Bournemouth - Essential 6-monthly Finance Directors' Update - June 2016

Essential 6-monthly Finance Directors’ Update
Bournemouth 16th June 2016

Chairman's Welcome
Mark Johns, Partner

pkf-francisclark.co.uk
.
Housekeeping

.
Merger with PKF Francis Clark
• 1 April 2016 – merger with PKF Francis
Clark
• PKF Francis Clark
• 58 Partners
• Over 580 staff
• 8 offices – Taunton, Exeter, Salisbury, Poole,
New Milton, Torquay, Plymouth and Truro

Why merge?
PKF Francis Clark offices
• Culture & Team
• Foundations
• Specialisms
• Corporate Finance
• Financial Planning
• Tax Consultancy
• Payroll
• Geography

.
About the PKF network
• Global network of legally independent firms bound together by a
shared commitment to quality, integrity and the creation of clarity in
a complex regulatory environment.
• PKF is in the top 12 of worldwide accountancy networks
• PKF in the UK is ranked, by AccountancyAge Top 50 Firms, as
number 11 (operating as a network)
• Global network of over 300 independent member firms
• 440 locations in 150 countries
• A team of 14,000 including 2,600 partners
• Over $2.3bn worldwide revenue

PKF International Network

South West Insider Dealmaker Awards 2016
Nominations include:
• Corporate Finance Advisory Team of the Year
• Dealmaker of the Year – Andrew Killick
• Young Dealmaker – Matt Willmott
• Young Dealmaker – Nick Tippett
Award Nominations

• EU Referendum
• NHS
• Steel Industry
• National Living Wage
• US Presidential Election
• Tax Havens
UK Economy – period of uncertainty

Programme
Current Issues in Financial Reporting – Mike Bath
Topical VAT issues – Simon Anslow
Corporation tax – where are we headed? – Erin Davis
BREAK
Capital gains tax for corporate investors – Erin Davis
Employee benefits and pension auto-enrolment 3rd
anniversary duties – Peter Nyland
Transactions and Funding – Andrew Killick
LUNCH

Current Issues in Financial Reporting
Mike Bath

.
In this session….
• New audit exemption thresholds: do they make a
difference in practice?
• Company secretarial changes: how to stay on top
• FRS 102: the first six months – hints and tips
• New IFRSs and impact on UK GAAP

Thresholds Small companies
Turnover not exceeding £10.2m
Total assets not exceeding £5.1m
Employees
not exceeding
50 in all cases
Going up: audit exemption thresholds
Periods beginning on or after 1 January 2016 (no early
adoption)

Thresholds Small Groups
(gross)
Small Groups
(net)
Turnover not
exceeding
£12.2m £10.2m
Total assets not
exceeding
£6.1m £5.1m
Employees
not exceeding
50 in all cases
Impact of group membership?
Audit exemption only available where worldwide group
is below group threshold

• Well understood public report
• Checks and balances on management
External
perception
• Cheaper credit
• Covenant compliance
Third party
attitude
• Impact on warranties
• Attitude of buyers
Looking to
sell?
Advantages of audit?

• Annual guarantee by parent
• All liabilities existing at year end – actual, contingent
and prospective
• Until liabilities settled
 how much risk?
• Procedural requirements apply
Option for subsidiaries: audit
exemption via guarantee

Company secretarial changes
Persons with
Significant
Control
With effect from
6 April 2016
Annual
confirmation
statements
With effect from
1 July 2016

Introducing PSCs
Persons with
Significant
Control
“Registrable
individual”
“Registrable
Relevant Legal
Entity”

Identify
Confirm
RecordFile
Monitor
Operating the new regime

Condition Action required
i Individual who holds more than 25%
of the shares (direct or indirect)
Review register for holdings in excess of
25%
ii Individual who holds more than 25%
of voting rights
Review register of members and articles
of association to identify voting rights
iii An individual who holds the right to
appoint or remove the majority of
the board
Review the articles for information on
appointment rights e.g. sole director
whom one individual appoints
iv Individual who has the right to
exercise or actually exercises
significant influence or control
Relevant where individual does not meet
I – iii above but does exercise significant
control
V Trust or firm would satisfy i – iv if it
were an individual
Statutory conditions apply
What is “significant control”?

