Our six monthly finance seminars provide a high level overview of issues affecting Finance Directors and business owners across key areas such as tax, VAT, financial reporting, corporate finance and financial planning. In this round we will also take a look at two additional areas of risk; director failing and cyber security, both of which good governance can mitigate against. This session has been designed to go back to basics, providing hints and tips and key updates to help you to navigate the many complex issues facing directors.

1. T R U R O
E S S E N T I A L 6 - M O N T H LY F I N A N C E
D I R E C T O R S ’ U P D AT E
J U N E 2 0 1 9

2. INTRODUCTION
Duncan Leslie, Partner

3. HOUSEKEEPING
@pkfFrancisClark
#FDSeminar19

4. PROGRAMME
 9.20 – Payroll employment risks – Rebecca Seeley Harris
 9.40 – VAT - Hints, tips and key updates – Julie Towers
 10.05 – Corporate governance & financial reporting – Stephanie Henshaw
 10.35 – Break
 11.05 – Insolvency and Escalate – Lucinda Coleman
 11.25 – Cyber security – Peter Lannon
 11.40 – Corporate finance – Richard Wadman
 12.00 – Financial planning – Andrew Newcombe
 12.15 – Panel Q&A session – www.sli.do (code #FD24)
 12.30 – Lunch

5. PAYROLL EMPLOYMENT RISKS
Rebecca Seeley Harris, Tax Director

6. OFF-PAYROLL (IR35)
 Off-payroll Public Sector – April 2017
 Off-payroll Private Sector consultation – April 2020
 Reforms are for both sectors
 Private Sector medium/large businesses only
 “small company” exception based on Companies Act 2006
 Annual turnover: not more than £10.2 million
 Balance Sheet total: not more than £5.1 million
 Number of Employees: not more than 50
 Simplified approach for non-corporates

7. LABOUR SUPPLY CHAIN
 From April 2020 – the end client will make the
status determination
 The determination and requested reasoning will
either be:
 Cascaded down the supply chain; or
 Supplied direct to the worker by the client
 The determination will also be supplied to the
fee-payer
 Agency 1 will be responsible for compliance of
the chain
 So, tax loss will be collected from Agency 1
 If HMRC can’t collect from Agency 1, liability
transfers to the client

8. OFF-PAYROLL WORKER
 The worker has the right to see the status determination
 The worker will have the right to request the reasoning for the decision
 The worker will have the right to challenge the decision
 The challenge process will be client led
 The client will be responsible for setting up or out-sourcing a client-led
process
 Based on a set of legislative requirements

9. LIABILITY
 Deduction of taxes initially sits with the
Fee-payer
 Liability will rest with any party that has failed to
fulfil its obligations
 Transfer of liability if HMRC can’t collect

10. LIABILITY
 CEST
 Update not available until April 2020
 “Reasonable care”
 Blanket assessments
 Role based assessments

11. NEXT STEPS
 Identify and review current engagements
(Employment Status Audit)
 With agencies
 With PSCs
 Appoint someone to a designated status role
 Joined up processes – HR, Finance, procurement
 Review internal systems
 Training
 Outsource

12. LIMB ‘B’ WORKERS

13. EMPLOYMENT STATUS - WORKER
 Limb ‘b’ worker
 Case law
 Uber
 Pimlico Plumbers
 Off-payroll backlash
 Tax issues - holiday pay and compensation
 National Minimum Wage – other costs reduce pay.
 Uniform (Wagamama)

14. ELECTRIC CARS AND
SALARY SACRIFICE

15. ULTRA LOW EMISSION AND ELECTRIC CARS
The benefits
 2% Benefit in Kind from April 2020
 Ability to provide by salary sacrifice
 Employee tax and national insurance
 Possible wider savings for employee
 Employer national insurance
 100% first year allowances
 Electricity not ‘fuel’ for fuel benefit purposes
 Government Grants – both car and charger
 No road tax for electric cars below £40,000
 Staff retention
 Corporate Social Responsibility
Hyundai Kona - Basic Rate taxpayer
Lease cost £380 per month
List price 35,000
2020/21 202
£
Car BinK rate 2.0%
P11D car benefit 700
annual car benefit tax 140
£
Per month car tax 11.67 1
Per month net salary sacrificed 258.40 25
Monthly net cost 270.07 270

