Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Our seminars aim to provide the essential elements of technical CPD for a finance director.
6. pkf-francisclark.co.uk
.
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
8. pkf-francisclark.co.uk
What is new in PKF Francis Clark?
Julie Towers, VAT Partner, Cornwallâs
dedicated VAT adviser.
Julie is also on the Board of Visit Cornwall
9. pkf-francisclark.co.uk
South West Insider Dealmaker Awards 2016
Winner:
Matt Willmott â Young Dealmaker of the Year
Finalists:
Corporate Finance Advisory Team of the Year
Dealmaker of the Year â Andrew Killick
Young Dealmaker â Nick Tippett
Award Nominations
11. Programme
Current Issues in Financial Reporting â Stephanie Henshaw
Topical VAT issues â Julie Towers
Corporation tax â where are we headed? â Paul Collings
BREAK
Capital gains tax for corporate investors â Paul Collings
Employee benefits and pension auto-enrolment 3rd
anniversary duties â Andrew Newcombe
Transactions and Funding â Richard Wadman
LUNCH
pkf-francisclark.co.uk
13. pkf-francisclark.co.uk
.
In this sessionâŚ.
⢠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 â hints and tips
⢠New IFRSs and impact on UK GAAP
14. pkf-francisclark.co.uk
Thresholds Small companies
Turnover not exceeding ÂŁ10.2m
Total assets not exceeding ÂŁ5.1m
Employees
not exceeding
50 in all cases
Going up: audit exemption thresholds
Periods beginning on or after 1 January 2016 (no early
adoption)
15. pkf-francisclark.co.uk
Thresholds Small Groups
(gross)
Small Groups
(net)
Turnover not
exceeding
ÂŁ12.2m ÂŁ10.2m
Total assets not
exceeding
ÂŁ6.1m ÂŁ5.1m
Employees
not exceeding
50 in all cases
Impact of group membership?
Audit exemption only available where worldwide group
is below group threshold
16. pkf-francisclark.co.uk
⢠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?
17. pkf-francisclark.co.uk
⢠Annual guarantee by parent
⢠All liabilities existing at year end â actual, contingent
and prospective
⢠Until liabilities settled
ď how much risk?
⢠Procedural requirements apply
Option for subsidiaries: audit
exemption via guarantee
21. pkf-francisclark.co.uk
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 â iii above but does exercise significant
control
V Trust or firm would satisfy i â iv if it
were an individual
Statutory conditions apply
What is âsignificant controlâ?
24. 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
âConfirmation Dateâ
⢠Fee as for annual return (£13 online)
⢠âCheck and confirmâ details held at Companies House â add
PSC information as part of the first confirmation
⢠Companies House will be issuing reminders
26. pkf-francisclark.co.uk
Impact on presentation
⢠Classify as due within one year unless formal
agreement restricts lenderâs 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
ď Accounting and tax issues
= If classification is important, consider formalising interest
arrangements
Related party loans
27. pkf-francisclark.co.uk
⢠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
28. pkf-francisclark.co.uk
⢠New fair value adjustments via P&L
⢠Tracking mechanism â narrative explanation or
transfer to separate ânon-distributableâ 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?
29. pkf-francisclark.co.uk
⢠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
30. pkf-francisclark.co.uk
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
31.
32. pkf-francisclark.co.uk
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
33. pkf-francisclark.co.uk
Unclear at this stage
⢠FRS 102 subject to triennial review
⢠No amendments expected before 1/1/19 â 3 years from
small company application
⢠Implementation evidence before applied in UK â 2025?
Impact of IFRS on FRS 102?
35. Agenda
⢠Whatâs new with HMRC?
⢠Practical points on international trade
⢠Brexit â what could it mean for VAT?
pkf-francisclark.co.uk
36. pkf-francisclark.co.uk
.
Whatâs 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
40. pkf-francisclark.co.uk
⢠Movement to EU = EU VAT Registration
⢠One sale in EU = EU VAT Registration
⢠Call-Off vs Consignment
ďą Consignment
ď Own Stock for distribution
ď Place of supply = Country of location
ď EU VAT Registration
ďą Call-Off
ď Stock held for customer/customerâs country
ď Place of supply = Country of location
ď EU VAT registrationâŚ?