What about groups?
Company
C
Company
C
Company
C
Company
B
Company
A
Company
B
Company
A
Company
B
Company
A
Company A
Overseas
Company B
Overseas
Company C

Maintain
register
Part of statutory
books
Record details
of PSCs or
state there are
none
Notify
registrar
As part of
annual
confirmation
statement
On
incorporation
Actions required

Annual confirmation statements:
replacing annual returns
• File any annual return with due date up to 30 June as
normal
• New annual confirmation statement <14 days of:
• Anniversary of incorporation;
• Anniversary of due date of last annual return
“Confirmation Date”
• Fee as for annual return (£13 online)
• “Check and confirm” details held at Companies House – add
PSC information as part of the first confirmation
• Companies House will be issuing reminders

Points
to
watch
Loans and preference shares
Distributable profit
Reduced disclosure regime
New disclosures
FRS 102: the first six months

Impact on presentation
• Classify as due within one year unless formal
agreement restricts lender’s right
• Non-interest bearing long term arrangements must be
discounted
• Actual liability > balance sheet creditor(!)
• Capital contribution in equity for discount
• Discount unwinds via P&L
 Accounting and tax issues
= If classification is important, consider formalising interest
arrangements
Related party loans

• Must meet specific conditions re: interest, prepayment
and extension rights
• Non-basic loans at fair value
• Review proposed terms for impact on balance sheet
Is it a basic loan?
• Fair values mandatory
• Impact on net assets
• Where are fair value movements reported?
Caps, collars,
swaps and
forwards
• Unavoidable obligations still result in treatment as
debt
• Market rate coupon?
• Beware ratchet impact on basic/non-basic
Preference
shares
Third party finance

• New fair value adjustments via P&L
• Tracking mechanism – narrative explanation or
transfer to separate “non-distributable” reserve
(Also useful if have reorganisations, hive ups via
interco)
Distributable profit
FV adjustment Available for
distribution?
Investment property No
Short term forward
contracts
Yes
Interest rate swaps Is it backed up by cash?

• Available to subsidiaries and parent entity in own
accounts
• Exemptions include:
• Cash flow statement
• Share capital reconciliation
• Certain financial instrument and share-based payment disclosure
• Provided shareholders notified in writing and do not
object
• Disclose name of parent preparing consolidated
accounts, summary of exemptions taken
Reduced disclosure regime

Stock
• Cost of stock included in P&L
• Movement in stock provision
Debtors
• Movement in doubtful debt provision
Operating
leases
• Total commitment under leases, not annual
• Analysed by period
New disclosures

IFRS Deals with Effective date
for IFRS
reporters
Key changes
IFRS 16 Leasing A/Ps beginning
1/1/19
Lessees: All leases on
balance sheet
Exceptions for low value or
total lease period < 12
months
Lessors: No change
IFRS 15 Revenue
recognition
A/Ps beginning
1/1/18
5 stage process to
determining whether and
when revenue should be
recognised
Forthcoming changes to IFRS

Unclear at this stage
• FRS 102 subject to triennial review
• No amendments expected before 1/1/19 – 3 years from
small company application
• Implementation evidence before applied in UK – 2025?
Impact of IFRS on FRS 102?

Topical VAT Issues
Simon Anslow

Agenda
• What’s new with HMRC?
• Practical points on international trade
• Brexit – what could it mean for VAT?

.
What’s new with HMRC?
• Then and now
• Biggest reorganisation of HMRC in living memory
• Currently a large number of offices spread throughout
the UK
• HMRC has been centralising over the last 20 years

.
• The future - 13 regional hubs
• Office closures from end of 2016
• Interim measures – likely to be more visits, while
offices await closure. Transitional offices
• Specialist teams eg construction & cash teams
• Uncertainty, increased targeted visits and use of IT

HMRC VAT offices open in 2016

…and in 2021

.
International Trade: Contents
• Goods held in other EU countries
• Sales via online retailers
• Customs duties

• Movement to EU = EU VAT Registration
• One sale in EU = EU VAT Registration
• Call-Off vs Consignment
 Consignment
 Own Stock for distribution
 Place of supply = Country of location
 EU VAT Registration
 Call-Off
 Stock held for customer/customer’s country
 Place of supply = Country of location
 EU VAT registration…?
 Simplification may apply
International Trade: Goods held in other EU countries

• Amazon only an example, other providers likely to be
very similar
• Likely to become more widespread, authorities likely
to latch on to tax raising opportunities
• Issues where a business has Amazon as their sales
partner, rather than buy-sell
International Trade: Amazon

