Plymouth – Finance Directors’ Update - November 2015

Finance

Directors’

Update

November 2015

www.francisclark.co.uk

Chairman’s Welcome

Charles Evans

Partner


Housekeeping


What’s new at Francis Clark?

South West Insider Dealmaker Awards 2015

• Corporate Finance Advisory Team of the

Year

• Mark Greaves – Dealmaker of the Year

• Matt Willmott & Nick Tippett shortlisted for

Young Dealmaker of the Year


What’s new at Francis Clark?

The British Accountancy Awards 2015

• James Twigger nominated for

Practitioner of the Year


Coming soon…..

Finance in the South West

2016Tuesday 23 February

Exeter Racecourse

Keynote speaker – Jonty Bloom


• Conservative majority government for the next 5 years

• Labour leadership – potential disruption over

continuing austerity measures?

• Spending review

• Interest rates?

• National living wage

• Hinkley Point C

• Eurozone – migration

- EU referendum

• Instability in the Middle East

• China slow down/investment programme

UK Economy – lots going on!


Programme

Stephanie Henshaw, Corporate Partner

• Current issues in Financial Reporting

Liam Dushynsky, VAT Director

• Topical VAT Issues

Richard Wright, Consultant, Francis Clark Financial

Planning

• Further pension changes and financial advice for

employees

COFFEE BREAK


Programme

Paul Collings, Tax Partner

• Tax Update

Lucinda Coleman, Business Recovery Director• Why solvent companies need an Insolvency

Practitioner

Scott Campbell, Tax Consultant

• Topical PAYE Issues

Paul Crocker, Corporate Finance Partner

• The right time for acquisitions?

LUNCH

Current issues in

financial reporting

Stephanie Henshaw


In this session….

FRS 102 implementation: are you ready?

Looking ahead: further challenges

Company secretarial: don’t get caught out

by the changes


FRS 102 implementation:

current “tricky issues”

Foreign currency

translation

Forward currency

contracts

Interest rate

swaps

Hedging


FRS 102 issues:

Foreign currency translation

Full retrospective restatement on

transition

Measurement of sales and purchases

Impacts stock costing models

Forex adjustments in P&L

Spot rate not contract rate


FRS 102 issues:

Forward currency contracts

Fair values

required

Restatement on transition

Broadly, match with forex

gains/losses

FV movements

to P&L


FRS 102 issues:

Forward contracts for future purchases

Without hedge accounting

• Recognise asset/liability at FV

• FV gain/loss to P&L

• No corresponding forex

loss/gain as transaction has

not yet occurred

• Mismatch, P&L volatility

With hedge accounting (FV

hedge)

• Recognise FV of forward

contract

• Recognise exchange gain/loss

on future purchase

• Adjust asset for cumulative

hedging gain or loss

• Match, limits P&L volatility

But

• Need identifiable firm

commitment


FRS 102 issues:

Interest rate swaps

Transitional adjustment affects net assets and

retained profit

Movements create profit volatility

Additional asset/ liabilityMay not reflect

commercial reality

Measurement at fair value


FRS 102 issues:

Swaps to hedge borrowing exposure

Cash flow hedge accounting impact

• Hedging instrument (swap) and hedged item (loan) at fair value

• Cash flow hedge reserve records lower of above FV adjustments

with corresponding entry in OCI

• Excess FV adjustment to P&L (“hedge ineffectiveness”)

• Recycle cash flow hedge reserve via OCI to P&L over life of

instrument


FRS 102 issues:

Hedge accounting

• Not straightforward, requires time to work through

• Documentation is crucial

• Identify hedged item and hedging instrument

• Describe the risk that is being managed

• Identify the economic relationship between hedged item and hedging

instrument

• Determine and document cause of hedge ineffectiveness (i.e.

mismatch)

• Record start date of hedge

• Retrospective documentation only for hedges in first year of

adoption (otherwise must document at outset)



What will you be presenting?

