Top Up Your Pension Contributions

The annual allowance for pension contributions in 2011/2012 is, depending on your earnings and profits, up to £50,000. Contributions paid by you are paid net of basic rate tax so your pension fund receives £100 when you only pay £80. The £20 basic rate tax relief is paid by HMRC direct to your pension fund. If you are a 40% or 50% taxpayer, you may also be able to claim additional tax relief at your highest rate, via your tax return.

You may be able to use Carry Forward to make contributions above £50,000. Carry Forward can be used to sweep up contributions and the tax relief that accompanies them, which you may have chosen not to use or been unable to use in the previous restrictive pension legislation. Carry Forward can provide the potential opportunity for you or your Company to make total contributions up to £200,000 gross. At tax year end, you will lose access to any Carry Forward Allowances you may have available from the 2008/2009 tax year.

Protecting Your Pension Funds from a Reduction in the Lifetime Allowance

The Lifetime Allowance sets the upper limit on the tax-efficient overall value of your pension benefits from all sources. At the moment, the allowance is £1.8M but at tax year end it is being reduced to £1.5M.

To make provision for individuals who have based their planning on the current limit of £1.8M, HMRC are offering protection for the funds, as “Fixed Protection”.

Fixed Protection can apply to pension savings up to £1.8m and places restrictions on what can be done with the funds. Once the protection is in place no further benefits can be accrued or contributions paid, or the protection will be jeopardised. An application for fixed protection must be made before 5th April 2012. If you are concerned about your funds, please do not hesitate to contact us.

Using Annual Gifting Allowances

Effective Inheritance Tax planning could save your family significant tax bills. Currently, Inheritance Tax is charged at 40% on your assets over £325,000 when you die (£650,000 for married couples or registered civil partnerships). There are a number of gifting allowances which are available per tax year, which means you can gift sums to people which are exempt from Inheritance Tax. Using good planning over a number of years can be an effective way of passing assets down the generations.

Individual Savings Account (ISA) – Annual Allowances

Often, ISAs are overlooked because the allowances appear relatively low; £10,680 overall per tax year, including a cash maximum of £5,340. However, people who have utilised their allowances over the years and going back to the previous incarnations of TESSAs and PEPs, could now have potentially amassed funds well into six figures which can provide tax efficient growth and income.

To discuss any tax year end planning in more detail, please do not hesitate to contact us on 01522 536108 or by email at enquiries@sfcplc.co.uk.

IMPORTANT NOTES:
Streets Financial Consulting plc is authorised and regulated by the Financial Services Authority. The Financial Services Authority does not regulate tax planning.
The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested.
The value of tax reliefs depends on your individual circumstances. Tax and pension laws can change.
Pension planning, investment planning and IHT planning are all long term planning strategies. It is particularly important that you review your objectives and options on a regular basis.
Pensions are a long term investment. Your eventual income may depend on the size of fund at retirement, future interest rates and tax legislation.

Please download your free copy of our Streets Ahead in the Field of Agriculture top tips for 2012.

With advice ranging from saving tax to investing your money we hope these tips help you to plan for a prosperous 2012

If you would like a postal copy of this FREE newsletter please email ngray@streetsweb.co.uk or call 0845 880 0320.

It may be hard to believe, but paying more tax than you actually need to is a worryingly frequent occurrence. As we approach the 31st January self assessment deadline, it is important to ensure that individuals don’t pay more tax than is absolutely due and necessary.

Experience, however, does show that there are number of common pitfalls whereby people find they have paid either the wrong amount or worse, too much! Another growing concern is the financial penalties being levied for late filing and errors made on returns. Not only are HMRC more draconian in the penalties and fines it levies, but equally they are increasingly rigorous in imposing penalties and investigating into returns.

It is possible, with the help of the support and advice of your taxation adviser and accountant, to ensure you avoid being caught by the taxman.

The following are some simple steps to adopt:

• Always consult with your advisers as soon as you receive any forms or paperwork from HMRC however innocuous they may seem, especially if the nature of that paperwork looks like some form of enquiry.

• Be timely with your affairs. Leaving the filing of your returns to the last minute inherently runs the risk of inaccuracies; for example, pressure to make the submission without reference to sometimes vital information.

• Ensuring you or your advisor appreciates the current tax regime, knowing which expenses are allowable or disallowable. For example, the full amount of mortgage payments on a buy to let repayment mortgage are sometimes claimed whereas only the interest element is allowable.

• Ensure you keep all the appropriate paperwork. Otherwise an allowable expense can become one that you are not able to substantiate and therefore claim.

• For those people who do not prepare tax returns particular care is required in checking that their PAYE coding notices are correct. For example, the coding may include benefits which have lapsed.

• Don’t rely on HMRC’s calculation even if this shows a repayment due to you. It is more common than you might think for the Revenue’s assessments and coding notices to be inaccurate, especially for those in receipt of multiple sources of income, such as pensions and for those whose circumstance may have changed. Don’t assume that HMRC would for example, link you as having two separate jobs or types of earned income.

• Advise your accountant/tax advisor in advance of any purchases or changes you are planning so your tax affairs can be arranged in advance of changes.

Based on experience, through effective management and appropriate advice, it is possible to only pay what you really need to pay. Certainly having a professional and diligent approach to your tax affairs can ensure your house is in order and that should you be subject to an enquiry or investigation you have all your ducks in a row, to be able to deal with it. Whilst in the good times you may have felt more benevolent or paid less attention to how much tax you part with – though it is difficult to believe this is the case – it is increasingly important to take action now in order to keep more of what you make.

If you haven’t made adequate provision you are running a serious risk of outliving your savings once you have stopped working.

So how much are you going to need to fund this long-lasting holiday?

1. Consider what annual income you would like to maintain your standard of living, if you were stop work today.
2. Think about what other income you receive aside from work and where it comes from, i.e. rental income, bank interest, share dividends and state pensions.
3. Take account of any existing pension arrangements you have and what they may provide at retirement
4. Think about when you will realistically stop working and therefore need your retirement income.

One of the services we provide is target based retirement planning. If the above steps leave you with a shortfall of income, we can calculate what pension contributions or other planning you can implement to improve your position.

The latest round of new pension legislation means the need for professional advice has never been greater – the complexity of the legislation means it is all too easy to fall foul of the annual limits for contributions and the forthcoming reduced limit on your lifetime pension allowance.

The decisions you make today will help determine the standard of living likely to be enjoyed in retirement. But the longer you leave it to take action, the more expensive it will be to catch up and the more vulnerable you are to not maximising the tax and planning opportunities available to you.

For advice on pension planning please contact Susan Lovell, Financial Planning Manager, Streets Financial Consulting Plc. Email slovell@sfcplc.co.uk

Streets Financial Consulting Plc is authorised and regulated by the Financial Services Authority.

Please read our AUTUMN STATEMENT 2011 GUIDE for individuals and businesses

Penalties for late filing or non-filing of contractor monthly returns are changing after October 2011.

The first return affected by the changes to late-filing penalties is the return for the month ending 5 November 2011.

The following penalties will apply to that return and to all subsequent months’ returns that are not filed, or are filed late, for as long as the return is outstanding.

■ Immediately the return is late – a fixed penalty of £100
■ Two months after the filing date – a second, fixed penalty of £200
■ Six months after the filing date – a tax-geared penalty which is the greater of £300 or 5% of the amount of deductions shown on the return.
■ Twelve months after the filing date – a second tax-geared penalty which is the greater of £300 or 5% of the amount of deductions shown on the return. If it is believed that information has been deliberately withheld, greater penalties may apply.

A limit will apply to the fixed penalties for new contractors so that the £100 and the £200 penalties do not exceed a maximum of £3,000. During this period, no tax-geared penalty will be issued. However, once returns are received penalties will be adjusted to include 5% of the amount of deductions shown, if appropriate.

Interest will be charged on any penalty paid late.

When the new penalties begin, no more automatic penalties will be issued for outstanding returns up to and including the one for the month ending 5 October 2011. Those penalties already charged are still due for payment unless successfully appealed against and payment of these should be made immediately. HMRC will continue to raise amendments to penalties already issued, where necessary and further penalties can be issued manually for earlier returns, if appropriate.

For further information click here

To avoid penalties remember to:

■ File your return in good time (to reach HMRC by 19th of the month).
■ Tell us immediately if you stop trading or do not pay subcontractors in a particular period.

Many tax payers do not realise that substantial elements of most commercial buildings qualify for tax relief under the rules relating to fixtures. In some circumstances 35%of the cost of the building may qualify for tax relief depending upon the type of building. Fixture costs will usually be incurred where a business buys a commercial property, builds a commercial property, refurbishes a commercial property or leases a commercial property. The relief will be available on the cost of items such as water pipes, electrical wiring, air conditioning, lifts, washbasins, sanitary ware and kitchens to name a few.