• MFN → Merchant Fulfilment Network
 Amazon market goods
 Goods from supplier’s warehouse
 B2C (Business to Consumer) contributes to Distance Selling
• EFN → European Fulfilment Network
 Fulfilled by Amazon
 Supplier picks Amazon warehouse
 UK → B2C contributes to Distance Selling
 EU → EU VAT registration
• MCI → Multi Country Inventory
 Goods moved to various Amazon warehouses
 Supplier unaware until stock report
 Potential multi-EU registrations
International Trade: The Amazon Effect

• Is your business involved in importing goods from
non-EU countries?
• If yes do you take advantage of appropriate reliefs eg
inward processing relief?
• Do shipping agents classify goods for you?
• Duty savings affect bottom line
• Impact of changes to Union Customs Code from 1
May 2016
International Trade: Custom Duties

YES
Brexit: Will VAT be affected?

• Fortunately (for me) we are likely to keep it – VAT
accounted for 20% of receipts (ironically)
• Third highest tax after income tax and NICs
• Dwarfs income from corporation tax receipts
• In most circumstances UK VAT law is derived from EC
Directives
• Already had an effect – womens’ sanitary products for
instance and mention of allowing states more
freedom

• Immediate impact would be that the UK would not be
bound by CJEU decisions
• Could expand zero rate
• Could have extra rates
• Standard rate higher than 25%
• Super high rate for things we don’t like, tobacco,
sugary drinks
• VAT ‘holidays’ for certain supplies, say reduce for
restaurant for a few months

• Could narrow exemptions
• Likely to impact on cross border sales in EC
• Distance selling, MOSS (Mini One Stop Shop), duty
all likely to be affected
• Place of supply of services – no need for business
test?
• How about recovery of VAT re specified supplies?

And finally….

Corporation Tax – Where are we heading?
Erin Davis

• Big Announcement….
Where are we heading?
• 23 June – EU Referendum
• Fundamental uncertainty as to direction of Tax Policy
• But, that said, we do have “A Road Map” as to
preferred direction….

.
The Old Map
• George Osborne - May 2010
• Corporate Tax Road Map
• Most competitive Corporate Tax regime in the G20
• Stable economy
• A level playing field for taxpayers
• Aligning tax with modern business practice
• Avoiding complexity

• Corporation Tax rate unchanged 1 April 2016 – 31 March 2017 -
20%. Past and future corporation tax rates:
Tax Competition or Tax Haven?
Northern Ireland – 12.5%

• Taxes should be low but must be paid?
APNs/Follower Notices
• Encourage Entrepreneurship?
Low Rates of CT/10% rate of ER
• Not Reward Aggressive Tax Avoidance?
Introduction of GAAR – July 2013
What else have we seen?

Measures to ‘clamp down on artificial structures used to
gain a tax advantage’ since 2010
• Disguised remuneration
• Corporate loss buying
• Partnership review
• Offshore intermediaries
• Diverted Profits Tax
• Phoenixing
• High profile ‘wins’ collect £494million
Anti-Avoidance

.
• Government’s approach to business tax for the Parliament
• Supporting small business
• Continuing to deal with avoidance and aggressive tax
planning
• Level playing field for all tax payers
• Simplifying and modernising the tax regime
Business Tax Road Map - 2020

• Business Rates
• Business Energy Efficiency Taxation
• International Matters
• OECD (BEPS)
• EU directives
• G20 (tax haven transparency)
Business Road Map –
specific areas worthy of mention

• Relief for rateable values of £12,000 or less;
• Previously £6,000 or less
• Clearly good news for the smaller “bricks and mortar”
business
• Climate Change Levy increasing over 4 years
• CCL ‘Relief’ enhanced – good for heavy users
• Tata Steel and BHS?
Business Rates & Green Taxes

• BEPS has a large focus on digital businesses
• Enlarged definition of permanent establishment
• Increased emphasis on commercial & economic
substance
• Increased emphasis on VAT & destination principle
• Transfer pricing, treaty abuse & hybrid mis-matches
• UK already implementing
BEPS Initiatives

• Interest expense
• Amount of tax relief on interest
• Capped at 30% of EBITDA
• Exceptions for groups with legitimately high interest
• UK measure from 1 April 2017
BEPS Action 4 - Interest

