CICs are essentially a limited company and can take any format that a company can. For example it can be limited by guarantee or be public or private companies limited by shares. The difference is that they are established for the benefit of the community as opposed to their members or shareholders.
For this reason they are suited to social enterprises or organisations that trade with a social purpose. A village shop is often quoted as an example; however, there is no limit to the type of enterprise. Other examples include art galleries, youth centres and care homes.

A lot of people will be familiar and comfortable with how companies operate and the responsibilities associated with being a director. This is not always the case with the more onerous responsibilities associated with running a charity and being a Trustee. They also have an additional advantage in that the audit requirement is the same as for any limited company and whereas Charity Trustees cannot be paid a fee the Directors of a CIC can (although this should not be an excessive amount).

Charities must be set up for a charitable purpose and where trading is to be performed, this usually has to be through an additional trading subsidiary of the charity. In this respect CICs are a simpler solution.

It is true that Charities have additional tax advantages and will be more applicable for those that wish to advance a charitable objective for the public benefit. However these added benefits come with additional legislation. CICs will be more applicable to those that wish to do good in the community via more of a social enterprise or where the funding is not received largely by private donations. It should be noted that the demonstration of community benefit is less onerous than the public benefit attached to charities and hence it will be less restrictive for some types of business.
What counts as a community?

A community can be a community or population as a whole or a definable sector or group of people in the UK or elsewhere. The acid test is what a reasonable person would consider to be a community.

How do you ensure it is for the benefit of the community?

The legislation imposes certain conditions on CICs so that it can be demonstrated and provide confidence to stakeholders that they are for the benefit of the community and not the members or shareholders. These take the form of an asset lock, a cap on dividends that can be paid to shareholders and additional reporting requirements.

What is an asset lock?

An asset lock is designed to ensure that all the assets are for the benefit of the community. This includes any profits or surpluses generated by its activities. Any transfers out of the CIC must be;

• for full consideration
• to another asset locked body specified in the articles of association (commonly another CIC or charity)
• to another asset locked body with the consent of the regulator
• for the benefit of the community

In addition on winding up the payment to shareholders (where they have them) will be restricted to the value of their paid up share capital and any surplus would need to be transferred to another similar asset locked entity.

What is a dividend cap?

CICs can pay dividends to its shareholders; however, the cap ensures that the assets and profits are mainly used for the benefit of the community. The cap comes in three forms being;

• A maximum per share of 20% of the paid up value for shares issued on or after 6 April 2010 (5% above Bank of England base rate prior to this date)
• A maximum of 35% of distributable profit
• The ability to carry forward unused capacity by 5 years

These are the current conditions and could be varied in the future. In addition there is nothing to stop CICs imposing stricter criteria in its articles of association.

What are the additional reporting requirements?

As well as filing the accounts at Companies House a Community Interest Company Report (CIC34) is also filed, this currently costs an additional £15. These will also be copied to the Regulator. The Regulator as well as approving a registration also has a monitoring and enforcement role.

Is a CIC right for me?

Before deciding on an appropriate entity professional advice should be sort to ensure that the advantages and disadvantages of different entities are considered. Streets together with our network of trusted professionals have the skills and specialisms required to assist local not for profit and third sector organisations. If you have a community project or venture in mind please contact us for an initial no fee consultation to discuss the potential options available.

Founded in 1993, by Ian Croft, ISA Accountants has earned an enviable reputation for looking after the needs of businesses in and around Stevenage. Since the early days the expansion of the practice has seen the number of staff employed grow too, with today a total of 20 people forming the team.
Commenting on the move to merge with Streets, Ian Croft said,

“Growth, as with any business, brings its challenges as does the changing nature of the market place we serve and to ensure the firm’s well placed to meet these challenges the unique opportunity arose to merge ISA with Streets Chartered Accountants.

We recognised that to ensure we continue to meet the needs of our clients and to enable us to expand the firm, we need to be able to offer clients an increasing range of specialist services and advice, not least in terms of wealth management and tax planning. Equally we wanted to ensure our senior staff that work with clients are spending time on their affairs as opposed to being caught up in the day to day management of our own business. We like to be thought of as a different kind of accountant, therefore the approach from Streets, a progressive top 30 UK practice, certainly seemed, and has proved to be, a good move.

For us and our clients I am sure the merger will prove to be a real winner.”

From Streets perspective, our Chairman and Managing Partner Paul Tutin, who was instrumental in working with Ian Croft to bring the two firms together, sees the merger as a key part of the overall development of the practice in Stevenage and comments,

“We are delighted to be joining up with Ian Croft and his team at ISA. There is such a great deal of synergy between our firm’s over our approach to looking after clients, and to growing our own businesses whilst retaining the core values that have underpinned our success to date. Ian’s entrepreneurial approach to looking after his clients is reflected in his achievement in building a successful practice from scratch, excuse the accountants pun but we see him as being a key asset going forward. Recognition of this comes through appointing Ian as Managing Director of Streets ISA Ltd.