The transition statement

The financial statements

Group members only - reduced

disclosures



The transition statement

At Transition

At First Time

Adoption

Narrative explanation of nature of changes,

options on transition, new policies

Reconcile old and new

equity

Reconcile

old and

new equity

Reconcile

comparative

P&L


Identifying transitional adjustments

Stage 1

• Using 31/12/13 accounts:

• Compare old UK GAAP and FRS 102

• Identify accounting policy choices and transitional exemptions

Stage 2

• For FRS 102 new items:

• Identify accounting policy choices

Stage 3

• Select policies to apply in restated balance sheet


Identifying transitional adjustments

Stage 4• Restate balance sheet at 1 January 2014

Stage 5

• Incorporate 2013 adjustments in to 2014 accounts

• Apply new policies to 2014 accounts

Stage 6• Restate balance sheet at 31 December 2014



Restating comparatives

New lease with

incentiveAcquisition in PY

Balance

sheet

Profit and

loss

• Landlords and

tenants

• Restate

incentive to

spread over

period of lease

• Adjust P&L

annual rent

charge/ income

• Separate intangibles

and goodwill

• Provide deferred tax

on FV adjustment,

corresponding impact

on goodwill

• Adjust amortisation

• Adjust amortisation

charges on goodwill

and intangibles



What changes in the financial statements?

Statement Comments

Balance sheet Largely unchanged

Profit and loss account

And

Other comprehensive income

Can present as a single Statement of

Comprehensive Income

Cash flow statement Fewer headings, so reanalysis required

Statement of changes in equity Movements in each item of capital and

reserves

If only changes are dividends and prior

period adjustments can choose to

present Statement of Income and

Retained Earnings instead

Notes Statement of compliance with FRS 102

Statement of statutory details

Explain key judgements and significant

estimates

Some new notes



Rearranging the cash flow statement

Under FRS 1

Operating activities

Returns on investment and

servicing finance

Taxation

Capital investment and financial

investment

Acquisitions and disposals

Equity dividends

Management of liquid resources

Financing

Under FRS 102

Operating activities

Investing activities

Financing activities

1. Will need to reallocate

headings for comparatives

2. Choice of classification for

interest and dividends

3. No requirement for Net

Debt reconciliation



Changes to accounting disclosure

• A number of unfamiliar elements to notes

• Financial instruments

• Fair value information

• Description of accounting policies

• Key areas of judgement

• Estimates with potentially significant uncertainty

• Opportunity to review application and presentation



Reduced disclosure regime

• Any group entity where consolidated accounts prepared by parent

• Provided

• Shareholders notified and do not object

• Disclose name of parent preparing consolidated accounts, summary of

exemptions taken

• Exemptions available for

• Cash flow statement

• Reconciliation of the number of shares in issue

• Total key management personnel compensation

• Aspects of financial instruments and share-based payment disclosures



Impact across the group?

Parent co (large group)

Small Sub Medium Sub

Medium Sub

Small Sub

Group accounts

under FRS 102.

What about small

subsidiaries?


Looking forward;

Reduced disclosure regime for small companies

• Recognition and measurement under FRS 102

• Disclosure as specified in new Section 1A to FRS 102

• Mandatory disclosure restricted to notes required by law (reduced number)

• Overriding requirement to give a true and fair view

• Onus on directors to identify when additional disclosure necessary

• Knock on impact on accounts for filing (no abbreviated accounts!)


When do small companies have to apply

FRS 102 Section 1A?D

ate

of

transitio

n

1 January 2015

First tim

e a

pplic

ation

1 January 2016

First

year

end

31 December 2016

Early adoption permitted for a/p beginning on

or after 1/1/2015


Looking forward:

transition for small companies

• Transition principles and options as for larger companies

• Additional exemptions available to reflect lack of time to plan

• Periods beginning before 1 January 2017

• No restatement on transition or in comparatives

• Fair values of derivatives

• Fair value of share options

• Non-market rate intra group loans

• Adjust opening reserves in first year of adoption


Company secretarial:

