and credible proposal. You’ll also need to demonstrate your understanding of your company’s key numbers, want the money for viable business reasons and be able to show how it will be repaid.

A bank needs to have confidence in your ability to make repayments and we will need to see evidence of this. Your business plan and forecasts can support your claims to be able to make repayments but so, too, will having a consistent flow of payments entering your business account, as will always having enough money to pay any cheques and regular payments you make.

Beyond this, we’ll be looking for a good credit history. If you are a start-up, this may be your personal history; if you are an established business, we’ll focus on your trading history. In either case, if you have missed loan or finance repayments in the past or exceeded credit limits, that may affect your ability to borrow. You can check your own credit rating through a credit bureau and if you believe your credit rating is incorrect you should challenge it through your bank or the credit agency used.

Banks generally like business customers – especially start-ups – to emphasise their commitment to the business by making their own financial contribution. For larger amounts, a bank will typically require some security. The government’s Enterprise Finance Guarantee scheme can help businesses that have a viable proposal but which lack security.

Overall, if you can demonstrate a sound financial position, good knowledge of your business, and that you have previously been responsible with repayments, credit limits and overdrafts, that will greatly increase the credibility of your application. Be honest throughout the process; don’t underestimate how much you need, and consider the full range of financing options available so you choose the right one for your specific needs.

 

Steve Teasdale
HSBC

Charities: What are the Top 10 Issues facing the sector right now?

CHARITY

Have you ever wondered what the biggest issues facing the charity and not-for-profit sector are?  Tait Walker with MHA act for over 1600 charity and not-for-profit clients across the UK and have identified that the sector is dealing with many challenges and changing legislation. This is placing a cost burden onto organisations already struggling with funding issues. It is therefore imperative that charities and not-for-profit organisations take proactive action, forward plan and formulate timely strategic advice to deal with the regulatory and compliance requirements and ensure success.

The guide contains useful insight into each of the top 10 issues identified, but in summary these issues are;

  1. New SORPs (Statement of Recommended Practice): due to come into force on 1st January 2015. One is to support the Financial Reporting Standard for Smaller Entities (FRSSE) and one to support the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102). Charities of a size eligible to choose need to consider carefully which SORP to follow particularly as the FRSSE is likely to have a short life span and following it initially may well lead to more change in a year or two.
  1. Operating a charity trading subsidiary: commercial trading activities of charities require careful consideration if difficulties are to be avoided. Generally it is advisable to undertake these activities within the charity itself, taking advantage of exemptions available under charity and tax law. Where exemptions are breached, however, it is appropriate for activities to be undertaken through a wholly owned trading subsidiary. Whilst this is a tried and trusted structure that has long been accepted by The Charity Commission and OSCR and HMRC, there are some significant challenges to be overcome.
  1. Managing risk: There is a requirement for trustees of charities over the audit threshold to include a risk management statement in their Trustees Annual Report and in order for trustees to make this positive statement they will need to consider risks and their management in a formal way. The new SORPs reinforce the importance of the risk management statement. To effectively manage the risks of the charity trustees will need a framework in place which will allow them to identify and categorise the risks facing the charity, and to make decisions about how to respond to these risks.
  1. Avoiding conflict of interest: Trustees’ duty of compliance requires integrity and the avoidance of any conflicts of interest between the charity and personal or professional interests. This includes perceived as well as actual conflicts of interest. According to law they cannot receive any benefit in their capacity as trustee unless they have express legal authority covering this. It can be quite challenging to do so but Trustees must aim to identify conflicts of interest at an early stage and manage them appropriately.
  1. Ensuring delegation processes are fit for purpose: The board has ultimate responsibility for the organisation but they cannot run it on a day to day basis. Delegation is, therefore, crucial, but for this to be successful it needs to involve a clear structure and terms of reference to ensure everyone involved understands their roles and individual responsibilities.  Failure to review delegation processes can lead to operational problems and to governance issues.
  1. Determining the appropriate level of reserves: Significant reserves would begin to suggest that resources are being stockpiled and not applied for the charitable purposes for which they were received. However, to operate with nothing in reserve might be considered foolish and reckless. The charity must have a reserves policy and a well-crafted and thought through reserves policy can pay dividends by facilitating development of the organisation and its activities, assisting in strategic planning, providing a buffer to manage unforeseen financial difficulties and to demonstrate good stewardship to funders.
  1. Fraud: There are a number of reasons why charities can be susceptible to fraud. These include the fact that a high level of confidence in the sector means people think it very unlikely;  there can be a  lack of strong controls either because of limited resource or over reliance on goodwill of employees or volunteers; and reliance on large number of volunteers. It is essential that trustees understand the risks to which the charity is exposed and where it might be vulnerable to fraud risk and make sure that controls are designed accordingly and that proper training is given to trustees and staff.
  1. Auto-enrolment: by 2016 every organisation in the UK, including charities must make pensions provisions for their employees.  It is important to know your staging date and make plans in good time.
  1. Gift Aid: this can ‘gross-up’ donations by 25% but the charity must ensure the system is correctly administered and does not fall foul of HMRC’s rules
  1. VAT: this can present a series of challenges with complex issues. Charities must keep on top of matters such as exemptions and obtaining the reliefs available to in order to be VAT efficient.