16. ULTRA LOW EMISSION AND ELECTRIC CARS
The risks
 Effective Salary Sacrifice for tax purposes?
 HMRC Clearance
 National Minimum Wage Breach
 Wider concerns:
 Employer: Family & sick leave
 Employee: Mortgage applications & pensions
 Practicalities
 Real world range
 Access to charging points
 Will BIK rates change?
 Employee leaving

17. EMPLOYER ILLUSTRATION
Based upon 30 staff, illustrative saving
(subject to insurance costs)
£56,000
Salary sacrifice
Employer's NIC
Annual Employer Estimated Total Savings
List price Lease via
salary
sacrifice
B-inK NIC
sacrifice
saving
Revised NIC Annual NIC
Saving
Average
Mileage
Saving Savings per car number
Staff Car e.g. Hyundai Kona 35000 360 700 596.16 96.6 499.56 2500 1025 1,525£ 20 30,491£
Exec Car e.g. Jaguar ipace 68000 700 1360 1159.2 187.68 971.52 4000 1640 2,612£ 10 26,115£
56,606£
Business Mileage
claims

18. EMPLOYMENT TAX COMPLIANCE DEADLINES
Forms P11D for benefits in kind
By 6 July forms P11D and form P11D(b) must be submitted to HMRC
By 19 July any employer NIC liability must be paid
PAYE Settlement Agreement (PSA)
By 6 July 2019 the agreement must be in place for the 2018/19 tax year.
By 31 July 2019 the PSA calculation must be submitted
By 19 October 2019 the payment must be paid
Employee/director shareholdings and share plans
By 6 July submit annual reporting for share schemes and other share
transactions with directors/employees.

19. VAT - HINTS, TIPS AND KEY
UPDATES
Julie Towers, VAT Partner

20. VAT - AGENDA
 What to look out for, when and what to do about it
 VAT visits
 Income
 Expenditure
 Key updates
 Making Tax Digital for VAT
 Brexit
 Building services reverse charge

21. VAT – HINTS AND TIPS
 Key issues for finance directors
 VAT visits
 Fewer physical visits
 Phone visits from call centres
 Increase in ‘pre cred’ checks
 VAT return checks
 Evidence reviews and checks
 Turnover reconciliation
 Reconcile to accounts

22. VAT – HINTS AND TIPS
INCOME
Income with No
VAT
Exports
(Evidence)
Journals
Especially in the
VAT account
EC Sales
(VIES)
Self Billing
(Criteria)
Liability Errors
Intercompany

23. VAT – HINTS AND TIPS
INCOME
Bad
Debt
HowWhen
Common mistake:
Invoice = £1,200 Received £1,000, Claim only £200/120% x 20% = £33.33

24. VAT – HINTS AND TIPS
EXPENDITURE
Check
Creditors
> 6M?
Paid an old
Debt?
Preparing
return
Submit
Return
Adjust?
Keep a
record
Adjust?
No. 1
Question

25. STOP
VAT – HINTS AND TIPS
EXPENDITURE
Common
Questions
/ Mistakes
 Car / Van?
 Private Use?
 Fuel Scale
Charge?
 45p / mile or
Fuel bill paid?
 Electric?
 Staff / Customers?
 Xmas Party?
 Goods / Services?
 Specie?
 Promotions?
 >£50?
 Proforma / RFP?
 Incorrectly Charged?
 C79? Valid?
Entertaining
Intercompany
Management Charges???
Valid Proof/
Invoices Fuel
Purchase/
Lease
Business
Gifts
Motor
Related
 Car / Van?
 Blocked?
 Private Use?
 Short / Long
Lease?
 Double Cab?
 Payload?

26. VAT – HINTS AND TIPS
SUMMARY / CHECKLIST
Review of purchase Invoices
Evidence of reconciliations
Evidence of review / sign off
Regular check of VAT numbers to ensure Valid

27. VAT – KEY UPDATES
MAKING TAX DIGITAL
 Many software providers are encountering
teething problems but resolving quickly
 Online set-ups have encountered glitches
 March/June/Sept/Dec – June quarter
(Deadline Wednesday 7th August)
 If you opted in early you have to stay in
 Delayed start for VAT groups and some
other traders
 A letter should have been received