Don’t get caught out on the changes

• Anticipated from April 2016

• Individuals holding >25% votes/shares

• Indirect holdings if via overseas company

Register of persons with

significant control

• Replaces annual return from June 2016

• All information properly supplied

• No more than 12 months between statements

Annual confirmation statement

• Alternative to maintaining company registers from June 2016

• For members’ register, requires all-member assent

Option to use central register


Contact details

Stephanie Henshaw – Corporate Partner

01392 667000

[email protected]

mailto:[email protected]

Topical VAT Issues

Liam Dushynsky


Agenda

• Review of Current Issues

• Recovery of VAT on expenditure


Current issues

VAT visits

• Increased number of visits to clear repayment returns

• Tip – contact HMRC in advance to pre-empt queries on repayment

returns

• Entitled to repayment supplement if HMRC delay > 30 days

• HMRC do not always offer it automatically. Be persistent!

• Taxwise


Current issues

Time to pay arrangements

• If making an arrangement for time to pay with HMRC, the

payments must be made by direct debit

• This is the case for time to pay arrangements for all taxes


Current Issues

HMRC - Delays

• Option to Tax Unit – 10 weeks

• Error Correction Team – 2 months


Current Issues – Update on Installation of

energy saving materials

• 4 June 2015 CJEU ruled that the UK application of the reduced

rate of VAT for energy saving materials is contrary to EU law

• Currently the reduced rate applies to the installation of energy

saving materials, and the goods themselves when provided with

qualifying services

• The reduced rate will continue in the short term

• Government is ‘considering the implications of the decision’

• HMRC has announced that no change will be implemented until

Finance Act 2016


Recovery of VAT on Expenditure

Deal costs

• Concerns recovery of VAT on

share acquisitions – a complex

area

• CJEU case of BAA Ltd -

concerned VAT incurred by

company set up to take over

BAA

• Must be direct and immediate link

to taxable supplies in order to

recover input tax

• If holding company will not make

taxable supplies no VAT recovery

• 2015 - Joined CJEU cases of

Larentia and Minerva

• VAT recovery allowed where

management and other services

provided to subsidiaries

• Guidance awaited from HMRC



Motor expenses and vehicle costs

• Motor cars – VAT recovery blocked unless 100% business use

• Other vehicles – VAT recovery based in intended business use

• Leasing of motor cars – 50% recovery where any private use

• No need to account for VAT on sale of motor cars where VAT

recovery blocked on purchase



Motor expenses and vehicle costs

• VAT on fuel for cars

• Recover VAT on all fuel and pay fuel scale charge

• Do not recover VAT on ANY fuel, no scale charges

• Only recover VAT relating to business mileage

• Full recovery of VAT on other motor expenses e.g. new tyres

• Mileage – recover VAT on fuel element



Potential issue!


And finally


Contact details

Julie Towers – VAT Partner

01392 667000

[email protected]

Richard Staunton – VAT Director

01823 275925

[email protected]

Liam Dushynsky – VAT Consultant

01392 667000

[email protected]




Further Pension

changes and

assisting retiring

employees

Richard Wright

www.fcfp.co.uk Twitter.com/francisclarkifa

Agenda

• Pension changes - five reasons why you need to

review your plans now

1. Annual Allowance restriction

2. Lifetime Allowance reduction

3. Pension Input Period changes

4. Death benefit nominations

5. Existing plans not fit for purpose

• Retiring employees – how you can help

Five reasons to

review your

pension plans

now


1. Annual Allowance restrictions

• The trend of a reducing Annual Allowance (AA) continues

• Accessing pension benefits post April 6th 2015 results in an

immediate reduction in AA to £10,000 per annum

Year Annual Allowance Additional Restrictions

2010-11 £255,000

2011-12 £50,000

2012-13 £50,000

2013-14 £50,000

2014-15 £40,000

2015-16 £40,000 Reduces to £10,000 when Flexi

Access Drawdown entered

2016-17 £40,000 Additional restrictions for higher

earners



• New high earner restrictions from April 6th 2016 consist of 2

‘Tests’.

