Exeter – Finance Directors’ Update - November 2015

Finance
Directors’
Update
November 2015

www.francisclark.co.uk
Chairman’s Welcome
Glenn Nicol
Partner

Housekeeping

What’s new at Francis Clark?
South West Insider Dealmaker Awards 2015
• Corporate Finance Advisory Team of the
Year
• Mark Greaves – Dealmaker of the Year
• Matt Willmott & Nick Tippett shortlisted for
Young Dealmaker of the Year

What’s new at Francis Clark?
The British Accountancy Awards 2015
• James Twigger nominated for
Practitioner of the Year

Coming soon…..
Finance in the South West
2016
Tuesday 23 February
Exeter Racecourse
Keynote speaker – Jonty Bloom

• Conservative majority government for the next 5 years
• Labour leadership – potential disruption over
continuing austerity measures?
• Spending review
• Interest rates?
• National living wage
• Hinkley Point C
• Eurozone – migration
- EU referendum
• Instability in the Middle East
• China slow down/investment programme
UK Economy – lots going on!

Programme
Stephanie Henshaw, Corporate Partner
• Current issues in Financial Reporting
Julie Towers, VAT Partner
• Topical VAT Issues
Andy Welch, Chartered Financial Planner, Francis Clark
Financial Planning
• Further pension changes and financial advice for
employees
COFFEE BREAK

Programme
John Endacott, Tax Partner
• Tax Update
Lucinda Coleman, Business Recovery Director
• Why solvent companies need an Insolvency
Practitioner
Scott Campbell, Tax Consultant
• Topical PAYE Issues
Andrew Killick, Corporate Finance Partner
• The right time for acquisitions?
LUNCH

Current issues in
financial reporting
Stephanie Henshaw

In this session….
FRS 102 implementation: are you ready?
Looking ahead: further challenges
Company secretarial: don’t get caught out
by the changes

FRS 102 implementation:
current “tricky issues”
Foreign currency
translation
Forward currency
contracts
Interest rate
swaps
Hedging

FRS 102 issues:
Foreign currency translation
Full retrospective
restatement on
transition
Measurement of sales
and purchases
Impacts stock costing
models
Forex adjustments in
P&L
Spot rate not
contract rate

FRS 102 issues:
Forward currency contracts
Fair
values
required
Restatement on
transition
Broadly, match
with forex
gains/losses
FV
movements
to P&L

FRS 102 issues:
Forward contracts for future purchases
Without hedge accounting
• Recognise asset/liability at FV
• FV gain/loss to P&L
• No corresponding forex
loss/gain as transaction has
not yet occurred
• Mismatch, P&L volatility
With hedge accounting (FV
hedge)
• Recognise FV of forward
contract
• Recognise exchange gain/loss
on future purchase
• Adjust asset for cumulative
hedging gain or loss
• Match, limits P&L volatility
But
• Need identifiable firm
commitment

FRS 102 issues:
Interest rate swaps
Transitional adjustment
affects net assets and
retained profit
Movements create profit
volatility
Additional asset/ liability
May not reflect
commercial reality
Measurement
at fair value

FRS 102 issues:
Swaps to hedge borrowing exposure
Cash flow hedge accounting impact
• Hedging instrument (swap) and hedged item (loan) at fair value
• Cash flow hedge reserve records lower of above FV adjustments
with corresponding entry in OCI
• Excess FV adjustment to P&L (“hedge ineffectiveness”)
• Recycle cash flow hedge reserve via OCI to P&L over life of
instrument

FRS 102 issues:
Hedge accounting
• Not straightforward, requires time to work through
• Documentation is crucial
• Identify hedged item and hedging instrument
• Describe the risk that is being managed
• Identify the economic relationship between hedged item and hedging
instrument
• Determine and document cause of hedge ineffectiveness (i.e.
mismatch)
• Record start date of hedge
• Retrospective documentation only for hedges in first year of
adoption (otherwise must document at outset)

What will you be presenting?
The transition
statement
The financial
statements
Group members
only - reduced
disclosures

The transition statement
At Transition
At First Time
Adoption
Narrative explanation of nature of changes,
options on transition, new policies
Reconcile old and new
equity
Reconcile
old and
new equity
Reconcile
comparative
P&L

Identifying transitional adjustments
Stage 1
• Using 31/12/13 accounts:
• Compare old UK GAAP and FRS 102
• Identify accounting policy choices and transitional exemptions
Stage 2
• For FRS 102 new items:
• Identify accounting policy choices
Stage 3
• Select policies to apply in
restated balance sheet

Identifying transitional adjustments
Stage 4
• Restate balance sheet at 1 January 2014
Stage 5
• Incorporate 2013 adjustments in to 2014 accounts
• Apply new policies to 2014 accounts
Stage 6
• Restate balance sheet at 31 December 2014

