Tax – Coping with the change

80% Cuts - 20% Tax

January & February are you prepared?

Robert Hulse

Why are we here?

• The countdown to legal reform has begun.

• Change the way you work. Those who manage the change best will be better placed to succeed.

• Changes are due to be implemented in 2011 which will have a major impact on all high street firms and chambers.

• All firms and chambers need to understand the implications of the changes on their practices/ chambers, and start to define and implement strategies (backed up by IT) to survive and flourish.

Syscap will focus on the Impact of Tax Changes on cash flow

Many IT investments acquisitions are critically dependent upon cash flow

Time to think about the New Year…what will it bring you.

No Surprise 80% Cuts / 20% Tax

• 80 Cuts / 20 % Tax – VAT Jan 20% “Shocked? No”• Prepared? • January & February Looms • Have you been chasing your debtors?• Cash flow Shortfalls are imminent in January and February

• Your Considerations?• Your Options?

What challenges pose for legal sector, particularly the VAT increase and Tax Payments?

With the ever growing need of investment in IT efficiency to drive return and productivity , legal firms must prepare and make preparation to maintain the required IT investment momentum that will place them in an ideal position to take advantage of

regrouping markets, how do you ensure you have the scope and capital with the increased burden’s you face?

Some Considerations

• Ensure Cash flows consider VAT Increase

• Deferred payments will occur – all are feeling this pressure, your not alone expect it

• Inform all staff of the impact; increased outgoings – help them to manage there depts. forecasts

• Driving volume will enhance the problem unless they are paid quickly; drive the deals that make the difference TODAY.

• Price increases may work on quick WINS, be careful & adopt carefully as many will not take likely

• Collate: The Marketing, BDM & Cash flow Management team together to derive a P.O.A

• Set Targets & Report throughout the firm, using visuals, performance meetings (No names)

• Monitor your Debtor Days (Days Sales Outstanding) drive reductions and performance

• KPI (Key Performance Indicators) on Invoicing and areas that make a difference TODAY

• Incentivise your teams on set goals this does not have to cost the earth; simple bottle of MOET

• Empower your WIP Manager to ensure best billing practice; they must be assertive and control

• Increase Fee Recovery hours, a less costly than your overdraft or exceeding banking covenants

If the Cash flow doesn’t stack

If cash forecasts show that the 2.5% VAT increase in outgoings, coupled with a large Tax Bill, falling instructions and price pressure, despite your

best efforts, will result in a cash shortfall.

Start talking to potential providers of funding

Leaving relationship building out; and making a last minute requests for

funding will not demonstrate that you are a good financial risk.

Remember to spread your Risk

And Fear Not - You will not be alone…

THE TIMES

ACCOUNTANCY MAGAZINE

THE FINANCIAL TIMES

THE LAW SOCIETY GAZETTE

6

External Funding OptionsHMRC “Time to Pay”

HMRC (Business Payment Support Service) http://www.hmrc.gov.uk/payinghmrc/problems/bpps.htm#9

• Entered into on a case by case basis • Agreed where HMRC is satisfied that the practice cannot pay their liability • The customer offers the best payment proposals that they can realistically afford. • Agreed where HMRC believes that the customer will have the means to pay the taxes • The same principles are applied to all taxpayers, although the detail of processes can be tailored to reflect the

risk/return associated with different liabilities. • As a rule the larger the liability the greater the risk and the greater the need for more information.

Statistics:

• First Launched November 2008 to provide breathing space for firms during the recession• Q1 2010 – 11% OF Applications rejected V’s 5% Q1 2009• Despite ICAEW request to clarify its position with the Treasury, no official response has been made• £1m+ requests subject to Independent Business Review costing circa £10k• Feedback and indications have shown the criteria for BPSS has toughened considerably• £5.13bn of payments differed as of March 2010, with receipts of only £4.2bn• Tax not made payable within 3 months will be rejected

With £6.25bn of UK Cuts to make and the Public Sector Purse to be slashed this will be under the Chancellors spotlight

External Funding Options “Bank Lending”

The flow of Bank Net Lending to UK businesses remains –ve, credit availability has increased overall, but far less than many UK Leading Banks expected according to the Bank of England's 2010 Q2 Credit

Conditions Survey

What does this all mean & how does it effect you as a Legal Firm or Chambers looking for funding?

