Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
5. www.francisclark.co.uk
What’s new at Francis Clark?
Paul Crocker, new Corporate Finance
Partner, joined the firm on 1 June 2015
• Previous position as Head of Corporate
Banking for the South West at HSBC
• Appointment to assist even more
companies with their transactions and
fundraising, in response to strong
growth in our Corporate sector in the
West
6. www.francisclark.co.uk
What’s new at Francis Clark?
Duncan Leslie, new Corporate Partner,
joined the firm on 1 April 2015 from
Deloitte
• Appointment in response to strong growth
in our Corporate sector in the West
• Role will focus on delivery of audit
services to larger organisations in the
public, private and not-for-profit sectors
7. www.francisclark.co.uk
Programme
Stephanie Henshaw, Corporate Partner
• Current Issues in Financial Reporting
Julie Towers, VAT Partner
• Topical VAT Issues
Andrew Welch, Chartered Financial Planner, Francis Clark
Financial Planning
• Pension Freedoms - Opportunities
COFFEE BREAK
8. www.francisclark.co.uk
Programme
John Endacott, Tax Partner
• Corporation Tax – Topical Issues
David Armstrong, Corporate Finance Director
• Grant Funding
Andrew Killick, Corporate Finance Partner
• Current Trends in Transactions and Funding
LUNCH
10. www.francisclark.co.uk
In this session….
• Changes to Companies Act 2006 governing financial reporting
• Accounts for members and for filing
• Consequential impact on accounting standards
• New UK GAAP – points to consider in implementation year
• Points to watch before your first FRS 102 year end
• Presenting FRS 102 changes in the annual accounts
11. www.francisclark.co.uk
Forthcoming changes to CA 2006
affecting annual accounts
• Primarily, but not exclusively small companies
• Affects accounts for members and for filing
• Increases thresholds for qualifying as small/ medium-sized
• Extends maximum useful life of goodwill 5 years → 10 years
• Mandatory for A.P.s beginning 1 January 2016
• Early adoption permitted for A.P.s beginning 1 January 2015
12. www.francisclark.co.uk
Company law changes:
Thresholds for small/ medium
“Old” “New”
Small
Medium
T/o £6.5m
Total Assets
£3.26m
T/o £25.9m
Total Assets
£12.9m
T/o £10.2m
Total Assets
£5.1m
T/o £36m
Total Assets
£18m
No change to employee thresholds
14. www.francisclark.co.uk
Company law changes:
Impact of threshold increase?
Large → Medium
• Very little difference
• Minor disclosure differences
• No entitlement to file abbreviated
accounts – now abolished
• New “statutory information”
requirement
Medium → Small
• Reduced (and restricted) disclosure
• Right to present “abridged
accounts” subject to unanimous
member approval annually
• Filing exemptions – but NOT
abbreviated accounts as abolished
• Relief from group accounts
• New “statutory information”
requirement
15. www.francisclark.co.uk
Company law changes:
Restricted disclosure
• Significant reduction in mandatory disclosure, e.g:
• Directors’ remuneration
• Share capital and dividends
• Much analysis of expenses
• Arms’ length related party transactions
• BUT: subject to overriding requirement to give a true and fair view
• At this stage, unclear how much reduction in practice
16. www.francisclark.co.uk
Company law changes:
accounts filing for small companies
• Broadly, two options
• File information sent to members
• File balance sheet and notes only, plus details of audit report
• More information that in current small company abbreviated
accounts but can still avoid filing P&L
17. www.francisclark.co.uk
Company law changes:
impact on accounting standards for small companies
• Abolition of FRSSE
• FRS 102 recognition and measurement will be extended to small
companies
• Disclosure, subject to need to give true and fair view, follows
“restricted” regime
• No cash flow, statement of changes in equity
• Applies from AP when new company law thresholds are adopted
(i.e. 1 January 2015 or 2016, if no early adoption)
18. www.francisclark.co.uk
Practical implications for small companies
• Key FRS 102 changes apply
• Basic v non – basic split of financial instruments
• Requirements to use fair value
• Additional deferred tax
• In addition, compared to FRSSE
• Fair value applies to share-based payment (e.g. option schemes)
• Transition date for restatement = beginning of comparative year
19. www.francisclark.co.uk
New UK GAAP: implementation year
Points to watch
• Main areas of impact identified/ confirmed negligible impact?
