Brexit – we’re in it together

Like many of you today, we are digesting the news that the electorate has decided to exit the European Union. Whilst the UK as a nation has opted to leave, the UK still remains a highly skilled and attractive place for business and a nation of great strength and competitive advantage over many economies.

I can appreciate that the outcome of the vote will come with a degree of concern to some of you as we are all faced with uncertainty on a number of fronts. Please be assured that we endeavour to keep you up to date and help you to understand the potential impact and manage any immediate business or personal risks as the picture becomes clearer.

During the run up to the referendum it has been absolutely clear that the North East has a thriving market trading with the EU. We will assist businesses in the region to identify the changes resulting from Brexit which will impact them and assist them to plan accordingly to mitigate as much impact as possible. As a North East based business, we are committed to helping our clients and contacts in the region to navigate a period of what we see as undoubted regulatory change.

UK and North East businesses must continue to do what they do best, pull together and find new ways to innovate and drive growth and make the most of opportunities ahead. We’ll be holding events in the near future to discuss the impact and what Brexit really means for the UK, you, your business and your business sector – details of which will be available soon.

In the meantime, should you have any questions or would like to discuss any concerns, please don’t hesitate to get in touch with your usual Tait Walker contact.

Andrew Moorby, Tait Walker Managing Partner

Counterfeit cheques – a warning

There has been an alarming increase in the number of counterfeit cheque frauds being reported to Action Fraud since late last year.

Fraudsters are contacting a wide range of businesses and requesting to pay by cheque for the sale of goods and/or services. The business is then sent a cheque from the fraudster with a higher value than the amount anticipated, followed by a request for the difference with instructions on how to pay it back (usually via bank transfer or money transfer service).

Following the ‘refund’, it becomes apparent that the cheque was fraudulent and no funds are credited to the business’ account. The fraudsters tend to use pressure tactics to persuade the businesses to refund the amounts immediately prior to the cheques clearing.

We recommend you remain very cautious when dealing with cheques where the amount provided is higher than agreed. Wait until the correct balance is received before providing the goods/services, or wait until the cheque has cleared before refunding the difference.

If you have been affected by this, please contact our Forensics team on 0191 285 0321.

New statutory renewals basis for property businesses

In the July 2015’s Summer Budget, the Chancellor caught everyone by surprise by announcing two major changes to the taxation of buy to let properties: the abolition of wear and tear allowance and the restriction of tax relief on loan interest.

The changes to loan interest relief do not begin until April 2017, but wear and tear allowance was abolished on 6 April 2016 and replaced with a new statutory renewals basis for all residential landlords.

The old regime

Prior to 6 April 2016, landlords of fully furnished residential property could claim wear and tear allowance (10% of net rents) as a deduction from their rental profits. Wear and tear allowance was often more than the actual expenditure, meaning that taxable profits could be lower than actual profit.

By contrast, landlords of unfurnished residential property could not claim wear and tear allowance and, since the non-statutory renewals basis was abolished in April 2013, they have been unable to claim for the cost of replacing furnishings. The only way they could get relief for these items was to begin renting their properties on a fully furnished basis

The new regime

With effect from 6 April 2016, wear and tear allowance is abolished. Instead, all landlords can claim the following:

  • A new statutory renewals basis, known as “replacement of domestic items relief”
  • Replacement of fixtures

The meaning of these two terms is set out below.

Replacement of domestic items relief

To qualify for the new relief, all of the following conditions must be met:

  1. The person carries on a residential property business
  2. The ‘domestic’ item (see below) is provided for use in the residential accommodation, replacing the old item, and must be provided solely for the use of the lessee (i.e. no private use to the landlord)
  3. The expenditure is capital expenditure incurred wholly and exclusively for the purposes of the property business – without these rules a revenue deduction would not be possible
  4. The expenditure does not qualify for relief under the capital allowances rules

What is a “domestic item”?

The term “domestic items” covers the kind of things that you would need to put into a property to be able to live there:

  • Furniture (beds, chairs, tables etc.)
  • Furnishings (curtains and carpets)
  • Household appliances (free-standing white goods)
  • Kitchenware (glasses, crockery, cutlery etc.)

These are the items which would have been covered by wear and tear allowance. However, landlords will now receive tax relief for the actual amounts spent on these items rather than being able to claim wear and tear allowance which, at 10% of net rents, could have been a higher figure.