ď Simplification may apply
International Trade: Goods held in other EU countries
41. pkf-francisclark.co.uk
⢠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
42. pkf-francisclark.co.uk
⢠MFN â Merchant Fulfilment Network
ď Amazon market goods
ď Goods from supplierâs warehouse
ď B2C (Business to Consumer) contributes to Distance Selling
⢠EFN â European Fulfilment Network
ď Fulfilled by Amazon
ď Supplier picks Amazon warehouse
ď UK â B2C contributes to Distance Selling
ď EU â EU VAT registration
⢠MCI â Multi Country Inventory
ď Goods moved to various Amazon warehouses
ď Supplier unaware until stock report
ď Potential multi-EU registrations
International Trade: The Amazon Effect
43. pkf-francisclark.co.uk
⢠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
45. pkf-francisclark.co.uk
⢠Fortunately (for me) we are likely to keep it â VAT
accounted for 20% of receipts (ironically)
⢠In most circumstances UK VAT law is derived from EC
Directives
⢠Immediate impact would be that the UK would not be
bound by CJEU decisions
Brexit: Will VAT be affected?
46. pkf-francisclark.co.uk
⢠Could expand zero rate
⢠Could have extra rates
⢠Standard rate higher than 25%
⢠Super high rate for things we donât like, tobacco,
sugary drinks
⢠Likely to impact on cross border sales in EC
Brexit: Will VAT be affected?
49. pkf-francisclark.co.uk
⢠Big AnnouncementâŚ.
Where are we heading?
⢠23 June â EU Referendum
⢠Fundamental uncertainty as to direction of Tax Policy
⢠But, that said, we do have âA Road Mapâ as to
preferred directionâŚ.
50. pkf-francisclark.co.uk
.
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
51. pkf-francisclark.co.uk
⢠Corporation Tax rate unchanged 1 April 2016 â 31 March 2017 -
20%. Past and future corporation tax rates:
Tax Competition or Tax Haven?
Northern Ireland â 12.5%
52. pkf-francisclark.co.uk
⢠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 â July 2013
What else have we seen?
53. pkf-francisclark.co.uk
Measures to âclamp down on artificial structures used to
gain a tax advantageâ since 2010
⢠Disguised remuneration
⢠Corporate loss buying
⢠Partnership review
⢠Offshore intermediaries
⢠Diverted Profits Tax
⢠Phoenixing
⢠High profile âwinsâ collect ÂŁ494million
Anti-Avoidance
54. pkf-francisclark.co.uk
.
⢠Governmentâs 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
55. pkf-francisclark.co.uk
⢠Business Rates
⢠Business Energy Efficiency Taxation
⢠International Matters
⢠OECD (BEPS)
⢠EU directives
⢠G20 (tax haven transparency)
Business Road Map â
specific areas worthy of mention
56. pkf-francisclark.co.uk
⢠Relief for rateable values of £12,000 or less;
⢠Previously £6,000 or less
⢠Clearly good news for the smaller âbricks and mortarâ
business
⢠Climate Change Levy increasing over 4 years
⢠CCL âReliefâ enhanced â good for heavy users
⢠Tata Steel and BHS?
Business Rates & Green Taxes
57. pkf-francisclark.co.uk
⢠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
58. pkf-francisclark.co.uk
⢠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
59. pkf-francisclark.co.uk
⢠Extend withholding tax to use of trademarks & brand
names
⢠Taxing âoutboundâ royalties
⢠Means of ensuring MNCs canât avoid UK tax
⢠More taxation of inbound royalties by other countries
⢠Finance Bill 2016 measure
BEPS Structuring - Royalties
60. pkf-francisclark.co.uk
⢠Current scheme introduced from April 2013
⢠10% CT rate for profits derived from qualifying IP rights
(UK and EU patents)
⢠OECD considers a âharmful tax practiceâ (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 â the latest
accounting period being one which straddles 1 July 2016
Patent Box â
New BEPS compliant regime
61. pkf-francisclark.co.uk
⢠Whatâs new?
⢠Restriction on Patent Box profits where >30% of R&D
subcontracted to connected parties
⢠Restriction is calculated by a ânexus fractionâ (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 â so all UK groups with
R&D in a separate company to income will be restricted
Patent Box â
New BEPS compliant regime
62. pkf-francisclark.co.uk
⢠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 â 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 â
New BEPS compliant regime
63. pkf-francisclark.co.uk
⢠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 â Current Position
64. pkf-francisclark.co.uk
Losses â 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
65. pkf-francisclark.co.uk
⢠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 â New Rules
66. pkf-francisclark.co.uk
Losses â 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 -
68. pkf-francisclark.co.uk
⢠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 â apprentices under 25
Apprenticeship Levy
69. pkf-francisclark.co.uk
⢠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 â apprentices under 25
⢠Auto-Enrolment â additional 3% (6 April 2019)
Apprenticeship Levy
70. pkf-francisclark.co.uk
⢠Corporation Tax rate unchanged 1 April 2016 â 31 March 2017 -
20%. Past and future corporation tax rates:
With one hand he givethâŚ
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%
71. pkf-francisclark.co.uk
Old rules vs new rules
⢠SDLT on commercial property transactions aligned
with residential property rules â âslab-basedâ to âslice-
basedâ.
