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.
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. 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)
13. 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
14. 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
15. 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
16. 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.
18. 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
19. 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
20. 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
21. VAT – HINTS AND TIPS
INCOME
Bad
Debt
HowWhen
Common mistake:
Invoice = £1,200 Received £1,000, Claim only £200/120% x 20% = £33.33
22. VAT – HINTS AND TIPS
EXPENDITURE
Check
Creditors
> 6M?
Paid an old
Debt?
Preparing
return
Submit
Return
Adjust?
Keep a
record
Adjust?
No. 1
Question
23. 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?
24. 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
25. 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
26. 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
27. 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
31. 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
35. 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
37. 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.
38. 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
39. FOCUS ON TRANSPORT: BUSINESS USE ELEMENT
OF…
Total energy consumption
Onsite
transport
Personal/
hire cars
Company
cars /
fleet
vehicles
40. HOW DO I CONVERT ENERGY USAGE INTO
GREENHOUSE GAS EMISSIONS?
https://www.gov.uk/government/publications/greenhouse-gas-reporting-
conversion-factors-2018
41. 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
42. 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
43. 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?
44. 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
48. BIG DATA: THE BIG PICTURE
AI
Block
chain
Cyber
Data
analytics Whole
data
sets
Speed
of
analysis
Better
assurance
49. 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
50. 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. 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
55. 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
56. 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
58. 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
59. 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
60. 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
61. DISPUTE RESOLUTION
• PKF Francis Clark licensed provider
• No financial risk
• No initial outlay
• Rapid results
• Fixed fee of 30%
62. 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
63. 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
65. 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
66. 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
67. • 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
68. 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
69. WHO IS AT RISK OF THIS?
www.haveibeenpwned.com
70. 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
71. WHO IS AT RISK OF THIS?
Taken from Erricson Mobility Report 2019
72. WHAT IS NEEDED?
• Policies & procedures
• Risk assessment
• Regular reviews
• Accreditation
Mark Zuckerberg’s password, as revealed
after data breach – 6th June 2016.
‘Dadada’
73. 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.’
78. 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
79. 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?
80. 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.
81. 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
82. 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.
83. 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.
85. 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!
86. 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
87. 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
88. 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
89. 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
90. 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!
91. 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
92. 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
93. RISK BASED PRICING
Risk based
pricing
influential
factors
Financials
Non
financial
Structured
Vs
unstructured
lending
Capital
employed
Risk
rating
Sector
98. 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
99. M&A DEAL STRUCTURE TRENDS
Alignment of ‘financial planets’
Funding
availability
Pricing Multiples Entrepreneur’s
Relief
…but for how long??
100. 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!
102. AGENDA
The Annual Allowance Trap
Lifetime Allowance Recap
Loans to and from SSAS & SIPP
Workplace Pensions Update
103. 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
104. 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?
106. 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
107. 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
108. 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?
109. 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
110. 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
111. 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
112. 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
113. 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
115. 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?
116. 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
117. 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
119. 01392 667000
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01722 337661
Salisbury
01823 275925
Taunton
01803 320100
Torquay
01872 276477
Truro
01752 301010
Plymouth
01202 663600
Poole
Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other
individual member firm or firms.
Finance directors are responsible for the timely submission of accurate VAT returns
Per HMRC ‘right tax at the right time’
Aim of this section is a reminder for FDs of some of the main areas that HMRC look at on VAT inspections – FDs can then ensure that these points are addressed by the accounts teams. Will consider points relating to income and then expenditure
Since the closure of many of the local offices due to the centralisation process, the local VAT officer doesn’t really exist anymore. The digital age has meant that the majority of the information can be sent electronically before the phone call and can be worked on in the background by intelligent systems that look for the obvious errors. Which we will cover in this session.
We have seen a marked increase in the number of pre-cred checks, this is HMRC’s attempt to target where the money is going before traders go missing.
Mainly zero rated income that HMRC will try and check, did you meet the conditions for sale of goods e.g. valid EU VAT number for dispatch, valid export evidence (held) for exports. If you didn’t charge VAT on the sale of a building was is exempt (over 3 years old) zero rated (relevant planning permission etc.) hold certificate. Liability – Food confusion.
Intercompany – issues with management charges that can contra off, not so bad in a full recoverable group but can be very bad when one party is partially exempt. Barter transactions.