Restating comparatives
New lease with
incentive
Acquisition in PY
Balance
sheet
Profit and
loss
• Landlords and
tenants
• Restate
incentive to
spread over
period of lease
• Adjust P&L
annual rent
charge/ income
• Separate intangibles
and goodwill
• Provide deferred tax
on FV adjustment,
corresponding impact
on goodwill
• Adjust amortisation
• Adjust amortisation
charges on goodwill
and intangibles

What changes in the financial statements?
Statement Comments
Balance sheet Largely unchanged
Profit and loss account
And
Other comprehensive income
Can present as a single Statement of
Comprehensive Income
Cash flow statement Fewer headings, so reanalysis required
Statement of changes in equity Movements in each item of capital and
reserves
If only changes are dividends and prior
period adjustments can choose to
present Statement of Income and
Retained Earnings instead
Notes Statement of compliance with FRS 102
Statement of statutory details
Explain key judgements and significant
estimates
Some new notes

Rearranging the cash flow statement
Under FRS 1
Operating activities
Returns on investment and
servicing finance
Taxation
Capital investment and financial
investment
Acquisitions and disposals
Equity dividends
Management of liquid resources
Financing
Under FRS 102
Operating activities
Investing activities
Financing activities
1. Will need to reallocate
headings for comparatives
2. Choice of classification for
interest and dividends
3. No requirement for Net
Debt reconciliation

Changes to accounting disclosure
• A number of unfamiliar elements to notes
• Financial instruments
• Fair value information
• Description of accounting policies
• Key areas of judgement
• Estimates with potentially significant uncertainty
• Opportunity to review application and presentation

Reduced disclosure regime
• Any group entity where consolidated accounts prepared by parent
• Provided
• Shareholders notified and do not object
• Disclose name of parent preparing consolidated accounts, summary of
exemptions taken
• Exemptions available for
• Cash flow statement
• Reconciliation of the number of shares in issue
• Total key management personnel compensation
• Aspects of financial instruments and share-based payment disclosures

Impact across the group?
Parent co
(large group)
Small Sub Medium Sub
Medium Sub
Small Sub
Group accounts
under FRS 102.
What about small
subsidiaries?

Looking forward;
Reduced disclosure regime for small companies
• Recognition and measurement under FRS 102
• Disclosure as specified in new Section 1A to FRS 102
• Mandatory disclosure restricted to notes required by law (reduced number)
• Overriding requirement to give a true and fair view
• Onus on directors to identify when additional disclosure necessary
• Knock on impact on accounts for filing (no abbreviated accounts!)

When do small companies have to apply
FRS 102 Section 1A?
Dateoftransition
1 January
2015
Firsttimeapplication
1 January
2016
Firstyearend
31
December
2016
Early adoption permitted for a/p beginning on
or after 1/1/2015

Looking forward:
transition for small companies
• Transition principles and options as for larger companies
• Additional exemptions available to reflect lack of time to plan
• Periods beginning before 1 January 2017
• No restatement on transition or in comparatives
• Fair values of derivatives
• Fair value of share options
• Non-market rate intra group loans
• Adjust opening reserves in first year of adoption

Company secretarial:
Don’t get caught out on the changes
• Anticipated from April 2016
• Individuals holding >25% votes/shares
• Indirect holdings if via overseas company
Register of
persons with
significant control
• Replaces annual return from June 2016
• All information properly supplied
• No more than 12 months between statements
Annual
confirmation
statement
• Alternative to maintaining company registers
from June 2016
• For members’ register, requires all-member
assent
Option to use
central register

Contact details
Stephanie Henshaw – Corporate Partner
01392 667000
stephanie.henshaw@francisclark.co.uk

Topical VAT Issues
Julie Towers

Agenda
• Review of Current Issues
• Recovery of VAT on expenditure

Current issues
VAT visits
• Increased number of visits to clear repayment returns
• Tip – contact HMRC in advance to pre-empt queries on repayment
returns
• Entitled to repayment supplement if HMRC delay > 30 days
• HMRC do not always offer it automatically. Be persistent!
• Taxwise

Current issues
Time to pay arrangements
• If making an arrangement for time to pay with HMRC, the
payments must be made by direct debit
• This is the case for time to pay arrangements for all taxes

Current Issues
HMRC - Delays
• Option to Tax Unit – 10 weeks
• Error Correction Team – 2 months

Current Issues – Update on Installation of
energy saving materials
• 4 June 2015 CJEU ruled that the UK application of the reduced
rate of VAT for energy saving materials is contrary to EU law
• Currently the reduced rate applies to the installation of energy
saving materials, and the goods themselves when provided with
qualifying services
• The reduced rate will continue in the short term
• Government is ‘considering the implications of the decision’
• HMRC has announced that no change will be implemented until
Finance Act 2016