⢠New non-residential SDLT rates are as follows:
Stamp Duty Land Tax (SDLT)
Value SDLT Rate %
Up to ÂŁ150,000 0%
Between ÂŁ150,001 and ÂŁ250,000 2%
Above ÂŁ250,000 5%
72. pkf-francisclark.co.uk
⢠Example - purchase of commercial property costing
ÂŁ300k SDLT is reduced by ÂŁ4,500.
SDLT â illustrative calculation
Old SDLT ÂŁ New SDLT ÂŁ
On the whole ÂŁ300k â 3% 9,000 On the first ÂŁ150k â 0% -
Between ÂŁ150k and ÂŁ250k â 2% 2,000
Final ÂŁ50k â 5% 2,500
9,000 4,500
73. pkf-francisclark.co.uk
⢠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 â Multiple Dwellings Relief (âMDRâ)
74. pkf-francisclark.co.uk
⢠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
75. pkf-francisclark.co.uk
⢠Clear Roadmap as to plans to 2020
⢠But major T-junction in place on 23 June!
⢠The most important slide is the next oneâŚ
2020 and beyond
76. (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 âPartnerâ 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
pkf-francisclark.co.uk
79. pkf-francisclark.co.uk
⢠Dividends or capital gains?
⢠Completely different tax regimes
⢠Enterprise investment schemes (EIS), entrepreneursâ
relief (ER) & investorsâ relief (IR)
⢠Changes to ER proposed by Finance Bill 2016
Returns to shareholders
80. pkf-francisclark.co.uk
.
Dividend taxation
Effective tax rates taking account of tax credit (2015/16) but
ignoring ÂŁ5,000 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 â removal of the âNotional Tax Creditâ and also the
ÂŁ5,000 dividend allowance.
81. pkf-francisclark.co.uk
.
Capital Gains Tax
Note â 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
Entrepreneursâ
Relief
10% 10%
With Investors
Relief
10% 10%
82. pkf-francisclark.co.uk
⢠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?
83. pkf-francisclark.co.uk
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.
Entrepreneursâ Relief on shares
85. pkf-francisclark.co.uk
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
87. pkf-francisclark.co.uk
⢠Deferred Shares are ordinary shares
⢠Shares diluted Mr Câs shareholding
⢠Moral of the storyâŚâŚ.
ButâŚcontrast with McQuillan CaseâŚ.
âŚ.zero coupon preference shares
Ordinary Shares
88. pkf-francisclark.co.uk
⢠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
⢠Entrepreneursâ relief refused
Employment â Moore case
89. pkf-francisclark.co.uk
.
Entrepreneursâ Relief â Joint Ventures
Finance Act 2015 changes introduced to prevent âabuseâ
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
Management
Co
Trade
Co
90. pkf-francisclark.co.uk
.
Entrepreneursâ Relief â Joint Ventures
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 â16 announcement
- March 2015 onwards a
91. pkf-francisclark.co.uk
.
⢠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
Entrepreneursâ Relief â Joint ventures
Co A
Co B
20%
40%
Mrs A
20% x 40% = 8% effective control
93. pkf-francisclark.co.uk
⢠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
ÂŁ10m ER lifetime allowance
⢠So a director owning 3% is entitled toâŚ..
Investorsâ Relief (IR)
94. pkf-francisclark.co.uk
⢠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)
95. Entrepreneursâ relief versus
Investorsâ relief - summary
Condition ER IR
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
ÂŁ10 million ÂŁ10 million
96. pkf-francisclark.co.uk
Investors Relief Enterprise Investment Scheme
10% Rate of Capital Gains Tax Free Gains
Any Trading Company Beware of Excluded Trades
3 year holding period 3 year holding period
Can be an exit plan No pre-determined exit plan
What about EIS Relief?
97. pkf-francisclark.co.uk
⢠Important for ER, IR and EIS
⢠HMRC to be reviewing âtradingâ definition
⢠Important for South West with:
⢠Hotels
⢠Holiday parks
⢠Farms
⢠Marinas
⢠etc
TradingâŚ..
98. When is this going to be law?
⢠Would normally be by 21 July â when Summer Recess starts
⢠However may not be until MPâs Summer Holiday ends â 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!
100. 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
101. 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 â Eye care vouchers â cycle to work â childcare
vouchers - etc
Employee Benefits
fcfp.co.uk
102. Employee Benefits
⢠Advisers could set up a plan for employers
⢠âno chargeâ to the employer
⢠A large commission paid up front
⢠Paid for by high charges within the plan
⢠âthe good old daysâ
Market background
fcfp.co.uk
103. Employee Benefits
⢠Auto-enrolment has raised employee awareness
⢠âŚand expectations
AndâŚ.