Most businesses are not on cash accounting and recover VAT on invoices received, many do not check creditors and repay amounts
https://www.gov.uk/reclaim-vat/cars
Import of goods from non-EU countries, C79 required as evidence to recover the import VAT, Sent in the post
HMRC recently confirmed that only the owner of the goods can recover the VAT
Incorrectly charged VAT – do not recover, HMRC will disallow, Revert to supplier to issue credit note, Ensure system in place to check VAT is correct
Any business wishing to import (Acquisition are no longer) will need an EORI to go on the import documentation.
The TSP is a method of being able to get the goods through the border quicker with limited amount of information but a supplementary declaration will be required (full details)
Deferment accounts will allow import duty to be put on an account to pay later (a security will be required in due course but not immediately)
The no deal tariff will remove duty on some items but this is only going to be a temporary measure (6-12m), it will apply to all imports not just EU purchases so factor it into your projections
Lots of clients are not sure who is responsible for paying what where, most contracts don’t include incoterms so this should be bottomed out with customers.
Lots of goods don’t require a licence when being sold within the EU, although some measures are in place to try and make sure some goods aren’t affected many will be. Customs / Border force have recruited 5000 people at the moment they are scratching around with little to do so are checking more than ever before.
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
How does a domestic reverse charge operate?
Supplier includes a reverse charge statement on invoice
Customer accounts for the VAT due rather than the supplier
Customer deducts this VAT at same time as input VAT
Removes scope for sub-contractors in chain to evade paying VAT due to HMRC
Only applies to supplies between UK taxable persons (registered or liable to be registered)
Implementation of the reverse charge
HMRC will apply a light touch for 6 months
Penalties and output VAT will be due from businesses knowingly incorrectly claiming End User status
I.e. incorrectly avoiding the reverse charge
Specific supplies are excluded from the domestic reverse charge if supplied on their own
HMRC will provide more information later in year
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
How does a domestic reverse charge operate?
Supplier includes a reverse charge statement on invoice
Customer accounts for the VAT due rather than the supplier
Customer deducts this VAT at same time as input VAT
Removes scope for sub-contractors in chain to evade paying VAT due to HMRC
Only applies to supplies between UK taxable persons (registered or liable to be registered)
Implementation of the reverse charge
HMRC will apply a light touch for 6 months
Penalties and output VAT will be due from businesses knowingly incorrectly claiming End User status
I.e. incorrectly avoiding the reverse charge
Specific supplies are excluded from the domestic reverse charge if supplied on their own
HMRC will provide more information later in year
https://www.yours.co.uk/lifestyle/home/articles/30-extraordinary-uses-for-baking-soda
What is bicarbonate of soda?
Aka baking soda, is a leavening agent used in baking and needs to be mixed with liquid and an acidic ingredient (eg honey, chocolate, lemon, buttermilk) to react and make cakes rise.
What is baking powder?
Baking powder is also a leavening agent but comes pre-mixed with the acidic ingredient (often cream of tartar) so all you need to add is a liquid to make your cake rise. It has quite a neutral taste.
https://www.gov.uk/government/publications/revenue-and-customs-brief-8-2018-vat-liability-of-bicarbonate-of-soda/revenue-and-customs-brief-8-2018-vat-liability-of-bicarbonate-of-soda
The issue in this case was straightforward: is bicarbonate of soda sold on supermarket shelves in the food section subject to VAT at the zero or standard rate?
The taxpayer said it was ‘food of a kind used for human consumption’. Its packaging referred to the product as a ‘raising agent for soda bread, cookies and gingerbread’. The taxpayer said it should be treated as zero rated (VATA 1994, Sch 8 group 1 item 1).
HMRC disagreed, saying the product should be standard rated, ‘regardless of its usage’. It said bicarbonate of soda was a ‘bulk chemical’ that could be added to food for a ‘technological purpose’ but was of no nutritional value. The average consumer, when buying it, was aware that it had multiple uses, including as a cleaning product. HMRC raised an assessment against which the taxpayer appealed.
The First-tier Tribunal said bicarbonate of soda was ‘an essential ingredient in some bread and cakes’ and was an ‘important attribute of food’. The supply by the taxpayer was clearly intended as a baking ingredient. It was packaged in small tubs and sold to retailers for sale in their home-baking sections. It was true that the product had other uses, but so did other food products, such as lemon juice and vinegar. Further, when sold for non-baking uses, it was packaged differently and contained warnings for its use.