At present it is possible to make a claim for fixtures at any time, provided the building is still owned and used in the trade. It is also possible to enter into an agreement with the other party when the building is being sold to fix the value attributable to the fixtures in the transaction for capital allowances purposes to ensure that the seller retains the entitlement to future tax relief on the fixtures even though they been sold with the property.

Subject to the outcome of the consultation process the following changes are likely to be introduced in the 2012 Finance Act::

• A purchaser of fixtures will only have a specified period from the date of purchase to claim capital allowances in respect of the fixtures, this is likely to be two years from the date of purchase. This means that if claims are not made in this time period the relevant tax relief will be lost. It is also likely that the new measures may also affect expenditure incurred before these rules come into play so it is important that businesses get their claim up to date before March 2012.

• Rules may be introduced to ensure that a value for fixtures is agreed between the buyer and the seller at the time of sale with the value being notified to HMRC within the requisite time period (two years). It is also possible that rules will be introduced to ensure that fixtures are transferred at a fair value between the buyer and seller and it has been suggested that the tax residue of the seller should be taken as the appropriate value. This could mean that elections currently available to fix the price attributable to fixtures at an artificially low value to benefit the seller may no longer be possible.

• Businesses are encouraged to revisit their property portfolios to ensure that where costs have been incurred on fixtures, usually as part of a property acquisition, a new build or refurbishment the appropriate spend has been reviewed by a capital allowance specialist to ensure that the qualifying costs have been identified and claimed. It would be prudent to ensure this is done before the new rules are introduced in early 2012 as it is unclear at present how these measures will apply to expenditure incurred before the new rules come in. Inaction may result in the ability to claim in respect of past expenditure being lost.

For further information please contact Chris Connor, Tax Partner by email: cconnor@streetsweb.co.uk, or phone 01522 551200.

Despite, the ever increasing number of downgrades for growth projections in the economy, there is evidence that businesses can, and are, bucking the trend. Having attended a number of events and discussion groups recently, where the focus has been on business issues and concerns, there does seem to be a common thread emerging whereby businesses, even in some of the more challenging sectors, are doing better than their competitors. Some might even be bold enough to state they are doing well.

Needless to say such reports and indications, do then beg the question why and how? It would seem that one of the key overriding themes is that such businesses have decided to react to the economic conditions they face, as opposed to waiting and hoping for things to get better or just riding out the storm , which I fear is the default setting for the majority of businesses.

As to how they are achieving more favourable results, it would seem that this is primarily down to leadership from the top, with clear vision and strategy being easily communicated and delivered across the organisation. Equally, renewed efforts, sheer graft and persistence appear to be a part of the winning formula.
Essentially there are only a limited number of ways to grow any business; however, such ways do seem to form part of winning strategies. Even in the most mature markets it seems businesses can increase margin and revenue from existing customers, or attract more of the same type of customers. One of the more common techniques though does seem to be to gain increased market share, and in some cases geographical coverage, through acquisition of competitors, perhaps those less favourably placed in the current economic environment.

The idea of launching a new product or service in the current climate might fill some with dread, but the need of customers and consumers continues to change and it would seem, not least for those who can or could supply overseas markets, there has been no let up from those succeeding in the development and launch of new ideas.
Whilst at the start of the down turn, it was undoubtedly wise not to deviate, in many cases, from the marketing techniques and activities adopted, the last three years or so, have through necessity and developments in marketing, given rise to the need to consider the broader marketing tools and resources available to win and maintain business. Amongst those that seem to be doing well it appears is the trend to develop and implement a marketing strategy that recognises and exploits these broad changes.

Finally, a common theme seems to be the recognition to review, monitor and control processes and practices in all aspects of delivery of the business goals and aspirations. Perhaps the slow down in the economy has both allowed and necessitated such activity.
From a wider perspective there is growing demand for support and advice from businesses advisers including accountants and tax specialists; with the more successful businesses seeing such professionals more as part of the team, than a necessary evil.

James Pinchbeck is Marketing Partner, with Streets Chartered Accountants, a top 60 UK accountancy firm. Telephone 0845 880 0320 or email info@streetsweb.co.uk or visit www.streetsweb.co.uk

The charge to tax is based on the list price of the vehicle provided and a percentage which is determined by reference to the CO2 emissions figure. The percentage is normally between 15 and 35%. In simple terms a company car with a list price of £10,000 and CO2 emissions of 125g/km will pay tax for the year 2011/12 on £1500 (15% of £10,000).

Cars with very low emissions (120g for 2011/2012) will be taxed at a 10% rate. Diesel cars registered incur an additional 3% supplement on the appropriate percentage although this can still not exceed 35%. If fuel is provided this is an all or nothing tax charge applying the above percentage to a fixed figure of £18,800.

An employer may pay for all fuel and then obtain repayment of the private element from the employee driver. ALL private mileage must be properly identified by keeping mileage logs. In many cases fuel no longer constitutes a tax efficient benefit especially if the level of private mileage is low.
From 6 April 2011 discounts for cars running on alternative fuels, namely hybrids, bio-fuels, and cars manufactured to run on E85, have been abolished. In addition the £80,000 cap which previously applied to the list price has been removed.

From 2011/12 the rate of Class 1A National Insurance contributions payable by employers on benefits in kind increases by 1% to 13.8%.
There are of course alternatives to the company car, such as salary sacrifice, owning your car privately and claiming a business mileage tax free rate (45p per mile up to 10,000 business miles and 25p thereafter) and company vans are still an attractive option. If your employer pays a mileage rate below the Revenue rate you can claim the difference as part of your tax return.

With the various changes that have occurred concerning the provision of company cars it is a good time to contact us whether you are the company car provider or driver, to look at reviewing both the overall tax and financial implications of running them.

Why do they do this?

It is standard industry practice for technology companies to withdraw support from older versions of software. Every year SAGE invests in research and development to improve their software and services. They do this in line with regular customer feedback, and take into account new technology and changes in legislation. They believe that using the latest software is the best way for us to help our clients run their business effectively.

What does this mean for you?

It doesn’t mean the software will stop working. You can still continue to use it; however, SAGE will be withdrawing support in a phased approach. Once support has been withdrawn, you will not be able to directly upgrade version 2008 to the latest version of software. This means that in the future, if you choose to buy a new version of the software, their data will need to be transferred manually.

If you are a SAGE user and whether it is coming to the end of its life cycle or not, or you are thinking of switching to SAGE each September Streets host our annual free SAGE seminar to provide useful hints and tips for all SAGE users as well the chance for attendees to ‘test drive’ the latest version of the software – SAGE 2012. These free seminars will take place on Tuesday 20th September at Wyboston Lakes and Thursday 22nd September at Lincoln.

Further information on either our SAGE products, upgrades and the seminars please call 0845 880 0320 or email sage@streetsweb.co.uk

With advice ranging from saving tax to investing your money we hope these tips help you to plan for a prosperous 2011.

• Tax planning in a recession
• Funding opportunities for businesses
• Cash is king
• Grant for East Midlands businesses
• Marketing in an economic downturn

To find out more please download your copy of our newsletter below.

• Cash – getting the balance right
• A dedicated corporate finance offer
• Go global – Buy local
• VAT Update
• Entrepreneurs’ relief

To find out more please download your copy below.

• Pre year-end planning
• Planning for 50% tax rate
• Banking on funding success
• Sage 50 Accounts version 2010
• A broader look at cost control

Please download a copy for plenty of useful advice and guidance across a wide range of accountancy related topics.

• Entrepreneur’s relief
• Capital Gains Tax planning
• Streets Corporate Finance
• Is it time to go Ltd?
• VAT at 20%
• Compulsory online filing
• Pension changes 2011

Please download your copy and find out all about our three new offices we have opened in the last year as well as other useful advice and guidance on a host of accountancy related areas.

To help new businesses, Streets offer access to a comprehensive range of guidance and support with accounting and financial expertise. We work with you to plan for and achieve your business and personal goals and can set you on the right track for success.

To find out more about the services we can offer please download our Start Up and Small Business Guide below, when you are ready to speak to us about your business needs please contact your local office and we will only be to happy to arrange a no obligation first meeting to establish your next steps.

Entrepreneurs’ Relief reduces the rate of tax from 28% to 10% so the maximum relief is now worth £900,000!

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.

Current economic trading conditions mean that now more than ever businesses need to both recruit and retain high calibre employees.

Why use a share scheme?

Employees are motivated if their reward is directly related to the success that they help to generate. This could be achieved with a cash bonus related to profits, however, this can lead to a focus on short term profits rather than sustainable growth. In addition, a cash bonus means that cash has to be found to pay the bonus at a time when many businesses are facing restricted access to finance. Share options are therefore an increasingly relevant answer to the commercial need to incentivise staff.

