Essential 6-monthly Finance Directors' Update - Nov/Dec 2014

December 2014
Finance Directors’
Seminar

www.francisclark.co.uk
Chairman’s Welcome
Charles Evans
Partner

Housekeeping

What’s new at Francis Clark ?
British Accountancy
Awards 2014
Corporate Finance
Team of the Year

Francis Clark Export Club
The Francis Clark Export Club is designed
to provide a resource for people who want
to successfully grow their business
overseas

Business Recovery team
Debt recovery services
• Are you concerned about a customer?
• Worst case scenario – is the customer insolvent?
Our Business Recovery team can help

Finance in the South West 2015
Wednesday 25th
February 2015
Exeter Racecourse
Declan Curry
Business and Economics Journalist
Photo credit: Gill Shaw

Programme
Stephanie Henshaw, Technical Partner
• Current issues in Financial Reporting
Gordon Fox, Tax Partner
• Corporation Tax Update
Liam Dushynsky, VAT Consultant
• Topical VAT Issues

Programme
COFFEE BREAK

Programme
Gordon McCaw, Tax Consultant
• Capital allowances - Use it or lose it!
Richard Wright, Consultant
• Pensions, Pensions, Pensions!
Nick Woodmansey, Corporate Finance Associate
Director
• Current trends in Funding and Transactions

Programme
LUNCH

Stephanie Henshaw
Current issues in
financial reporting

In this session….
Practical
implementation
issues for FRS
102
Coming soon:
other financial
reporting
changes
Intra group issues
Financial
instruments
Deferred tax
Commercial impact
Thresholds for
company size
Small company
reporting
IFRS update

FRS 102 Application recap
1/1/14 1/1/15
First
year end
Transition
Date
First Time
Adoption
Comparative
balance sheet
31/12/15
Today

Case study: Ramsey Group Limited
Overview of conversion process
Potential
areas of
change
Additional
data
required
Commercial
impact

Group Structure
Wholly- company
owned
Ramsey
Group
Limited
Moore
Defence
Limited
Main
trading
H&P
Solutions
Limited
Defence
sector
Distribution
operation
subsidiaries

Ramsey Group Limited:
Financing arrangements
• Intra group balances – trading and financing
• In parent - 10 year bank loan with interest rate swap, covenants on
profit and tangible net worth
• Forward contract for purchases in foreign currency
Note: two key suppliers insure their trade debts

Intra group funding
RGL MDL
Trading
H&P
Trading
Financing

Accounting under FRS 102:
Financing balances
Is the loan
repayable on
demand?
Yes
Record at
amount due
on demand
No Is a market
rate of interest
charged?
Yes
Record at
amount due
No Record at
PV of future
cash flows
Initial discount
affects retained
profit
Is the
company
dormant?
No
Yes
Record at
amount
due
Discount and “unwinding” changes profile of profit
and perception of balance sheet?

Financial instruments
Must identify
types of
instrument
• Separate into “basic” and “non-basic”
• Classification determines whether
amortised cost (basic) or fair value
(non-basic)
• Consider specific terms - may also
impact on valuation within “basic”
• If hedge transactions to manage
risk, consider whether accounts
should apply hedge accounting

Classifying bank loans – basic or non-basic
• Previously – lots of potential problems
• Now – requirements amended to restrict likelihood of non-basic
• Key elements to classify loan as basic
• No leveraging e.g. x times standard variable rate
• Any index link must be to general measure of price inflation e.g. RPI
• If fixed and variable rates are combined, variable rate must be positive
• Review loan arrangements and terms, including early payment
options

Ramsey Group Limited has a 10 year
loan, taken out in 2007. Interest is
payable at the bank’s standard variable
rate plus 2.5% over the life of the loan.
The bank insisted on an interest rate swap
(to fix interest payments) as part of the
lending. There is a considerable financial
penalty for terminating the swap early.