Click here to view the full version of the MHA’s Top 10 Issues for the Charity and Not for Profit sector.

For any further advice in regards to any issues faced by your charity or not-for-profit organisation, please contact Simon Brown on 0191 285 0321 or email simon.brown@taitwalker.co.uk

Help for exporters and A1 road users

CORPORATE FINANCE

Our Corporate Finance Partner, Steve Plaskitt discusses the expansion plans for the A1 and his experience at the ‘Doing Business in Durham’ event at Export Week…

It is great to hear that David Cameron has announced plans for the A1 north of Newcastle to be expanded.  This will no doubt create a couple of years of frustration and slow lanes for drivers during the construction phase, but it will eventually produce an improved infrastructure for the North East region and therefore help business.

It has been a frequent topic at North East business group discussions and seminars for many years, so it is fantastic to hear that the message has been picked up by Westminster and the funding has been secured.

I was reminded of the power of business leaders acting together for the greater good of the region yesterday morning when I attended the ‘Doing Business in Durham’ event supported by Insider, FW Capital and Swinburne Maddison amongst others.

James Ramsbotham from NECC reminded everyone that when the NECC started almost 200 years ago the ambition of local business leaders was ‘to achieve collectively what we cannot do individually’. At that time there were no trains, no railways and no great road infrastructure.

There were three main themes that I picked up from the discussion this morning.

  • Skills gap – how to address training gaps created by the absence in some sectors of training for 20 years.  One speaker outlined his plans to create an academy and training programme to recruit more apprentices, teach them the skills that they need and improve his business.  I know that this is a common issue and three Tait Walker manufacturing clients have recently done the same.
  • Funding – how to find the right funding amongst a plethora of funds, funders, grant providers and business agencies.  This is a common theme and, as a corporate finance adviser, one that I feel partly responsible for!  There are many funds available for businesses, each suiting different companies depending upon the stage of their business development, sector, location and whether the money is required for investment or working capital.  A good corporate adviser will help with this and we are grateful that many others in the North East corporate sector, such as bankers, lawyers, funders and Tees Valley Unlimited, can also signpost business leaders.
  • Support for exporters – during the North East’s Export Week this week, it was topical for this to be raised.  One speaker suggested that, given the success of R&D tax credits as a way to support businesses directly, there could be a way for a similar scheme of export tax credits to support exporters. There is already plenty of support for exporters from UKTI and other sources, including from banks.

At the end of the event, it struck me that I may have witnessed a little history – this was the first time I had heard the ‘export tax credit’ support described in this way.  A Google search shows that the CBI started calling for this in 2013 and I wondered whether this would become a topic that will be picked up by business leaders, and whether Westminster will do something about it just as they did with improving the A1.

For further advice on any of the topics raised in this article, please contact Steve Plaskitt on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk

Charities: Have you considered whether you should be VAT registered?

CHARITY

Charities and other not-for-profit organisations often have a mixed income stream with money from grants, donations, activity based contracts and other trading activities.  As a result it can be difficult to comprehend whether the organisation is required to be registered for VAT or whether it could voluntarily register to recover some input VAT and reduce costs.

Funders are also changing the way they pay money within the sector, moving away from traditional ‘grants’ toward service level agreements, activity based contracts or payment by results.  This trend can blur the line as far as VAT is concerned and it might be that where your organisation historically received a grant and was outside the scope of VAT, you now receive income which is now within the scope of VAT and subject to it!

Our help guide helps to clarify VAT within the not-for-profit sector and gives some practical advice and a thought process to follow. Click here to read the guide.

For further information regarding VAT for your charity and not-for-profit organisation, please contact Simon Brown on 0191 285 0321 or email simon.brown@taitwalker.co.uk.

Top 10 tips for success at Export Week

Companies often consider exporting as a way of growing their business. While exporting can be daunting for those trying it for the first time, the good news is that there is lots of help and support available to SMEs, including the North East Chamber of Commerce and UKTI.

Exporting has many benefits for a business – there are the attractions of new and growing markets; it can help spread the risk; extend the life span of a product or service; address seasonal fluctuations; increase the returns on investment and R&D, build your prestige and brand; increase revenue and profits and there is Government support available to help you do this.

To celebrate Export Week, here are my top 10 tips for exporting success:

Tip 1 – Research

Find out which overseas markets are best to target.

If you are a first time exporter consider nearby countries, particularly ones where English is widely spoken and they are easily accessible.

Assess your target customer and examine the competition and its prices. It is always worth visiting the market – the UKTI run some great overseas visits. Click here to find out more.

Tip 2 – Be selective

It is important when choosing an overseas market not to spread yourself too thinly. Concentrate on just one or two selected markets which boast the most attractive conditions.