Government Approved Tax Efficient Share Options

The government recognises the value of incentivising growth in this way and as a result there are a number of approved share schemes that offer tax breaks to an already attractive commercial option.
The most commonly used of these approved share option plans is the Enterprise Management Incentive or EMI. This scheme is designed for use by independent trading companies or groups with gross assets of less than £30 million and less than 250 staff. Any number of employees can be included, provided that the total value of options does not exceed £3 million. The maximum value of EMI options for any single employee is £120,000.

The option terms can be very flexible and performance conditions may be attached. Shares may be non-voting and employees can be required to give up their shares on leaving employment.

The other approved share option plans tend to be more restrictive, although they may be of interest, particularly if a reward scheme for all employees is required.

Tax Advantages of an EMI

The specific rules set out in the legislation means that EMI options are far more tax efficient than cash bonuses. On exercise the growth in value of the shares will be subject to Capital Gains Tax, currently 18%. By comparison a cash bonus would be subject to income tax at 40% (or even 50%) and both employees and employers NIC would also be due. In addition if the employee has not used their annual exemption for capital gains tax in the year of exercise, the first £10,100 will be tax free based on rates for 2009/10.

Together with the employee your business will enjoy the increase in value of the shares as a corporation tax deduction equivalent to the market value of the shares on exercise. As anyone in business knows the incentive to work hard is in the after tax ‘profit’. As income tax rises, the comparative post tax value of an EMI share option relative to a cash bonus makes this an increasingly attractive reward to the individual, whilst at the same time reducing the
cash requirement of your business.

Limited Liability

Recent experience has reminded us that even highly profitable businesses can be damaged beyond repair by significant changes to the economic environment. It’s therefore worth considering what is at stake if your business fails. If you would like limited liability for your business venture, a limited company is no longer the only option since the introduction of limited liability partnerships (LLP).

Changing your current partnership to an LLP is likely to be tax neutral.

Tax Advantages of including a Corporate Partner

If a partnership or LLP is the more appropriate structure for your business it is worth considering whether including a corporate partner could reduce your tax bills.

Lower overall tax liability

A company is taxable on its profits and then the shareholder is taxed on the dividends that the company pays out. The timing and amount of the dividends are controlled by the directors. This enables the taxpayer to manage their tax charge – particularly useful for individuals facing a top rate of 50%.

Access to funds

The most tax efficient results are likely to be achieved where the corporate partner receives funds that are not needed for some time, possibly not until rates of income tax or changes in personal circumstances mean that the business owner’s marginal tax rate falls.

If access to funds is needed there are currently planning techniques using EBTs to achieve this tax efficiently and provide long term inheritance tax advantages. Whilst these may be subject to changes in legislation it is worth noting that, if access to the company profits is needed, a dividend could be
declared. Unless the profits of the corporate partner are in excess of £300,000 the overall tax charged will be broadly similar to the current position. In addition the tax payment may have been delayed.

There are many factors to consider as to which is most appropriate to your business, including your other income.

Limited Liability

Recent experience has reminded us that even highly profitable businesses can be damaged beyond repair by significant changes to the economic environment. It is therefore worth considering what is at stake if your business fails. If you would like limited liability for your business ventures there are two main choices; a limited company (Ltd) or a limited liability partnership (LLP).

There are many factors to consider as to which is most appropriate to your business. A limited company will usually be more tax efficient, however, there may be circumstances specific to your business that mean that this is not appropriate.

Tax Advantages of limited company

Lower overall tax liability

A company is taxable on its profits and then the shareholder/ director is taxed on amounts that the company pays out, which most commonly will be in the form of dividends. As dividends are not subject to NIC the current tax rates mean that savings can be made by incorporating a business at all profit levels. Given the costs involved we would suggest that it is worthwhile incorporating where profits are £50,000 or more.

Retain and reinvest

Since tax is only due on dividends when they are paid, further savings can be made if the profits are either not needed by the shareholders or are required for reinvestment in the business. This enables the tax payer to manage their tax charge – particularly useful for individuals facing a top rate of 50%.

Opportunity to capitalise goodwill

If you have an existing business there are tax reliefs that enable your business to be transferred to a company in return for shares. It is however, possible to sell assets such as goodwill to the company in return for a debt to the business owner. The gains on these assets will be taxable at a maximum of 18% which may be reduced to 10% by Entrepreneurs Relief. The debt created is usually left on loan account and can be drawn down by the entrepreneur as required without any further tax charge.

Whilst no doubt the programme is produced for ‘entertainment value’ and to increase viewing figures, for those interested in seeking venture capital it does serve to highlight not only the pitfalls in seeking funding but also the process and often angst one goes through, whether successful or not.

In particular, the programme serves to highlight, that for the majority, getting venture capital can all too often be a road to nowhere. Sadly the business proposition doesn’t always stack up. Equally there are ventures which might be winners that are overlooked through poor preparation and presentation. An identified market, an easy to grasp business concept, sound financials and an entrepreneurial flair invariably tends to be lacking in their content and presence. Perhaps those rebuffed or declined by the VC should heed their advice and wisdom, using it to review ideas and plans.

For those getting through the initial grilling and with the interest of the VC in their grasp a new set of challenges are faced. These tend to centre more on the deal structure, the level of investment required and the stake to be relinquished by the entrepreneur. In very few cases, if any, does the entrepreneur receive the level of investment they seek without giving up a greater stake than what they were initially prepared to offer. Needless to say some of this is down to an element of the negotiation process and the respective strong hold of the VC in such a position. There are however, a number of other reasons, not least the fact that perhaps the entrepreneur places an unrealistic figure on the future value of their business. They also often fail to comprehend the risk and reward decision making process adopted by the VC when considering such an investment. With high potential failure rates attached to businesses seeking venture capital and without the security of asset backed lending, their investment is truly risk capital. Understanderbly they are keen to safeguard their investment and manage risk, so stakes of 30% to 50% equity are more the norm, if less palatable to the entrepreneur.

The panel of ‘dragons’ may seem gruelling, turning some of its victims to quivering wrecks, but in reality they epitomise the typical venture capitalist. On balance the venture capitalist is someone to respect, or at least listen to, fear is not a good emotional state to negotiate in and slay unlikely to turn you into a legend like St George.

It is common place to hear that a new business idea or venture is unable to attract funding. Experience, however, would show that whilst it may not be in abundance there are a number of sources and ways to fund ventures, even High Street banks entertain viable propositions!

Individuals can own residential and commercial property and invariably will rent these. Commercial consideration should be given to whether the income stream covers the associated borrowing costs and the tax position on the rental income. Also, it is important to consider the life time of the investment. Is it to be held to benefit from short term gains or over the long term. Capital gains tax will invariably be an issue with only Non Business Asset Taper Relief available and capped at 40% after ten years of ownership. If held for the long term, then Inheritance tax is in point and there are no reliefs on residential investment property so the value could be taxed at 40%.

The same is in point where property is held in partnership although where that partnership is husband and wife then there are opportunities that could be maximised. However, in a normal partnership, rents and capital gains are split in accordance with each individuals share. That individuals share of the property is also exposed to inheritance tax should it become an issue.

Ownership via a trust is an area requiring careful consideration, especially with the new trust regime to contend with.

If a company owns property, net profits are liable to corporation tax. Profits are then extracted from the company by various means, some of which are more tax efficient than others.When sold, the company is liable to corporation tax on any gain arising but the company is not entitled to Taper Relief, instead indexation is still applied.

Only commercial property can be owned by a pension scheme (SIPP/SASS). Property can be transferred to the scheme by an individual or a company or acquired by the scheme itself – funds permitting and funding rules permitting. Although there are advantages of using a pension scheme, this must be balanced with the possible loss of flexibility and the need to adhere to pension scheme rules when a member retires and requires a pension!

Much of a professional adviser’s time is spent unraveling property ownership situations that have just happened over time and with no planning. But if you are considering a new acquisition now, time spent looking at ownership issues can save professional fees and tax at later date. It is always possible to alter ownership but given the continuing rise in the property market, tax does become a major stumbling block. Add to this the cost of Stamp Duty Land Tax and possibly VAT if an option to waive exemption has been exercised on the property, the cost of getting it wrong mounts very quickly.

Allied to the above and the commercial viability of property (income and capital) it is vital now that you have a plan/aim for the property that includes financial gains and an ultimate exit strategy. There are pitfalls and it is essential that you take advice from Accountants and Tax Advisors who specialise in the property sector.

Focus on Core business

Identify key areas of profitability and those with an upward trend. Enthusiasm for new products and services can all too often distract from profitable core activity. Research shows that the more successful businesses focus on core activities.

Know your customer and ensure your customers know you

Many businesses focus purely on new customer generation, it is important to maintain a balance between generating new ones and servicing existing customers.