Analysis of financial instruments
Instrument Classification Ongoing
reporting
Bank loan Basic instrument Carry at amortised
cost
Interest rate swap Non-basic Recognise at fair
value on transition
with
corresponding
(debit?) entry
against reserves.
Adjust fair value
annually via P&L

Hedges and hedge accounting
• Potential solution for profit impact of fair value adjustments on
interest rate swap
• Conditions apply:
• Identify hedged item, risk (bank loan, cash flow or fair value)
• Identify hedging instrument (e.g. interest rate swap, forward contract)
• Document why expected to be effective in managing risk
• Allows offset/ matching of fair value movements via balance sheet until
settlement
• Can apply retrospectively to hedges at Transition Date

Ramsey Limited buys raw materials in sterling,
dollars and euros.
Forward rate agreements are used to manage
foreign currency exposure from purchase to
settlement.

Analysis of financial instruments
Current UK
GAAP
FRS 102
Foreign exchange
forward contract
Use contract value
to translate asset/
liability under
contract
Treat contract and
related transaction
as separate items
Creates potential
mismatch on
“open” contracts at
the year end

Forward contracts
Sell goods Year end Settlement
Sale at
transaction
rate
Debtor at year
end rate
Gain/loss on
settlement
Loss/gain on fair
value
Loss/gain on fair
value
Gain/loss in
period
Forward contract
Nil
value
Fair
value
Fair
value

RGL holds property for use by group
companies. Rental of property covered in
management charges to subsidiaries

Treatment of
group property
rental
Intra group property rental no
longer excluded from
investment property
Carry investment property at
fair value, adjusting via P&L
in RGL’s own accounts
Not investment property in
group accounts. No fair value
on consolidation. Depreciate
as group asset.

Investment property and distributable profit
Depreciation in
group accounts
No impact as no
distributions
from group
Fair value via
P&L in entity
accounts
Not realised
profit
Good practice:
Memo note to
accounts

Additional
provisions for
deferred tax
Provide deferred tax on all
revaluations and fair value
adjustments, incl acquisitions
and overseas subs.
Provide deferred tax on all
rolled over gains
On transition, recognise
additional provision and adjust
against retained profit/
revaluation reserve as
appropriate

Deferred tax: illustrative impact
At Transition Date accounts disclose:
Deferred tax provided £140,00
Tax on investment property valuation adjustment £50,000
Tax on rolled over gains of £95,000
£ Comments
At Transition 140,000
Deferred tax on investment
property adjustment
50,000 Parent only,
annual adj.
Deferred tax on rolled over
gains
95,000 Parent and
group
As restated 285,000
Impact on balance sheet perception and covenant test?

Determining relevant profit for dividends
31/12/13 30/9/14 31/12/14
Dividend
£250k
Relevant
accounts
Retained
profit
£450k

Determining relevant profit for dividends
on adoption of FRS 102
31/12/14 31/12/15
30/9/15
Dividend
£250k
Relevant
accounts
Retained profit
under UK GAAP
£450k
Less: FRS 102
adjustments
£275k

FRS 102 and distributable profit
Adjustment Distributable profit impact Non-distributable item
Discount on interest free
intra group finance
Yes – impact +/- depending
on whether parent or
subsidiary
Interest rate swap valuation
adjustment
Yes – if swap is
“underwater”, unless hedge
accounting applied
Fair value adjustments on
forward contracts
Yes – open contracts only.
+/- impact depending on fair
value adjustments v forex
gain/loss
Intra-group investment
property at fair value
Yes – consider memo note
to the accounts to identify
Deferred tax on investment
property valuation
adjustment
Yes – follows fair value
adjustment
Deferred tax on rolled over
gain
Yes – reduces distributable
profit

Coming soon: changes to small company
accounting requirements
• New EU Directive replaces current UK rules
• Implement by 1 January 2016
• Key features include:
• Increase size thresholds for small and medium
companies and groups
• Mandatory restriction on notes to small company
accounts

