BUSIN

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1 0 / SMALL BUS INESS

HOW I MADE IT

FIRMSCAN BE MERGEDWITHOUT PAYINGTAXVGwrites: I own two companies withdifferent trades. One is a lifestylebusiness, fromwhich I have beendrawing a small salary. This now doeslittle trade, butmymain company hasbeen getting busier over the past year.It would seem sensible to combine thetwo to save on administrative timeand costs. Is this easy to do?

It is possible to transfer a businesswith no commercial value to aconnected companywithout any taxliability arising,writes Jon Dawson,partner at Kingston Smith LLP. Thisshould help to streamline youractivities without forcing you toclose your lifestyle business.To be tax neutral under the

reorganisation provisions, noconsideration should be paid otherthan the assumption of liabilities. Anylosses or capital allowances can alsobe transferred to the continuingcompany. Both companiesmust beat least 75% owned by the sameshareholders for a year before thetransfer and two years afterwards.There are some points to be aware of:

0 Fixed assets should be transferredat the taxwritten-down value;0You can transfer the PAYE schemeor close it and set up a new scheme inthe continuing company if it doesn’talready have one;0 Losses transferred can be offsetonly against profits of the same trade.Once you have transferred the

trade, you can close the old company.If you are satisfied that no liabilitieswill arise in future, this can be doneby simply striking off the company.The alternative, more costly, optionis to undergo a solvent liquidation.Before you proceed, you need to

consider the risk involved in havingtwo businesses in one company.While your lifestyle businessmay notbe significant, a claim against it couldresult in proceedings that affect thelarger business.

CANIRECOVERTRAININGCOSTSFROMLEAVER?MWwrites:What is the legal positionon recovering training andrecruitment costs when a newemployee leaves within 12months?Should I cover the company byincluding rules in contracts ofemployment?

Recruitment can be costly, butunfortunately themoney you spend

on advertising for staff is part andparcel of the recruitment process andcannot be recouped,writes PeterDone, managing director of Peninsula.However, youmay be able to recoverall or part of themoney spent ontraining, depending on the type oftraining and onwhat you agreedwithyour employees before they started.The cost of standard in-house

training that is given to new starters isnot likely to be considered a type of“work-related” training. The cost ofon-the-job training is something youshould budget into normal expensesand is not something youwill be ableto recover, even if an employee leavesafter just a couple ofmonths, forexample.However, if you paid formore

formal training, such as training thathas enabled employees to gain aprofessional qualification that will beuseful outside of your employment,youmay be able to recover some ofthe costs if you entered into a formalagreement.This will usually stipulate that the

whole or part of the cost of trainingpaid for by the employerwill berecoverable if the employee leaveswithin a certain period of time. Asliding scale is usually usedwhichprovides for a decreasing paybackcorresponding to the length of serviceafter the training is completed. Insome cases it may not be possible torecover the cost — it depends on theexact type of training.If you did not enter into this type

of agreementwith your employeesbefore they started their training,or did not obtain agreement to deductthemoney from employees beforethey left, youwill not be able to claimback themoney you invested intraining.It is important to note that some

deductionsmay affect the calculationsfor the national minimumwage. If theemployee is a low earner, employersneed tomake sure that deductionsdo not take the person’s pay belowtheminimum.

Business doctor

Marcus Greenwoodheld talks withabout 25 investorsover five monthsbefore finally land–ing the right deal.

“It was tough. We had to sellinvestors the dream withoutbeing able to show them it,” saidGreenwood, one of the fourfounders of tech start-up UB.The one-year-old business

offers a “universal basket” — asingle checkout through whichonline shoppers can pay for alltheir goods, bought fromany siteand using any device. It alsoworks with ecommerce comp-anies, allowing them to sell ontheir own platforms rather thanhaving to redirect customers topayment firms.In October, UB raised

£250,000 from Force Over MassCapital (Fomcap), a £15m fundthat specialises in tax-efficientinvestments. It attracts backersfor tech start-ups using theincentives offered by the enter-prise investment scheme (EIS)and seed enterprise investmentscheme (SEIS).The taxbreakshaveprovideda

lifeline for entrepreneurs such asGreenwood while offering indi-viduals a chance to make biggains by betting on new busi-nesses.“Wehaveaccess tomoneythatweotherwisemightnothavegot,” said Greenwood, 33.“Anyone who earns a decent

amount of money and has sparecash can invest it. You neverknow, you might hit the jackpotand invest in thenextFacebook.”Despite such potential, the EIS

andSEIS are still under the radar.“Very few people know aboutthem,” said Greenwood, whoseteam works from offices on theCity fringe run by Techstars, astart-up accelerator. Techstars isalso providing £75,000 of fund-ing and a 13-week programmeofmentoring and support.Under the EIS, introduced in

