Let’s Grow Fund – still available!

 

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The Let’s Grow North East has awarded grants of over £50m to nearly 200 companies in the North East and Teesside, helping to generate over 8,000 jobs.

The scheme offers grants of between £50,000 to £1m on projects with spend of £200,000 or more.

New applications are now being considered and expressions of interest must be received by close of business on 26 August 2016. Full applications must be received by close of business on 9th September 2016.

The expression of interest form and scheme guidelines can be found here.

Let’s Grow is a great source of grant funding for the North East. If you would like to discuss a grant application, or any other funding needs, please contact Steve Plaskitt on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk.

Business funding post Brexit

We are now over six weeks on from the result of the EU referendum and are still no clearer what the United Kingdom’s exit will mean for our future trading relationship with Europe – and therefore what the impact will be for SMEs in the North East. After the initial turbulence in capital and currency markets things have settled down, although the Pound continues to struggle against the Dollar and Euro. With so much uncertainty until an exit deal starts to materialise, we may well see some market volatility over the next 12 months at least.

The decision to exit the EU may have an impact on funding available for businesses. In the short term, the recent interest rate reduction may mean that some business owners think they may have access to cheaper bank lending, however the unprecedented period of low interest rates we have seen for the last seven years means it is unlikely the recent cut will have any material impact on business lending.

The EU has played a significant part in the North East SME funding landscape over recent years. This is currently through the Finance for Business North East funds that supported many businesses from 2010 to 2012, when bank finance was almost non-existent. Since then the seven funds have continued to be a major source of capital for North East business. These funds are underpinned by EU funding – from ERDF and the European Investment Bank – as will be the planned successor funds colloquially known as JEREMIE 2.

Current indications are that JEREMIE 2 will still be delivered in the North East LEP area (with Tees Valley being part of the British Business Bank Northern Powerhouse fund). However it is possible that the referendum result could impact on the life of these funds.

It’s definitely not all doom and gloom though, as funding is available to SME businesses to support growth. The Finance for Business North East fund managers have a £17m extension available in the North East for 2016 which they are well on with investing, and there have been recent announcements by Business Durham about their plans for a £20m investment fund to launch in 2017. The next few months should also see more information becoming available on JEREMIE 2 and the Northern Powerhouse funds.

If you are considering looking for funding for your business, it is more important than ever to seek advice. Tait Walker are hosting two seminars on funding after Brexit, in September. Please contact Kirsty Ramsey to express interest in attending.

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

Let’s Grow Fund – Deadlines

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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.

How to prepare your business

Today’s blog comes from our Corporate Finance Partner, Michael Smith

One of the questions I get asked most frequently is, ‘How do I prepare my business…’ either for sale, or for fundraising? There are common themes for both, which I will outline below.  In my next two blogs, I will focus on the specific preparation for a prospective sale and then fundraising.

The key issues I encounter when helping clients to prepare their business fall under these main headings:

  1. Build a financial story
  2. Improve your financial efficiency
  3. Understand your market
  4. Do your housekeeping!
  1. Your financial story

Whether you are trying to sell or persuade a funder to invest in your business, you need to tell the external party a coherent story, the basis of which is the underlying financial trajectory – so you need to have up to date, reliable and robust management accounts.  You also need to have realistic forecasts that the external reader can depend upon to provide a reasonable estimate of future performance. KPIs included in management information should show you how you are performing against business plan and remember that most readers will be interested in cash generation, as well as profit.

  1. Improve your financial efficiency

This is an area focused on cost control, working capital management and accessing opportunities. Benchmarking your gross margin, overheads and tax costs is a great way to assess whether you are as efficient as you could be. With working capital, answer these questions:

  • Do I need this much stock?
  • Are my debtors being collected as quickly as possible?
  • Do I get as much credit from my suppliers as I can?

The efficiently run business will also look at ways in which it can minimise tax cost (think R&D tax credits, capital allowance reviews) and obtain grant funding for revenue and capital projects.