Replacement of fixtures

For expenditure on items not included as domestic items, it may be possible to claim tax relief on the basis that the expenditure is a repair. For example, replacement of fitted kitchen items such as built white goods will qualify as repairs meaning that tax relief for the cost of these items will be available (note that free-standing white goods are covered by domestic items relief).

Similarly, replacement of kitchen units or bathroom fittings would also qualify as repairs provided that there has been like for like replacement. Income tax relief is not available for expenditure on improvements.

Restriction of tax relief on loan interest

The other change was to the availability of tax relief on loan interest and this could have a major impact on the tax payable by landlords. To read more please click here.

The way forward

The taxation of property income is undergoing major changes and landlords need to be aware of how they will be affected so that they can take any necessary action(s) to minimise the tax impact. We would be happy to meet with you to discuss your needs.

If you would like any further advice, please contact Chris Hodgson or Dorothy Johnston.

New tax rules and potential solutions for Buy to Let landlords

With more than 400 people at our Buy To Let seminars over the past few months, it’s clear that the new tax rules are a major cause of concern for landlords of residential property. We are working with a number of landlords who are planning for the effect of this new regime. They know that if they leave matters until 2017, when the new rules start to take effect, they will be behind the curve.

For some individuals, the answer is a sale of some of their properties to try to reduce their borrowings and hence the effect of a restriction on tax relief for interest on those borrowings. If this decision is taken as the new rules come into effect, some people will be caught up in what might become a rush to sell properties. This is likely to be a buyer’s market and so this could impair the value that can be obtained on a sale of these properties.

For others, the best solution may be to incorporate their properties, and the debt on them, into a limited company. This is a major decision, and one that should not be taken lightly, but we are guiding a number of our clients through this process.

Some landlords now think that they will have to pay the higher rate of Stamp Duty Land Tax on any transfer to a company. While this is true in some cases, it is not always true. Relief is available that can mean that no SDLT is payable on the transfer in the right circumstances. We are discussing this opportunity with clients and, where appropriate, we are obtaining advance clearance from HMRC that the relief applies.

The other potential tax problem is Capital Gains Tax. Again there is the potential for incorporation to trigger a large tax bill, but we are submitting advance clearances to HMRC to get their agreement that relief applies. Agreement is now being secured in some cases and it is becoming clearer who is likely to qualify.

Having obtained the clearances, refinancing the lending in a company can be an issue, but the secured lending specialists in Tait Walker are working with clients and loan providers to facilitate the incorporation of their property portfolios.

If you are a landlord who is worried by the new rules and you want an experienced professional to guide you through the possible steps to take, please contact Chris Hodgson or Dorothy Johnston. Alternatively, you can contact Steven Whitehead, our secured lending specialist.

Chris-Hodgson

Author: Chris Hodgson, Tax Associate

 

Making Tax Digital: Newcastle Consultation on Simpler Payment & Quarterly Reporting

As we said last week, HMRC’s vision of the future is that all dealings with tax payers and agents will be digital. The process is already underway and HMRC are currently running consultation events to gather the responses of agents and advisors. Tait Walker was invited to take part in a consultation earlier this year where the topics for discussion were quarterly reporting and simpler payments.

Quarterly Reporting

All businesses will be required to take part in quarterly reporting which is due to begin in April 2018. In addition, it is anticipated that individuals with non-PAYE taxable income over £10,000 (e.g. Rental income) will also need to report quarterly. It is worth noting that the Association of Tax Technicians (ATT) has recently called on HMRC to postpone the introduction of quarterly reporting by at least a year, due to delays in the consultation process caused by the EU referendum.

The mechanics of the system are not yet known so we don’t know whether every single business transaction will be reported or whether it will be a quarterly summary of receipts and payments. There was a lot of concern from the agents in the room about how it would be possible to identify items which were and were not tax deductible.

Tax payers will clearly still need help from their accountant to check that information that has been reported quarterly is treated correctly. HMRC admitted that they do not see quarterly reporting as an end to agent involvement.

Every business is to have its own HMRC digital tax account and agents will have access to these accounts through the Agent Services process (formerly Agent Online Self-Serve), which is currently being tested by agents with fewer than 200 clients. The testing process is due to open up to larger agents later on this year. Tait Walker has registered to take part in the testing so that we can give feedback and keep our clients right up to date with what is happening.

Simpler Payment

HMRC said that Simpler Payment is an opportunity for them to consider how to simplify payment arrangements for tax payers. It is likely to follow on from quarterly reporting but discussions are still in the early stages and we were advised that nothing has been finalised. A number of agents in the room expressed concern that this was just a way for HMRC to try to accelerate tax payments dates –hotly denied by HMRC!