Key issues: adjusted thresholds for
small companies
Thresholds Currently EU
Minimum
EU
maximum
Potential
UK impact
£m €m €m £m
Turnover 6.5 8 12 10.2
Total assets
3.26 4 6 5.1
(balance
sheet total)
Employees 50 50 50 50

Impact of regulatory change on accounting
regime for small companies
Significant
increases to
thresholds
More small companies
• Less disclosure imposed
• Mandatory restriction on
“local” disclosures
• But still need “true & fair”
• Current FRSSE contains
“excess” disclosure
• FRC proposes to abolish
FRSSE
• FRS 102 measurement &
recognition rules for small
companies

FRS 102 and small companies
First
year end
Transition
date
First Time
Adoption
Comparative
balance sheet
1/1/15
1/1/16 31/12/16

Q: What about the
audit threshold?
A: Not yet…..

Update on IFRS
• No significant changes relevant for 2014/15 accounts
• New rules for revenue recognition – IFRS 15
• APB 1 January 2017
• May affect point at which sales recognised where no contractual right to
payment by customer until completion
• Consider whether current contractual arrangements could affect
recognition point
• Changes to lease accounting still not finalised – will bring all
leases on balance sheet, but when?
Note: none of the above reflected in FRS 102

Gordon Fox
Corporation Tax
Update

Corporation Tax – It’s all about simplification
• One single rate of Corporation Tax with effect from 1
April 2015
• 2015 Election?
• No more Close Investment Companies
• No more “marginal rates”
• Associated Companies - from 1 April 2015 only where a
member of a 51% group.
• Standalone companies no longer ‘associated’.

Corporation Tax Rates
35%
33%
31%
29%
27%
25%
23%
21%
19%
17%
15%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Tax Rate
Historical Corporate Tax Rates
Main Rate
Marginal Rate
Small Co Rate

Associated Companies – a simplification?
Exemptions from entitlement to claiming the NIC Employment Allowance of
£2,000 for connected companies
If, at the start of the tax year, 2 or more companies are connected with each other
and those companies would otherwise each be entitled to the Employment
Allowance, only one of those companies can qualify for the Employment
Allowance for that tax year.
Where 2 companies are only connected with each other through the attribution of
rights between certain associated persons (e.g. relatives), the connected persons
rule will only apply if the companies in question are substantially commercially
interdependent. For example, when one company gives financial support to
another, they have the same economic or commercial objectives and have
common management, employees and premises.

Associated Companies
Corporation Tax Employers National Insurance
Pre 1 April 2015 Based on Attribution of Rights Based on Attribution of Rights
Post 1 April 2015 New 51% Group Test Based on Attribution of Rights

Profit Extraction – Double Tax Hit
A Limited
Profit in Company
Tax at 20%
Salary
Dividends
Pensions

Profit Extraction – Salary vs Dividends
Salary Dividends
£ £
Available
Profit Pool 100,000 100,000
Bonus 87,873 Corporation Tax 20,000
Ers NIC (13.8%) 12,127 Profits available 80,000
for distribution
Gross Salary 87,873
Income Tax (40%) 35,149 Higher Rate Tax 20,000
National Insurance (2%) 1,757 on Dividend Income
Net Received 50,967 Net Received 60,000
Effective Tax Rate 49.03% Effective Tax Rate 40.00%

Profit Extraction – A new approach?
Pension Dividends
£ £
Available
Profit Pool 100,000 100,000
Pension Contribution 100,000 Corporation Tax 20,000
Profits available 80,000
Tax Free Lump Sum 25,000 for distribution
Balance of Fund 75,000
Income Tax (40%) 30,000 Higher Rate Tax 20,000
Pension "Income" 45,000 on Dividend Income
Net 70,000 Net Received 60,000
Effective Tax Rate 30.00% Effective Tax Rate 40.00%

Points to Note
• Cash flow – dividends vs pensions?
• Corporation Tax relief – wholly and exclusively?
• Funding?
• Spreading?