Recovery of VAT on Expenditure
Deal costs
• Concerns recovery of VAT on
share acquisitions – a complex
area
• CJEU case of BAA Ltd -
concerned VAT incurred by
company set up to take over
BAA
• Must be direct and immediate link
to taxable supplies in order to
recover input tax
• If holding company will not make
taxable supplies no VAT recovery
• 2015 - Joined CJEU cases of
Larentia and Minerva
• VAT recovery allowed where
management and other services
provided to subsidiaries
• Guidance awaited from HMRC

Motor expenses and vehicle costs
• Motor cars – VAT recovery blocked unless 100% business use
• Other vehicles – VAT recovery based in intended business use
• Leasing of motor cars – 50% recovery where any private use
• No need to account for VAT on sale of motor cars where VAT
recovery blocked on purchase

Motor expenses and vehicle costs
• VAT on fuel for cars
• Recover VAT on all fuel and pay fuel scale charge
• Do not recover VAT on ANY fuel, no scale charges
• Only recover VAT relating to business mileage
• Full recovery of VAT on other motor expenses e.g. new tyres
• Mileage – recover VAT on fuel element

Potential issue!

And finally

Contact details
Julie Towers – VAT Partner
01392 667000
julie.towers@francisclark.co.uk
Richard Staunton – VAT Director
01823 275925
richard.staunton@francisclark.co.uk
Liam Dushynsky – VAT Consultant
01392 667000
liam.dushynsky@francisclark.co.uk

Further Pension
changes and
assisting retiring
employees
Andrew Welch

www.fcfp.co.uk Twitter.com/francisclarkifa
Agenda
• Pension changes - five reasons why you need to
review your plans now
1. Annual Allowance restriction
2. Lifetime Allowance reduction
3. Pension Input Period changes
4. Death benefit nominations
5. Existing plans not fit for purpose
• Retiring employees – how you can help

Five reasons to
review your
pension plans
now

1. Annual Allowance restrictions
• The trend of a reducing Annual Allowance (AA) continues
• Accessing pension benefits post April 6th 2015 results in an
immediate reduction in AA to £10,000 per annum
Year Annual Allowance Additional Restrictions
2010-11 £255,000
2011-12 £50,000
2012-13 £50,000
2013-14 £50,000
2014-15 £40,000
2015-16 £40,000 Reduces to £10,000 when Flexi
Access Drawdown entered
2016-17 £40,000 Additional restrictions for higher
earners

• New high earner restrictions from April 6th 2016 consist of 2
‘Tests’.
1. Those in receipt of “adjusted income” above £150,000 p.a. will
see a reduction to their AA on a sliding scale resulting in the AA
reducing to £10,000 for those earning more than £210,000 per
annum.
2. Those in receipt of “threshold income” of £110,000 p.a. or less
but have pension contributions of more than £40,000 in the tax
year will not be subject to the reduced AA.
• Income above £110,000 but less than £150,000 could still land
you with a reduced AA as pension contributions from employer
and employee are added to your base income and could take you
over the £150,000 limit.

What you should do if you think you might be affected?
• Accurately calculate your Adjusted and/or Threshold Income for
the previous tax year to establish if you are likely to be affected.
• If you are a member of a Defined Benefit Scheme it is not a
straight forward calculation to work out the value of the benefit to
be added to your income and we would recommend you seek
advice to clarify this.
• If affected consider whether your income will be the same or more
in the 2015/16 tax year.
• If it will be then consider if it is appropriate to maximise pension
contributions this tax year.
• Consider other tax efficient alternatives to pension saving if you
are likely to be affected every year.

Peaked at £1.8M;
will reduce to £1m
from April 2016

• Will affect many more pension savers both now and in the future
• Example - already exceeding the new limit – John aged 52
+ =
What might John do to lessen the impact of the reduced LTA?
Frozen final salary
benefit from previous
employer £20,000
p.a. pension =
£460,000 capital
value
SIPP with
commercial property
valued at £300,000,
investments at
£225,000 and cash
of £25,000
£1,010,000

1) Cease funding the SIPP and apply for Fixed Protection to preserve
the current £1.25m LTA.
2) Crystallise the SIPP at age 55 by taking his tax free lump sum to
‘test’ the SIPP against the LTA.
3) Once the SIPP is crystallised John can allow the residual fund,
after the tax free cash has been taken, to grow without further LTA
issues. He doesn’t need to take any income.
4) He could consider crystallising his Final Salary pension early which
would result in an early retirement penalty thus reducing the
pension for LTA purposes but compensating him in effect by
having the smaller pension paid for longer.