• Extend withholding tax to use of trademarks & brand
names
• Taxing “outbound” royalties
• Means of ensuring MNCs can’t avoid UK tax
• More taxation of inbound royalties by other countries
• Finance Bill 2016 measure
BEPS Structuring - Royalties

• Current scheme introduced from April 2013
• 10% CT rate for profits derived from qualifying IP rights
(UK and EU patents)
• OECD considers a ‘harmful tax practice’ (Action 5)
• New scheme from 1 July 2016 for new IP and new
entrants
• Current scheme grandfathered until 30 June 2021
• 2 year time limit for electing into old regime – the latest
accounting period being one which straddles 1 July 2016
Patent Box –
New BEPS compliant regime

• What’s new?
• Restriction on Patent Box profits where >30% of R&D
subcontracted to connected parties
• Restriction is calculated by a ‘nexus fraction’ (connected vs
unconnected R&D)
• If 100% of R&D is subcontracted to connected parties = fraction will
be 0% (no relief available)
• R&D spend is cumulative for 15 years in fraction, recalculated
annually
• Applies to UK and non UK subcontractors – so all UK groups with
R&D in a separate company to income will be restricted
Patent Box –

• Streaming income and expenditure for each patent will be
mandatory
• Nexus fraction applied to each Patent Box stream
• Increases administrative burden
• Once grandfathering expires, nexus fraction must include streamed
R&D spend – need to start streaming this now
• Complex situation for companies needing to apply both regimes
until 2021!
• Is it worth it? Yes if the Patent Box income stream is high margin
Patent Box –

• Company can use a trade loss against profits of the
same year
• Can be carried back against profits of the previous 12
months
• Group relieved against profits of that year; or
• Carried forward against profits of the same trade
Trade Losses – Current Position

Losses – Old Rules
Year 1 Year 2
Rental Profit 300,000 300,000
Trading Profit - 50,000
Loss c/y profit (300,000) vs same trade (50,000)
Taxable Profit - 300,000
Corporation Tax - 60,000
Trading Loss 500,000 200,000
Used vs Trade - year 1 (300,000) (50,000)
Loss Carried forward 200,000 150,000

• Losses incurred from April 2017
• Apply to both standalone companies and group
companies
• Allow carried forward losses to be used against
other income and gains
• For taxable profits in excess of £5 million, restrict
to 50% the amount of profits that can be offset
through losses carried forward
Trade Losses – New Rules

Losses – New Rules
Year 1 Year 2
Rental Profit 300,000 300,000
Trading Profit - 50,000
Loss c/y profit (300,000) (200,000)
Taxable Profit - 150,000
Corporation Tax - 30,000
Trading Loss 500,000 200,000
Used vs Trade - year 1 (300,000) (200,000)
Loss Carried forward 200,000 -

• Impact on Deferred Tax?
• Need to stream losses for pre and post 2017
• Timing of expenditure/projects
Losses

• Annual pay bills >£3,000,000
• <2% of employers will pay
• 0.5% of excess over £3,000,000
• Introduced with effect from April 2017
• Class 1 NIC – apprentices under 25
Apprenticeship Levy

• Annual pay bills >£3,000,000
• <2% of employers will pay
• 0.5% of excess over £3,000,000
• Introduced with effect from April 2017
• Class 1 NIC – apprentices under 25
• Auto-Enrolment – additional 3% (6 April 2019)
Apprenticeship Levy

• Corporation Tax rate unchanged 1 April 2016 – 31 March 2017 -
20%. Past and future corporation tax rates:
With one hand he giveth…
Year
Commencing
1 April
Main
Rate
%
Small
profits
rate %*
Auto
Enrolment %
Apprenticeship
Levy %
2010 28% 21% n/a
2011 26% 20% n/a
2012 24% 20% 1% n/a
2013 23% 20% 1% n/a
2014 21% 20% 1% n/a
2015 20% - 1% n/a
2016 20% - 1% n/a
2017 19% - 1% 0.5%
2018 19% - 2% 0.5%
2019 19% - 3% 0.5%
2020 17% - 3% 0.5%

Old rules vs new rules
• SDLT on commercial property transactions aligned
with residential property rules – “slab-based” to “slice-
based”.
• New non-residential SDLT rates are as follows:
Stamp Duty Land Tax (SDLT)
Value SDLT Rate %
Up to £150,000 0%
Between £150,001 and £250,000 2%
Above £250,000 5%