28. VAT – KEY UPDATES
BREXIT
 31 October 2019 (Maybe)
 Make sure you have an EORI (Economic
Operator Registration Identification)
 Apply for TSP (Transitional Simplification
Procedures)
 Apply for a duty deferment account
 Read the No-Deal tariff to see how it may
impact you
 Consider supply chains and incoterms
 Visits on the increase
 Classification
 Preference
 Existing procedures
 Licences

29. VAT – KEY UPDATE
CONSTRUCTION SERVICES
 VAT domestic reverse charge for Building and
Construction services from 1st October 2019 to
tackle criminalised attacks on VAT system
 Standard or reduced rate supplies where
payments require Construction Industry
Scheme (CIS) reporting
 Supplies between sub-contractors and
contractors will be subject to the reverse
charge unless supplied to a contractor who
is an end user
 End users will be recipients who use the
building or construction services for
themselves

30. VAT – KEY UPDATE
CONSTRUCTION SERVICES

31. VAT – FOOD FOR THOUGHT

32. CORPORATE GOVERNANCE &
FINANCIAL REPORTING
Stephanie Henshaw, Partner

33. IN THIS SESSION
 Accounting alert – GMP equalisation
 Narrative reporting changes
 Carbon Energy Reporting Regulations
 Strategic decision-making and directors’ duties
 Are your governance basics up to scratch?
 Big Data: adding value via the audit

34. GMP EQUALISATION
Pensions, equality and the Lloyds case

35. ACCOUNTING IMPLICATIONS
No previous
provision
• Impact on P&L
Previous
provision
• Impact via OCI
• 0% provision or no
provision?

36. P&L PRESENTATION ISSUES
Key
profit
measure
Operating
profit
Include in
staff costs
Exceptional
item

37. ACCOUNTING IMPLICATIONS PRE AND POST
JUDGEMENT – 26 OCTOBER 2018
Year ends prior to
judgement
No provision = non
adjusting PBSE
Provision = adjusting
PBSE
Year ends post
judgement
Provide for
equalisation liability
Potential associated
deferred tax asset

38. NARRATIVE
REPORTING CHANGES
Carbon Energy Reporting Regulations
Strategic decision-making and directors’ duties

39. CARBON ENERGY REPORTING REGULATIONS
 Accounting periods beginning on or after 1 April 2019
 New requirement to report in the directors’ report
 Large companies and LLPs, so 2 from 3 of:
 Turnover >£36 million
 Gross assets >£18 million
 Employee numbers >250.
 In a large group, requirement to report is for the parent and any
individual subsidiaries which are large.
 Disclosure is also “encouraged” for medium and small companies.

40. WHAT DO WE HAVE TO REPORT?
 UK energy use, to include as a minimum purchased electricity, gas and
transport;
 Associated carbon emissions in tCO2e;
 At least one ‘intensity ratio’
 energy usage compared with an appropriate business metric e.g. turnover
or staff numbers;
 Information about energy efficiency measures undertaken during the
year
 E.g. installation of LEDs, transport policies, energy storage
Comparatives only required from second year of application onwards

41. FOCUS ON TRANSPORT: BUSINESS USE ELEMENT
OF…
Total energy consumption
Onsite
transport
Personal/
hire cars
Company
cars /
fleet
vehicles

42. HOW DO I CONVERT ENERGY USAGE INTO
GREENHOUSE GAS EMISSIONS?
https://www.gov.uk/government/publications/greenhouse-gas-reporting-
conversion-factors-2018

43. STRATEGIC DECISION MAKING AND DIRECTORS
DUTIES
• Periods beginning 1 January 2019
When
• New statement: describing how directors have
complied with their duty under s172
• Related summary statements
What
• Large companies, including large subsidiaries.
LLPs excluded
• Related statement if >250 employees
Who
• Narrative reports: strategic and directors
• On websiteWhere

44. Engagement with employees
(where >250)
 Describe action taken during the
year:
 Provide information, consult,
encourage involvement,
awareness of financial and
economic factors affecting the
business
 Summarise:
 how engagement occurred
 impact of employee interest on
principal decisions taken in year
Engagement with suppliers,
customers, other business
relationships
 Summary statement:
 Directors’ regard for need to foster
relationships
 Impact on principal decisions
taken in year
STATEMENTS IN DIRECTORS’ REPORTS

45.  All large companies (plus plcs)
 No exemptions for group members who are large
 Beware, size of parent = size of group it heads
 Statement must be prepared at entity level
 Parent may need to reflect some matters on a group basis
 Subsidiaries reflect entity specific matters although may be driven by group
 Publication on website required
 Impact on format of statement and linkage to other elements of strategic report
S172 STATEMENT: WHO IS AFFECTED?