Whilst Streets has been in Stevenage only a relatively short time we have, through our work with the wider business community, found that we are seen as providing a fresh approach and that we have established a sound foundation for the growth of our business in the town and Hertfordshire.

The merger comes at a time when we approach what is the end of our financial year, which has seen for us a number of key and strategic moves, with the creation of our own dedicated Corporate Finance team, as well the opening of our Stevenage office, and relocation of our St Neots office to Wyboston Lakes. Certainly we can proudly say that, along with our offices in the East of England and London we are amongst the pre-eminent players across the region and the Capital City.”

Their rationale is that they feel that small business record keeping may not be up to scratch and therefore errors may occur and payments to the Revenue may be wrong or perhaps their hope is that they fall short of what is due.

If you are subject to an inspection and your books and records are found to be inadequate then the Revenue could charge a penalty of up £3,000. This could be in addition to any tax that may be due following the inspection.

If your books are in good order and you keep your accounts up to date then there is perhaps little to concern you. If, in all honesty, you don’t keep your records in the best of order then perhaps it is time to do so. For some this may mean just keeping on top of them on a more regular basis, for others it may give rise to the need to consider either using a new system or accounting software programme like SAGE or even looking to outsource your bookkeeping.

The inspections will be risk assessed and industry sectors will be targeted where the Revenue has identified previous issues. Perhaps, their first port of call and those most at risk will be businesses that handle cash as opposed to doing business on credit.

Get in touch to find out how we can help you

By way of a guide, the correspondence sent to the Registered Office address includes the following

• CT41G – Corporation Tax New Company Details (for newly registered companies)
• CT600 – Corporation Tax Forms
• Reminder to file your corporation tax and payment forms
• Notice to file accounts
• Notice to file the annual return
• Authentication codes for new companies

In addition to the privacy of providing you with a Registered Office facility we offer the reassurance that, as your trusted professional, we are on hand to ensure that all correspondence received is dealt with in a timely and efficient manner – leaving you to get on with the day to day affairs of running your company or limited liability partnership. Using our service also helps to provide peace of mind that filing deadlines are not missed and penalties are avoided.

The simple steps to setting up the Registered Office with Streets

If you are setting up a new company or limited liability partnership you can, as part the process of registering and forming the company, indicate that you wish to use a Streets’ office as your Registered Office. In the main, clients tend to use the Streets’ office address where the partner they work with and/or their affairs are looked after.

If you have an established Registered Office using either your business address or another address then the process of switching addresses is relatively simple where all that is required is the completion of a Companies House form AD01 Change of Registered Office Address. If you have a limited liability company or if you are a Limited Liability Partnership then a Companies House form. We will be only too pleased to supply you with the appropriate form or discuss with you the online filing process.

Once we either have the completed form or notification of the online filing, we set up your Registered Office facility and provide you with an invoice for an annual fee, which runs from 1st April to 31st March, or pro rata fee if set up sometime during the 12 month period.

We will also display the company or limited liability partnership name at the Streets office you chose for your Registered Office.

To discuss your Registered Office requirements further please email info@streetsweb.co.uk

Overall, delegates felt either about the same or more optimistic about the economic outlook. It would appear that the proposed reduction in Corporation Tax by 2% from April and 1% in each of the following three years was perhaps the single most influencing factor in terms of a sense of optimism. The overall level of optimism was boosted further through the indication that the 50% tax rate will only be for the short term. Measures to alleviate the cost of motoring were a welcome boost, particularly the reduction in fuel prices by 1p a litre, the scrapping of the fuel duty escalator and an increase in the HRMC allowable business mileage rate from 40p to 45p.

Looking to the new financial year ahead the Budget served to highlight a number of financial planning matters that need to be considered. Perhaps one of the key ones is the proposed reduction in the Annual Investment Allowance in April 2012 from the current limit of £100,000 to a new limit of £25,000. Certainly any business thinking of making a significant capital investment will need to consider the timing of such expenditure to ensure they maximise the reliefs available to them.

In terms of personal investments, the current income tax regime compares less favourably with the lower rates of capital gains tax and as such, where possible, it is perhaps worth looking at switching any investments that produce significant income streams to investments designed for capital growth, particularly for those in the highest income tax bracket.