• Restatement impact on retained profit identified?
• Managing shareholder expectations are regards dividends
• Appropriate adjustments to system e.g. translating stock under
forward forex contracts?
• Appropriate documentation in place e.g. to support hedge
accounting for forex/ interest rate management?
• Interim figures to bank reflect FRS 102?
20. www.francisclark.co.uk
New UK GAAP implementation year
Intra group property rental
• No longer automatically excluded from investment property
• Implies fair value required for intra group rental property
Unless
• Cost and effort is ‘undue’
Or
• Property not held by relevant entity for capital appreciation or to
earn rentals
21. www.francisclark.co.uk
New UK GAAP implementation year
First Time Adoption financial statements
New
primary
statements
Statement of Other
Comprehensive Income
Statement of Changes
in Equity
Ongoing
new Notes
Fair values, financial
instruments, estimates
and judgements
“Once only”
Notes
Restatement on
transition and
reconciliation
22. www.francisclark.co.uk
New UK GAAP implementation year
Presenting FRS 102 changes in annual accounts
At Transition
At First
Time
Adoption
Narrative explanation of nature of changes,
options on transition, new policies
Reconcile old and new
equity
Reconcile
old and
new equity
Reconcile
comparative
P&L
23. www.francisclark.co.uk
New UK GAAP implementation year
Meeting the challenge
• Finalise assessment of impact and policy choices
• Time to focus on presentation
• What to include, adjust, explain
• What resources and timescale are needed
• Impact on “normal” annual accounts production process
27. www.francisclark.co.uk
Current issues
• Budget March 2015 - changes to Fuel Scale Charges
effective for accounting periods starting on or after 1 May
2015
• Tool now available on HMRC’s website to calculate fuel scale
charge
• https://www.gov.uk/fuel-scale-charge
• No VAT on Severn River Toll from 2018
28. www.francisclark.co.uk
Current Issues
Prompt Payment Discount
Historically where discount
offered VAT calculated on the
discounted amount whether or
not discount taken
Rules changed from 1 April 2015
From 1 April 2015 suppliers need
to account for the full amount of
VAT. If discount subsequently
taken up an adjustment should
be made to the VAT
• Either original invoice shows VAT on both the
full and discounted amount; or
• Credit note is issued if discount is taken
29. www.francisclark.co.uk
Current issues
VAT visits
• Increased number of visits to clear repayment returns
• Entitled to repayment supplement if HMRC delay
• HMRC do not offer it automatically
• Delays with the Repayment Supplement Team
• Tip – contact HMRC in advance to pre-empt queries on
repayment returns
31. www.francisclark.co.uk
Current issues
Energy saving materials
• 4 June 2015 CJEU ruled that the UK application of the reduced
rate of VAT for energy saving materials is contrary to EU law
• Currently the reduced rate applies to the installation of energy
saving materials, and the goods themselves when provided with
qualifying services
• Too early for any comment from Government or HMRC
• The reduced rate will continue in the short term. Any change very
unlikely to have retrospective effect.
• An agenda point for Mr Cameron?
32. www.francisclark.co.uk
Cross company charges and VAT groups
• Management charges
• Don’t forget to account for VAT
• Date accounts approved if no earlier invoice or payment
• Directors
• Directors services subject to VAT
• Common directors – no supply where share of director’s
fees recovered when one company pays fees of
common directors.