The judge concluded that the ‘difference in the VAT treatment of salt sold for culinary purposes and bicarbonate of soda sold for culinary purposes is difficult to justify’. HMRC treated baking powder as zero rated even though it was bicarbonate of soda mixed with an acid and a drying agent. It was used in the same way as bicarbonate of soda and sold in the same section of the supermarket.
Start with specific accounting issue that won’t affect everyone here but could be significant if you are caught
Between 6 April 1978 and 5 April 1997, UK legislation on state pensions included provisions as to a state earnings related pension (SERPS). It was possible to contract out of SERPS by making alternative arrangements which provided for guaranteed minimum pensions, or GMPs, but the regime created a number of inherent inequalities between men and women.
Female members of 3 Lloyds bank pension schemes took action to address these inequalities. Court ruling means that there is an obligation to equalise benefits going back to 1990. Need to provide for the equalisation liability in your accounts if material.
The recent PRAG (pensions research accountants group) guidance says they think for most schemes the extra liability will be 1% – 4% of the scheme liabilities.
How do we account for the change?
Where companies have not provided for equalisation in the past then the additional liability is considered to arise from a plan amendment.
Liability has to be accounted for from the date of the judgement, ie 26 October 2018. The past service cost arising from the change in the benefits payable should be recognised in the P&L
If you have previously estimated the cost of equalising GMP benefits in determining prior year’s deficit or surplus, the judgement affects the amount of your estimate, it is accounted for as a change in estimate. Additional cost is therefore recognised in Other Comprehensive Income (so no impact on reported results for the year)
Note there is a difference between having considered a GMP provision in the past with your actuary, assessing it as 0%, and not actually considering the matter at all.
Auditors will challenge any contention that a nil provision had previously been made unless there is
So what are the presentation issues if you have an additional liability to recognise in the P&L?
How will that impact on EBITDA or measures derived from EBITDA for bank covenant purposes? Could it impair the company’s ability to meet a covenant test?
Clearly would be sensible to notify bank in advance and look at covenant definition to see whether there are grounds to exclude it from the calculation.
In terms of accounting presentation, ordinarily, pensions contributions are part of staff costs and would be included in arriving at operating profit.
But might you want to split out in notes or on face of P&L as an exceptional operating item – especially important if cost turns your operating profit to an operating loss
Need to make sure that there is adequate disclosure not just of the amount – e.g. via staff costs note – but also of basis of estimated cost, especially if assessment of the liability is uncertain and could have significant adjustment again next year as better information becomes available
When do accounts need to reflect any potential additional liability?
If last financial year ended before 26 October but accounts are being approved afterwards (close to being late!)
If a plan amendment, this would be treated as a non-adjusting post-balance sheet event.
If, however, an estimate had been made previously, the changes in assumptions would give rise to an adjusting post-balance sheet event – revision of estimate
If your accounts were signed off before 26 October – not accounted for last year so need to consider this time round
Provide as above
Consider whether the associated deferred tax asset (because no tax deduction until payments actually made) is recoverable – liabilities to offset against or probable will be able to get the tax back in the short term?
Regular attendees will notice that this session has included element about narrative reporting over the last 12 months. So far, primarily looked at effective compliance with existing rules – those in place for nearly 10 years now.
This time, focus on two new sets of rules which will impact many of you over the next 12 months.
First up – Carbon Energy Reporting Regulations – legislation came into force on 1 April – but no fooling here!
Note, practically impact will fall mostly on 31 March 2020 year ends and later, but beware short accounting periods that begin after trigger date.
Introduces entirely new requirement into directors’ report to do a carbon energy report
Who is caught – large companies
Large LLPs also caught – they don’t have to do a directors’ report (obviously) but Will now have to do a specific Energy and Carbon Report
In a large group – report for parent and subsidiaries which are large – there are some exemptions for group members to simplify matters.
Encouraged disclosures – while cynic may say that no one will report if they don’t have to, for any business that it trying to build its “green” credentials reporting may be a useful tool.
So, what do we have to report ? Essentially – business emissions – provide information about specified measures – both quantitative and qualitative
UK energy use (note – not overseas) for both onsite and transport energy consumed.