• Example - purchase of commercial property costing
£300k SDLT is reduced by £4,500.
SDLT – illustrative calculation
Old SDLT £ New SDLT £
On the whole £300k – 3% 9,000 On the first £150k – 0% -
Between £150k and £250k – 2% 2,000
Final £50k – 5% 2,500
9,000 4,500

• More than one dwelling
• SDLT rate is arrived at by taking:
• Aggregate consideration for dwellings
• Divided by the number of dwellings
• Subject to a minimum percentage of 1%
• Usually now at least 3%
• Can be 15%
• Can also be treated as non-residential
SDLT – Multiple Dwellings Relief (“MDR”)

• We have already seen the 2020 Roadmap
• Review of Substantial Shareholdings Exemption
(SSE) and Double Taxation Treaty Passport (DTTP)
• Anti-avoidance measures
• Publication of tax strategy for large businesses
• New QIP dates for large companies from 2019
• All 4 payments will be made within the 12 month accounting period
• Bringing in line with other G7 countries (and increasing cash flow
advantage for HMRC!)
2020 and Beyond

• Clear Roadmap as to plans to 2020
• But major T-junction in place on 23 June!
• The most important slide is the next one…
2020 and beyond

(c) copyright PKF Francis Clark, 2016
You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise
circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by PKF Francis
Clark in any format whatsoever unless you have obtained prior written consent from PKF Francis Clark to do so and entered into a licence.
To the maximum extent permitted by applicable law PKF Francis Clark excludes all representations, warranties and conditions (including, without limitation,
the conditions implied by law) in respect of these materials and /or any services provided by PKF Francis Clark.
These materials and /or any services provided by PKF Francis Clark are designed solely for the benefit of delegates of PKF Francis Clark.
The content of these materials and / or any services provided by PKF Francis Clark does not constitute advice and whilst PKF Francis Clark endeavours to
ensure that the materials and / or any services provided by PKF Francis Clark are correct, we do not warrant the completeness or accuracy of the materials
and /or any services provided by PKF Francis Clark; nor do we commit to ensuring that these materials and / or any services provided by PKF Francis Clark
are up-to-date or error or omission-free.
Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law
and related regulations on the re-use of Crown copyright extracts in England and Wales.
These materials and / or any services provided by PKF Francis Clark are subject to our terms and conditions of business as amended from time to time, a
copy of which is available on request.
Our liability is limited and to the maximum extent permitted under applicable law PKF Francis Clark will not be liable for any direct, indirect or consequential
loss or damage arising in connection with these materials and / or any services provided by PKF Francis Clark, whether arising in tort, contract, or otherwise,
including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for
death or personal injury caused by our negligence, or for any other liability is not excluded or limited.
PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered
number OC349116. The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for
inspection and at www.pkf-francisclark.co.uk. The term ‘Partner’ is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on
audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious
probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the
UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the
insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and
does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Disclaimer & copyright

Capital Gains Tax for the Corporate Investor
Erin Davis

• Dividends or capital gains?
• Completely different tax regimes
• Enterprise investment schemes (EIS), entrepreneurs’
relief (ER) & investors’ relief (IR)
• Changes to ER proposed by Finance Bill 2016
Returns to shareholders

.
Dividend taxation
Effective tax rates taking account of tax credit (2015/16) but
ignoring £5,000 dividend allowance (2016/17):
2015/16 2016/17 Increase
Basic rate 0% 7.5% 7.5%
Higher rate 25% 32.5% 7.5%
Additional rate 30.6% 38.1% 7.5%
Other Changes – removal of the “Notional Tax Credit” and also the
£5,000 dividend allowance.

.
Capital Gains Tax
Note – excludes residential property (28%) (subject to Royal Assent of
FB 2016)
2015/16 2016/17
Basic Rate
Taxpayer
18% 10%
Higher Rate Tax
Payers
28% 20%
With
Entrepreneurs’
Relief
10% 10%
With Investors
Relief
10% 10%

• Tax rates on income much higher than capital
• Promotes entrepreneurial flair
• Extraction as capital advantageous
• Even better if you can claim EIS, ER or IR
• Targeted Anti-Avoidance Rules (TAAR) on liquidation
Capital or Income?