⢠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 â the times they are a-changingâŚ
fcfp.co.uk
104. Employee Benefits
Why bother?
⢠Employee expectations
⢠A âgivenâ for larger employers
⢠âŚâŚ..donât be left behind
⢠43% of employers provide PMI for all/some staff*
⢠26% provide income protection/long-term disability cover*
* âAbsence Management 2015â published October 2015 by CIPD
fcfp.co.uk
105. 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
* âResourcing and Talent Planningâ published June 2015 by CIPD
fcfp.co.uk
106. Employee Benefits
Why bother? â 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
107. Employee Benefits
Why bother? â 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
108. Employee Benefits
Why bother?
⢠When was the last time benefits were reviewed?
⢠Are renewals completed âautomaticallyâ?
⢠Are benefits in line with a modern market?
⢠And at a competitive market rate?
⢠£7,700pa (previous example) could be ÂŁ10,000pa if youâre not
paying attention!
fcfp.co.uk
109. 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
110. 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
112. Employee Benefits
Identify those employees in skilled, strategic positions
Or those in areas with high turnover
Consider an âinclusiveâ benefits package for these employees
Offer âbenefits liteâ for other staff (lower-skilled, more transient)
Getting benefits right for your company
fcfp.co.uk
113. Employee Benefits
Death-in-Service
⢠Relevant Life policies for owner-managers; 15 x salary!
⢠4 x salary for key personnel
⢠2 x salary for âblue collarâ workers
Getting benefits right for your company
fcfp.co.uk
114. Employee Benefits
Group Income Protection
⢠Bespoke benefit for owner-managers
⢠75% salary for key personnel
⢠50% salary for âblue collarâ workers
⢠6 month deferred period â or specify for each category of
benefit
Getting benefits right for your company
fcfp.co.uk
115. Employee Benefits
Group Private Medical Insurance
⢠To include partners and children for key staff
⢠Basic benefits for others
Getting benefits right for your company
fcfp.co.uk
116. Employee Benefits
What to do first?
⢠Pension!
⢠Thereafter, consider the needs of your workforceâŚ
⢠DIS
⢠Group Income Protection
⢠Group PMI
⢠Group Critical Illness
Getting benefits right for your company
fcfp.co.uk
117. 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
118. Summary
⢠Employee benefits can cover their own cost
⢠Existing benefits should be reviewed
⢠Expected (and appreciated) by an increasingly savvy workforce
⢠Why wouldnât you promote them?
⢠Auto-enrolment still has to be done correctly
Conclusions
fcfp.co.uk
119. 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
121. pkf-francisclark.co.uk
.
Agenda
⢠Bank covenants â ensuring that they work for you
⢠Transactions â is the current environment the new norm?
⢠Strategic planning in an uncertain world â a good time to
revisit and plan ahead
122. pkf-francisclark.co.uk
.
Bank covenants
⢠Bank covenants â often receive little attention until itâs too
late!
⢠Different Banks have different approaches to setting
covenants
⢠Covenants become more important when there is change in:
⢠Interest rates â interest cover
⢠Asset values â tangible net worth
⢠Trading performance â CFADS/Debt service
123. pkf-francisclark.co.uk
.
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 â there may be a cost involved
⢠Discuss with your bank ahead of any forecast breaches
⢠âFlexibilityâ can change with changes in relationship
Manager/Credit Manager
124. pkf-francisclark.co.uk
.
Bank covenants
⢠Definitions â is there certainty of how they are calculated?
⢠Accounting changes â e.g. leases?, FRS102?, profit?
⢠Basis of valuation for assets?
⢠Change in year end?
⢠Acquisitions/disposals?
⢠Audited accounts?
⢠Timing â Quarterly, Annual, Rolling 12 months
125. pkf-francisclark.co.uk
.
Transactional environment
For Buyers/borrowers for expansion:
⢠Interest rates â lowest ever, borrowing margins â low
⢠Inflation â low
⢠Availability of debt and equity â improved dramatically since
2009
For Vendors:
⢠Multiples/pricing â relatively high
⢠Capital taxes â very low
129. pkf-francisclark.co.uk
.
Transactions â the new norm?
⢠7 years or more of near zero interest rates
⢠Inflation <5% for 10 years
⢠What is ânormalâ in todayâs world?
⢠Does your age influence your views?
130. pkf-francisclark.co.uk
.
Transactions â economic influences
⢠Gordon Brown didnât break boom and bust
âŚbut will ultra low rates reduce some of the âbustâ risk?
⢠Could we survive a material interest rate rise??