Report in KW hours
Then report carbon emissions – as a tCO2e figure (carbon dioxide per tonne)
Also have provide an intensity ratio – energy usage and GHG emissions to suitable business metric
Finally – explain what measures taken during year to increase energy efficiency
Note – will need comparatives in future years but NOT in year 1 so no need to obtain information retrospectively for 2018/19
How do we obtain the information to compile the report?
Electricity and gas usage will be fairly easy to monitor – everyone gets utility bills, has meters etc.
Transport fuel likely to be more complicated but will depend on extent of transport usage in your organisation. Will need to look at fuel invoices and mileage logs
Key point as illustrated on this slides is that report only concerns business use element
Note that transport won’t include vehicles operated by others e.g. trains, planes and taxis or by your subcontractors
(keep this slide very brief – just some illustrations to give an idea of what will be needed)
Government-provided spreadsheets available here. Type in energy usage from different sources and provides standardised conversions.
So why are we talking about strategic decision making and directors’ duties?
New rules came into force at the start of this year which will change nature and form of reporting for some companies
When – reminder – beware short period as trigger is the start date
What – [read it out]
- it is a separately identifiable statement, so will be an extra element
Plus related summary statements
Who – large companies for the s172 statement - unlike CERR, these rules do not apply to LLPs
Slightly different rules for summary statements – see shortly
Where – not just the accounts – also requires action elsewhere – for those already reporting modern slavery measures, this is yet another web-based reporting requirement
Let’s put a bit more flesh on the bones, starting with the summary statements – two statements in directors’ report
Employee engagement
- required where average employee numbers exceeds 250 so not all large company clients will need this additional statement, but some medium-sized will;
This replaces previous disclosure requirements so will need to check whether previous wording still does the job – don’t assume
Key point is how interests of employees impacted principal decisions taken in the year. E.g. company decided to move part of operations to another location (UK or overseas) or online: did it result in redundancies, were people paid to relocate, has it resulted in new opportunities?
Engagement with suppliers and customers and others – large companies
-who are the “other business relationships”? Banks? Subcontractors? Consultants?
How did need to foster business relationships impact on decisions made in the year e.g. did the company change contracts e.g. In anticipation of off payroll working rules?
Key words: ENGAGEMENT, DECISION-MAKING
Before look at s172 statement – a bit more detail on who is affected
Anything that qualifies as large (or ineligible as small/medium)
NO exemption if you are large sub of a large group – do a statement on entity specific issues
Group statement for large group
Beware size of parent – might be small on its own terms but large because of group size, so it will be preparing a group strategic report, which means will consider issues relevant on a group basis
Website publication – statement has to be published either as part of published accounts (unlikely) or as standalone statement
Purpose of this slide is to provide a bird’s eye view of directors’ duties under s172 –
Note – delegates have this as a handout so might be easier to look at that than screen.
Starting in the middle:
Success usually means growth in value i.e. via retention of profit, net assets up. BUT achievement of success relies on company relationship with other stakeholders and its external impact – hence 6 categories around the outside
So, s172 statement needs to explain how strategic and business decisions during the year took these into account
In practice, unlikely that you will have issues that cover all 6 elements and there is no expectation that will discuss all 6 if not relevant but do need to pick up those that are significant.
e.g. if made a strategic decision to close retail operations and move entirely online – pick up long term, impact on staff, impact on community
Sharp-eyed will notice there is an element of cross over between this and summary statements in directors’ report – (employees and business relationships) no need to duplicate info – just make sure you signpost between the two
Next time – hope to be able to show some examples of disclosure but this is very new and so formats are still being developed. Will mean some significant rethinking of structure of strategic reports because still need to include all the existing information as well.
Thinking about how we pull together a suitable s172 statement and demonstrate the required links might make us think about how our decision-making processes have worked over the last year and why we did what we did.
Links neatly into our next topic which is a reminder about some governance basics
Why does evidence of our governance processes matter? We’d suggest there are three reasons:
If we are hoping to sell, bring in external investment, even borrow from the bank there will be external scrutiny in the form of due diligence
Good internal processes and record-keeping minimises the risk of internal conflict – brings clarity over what has been agreed and why
Directors have a duty to comply with the law, and with their own organisation’s constitution e.g. did you know that board and shareholder minutes have to be retained for 10 years?
So, here are a few thoughts about areas that might be regarded as “housekeeping” but could give rise to problems if they aren’t kept in good order
How can we help – review existing documentation and provide you with a short report on areas that might need attention.