HMRC were interested in our opinions on what they see as 3 key issues to be addressed in the process.

  1. Pay as you go

    Many people pay for their gas and electricity monthly and HMRC are considering this as a way for people to pay their tax bills. Did we think this would be an attractive option and if so, what could HMRC do to encourage people to sign up for Pay as you go? For example, make it a flexible system and allow voluntary holidays for cash flow issues or perhaps pay credit interest on amounts paid before the official due date?

  1. Changes to payments dates

    At the moment, individuals and unincorporated businesses pay their tax in January and July each year and there can be a long delay between profits being earned and the date of payment for the tax.

    HMRC would like tax to be paid much closer to when the profits are earned and there was a lot of discussion about how this could be done. They wanted to know what issues or problems we thought there might be and, needless to say, there were plenty. The main one was the cash flow issue of moving from 6 monthly payments (mainly in arrears) to quarterly payments on an actual basis.

  1. The alignment of payment dates for Income Tax, Corporation Tax and VAT

    At the moment the payment dates for income tax, corporation tax and VAT are all different and HMRC would like to find a way of aligning these.

    It was mentioned that VAT is already paid quarterly, so why not income tax and corporation tax? Larger companies are already using a quarterly payment regime and all corporation tax payments must be made electronically.

    There was much discussion about how the system could be adapted to cope with unincorporated businesses all having different year ends and it was suggested that their tax payment should move to being based on the accounting year end rather than on the tax year, in the same way as for companies.

Conclusion

As mentioned above, HMRC’s vision of the future is that all dealings with tax payers and agents will be digital. To paraphrase a well known advert, their vision is that ‘the future’s bright, the future’s digital’.

How we get from the present to the digital future has not yet been finalised. It is clear that the tax return process will look very different, but it was emphasised that HMRC do not see “the end of the tax return” as being the end of agent involvement. They understand that people either don’t want to, or don’t have the time to deal with HMRC and so they expect agent involvement to continue.

This is one of the reasons why they want agents to be involved in these early stages so that we can help to design a system which will not only work, but be easy for everyone to use. It was clear from the consultation session that they are happy to listen to any and all concerns.

The move to a digital tax age will see major changes in the way tax payers and agents interact with HMRC. Rest assured that we are involved in the consultation process, which means that we will be able to keep you up to date with the changes.

If you would like any further advice, please contact Dorothy Johnston.

North East funding landscape for SMEs

CORPORATE FINANCE

The SME funding landscape in the North East has been dominated by the Finance for Business North East funds over the last five or six years. These funds have played an important role in both supporting new businesses and providing access to growth capital and working capital funding to more established businesses. It was therefore fantastic news when a top up to these funds was confirmed last month.

The five fund managers have £17m to invest in over 100 North East SMEs before the end of 2016. We are seeing a strong appetite to access this funding and have a number of clients who are progressing an offer of funding. With progress being made towards a new £120m fund for the North East LEP area, which should commence in 2017, these funds will remain a key part of the funding landscape in future.

Growth Capital

Venture Capital Trusts have long been part of the equity funding landscape in the UK. Significant changes were announced in the 2015 Budget for VCTs. These changes came in force this year and have changed the types of deals those funds can invest in. In particular, VCT funds can no longer fund MBOs, which had been the focus for a number of VCT funded investment businesses and cannot invest in businesses over seven years old. This has seen the investment focus of these funds shifting from backing MBOs of established businesses towards growth capital investment in younger businesses – a big change in strategy for a number of providers. We are already working on a number of growth capital deals with investors who historically would never have considered the opportunity.

Outside of VCTs, Business Growth Fund have been very active investors in the North East over the last couple of years and retain a strong appetite to invest in successful North East businesses.

Bank funding

Bank funding remains a hot topic of discussion amongst many business owners – though the major banks are all lending money to businesses and suggest that demand amongst SME businesses isn’t there to take on debt.

We have found that there has been a willingness from banks to support transactions, though caveated with suitable security being in place in most instances. Asset finance and invoice discounting has been an increasingly common part of the funding mix in deals we have completed and can be an effective way of raising finance to support your business.

Help from the tax system

The tax system is an often overlooked source of funding for many businesses. Current government policy is seeing the focus on public sector support shift away from grants to using the tax system to incentivise business investment. A great example of this is the R&D tax credit. Tait Walker’s R&D tax team have helped clients benefit to the tune of £25m through R&D tax credits over the last five years.