1. Those in receipt of “adjusted income” above £150,000 p.a. will

see a reduction to their AA on a sliding scale resulting in the AA

reducing to £10,000 for those earning more than £210,000 per

annum.

2. Those in receipt of “threshold income” of £110,000 p.a. or less

but have pension contributions of more than £40,000 in the tax

year will not be subject to the reduced AA.

• Income above £110,000 but less than £150,000 could still land

you with a reduced AA as pension contributions from employer

and employee are added to your base income and could take you

over the £150,000 limit.



What you should do if you think you might be affected?

• Accurately calculate your Adjusted and/or Threshold Income for

the previous tax year to establish if you are likely to be affected.

• If you are a member of a Defined Benefit Scheme it is not a

straight forward calculation to work out the value of the benefit to

be added to your income and we would recommend you seek

advice to clarify this.

• If affected consider whether your income will be the same or more

in the 2015/16 tax year.

• If it will be then consider if it is appropriate to maximise pension

contributions this tax year.

• Consider other tax efficient alternatives to pension saving if you

are likely to be affected every year.



Peaked at £1.8M;

will reduce to £1m

from April 2016



• Will affect many more pension savers both now and in the future

• Example - already exceeding the new limit – John aged 52

+ =

What might John do to lessen the impact of the reduced LTA?

Frozen final salary

benefit from previous

employer £20,000

p.a. pension =

£460,000 capital

value

SIPP with

commercial property

valued at £300,000,

investments at

£225,000 and cash

of £25,000

£1,010,000



1) Cease funding the SIPP and apply for Fixed Protection to preserve

the current £1.25m LTA.

2) Crystallise the SIPP at age 55 by taking his tax free lump sum to

‘test’ the SIPP against the LTA.

3) Once the SIPP is crystallised John can allow the residual fund,

after the tax free cash has been taken, to grow without further LTA

issues. He doesn’t need to take any income.

4) He could consider crystallising his Final Salary pension early which

would result in an early retirement penalty thus reducing the

pension for LTA purposes but compensating him in effect by

having the smaller pension paid for longer.



What action should be taken now?

• There are many variables that need to be considered such as

projecting forward future values to give foresight of possible

breaches of the LTA.

• Consider the timing and shape of the drawing of your pensions.

With some careful planning potentially significant tax charges can

be reduced.

• Examine whether either of the protections that are available

would be appropriate. These are known as Fixed and Individual

Protection and allow you to preserve a higher LTA subject to

conditions.


3. Pension Input Periods

• All pension plans have a set annual period within which

contributions are measured against your Annual Allowance; this is

known as the Pension Input Period or PIP.

• PIPs could run from and to any date in the year but to simplify the

system it was announced in the Summer Budget that all PIPs

would now be aligned to tax years.

• To tidy this up all current PIPs were closed on 8 July 2015 with a

new PIP being opened on 9 July 2015 and running to 5 April 2016.

• The 2015/16 tax year has therefore been split into 2 ‘mini tax

years’ either side of the budget.

• The total annual allowance for the first part of this ‘mini tax year’

running from 6 April to 8 July 2015 carries an Annual Allowance of

£80,000.

Let’s look at an example……………



Example

• Angela has a SIPP to which she contributes the full Annual

Allowance each tax year.

• Her PIP is already aligned to the tax year.

• On 10 April 2015 Angela contributed £40,000 to the SIPP thinking

this would utilise her full annual allowance for 2015/16.

• On 8 July 2015 the summer budget closed her PIP, but at the

same time the Annual Allowance was doubled to £80,000 and a

new PIP was opened to run until 5 April 2016.

• Angela can now make a further £40,000 contribution by ‘carrying

forward’ the unused allowance into the new PIP running from 9

July 2015 to 6 April 2016.



Action to take now

• Establish your position in relation to the newly realigned PIPs.

• Work out what capacity you might have for a further contribution.

• If capacity exists, consider the excellent tax advantages of making

an extra contribution of £40,000 which would cost an additional rate

tax payer a net £22,000 or a higher rate tax payer a net £24,000.