What action should be taken now?
• There are many variables that need to be considered such as
projecting forward future values to give foresight of possible
breaches of the LTA.
• Consider the timing and shape of the drawing of your pensions.
With some careful planning potentially significant tax charges can
be reduced.
• Examine whether either of the protections that are available
would be appropriate. These are known as Fixed and Individual
Protection and allow you to preserve a higher LTA subject to
conditions.

3. Pension Input Periods
• All pension plans have a set annual period within which
contributions are measured against your Annual Allowance; this is
known as the Pension Input Period or PIP.
• PIPs could run from and to any date in the year but to simplify the
system it was announced in the Summer Budget that all PIPs
would now be aligned to tax years.
• To tidy this up all current PIPs were closed on 8 July 2015 with a
new PIP being opened on 9 July 2015 and running to 5 April 2016.
• The 2015/16 tax year has therefore been split into 2 ‘mini tax
years’ either side of the budget.
• The total annual allowance for the first part of this ‘mini tax year’
running from 6 April to 8 July 2015 carries an Annual Allowance of
£80,000.
Let’s look at an example……………

Example
• Angela has a SIPP to which she contributes the full Annual
Allowance each tax year.
• Her PIP is already aligned to the tax year.
• On 10 April 2015 Angela contributed £40,000 to the SIPP thinking
this would utilise her full annual allowance for 2015/16.
• On 8 July 2015 the summer budget closed her PIP, but at the
same time the Annual Allowance was doubled to £80,000 and a
new PIP was opened to run until 5 April 2016.
• Angela can now make a further £40,000 contribution by ‘carrying
forward’ the unused allowance into the new PIP running from 9
July 2015 to 6 April 2016.

Action to take now
• Establish your position in relation to the newly realigned PIPs.
• Work out what capacity you might have for a further contribution.
• If capacity exists, consider the excellent tax advantages of making
an extra contribution of £40,000 which would cost an additional rate
tax payer a net £22,000 or a higher rate tax payer a net £24,000.
• With the reducing Lifetime Allowance and restricted Annual
Allowance for some from 2016, this could be the last opportunity for
significant pension funding.

4. Death Benefit Nominations
• More flexibility has been introduced, allowing pension savers to
pass on their unused pension fund tax efficiently to dependents
and beneficiaries.
• If the pension saver dies before age 75 the whole fund can be
passed on with no tax consequences
• If the pension saver dies after age 75 then the pension fund can
still be passed on, but withdrawals made by beneficiaries will be
subject to tax at the recipients’ marginal tax rate
Pensions have become an excellent way of passing money
down the generations free of Inheritance Tax.
Be aware that some pension plans don’t facilitate full
flexibility for recipients of the pension fund.
Update your nominated beneficiaries to encompass a wider
range of recipients

• What to do now?
• Check all existing plans to establish whether they offer full
flexibility for beneficiaries
• Update your nomination forms to include a wider range of potential
beneficiaries
Example
Can John’s wife achieve her wishes?
John dies aged 77
nominating his wife
to receive his
£600,000 pension
fund
John’s wife doesn’t
need the fund as
she has other
assets to provide
her income
His wife asks for
the fund to be
passed down to
their 2 children free
of IHT

• The answer is NO!
• In order for the pension scheme trustees to direct the funds to the
children they had to be named as potential beneficiaries
• The Death Benefit Nomination Form did not include the children
and the fund passes to his wife
This lack of planning causes a poor tax outcome. As John died
after age 75 any withdrawals from the pension fund will be
taxable on the recipient. His wife is a higher rate tax payer and
will therefore pay 40% tax but the children are non tax payers.
If his wife wants to pass assets to the children from other
sources this will be a gift and she will need to live 7 years for it
to be free of IHT.
Gifting other assets may mean she has to draw down on the
IHT free pension fund and pay 40% tax on the income

• It is common to accumulate a number of pension plans over the
years.
• It is also common for us to rarely review the suitability of these
plans in light of changes to our circumstances or pension
legislation.
• This leaves us potentially holding pension plans that lack flexibility
and can deliver poor outcomes.
We don’t think twice about updating our TV’s, smart phones
and cars to reflect technological improvements yet neglect
tens of thousands of pounds in our pension funds leaving
them stranded in plans which could deliver very poor
outcomes for us and ultimately our beneficiaries

Flexi- access
drawdown
Uncrystallised
funds pension
lump sum
Dependents
flexi-access
drawdown
Dependents
lump sum
Successors
lump sum
Successors
flexi-access
drawdown
Are your plans
able to provide all
of these features?
If not then you and
your family will
potentially pay
more tax and
have less
flexibility in how
you use and pass
on your pension
assets