Investor qualifies for ER if:-
i) Hold 5% of the ordinary shares & 5% of the votes;
ii) Are an officer or employee of the company; and
iii) Shares are in a trading company
Must be throughout a 12 month period immediately prior to
the disposal.
Entrepreneurs’ Relief on shares

• CASTLEDINE V HMRC
Ordinary Shares
Mr C
> 5%
Others
< 95%
Company

Deferred shares created; they had
• no dividends rights
• no voting rights
• no realistic participation in winding up
• Mr C held no deferred shares
Ordinary Shares

• CASTLEDINE V HMRC
Ordinary Shares
Mr C
< 5%
Others
< 95%
Company
Deferred Shares

• Deferred Shares are ordinary shares
• Shares diluted Mr C’s shareholding
• Moral of the story…….
But…contrast with McQuillan Case….
….zero coupon preference shares
Ordinary Shares

• Dispute between Mr Moore and other shareholders
• Feb 2009 agreed the company would buy his shares
• Clearance for capital treatment granted
• Agreed that employment to be terminated
• May 2009 General Meeting resolved to purchase
shares
• Date of resignation of directorship 28 February 2009
• Entrepreneurs’ relief refused
Employment – Moore case

.
Entrepreneurs’ Relief – Joint Ventures
Finance Act 2015 changes introduced to prevent ‘abuse’
E.g. 10 individuals each own 10% of a management company
Family
10% 10%
30%
70%
10 individuals ER?
Pre FA 2015 a
FA 2015 r
Now r

.
Finance Act 2015 inadvertently caught commercial arrangements
100%100%
50% 50%
Trade Co
Mr A Mr B
ER qualifying
Pre FA 2015 a
FA 2015 r
Budget ‘16 announcement
- March 2015 onwards a

.
• New definitions of trading company and trading group
• Treated as carrying on a proportion of the activities of JV
• Claim ER if effective 5% interest and control
Entrepreneurs’ Relief – Joint ventures
Co A
Co B
20%
40%
Mrs A
20% x 40% = 8% effective control

.
E.g. 10 individuals each own 10% of a management
company
Family
10% 10%
30%
70%
Effective 3% Control

• 10% CGT rate on newly subscribed shares in unlisted
trading companies
• Cannot be an employee or director
• Trustees are not eligible
• Spouse transfers take original holding period & status
• £10m lifetime allowance additional & separate from
£10m ER lifetime allowance
• So a director owning 3% is entitled to…..
Investors’ Relief (IR)

• Held continually for 3 years before disposal after 5
April 2016
• New issue of shares on or after 17 March 2016
• Measure continues theme to make equity more
attractive than debt
• Full EIS investment still more attractive in the long
term as Capital Gains Tax free
Investors Relief (IR)

Entrepreneurs’ relief versus
New investors’ relief - summary
Condition ER ER
Acquisition of shares
From anyone at any time - shares can
be second hand
Subscribe for new shares on or
after 17 March 2016
What shares qualify
Includes all types of shares, preference
and securities (debentures)
Only ordinary shares
Period to hold shares 12 months to date of disposal
36 months to disposal, period
starts no earlier than 6 April 2016
Minimum proportion of shares in
issue to hold
5% of ordinary share capital No minimum
Employment condition
Investor must be employee or officer of
company for at least 12 months to
disposal
Requirement that not officer or
employee
Company
Trading company or holding company of
trading group
Unquoted trading company or
holding company of trading group
Maximum life time gains covered by
ER
£10 million £10 million

Investors Relief Enterprise Investment Scheme
10% Rate of Capital Gains Tax Free Gains
Any Trading Company Beware of Excluded Trades
3 year holding period 5 year holding period
Can be an exit plan No pre-determined exit plan
What about EIS Relief?

• Important for ER, IR and EIS
• HMRC to be reviewing “trading” definition
• Important for South West with:
• Hotels
• Holiday parks
• Farms
• Marinas
• etc
Trading…..

When is this going to be law?
• Would normally be by 21 July – when Summer Recess starts
• However may not be until MP’s Summer Holiday ends – 5
September
• Then less than two weeks before Conference Season starts
• Very little time for Committee Stages
• Latest date for Royal Assent is 16 October
• So any number of changes might be removed
• Legislation might be revisited!