46. STRATEGIC REPORT STATEMENT: DIRECTORS’
DUTIES UNDER S172
Duty to promote
success of company
as a whole, having
regard to
Likely
consequences of
any decision in the
long term
The interests of
the company’s
employees
The need to foster
relationships with
suppliers,
customers and
others
The impact of the
company’s
operations on the
community and the
environment
The desirability of
the company
maintaining
reputation for high
standards of
business conduct
The need to act
fairly as between
members

47. ARE YOUR
“GOVERNANCE BASICS”
UP TO SCRATCH?

48. GOVERNANCE BASICS
Rules
Articles
Shareholder
agreements
SLAs
Procedures
Conflict
procedures
Minutes
Risk
management

49. BIG DATA: ADDING
VALUE VIA THE AUDIT

50. BIG DATA: THE BIG PICTURE
AI
Block
chain
Cyber
Data
analytics Whole
data
sets
Speed
of
analysis
Better
assurance

51. WHAT CAN WE DO?
 Two or three way matching of sales/ purchases
 Review entire stock holding for
 Items sold below cost
 Items which have not moved within specified period
 Fraud risk factors
 Common bank accounts between suppliers and payroll
 Duplicated bank accounts
 Review of journal entries

52. IT’S ALL IN THE PLANNING
We work with you/ your IT
specialist to identify useful
possibilities
Generate
specific
reports
Run year
end
reports
Access
to system

53. BREAK

54. INSOLVENCY & ESCALATE
Lucinda Coleman, Head of Business Recovery

55. POOR GOVERNANCE AND BUSINESS COLLAPSE
 Insolvency Market
 High Profile failures
 Director’s risk and mitigation
 Case study
 What if your customer/supplier is insolvent
 Escalate dispute resolution

56. POOR GOVERNANCE AND BUSINESS COLLAPSE

57. POOR GOVERNANCE AND BUSINESS COLLAPSE
 October 2018 – Worth £450M
 HMRC Winding up petition for £1.7M
 Directors claim they were unaware
 Investigation reveals accounting fraud
 FD arrested
 Company enters Administration in January 2019

58. POOR GOVERNANCE AND BUSINESS COLLAPSE
Director’s risks
 Disqualification
 Company Director Disqualification Act (CDDA)
 Insolvency Service investigate if unfit
 Potential disqualification for between 2-15 years
 Unable to be involved in the promotion, formation of management
of a company
 Potential claims
 Misfeasance
 Potential personal liability
 Joint and severable liability

59. POOR GOVERNANCE AND BUSINESS COLLAPSE
 Case Study

60. POOR GOVERNANCE AND BUSINESS COLLAPSE
 Case Study
 Marine defence product
 CEO understood IP
 other directors all non exec funders
 CEO had sole responsibility for product development and
customer liaison
 successful test results reported
 Customer orders ‘about to be signed’
 Chance meeting with ‘new customer’
 CEO admitted Walter Mitty existence
 CEO now being prosecuted and likely to serve time

61. POOR GOVERNANCE AND BUSINESS COLLAPSE
 Good Governance lessons
 Board need right mix of skills relevant to the business
 No over dominating individual
 Board must challenge and verify what they are told
 Use experts where a skills gap
 Systems in place to prevent an individual having control
 Whistle blowing policy
 Keep contemporaneous minutes of meetings

62. WHAT IF YOUR CUSTOMER/ SUPPLIER INSOLVENT
 Red Flag database
 Free review service
• Send correspondence from Insolvency Practitioners to us
• We can correspond with Insolvency Practitioners on your
behalf
 Questions to directors
 Change directors’ choice of Insolvency Practitioner
 Challenge Insolvency Practitioners’ fees
 Report on outcome
 Negotiate realisation of your security
 Retention of Title (ROT)
 Lien
 Assist in buying assets from Insolvency Practitioner

63. DISPUTE RESOLUTION
• PKF Francis Clark licensed provider
• No financial risk
• No initial outlay
• Rapid results
• Fixed fee of 30%

64. ESCALATE DISPUTE RESOLUTION
Step 1 – Negotiation
 Intensive negotiation
 Experienced commercial
negotiators (IPs)
 Incentive to settle inside
three months
 No financial risk – you
don’t pay anything unless a
successful settlement is
reached
 Fixed fee of 30% of
settlement