1994, investors can reduce theirincome tax liability by 30%. Thisis the reward for accepting therisk of putting money — up to£1m a year— into young compa-nies. Businesses can receive up to

£5minbacking fromtheEIS. TheSEISwas launched two years agoformicro companies, with assetsof less than £200,000. They canraise a maximum of £150,000,and backers can claim up to 50%taxreliefoninvestmentcappedat£100,000 a year.Shares in both EIS and SEIS

companies are exempt fromcap-ital gains tax if held for at leastthree years. SEIS investors areeligible for further capital gainsrelief if they put their profits intoothermicro firms.In 2012, £1.1bn was pumped

intomore than 2,500 small busi-nessesthroughtheEIS.Inthefirstyear of the SEIS, 1,100 start-upsbenefited to the tune of £82m,andthatnumber isexpectedtobesignificantly higher this year.According to the Business

Angels Association, almost 70%

of investors said the incentiveshad convinced them to putmoney behind small firms. Stillmore could benefit, though. “It’soneofthosethingsthatpeoplearejust not aware of because thereare somanydifferent tax reliefs,”saidMartijndeWever,whosetupFomcap with Theo Osborne, thechancellor’s youngest brother.In the autumn statement, the

chancellor announced plans tomake it easier for companies andinvestors to takeadvantageof theschemes. From2016, bothwill beable to register online.Fomcap works with acceler-

ator programmes to identifyrisingstars,andis intalkswith40companies. They receive SEISassistance initially, and poten-tially two later stages of EIS help.Fundingcomes fromFomcap’s

networkof100to150individuals.

“Wewant toopenupthestart-upspace for high-net-worth indi-viduals to invest in, but peopleneed to understand the risksinvolved,” deWever said.Luke Davis set up IW Capital,

his EIS investment firm, fouryears ago. To date, it has helpedto raise cash for 16 companies.Money is not the only benefit,though — backers also provideadvice and support. “It’s infi-nitely better than going to a bankbecauseyouhaveateamofpeoplehelping you to drive the businessforward,” said Davis.Industry experts are hoping

more people will follow hisexample. “I still meet manyentrepreneurs and investorswhoare not aware of the scheme,”said Jenny Tooth, chief executiveof the Business Angels Associa-tion. “Some have done deals

without using it because theydon’tquiteget it.Theycouldhaveinvested twice as much if theyhad known.”Tooth’s association has asked

for the SEIS investment cap to beraised from £150,000. “Manyinvestors have found it frus-trating when a business needsmore money than that, so somehave opted out,” Tooth said.Nevertheless, the tax breaks

makeBritainanattractiveplacetostart a business, she said. “It’s auniqueofferingthatmeansalottoentrepreneurs in this country.”

Investors canslash their tax billsby putting cashinto youngcompanies, saysKiki Loizou

Best little tax breakfor start-up angels

Fully funded: UB’sMarcus Greenwood, front,and co-founders AnatoliyChakkaev, Anne Stauche

and Mark Russell

TOM STOCKILL

We made Farrow & Ball shine,now it’s time for fabricsBEST FRIENDS Martin Ephson and TomHelme closed the deal of a lifetime inApril1992 when they took a majority stake inFarrow & Ball, the paint and wallpapermaker that had fallen on hard times.“The company was selling decorative

andspecialistpaintsthatnobodyelsemadein Britain any more,” said Ephson, a cor-poratefinanciercalledinbyhisoldschool-friendHelme, a restorerwhowasworkingwith the National Trust.The pair set aside two days a week to

turn round the business, which thenemployed 14 staff and was run from aconverted barn in Wimborne Minster,Dorset, and turningover£500,000ayear.“Thatwasour firstmistake,” saidEphson.“It was full time from the beginning.”After two years they sold their homes

and left theirday jobs torunFarrow&Ball,which dated back to the 1930s. “I said tomy wife, ‘Either I take this seriously or Igive it up’,” said Ephson. “We were for-tunatethatall theelementswehadworkedso hard on came together.”It paid off. By 2006, when they sold