Employee Benefits and the AE Triennial Review
Peter Nyland

Agenda
• Employee benefits
• What are employee benefits?
• Market background
• Why bother?
• Getting benefits right for your company
• Auto-enrolment Triennial Review
• How to approach it
• Summary
fcfp.co.uk

What are employee benefits?
• Benefits provided by employers, for their employees:
• Pension!
• Death-in-Service
• Group income protection
• Group critical illness
• Private medical insurance
• Salary sacrifice – Eye care vouchers – cycle to work – childcare
vouchers - etc
Employee Benefits
fcfp.co.uk

Employee Benefits
• Advisers could set up a plan for employers
• “no charge” to the employer
• A large commission paid up front
• Paid for by high charges within the plan
• “the good old days”
Market background
fcfp.co.uk

Employee Benefits
• Auto-enrolment has raised employee awareness
• …and expectations
And….
• Commission no longer payable
• Employee Benefit Consultants (EBCs) changing their
proposition
• Higher employer costs, and/or
• Reduced service
• Member-level service all but gone
Market background – the times they are a-changing…
fcfp.co.uk

Employee Benefits
Why bother?
• Employee expectations
• A ‘given’ for larger employers
• ……..don’t be left behind
• 43% of employers provide PMI for all/some staff*
• 26% provide income protection/long-term disability cover*
* “Absence Management 2015” published October 2015 by CIPD
fcfp.co.uk

Employee Benefits
Why bother?
• Employee market is tightening
• Harder to get the right people;
Over 75% of employers that attempted to fill vacancies in 2015,
encountered difficulties, regardless of sector*
• Retention more important
• Reduced recruitment costs
* “Resourcing and Talent Planning” published June 2015 by CIPD
fcfp.co.uk

Employee Benefits
Why bother? – an example
• 25 Employees
• Average salary: £47,500
• Group Life cover (4 x salary) - £540 p/month
• Group Income Protection - £745 p/month
• Total: £1,285 p/month
• £15,420 pa
• Recruitment costs for one person?
• Two people?
fcfp.co.uk

Employee Benefits
Why bother? – an example
• Average salary: £24,000
• Group Life cover (4 x salary) - £270 p/month
• Group Income Protection - £372 p/month
• £7,700 pa
• Recruitment costs for one person?
• Two people?
fcfp.co.uk

Employee Benefits
Why bother?
• When was the last time benefits were reviewed?
• Are renewals completed ‘automatically’?
• Are benefits in line with a modern market?
• And at a competitive market rate?
• £7,700pa (previous example) could be £10,000pa if you’re not
paying attention!
fcfp.co.uk

Employee Benefits
Why bother?
• 66% of staff saying they would be more likely to stay with an
employer that offered good benefits 1
1Employee Insight report 2015 - Capita Employee Benefits
fcfp.co.uk

Employee Benefits
Why bother?
• Pension contributions are deductible for Corporation Tax
purposes
• Salary Sacrifice offers an Employer NI saving
• Relevant Life policies are hugely tax efficient
• Group Income protection: qualifies for Corporation tax relief
• As does Group Critical Illness
fcfp.co.uk

Employee Benefits
Why bother?
• Relevant Life policies:
fcfp.co.uk

Employee Benefits
Identify those employees in skilled, strategic positions
Or those in areas with high turnover
Consider an ‘inclusive’ benefits package for these employees
Offer ‘benefits lite’ for other staff (lower-skilled, more transient)
Getting benefits right for your company
fcfp.co.uk

Employee Benefits
Death-in-Service
• Relevant Life policies for owner-managers; 15 x salary!
• 4 x salary for key personnel
• 2 x salary for ‘blue collar’ workers
fcfp.co.uk

Employee Benefits
Group Income Protection
• Bespoke benefit for owner-managers
• 75% salary for key personnel
• 50% salary for ‘blue collar’ workers
• 6 month deferred period – or specify for each category of
benefit
fcfp.co.uk

Employee Benefits
Group Private Medical Insurance
• To include partners and children for key staff
• Basic benefits for others
fcfp.co.uk

Employee Benefits
What to do first?
• Pension!
• Thereafter, consider the needs of your workforce…
• DIS
• Group Income Protection
• Group PMI
• Group Critical Illness
fcfp.co.uk

AE Triennial Review
How to approach it
• Establish review date (three months either side of third
anniversary of staging date)
• Review scheme for suitability
• Review scheme for AE purposes
• Review payroll interaction
• Reassess workforce, including opt-outs, and re-enrol
appropriate staff
• Complete Declaration of Compliance
fcfp.co.uk