65. DISPUTE RESOLUTION
• Works best for disputes >£30,000
• Can go back 3 years
• Unlock written off disputes
 Bed debts
 Contractual negligence
 Supplier/ Customer/ Employee disputes
 IP infringement
 No restriction on type of dispute

66. CYBER SECURITY
Peter Lannon, Cyber Protection Adviser

67. THE CURRENT THREAT
 Of businesses that reported cyber
breaches last year, 48% reported at
least one breach a month.
 Average cost of a breach for small
sized businesses was £4,180.
 Average cost of a breach for
medium sized businesses was
£9,270.
 Average cost of a breach for large
businesses was £22,700.
Statistics taken from the Office of National Statistics Cyber Security Breaches Survey 2019

68. GOOD GOVERNANCE IN CYBER
Ciaran Martin, CEO of the National Cyber Security Centre (the governments
cyber centre), speaking on 12 September 2018 at the CBI Cyber Conference:
‘My message today is aimed at board level and general corporate leadership, which is key to
managing this crucial risk.’
‘When we look at some of the advice given around the world on how to manage corporate
cyber security risk, it’s basically about governance. Good governance is necessary.’
• Cyber Security Strategy
• Risk Management
• Regulation and Certification

69. • GDPR fines
• Loss of data assets
• Loss of finances
• Loss of trust
Elizabeth Denham, Information Commissioner, delivering a speech on GDPR
and accountability:
‘If a business can’t show that good data protection is a cornerstone of their practices, they’re
leaving themselves open to a fine or other enforcement action that could damage bank
balance or business reputation.’
The ‘settling in’ period for GDPR is now
at an end and it is widely expected that
the ICO will start exercising its powers
more fully going forward.
AVOIDABLE CONSEQUENCES

70. INVOICE REDIRECTION
A client was defrauded of £5,000.
What happened
Weak password.
Invoice altered.
Payment made.
Funds irrecoverable.
Create strong passwords.
Use different passwords.
Keep them secret.
Restrict access to devices that are logged in.
How was it done
How to prevent it

71. WHO IS AT RISK OF THIS?
www.haveibeenpwned.com

72. PATCH MANAGEMENT
Data breach resulting in millions of individuals’
personal information being stolen.
What happened
Outdated software.
Vulnerability exploited.
Database stolen.
Personal details online.
Efficient patch management.
Clear structure and responsibilities within the IT
department.
Regular audits and assessments.
How to prevent it
How was it done

73. WHO IS AT RISK OF THIS?
Taken from Erricson Mobility Report 2019

74. WHAT IS NEEDED?
• Policies & procedures
• Risk assessment
• Regular reviews
• Accreditation
Mark Zuckerberg’s password, as revealed
after data breach – 6th June 2016.
‘Dadada’

75. EFFECTS OF GOOD GOVERNANCE IN CYBER
• Better insight
• Clarity of action
• Increased stakeholder
confidence
Michael Vatis, founding Director of the FBI's National Infrastructure Protection
Center - NYC, USA - January 2016:
‘In the very near future, cybersecurity exercises are going to be absolutely expected of all
companies by regulator.’
‘Companies should be thinking about the legal and managerial decisions that the CEO, the
COO and the board will need to make in that kind of crisis situation.’

76. HOW DO WE ACHIEVE THIS?

77. CORPORATE FINANCE
Richard Wadman, Corporate Finance Director

78. AGENDA
 Governance:
- Due Diligence and Refinancing
 Fundraising:
- Improving your desired outcome
 Market trends:
- Transactions, Funding Structures, Pricing

79. DUE DILIGENCE AND
REFINANCING

80. DUE DILIGENCE READY
 Not relevant as not planning any event?
look-back may be 3 full years plus YTD!
 Overall trend - increase in both scope and depth of enquiries
 Increasing use of software techniques
 Increasing focus on non-financial considerations
 Staff recruitment and retention
 Supply chain and supplier relationships

81. TRENDS – INCREASING DD AND WIDER SCOPE
Case study examples of non-financial DD issues in transactions:
 Intellectual property
 Who owns it? Personally, business or even a 3rd party?
 Particularly common with software
 IT / cyber risks and controls
 Reviewed / audited / accredited?
 Buyers and funders expectations are increasing
 Why not tested? Own IT department defensive?