5. Existing plans not fit for purpose –
Actions to take now
• Carry out a review of all existing plans
• Establish if they offer all the new pension flexibilities (unlikely)
• Review Death Benefit Nominations
• Consider any valuable guarantees that might exist in your current
plans
• Consider a partial transfer of pension fund from a company
pension scheme that doesn’t offer full pension flexibility
Consolidating all existing plans to one new plan that
constantly updates itself in line with pension rule changes
will:
• reduce your administrative burden
• allow you to put in place a cohesive investment strategy
• ensure all options are available at retirement
• ensure your beneficiaries receive any unused fund
• minimise the tax cost of passing on your pension fund

Access to advice for retiring employees
• You have seen that pension planning has become vital due to the
new found flexibilities
• This has come at a time when access to financial advice has
become difficult to obtain
• Retirees are now faced with multiple choices to make at retirement
• Buy an annuity?
• Consider health and whether a higher pension could be possible due to
health conditions?
• Take a lump sum or not?
• If don’t buy an annuity what about investment risk?
• Maybe buy an annuity with part of the pension fund and enter flexible
drawdown with the rest?
• The choices are bewildering; advice can provide peace of
mind and certainty at a crucial point in life

Access to advice for retiring employees
• As an employer you can (as do many large companies) offer your
employees a consultation with ourselves prior to retirement
• This will provide them with an initial assessment of their retirement
planning needs and how best to utilise their assets to achieve the
best retirement outcome possible
• Following the initial assessment which would be funded by the
employer we would agree fees directly with the employee if they
wish to progress any of our recommendations
• This service is available for £300 + VAT per employee
Offering this advice to your staff would be a great way to reward
their service

Contact details
Andrew Welch – Chartered Financial Planner
01392 667000
andrew.welch@francisclark.co.uk
David Clifton – Chartered Financial Planner
01872 276477
david.clifton@francisclark.co.uk
Richard Wright – Consultant
01752 301010
richard.wright@francisclark.co.uk

www.fcfp.co.uk
No responsibility can be accepted for any action taken as a result of information contained in
this presentation. We therefore strongly recommend that no action should be taken before
obtaining detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from
them may go down as well as up and an investor may not get back the amount invested.
Francis Clark Financial Planning is a trading style for Francis Clark Financial Planning Limited,
which is authorised and regulated by the Financial Conduct Authority.
Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay, TQ2 7FF.
Registered in England No. 05413603
Exeter Plymouth Salisbury Taunton Tavistock Torquay Truro
This PowerPoint presentation is for general information only and is not intended to constitute professional advice.
Though Francis Clark Financial Planning Ltd is confident on its accuracy, no duty of care is assumed to any direct Recipient of this presentation and no liability is accepted for any
omission or inaccuracy.
Important Statement
Twitter.com/francisclarkifa

Corporate Tax
Issues
John Endacott

Agenda
• Tax, UK GAAP & the change to FRS 102
• Changes to capital allowances
• Tax relief on amortisation of goodwill
• The new dividend tax
• Outlook for tax relief on interest costs
• What’s in store in the Autumn Statement?

Accounts & tax – current position
• Historically, tax rules have been the same for all companies
(income tax/corporation tax)
• Separate tax code developed in the 1990s based on UK GAAP –
tax following accounts
• Exchange gains & losses
• Loan relationships
• Intangible assets
• Divergence between large companies and SMEs post-2000
• FRS 102 having a wider impact for tax than first appreciated by
HMRC

GDF Suez Teeside v HMRC (FTT)
• Increasing use of tax avoidance based GAAP schemes
• Taxpayer had followed GAAP
• No alternative to the accounting treatment adopted
• HMRC argued that “accounts did not give a fair view of the profits”
– on any “realistic commercial approach”
• HMRC successful
• Loan relationship rules being amended so that less accounts
dependent

Tax implications on change to FRS 102
• Specific tax rules on a “change of accounting policy”
• Apply on the transition to FRS 102
• Different tax rules for:
• Trading profits
• Intangibles
• Financial instruments

Transitional rules on change of
accounting policy
• Historically an issue for large companies, although accrued income
& FRS 5 impacted widely
• Six year spreading possible on agricultural stock adjustment
• Ten year spreading possible
• Intangibles – fixed rate (4%) election and non-taxable adjustments
• Financial instruments – complex transitional rules including COAP
& Disregard Regulations (also exchange gains & losses)

Overview of tax considerations
• Financial adjustment on change to FRS 102 needs to be computed
• Options available are very complex – especially for financial
instruments
• Consider electing under one of the disregard regulations
• Consider a 4% election on intangible assets
• HMRC consulting on implications and more guidance likely

• Forthcoming reduction in the Annual Investment Allowance (AIA)
• £200,000 from 1 January 2016
• Currently £500,000 – was due to fall to £25,000
• Clearly need to think about timing of acquisitions.
Capital Allowances

Easy Limited
• Easy Limited has a December year end and is thinking about
buying a new machine for £500,000. This will be the first capital
investment for a couple of years.
• Clearly appropriate to purchase the machine (and for it to be
delivered) prior to 31 December 2015.