⢠BREXIT?! Impact on current transactions
131. pkf-francisclark.co.uk
.
Transactions â Debt v Equity
⢠Debt is being attacked
⢠Equity being given more tax benefits (IR, ER, EIS, SEIS)
⢠Consider transaction funding structures carefully â what
may seem fine now, could be viewed quite differently in the
future
133. pkf-francisclark.co.uk
.
Strategic Planning
⢠Think broadly â life and markets move fast â look ahead,
new applications and developments?
⢠Itâs not just opportunities â what about risks/threats and
new competitors?
⢠Revisit it every few years or when there has been a
significant change
⢠Just because youâve heard some bad news â doesnât mean
that it will affect your business!
134. pkf-francisclark.co.uk
.
Summary
⢠Covenants â give them the attention they deserve!
⢠Donât 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
136. pkf-francisclark.co.uk
⢠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
137. (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 âPartnerâ 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
pkf-francisclark.co.uk
Editor's Notes
PSC â new rules applying to all companies and LLPs, irrespective of whether or not dormant
Onus is on company to take reasonable steps to identify PSCs. Starting point is to look at information and documents available and apply some common sense.
Run through the table one item at a time.
Voting rights â will need to consider shareholder agreements which might result in holdings of more than 25%. Do voting patterns suggest certain shareholders are acting together?
Board â will need to consider shareholder agreements and other covenants which pertain to control over board membership
Note that iv and v only apply in limited circumstances, primarily when no one meets conditions i- iii
Law allows company to serve notice on individuals and organisations who may have information on PSCs and they must respond within one month. In practice, would expect lawyers to provide information about ownership anyway as part of our CDD activities, but useful to have another reason to insist on information.
What about companies without share capital (guarantee, charitable, CICs)? Then condition i wonât apply but one of the others is likely to do so.
Nominees â treat the rights as if held by the person for whom the nominee is acting â if they qualify as a PSC then include their details (i.e. means look through nominee and declare actual owner)
Joint holdings â must enter each separately if jointly hold more than 25%
Trusts â first decide whether trust would meet any of the above conditions if it were an individual. Then consider whether anyone has significant control or influence over the trust. If they do - they count as the PSC. If there is no one, and no RLE, then say so
A PSC is an individual, not a legal entity. But must put legal entityâs details on the register if it is both relevant and registrable in relation to the company.
Relevant = keeps its own PSC register, is subject to FCA DTR or has shares admitted to trading on a regulated market in the UK, the remainder of the EEA (EU plus Norway and Iceland) or on specified markets in Switzerland, the USA, Japan and Israel
Registrable = is the first relevant legal entity in the ownership chain
In the examples on the slide, assume that 100% ownership in all cases
Note, if the individual held a direct interest in A as well as indirect interest via B and C then there is a legal obligation on that individual to tell A of their interest so that can also be entered onto the register. Failure to inform the company is a criminal offence.
If stake is held by a company that is not a RLE then ignore that entity and report the indirect stake held by the individual who has a majority stake in that entity.
Most clients will have a simple ownership structure so populating the PSC should be straightforward â we can probably do it for them via information we already hold. The PSC register cannot be empty.
From 6 April, must maintain a register â manual or electronic â alongside registers of members and directors
Note â not 28 days grace period any longer!
IFRS 15 â some confusion over how to interpret and clarifications already issued.
Indications that does change recognition point for some types of activity
Evidence suggests financiers already adjust for lease commitments therefore disclosure of total commitment is a useful step on that road
An international flavour to this presentation as topical due to Brexit
Then â
Over 120 local offices
Regular contact
Local centres for main services
in the 80s everything was local dereg, reg, enforcement, enquiries, natural progression of sorts
Now â
Move over recent years to Regional centres
Concentration on pre-creds, special exercises
Map covers the FC geographical area and office locations very close to FC offices (except Southampton/Portsmouth)
South coast Poole, Bournemouth, Southampton and Portsmouth
Want to leave Portsmouth under water â will mention global warming
HMRC going the opposite way to FC offices as per map of FC offices in Chairmanâs introduction
Last year this time we looked at the basics of international issues
Aim of this section is to look at issues we have been experiencing in practice
This slide covers the general rules for stock held in other EU countries
No VAT registration thresholds for Non-established persons in EU countries
Nb similar rules likely to apply for many non-EU countries
Call off relates to stock held for a specific customer in the customerâs country
We have seen a large increase in clients selling via online retailers over the last 2-3 years and many problems
This slide looks at the different types of arrangement that can be entered into with online retailers
Looking at duty as it is often an area that is ignored and duty hits the P&L
EU Customs Code update: Forthcoming changes to Customs guaranteesÂ
Changes to Customs Union Code â in future guarantees will be required (when facilities renewed) on duty that is suspended
Can link in with Brexit slides â would this apply to EC countries post Brexit or would there be free trade?