• With the reducing Lifetime Allowance and restricted Annual

Allowance for some from 2016, this could be the last opportunity for

significant pension funding.


4. Death Benefit Nominations

• More flexibility has been introduced, allowing pension savers to

pass on their unused pension fund tax efficiently to dependents

and beneficiaries.

• If the pension saver dies before age 75 the whole fund can be

passed on with no tax consequences

• If the pension saver dies after age 75 then the pension fund can

still be passed on, but withdrawals made by beneficiaries will be

subject to tax at the recipients’ marginal tax rate

Pensions have become an excellent way of passing money

down the generations free of Inheritance Tax.

Be aware that some pension plans don’t facilitate full

flexibility for recipients of the pension fund.

Update your nominated beneficiaries to encompass a wider

range of recipients



• What to do now?

• Check all existing plans to establish whether they offer full

flexibility for beneficiaries

• Update your nomination forms to include a wider range of potential

beneficiaries

Example

Can John’s wife achieve her wishes?

John dies aged 77

nominating his wife

to receive his

£600,000 pension

fund

John’s wife doesn’t

need the fund as

she has other

assets to provide

her income

His wife asks for

the fund to be

passed down to

their 2 children free

of IHT



• The answer is NO!

• In order for the pension scheme trustees to direct the funds to the

children they had to be named as potential beneficiaries

• The Death Benefit Nomination Form did not include the children

and the fund passes to his wife

This lack of planning causes a poor tax outcome. As John died

after age 75 any withdrawals from the pension fund will be

taxable on the recipient. His wife is a higher rate tax payer and

will therefore pay 40% tax but the children are non tax payers.

If his wife wants to pass assets to the children from other

sources this will be a gift and she will need to live 7 years for it

to be free of IHT.

Gifting other assets may mean she has to draw down on the

IHT free pension fund and pay 40% tax on the income



• It is common to accumulate a number of pension plans over the

years.

• It is also common for us to rarely review the suitability of these

plans in light of changes to our circumstances or pension

legislation.

• This leaves us potentially holding pension plans that lack flexibility

and can deliver poor outcomes.

We don’t think twice about updating our TV’s, smart phones

and cars to reflect technological improvements yet neglect

tens of thousands of pounds in our pension funds leaving

them stranded in plans which could deliver very poor

outcomes for us and ultimately our beneficiaries



Flexi- access

drawdown

Uncrystallised

funds pension

lump sum

Dependents

flexi-access

drawdown

Dependents

lump sum

Successors

lump sum

Successors

flexi-access

drawdown

Are your plans

able to provide all

of these features?

If not then you and

your family will

potentially pay

more tax and

have less

flexibility in how

you use and pass

on your pension

assets


5. Existing plans not fit for purpose –

Actions to take now

• Carry out a review of all existing plans

• Establish if they offer all the new pension flexibilities (unlikely)

• Review Death Benefit Nominations

• Consider any valuable guarantees that might exist in your current

plans

• Consider a partial transfer of pension fund from a company

pension scheme that doesn’t offer full pension flexibility

Consolidating all existing plans to one new plan that

constantly updates itself in line with pension rule changes

will:

• reduce your administrative burden

• allow you to put in place a cohesive investment strategy

• ensure all options are available at retirement

• ensure your beneficiaries receive any unused fund

• minimise the tax cost of passing on your pension fund

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

Richard Wright – Consultant

01752 301010

[email protected]

Andrew Welch – Chartered Financial Planner

01392 667000

[email protected]

David Clifton – Chartered Financial Planner

01872 276477

[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

Paul Collings


Agenda

• Tax, UK GAAP & the change to FRS 102

• Changes to capital allowances

• Tax relief on amortisation of goodwill

• The new dividend tax

• Outlook for tax relief on interest costs

• What’s in store in the Autumn Statement?