Selling to existing customers costs six times less than it does to sell to a new customer. It is important that staff are fully aware of your products and the cross selling opportunities. It is equally important to ensure that your customers are fully aufait with your products and services. How many times have you heard the saying ‘I didn’t know you did that?’ and, as a result, a customers has bought from a competitor.

Ensure you keep up to date with customer expectations; most business is lost through indifference.

Cherry pick, rather than mass market new customers

When looking for more customers, focus on characteristics that are similar to your more profitable, existing customers.

If you are looking for new customers, consider splitting the role between those in your organisation that are good at hunting new customers and those who are good at looking after existing ones.

Spend time on the business not just doing the business

If you are looking to increase capacity or improve efficiency, spend time looking at the way you do business, it can be surprising how often it is possible to achieve increased sales and profitability without taking on more people or investing in additional resources.

Measurable objectives

Setting key targets that can be easily measured, and communicated, are undoubtedly valuable and very effective in the quest for profit improvements.

Invest in your people

Often, staffing is the biggest cost and the most significant resource. Consider developing existing staff and rewarding them with a bonus scheme, training or better working conditions, an approach which can often help to reduce employment costs through improved retention and reduced absenteeism.

Outsource

For non core activity or where in house skills are lacking, it may be more appropriate to outsource functions. There is a growing trend for companies outsourcing specialist services where there is a shortage of technical know how or the cost of doing it in-house would be prohibitive.

Persistence

It is not rocket science, but in most scenarios the failure to attain one’s goals is simply the result of a failure to pursue them. Good ideas and intentions all too
often are lost when we revert back to old ways and bad habits. There is much more to profit improvement than just cutting costs and increasing prices. Whilst you might start with gusto with a programme for increased profit, it is surprising how, by giving a little attention to some of the points above, what a significant difference you can make to the bottom line of your business.

The letter stressed that this was voluntary and that if he chose not to take part, it would not increase the likelihood of the business being chosen for a formal enquiry. At that point we decided we had no choice.

At the client briefing, prior to the meeting, I explained that HMRC are piloting a range of new compliance interventions targeting risks in specific trades or industry groups. By better targeting, their aim is to reduce the tax enquiry burden on businesses with a good track record.

From the meeting, the following were some of the interesting points and observations:

• Both inspectors fired questions
• Throughout we were referred to as ‘customers’
• The questions covered tax, National Insurance and VAT
• Most of the record checks carried out were on sales, they were particularly interested to examine the audit trail from customer to bank
• They did a ‘walk through’ test on two day’s activity at the hotel looking at guests staying, functions held and bar/restaurant takings
• They spent more time looking at petty cash expenditure rather than cheaper payments and checked very few payment invoices
• They accepted our word on things like mileage logs for director’s cars, PAYE procedures on Eastern block employees, tips for staff and entertainment costs

After 2 hours they had finished. They thanked us for taking part and confirmed that the business would be classified as low risk, thereby reducing the likelihood of a full HMRC enquiry in the future.

Did we do right in allowing them to come? I think so. From discussions with the Inspectors, they indicated that those who declined the invitation would be considered high risk, thereby increasing the likelihood of a full formal enquiry.

The essence of effective tax planning focuses on the need to be proactive and identify a pending tax liability before it is too late to mitigate. For a business knowing it is to undertake a business transaction or deal, putting into place tax planning strategies will help to minimise potential tax liabilities.

With on going, subtle, changes to tax legislation, undoubtedly necessitates the need for advice from professional advisers. DIY tax planning tends not to achieve the desired effect and ultimately is more costly than seeking the correct advice.

Certain tax planning techniques can be classed as pushing the boundaries in terms of their acceptance by HM Revenue and Customs (HMRC). It is always recommended that you have in place the pre-requisite paper trail and keep all records, it is much easier for you and your adviser to support submissions with HMRC if required to.

It may be surprising but the ability to reduce, and in some cases, totally mitigate a tax liability does not always revolve around complex tax instruments. Often simple steps, without a great cost, can when combined often have a significant impact. Ensuring all allowances are correctly claimed and remuneration, is tax efficient are two key areas to focus on. Often overlooked are the opportunities around use of pension contributions, payments of bonuses, dividend payments and tax free benefits in kind.

For Higher Rate Tax payers there are a host of ideas worth considering including the use of Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EISs) and Enterprise Zone Trusts (EZTs).

For businesses, there are definitely potential tax saving ideas to be gained from by reviewing your year-end planning. Savings can be attained by considering whether to defer income, advance expenditure and group arrangements.

In summary, paying tax need not be taxing and it can undoubtedly be more a voluntary payment than compulsory demand.

All too often succession planning is something that is not talked about, even a taboo. Perhaps sub-consciously you don’t want to let go, or you feel the person who should take over is not quite ready; or you don’t know to whom you should pass your business onto. Invariably, it is much easier to ignore, or put off, the situation and to carry on with day-to-day matters. It may just be you do not know how to approach succession planning or what it involves.

Then why face it?

They key reasons are that you are unlikely to want to work for ever and if you did, you are certainly not going to live for ever. Few businesses are time-bound in that they are set up for a limited period only; most look to go on trading for an undefined number of years. It is important to consider how your business will continue once you are no longer involved.

It might be that your business is part of your retirement package; with a potential sale a source of your pension provision. Few though, without planning, actually realise anything like the value hoped for.

How then do you go about succession planning?

Firstly, there is the need to acknowledge that you don’t just leave succession to chance and a plan has to be prepared. This should be something you work on for some time, say three to five years ahead of the date you want to retire or handover the business; the reason is that you need to get the business in shape so that it is no longer reliant on you. Long-term planning also helps to provide for optimum structure, with solid financial and tax planning to provide you with the best returns.

Determining your successor

For the majority of family businesses, the logical successor has been the son or daughter or other family member. More and more family businesses, however, find that their younger members are opting for alternative careers and don’t want to go into the family firm. It may also be the case that whilst the young family members think it is their birth-right to continue in their parents’ footsteps, such a move would exclude a more competent, non-family member from taking the reins.

What are the choices?

In essence there are four choices.

• First, to pass the running of the business to a family member and retain ownership within the family.
• Second, to retain ownership of the business within the family, but recruit or handover management of the business.
• Third, to sell the business to one of the following; the employees, a competitor or other third party.
• Last, to close the doors and wind-up the business.

Emotional Ties

Whilst it is relatively easy to present options, probably one of the most difficult areas to deal with is the emotional element, and the history, and feelings
associated with running a family business. These need to be considered as an integral part of any succession plan. Another of the pitfalls you should be looking to avoid is taking your eye off the day-to-day running of the business till your succession planning is complete.

Accountancy can be so much more than the odd phone call dealing with an emergency, the preparation of annual accounts, the calculation of tax and the client thinking they have been overcharged for what he gets.

The role of the accountant is primarily to help you make the most of money, pay the least amount of tax and demonstrate the value of what they have done as opposed to the fee they’ve charged.

The following list highlights how to ensure you get the best from your accountant

• Ask them how you can make things better
• Make sure he understands your business
• Ensure you have clear goals and objectives and that these are explained
• Ask how they want the information needed to produce the accounts
• Ask them to explain what the figures mean
• Use their contacts to help you develop your business
• Make sure they tell you how to improve your processes
• Ensure they are being proactive
• If you are not sure don’t be too afraid to ask
• Plan ahead and seek advice not solutions to problem
• They work closely with your bank manager and other professionals
• Ask them to demonstrate the value of the work
• Should consider your own situation as well as that of the business

An accountant can not and should not run your business, but they should be a source of ideas for you to implement, they need to be proactive to your needs and not reactive to your problems.

Strategic planning is the process which helps deal with these issues and challenges. The reasons for preparing a Strategic plan includes preparation for succession and handing over a business, looking to regain control when there is a feeling of a loss of direction, seeking to improve performance in face of declining sales or profits, or to achieve growth.

To remain successful it is vital that all business owners regularly set time aside in order to ask the following key strategic questions

• Where are we now?
• Where are we going?
• How are we going to get there?

The critical objective question is Where are we going ?. To answer this correctly each owner should review their individual personal and business objectives. These will need to be discussed collectively in order to agree on combined strategic goals.

There is often a huge gap between strategy formulation and its execution. Often businesses establish where they want to go, but have no route map of how to get there. They lack the direction they need to turn their plans into reality.

Therefore the strategic plan should address the following questions:What products and services should the business deliver? How should they be marketed and sold? Within what structures should the business operate?

The existing business structures should be re-examined to ensure they are geared towards the agreed strategic goals and are capable of delivering these in an efficient manner. In particular, attention should be given to Management Information Systems, Owners’ Roles and Location Issues.

Many businesses only plan at the structures level, and ignore the key objective phase. This is a fundamental error because it inevitably leads to planning for more of the same. The link between the objective phase, and the more detailed planning phase, allows business owners to plan for the kind of business they want, and re-establish the elusive feeling of being in control.