What if my year end straddles
the year end?
Difficult Limited has a 31 March year end – how much Annual
Investment Allowance may it claim?
• 9/12 x £500,000 plus 3/12 x £200,000 = £425,000
Whilst Difficult Limited has an allowance of £425,000 it only has an
allowance of £50,000 that can be used in the period from 1 January
to 31 March 2016.

What else should we be thinking?
• For many £200,000 may cover all qualifying spend – no impact!
• If spending more than £200,000 – Short Life Asset Elections might be
appropriate

Short Life Asset (SLA) elections
• Not cars
• Assets with private use
• Where life expectancy expected to be less than 8 years
• In pool only get relief over extended period
• If in pool can accelerate “Balancing Allowance”

Is there a Balancing Allowance?
Year Value of Equipment
in Pool?
1 82
2 67
3 55
4 45
5 36
6 29
7 23
8 18

What do we need to consider?
• Are our additions in excess of the Annual Investment Allowance?
• Are there any assets that we expect to sell/scrap within 8 years?
• Are those assets likely to fall “quickly in value”?
• Make a SLA election
• Can you identify the assets when scrapped?
• And do revisit the list in the years ahead!

Tax relief on the acquisition of goodwill
• From 8 July 2015 – no tax relief on the acquisition of goodwill
• No impact on goodwill acquired prior to that date
• Goodwill and “customer related intangibles”
• Details relating to customers or potential customers
• An unregistered trademark
• Purchase of assets of a business is more expensive after tax
• Need to consider apportionments

Should you do a share deal?
• With lack of tax relief on goodwill, share deal might seem less
“unattractive”
• Lower rate of stamp duty
• If you sell the company in the future – Substantial Shareholdings
Exemption (SSE)
• Higher deal costs

Is there any good news?
• Corporation tax rate – 20%
• With effect from 1 April 2017 – 19%
• With effect from 1 April 2020 – 18%
• Might impact on amounts of deferred tax

Dividend Tax
• With effect from 1 April 2016
• Notional Tax Credit Abolished
• Introduction of a £5,000 dividend allowance
• Dividends above dividend allowance taxed at:-
New Rules Old Rules
Basic Rate Tax
Payers
7.5% 0%
Higher Rate Tax
Payers
32.5% 25%
Additional Rate Tax
Payers
38.1% 30.55%

What should we be thinking about?
For additional rate taxpayers – think about paying dividends in advance
of 5 April 2016?
• Bank covenants
• Reserves – are they distributable?
• Cash flow as at 31 January 2017
Should we simply revert to voting a salary?

The same comparison where
the recipient is a higher rate taxpayer
Dividend Salary
Profit A 100.00% Gross plus employers NI A 100.00%
Employers NI (13.8% of
gross) 12.13%
Less CT 20.00% Gross 87.87%
Distributable profit 80.00% Tax (40% of gross) 35.15%
Dividend tax 32.5% 26.00%
Employees NI (2% of
gross) 1.76%
Net B 54.00% Net B 50.97%
Total effective tax
rate 1-(B/A) 46.00%
Total tax and NI over
gross plus ers 1-(B/A) 49.03%

And the same again where
the recipient is an additional rate taxpayer
From this it can be seen that a company paying out a dividend to its
owner(s) will incur less in tax/NI than taking an equivalent salary,
whether the shareholder is a basic, higher or additional rate taxpayer.
Dividend Salary
Profit A 100.00% Gross plus employers NI 100.00%
Employers NI (13.8% of
gross) 12.13%
Less CT 20.00% Gross 87.87%
80.00% Tax (45% of gross) 39.54%
Dividend tax 38.1% 30.48%
Employees NI (2% of
gross) 1.76%
Net B 49.52% Net B 46.57%
Total effective tax
rate 1-(B/A) 50.48%
Total tax and NI over
gross plus ers 1-(B/A) 53.43%

What else might influence our thinking?
• Age of Tax payer?
• Are any other allowances available? R&D etc?
• Quarterly Instalment Payments (QIPs)?
• Timing of the payment of PAYE/NIC vs dividend tax
• Income tax payments on account

So what does it mean?
M receives a salary of £25,000 and £125,000 dividends in 2015/16
and the same in 2016/17.
M will pay £8k more income tax in 2016/17 than in 2015/16,
equivalent to a tax rise of 5.3%.
Q receives a salary of £25,000 and £175,000 dividends in 2015/16
and the same in 2016/17.
Q will pay £12,000 more income tax in 2016/17 than in 2015/16,
equivalent to a tax rise of 6%.