The Union Customs Code is new Customs legislation that has been in force since 1 May 2016, albeit with some transitional arrangements. The legislation will lead to many practical changes for importers, particularly for the approximately 10,000 UK holders of Customs approvals. One major change is around the need for additional guarantees and the possibility of reducing some existing ones.   Holders of approvals such as Simplified Import VAT Accounting, inward processing and Customs warehousing will face increased scrutiny and guarantees in order to retain approvals. Guarantee levels will be dependent on processes and procedures in place, as well as levels of technical competence in Customs matters. Authorised Economic Operators will qualify for reduced amounts of guarantees and can now apply to HMRC for a reduced deferment.Â
FC has the expertise to assist
Self explanatory hopefully
The sanitary products is in UK law â an earthquake in VAT terms!! This has had a lot of press coverage over the last couple of weeks
I was going to mention higher rate to discourage antisocial behaviour, and to discourage habits that were detrimental to society as a whole â and mention applying to Arsenal season tickets.
Illustrates how illogical VAT can be âŚ.. This could all change if we leave the EU
Nestle UK FTT case â decision released February 2016
The strawberry and banana powder picture comes in first â these were subject of the FTT case. Nestle put in a claim for a refund of ÂŁ4M as they had been accounting for VAT on strawberry and banana powder and thought it should be zero-rated
Excepted item 4 refers to powders, crystals or products for the preparation of beverages - the strawberry and banana powder falls under this therefore is standard rated
Next picture is chocolate powder
Items overriding the exceptions â Item 5 includes cocoa âŚâŚ and preparations and extracts thereof â therefore the chocolate powder is zero-rated (chocolate nesquik contains 19-21% cocoa)
Last picture to come in is the banana and strawberry milk drink
Items overriding the exceptions â item 6 is milk and preparations and extracts thereof â therefore the milk drinks (whatever flavour) are zero-rated. Incidentally the powder is not a preparation of milk as it does not include any milk powder.
more about HMRC improving cash flow by bringing payment dates forward, RTI, 1/4ly accounting etc
Interest targeted as part of the BEPS project. The BEPS project and its ramifications can be thought of as George Osborne thinking about Stability â certainly this measure can be perceived as clamping down on level of debt â which aligns with comments made by Mark Carney regarding the level of debt?
Interest targeted as part of the BEPS project. The BEPS project and its ramifications can be thought of as George Osborne thinking about Stability â certainly this measure can be perceived as clamping down on level of debt â which aligns with comments made by Mark Carney regarding the level of debt?
- PB not significantly claimed by SMEâs only just over 600 companies have made PB claims so far. Often hasnât been worth it during the phase in period for small claims due to the costs of making the claim outweighing the benefit.
- Current regime challenged by EU members as not compliant with BEPS agenda 5. Considered a harmful tax practice as there was insufficient link between the IP and the activity to create it â R&D. Current development activity is not sufficient as can be achieved through commercialising the product.
- New IP = any patent registered after 1 July, or acquired after 1 July (either outright or by grant of exclusive license).
- New entrants â companies that elect into patent box for first time in respect of accounting periods commencing after 1 July 2016.
- Statutory time limits apply for election, 2 years from end of accounting period, no need to elect into regime before 30 June 2016 as initially indicated by HMRC. HMRC decided this would create too much burden on businesses and HMRC officers.
For groups which hold patents in a parent company MUST grant an exclusive licence to PB company to allow it to qualify.
If R&D is carried out in separate company to where the income is generated then the fraction will reduce the claim to nil. Even if both in the same group.
Also a problem if multiple companies use the patent .
The âstandardâ method of calculation will no longer be permitted. This was favoured by SMEâs as although often reducing the claim, it was far easier to apply.
Streaming will require detailed accounting records â best to set up systems to accommodate this.
For companies continuing to develop and create new IP, will likely be claiming under the old regime and also the new regime for the newly created rights. A very complex situation.
For SMEâs where the profit margin on the income is low, it is unlikely to be worthwhile making a claim and incurring professional fees.
Accelerated tax relief of ÂŁ30,000
SSE & DTTP â make sure it is doing what was intended
Cash flow again
*Small companies rate applied to companies with annual profits <ÂŁ300k
Abolished with effect from 1 April 2015
Care introducing âthe good old daysâ line. It is intended to provide levity, but should be phrased âsome less scrupulous advisers in the market place refer to this time asâŚ.â or similar, rather than âI like to call thisâŚ.â.
Commission no longer payable â like RDR (which was a good thing) but for EBS businesses.