At the end of the planning process it is very important that an implementation and review procedure is agreed. An immediate work plan should be prepared with a strict timetable for action. Targeted review meetings will check that the plan is working, and offer opportunities to change the plan to increase its effectiveness.

Strategic planning is often mistaken for a writing a business plan. A business plan tends to be something prepared to help raise finance. Then it sits on the shelf gathering dust. A Strategic Plan is a ‘live’ document.

Accountants provide private clients with assistance in the field of tax planning and mitigation, by focusing on areas such as the tax treatment of multiple sources of income and investments, which may be subject to capital gains tax. The accountant’s role here ensures all eligible tax allowances are claimed.

Home owners are increasingly finding their house is worth in excess of the Inheritance Tax threshold of £285,000. This is resulting in a raise in demand for advice concerning Inheritance Tax planning.

These aspects of private client work are examples of the more common areas you might expect an accountant or tax adviser to be involved in. There are also a number of areas that you might find slightly more unusual, including assistance with taxation and financial advice when planning a marriage or going through a divorced.

Advice may also be given when private clients are considering a range of financial decisions, including property purchases which may form part of an investment portfolio. By working with Independent Financial Advisers, accountants can provide valuable support in areas such as tax efficient investments and pension planning.

For those of you who have your own accountant, the points covered above are hopefully a comforting reminder of the service you are receiving. For those of you who do not have an accountant, perhaps their services might in today’s busy and complex world, be a welcome support.

The answer invariably disappoints, as what might be determined as the ‘real value’ is often way below the owner’s perceived value. The situation is often compounded by hype such as the business potentially being worth multipliers of annual profits from any where between 1 to 15 times.

Whilst there are a number of ways to value a business for example, based on assets, shares or a multiple of profits, a business ultimately is only worth what someone will pay for it.

One reason why the value may not be in line with seller’s aspiration is that the value of the business is synonymous with the owner. Removing the owner from the day to day activity of the business, may result in the business struggling to operate to the same capacity as before the sale. The result can be no sale at all or one at a price much lower than desired.

Another key reason for the value being below expectations is often the simple fact that there is no known market for the business; essentially there are no potential buyers.

To optimise the value of the sale of any business, the approach must be to set out with this goal in mind, either from the start or at least for a set period of time before a proposed sale. By focusing on the goal of selling the business, many owners make themselves ‘redundant’ by demonstrating that the business is able to function in their absence, just as well if not better than before. This approach should help to maximise the financial value of any proposed sale, by what is often termed ‘grooming the business for sale’.

Typically what you are looking to do is not only identify potential purchasers but to ensure the business is in the best shape, justifying your valuation and helping to create the right conditions for sale. At the same time forward planning should involve consideration of your own personal circumstances including the most tax efficient way to construct the sale and extract capital.

Overall the sale value of a business focuses on working with the end game in mind and utilising the advice of accountants, tax advisers and other professionals to help you attain your goals.

To a Finance Director, the role of an external accountant can often be seen as limited carrying out audit and assurance work. Unfortunately, the true value of the relationship can be overlooked.

In particular, the FD can benefit greatly from the accountant’s knowledge of the rigorous and complex tax regime, offering advice through tax mitigation, deferral and planning schemes which are all inevitably linked to business trading activities. Areas such as property matters, director’s remuneration and the acquisition or disposal of business interests are also areas the FD can benefit from through professional advice.

FD’s within larger corporate concerns will find their role even less straight forward often dealing with the corporate entity including divisions, holding companies and group structures. Issues such as these tend to lead for the need of greater guidance and clarity on inter company trading activities, charges, fund transfers and profit management. The role of the accountant is to assist the FD with the legalities of both company law and accounting standards.

In supporting the FD, the accountant’s work often involves financial accounting matters including long term financial planning focusing on business strategy and the provision of external finance, including asset based finance and working capital requirements. Through frequent dealing with financial providers, the accountant can be a real benefit to FD’s in determining the provision of finance and in obtaining the best deal.

The FD’s fellow directors will, no doubt, be seeking advice on aspects of their personal finance not least director’s remuneration, personal tax planning even investment advice. External advice beneficial in such situations, especially if this includes access to independent financial advice involving investment and pension planning.

There is much more to gain from the FD’s relationship with their external accountant than just simply a ‘nice’ set of accounts completed and filed in a timely and efficient manner and the satisfactory completion of the company and directors tax returns.

1. Research and plan the relevant sections of the plan making sure you have a firm understanding of the objectives required.

2. Decide the legal structure of the business and how it is to trade.

3. Manage the numbers this is a crucial component to running a successful business. It’s important to understand start up costs, break even point, funding requirements and your cash flow.

4. Obtain industry reports this will help you understand your competitors and other industry participants.

5. Research the market and the competition try to stand out.

6. Assess demand levels in contrast to assessing costs, one of the most difficult things is to predict the level of demand for your product or service. Try to be conservative but don’t pluck figures from the air.

7. Service a route to market it is vital to identify how you intend to access your customer base. Internet marketing is one attractive route as spending can be easily tracked. Alternatively identifying current suppliers who service a similar market niche.

8. Hire the right people while many non core activities can be outsourced certain functions such as sales require full time attention. An outline of the various skills needed to run the business should be mapped, identifying any gaps and prospective candidates to fill them.

9. Clearly define and articulate customer benefits it’s important to clearly state the benefits of the new venture, by doing this it serves as a reminder to remain customer focused.

10. Get a mentor remember an idea with serious flaws which could have been rectified early on in the process can progress before the wheels come off at the most important phase.

The choice of system or method for keeping your accounting records will depend on a number of key issues not least the nature of your business, your appreciation and level of comfort over such matters, a desire to keep in control of your finances ; as well cost and time constraints. The easy answer for some may be to out source the solution to a bookkeeper or accountant. In the main though most will look for an in house solution, through use of either a paper based manual bookkeeping package, use of computerised spreadsheets or an off the shelf computerised accounting packages.

The table on the following page aims to highlight aspects to consider when looking at what option to take or what might suit your needs best.

When considering your own requirements it may well be beneficial talking to your accountant as to what they feel suits you. Experience shows that making the right choice over your accounting system makes running a business easier and the preparation of end of year accounts much simpler.

1. Write from the audience’s perspective. Remember what is the purpose of the plan. Is it to secure funding? Is it to communicate the future plans for the company?

2. Research the market effectively. Ensure you make reference to market size, predicted growth path and how you will gain access to this market.

3. Understand the competition. An integral component to understanding any business environment is understanding the competition. Is it competitive or does it lack competition?

4. Focus on the opportunity. If you are requiring any form of investment in your business, the investment opportunity must be clearly described. Why should they invest? What is the unique selling point?

5. Attention to detail. Make the plan concise but include enough detail to ensure the reader has sufficient information to make an informed decision.

6. Ensure all key areas are covered in the plan. It is important to undertake research on what a business plan should contain. Make sure it includes sections on the company product/service, market competition, management team, operations and financials.

7. Do the sums. The numbers will always be subject to scrutiny so make sure they stack up. Costs should be documented in full and sales predictions should be both conservative and realistic. Obtain help with cash-flow and break-even charts. Remember at the beginning there are a lot of start up expenses in a period of uncertain sales.

8. Summary: this is a view of the whole plan. It should be completed at the end of the planning process but more importantly it should wow.

9. Review the process. This step is quite often forgotten. Always get your plan independently reviewed. Select someone who is detached so they can offer constructive criticism.

10. Implement the plan. A plan should always be looked at as a living document and contain specifics regarding dates and deadlines. It should be constantly reviewed and updated. A good plan will help to ensure that the business is fully focused on what is required to achieve the company’s goals.

In common with most of their clients, they are having to earn their keep, to work not only harder, but also adopt new ways of working.Whilst historically their ‘work’ would have involved the preparation of accounts for clients, the use of IT and demands of business has somewhat shifted this emphasis.

Accuracy and timeliness have always been watch words for both accountants and their clients. Providing a good set of accounts quickly is no longer enough. Unfortunately, for those accountants that only added up, their days are numbered. Proactive advice and commercial wisdom is increasingly sought after and demanded. With the increased volume and impact of ‘red tape’, business’s accountants are required to not only to be au fait with its specific relevance to but also its impact on clients. Advice and assistance in dealing with matters are more and more a typical part of the accountant’s day.

The development of global markets and international trade, supported by the power of the World Wide Web, impacts on us all, not least owner managed businesses whom are as likely to face competition from abroad as at home. Increased competition and in the main rising costs, continue to place pressure on all important profit margins. Calculation of profit, is no longer enough, a good accountant should and will often be required to help provide advice on improving and sustaining profits.

The government’s regime of ensuring that they receive all tax due, has led to a tighter and more stringent framework not only for processing tax matters, but also ease and flexibility in which it is to use the various tax instruments to mitigate a tax liability. Accountants and those specialists in tax work need to, as part of their service to clients, ensure they are able to provide specific advice and schemes that are tax efficient, avoiding rather than evading any liability. The difference between avoidance and evasion could be jail.