And finally…..
• We mentioned possible spectre of a restriction of loan interest
• Changes introduced for private owners of buy to let mortgages
• But no changes, as yet, for corporates…..
But………………
• 6 October OECD announced their BEPS Action Plan
• “Fixed Ratio Rule of tax relief for net interest of 10 - 30% of
EBITDA”
• HMRC consultation published on 22 October 2015

Autumn Statement – November 2015
• George Osborne will want MPs to know that there are
consequences of tax credits U-turn
• Tax increases likely
• Bigger gap before L Day this year
• More time required?
• Big agenda?
• Expect plenty on BEPS, OECD and leadership by UK – we will
implement ahead of other countries

Contact details
John Endacott – Head of Tax
01392 667000
John.Endacott@francisclark.co.uk
Damian Lannon – Head of Corporate Tax
01392 667000
Damian.Lannon@francisclark.co.uk
Paul Collings – Tax Partner
01752 301010
Paul.Collings@francisclark.co.uk

Why solvent
companies need
an Insolvency
Practitioner
Lucinda Coleman

Why you need an Insolvency Practitioner
• Your debtor is insolvent
• Your creditor is insolvent
• Acquiring insolvent businesses

Your debtor is insolvent
• Notification from an Insolvency Practitioner
• Usually requires an online download to get documents
• Low creditor participation
• BUT creditors should lead the process
• Notice of creditors meeting
• Proxy Form

Proxy Form

Creditor’s Meetings
• Proxy form = your vote
• Chairman of the meeting = director of the insolvent company
• Their choice of Insolvency Practitioner
• Risk to the creditors?

Francis Clark FREE Review Service
• Send correspondence from Insolvency Practitioners to us
• We will usually attend creditors meeting on your behalf
• Questions to directors
• Change directors’ choice of Insolvency Practitioner
• Challenge Insolvency Practitioner’s fees
• Report on outcome

Your supplier is insolvent
• Request for payment from Insolvency Practitioner
• They expect you to resist payment
• Warranty cannot be fulfilled
• Poor workmanship
• Breach of contract
• Set off
• Full and final settlement
• Duplicate/errors on invoices
• Waiting for a credit note
• Stock has been returned

Buying an insolvent business
• Speak to an Insolvency Practitioner
• Conflict
• Administration
• Pre-pack Liquidation
• CVA

Francis Clark Insolvency Practitioners

Topical PAYE &
National Insurance
issues
Scott Campbell

Who am I
• Scott Campbell – Tax consultant
• Francis Clark Tax Consultancy
• Advise in excess of 400 UK accountancy firms
• Specialise in Employment tax

Overview
• “Companies will always have a PAYE obligation, but their
primary focus is almost always their Corporate Tax, even when
the company isn’t making profits”
• Income tax and National Insurance for 2014/15 was £285
billion, Corporate Tax amounted to £42 billion
Why is it important to consider Employment Tax?

Overview
• Payrolling of benefits
• Changes to dispensations
• Changes to National Insurance for apprentices under 25

Reporting benefits
• Generally, benefits must be reported on form P11D
• The employee will then have future years personal allowance
reduced to recover the tax due on the benefit
• If an employer wishes to tax the benefit via the payroll, they need
to seek clearance from HMRC first
• Even when HMRC approves the payrolling of benefits, the
employer must still complete the P11D compliance
Current practice

Reporting benefits
• Drive to expand electronic submissions and real time reporting
• Removes the need to report benefit on P11D and P46 (car), and
report on FPS instead
• Mandatory electronic registration to opt to payroll the benefit, must
continue to do so for current tax year
• Register by 5th April 2016 for 2016/17
• To register must use: Payrolling Benefits in Kind (PBIK) service
• Tax on benefit collected in real time for the employee
Changes coming into force from April 2016

Reporting benefits
• Initially it will not cover vouchers, credit cards, living
accommodation and employee loans benefits
• These benefits still reportable via P11D
• Transitional issue for employees if not registered by 21 December
as might not be removed from employee tax code in time
• Class 1A due on benefits still reported and collected on P11D(b)
• P9D removed from 2016/17
• National Insurance liability increase as P9Ds do not attract Class 1A,
but reporting on a P11D does

Expenses
• Covers the work-related expenses that employers reimburse to
employees such as:
• Travel and accommodation for work at a temporary workplace
• Benchmark rates for subsistence
• Issued by HMRC to confirm that employers compliance processes
are adequate
• Removes the need to report the expense on P11D and the need
for the employee to submit a claim to stop the expense from being
taxable
What is a dispensation?