Cut back of service is already happening! â APW client being one example where they approached FCFP for a service review because costs went up/service declined.
Also emphasise that many FDs in the audience will act for employers where employee benefits are already in place â but when did they last review it? Anecdote: TGP Client. Did a staff presentation in 2014 to explain AE. When I arrived, the original âstakeholderâ information booklet was still pinned to the noticeboard, dated Feb 2005!
Dont be left behindâŚ.Like David Cameronâs kids
Based on actual client: TGP Clientâ numbers rounded off
Numbers based on previous example â around about ½ the figures on the previous slide â to make more relevant to the employers in the audience
TGP Client stakeholder anecdote may be more relevant here?
Also emphasise that many FDs in the audience will act for employers where employee benefits are already in place â but when did they last review it? Anecdote: TGP client. Did a staff presentation in 2014 to explain AE. When I arrived, the original âstakeholderâ information booklet was still pinned to the noticeboard, dated Feb 2005!
There are other stats available that suggest general âwell-beingâ benefits provided by employers reduce absenteeism. However, its hard to quantify because âwell-beingâ considers wider workforce environment, not just employee benefits â although they are definitely part of it.
Group CIC: The lump-sum payment, usually a multiple of salary, is tax-free for the employee and the premiums are classed as a P11D benefit for employers. Employers receive corporation tax relief on the premiums they pay, but are liable for Class 1A national insurance contributions.
Contractually obliged to put this slide in
Feedback from the rehearsal: Do not refer to low skilled staff as â10-a-pennyâ.
Can be part EE funded. Have the FDs considered this?
Is 2 x salary sufficient? Or do employees expect more? Most likely 3 x salary is available for relatively little additional cost.
Again â when was this last reviewed?
Are benefits out of kilter with market?
Expand details around deferred period â can be built around âadditional supportâ such as sickness benefits. Lots of employers choose 6 month deferred period because it ties in with state benefits, but this should tie-in with what the employer offers in terms of sickness and other âwellnessâ benefits.
This should also tie in with contracts.
It is important because it is part of the overall package offered to (key) staff
Again â when did the employer last review this?
Group PMI can be offered to all staff. Can be expanded to more individuals (certainly above 40 individuals) at negligible cost.
Most flexible benefit in terms of what is offered, and what can be funded by ER and what funded by EE â how do FDs know their offering is in line with the market?
Note I haven't gone through Group CIC because I think the FDs will get the principle of different tiers of membership!
Must do pension first â AE!
Stress that each employer needs are individual, but as a âgeneralâ rule, the following is the list I would approach things in.
Why DIS first? â relatively cheap for ER, and a tangible benefit to employees.
Explain that CIC is very expensive, but that is because it is most likely someone will claim on it.
Review date â 3 months either side of 3 years post initial staging date
Topical matters:
Covenants â not exactly the most exciting topic â but they can be crucial and bring a business down
Factors affecting transactions â are the older generation waiting for matters to return to ânormalâ or are the younger generation risking âdoing a Gordon Brownâ and saying that traditional cycles have been brokenâŚ.
Strategy and Strategic planning â Brexit â post the referendum. Revisit your plans.
Covenants donât receive much attention from Corporates or Banks â Corporates because more emphasis is placed upon getting a facility, the interest rate margin and fees, and Banks because the frontline are trying to get something through Credit.
In the economic downturn covenants were used aggressively by Banks â even when questions could be validly raised about whether they were suitable in the first place.
Banks are not good at setting them â often covenants will be breached under the base case of the projections!
Covenants are negotiable! â Either suggest some or when the Bank come back with their suggestion, donât be afraid to negotiate for ones that give you more headroom. As rough guide try and get at least 20% headroom
Once repayable on demand â a Funder may request immediate repayment, and if this canât be met, an insolvent situation arises.
If it was relating to a long term loan â this may be reclassified as short term debt â thereby changing net current assets and credit scores.
If the waiver is only received AFTER the year end, it doesnât change things at the year end. However, you may need your year end numbers to calculate the covenant in the first place! So you need to work with your Funder on the most likely outcome and get the waived in place before the year end.
Historically your Relationship Manager may have had a relaxed approach to minor breaches and perhaps issued waiver letters (with or with Credit approval!). A change in relationship manager can often result in covenants being used in a different way â especially by younger/less experienced RMâs that may rely more on a credit scoring approach and who donât want to be seen to be out of line with the Bankâs requirements.
Definitions are often poor - especially for CFADS, and is adequate allowance made for the treatment of capex, significant repairs & renewals or the lumpy nature of the business, or deferred payments?