82. THE EVOLUTION OF DUE DILIGENCE
Old style Current/Future
Full investigative team on site Limited or no visible onsite
assessment. Operations will be
covered by covert site visits.
Relatively focused/limited
financial data analysed via
Q&A
Now supplemented by software
/ Data Analytics - can analyse
far more data in seconds.
Overt, via direct questions
and face to face meetings
Mainly via dataroom. Limited
opportunity to ‘explain’ in
advance.

83. DATA ANALYTICS IN DUE DILIGENCE
 Transaction and funding timescales are often limited
 Software analysis is improving as are the algorithmic models
that analyse the data
 Becoming an increasing common and useful tool
 Consider undertaking your own review beforehand or
Vendor DD
 Health warning - DA in DD is in its infancy. Subject to the
quality of data

84. DATA ANALYTICS: CASE STUDY EXAMPLES
Example 1:
In-house review of stock value and gross margin by product
 Turnover c£25m. Over 2 million separate transactions each
year. GM% and slow moving stock had increased in last 3
years.
 Analysis highlighted specific customers and products with
outlying GM% together with data recording and processing
errors.

85. DATA ANALYTICS: CASE STUDY EXAMPLES
Example 2:
Acquisition DD on behalf of Corporate Acquirer
 Analysed all sales transactions and cash postings for £5m
turnover acquisition for previous two years.
 Data downloaded and processed within 30 minutes.
 Identified fraud and enabled FDD focus to be placed on
analysing outlying and unusual transactions.

86. FUND RAISING
Improving your desired outcome

87. FUND RAISING – CURRENT BACKDROP
 Increasing levels of finance available from a range of
different (and often new) sources
 Challenge for FD’s is often keeping up to date
 Primary / High Street Banks restructured(ing) resulting in
many changes
 Corporate and Commercial Banking – the days of
uniformity within and between Banks have gone!

88. ACCESS TO FINANCE – CURRENT BACKDROP
 Increased prevalence of secondary and tertiary lenders
 Growing track records and acceptance e.g:
 Shawbrook – British Business Bank Funded
 Thincats – Lent £448m, new PE fund £330m
 Caple – increasing risk appetite
 Will be selective given capital constraints
- but credit guidelines are clear
 Dual banking becoming more common for SME’s

89. FUNDING CONSIDERATIONS
 Economic uncertainty is a reality
 Banks will want to focus on the risks as well as the
opportunities
 Demonstrate to your funders that you have considered the
risks and how to overcome them
 Cannot remove all risk, but you may be able to mitigate:
 Quantative as well as qualitative measures
 Sensitivity analysis to assess and plan for the impact

90. FUNDING CONSIDERATIONS: CASE STUDY
Property: Freehold or long
leasehold?
 Historically considered a strength
asset in Banking discussions
 Bank’s lend to the trading entity
who is also the property’s tenant
 Credit underwriting will focus
primarily on the trade
 Basis of valuation - consider
alternative use vs building to
company specific details
 Are you a trading Company or
Investment Holding Company?
Case study example:
 Retail focussed business with
substantial freehold property
portfolio.
 Banks’ responses varied
considerably on lending appetite
and LTV% (45% - 75%) due to
change in credit policy
 Positive impact on LGD and
lending margin calculations but
reduced facilities
 Solution – Refinance property
with separate lender

91. FUNDING CONSIDERATIONS: CASE STUDY
Working capital & supply chain
 Concentration or well spread.
 Alternatives? Financial strength
 Terms, rebates, discounts.
 Contracts a positive or
negative? Length of trading
relationship?
Case study example: Food
producer
 One supplier for key product. Long
trading relationship but no contract
 Sensitivity analysis focussed on
working capital growth as well as
decline
 Projected covenant breaches
under both scenarios
 Solution – Supplier / trade finance
structure funding order through to
sale. Bank retained control of
goods throughout

92. FUNDING CONSIDERATIONS: CASE STUDY
Covenants testing
 Historic and look forward
Case study: SME business with
£1.5m term loan
 Covenant breach projected
 No historic issues (either capital
repayments or interest)
 Renewal date approaching
 Incumbent seeking (a) Equity
holding / warrant in Company
and (b) £50k renewal fee
 Solution – Negotiated renewed
facilities for only a £2.5k Bank
renewal fee!