Business sales, mergers and acquisitions of larger corporations are an increasing way of life for accountants and their clients. Growth, succession and wealth creation plans, more often than not, now involve the accountant in providing advice and facilitating what is know as corporate finance work.

The accountancy profession, historically, has probably been viewed as one that is involved in looking back on what has already happened. Their advice and support is based on the certainty that is known. As we can see, their future will undoubtedly involve a shift toward looking increasingly to the future and working with clients more closely to attain their goals, based on a thorough understanding of what has already happened.

Perhaps more consideration should be given to the role of corporate finance, regardless of size and structure. Not to be confused with solely raising money for the purpose of achieving a business objective, the principle of corporate finance is more about the use of a business transaction aimed at selling, buying, or developing a business in accordance with the stakeholders or entrepreneurs objectives.

Corporate finance ‘deals’ do appear to be on the increase, particularly amongst privately owned and family businesses, where succession planning has become an issue. Rather than pass the business on to a family member a sale may be preferred or the only option. With the need to remain competitive, the purchase of a competitor or linked business may provide for an edge, growth and increased profit. The sale of part of the business may help you divest a non core activity or even loss making divisions.

It is not unreasonable to surmise that few having built a business over the years or set to attain a business objective based on a skill, specialist knowledge, product or service, will know how to set about doing a ‘deal’. Whilst initially you will need to decide what you want to achieve and what your objectives are, this task can be made a lot less painful by involving a chartered accountant. Why? Because firstly they understand your business, warts and all. Secondly over a period of time you are likely to build up a level of trust and understanding with them and they with you. By taking time out, collectively you should, be able to consider longer-term plans for the business, over and above the annual review of the accounts. The process should involve medium to longer term planning for a three to five year period.

On setting your goals together you can then start to consider the options for the way forward. If you are looking to sell, then your accountant will be able to advise on the structure for the sale of your business, optimising valuation and minimising any tax liability. He may be able to identify prospective buyers certainly he will be able to help and support you in any negotiations.

If you are in a more acquisitive frame of mind, then your accountant’s involvement will include assessing the value and commerciality of a prospective purchase. Once assessed, assistance will cover due diligence, verification and validation as to what is being purchased. Whilst typically, funding is in the main from own funds, many investors may still require external finance. Your accountant will be able to advise, through assistance with financial planning, as to the funding options available. He will be able to help you through the maze, from commercial bank borrowing, to asset backed finance, loan versus overdraft, stock finance, to equity, to name but a few.

Whether you are contemplating a sale, or otherwise, the practice of running your business to do so, invariably optimises returns. The approach lends to create a leaner and meaner organisation, enhancing profits and earning potential. Your accountant should undoubtedly play a key role, in any event.

Looking first at issues facing the retiring partner:

• You would be well advised to obtain pension projections in advance of your retirement in order to give yourself time to plan for your change in financial circumstances.
• The timing of your retirement should be made in consultation with your accountant and your fellow partners in order to minimise additional work and disruption.
• Dependent upon the actual date of retirement, you could face paying the balance of your tax liability yourself up to 12 months, afterwards.
• Similarly for superannuation, you may find that you are required to make a balancing payment after you have commenced drawing your pension.
• If you are a property owning partner, then you will probably have a capital gains tax liability on the disposal of your share of the property. The tax on this will be due from the proceeds received from the partnership.
• On retirement you will hopefully receive a healthy lump sum. This may be used to pay tax liabilities or other liabilities, but in many circumstances will be available for investment. It is critical to match the investment to your personal requirements. Once this lump sum has been crystallised, it is immediately in your estate for inheritance tax purposes.
• You must ensure that your Wills are up to date and adapt to your new situation. It may be that with some tax planning, your assets can be left to the next generation with little or no tax to pay.

Looking now at issues facing the practice:

• Once a partner has indicated his date of retirement, a decision needs to be made as to whether to prepare an extra set of accounts or time apportion.
• If you own your premises, then you should obtain a valuation in accordance with your partnership agreement.
• You should update your partnership agreement to include the changes to the partnership.
• The key factor will obviously be the replacement of the retiring GP and how best to do this. There may be an option to increase sessions of the remaining GPs and this is clearly the cheapest option in terms of profits. It should lead to an immediate increase in profits for each partner. More often than not, however, the partner needs to be replaced, at least to some degree. It may be that you choose a salaried GP as a replacement, but remember that this would entail the existing partners buying the share of the property if owned.

Some may have concerns about incurring additional fees, even protracting that important deal. However, evidence shows that advice on financial matters and the treatment of tax can be extremely beneficial. In essence your accountant and tax adviser has a dual role advising on the property purchase and disposal.

Other aspects you should seek advice on from an accountant when looking to acquire property include the best method to fund the purchase and who or what will actually hold the ownership. There is undoubtedly a host of funding options aside from a commercial mortgage, we have seen a heightened interest in and use of pension schemes and off balance sheet acquisitions.

If the decision to acquire a property is purely an investment one, then advice should be sought on the potential returns and the impact of taxation. Your accountant should be able to assist with the assessment of the investment decision, potential income stream and capital returns. They should also be able to advise you on the treatment of Stamp Duty Land Tax and VAT, if appropriate, the implications of which can have a significant bearing on the viability and funding of any acquisition.

A more specialist area is that of Capital Allowances. Many buildings are designed and constructed for a specific business activity or trade and the treatment of the premises for Capital Allowance purposes can be a plus for the purchaser. Unclaimed Allowances can provide a valuable source of tax relief which can make the deal even more attractive or provide a welcome additional source of finance. With forecast changes to Capital Allowances this will become an area that will need careful attention.

Much of what has been covered here also applies to those looking to develop property either as a one off project or as part of a portfolio. Undoubtedly specialist knowledge and timely advice are again the ‘watch words’.

With regard to property disposals, the focus of your advisers will revolve around maximizing potential returns, a process which will major on the timing on sale, treatment of any potential tax liability and the best way of dealing with the proceeds of a sale. This may include for some, aspects of Estate planning and Inheritance Tax.

In summary the accounting and tax implications relating to property matters can all too often be overlooked. Without careful planning and specialist advice, financial returns may well fall short of expectations and transactions may not give rise to the desired outcomes.

Almost all other businesses who currently submit returns in the post will also have to submit their VAT returns electronically after the end of March 2010. The remaining exceptions will the smallest businesses with a turnover of less than £100,000. Presumably HM Revenue & Customs do not want to force these smaller businesses to purchase computer equipment that may not be able to afford. Naturally there will be penalties for those businesses who do not comply or who submit the electronic returns late.

Whether for own use and pleasure, or purely as an investment opportunity, interest in the ownership of overseas property is at an all time high.

Many may be seasoned investors with a number of properties in their portfolio, but for others the purchase may be a one off. In any event, experience shows that all too often the purchase can be emotive and the chance of owning that dream property in the sun could soon be clouded by not knowing some of the pitfalls. Location and ownership aside, there are a number of myths where belief in them could prove to be costly.

Myth: Rental profits are not taxable in the UK

• True Position – yes they are if you are UK tax resident.

Myth: Rental Profits are only taxable in the UK if profits are remitted to the UK

• True Position – taxable whether or not you remit the profits back to the UK unless you are non-UK domiciled.

Myth: If I pay tax overseas I do not have to declare profits in the UK

• True Position – you must declare profits on your UK Tax Return but you will get relief for any overseas tax paid.

Myth: Capital Gains are not taxable in the UK

• True Position – Yes they are if you are a UK resident (or ordinarily resident). Applies even if you have to pay tax on the gain overseas, subject to DTR. Applies whether or not you remit proceeds to UK unless you are non-UK domiciled.

Undoubtedly the purchase of a property overseas has significant tax implications, both back in the UK and in the country you decide to buy. To avoid a nightmare purchase or the potential to face an unexpected financial loss, it is strongly recommended that tax planning advice is sought prior to purchase and that you consider the tax regime both in the country of your choice and in the UK.

There are other situations where you might be told that vat is not recoverable because a tax invoice is not held or it is deficient in some way. A visiting vat officer may even raise an assessment for overclaimed vat and, to add insult to injury, charge you penalties and interest charges on top of that assessment. The situation here is not quite so clear cut. HM Revenue and Customs can accept alternative forms of evidence and the Tribunals & Court have found that they ought to have done so on a number of occasions. If you have bought goods or services and paid vat in good faith do not automatically accept that the vat is not recoverable just because a visiting vat officer tells you this. If he or she is acting unreasonably it would be sensible to take advice on what you can do to recover the vat your business has paid over to a supplier.