Spreading…..
Barry, Maurice and Robin are three brothers operating a successful
business. They are all aged in their 50s and have decided to
contribute to the pension fund…..
Each wants the company to contribute £190,000, a total of £570,000.
As the company contribution is more than £500,000 spreading
applies.
½ in first year and balance in year after.

One Step Further………
Einstein Limited is wholly owned by Mr Albert. Einstein Limited
carries out a certain amount of research and development activity.
Mr Albert is involved in the R&D activities and spent 11.1% of his time
in those activities.
Mr A is reaching retirement age and is thinking about how he might
extract sums from his company…..

Profit Extraction – R and D
Pension Tax Comp - Einstein Limited
£
Available
Profit Pool 100,000 Pension Contribution 100,000
Pension Contribution 100,000 Qual. for R&D (11.1%) 11,100
Enhanced R and D 13,875
Tax Free Lump Sum 25,000 deduction (125%)
(Total 225%)
Balance of Fund 75,000
Income Tax (40%) 30,000 Corp Tax Saved on 2,775
Pension "Income" 45,000 Enhanced Credit
Net Received (A) 70,000 Cost to Company (B) 97,225
Effective Tax Rate 28.00%

Autumn Statement
• Direct Recovery of Debts from taxpayer
• Unclear position on IHT and Trusts – Single NRB
• Stamp Duty Land Tax
• UK Resident Non Doms - RBC
• Transfer of goodwill on incorporation – ER
• CGT on disposal of UK residential property by non UK residents
• Diverted Profits Tax – “Google Tax”

Autumn Statement
Proposed changes to Patent Box

Liam Dushynsky
Topical VAT
Issues

Agenda
• Latest VAT changes and cases
• VAT visits - changing behaviour and current trends
• Property transaction pitfalls

Latest VAT changes and cases
Reverse charge
• Relates to certain wholesale supplies of fuel and power
• Many exclusions
• Likely to apply to ROC, CFD and BTG plants
• From 1 July 2014
• Supplier does not charge VAT
• Customer accounts for VAT
• HMRC operating a ‘light touch’ for 6 months

Mini One Stop Shop
• From 1 January 2015 charge VAT of country where customer
belongs
• Applies where
• B2C customers
• In other member states
• Electronically supplied services
• VAT registration in other EU countries
• MOSS means that VAT can be accounted for on a VAT return in
the UK

Recovering VAT on professional services
• BAA Ltd
• Relates to VAT incurred by company set up to take over BAA
• Must be direct and immediate link to taxable supplies in order to
recover input tax
• If holding company will not make taxable supplies no VAT recovery
• Document intentions
• Management agreement
• Minutes of meetings

Recovering VAT on professional services
Airtours – refinancing exercise
Big 4

Which party should bear VAT?
• CLP Holding v Singh and Kaur (2014)
• Court of Appeal found that the vendor of an opted property should
bear the VAT
• At the time the property was sold it was not clear that there was an
option to tax and that VAT should be charged
• Contract stated all sums exclusive of VAT
• Special conditions specified purchase price and did not mention
VAT
• Important to ensure that any contract for sale should stipulate
whether the vendor should be indemnified by the purchaser in the
event that VAT is payable

VAT visits
Current trends
• Income with no VAT
• Indirect exports/EC Sales of goods
• Construction industry – correct certificates
• Turnover reconciliations
• Motor dealers
• Interrogation of accounting software
• Disallowance of input VAT where supplier disappeared or insolvent

VAT visits
Changing behaviour
• Unannounced visits
• Options where you disagree with a decision of HMRC
• Review by the same officer
• Review by a different officer
• Appeal to Tribunal
• Recent trend for HMRC to pull out of Tribunals prior to hearings

VAT visits
Changing behaviour - penalties
Reasonable care – 0% Careless - 30%
Deliberate but not
concealed – 70%
Deliberate and
concealed – 100%

