Finance Tools - UK200 group

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Wifi Code – R3port1ng

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www.uk200group.co.uk

UK200Group members presenting:

Price Bailey LLP
Haslers
Anderson Barrowcliff LLP

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• A leading UK professional member association
• Established 1986
• Independent chartered accountants and lawyers
• Over 150 member locations throughout UK
• Over 500 partners
• Combined client base over 150000 businesses
• Annual quality review of a high standard
• Specialist technical expertise
• International reach

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Finance Tool for Small Business
Corporate Finance Structures relevant to small business start up and growth companies

Introduction

• Simon Blake
• Head of Corporate Finance and a Partner in Price Bailey
LLP
– London and East Anglian Chartered Accountants
– 75 years old, 300 staff including 23 partners
– Growing by acquisition and organic efforts
– Focussed on private owner management businesses
– Clients from start ups to mature family business and overseas
subsidiaries. A few AIM/Plus listed clients

#Finance4SUB www.pricebailey.co.uk 5

Simon Blake and UK200Group

• Chairman of the UK200Group Corporate Finance Panel
• Representing independent accountancy firms nationwide
• Specialist corporate financiers working on new business
funding, structures, M&A for owner managed private
businesses from Cardiff to Castleton, Leeds to London
and Maidstone to Manchester


Setting up the Business

• You have the innovation
• You have decided to run with it
• You have raided the piggy bank/mortgaged your mothers
house


What Structure?

• Sole Trader
• Partnership
• LLP
• Limited Company
• PLC


It depends!

• What is the business going to do?
• UK Trading or International?
• Aiming for £10,000pa sales or £10m in the first 3 years?
• Funded entirely by you, multinational corporate, venture
capital….


Fundamental differences

• Partnership and Sole Trader
– transparent to individuals
• for liability and taxation
– simple to administer

• Limited Company, LLP, PLC
– Separate legal entity
– Liability falls on the company
– Taxed corporately
– Requires more administration
– PLC requires £50k share capital. Does not mean listed.


On shore or offshore

• Offshore companies are only appropriate where
– Much of the business trading is being offshore
– Most of the investment/funding is coming from overseas
– The founders are non UK resident/domiciled
– Acceptance of complicated accounting/tax/structure issues (Apple,
Facebook etc)


Most common approach

• Limited companies are the most common entity used in
the 21st century
– Whether for a one man start up or an MBO of a non core division
being bought from a multinational

• Can be formed by one director with £1 share capital
• No limits on number of directors/shareholders
• Easy to adapt, but publicly accessible information


Funding angles

• All funders recognise Limited companies as the easiest
vehicle to fund
• Banks will often require director/shareholder guarantees
which breaks the liability protection for bank borrowing
(but not other liabilities, e.g.. Contractual disputes)
• Different structures of shares can accommodate almost
any arrangement of equity funding solutions
• Easily convertible to PLC for listing requirements


Pitfalls and planning

• Easy to set up, but what about when things are less
rosy?
• Avoid 50:50 shareholding where possible, as this risks a
deadlock
• Always have a private shareholders agreement (not on
public record)
• Keep companies clean
– respect it’s individual entity status, and
– don’t confuse personal and business


Shareholders / Investors Agreements

• For companies, a shareholders agreements provides a
framework and a fall back position in dispute
• Vital where mixture of shareholders working in the
business and pure investors
• Sets the parameters for
– Dealing with disputes
– Transfers of shares
– What happens when a shareholder wants to leave
– What happens when other shareholders want a shareholder to leave
– Who makes what decisions – management or shareholders
– How are shares valued for internal transfers of shares


What do buyers want?

• When you come to sell your business, what structures
do buyers want?
• Buyers want clean assets and no liabilities
• Sellers want typically cash now and walk away!
• Taxation of shares v assets on exit


LLPs

• Limited Liability Partnerships
• A company for legal purposes, a partnership for tax
purposes
• Common for “special purpose vehicles” e.g. single asset
businesses
• Heavily used by professional partnerships, albeit trend
perhaps beginning to head towards Ltd and PLC for
them as well now


Key contacts
Simon Blake Partner
Head of Corporate Finance
0207 065 2660
Simon.blake@pricebailey.com

Price Bailey is a trading name of Price Bailey LLP, a limited liability partnership registered in England and Wales,
number OC307551. Registered by the Institute of Chartered Accountants in England and Wales to carry out company
audit work. Authorised and regulated by the Financial Services Authority for corporate finance business. Financial
services work is undertaken by Price Bailey Private Client LLP, an appointed representative of PB Financial Planning
Ltd, which is authorised
and regulated by the Financial Services Authority.