Expenses
• HMRC are removing the need to apply for the Dispensation, and
employers will self-assess expenses instead.
• Shift in onus from HMRC to employers to ensure compliance
processes are correct
• Up to employer rather than HMRC to determine if an expense can
be paid tax-free
• Possible penalty costs for errors, so employers need to maintain a
robust expense procedure

National Insurance
• Change already in effect from recent years:
• No Employers Class 1 National Insurance for under 21s (up to UEL)
• From April 2016:
• No Employers Class 1 National Insurance for apprentices under 25
(up to UEL)
• Pay an apprentice up to £42,380
• Saving of up to £4,728 of Employers National Insurance per
apprentice
Changes coming for apprentices under 25

National Insurance
• HMRC are still consulting on what will qualify as a ‘relevant
apprentice’
• Government approved published programme of work and training
• HMRC Guidance January 2016
• A written agreement between the apprentice, the employer and the
third party training provider.
• Training providers must be government accredited
• The written agreement must set out:
• The type of apprenticeship or standard being followed,
• The start date of the apprenticeship, and
• The expected completion date of the apprenticeship.
Changes coming for apprentices under 25

Contact details
Scott Campbell – Tax Consultant
01803 320100
Scott.Campbell@francisclark.co.uk
Richard Clutterbuck - Director
01803 320100
Richard.Clutterbuck@francisclark.co.uk
Dave Williams – Tax Partner
01803 320100
Dave.Williams@francisclark.co.uk

The right time for
acquisitions?
Andrew Killick

Agenda
• Valuations – normal basis, and recent trends in pricing
• Acquisitions – top tips
• Strategic plans – a good time to revisit and points to consider

Valuations
• Transactions:
• Sale/Acquisition/MBO
• Exit minority shareholder
• Stamp duty
• Fundraising
• Non transactions
• Divorce/Litigation/Death
• Employee
incentivisation e.g. EMI
options
• Family succession
• Wealth management
Why Value?
Formal or informal?

Valuations
• What is a business worth?
… it depends who to
• Many ways to calculate it, but each is only a guide
• Consider the impact of minority stakes
…“10% of a private company is virtually worthless!”

Desktop Valuation methods
• Discounted free
cash flows
• Capitalisation of
earnings
• Dividend yield
• Assets
• Sector specifics
Generic
Specific

124
Actual transaction multiples
Blue line represents EBIT
Red line represents profit after tax (PAT)

125
Deal volumes

Acquisitions – why do one?
• A great way to accelerate growth, expand your product range,
geographical coverage, obtain key staff, technical knowledge,
competitive advantage etc etc…
• But also because 2 + 2 can ≥ 5 so they can be immediately ‘value
enhancing’
• Synergistic benefits of revenue generation and cost savings need
to be carefully assessed

Acquisitions
• It’s not all about the price
• Do you have the team and time to integrate/manage it?
• What is the opportunity cost? – what else could you have done with
the money?!
• Think carefully about your criteria
• Some questions to decide on your approach:
• Do you need Management?
• How hard do you want to play? Do you have alternatives?

First approach – the tips
• Credibility/background
• Obtain a “confidentiality letter” or ideally an “Exclusivity Agreement”
that binds them in
• Go direct through your Advisor
• Make your initial offers ‘subject to…’
• Obtain cost cover if they pull out

Making an approach
• Ascertain their aspirations, plans for the future, alternatives,
uncertainties and challenges
• For growing businesses try and base any valuations on historic
information
• Watch that you don’t go past another year end
• Valuation may simplistically = Earnings X Multiple
• Detailed or ‘tactical’ Heads of Terms?

Due Diligence
• Should be ‘confirmatory’, but can be done in stages
• Focus on key risks
• Balance the Financial Commercial and Legal work
• Take into account the deal structure (earn-out/deferred/Completion
accounts

Strategic Plans
• Post Election
• Autumn spending review
• Political stability?
• Longer term planning
• Next Election?

Strategic Planning
• Think broadly – life and markets move fast – look ahead, new
applications and developments?
• It’s not just about opportunities – what about risks/threats and new
competitors?
• Revisit it every few years or when there has been a significant change

Summary
• Desktop valuations and transaction price are not necessarily the same
• Consider the benefits of an acquisition as there are some good
opportunities about
• Undertake a Strategic Review into which you annual Budgeting
process will fit

Contact Details
Andrew Killick – Corporate Finance Partner
07771 945513
andrew.killick@francisclark.co.uk
Paul Crocker – Corporate Finance Partner
07780 331841
paul.crocker@francisclark.co.uk
Mark Greaves – Corporate Finance Partner
07887 725355
mark.greaves@francisclark.co.uk

Chairman’s closing
remarks
Glenn Nicol
Partner

Future Finance Directors’ Updates
• The next series of seminars are scheduled for June 2016
• Details will appear on our website early next year
• Invites will be sent out in Spring 2016

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Exeter – Finance Directors’ Update - November 2015

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