VAT visits
Changing behaviour - penalties
• Mitigation available where ‘telling, helping and giving’
• Suspension – HMRC will set conditions that must be met
• Professional fee protection cover

Property transaction pitfalls
Surplus property
• Renting surplus commercial property?
• Has an option to tax been made on the property?
• If yes charge VAT n.b. if option to tax made more than 20 years ago it
could be revoked
• If no will the property be used for storage of goods? Rental income will
be standard rated
• If no option to tax and the use is not storage, consider whether an
option to tax should be made
• Without an option to tax the income will be exempt, business becomes
partially exempt

Surplus property
• Selling surplus commercial property
• Same considerations as for renting but the figures will be bigger
• If the property is less than 3 years old and the sale will be of the
freehold interest, this is automatically standard rated
• Purchaser could disapply your option to tax if they intend to convert the
property into residential accommodation

Buying/renting property
• Establish at an early stage whether VAT will be charged by the
vendor/landlord
• If yes ask for evidence of their option to tax
• If you will not be able to recover VAT charged, could the vendor
revoke his option to tax?
• Unless you are purchasing the property as part of a transfer of a
going concern, SDLT will be payable on the VAT

Transferring properties
• No supply between members of VAT group
• Consider VAT position if transferor and transferee are not members
of a VAT group
• If property is gifted for no consideration a VAT charge may still
arise

And finally
VAT and snowballs

COFFEE BREAK

Gordon McCaw
Capital Allowances
Use it or lose it!

What we will consider
• Capital allowances – what are they?
• New rules re fixtures
• 2012 & 2014 changes
• Properties currently owned
• Buying & selling commercial property

What are capital allowances?
• Depreciation in accounts = not tax deductible
• Capital allowances = tax allowable write-off
• Annual Investment Allowance = 100% tax relief
• Writing Down Allowance = 8% or 18%
• If not a fixture or plant then no tax relief until building sold

Annual Investment Allowance
Period from AIA
1/6 April 2008 £50,000
1/6 April 2010 £100,000
1/6 April 2012 £25,000
1 January 2013 £250,000
1/6 April 2014 £500,000
1 January 2016 £25,000
Budget 2014

Annual Investment Allowance
- Commentary
Substantial AIA
• Good news re tax relief on purchase
• Tax volatility re balancing charges
If AIA decreases
• Short life asset elections more important
• Plan timing of spend

AIA: Example
A company has a 31 August year end
What are its AIA limits?
31 August 2015 £500,000
31 August 2016
4/12ths x £500,000 = £166,667
8/12ths x £25,000 = £16,667 NB: Watch timing re spend
Total = £183,333

Fixtures - what properties?
Commercial properties
• Owner-occupied
• Landlords
• Furnished holiday lets
Not applicable to:
• Residential property
• Property developers (but their customers may be interested)

Properties most likely to gain….
Fixture-rich properties include:
• Hotels
• Restaurants/pubs
• Residential homes
• GP or dental surgeries
• Offices
• Furnished holiday lets

Fixtures
• New rules from 2012 & 2014 only relate to fixtures
• Fixtures = plant & machinery installed/fixed to building or land

What is a fixture?
8% Integral features
• Cold water systems
• Hot water systems (boilers,
storage, pumps, pipework)
• Heating, ventilation & air
conditioning systems
• Electrical systems
• Lifts
18% Plant & machinery
• Sanitary appliances (WCs,
basins, showers, etc)
• Fire fighting & warning
installations (fire alarms,
sprinklers, etc)
• Fitted kitchens

Example – care home
Company buys a care home for £2m
35% of price paid qualifies as fixtures
Allowances due on £700k
At 20%, allowances worth £140k
For an individual paying 40% tax, could be worth £280k

In the beginning….
Before 2012 – a different landscape
• No time limit to claim capital allowances
• No requirement to “pool” expenditure
• No requirement for an election on sale
• Result
= potential for double claims
= vendor & purchaser may use different figures