UK200Group members presenting:

Price Bailey LLP
Haslers
Anderson Barrowcliff LLP

VAT – the basics and some
money saving tips
Debra Dougal
VAT Partner, Haslers

Chairman of UK200Group Tax Panel

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• Award-winning, Top 60 firm of chartered accountants,
dedicated to meeting the needs of the SME sector for
60 years.

• 13 Partners, 100 staff

• Based in Loughton, Essex

• We act for a wide range of clients, including owner-
managed and family businesses

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• VAT Partner
• 26 years’ VAT experience
• HMRC and practice
• Broad technical and practical VAT experience
• Pragmatic approach to problem solving
• Present on various VAT topics for trade groups, professionals and clients
• Chairman of the UK200 Group Tax Panel

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VAT is a simple tax (Anon 1972)

• Transaction tax not an income tax
• Goods and services
• Taxable person
• In the course or furtherance of business
• Where the supply takes place

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VAT Registration

• Compulsory if exceed threshold
 £77,000 from 1.4.12

• Voluntary if under threshold
• Intending if not yet commenced
• Deregistration threshold £75,000 from 1.4.12

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Categories of supplies

VAT on sales VAT on
associated purchases
TAXABLE
Standard 20% claimable
Reduced 5% claimable
Zero 0% claimable
EXEMPT 0% not claimable
O/S 0% claimable

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Zero-rated supplies

• Food but not catering

(or pasties!)
• Books and newspapers

• Residential new build

• Exports of goods

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Zero-rated supplies cont/d…

• Children's clothing and footwear

• Residential caravans and houseboats

• Goods and aids for the handicapped

• Certain goods and services to charities

• Qualifying ships and aircraft

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Exempt supplies

• Land and existing buildings

• Insurance services

• Betting and gaming

• Financial services

• Education if business

• Health

• Burial and cremation

• Trade Unions

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Outside the scope supplies

• Supplies of services taxed where the customer belongs
• B2B
• Exceptions for
 Land

 Admissions to events

 Passenger transport

 Hire of transport

 Restaurant & catering

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Money saving tips

• Timing sales and purchases

• Applications for payment

• Cash Accounting

• Flat rate scheme for small businesses

• Special partial exemption methods

• Bad debt relief

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VAT Period

END R
START E
SALES
T
U
R
N
PURCHASES
D
U
E

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Applications for payment

• Don’t create tax point for sale so VAT not due
• Widely used in construction sector
• Continuous supplies of services
• Pro forma invoicing
• Beware of tax points

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Cash Accounting

• Restricted to businesses with turnover under £1.35m –
tolerance to £1.6m
• Account for both sales and purchase VAT on cash basis
• Ideal if you offer credit terms but pay your suppliers
promptly
• Not a good idea if you receive and take up longer
credit terms

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Flat Rate Scheme for Small Businesses

• Restricted to businesses with turnover under £150,000 –
tolerance to £230,000
• Marketed by HMRC as a simplification scheme
• Can have real financial benefit if
 Low VATable expenditure
 Associated businesses
 Expenditure is on capital items £2000+

• Need to look at specific flat rates for your sector
• Beware rules on including exempt income

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Special Partial Exemption methods

• If make both taxable and exempt supplies
• Standard method may be less beneficial
• Must be fair and reasonable
• De minimis limit £7500 and less than 50%

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Bad Debt Relief

• Not on cash accounting
• Debtors over 6 months
• Reclaim VAT owed to you
• Beware of the flip side if you owe your creditors
for more than 6 months

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VAT – the basics and some
money saving tips

Debra Dougal
VAT Partner
Debra.dougal@haslers.com
Direct dial 020 8418 3426

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A MEDLEY OF PAYROLL ISSUES
PRESENTED BY

MHAIRI CHARLTON

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Anderson Barrowcliff LLP, Waterloo House, Teesdale South, Thornaby Place, Thornaby TS17 6SA t: 01642 660 300 www.anderson-barrowcliff.co.uk

MEDLEY constituents
Payroll compliance
 Minimise the damage of an Employer Compliance Review [ECR]