Accounts & tax – current position

• Historically, tax rules have been the same for all companies

(income tax/corporation tax)

• Separate tax code developed in the 1990s based on UK GAAP –

tax following accounts

• Exchange gains & losses

• Loan relationships

• Intangible assets

• Divergence between large companies and SMEs post-2000

• FRS 102 having a wider impact for tax than first appreciated by

HMRC


GDF Suez Teeside v HMRC (FTT)

• Increasing use of tax avoidance based GAAP schemes

• Taxpayer had followed GAAP

• No alternative to the accounting treatment adopted

• HMRC argued that “accounts did not give a fair view of the profits”

– on any “realistic commercial approach”

• HMRC successful

• Loan relationship rules being amended so that less accounts

dependent


Tax implications on change to FRS 102

• Specific tax rules on a “change of accounting policy”

• Apply on the transition to FRS 102

• Different tax rules for:

• Trading profits

• Intangibles

• Financial instruments


Transitional rules on change of

accounting policy

• Historically an issue for large companies, although accrued income

& FRS 5 impacted widely

• Six year spreading possible on agricultural stock adjustment

• Ten year spreading possible

• Intangibles – fixed rate (4%) election and non-taxable adjustments

• Financial instruments – complex transitional rules including COAP

& Disregard Regulations (also exchange gains & losses)


Overview of tax considerations

• Financial adjustment on change to FRS 102 needs to be computed

• Options available are very complex – especially for financial

instruments

• Consider electing under one of the disregard regulations

• Consider a 4% election on intangible assets

• HMRC consulting on implications and more guidance likely


• Forthcoming reduction in the Annual Investment Allowance (AIA)

• £200,000 from 1 January 2016

• Currently £500,000 – was due to fall to £25,000

• Clearly need to think about timing of acquisitions.

Capital Allowances


Easy Limited

• Easy Limited has a December year end and is thinking about

buying a new machine for £500,000. This will be the first capital

investment for a couple of years.

• Clearly appropriate to purchase the machine (and for it to be

delivered) prior to 31 December 2015.


What if my year end straddles

the year end?

Difficult Limited has a 31 March year end – how much Annual

Investment Allowance may it claim?

• 9/12 x £500,000 plus 3/12 x £200,000 = £425,000

Whilst Difficult Limited has an allowance of £425,000 it only has an

allowance of £50,000 that can be used in the period from 1 January

to 31 March 2016.


What else should we be thinking?

• For many £200,000 may cover all qualifying spend – no impact!

• If spending more than £200,000 – Short Life Asset Elections might be

appropriate


Short Life Asset (SLA) elections

• Not cars

• Assets with private use

• Where life expectancy expected to be less than 8 years

• In pool only get relief over extended period

• If in pool can accelerate “Balancing Allowance”


Is there a Balancing Allowance?

Year Value of Equipment

in Pool?

1 82

2 67

3 55

4 45

5 36

6 29

7 23

8 18


What do we need to consider?

• Are our additions in excess of the Annual Investment Allowance?

• Are there any assets that we expect to sell/scrap within 8 years?

• Are those assets likely to fall “quickly in value”?

• Make a SLA election

• Can you identify the assets when scrapped?

• And do revisit the list in the years ahead!


Tax relief on the acquisition of goodwill

• From 8 July 2015 – no tax relief on the acquisition of goodwill

• No impact on goodwill acquired prior to that date

• Goodwill and “customer related intangibles”

• Details relating to customers or potential customers

• An unregistered trademark

• Purchase of assets of a business is more expensive after tax

• Need to consider apportionments


Should you do a share deal?

• With lack of tax relief on goodwill, share deal might seem less

“unattractive”

• Lower rate of stamp duty

• If you sell the company in the future – Substantial Shareholdings

Exemption (SSE)

• Higher deal costs


Is there any good news?

• Corporation tax rate – 20%

• With effect from 1 April 2017 – 19%

• With effect from 1 April 2020 – 18%

• Might impact on amounts of deferred tax


Dividend Tax

• With effect from 1 April 2016

• Notional Tax Credit Abolished

• Introduction of a £5,000 dividend allowance

• Dividends above dividend allowance taxed at:-

New Rules Old Rules

Basic Rate Tax

Payers

7.5% 0%

Higher Rate Tax

Payers

32.5% 25%

Additional Rate Tax

Payers

38.1% 30.55%


What should we be thinking about?