We have helped a number of businesses raise funding in the last twelve months, including Atlas Cloud and Furniture Clinic. We are currently working with several businesses looking for everything from seed capital to multiple millions of growth capital.

Our Corporate Finance team will be running a seminar in the autumn on the North East funding landscape, but if you want to speak to someone about funding opportunities now then please get in touch.

Making Tax Digital – Simple Assessments

IT DIGITAL CREATIVE
HMRC’s vision of the future is that all dealings with tax payers and agents will be digital.

As a first step in this process, the 2016 Finance Bill contains clauses for the introduction of a new system of Simple Assessment for taxpayers with “straightforward” affairs. Straightforward means where HMRC already hold all the information they need to calculate an individual’s tax position without the need for any further information to be supplied on a tax return. The idea is that this will remove many people from the self-assessment system.

The new provisions will enable HMRC to issue these taxpayers with an assessment (a simple assessment) showing the information which has been used to calculate the tax and the amount of tax payable. It will then be up to the taxpayer to tell HMRC if they think the assessment is incorrect. HMRC will then confirm, amend or withdraw the simple assessment. If you cannot reach agreement you will have a period of 60 days to lodge a formal appeal against the assessment. However, HMRC hope that it will be possible to settle most queries at the query stage without the need to go through the formal appeal process.

The system applies from the 2016/17 tax year onwards, which means that the first simple assessments will start to be issued in April or May 2017. Simple assessment is intended to cover income and capital gains, although how HMRC will obtain the information to enable them to correctly assess capital gains tax due on things like shares which have been held for many years, is yet to be seen.

The payment dates for the tax assessed under simple assessment will be the same as under self-assessment i.e. 31 January following the end of the tax year. In addition, the same interest and late payment penalties regime which currently applies to self-assessment is also likely to apply to simple assessment, although the legislation is not yet in place.

HMRC’s press release on simple assessment states that “the main benefit for individuals will be an improvement in the customer experience. In particular these customers no longer need to complete a Self-Assessment tax return.” It goes on to say that “The Simple Assessment will reduce the need for customers to contact HMRC because they are experiencing difficulties completing their tax return” and “this measure will reduce the number of customers who incur a penalty or have to pay interest because they have not sent a return in on time”.*

We are aware of many instances at the moment where HMRC are unable to correctly tie up PAYE and self-assessment records for our clients, resulting in incorrect tax calculations and, in some cases, incorrect tax repayments being sent to clients. Undoubtedly, HMRC will have improved their systems by next year. However, we would suggest that anyone who receives a simple assessment next year should check it carefully to make sure it is correct rather than just assuming that it is.

If you have income or capital gains which are not included on the simple assessment, the onus is on the taxpayer to ensure that this income is declared to HMRC in the normal way. Non-declaration will result in the same exposure to penalties as under the self-assessment regime.

Trying to bring simplicity to one of the most complex tax codes in the world is laudable and time will tell if simple assessment will prove to be so simple.

If you would like any further advice, please contact Dorothy Johnston.

* Source: gov.uk

Automatic Enrolment – Are you ready?

You’ve seen the adverts saying ‘don’t ignore the Workplace Pension’ – but do you know exactly what you need to do?

We have set out below a list of the main things that you need to consider. Will you have the time to deal with all of this and continue to run your business?

  • Do you know your Staging Date (the date from which your business has to comply with the new rules)?
  • If you have an existing pension scheme or contribute to individual pensions for your employees, have you checked fi they can be used for Automatic Enrolment? In many cases you don’t be able to.
  • Do you know there are several different definitions of pensionable pay that you can use to comply with the rules? If you choose the wrong one you will end up paying £1,000s more in pension contributions than you need to.
  • Have you factored the cost of the pension premiums into your budget going forward?
  • Are you aware that you will need to increase the pension premiums in both April 2018 and April 2019 irrespective of your Staging Date?
  • Your current payroll provider or system may not be compatible with many of the pension schemes, so you need to check the impact on your payroll.
  • Automatic Enrolment doesn’t end once you reach your Staging Date. You have to assess and make the necessary changes every time you pay your staff. If you have a weekly payroll then you will have to do this 52 times a year.
  • As an employer, compliance with the rules is your This includes an ongoing duty to make sure your pension scheme continues to meet the rules and that the default investment fund chosen is still fit for purpose.
  • There are around 1.5 million employers who have to go through this process by the end of February 2018 so getting organised in advance is highly recommended. As time goes by there will be less chance to get help and less pension scheme providers available, as it is estimated that many will pull out of the market as they reach saturation point.