This will allow you to focus your effort and allow you to test, tweak and perfect your export operation in a more controlled environment.

Tip 3 – Plan

If you fail to prepare, you are preparing to fail!

To be successful you should have a strategy that has strong points of difference from your competitors’ strategies. Bear in mind that your strategy may differ market to market. 

Tip 4 – Consider your pricing

Consumers in different countries have varying levels of spending power and attitudes to what they’re prepared to pay for particular products and services. What suppliers are going to charge can also vary markedly from what the exporter is used to in the UK and it is critical that pricing models are tailored to reflect this.

SMEs don’t just run the risk of pricing themselves out of the market, they also run the risk of under-pricing and failing to capitalise on the higher price margins that are available to them.

Tip 5 – Network

You are not able to conduct international transactions on your own. There are always several participants who play an important role in your export operation.

Write down a list of services you need to provide for your international activity. Bank, Freight Forwarder, Insurance Broker, and Chamber of Commerce are just a few.

Tip 6 – Negotiate

Your buyers will be pleased if they manage to negotiate considerable discounts, so don’t disappoint them. Include at least 10% in your export price list for negotiations. By discounting the price you’ll be able to gain better terms.

However, you have to be careful with allowances. If the price is too high you might not get a buyer.

Tip 7 – Get a good translator

Sometimes buyers may require signing a bi-lateral contract. In this case accuracy of business translation is crucial. Varied use of technology in different countries can have an entirely different meaning and cause costly disputes.

Tip 8 – Know cultural differences

You may offend your potential buyers if you fail to learn about cultural differences especially in the Middle East and Asia. For example, you wouldn’t ask about your host’s wife if you have been invited to visit your counterpart’s home in the Middle East.

For more information about trading in different countries, we have a range of International Doing Business guides.

 Tip 9 – Build relationships

Having a strong business relationship can give you a huge advantage over competitors. Little gestures, such as sending a post card or email on major national holidays and on key personnel birthdays, adds considerably to the relationship. 

Tip 10 – Seek expertise

There is help and advice available through numerous organisations locally, nationally and internationally.

For example, Tait Walker is part of Baker Tilly International, an International Association of accountants and business advisors giving us access to expert advice all over the world!

For more information regarding export or other international matters, please contact a member of our expert team on 0191 285 0321 or email brian.laidlaw@taitwalker.co.uk.

Day 5 – Selling a Business

CORPORATE FINANCE

Welcome to the final day of our Corporate Finance blog series focusing on selling a business – Day 5 sees the team looking at due diligence, legals and completion.


Due diligence

There are several types of due diligence:

  • Financial due diligence: involves a detailed examination of the financial affairs of the company with particular focus on the historic, current and projected performance of the business.
  • Commercial due diligence: if the purchaser is not already familiar with the market in which the vendor is operating, it may undertake some market due diligence either in-house or by commissioning external consultants.
  • Environmental: depending on the sector and activities of the target business, a buyer will often require environmental due diligence.
  • Customer due diligence: a purchaser will usually wish to speak to the company’s major customers to assess their level of satisfaction with the company and the prospects for their continued patronage. Clearly there are considerable commercial sensitivities involved in customer due diligence, but there are a number of strategies to overcome this problem.
  • Management due diligence: financial buyers will generally wish to carry out due diligence on the senior management team as well as meeting them on an individual and collective basis.
  • Legal due diligence: legal due diligence focuses on key contracts and other legal documentation of the company. The company’s exposure to litigation or other contingent liabilities and ownership of assets including its properties and intellectual property rights will also be reviewed.

The data room is a key element of the sale process. A data room should contain all detailed financial, commercial and legal information on the company. The data room is typically provided to purchasers in an on-line format via a secure third party on-line data room provider with password protected internet access. The data room can also take the form of an actual room full of information, typically at the advisers’ offices.

Important due diligence considerations:

  • It is essential to retain control throughout the due diligence process.
  • The release of information should be carefully controlled, for example it may be not be advisable to inform the purchaser about good news until a sticking point is reached in the negotiations or to counter any attempt to reduce the purchase price.
  • Keep duplicate records of everything you hand over as well as notes of everything you discuss. This will be helpful if there is a dispute and in any case will be needed for disclosure.
  • Where there is sensitive information in the business, consider only providing this at a later stage.
  • Always put the business first. If the business is suffering because of the demands of due diligence, request a period of time to focus on the business.

Legals

There are numerous legal documents required when selling a business, with the main being the ‘Sale and Purchase agreement’ (SPA). The buyer’s solicitors will normally prepare the first draft of the Sale & Purchase Agreement, which details all agreed deal terms and contains warranties and indemnities intended to benefit and protect the buyer.

The SPA usually includes restrictive covenants. The intention of these is to prevent the seller from competing with the buyer for a limited period.

Completion

To ensure that the financial position of the company upon completion is the same as what was agreed at the outset, ‘Completion Accounts’ will be prepared immediately.

For further advice regarding the final stages of selling your business, please contact a member of our Corporate Finance team.

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