“Hard to Obtain”

Ref: Deloitte CFO Survey on credit availability

UK SME’s Bank Lending What’s happening

-VEs’

• Larger Corporate loans & the lack of demand is affecting SME lending, as banking targets fall short• Important Syndicated Lending is well below average as key funders withdraw from the markets• Overdraft lending has reduced by 13% as banks seek to strengthen balance sheets and reduce risk• Banks Higher Capital Requirements = Increase in Variable lending rates• Credit remains risk pricing sensitive; with longer term loans generating higher cost.• Supply and Demand ethos remains relevant; especially for SME’s• Values of Credit Applications and Approvals have remained week over the last 6 months• Little movement in Libor Rates over the last 6 months; however pricing remains based on Supply &

Demand• Certain elements of lending statistics may be as a result of flatness in demand from SME’s• Banking Fee’s remain high• Credit availability for SME against Large Corporate deals has a large divide

+VE’s

• SME’s change in attitude of the reliance in Overdraft utilisation is reducing and external funding increases.

• CFO’s increasingly seeing bank/external borrowing as an attractive source of funding 2010 Q2• No change to Credit Policies over the last 6 months. +ve increase in Approvals reflects an increase in

overall application quality which is positive but reflects those able to grow.• SME Loan requirements expected to rise over Q3 FY 2010• Modest improvement in Large Corporate transaction pricing should boost the SME lending market’s

structure

Lending to UK Businesses by Size Credit approval rates for new facilities to SME

Lending captured in Sterling and Foreign, however reflected in Sterling.

Lending captured in Sterling and Foreign, however reflected in Sterling.

UK Bank Lending Statistics to SME’s

UK SME Bank Lending Synopsis

• Liquidity Improved• Demand Improved

• Cost Increased• Approval Rates –VE• Corporate Deals –VE

• SME’s “Hard to Obtain”

External Funding OptionsIndependent Financiers

• Professions Finance Specialists & Large Brokerages

• LIBOR based funding costs • Funding outside of High Street Banking Lines• Sole SME Funding providers• No liquidity constraints• Minimal credit requirements• A large funding panel • Syndication ability• Understanding of your Financial Accounting Principles• Can provide low level tax efficiency advise on funding solutions• Providers of loan & lease products • Software Funding Specialists• Quick and Efficient turnarounds

• Understanding of finance solutions for:

– VAT, Tax, Indemnity, SRA Cert’s, IT, Vehicles, Refurbishments, Disbursements, Acquisitions, Panel Fees and much more

Raising Credit Give yourself a fighting chance

• Have an open and honest relationship with all your lenders

• Ensure that the firm’s borrowing is spread across multiple organisations – spread your eggs and reduce your risk!

• Provide a concise profit and loss statement, cash flow forecast and a balance sheet monthly, it’s a pre requisite

• Give lenders as much notice as possible of a pending problem; relationships have value; it is not all about the credit

• Steer clear of loan facilities to pay partners more than the profit earned

• Maintain Banking Covenant restrictions; if you sail close why? are you too reliant on one source?

• Ensure you have the management information to analyze business performance ready at hand, within 3 months – (Profit & Loss, Balance Sheet, debtors list & forecasted timing)

• Do not allow a build up of work in progress; press harder

• Ensure you collect promptly from your debtors; if there one thing you do it’s this

• Maintain a healthy personal financial position

January 2010 Syscap Tax Synopsis

Firm Composition

14

SectorTransactions Volume

In January 2009 Syscap received an influx in demand for External funding for Tax Payments as the credit

markets struggled to gain confidence in lending.

We highlight how this was broken down, which demonstrates know one size of firm goes un scathed

and preparation is paramount.

“Neither a wise nor a brave man lies down on the tracks of history to wait for the train of the future to run over him.”

“Dwight D. Eisenhower”

Preparation and a Proactive Approach

Don’t get caught Sleeping

Any Questions ?

Robert Hulse

Head of Professions

Tel: 01606 338026

Fax: 0871 429 1381

Mob: 0779 199 2039

Email: rhulse@syscap.com

Website: www.syscap.com/professions

About me: http://uk.linkedin.com/in/roberthulse

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