93. DEBT FUNDING OBSERVATIONS CONTINUED…
 Personal guarantees: More common for smaller MBO’s
and share restructures, including certain ID facilities
 Credit timescales: Taking longer - right answer rather
than a quick answer
 Emphasis of questioning: Strategic / dynamic as well as
more detail
 Sector appetite: Receiving increased focus
 Covenants: Teeth are beginning to bite, rather than simply
being waived

94. DEBT FUNDING OBSERVATIONS
 Commercial property: Views from funders vary
considerably
 Working capital: Increased trend away from
overdraft towards structured facilities (CID and RCF)
 AML: Increased focus on cash receipts. May have an
impact on the level of CID facilities offered
 Pricing: Risk based with reduce local autonomy if
outside of guidelines and thresholds

95. RISK BASED PRICING
Risk based
pricing
influential
factors
Financials
Non
financial
Structured
Vs
unstructured
lending
Capital
employed
Risk
rating
Sector

96. FUNDRAISING – SUMMARY
Maximising
fund
raising
success
Understand requirements
Be clear on objectives & priorities
Be open minded
Know your strategy and your numbers
Funders perspective
Sensible timescales

97. MARKET TRENDS
Transactions, funding structures,
pricing

98. IMPACT ON TRANSACTIONS – UK
Source: Experian

99. SOUTH WEST DEALS
Source: Experian
34% fall
50% fall

100. M&A DEAL STRUCTURE TRENDS
 Multiples holding up for good quality businesses
 Increasing focus on:
 Earn outs when growth is key to value
 Retention of vendors for consultancy / handover period
 Overseas buyers
 Impact of exchange rates – lower cost of UK assets
 Confidence in the UK economy; almost despite Brexit

101. M&A DEAL STRUCTURE TRENDS
 Alignment of ‘financial planets’
Funding
availability
Pricing Multiples Entrepreneur’s
Relief
…but for how long??

102. SUMMARY
It’s a competitive world
 Be properly prepared – for funding, DD, DA
 Review your working capital cycle
 Review the strength of your suppliers, customers, contracts
etc.
 Change is happening ……
– it’s not dependent upon a specific event
Make the most of the economic, tax and funding
conditions present now!

103. PENSIONS REGULATORY UPDATE
Andrew Newcombe, Director

104. AGENDA
 The Annual Allowance Trap
 Lifetime Allowance Recap
 Loans to and from SSAS & SIPP
 Workplace Pensions Update

105. ANNUAL ALLOWANCE TRAP
 Tapering of annual allowance commenced April 2016
 If exceed both Threshold Income (£110k) & Adjusted Income (£150k)
 Annual Allowance (£40k) reduced by £1 for every £2 of income > £150k
 Annual Allowance reduced to minimum £10k when Adjusted Income = >
£210k
 Threshold Income = Taxable income for year plus income given up under
a post 9/7/15 salary exchange minus gross pension contributions
 Adjusted Income adds in all employer pension contributions

106. ANNUAL ALLOWANCE CASE STUDY
 John is the MD of a successful manufacturing business where profits have
been strong in recent years
 The business has funded his Self Invested Personal Pension to use up his
annual allowance since the 2013/14 tax year as a tax efficient way of
extracting profits
 John’s salary and benefits package in 2018/19 amounted to £125k
 In addition John has two investment properties which bring in income after
expenses of £18k
 In previous tax years John’s total income was below £110k
Is John subject to an Annual Allowance tax charge?

107. ANNUAL ALLOWANCE

108. ANNUAL ALLOWANCE TAX CHARGE
 John’s Annual Allowance is Tapered to £23,500 because his income
exceeds the Adjusted Income limit by £33,000
 John has exceeded the Annual Allowance by £16,500 (£33k / 2)
 John’s total income is £143,000
 £7,000 of the excess will be taxed at 40%
 £9,500 will be taxed at 45%
 Total tax charge = £7,075
 John will have to pay this as part of his Self Assessment tax calculation

109. LIFETIME ALLOWANCE RECAP
 Reduced to £1m in 2016/17
 Now increasing again by CPI, 2019/20 level = £1,055,000
 Fixed and Individual Protection 2016 still available if meet the criteria –
possible to preserve £1.25m LTA via FP 2016
 Tax charges if exceed LTA = 55% if excess taken as lump sum or 25% if
retained in pension
 Beware second LTA test at age 75 – need to project forward to determine
if at risk

110. AGE 75 – SECOND TEST AGAINST LTA
 Peter has a pension fund of £800,000 at age 60
 He takes the maximum tax free lump sum of £200,000 leaving a residual
fund of £600,000
 This event uses 75.83% of his LTA leaving him with 24.17% unused
 He doesn’t require an income from the fund as he still receives dividend
income from the family business
 He leaves the residual fund to grow and it achieves a return of 4% per
annum between age 60 and 75
What happens at age 75?

