Exeter – Finance Directors’ Update - November 2015

Finance Directors’ Update

November 2015

www.francisclark.co.uk

Chairman’s Welcome

Glenn NicolPartner


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 FebruaryExeter 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 require

d

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)


FRS 102 implementation:What will you be presenting?

The transition statement

The financial statements

Group members only -

reduced disclosures


FRS 102 implementation: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


FRS 102 implementation: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


FRS 102 implementation:What changes in the financial statements?

Statement CommentsBalance sheet Largely unchangedProfit and loss accountAndOther comprehensive income

Can present as a single Statement of Comprehensive Income

Cash flow statement Fewer headings, so reanalysis requiredStatement of changes in equity Movements in each item of capital and

reservesIf 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 102Statement of statutory detailsExplain key judgements and significant estimatesSome new notes


FRS 102 implementation:Rearranging the cash flow statementUnder FRS 1

Operating activitiesReturns on investment and servicing financeTaxationCapital investment and financial investmentAcquisitions and disposalsEquity dividendsManagement of liquid resourcesFinancing

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


FRS 102 implementation: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


FRS 102 implementation: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


FRS 102 implementation: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?

Dat

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n1 January 2015

Firs

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n1 January 2016

Firs

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r end31

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

[email protected]

mailto:[email protected]

Topical VAT Issues

Julie Towers


Agenda

• Review of Current Issues

• Recovery of VAT on expenditure


Current issuesVAT 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 issuesTime 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 IssuesHMRC - 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 ExpenditureDeal 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


Recovery of VAT on ExpenditureMotor 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


Recovery of VAT on ExpenditureMotor 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


Recovery of VAT on Expenditure Potential issue!


And finally


Contact details

Julie Towers – VAT Partner01392 667000

[email protected]

Richard Staunton – VAT Director01823 275925

[email protected]

Liam Dushynsky – VAT Consultant01392 667000

[email protected]





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 now1. 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 Restrictions2010-11 £255,0002011-12 £50,0002012-13 £50,0002013-14 £50,0002014-15 £40,0002015-16 £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 ratePensions 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 wifeThis 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 flexibilityConsolidating 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

Assisting retiring employees


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 Planner01392 [email protected]

David Clifton – Chartered Financial Planner01872 [email protected]

Richard Wright – Consultant01752 [email protected]




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


BREAK

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?

1 822 673 554 455 366 297 238 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 RulesBasic 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

[email protected]

Damian Lannon – Head of Corporate Tax01392 667000

[email protected]

Paul Collings – Tax Partner01752 301010

[email protected]




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


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 Consultant01803 320100

[email protected]

Richard Clutterbuck - Director01803 320100

[email protected]

Dave Williams – Tax Partner01803 320100

[email protected]




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

www.francisclark.co.uk 124

Actual transaction multiples

Blue line represents EBITRed line represents profit after tax (PAT)

www.francisclark.co.uk 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 Partner07771 [email protected]

Paul Crocker – Corporate Finance Partner07780 [email protected]

Mark Greaves – Corporate Finance Partner07887 [email protected]




Chairman’s closing remarks

Glenn NicolPartner


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


Lunch


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