The fact that the supplier did not issue a document that complies with all the requirements to be classed as a vat invoice or even did not pay over to HM Revenue & Customs the vat you paid to him does not mean that no vat recovery can be possible. Obviously all businesses should look to ensure that they do obtain a valid tax invoice wherever this is required but the purposes of this piece is to let you know that the question of vat recovery is not as simple as you might have been lead to believe.

A recent change saw the turnover limit rise from £660,000 to £1.35M. Whilst this still limits the number of businesses than can use the scheme it does open it up to many more than previously. Once in the scheme there is a 25% tolerance and so turnover can then go up to £1,687,500 before you would have to cease using the cash accounting method. The downside to the scheme is that input tax cannot be recovered until the supplier is paid.

If you still cannot use the cash accounting scheme you should at least ensure that you get relief for output paid over where your customer takes over 6 months longer to pay you than he or she should. The Bad Debt Relief scheme can be used to ease the burden in such cases.

The Option is a mechanism that can be used by businesses to convert what would otherwise be VAT exempt supplies into taxable ones. Why would someone want to do this? The answer is normally to be found by looking at the input tax position. The Option, or waiver of exemption as it is also known, is often exercised in order to ensure that VAT costs become recoverable where they would ordinarily be lost.

The simplest example to illustrate how the Option works is the construction of new offices intended for rental. Without an Option the rental receipts would be exempt from VAT with the result that the VAT costs of the construction would be irrecoverable for the developer. If the rents are taxable, following the effective exercise of the Option, the costs incurred by the developer will be recoverable.

A common misconception about the Option is that it automatically flows with the property. This is not the case as each person must consider whether or not they wish to waive exemption of their interest. We might look at a tenant who leases the complete building from the developer and pays VAT on the rent. That tenant may decide to sub-let one floor of the office block as he does not need the whole premises for his day to day business. The rent chargeable by that tenant will be VAT exempt unless he chooses to opt to tax in his own right.

An Option is not always effective. Anti avoidance legislation exists to prevent partially exempt businesses, those unable to recover all of their input tax, from utilising an Option. The impact on the developer of a disapplied Option can be a requirement to pay back all the VAT costs recovered in relation to the development plus an additional knock on negative effect on his overall VAT recovery.

The permission of HM Revenue & Customs (HMRC) may be required before an Option can be exercised. This can involve lengthy negotiations before permission is granted. An Option is usually irrevocable for 20 years and it should not be exercised lightly. The actual decision to exercise the Option is a separate action to that of the formal notification. Timing can be critical. If a business is looking to acquire the freehold of a VAT opted office block with tenants in-situ there is a possibility that a transfer of a going concern exists for VAT purposes. HMRC will see the transfer as one of a property rental business if all the relevant conditions are met including the exercise of the Option by the purchaser. If the Option is not exercised soon enough VAT will be chargeable (with SDLT on top) on the sale of the property. Other business transfers involving Opted property require the Option to be exercised by the purchaser in order to prevent VAT being chargeable on the transfer of the property element.

The Option does not normally affect dwellings or qualifying residential or charitable properties but situations exist where, if both parties agree in writing, the Option can continue to apply even where residential properties are involved. This is where works of conversion are involved but that is a whole new theme and possibly the subject of a future article.

The need to consider the VAT position of any property deal or transaction should be at the forefront of your mind with advice and guidance taken pre rather than post event. It is invariably impossible to turn back the clock!

It is a Plan established by a company providing for:

a. ‘Free shares’ to be apportioned to employees without payment
b. ‘Partnership shares’ to be acquired on behalf of employees out of sums deducted from their salary
c. ‘Matching shares’ to be appropriated without payment to employees in proportion to the partnership shares acquired.

Companies can implement plans providing any or all of the above types of shares.

The HM Revenue & Customs must approve the Plan.

The main advantages of a Share Incentive Plan

• A motivational tool to attract/retain key employees
• Tax benefits and payroll savings for employers
• Shares may be awarded by reference to performance
• Employees able to buy partnership shares out of pre-tax salary, free of Income Tax and National Insurance
• Employees who keep their shares in the plan for five years pay no Income Tax or National Insurance on those shares

Corporation Tax

Deductions in computing taxable profits for:

• The costs of setting up and running the plan
• The market value of free and matching shares awarded
• The gross salary allocated by employees to buy partnership shares

Income Tax and National Insurance contributions

• No tax on award of shares
• If shares are withdrawn after less than 3 years, tax and NIC is charged on the market value of the shares when they leave the plan
• If shares are withdrawn after more than 3 years but less than 5 years, tax and NIC is charged on the lower of
• The market value of the shares
• The market value of the shares when they leave the plan
• Tax & NIC is chargeable on partnership share money returned to the employee
• No charge to tax or NIC as a result of redundancy/retirement/death
• Dividends reinvested or retained for reinvestment are not subject to income tax

Capital Gains Tax

• Gains accruing to trustees are not chargeable providing awarded to employees within
• Two years if readily convertible assets
• Five years if not readily convertible assets
• No chargeable gain on shares ceasing to be subject to the plan
• Rollover relief for gains arising on disposals to plan trustees

Types of Shares

Shares that may be used

• Must be ordinary share capital of the same company
• Must be fully paid up and not redeemable (exemption available for co-operatives)
• Must not be subject to any restrictions other than:
• Holding period
• Those affecting all ordinary shares
• Voting rights
• Provision for forfeiture
• Pre-emption conditions

Free Shares

• An employee may not receive more than £3,000 of free shares in any tax year
• Award may be made by reference to performance
• Performance measures must be based on business results or other objective criteria
• Employees must be notified of the performance targets and measures
• Some or all of the shares may be awarded by reference to performance
• The company must specify a holding period of between 3 and 5 years during which the free shares remain in the hands of the trustees.

Partnership Shares

• The deductions from an employee’s salary must not exceed
• £1,500 per annum and
• 10% of salary
• The company may specify lower limits
• The company may specify a minimum deduction of no greater than £10
• Partnership share money must be paid to the trustees as soon as is practicable
• The trustees must purchase the shares within 30 days of the end of the accumulation period (maximum 12 months)

Matching Shares

• Shares of the same class and carrying the same rights as partnership shares
• Awarded to all employees on the same basis
• Ration of matching shares to partnership shares must not exceed 2:1

Dividend Shares

• Dividends of up to £1,500 per tax year may be reinvested to acquire ‘dividend shares’

Miscellaneous Provisions

The Trustees

• Resident in the UK
• Responsibilities include:
• Acquiring shares and appropriating to employees
• Applying partnership money in acquiring shares on behalf of the employees

General Requirements

• Every employee who is eligible to participate in the plan is invited to do so
• Employees must be invited to participate on the same terms
• No feature of the plan must be likely to have the effect of conferring benefits wholly or mainly on directors or higher paid employees

Eligibility of Individuals

• An employee of the company or, in the case of a group plan, of a participating company
• An individual who does not have a material interest in the company
• An individual not participating in another approved share scheme established by the company

Set-up and Running Costs

This will depend up on the size and complexity of the scheme but we would expect our fees to be in the region of £6,500 to £12,000. We will provide a fixed fee quote in advance to include scheme design, drafting to the Trust Deed and obtaining HM Revenue & Customs approval.

The Plan’s annual running costs, in terms of four fees, will also depend up on the size and complexity of the scheme, but typically will be in the region of £1,000 to £3,000.

Main features of a typical plan

• Employees can buy ‘partnership shares’ from their gross monthly salary or weekly wages, free of tax and NICs at that point – maximum salary allocation of £1,500 each year with an earnings cap of 10% minimum contribution £10 a month
• Employers can give up to £3,000 of free shares to all employees, tax and NICs free at that point
• Employers can match the ‘partnership shares’ with up to 2 free shares for each partnership share bought by the employee – known as ‘matching shares’ – also tax and NICs free at that point
• Employers have greater flexibility in the way that they reward employees with free shares in return for reaching performance targets; for example allowing personal, team, or divisional performance to be rewarded
• Employees will not normally be able to withdraw free and matching shares from the plan for 3 years
• Free and matching shares will be completely free of tax and NICs if they have been held in the plan for 5 years, and will be taxable on their initial value between years 3 and 5
• Partnership shares will be subject to tax and NICs on their market value if employees take them out of the plan in the first 3 years
• Partnership shares held in the plan after the 3 year point will have tax advantages, with shares becoming completely free of tax and NICs after 5 years in the plan
• Any gain in the value of any shares while they are in the plan will be tax and NICs free
• When shares come out of the plan, their market value at that date will form the base cost for any capital gain arising on any subsequent sales
• Employees have to take their shares out of the plan when they leave employment
• Free and matching shares may be subject to forfeiture if the employee leaves within 3 years. ‘Good leavers’ such as those who have left through redundancy, retirement or death will receive favourable tax treatment and their plan shares will not be subject to forfeiture
• Dividends paid on the shares in the plan will be tax-free, up to annual limits, provided they are used to acquire additional shares in the company
• Companies will get a deduction in computing their taxable profits for the costs of setting up and running the plan, and the value of shares used in the plan
• Companies can provide that shares must be offered for sale when employees leave; companies can offer shares with no voting rights; companies, but typically those with fewer shares, can offer shares subject to forfeiture. These measures are specifically to encourage smaller companies to participate.