Fixtures – first change
From April 2012
• Where vendor has claimed capital allowance
• New “fixed value requirement”
Within 2 years of completion date either:
• Vendor & purchaser agree an election for value of fixtures, or
• First-tier tax tribunal

Fixtures – second change
From April 2014
• Rules have been extended to transactions where vendor could
have claimed capital allowances (even if they have not)
• Vendor will have to ‘pool’ expenditure if any future owner wants
to access tax relief
• Excludes assets not qualifying in vendor’s hands
• Pre-commencement integral features
• E.g. General lighting, general electrics, cold water systems

Fixtures – pooling requirement
If 2012 “fixed value” and 2014 “pooling” requirements are not met:
• Vendor will have to include value of fixtures as a disposal in tax
computation
• Purchaser and any future owner will never be able to claim on
those fixtures
• Irrevocable loss – impact on purchase price?

Properties already owned
• No immediate impact
• Review position
• Bite the bullet sooner or later?
• If tax paid on profits, strong case for claiming allowances now
• Will probably be forced to claim on sale
• Charities & pension funds – importance of obtaining information

Negotiating transactions & due diligence
• Think about capital allowances early
• Commercial issue when negotiating deal
• Use CPSE to flush out relevant information
• CPSE = Commercial Property Standard Enquiries (Q32)
• Onus on purchaser to prove capital allowance history
• Questions often answered incompletely or incorrectly
• Different tactics for vendors than for purchasers

Election – tactics for vendors
• Plan to minimise claw-back of capital allowances
• Objective = keep fixtures value as low as possible
• £1/£2, or
• TWDV – looks ‘neutral’

Election – tactics for purchaser
• TWDV probably too low!
• Late negotiations likely to result in lost relief
• Commercial matter – jeopardise transaction or fight for relief?
• Fixtures valuation exercise

Conclusions
• Consider fixtures in currently owned property
• Property transactions – early planning is key
• Fixtures can be substantial part of property price
• CPSE responses now very important
• Ensure vendor has ‘pooled’ all relevant expenditure
• s198 elections = default position
• Impact if get it wrong now = substantial & irreversible
• From April 2014 – affects everyone buying/selling commercial
property

Richard Wright
Pensions, Pensions,
Pensions!

Agenda
• The new Pension Landscape from April 2015
• Case Study – a pension scheme for business
o Purchasing the business premises
o Loan-back to the business
• Auto Enrolment Update
• Summary
• Questions
www.fcfp.co.uk Twitter.com/francisclarkifa

The New Pension Landscape
from April 2015

Pensions in the media – pre-budget
Not always highly thought of…..

Pensions in the Media – post budget
• ……. Until now!!!

Pension reforms – Flexible Income
From April 2015 - Flexi-access Drawdown (FAD)
available
• Full access to pension funds from age 55
• No compulsion to purchase an annuity
• 25% of the fund still tax free
• Remainder of fund taxed at marginal rate when
drawn
• Existing drawdown pensions can be converted to
FAD

Pension reforms – Death Benefits
Beginning April 2015 - New Lump Sum Death Benefit
Tax Charges
• 55% tax rate scrapped
• If pension owner under 75 years old on death there
will be no tax charge on the fund – whether income
has previously been drawn or not.
• If death occurs when over 75 the remaining fund will
be payable to any chosen beneficiary at the
recipient’s marginal rate of income tax (from April 16)
• Reforms make pensions a far more attractive
savings vehicle

The current tax rules

Moving forward…

Case Study – Love Beer Ltd
The Company
• Founded 20 years ago by a husband and wife team
• Successful business that was bought out by senior
employees 2 years ago
• Started as a micro brewery but now expanding and
have won a contract with a major supermarket to
supply bottled beer to 500 of their stores
• Currently lease their production premises from the
original owners of the business. Lease expires
shortly.
• Owns outright a second storage premises/yard