Summary
• Employee benefits can cover their own cost
• Existing benefits should be reviewed
• Expected (and appreciated) by an increasingly savvy workforce
• Why wouldn’t you promote them?
• Auto-enrolment still has to be done correctly
Conclusions
fcfp.co.uk

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly
recommend that no action should be taken before obtaining detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an
investor may not get back the amount invested.
PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised
and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF.
Registered in England No. 05413603.
Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not
accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro
Disclaimer & copyright
fcpp.co.uk

Transactions and Funding
Andrew Killick

.
Agenda
• Bank covenants – ensuring that they work for you
• Transactions – is the current environment the new norm?
• Strategic planning in an uncertain world – a good time to
revisit and plan ahead

.
Bank covenants
• Bank covenants – often receive little attention until it’s too
late!
• Different Banks have different approaches to setting
covenants
• Covenants become more important when there is change in:
• Interest rates – interest cover
• Asset values – tangible net worth
• Trading performance – CFADS/Debt service

.
Bank covenants - breaches
• Designed to be an early warning system and contain an
element of headroom
• Technically, committed facilities (i.e. loans) become
repayable on demand
• You may be able to obtain a waiver for the breach
• Timing of the waiver is key – there may be a cost involved
• Discuss with your bank ahead of any forecast breaches
• ‘Flexibility’ can change with changes in relationship
Manager/Credit Manager

.
Bank covenants
• Definitions – is there certainty of how they are calculated?
• Accounting changes – e.g. leases?, FRS102?, profit?
• Basis of valuation for assets?
• Change in year end?
• Acquisitions/disposals?
• Audited accounts?
• Timing – Quarterly, Annual, Rolling 12 months

.
Transactional environment
For Buyers/borrowers for expansion:
• Interest rates – lowest ever, borrowing margins – low
• Inflation – low
• Availability of debt and equity – improved dramatically since
2009
For Vendors:
• Multiples/pricing – relatively high
• Capital taxes – very low

.
Actual transaction multiples
Blue line represents EBIT
Red line represents profit after tax (PAT)

.
Deal volumes

.
Economy
Economic forecast 2017: GDP (%) Unemployment (%)
UK 2.2 5.00
Germany 1.6 4.8
France 1.3 10.0
Italy 1.2 10.9
Spain 2.3 19.5
Greece (1.7) 27.8

.
Transactions – the new norm?
• 7 years or more of near zero interest rates
• Inflation <5% for 10 years
• What is ‘normal’ in today’s world?
• Does your age influence your views?

.
Transactions – economic influences
• Gordon Brown didn’t break boom and bust
…but will ultra low rates reduce some of the “bust” risk?
• Could we survive a material interest rate rise??
• BREXIT?! Impact on current transactions

.
Transactions – Debt v Equity
• Debt is being attacked
• Equity being given more tax benefits (IR, ER, EIS, SEIS)
• Consider transaction funding structures carefully – what
may seem fine now, could be viewed quite differently in the
future

.
Strategic Plans
• Post Election
• Autumn spending review
• EU Referendum
• Political stability?
• Longer term planning
• Next Election?
• US Election?

.
Strategic Planning
• Think broadly – life and markets move fast – look ahead,
new applications and developments?
• It’s not just opportunities – what about risks/threats and
new competitors?
• Revisit it every few years or when there has been a
significant change
• Just because you’ve heard some bad news – doesn’t mean
that it will affect your business!

.
Summary
• Covenants – give them the attention they deserve!
• Don’t look back and regret not undertaking a transaction
• Consider your views and whether the economic landscape
has changed
• Undertake a Strategic Review into which your annual
Budgeting process will fit

• Taunton - Tuesday 8th November, Somerset County Cricket Club
• Plymouth - Wednesday 9th November, Borringdon Golf Club
• Bournemouth - Thursday 17th November, AFC Bournemouth
• Exeter - Wednesday 23rd November, Exeter Racecourse
• Fraddon - Thursday 24th November, Kingsley Village
November FD Seminars

Bournemouth - Essential 6-monthly Finance Directors' Update - June 2016

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Bournemouth - Essential 6-monthly Finance Directors' Update - June 2016

Similar to Bournemouth - Essential 6-monthly Finance Directors' Update - June 2016 (19)

More from PKF Francis Clark

More from PKF Francis Clark (20)

Recently uploaded

Recently uploaded (20)

Bournemouth - Essential 6-monthly Finance Directors' Update - June 2016

Editor's Notes