How will the impact of changes in accounting rules be taken into account? Going forwards it is likely that profits will be more volatile when taking into account [XXXXXXXXXXXXXXXXXXXXX]
Is property to be valued on an existing use basis or forced sale?
Changes in year end?
With the raising of the levels for an audit, you may not need one from a statutory perspective, but what happens if it is one of your banking covenants to supply âaudited accounts within 180 days of the year end?!
Hopefully this âreminderâ will encourage covenants receive more attention when you are seeking new facilities AND when you are renewing existing ones â with all the accounting changes this might be a good time to raise the matter!
We expect some Funders will just ask for accounts to be prepared on the âoldâ basis â this may work for the first year because you have comparativesâŚbut after that do you really want to prepare your accounts on two bases?!
Talk about current lending margins and fees.
Need updated slide.
Above based upon business with an average EBIT of ÂŁ2.4m]
Actual prices achieved appear to be at their nearing their peak. However, only transactions that complete are included and with deal volumes being lower, less saleable businesses are not included.
Weâve just exchanged on a transaction selling the business at a 12x EBITDA multipleâŚâŚ
[Need updated slide and comparison to Experian stats]
Many businesses for sale need an exit. Just because a business is profitable, cash generative and expanding, doesnât mean that others will want to buy it â customer concentration? Product dependency?
Many âheld onâ during the recession but people are getting older and if there is any thoughts of a change in Government/tax regime at the next Election, manty will look to get out beforehand.
And even when we consider the general UK economy â growth of circa 2% isnât bad! Yes the current year will be adversely affected by the referendum, but shortly we will have clarity on this as well and looking ahead to 2017, the IMF forecasts show how well it is thought that the UK will fair compared to many European countries
US â 2.4% GDP 4.8% Unemployment
Russia â 0.8% GDP (after (negative 3.7%) in 2015 and (negative 1.8% in 2016)
7 years â this was the length of old cycles!!
Interest rates were still near 15% at the beginning of the 1990âs
Inflation has been sub 3% for the last 4 years. But 20-25% in the 1970âs.
For those 50 and over, we probably expect interest rates between 5-10% and inflation of 5%
The returns sought from investments and acquisitions therefore sought to beat theseâŚ.but they are both significantly lower â have criteria been reduced accordingly â especially for short-payback projects?
Are younger business owners transnationally more active?
Most experienced Bankers have retired
We havenât had a clear-out of poor performing businesses and without that, the underlying principles of Capitalism canât function.
There are therefore significantly conflicting messages âŚâŚ we almost need a clear out â but it would be catastrophic and Politically totally unacceptable.
Its perhaps ironic, that at a time that debt is so plentiful and relatively cheap, that its being viewed so negatively. This may be driven by concerns over profit-shifting and tax planning, but consideration of the direction of travel should be taken into account with planning.
Think of what has happen in the personal (rather than Corporate) market â you could now have to pay tax when you have incurred a loss! Will we see more reductions in allowance for debt serviceability â probably â and all of this is at a time when interest rates are at very low levels â the impact of these changes and charges if rates move upwards to, say a Base Rate of 5%, will be considerable and hit people just when their financial performance is likely to be suffering.
The new ESS on top Entrepreneurâs Relief, EIS, SEIS
Post Election we have continuation of a generally Business-friendly environment and continuation of low interest rates. We have seen a number of Management teams therefore looking to push ahead with transactions. However, it seems that to many the Election came as a bit of surprise in that people had progressed with planning a transaction and then stalled it, rather than wait until after the Election to consider it.
Looking ahead, unless there is civil unrest and an unravelling of Tory control, the next Election is highly likely to be 5 years awayâŚ..but donât ignore planning for it! Companyâs looking to make an acquisition or MBO and exit âin 5 years timeâ may want to consider whether they intend to exit at about year 4 or 6, but probably not in exactly 5 years time!
So, what about the next uncertainties? The Press will always look for issues to make into problems and we donât have to look further than Europe for several of theseâŚand then interest ratesâŚ.and thenâŚ
There are many books about strategic thinking, but the key message is to ensure that you do pop your head up and look around and ahead.
This isnât about next yearâs budget, as incremental budget increases are like trying to move a tanker â itâs a very slow process. The strategic plan will set the direction of travel and the annual budgets can then be within it.
Consider acquisitions as a way to grow, overcome issues that you may have and enhance value.
Consider your current valuation as understanding the factors that affect it will enable you to focus on matters that will improve it.
Thereâs plenty of funding around for acquisitions and it can be a great way to grow your business, diversify risk/move away from growing problems/challenges and enhance the value of your business.
Itâs a fast changing world â donât get left behind and in todayâs world of volumous emails and day-to day pressures its easy for long periods of time to pass without checking where you are and where you want to business to go.