So what would we look at?
Can broadly divide governance measures into two groups – rules, being the documents that govern how your organisation is supposed to operate and behave – and procedures, being the documentary evidence of how you actually did things
So, let’s pick out a few points from each:
- articles – when did you last look at your articles? Are you familiar with them? What are your borrowing powers? What makes board decisions quorate? Is there a casting vote? Do shares have to be paid up to be entitled to dividends?
Shareholder agreements – are you actually operating in accordance with the agreement? Are information obligations being met?
Service level agreements – are they fit for purpose, up to date, applied correctly e.g. calculation of management charges, cost sharing mechanisms?
Conflict procedures – who is allowed to vote on what? If you are director of parent and sub, what happens when there is a potential conflict? What about directors with interests in other entities or who are buying assets from. Do you have a register of interests (no longer mandatory) to keep track of potential conflicts?
Would your board minutes stand up to external scrutiny – do they explain the basis on which you made decisions, whether all those present were entitled to vote? Is it clear which decisions were made by the board and which by the shareholders (not always clear when they are one and the same but need to be kept separate sometimes e.g. approval of interim v final dividends
Risk management – have to discuss principal business risks in your SR - how do you manage risk in your business? Do you have a process for considering risk periodically e.g. cyber risks, people risks – eg national minimum wage, off payroll working? How does this affect your business decision-making?
Finally, a few words about how technology is increasingly impacting on audit and what we are doing to harness its power to bring you useful insights.
Technology in audit is now being referred to as ABCD – standing for the following components – see diagram
Cyber – Peter will be talking about this in part 2 – crucial element in big data because if systems aren’t robust and secure then data can become corrupted or inaccessible
Data analytics – the area we have focussed on as a firm using an excel based program called Teammate Analytics – applicable wherever data can be exported to Excel
What does TMA allow us to do?
To look at whole data sets rather than the traditional sampling approach which auditors have used for over 100 years. It allows us to extract and analyse massive data sets quickly and efficiently
The end product – better assurance for our audit conclusions but also better information for the board – might shine a light on an area that have not had time to look at or which board had assumed was working optimally
So what sort of things do DA techniques allow us to do?
TMA has 180 separate tests, although we have focussed on a much smaller subset that we have identified as being relevant to the assertions we are interested in as auditors.
Most useful tests include:
Two or three way matching – eg orders, despatches/ deliveries and invoices – to make sure that there are no invoices missing or that invoices have not been duplicated without goods being obtained
Review entire stock holding – to provide comfort of adequacy of stock provisioning but also to confirm that pricing policies are being adhered to
Fraud risk – potential areas of focus include common or duplicate bank accounts – fraud by employees.
Review of journal entries – for evidence of management override, fraud or manipulation – a range of factors we look at including timing, authority, narrative and location of entries
Best results are where we can agree areas and reports with you in advance
Caveat – two factors are key to using DA:
Quality of data – narrative, structure, robustness of systems
Access to system and reports – will work with you but we do sometimes find that data access won’t work – e.g. system keeps crashing
Also, discuss as planning stage to see whether there are particular issues that you would like us to focus on e.g. one case – link between contracted hours, hours work and amounts actually paid to make sure no subcontractors were being overpaid
And use is not limited to audit – later on you will hear how data analytics has been used by our CF team as part of due diligence – on our clients or their targets.
If you have been enthused or dismayed by anything I have covered this morning please talk to us at the break or post a question on Slido
Thank you
Highest single incident loss by a UK firm was £131,000.
Good governance for cyber means having a plan, understanding the risks, and owning them. Technology is now omnipresent and is not set to go away any time soon, therefore we must find ways to deal with this and whatever scenarios it may present us with. At Francis Clark over the last few years we have seen an increase in clients expressing a desire to properly tackle the issue of Cyber and seeking advice on how to do so.
Having a Cyber Security Strategy is key to good governance as it demonstrates a knowledge of the risks and threat that cyber attacks can pose. This top-down approach helps to generate a plan of actions designed to improve the security and resilience of your services and your digital infrastructure. Aligned to the business strategy, goals mission, and objectives. Security can be expensive, but is often less expensive than the lack of security and is therefore an essential element of reliable and long-term business operations.