Issues to be considered
• New owners wish to sever final ties with previous
owners by moving to new premises
• Larger premises are required in order to fulfil the
new contract and have capacity for further growth
• Capital is needed to invest in a new bottling plant

What to do?
• The business owners consulted their Accountants
and Financial Planners to help find a solution to their
needs
• A grouped pension scheme in the form of a Small
Self Administered Scheme (SSAS) proved to be the
answer (SIPP cannot lend)
• They consolidated their individual pension assets
into one scheme with wide ranging benefits
• The business made a contribution of £20,000 to
each of their pension funds (£60,000 total)

One group
pension
scheme
£750,000
Existing
benefits
Sarah
£225,000
Andrew
£250,000
Robert
£275,000

Idea 1 Property Purchase
• The current premises are leased from the original
business owners
• Larger premises needed to fulfil the new contract
• The new pension fund is used to purchase a larger
premises for £500,000 and Love Beer Ltd were
installed as Tenants with a rent of £40,000 per annum
• Business owners now have control over their premises
and the pension fund has a solid return from the rent

Idea 2 Capital to Fuel Growth
• £150,000 required to purchase a new bottling plant
• Rather than approach their bank the business owners
took a loan from the pension fund:-
• First Charge on a suitable asset
• 5 year capital repayment basis at 1% above the average base rate
of leading UK banks.
• The pension has;
• funded growth
• gained a good investment (interest on the loan)

AE – The story so far
• April 2014 – DWP halves expected opt out rate to
15% - experience to date with large employers
shows 9-10% opt out rate
• August 2014 – Pensions Regulator announces 4
million workers now Auto Enrolled
• Some pension providers showing signs of strain
• Payroll software packages struggling to produce
data compatible with pension scheme providers
systems

Looking ahead
Pension
providers
struggled here
What will
happen
here?
Take action
now!

AE – The Future
• Plan early – start conversations with your advisers at
least 12 months ahead of staging
• There is a gap between payroll and the pension
scheme
• Data needs to be passed between your payroll
system/provider and the pension scheme
• Records need to be kept, employees need to receive
the right communications at the right time

AE - More than just a pension
Payroll
Auto
Enrolment
Pension
Scheme
The
Pensions
Regulator
Data
Submission
Employee
Communications
Record Keeping
We have solutions to ease the burden

Summary
• The new rules for pensions make them much more
attractive to all
• They can form a critical role in the success of a
business
• Company contributions made to the pension attract
corporation tax relief
• The pension fund can be an efficient method of
funding growth
• Plan early for Auto Enrolment
Time to review your own and your business
pension planning?

Important Statement
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.
Francis Clark Financial Planning is a trading style for Francis Clark Financial Planning Limited,
which is authorised and regulated by the Financial Conduct Authority.
Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay, TQ2 7FF.
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This PowerPoint presentation is for general information only and is not intended to constitute professional advice.
Though Francis Clark Financial Planning Ltd is confident on its accuracy, no duty of care is assumed to any direct Recipient of this presentation and no liability is accepted for any
omission or inaccuracy.
www.fcfp.co.uk
Twitter.com/francisclarkifa

Nick Woodmansey
Current trends in
Funding and
Transactions

Overview
• Current Bank/Lending behaviour
• Credit Scoring
• Deal activity and Valuations

Current Bank/Lending behaviour
• Appetite and Leverage
• Rates
• Terms
• Approach/being prepared
• Alternatives

Current Bank/Net lending behaviour
Source: Bank of England

Current Bank/Net lending behaviour
Net lending…

Appetite and Leverage
• All are now “open for Business” – but the definition of
‘Business’ varies!
• Frontline enthusiasm, often not matched by Credit
• Non-financials/reputational risk
• Significant variation in approach/process

Appetite – Bank Process

Appetite and Leverage
• Depends on the nature and structure of a transaction
– expansion/acquisition/MBO
• Generally 2.5 - 3X EBITDA
• But competition will drive higher