For those looking to maximise income and minimise tax, in situations where a husband and wife have significantly different levels of income then it is worthwhile looking at switching income between the higher and lower rate tax payer. Equally the new lower rates of corporation tax and higher national insurance costs make it increasingly tax efficient for those trading as a sole trader or in partnership to consider incorporating as a limited company.
Pensions are still probably not flavour of the month, not least given the proposed changes to pension contributions and the amounts that can be invested annually. With, from 6 April 2011, the annual allowance for contributions being reduced from £255,000 to £50,000, careful consideration needs to be given to the new rules allowing any unused reliefs to be brought forward from earlier years, particularly for those looking to make significant contributions.

Looking at the challenges faced by businesses over the next 12 months it appears, from the feedback from those attending Streets Budget presentations, that many established businesses share common concerns and are focussing on the need to maintain business profitability through stabilising or achieving an increase in sales activity. This appears to be against a background of stagnant markets and an inability to develop or finance growth strategies. It would seem the next 12 months is a time when the support of proactive accountants and business advisers will be paramount if we are to see a shift from the status quo towards a growing economy.

If you wish to discuss anything in the Budget further please contact your local office here.

Dividend payments as part of remuneration

Is it time to make a dividend payment? A dividend is paid free of national insurance contributions, which would typically cost 12.8%, whilst salary/bonuses can carry up to 23.8% in combined employer and employee contributions. However, salary/bonuses are generally tax deductible to the company, whereas dividends are not, so the choice is not always straightforward.

Incorporation

Incorporation may give more scope for saving or deferring tax than operating as a self-employed person or partner.

Capital allowances – maximising the relief

The majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first £100,000 of expenditure on most types of plant and machinery (except cars). This ceiling, is to be reduced to £25,000 in 2012 so it might be time to bring forward expenditure to capitalise on the existing higher allowance.

It is a good time to look at your personal financial planning too…

It is often the case that personal financial planning is overlooked, with more attention given to the financial aspect of the business. It is important, not least at this time of year, to look at the individual financial planning needs and aspirations, and the following should be considered

Have you taken advantage of your Individual Savings Accounts allowance?

Despite recent low interest rates, Individual Savings Accounts (ISAs) are still a popular tax-free saving option for many individuals. You have until 5th April 2011 to make your 2010/11 contributions.

Don’t miss out on the chance to bolster your pension

Consideration could be given to making pension contributions with a view to minimising higher rate tax liabilities. This is an area which has changed frequently in recent years and is set to change again in April so professional financial planning advice is paramount.

The Budget and beyond

Whilst the above points are worthy of consideration now, the Chancellor’s Budget is set to take place on Wednesday 23rd March. To help make sense of its impact on individuals and businesses Streets will be once again hosting its Budget Roadshow with presentations being held in Peterborough, Wyboston Lakes, Newmarket, Hull, Grantham, Stevenage and Lincoln.

For further information and to book your FREE place please visit our events page or call Ali Lovegrove on 0845 880 0320

In order to claim the relief you have to dispose of the whole or part of a business or an interest in shares of a company where the company is the individual’s “personal company” and is either a trading company or the holding company of a trading group. In addition you must have owned the business for at least 12 months prior to the disposal or it must have been your “personal company” throughout the 12 months ending with the disposal of the shares.

An individual’s “personal company” is a company in which he holds at least 5% of the ordinary share capital and voting rights. In addition, you must have been an officer or employee of the company for the 12 months prior to the disposal.

For the purposes of Entrepreneurs’ Relief a “business” is a trade profession or vocation which is conducted on a commercial basis and with a view to profits. Trade includes the commercial letting of furnished holiday accommodation, including overseas property.

Therefore, a disposal of business assets on its own would not qualify unless the business had ceased and the disposal was within 3 years following.

A trading company is one whose activities do not include to a “substantial” extent activities other than trading activities. This is a trap for those who build up investments in their companies e.g. let property, stocks and shares, even cash. HMRC’s definition of “substantial” is 20% or more so if your investments exceed that level you may need to take action to ensure that your shares qualify for the relief when the time for sale arrives.

A husband and wife are each entitled to up to £5 million of Entrepreneurs’ Relief so in large cases it will be worthwhile making a spouse a partner in the business or giving them some shares and either appointing them an officer of the company or making them an employee (part-time will do).

Often when companies are sold the purchaser will pay some cash up front with the balance over a period of years, sometimes linked to future performance. In these situations, it has been popular for the purchaser to issue ‘Qualifying Corporate Bonds’ (essentially an IOU) so that gains are frozen until the Bonds are encashed over time. However, such gains will no longer qualify for Entrepreneurs’ Relief so alternative planning will be required.

Another trap is that if you own assets personally which are used by your business, such as the business premises, Entrepreneurs’ Relief will not be due to the extent that you have received a market rent for their use.

As can be seen from the above great care should be taken to ensure that your business qualifies for this valuable relief and professional advice should be sought at an early stage rather than immediately before a sale when it may be too late to take remedial action.