This list is just a snap shot of what employers have to deal with. Getting it wrong can result in heavy fines from The Pensions Regulator.

Tait Walker offers an initial consultation at our cost, including reviewing any existing pension schemes and how your payroll setup will cope with Automatic Enrolment.

If you would like to discuss this further, please contact our Employee Benefits Consultant, Ian Marsh.

Let’s Grow Fund – Deadlines

lets-grow_NEW_343x228

The current round of the regional “Let’s Grow” fund will shortly be coming to a close.  The deadline for ‘expressions of interest’ is Friday 6th May, with full applications to be completed by 3rd June 2016.

The scheme offers grants of between £50,000 to £1m on projects with spend of £200,000 or more and the best tips we can offer anyone considering an application are:

  • Get advice from your accountants and consult with BE Group throughout the process to increase your chance of your bid being accepted.
  • Make sure you meet State Aid requirements (check out ukassistedareasmap.com) for guidance, or speak to an adviser.
  • Make sure you create or safeguard sustainable jobs without causing loss of jobs elsewhere in the UK.
  • Large companies can only apply for new activities, which is a change to the previous rules.
  • Have a watertight argument to support the need for grant assistance.
  • The icing on the cake for the judging committee would be if the grant supported innovation, increased competitiveness or was seen to create apprenticeships.

Let’s Grow is a great source of grant funding for the North East but there are many others available, some of which may fit your needs better.

If you would like to discuss a grant application, or the funding required to go alongside your investment plans, then please contact Steve Plaskitt on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk

Disposal advice for you and your business

With extensive experience in advising on disposals, our Corporate Finance Partner, Michael Smith shares his advice…

Following on from my previous blog, set out below are some of my observations when getting ready for a disposal:

  • Give yourself time
  • Pay attention to your market
  • Build a repeatable business
  • Divorce management from ownership
  • Make space for the opportunistic buyer
  • Build the profile of your business

1 Devote time to the exit process

Research has shown that better exits are achieved from sales processes that are planned well in advance. Private Equity investors are a prime example of shareholders focused on exit; their planning will often start before an investment has been made.

So, start now. Experienced advisers like ourselves can do a discrete amount of work on examining your business to see what key issues need to be addressed in the short and medium term

2 Don’t ignore your market

Business owners often ignore the dynamics of their market. Try to gain an understanding of what’s happening in the UK market, the market leaders, which direction they are heading and why. It’s important to understand why changes are happening and whether you need to follow, otherwise you may be following a strategy that is unattractive to buyers. Premium prices are paid for niche players, not “me-too” businesses.

3 Build repeatability in to your business

Buyers will pay more for businesses that show predictable and growing profits, and predictability comes in many forms. For an IT business, it may be maintenance revenues; for an engineering firm, it may be recurring business from a long standing customer. The flip side is that businesses that have short order books and no consistent customers will struggle to find a buyer.

4 Move away from management

One of the major issues facing any business owner wishing to sell is convincing a buyer that he/she is not needed in a management. The only way to prove this is to be on holiday through the sale process!

Over-reliance on the vendors will impact on the sale process. Often, a buyer cannot be convinced that the vendors are not needed. Alternatively, the up-front price will be reduced and an earn-out mechanism will be used to ensure the business will continue to perform post-purchase.

Planning the vendor’s gradual move away from hands-on management is one of the most important and difficult steps in the planning stage of a disposal.

5 Opportunity knocks

Increasingly, trade buyers and private equity firms are not waiting until an official sales process starts. They will now often approach businesses directly, trying to avoid a competitive auction process. You should anticipate such approaches into your disposal plan by being able to provide an interested party with a synopsis of your business (after they’ve signed a NDA!). This will quickly get rid of time-wasters and control the flow of information.

6 Be more visible

Many successful businesses choose to hide their light under a bushel. If you’re thinking of selling, I’d advise against doing this. This may involve a PR campaign, particularly one focused on social media.

An effective way to increase your profile is to enter awards. Although local business awards are very useful for general PR, it’s more useful to focus on industry and trade events. If you’ve got a good story to tell, demonstrate this to the people in your industry and then buttonhole them at the bar!

If you would like to talk to us about selling your business, at whatever stage you are at in your process, please contact Michael Smith at michael.smith@taitwalker.co.uk or on my direct line 0191 2268 353.

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