For additional rate taxpayers – think about paying dividends in advance

of 5 April 2016?

• Bank covenants

• Reserves – are they distributable?

• Cash flow as at 31 January 2017

Should we simply revert to voting a salary?


The same comparison where

the recipient is a higher rate taxpayer

Dividend Salary

Profit A 100.00% Gross plus employers NI A 100.00%

Employers NI (13.8% of

gross) 12.13%

Less CT 20.00% Gross 87.87%

Distributable profit 80.00% Tax (40% of gross) 35.15%

Dividend tax 32.5% 26.00%

Employees NI (2% of

gross) 1.76%

Net B 54.00% Net B 50.97%

Total effective tax

rate 1-(B/A) 46.00%

Total tax and NI over

gross plus ers 1-(B/A) 49.03%


And the same again where

the recipient is an additional rate taxpayer

From this it can be seen that a company paying out a dividend to its

owner(s) will incur less in tax/NI than taking an equivalent salary,

whether the shareholder is a basic, higher or additional rate taxpayer.

Dividend Salary

Profit A 100.00% Gross plus employers NI 100.00%

Employers NI (13.8% of

gross) 12.13%

Less CT 20.00% Gross 87.87%

80.00% Tax (45% of gross) 39.54%

Dividend tax 38.1% 30.48%

Employees NI (2% of

gross) 1.76%

Net B 49.52% Net B 46.57%

Total effective tax

rate 1-(B/A) 50.48%

Total tax and NI over

gross plus ers 1-(B/A) 53.43%


What else might influence our thinking?

• Age of Tax payer?

• Are any other allowances available? R&D etc?

• Quarterly Instalment Payments (QIPs)?

• Timing of the payment of PAYE/NIC vs dividend tax

• Income tax payments on account


So what does it mean?

M receives a salary of £25,000 and £125,000 dividends in 2015/16

and the same in 2016/17.

M will pay £8k more income tax in 2016/17 than in 2015/16,

equivalent to a tax rise of 5.3%.

Q receives a salary of £25,000 and £175,000 dividends in 2015/16

and the same in 2016/17.

Q will pay £12,000 more income tax in 2016/17 than in 2015/16,

equivalent to a tax rise of 6%.


And finally…..

• We mentioned possible spectre of a restriction of loan interest

• Changes introduced for private owners of buy to let mortgages

• But no changes, as yet, for corporates…..

But………………

• 6 October OECD announced their BEPS Action Plan

• “Fixed Ratio Rule of tax relief for net interest of 10 - 30% of

EBITDA”

• HMRC consultation published on 22 October 2015


Autumn Statement – November 2015

• George Osborne will want MPs to know that there are

consequences of tax credits U-turn

• Tax increases likely

• Bigger gap before L Day this year

• More time required?

• Big agenda?

• Expect plenty on BEPS, OECD and leadership by UK – we will

implement ahead of other countries


Contact details

John Endacott – Head of Tax

01392 667000

[email protected]

Damian Lannon – Head of Corporate Tax

01392 667000

[email protected]

Paul Collings – Tax Partner

01752 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 Consultant

01803 320100

[email protected]

Richard Clutterbuck - Director

01803 320100

[email protected]

Dave Williams – Tax Partner

01803 320100

[email protected]




The right time for

acquisitions?

Paul Crocker


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 EBIT

Red 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 Partner

07771 945513

[email protected]

Paul Crocker – Corporate Finance Partner

07780 331841

[email protected]

Mark Greaves – Corporate Finance Partner

07887 725355

[email protected]




Chairman’s closing

remarks

Charles Evans

Partner


Future Finance Directors’ Updates

• The next series of seminars are scheduled for June 2016

• Details will appear on our website early next year

• Invites will be sent out in Spring 2016


Lunch


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