Changes to the operation of payroll
 Real time information – RTI

Tax efficient remuneration
 How to give your employees a pay rise without increasing staff costs

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Payroll compliance
PAYE and NIC collected by employer’s accounts for about
50% of the total tax paid in the UK
HMRC carries out around 30,000 payroll inspections each
year and with an annual average tax of £300m
HMRC carries out very few truly random reviews and most
are triggered by an event or reason
The employer is generally the person who pays

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Payroll - common errors

Not operating the correct tax codes/implementing changes
Expenses reimbursed e.g.
 Travel & subsistence
 Mobile telephone
Mileage records
Home telephone
Staff entertaining

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How to avoid an ECR

Operate tax codes as soon as received
Pay PAYE & NIC by the due date – late payment carries
financial penalties as well as increased Revenue interest
Develop procedures for dealing with expenses
 no receipt no reimbursement
 details of why the expense was incurred
Apply for a dispensation

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RTI & PAYE

WHY
WHAT
HOW
WHEN

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WHY
Current PAYE system was introduced in 1944 – the job
market of 1944 is much different than that of today
Technology has vastly improved – the introduction of NPS
(National Insurance and PAYE Computer System) in 2010 enables RTI
Reduce costs for both HMRC & the Employer (?)
Avoid overpayment & underpayment of PAYE
Prevent Tax Credit Errors & fraud

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WHAT
Employers will report to HMRC all payments as part of
their normal payroll activity –
Monthly or weekly depending on payment period for employees
Gross pay
PAYE & NIC deducted
Employees bank details & net payment made

No more P45s for joiners & leavers
 Employers will need to provide a leaving statement

No more P35
 Employers will need to provide employees with details currently provided on the
P60
P11Ds will remain (for the time being)

HOW

Initially
Internet through the Government Gateway using HMRC Basic PAYE tools
which will be developed to enable RTI
Electronic Data Interchange (EDI) using commercial software (will be
available at least until 2014)

Ultimately it is intended that the majority of RTI will be
submitted via Bacs

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WHEN

April 2012:
Test system with a small number of PAYE schemes (large, medium and small employees)

April 2013 to October 2013:
Employers will begin to use the RTI service

October 2013:
All employers will be using RTI

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Current position

Remuneration package & outgoings

Annual
£
Salary 25,000

Outgoings £
Childcare 100 per w eek 4,600
Pension 100 per month 1,200
Car parking for work 7 per w eek 322
Mobile phone 15 per month 180

Spends on average 2 days out of the office - site based

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Employee's net disposable income after outgoings
£ £
Salary 25,000
Less: Income tax 3,379
Employees NIC 2,088
(5,467)
Take home pay 19,533

Less: Outgoings
Childcare 4,600
Pension 1,200
Car parking for work 322
Mobile phone 180
(6,302)

Disposable income 13,231

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Cost to Employer
£
Cost
Salary 25,000
Employer's NIC 2,416

27,416

Less: Corporation Tax relief 20% (5,483)

21,933

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Revised position

Remuneration package & outgoings

Annual
£
Cash Salary 19,238
Subsistence 480
Benefits Childcare vouchers 2,530
Employer pension contribution 1,200
Car parking 322
Mobile phone 180

Total "gross" remuneration 23,950


Employee's net disposable income after outgoings
£ £
Cash salary 19,238
Less: Income tax 2,226
Employees NIC 1,397
(3,623)
Take home pay 15,615

Add: Subsistence payments 480
Less: Balance of Childcare (2,070)

Revised disposable income 14,025
Original disposable income 13,231
Increase in Employee's disposable income £794


Cost to Employer
£
Cost
Salary 19,238
Employer's NIC 1,621
20,859
Add: Cost of benefits
Childcare vouchers 2,530
1
Employer pension contribution 1,500
Car parking 322
Mobile phone 180
Subsistence payments 480
Administration 126
25,997

Less: Corporation Tax relief 20% (5,199)

Revised cost to employer 20,798
Original cost to employer 21,933
Decrease in cost to Employer £1,135

1
Employee w ill have made the contribution to the pension net of basic rate tax. The employer makes a gross contribution.


Contact

Mhairi Charlton
Senior Tax Manager

t: 01642 660 300
m: 07855 791 430
e: mhairi@anderson-barrowcliff.co.uk

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Thank you for listening

#Finance4SUB

Finance Tools - UK200 group

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