111. AGE 75 – SECOND TEST AGAINST LTA
 The fund has grown to £1,080,566
 The growth in the fund is £1,080,566 - £600,000 = £480,566
 The LTA is now £1,350,000 of which Peter has 24.17% left to use
(£326,295)
 The fund growth exceeds the available LTA by £154,271
 A tax charge of 25% would be applied to the £154,271
Tax payable of £38,567

112. LOANS TO & FROM SIPP & SSAS
Did you know that……..
 If you need to borrow funds in your SIPP to fund a property purchase you
can lend this money to the SIPP yourself
 Has to be on commercial terms
 Has to be a viable lending proposal i.e. a bank would lend in same
circumstances
 If you have a SSAS you can lend money to your business
 If secured by first charge over property 50% of SSAS value can be lent
providing the loan meets the following criteria

113. SSAS LOAN CRITERIA – FIVE TESTS
 Security – must be secured against an asset with value at least equal to
loan plus interest
 Interest rate – no less than 1% over the average base rate of six
nominated high street banks rounded up to nearest 0.25%
 Term – fixed term of 5 years
 Amount – no more than 50% of the SSAS assets
 Repayment – equal instalments of capital & interest for each complete
year of the loan

114. WORKPLACE PENSIONS UPDATE
 Are your automatic enrolment pension duties up to date and compliant?
 Pensions Regulator news release 15 May 2019
“Employers who flout their automatic enrolment pension duties are
being targeted with short-notice inspections by TPR”
 Key issues
 Are contributions being paid at the correct rate and on time
 Are re-enrolment processes in place for previous opt-outs
 Have you completed your re-declaration of compliance

115. SUMMARY
 Consider interaction between total income and employer pension
contributions
 Be aware of potential future LTA breaches and plan accordingly
 Consider more niche pension options such as SSAS which could be
useful to your business
 Ensure your Workplace Pension procedures are fit for purpose – if you
outsource these, still need to monitor

116. SUMMARY
Duncan Leslie, Partner

117. SNAPSHOT
Session Topic Takeaway
Payroll employment Off payroll workers
Ultra low emission and
electric cars
Identify off-payroll workers in your business and assess
likely status post April 2020.
These incentives may not be available for the medium
term. Take advantage while you can.
VAT VAT inspections
Hints and tips
MTD4VAT
European trade
The regime is changing, be prepared
Unpaid supplier invoices (threat) and bad debt relief
(opportunity)
Have an implementation plan/timetable
Get EORI numbers
Corporate governance and
financial reporting
Narrative reporting
Governance
Gather carbon reporting data and prepare s172
information (duty to promote the company to
stakeholders)
Are your rules and procedures up to scratch?

118. SNAPSHOT
Session Topic Takeaway
Insolvency High profile cases
Escalate
Have you updated the risk assessment to your
business?
Consider using this to unlock disputes
Cyber security Governance Now part of everyday life, negative consequences of
getting it wrong are increasing, and avoidable.
Corporate finance Fund raising
Due diligence
Market trends
Uniformity has gone, varied finance sources and risk
based financing are the new norm.
Techniques and level of analysis are changing
Multiples are ok, deal structures moving towards
overseas buyers, earnouts and ongoing consultancy
Financial planning Annual allowances
Lifetime allowances
Tapering having an effect on tax charges for pension
contributions
Increasing with CPI but beware 2nd test for 75 year olds

119. THE FAMILY
BUSINESS CONNECT
HOUSE
The Family Business Connect House has a
range of rooms to explore alongside your
dedicated adviser and within each room, is a
further three levels of depth to consider
depending on your requirements, pace and
priorities.
You can navigate the rooms of the house
according to individual or business goals. Your
dedicated adviser will work closely with you to
safeguard your position and to identify
opportunities to add real value to your family
and your business.
https://familybusinessconnect.com

120. PANEL Q&A - CODE FD24
www.sli.do

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