Rates and Terms
5.50
5.00
Lending rate (%)
4.50
4.00
3.50
3.00
Jan…
May…
Sep…
Jan…
May…
Sep…
Jan…
May…
Sep…
Jan…
May…
Sep…
Jan…
May…
Sep…
Jan…
May…
Source: Bank of England
SME Lending Rates (margin over base)
All SMEs

Rates and Terms
• Likely to go up –
but not by much for a
while
• Lending documentation
continuing to grow
• Harsh terms for
Borrowers?
• SME negotiating position
generally weak
Predicted UK interest rate changes:
• Personal guarantees - easy to give, hard to get
back
Source: www.thisismoney.co.uk

Current Lending - Alternatives
• P2P continues to grow, as Bank frustration remains
• Bonds
• Mezzanine

Current Lending:
Be properly prepared
A proper proposal will give you a range of benefits:
• Proper consideration by Board/Company
• Strengthens business case
• Easier to market test with other Lenders
• Reduces the overall time and cost
• Can eliminate the need for Due Diligence
• Normally results in reduced interest rates and fees

Credit Scoring
• Affects trading, but also funding and personal rating
• Needs to be proactively managed and considered
• Corporate and personal
• Some changes on the way

Credit Scoring – various impacts
• Transactions
• Changes – debt, preference shares, Director Loans,
shares
• Treatment of items - deferred income
• Timing

Credit Scoring – various impacts
£000's
5,000
700
(300)
(500)
(3,300)
(100)
(3,500)
-
-
1,500
1,500
£000's
Fixed assets 5,000
Current assets 700
Current liabilities
Trade (300)
Directors Loan (500)
Bank Debt (300)
Provisions / Deferred Income (100)
Net current (liabilities)/assets (500)
Long term liabilities
Bank Loan (3,000)
Provisions / Deferred Income -
Net assets 1,500
Share capital and reserves 1,500
£000's
5,000
700
(300)
-
(300)
-
100
(3,000)
(100)
2,000
2,000

Credit Scoring - changes
• Rating ‘lite’ Mid-Market credit product
• FICO changes for Experian, TransUnion and Equifax

Deal activity and Valuations
• YTD UK deal volumes are 3% down on 2013, but
the value of transactions was up 8.5%

Deal activity - SW
• YTD SW deal volumes
are 18.5% down on 2013,
but the value of
transactions was up
163%!
• The number of small
deals (£500K - £10m)
decreased by 18% and
deal value rose by 25%
• Most active Advisors : Legal –
CF –
Foot Anstey
Francis Clark

Deal activity - SW
• BIMBO’s still rarely seen in the SW
• Year of the MBO and FAMBO
• Year of the yoyo?
• Looking ahead – Election, tax changes?, EU
Referendum , Interest rate and quantitative easing
changes….valuations?

Valuations
Note: The above private company PER trend is for UK deals only and differs from the European data shown at www.perda.org
• Average enterprise value £15.1m and EBIT £2.6m

Summary
• Banks are keen – but make them keen for your
business by being properly prepared
• Consider your Credit Rating and what influences it
so that you can improve it
• Don’t stand still – few others are!

Key action
points!

Key action points
Financial Reporting:
• Valuation of financial instruments and properties
• Understand the impact on your accounts and
distributable reserves
• Explain impact to stakeholders
Corporation Tax:
• Consider the impact of simplification on remuneration
strategies
• Plan for capital allowances and understand pooling
position
• New rules for fixtures

Key action points
VAT:
• Do the changes impact your business?
• Be prepared for a VAT visit!
• Identify surplus commercial property
Financial Planning:
• Plan to use the new pensions rules effectively
• Plan for early auto enrolment
Funding and Transactions:
• Prepare a proper proposal but first understand the
requirements
• Consider the credit score
• Do not stand still!

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Essential 6-monthly Finance Directors' Update - Nov/Dec 2014

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