  1. Understand your market

Buyers and funders have research at their fingertips to compare you to your peers, so how does your growth rank against your competitors?  What type of funding are others in your market using?  If there is M&A in your market, who are the buyers, what are they looking for and what price are they paying? On a macro level, what are the issues that could impact significantly on your business and what are your plans to address them e.g. are you expecting commodity price fluctuations?

  1. Housekeeping

The external party looking at your business will undertake some form of due diligence when contemplating purchase or funding transactions.  So, make sure all your principal legal documents (leases, banking facilities, customer and supplier agreements) are up to date.  Are all of your key employees tied in to the business for an appropriate period of time?

For further advice regarding preparing your business, please contact Michael Smith on 0191 285 0321 or email michael.smith@taitwalker.co.uk.

Changes to Stamp Duty Land Tax – Do you know what they mean for you?

In a further attempt to dampen the UK Buy to Let market, the Chancellor announced that higher rates of stamp duty land tax (SDLT) would apply to purchases of additional residential properties, such as second homes and buy to let properties, from 1 April 2016.

The current rates and new rates of SDLT for additional residential property purchase are:

Band Existing SDLT rates New additional property SDLT rates
*£0 – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%

 

* Only applies to purchases over £40,000

Consultation Document

On 28 December 2015, a consultation document was issued which gives some answers on the detail of the new rules, although the document also creates some questions.

The higher rates will not apply to purchases below £40,000, purchases of caravans, mobile homes or houseboats. Also the new rates will not apply to the purchase of a main residence to replace your current main residence, if your current residence is sold on the same day. However if the sale of your current main residence is delayed and so for a time, you will own both houses, you will have to pay the higher rate of SDLT and then apply for a refund if the old house is sold within 18 months.

The document also refers to a possible exemption from the higher rates for purchases by corporate investors or funds making significant investment in residential property. However the consultation document includes various questions on the possible scope of this relief. If planning for a transaction now, reliance on this relief will carry a risk until the scope of it is clarified.

Commencement Date

SDLT is normally payable on completion or, if earlier, on substantial performance.

The higher rates will apply to all contracts entered into on or after 26 November 2015 where completion takes place on or after 1 April 2016, or where there is substantial performance of the contract on or after 1 April 2016. Therefore if substantial performance of the contract be on or before 31 March 2016, the higher rates of SDLT will not apply.

Buy to Let Restructuring

Restrictions to tax relief for interest on buy to let mortgages are causing some buy to let investors to consider transferring their properties into limited companies. In addition, some investors are choosing to sell some of their properties to reduce debt levels on their remaining portfolio.

Both of these options could be caught by the new higher rates of SDLT and so where possible it would be better to ensure that there is substantial performance by 31 March 2016.

Next Steps

The consultation process is still ongoing, but although the detail of the new rules is being ironed out, the principle of higher rates of SDLT for second properties and buy to let properties will happen and so you need to plan on that basis. If you would like advice on the scope of the new rules, please contact Alastair Wilson or Chris Hodgson.

Good news for North East companies investing in tooling in 2016

A new and perhaps unknown source of funding for those North East manufacturers looking at tooling investments in 2016 comes from Birmingham Finance which operates a national £24m Tooling Funding Programme.

Each funding loan has the following features and benefits:

  • Loan of £50,000 to £1m to support an investment in tooling
  • Must be for the design, development and manufacture of tooling (where the component manufacture and tooling finishing must be within England)
  • Funding is in the form of a loan up to 18 months
  • Up to 90% of tooling costs are funded
  • 1% arrangement fee
  • Limited security (a company debenture behind existing funders and no personal guarantees)

Applicants need to demonstrate:

  • A firm order for products from an OEM or 1st tier supplier;
  • That UK jobs are safeguarded/created; and
  • That they are unable to secure funding in whole or in part from existing banks.

Further details can be found at www.financebirmingham.com/funding/tooling/

If you have any queries about this or other sources of funding for your investment plans then please contact Steve Plaskitt at Tait Walker on 0191 285 0321 or at steve.plaskitt@taitwalker.co.uk.

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