Farrow & Ball for £80m, the factory hadexpanded from 6,000 sq ft to 60,000 sq ftand employed 300. Sales soared to £28m,generating a profit of £8m a year.“We had a great product but we had to

changethewholebackofficeorganisation,from selling and receiving orders to proc-essing and distribution — absolutelyeverything,” Ephson said.The pair cut all ties when they sold out

to private equity house European Capital.“Farrow&Ballwasourbabyandwedidn’twant to stand on the sidelines whilesomeone dismembered it,” said Ephson.“In the end we left a lot of gas in the tankand the newowners bought into our busi-nessmodel.”The companywas sold againlast week to an American private equityfirm, AresManagement, for £275m.With£40meachandawealthofexperi-

ence, the pair sought another ventureto get their teeth into. But it wasn’t until2012 that they reinvested some of theirwealth into launching the fabric makerFermoie, selling a palette of colours andpatterns designed to appeal to Farrow &Ball customers.“We looked at hundreds of old fabrics,

trying to work out how they wereprinted,” said Ephson. “Eventually wefound an Austrian manufacturer — it wastheir first English inquiry for 25 years.”Fermoieemploys sevenat itsheadoffice

in Marlborough,Wiltshire, and has ashowroom in Chelsea, west London. Salesreached £684,000 in the year to March2014. It expects to become profitable nextyear and report revenues of £1m.Fermoie now manufactures all its own

products. It has invested in German

machinery for the screen printing anddrying of fabrics, and is attracting interestfrom designers andmanufacturers.The success of Fermoie is easy to

explain, said Ephson: “We chose fabricsbecauseweunderstand the interiordesignindustry andhave anoperational templatefor it that we know is successful.”Ephson, 58, was born in London. His

Ghanaian father was the country’s firstdiplomat when it gained independencein 1957 and he grewup in Cairo, Tunis andAccra as well as in Europe.Ephson’smotherwasa secretarybefore

she married. “My parents met in Englandjust after the war,” he said. “Mother wascalled into the Colonial Office and told nottomarryacommunist,whichcausedastirin the papers at the time.”Ephson boarded at Charterhouse in

Surrey,wherehemetHelme.Hegraduatedfrom the Polytechnic of Central London(now the University of Westminster) in1977 with a “very poor” degree in eco-

nomichistory.“ItwasfunlivinginLondonbut it wasn’t great academically,” he said.Homesick for Ghana, Ephson returned

that year towork in the food trade.He alsoset up a fish farm. “I had a variety of jobsbut exporting live tropical fish all over theworld was the most enjoyable and profit-able.”On his return to England in 1981 hebuilt his own food distribution companycalled LarsensMaritime Services (LMS).“We did all the duty-free drinks for the

QE2 and one year Iwas theworld’s largestcaviardealer,with three tonsof the stuff,”said Ephson, who sold out to Sea Con-tainers in 1987. “I didn’t make a lot ofmoney but I learnt a lot.”Hewentontobeaconsultantinmergers

andacquisitions for sixyearsbeforeHelmeintroduced him to Farrow & Ball, whichproduceda rangeof paints for theNationalTrust,whereHelmeadvisedondecoration.AfterFarrow&Ball,Ephsontookiteasy.

He travelled theworld, spent timewithhisyoung family and set up the Martin andEugenia Ephson Educational Trust, acharity educating children in Ghana.He lives in Wiltshire with his wife,

Eugenia, a collector of contemporary art.They have three children, Ciara, 26, Pat-rick, 24, and Ludo, 21.Ephson’s advice to aspiring entrepre-

neurs is: “You need focus and commit-ment. Keep your goals simple andcommunicate themwell toyour team.Youalso need faith that running your businessis going to beworthwhile.”

Hattie Williams

Martin Ephson, above, and Tom Helme put their fortune from Farrow & Ball into Fermoie

PHIL YEOMANS

Martin EphsonCo-founder of Fermoie

Kingston Smith LLP, the charteredaccountant, and Peninsula, theemployment law firm, can adviseowner-managers on their problems.Send your questions to BusinessDoctor, The Sunday Times,1 London Bridge Street,London SE1 9GF. Advice is givenwithout legal responsibility.

bizdoc@kingstonsmith.co.uk

EmploymentLawExperts

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