Risk management is understanding what you care about and why you care about it. What would happen if you no longer had access to a particular service or you were unable to keep certain sensitive information private? How would this affect the businesses and is that acceptable?
Regulation is becoming ever more important and certification is required by regulatory bodies to prove that you are responsible with the data you are in control of or are processing. The presentations by the rest of my colleagues here today will hopefully put into perspective how critical it is to ensure that we are taking responsibility and becoming accountable by taking the necessary steps to protect yourselves and those you work with.
Foremost in everyone’s mind is GDPR, we’re one year on now from GDPR being enforced and it’s as much a concern for businesses as ever.
Loss of data assets through malicious activity such as ransomware. Wannacry, Ryuk have both crippled organisations. The main way these were deployed was through targeted (spear) phishing and caused major disruptions to organisation’s operations.
Loss of finances could occur through paying ransomware attackers (not recommended) to having funds diverted from legitimate payments through invoice redirection which is one of the most common things we see (give example).
Loss of trust is the most significant of all of these. This is loss of trust by both businesses you work with and also clients or consumers. Many people now simply won’t tolerate mishandling or loss of their data.
CAGR – Compound Annual Growth Rate
We are just talking about debt?
Expand comments
Relationship manager / support model changing depending on size and borrowings
Increased regionalisation and sector focus, particularly at larger end - do they understand your business?
Ring fencing completed in January 2019 – turnover thresholds vary by Bank – rapid growth?
Amended credit appetite and policies as a result
Time to get funding approval extended
Regional banking markets
Where is your relationship director based
Regional HQ or national – eg Bristol or London
Sector expertise – can be a positive but do they really understand your business and the local economy?
Add notes on Ring fencing
Effective date from January 2019
Bank turnover tests vary – can we list them – may not impact you
Examples – Santander and Barclays above/below £6.5m, HSBC higher?
Movement between the same Bank’s banks should be seamless but raise if you are growing rapidly
Have a client with £3m EBITDA, still classed as SME as bank don’t lend to them and therefore low focus - uses same portal as personal banking customers and can see his personal account when he logs in!
Theme here is diversity and extension of lending by those in the market
Shawbrook, niche now trying to be mainstream, asset finance now PE cash flow debt
ThinCats is a good example of a lender increasing firepower: Insight Capital introduced £300m in Sept 100m; online platform but large appetite to be flexible to increase lends eg overseas debtors – seems they can take more of a view in the way local bankers used to be able to - Have done first PE deal
Caple, moved form 50% lend alongside bank to 70-30% and the 30% can be an unused overdraft – good example of liquidity trying to find a home
Worth mentioned P2P issues – not making money as land grab – Lendy gone down and Funding Circle losses.
Also recent crowdcube raise, take 7% in fees and you have to be match funded – sounds easy way to raise but actually expensive compared to others and giving away equity when could be covered by debt [think they sell an adviser light process].
Lloyds only 2x and don’t want to do any more – met with them last week; they will defend aggressively but not that interested in competitive new business.
HSBC seem to be slow but writing a lot of debt at low margins – on Smarter they are saying, tell us what you want and the pricing and we will be the best offer despite being 4 weks behind – point around timing here
Santander: appetite appears quite limited and sector focussed
NatWest: strong appetite to grow market share
Barclays: same as Lloyds; 2x max very cautious
Metro: out of the market
AIB: lots of words but appetite seems low.
Do we need this slide?
Delete?
Financials
MI
Stats
Historic
Future
Non financial
Shareholding
Management
Structured Vs unstructured lending
Overdraft
Invoice discounts
Capital employed
Risk rating
Non linear
Sector
Understand requirements - match structure with risk profile
Equity
Working Capital
Debt
Be clear on your objectives and priorities
Be open minded -consider the alternatives to working capital
Revolving Credit
Confidential ID
Structural / trade finance
Know your strategy and your numbers
Explain the pact
Clear assumptions
Headroom
Sensitivity Analysis
Look at it from funding perspective
Risk management
Sector specific
Sensible timescales
Consider going early
Reward date
Factor in Q & A
Matching funding requirement with funding source
Long term investment
Working capital
Growth capital
Understand the risk profile
Debt
Equity
Alternative Finance / Mezzanine
Track record
History is not always the best
But quite often its all a Bank has on which to make a decision
A fall of 1/3 compared to Q1 a year ago.
A decline of 50% since Q1 2016.