For many businesses this poses a problem as income is received which is exempt from VAT as well as income which is subject to VAT either at the standard rate of 17.5%, the lower rate of 5% or at the zero rate. Such businesses are often referred to as partially exempt traders.

The problem is usually focused on the attribution of ‘mixed’ costs. Whilst some VAT can be identified as ‘taxable’ input tax and therefore almost certainly recoverable, and some can be identified as ‘exempt’ input tax which is potentially irrecoverable, there remains a third category of non attributable VAT which has to be apportioned. HM Revenue & Customs usually refer to this as ‘pot’ input tax.

There are special rules which are intended to simplify matters for smaller businesses. The intention is to allow full VAT recovery where the ‘exempt’ element is relatively small within a particular VAT registered business. In practice the rules are somewhat difficult to comprehend for many people, including some VAT officers, but this short guide should help.

When VAT is incurred it should be coded to one of three headings:

1. Fully taxable:VAT incurred wholly in relation to taxable activities
2. Exempt input tax:VAT wholly relating to exempt income (anything that is 100% to do with a property that will generate VAT exempt income – sale or rent)
3. Residual input tax: Tat VAT not entirely relating to either taxable or exempt sales. This will include the VAT on overheads and any ‘mixed’ items (e.g. charges incurred in relation to the businesses generally such as the telephone bills).

The VAT in (1) above is fully recoverable.

The VAT in (2) above is classed as exempt input tax and may not be recoverable.

The residual ‘pot’ in (3) above has to be apportioned. VAT incurred on overheads which relate to the business as a whole will fall into this last category. The Standard Method of doing the apportionment is to determine, period by period, the % of output (sales) which are taxable. This %, rounded up to a whole number, is applied to the ‘pot’. The remainder of the ‘pot’ is then also classified as exempt input tax and this is added to the VAT in Code 2 to determine the total amount of exempt input tax for the period.

If the total of exempt input tax in a VAT quarter is both less than £1,875 and less than 50% of all the input tax incurred it can all be recovered. If the exempt VAT is below this ‘de minimis’ limit the business is treated as being fully taxable and can recover all the VAT incurred with the usual exceptions such as VAT incurred on entertaining.

The partial exemption rules require an annual adjustment to be carried out. The actual monetary adjustment is entered to the next period’s VAT return. This means that the business has to look at the figures for the year as a whole and compare the result of this calculation to the VAT recovered period by period. The £1,875 per quarter applies from the first quarter in which exempt input tax was incurred.

This article gives only an overall view of partial exemption and does not explore the VAT recovery position of those VAT registered traders who receive non
business income.

VAT associated with non business income is not input tax at all and is never recoverable. Apportionment of mixed costs may also be required where not
business activities are involved.

If you have a query about this article or any other area of VAT, please contact our VAT partner, Alan Taylor.

ataylor@streetsweb.co.uk

VAT is a transaction based tax and you will need to get it right at the time a transaction occurs. Unlike many taxes, it is not possible to sweep up matters at the year end to reach a satisfactory conclusion. If you do not ensure that the VAT treatment you apply is correct at the outset, you could face problems.

HM Revenue & Customs now target their resources more towards the recovery of under paid VAT than routine periodic inspections.

Streets employs VAT specialists with many years experience in VAT matters, often gained in the employment of HM Revenue & Customs.

Let us help you deal effectively with the VAT aspects of your business. We can provide all the assistance you require whether it’s for a routine VAT registration or a difficult case before the VAT and Duties Tribunal.

VAT planning can be advantageous particularly in situations involving property transactions and partial exemption. A leaflet issued from the local VAT office or the National Advice Service is unlikely to answer your query and will certainly not provide positive VAT planning advice.

Streets will give the help you need.

Advice includes:

• VAT Health Checks
• VAT Planning
• Special Methods
• Partial Exemption
• Property Transactions
• VAT Assessment Reviews and Reconsiderations
• VAT Group Registration
• Late Registration
• ‘Reasonable Excuse’
• Capital Goods Scheme
• Liability Disputes and Rulings
• Negotiations with HM Revenue & Customs
• VAT Appeals and Tribunals

Our Fees

Our aim is to provide quality services at value for money prices. Most services are provided at hourly charging rates and estimates will be given in advance
wherever possible.

In certain circumstances, work is carried out on a retainer or contingency fee basis.

For prospective clients, a free initial half hour consultation is offered.

For further information please contact your nearest office or email our VAT partner, Alan Taylor.

ataylor@streetsweb.co.uk

The majority of these inspections are routine in nature and are referred to, nowadays, as assurance visits.

Obviously, if the Customs Office turn up en masse, and come armed with a search warrant, you have got problems. Fortunately, this scenario is rare indeed and there is likely to be no sinister motive behind a request to visit you by a local VAT officer.

It is a fact that most inspections result in the issue of a VAT assessment. The average assessment is only a few thousands pounds but they can run into millions. The complexity of VAT means that almost all businesses will make some error in their day to day activities. Often mistakes are made where transactions outside of the normal business activity take place. This is especially true in relation to land and property matters, where the legislation involved is so difficult to fully comprehend.

The good news is that assessments are now limited to a three-year period rather than six years which used to be them norm. If HM Revenue & Customs can demonstrate that dishonesty is involved, the three-year rule is not applied and businesses can expect an assessment going much further back.

So what do you do if the FVAT man says you owe a few thousand pounds? Some businesses look at the bill and think ‘it’s only a few hundred pounds for each year since the last inspection, so we might as well accept it’. Fear of upsetting the VAT office can lead to people accepting a bill for VAT that is not justified.

This is an unfounded fear and there is no black mark given to businesses that query assessments.

The law only requires a business to pay the right amount of tax as the right time. If you have any reasons to doubt the validity of an assessment issued to you, it should be challenged.

If you do have a query about this article or any other area of VAT, please contact our VAT partner, Alan Taylor.

Email: ataylor@streetsweb.co.uk

In simple terms a family business could be describe as a concern which involves two or more members of the same family in its ownership and management. Family businesses are often well established enterprises, passed from one generation to the next.

Family businesses are important for a number of reasons, not least that they tend to out perform their counterparts that are not family owned or controlled. Equally in terms of sustainability, they are more likely to survive the test of time with succession from one generation to the next common place. Success can be attributed to a number of reasons including the stakeholder interest, short decision making process and ease of share ethos and vision. Even the entrepreneurial gene is in the blood.

There are though a number of unique situations involved in the running of family businesses that can impair performance or in some cases destroy the very essence of what may have been built by a former family member. These include:

Focus and vision

Certainly for many second or more generation businesses the commercial reason for being in business is lost and clouded by the emotion of being there for the family’s sake. It is important to be clear about the viability and sustainability of the venture as much now as it was when the business was started. It is also good to be open as to family member’s reasons for being involved in the business.

Off the rails without guidelines

In contrast to corporate enterprise, it is not unusual to find family businesses have little in the way of agreed and written down terms of reference. Without shareholder or partnership agreements and job descriptions, many a family business has gone off the rails.

Board room, not bedroom

For every successful family business, there is probably an unsuccessful one, torn apart by family issues, rather business matters. Sanity and survival may be improved by trying to restrict business matters to business times.

Suitability not nepotism

Recognise and reward family members on their business success and aptitude and not their standing within the family. Don’t be afraid to recruit external people if particular skills are lacking ‘in house’.

Take the bull by the horns

There is many a case where a business has come unstuck or not taken a sound business decision to avoid conflict or upsetting someone. Dealing with conflict or difficult situations are unfortunately part of every day business, as with corporate entities, elements of every family enterprise has its own interests and has to manage difficult scenarios from time to time.

Work life balance

Don’t forget to balance the needs of the business with the needs of the family. All too often, perhaps too stoically, the hours worked and the ‘ask’ of the family are not commensurate with financial rewards taken.

Know when to call it a day

Whether it is to realise the best return for your business by way of a sale or unfortunately the time to close the doors, the decision to do so for a family concern is often more difficult. Dithering can lead to loss of value at best and at worse increased angst and cost.

Handing over the reigns

Succession from one generation to the next is probably the most difficult faced by a family business. The timing though can be crucial to its very survival and existence, although it is all too often left too late.

A family friend

Your accountant and tax adviser should ideally be seen as an extension of the family, and can act as a sympathetic ear or even mediator. The challenge they face is developing empathy and understanding of the family’s values, whilst at the same time retaining the commercial edge for the family business.