33. www.francisclark.co.uk
Cross company charges and VAT groups
• Joint contracts of employment
• No VAT on recharges where staff are jointly employed
and exact costs only recharged
• Must be clear that there is more than one employer from
contracts of employment or letter of appointment
• Take legal advice if considering
• Beneficial for companies with exempt activities
36. www.francisclark.co.uk
VAT Group
• Disadvantages of VAT Group
• All members of the group are jointly and severally liable
for any VAT due from the representative member
• A new VAT number will be allocated to the group as it is
not possible to transfer a VAT number from a
“sole/normal” to a group registration
• Partially exempt deminimis limits and voluntary
disclosure limits apply to the group as a whole
• Could accelerate inclusion in the Payment on Account
scheme
37. www.francisclark.co.uk
Errors on VAT returns
• Adjustment should be made for errors in last 4 years
• Measured to the start of current VAT return period 4 years
ago
• Example – current VAT quarter 30 June 2015, adjustment
should be made for errors back to 1 April 2011, must be
notified by 30 June 2015
38. www.francisclark.co.uk
Errors on VAT returns
Adjustment can be included on the current VAT return where:
• Net amount of all errors is less than £10,000 or
• The error is £50,000 or less and less than 1% turnover. Turnover
is based on the sales in the current VAT return period
• In May 2015 the FC of ABC Ltd discovers an error of £30,000 on
the company’s VAT return for the quarter ended 30 June 2012.
The turnover in the June 2015 VAT quarter will be £3.5M. As the
error is less than 1% of the turnover in the quarter in which the
error is discovered it can be included on the June return.
• No interest for errors adjusted on VAT return
39. www.francisclark.co.uk
Errors on VAT returns
Where an adjustment cannot be included on the VAT return
• Separate disclosure to the VAT Error Correction Team at HMRC in
Liverpool
• Disclosure using form VAT 652 or separate letter
• HMRC will charge interest unless no overall loss to HMRC
(commercial restitution)
• HMRC can assess a penalty if reasonable care not taken – 30%
• Penalties can be mitigated or suspended
41. www.francisclark.co.uk
VAT and International trade - goods
• Sales to VAT registered customers in other EC countries are zero-
rated as long as criteria met
• Obtain customer’s VAT number, check validity
• Show VAT number on sales invoice plus 2 digit country prefix
• Goods must be sent to another EC country within time limits
• Obtain and retain proof that the goods have been removed within time
limits
42. www.francisclark.co.uk
VAT and International trade - goods
• Reporting requirements
• VAT return – boxes 6 and 8
• EC Sales Lists quarterly or monthly
• Intrastats – 2015 threshold £250,000
43. www.francisclark.co.uk
VAT and International trade - goods
• Sales to non-VAT registered customers in other EC countries
• Subject to UK VAT where goods sent from UK to EC country
• Distance selling rules could require VAT registration in EC country
of destination
• Keep record of sales to each Member State
• Threshold either €35,000 or €100,000 (or local currency equivalent)
44. www.francisclark.co.uk
VAT and International trade - goods
• Direct export of goods to non-EC countries are zero-rated as long
as criteria met
• Goods sent outside EC
• Proof obtained that goods moved
• Goods removed within time limits
• Direct export means supplier arranges transport
• Sales invoice should make country of delivery clear
45. www.francisclark.co.uk
VAT and International trade - goods
• Indirect export of goods to non-EC countries are zero-rated as long
as same criteria as for direct exports are met
• Customer arranges collection of goods
• Customer belongs overseas
• In order that supplier can zero-rate must obtain proof of movement
of the goods from customer
• Recommend obtaining a deposit equivalent to VAT
46. www.francisclark.co.uk
VAT and International trade - goods
Holding stock overseas
• VAT registration may be required for sales made in country where
goods are stored
• Some countries have special procedures and the customer must
account for VAT not the supplier
47. www.francisclark.co.uk
VAT and International trade - goods
Purchase of goods from other EC countries
• No VAT charge by supplier as long as GB VAT number provided
• Account for VAT on UK VAT return
• Intrastat required if value > £1.5M (threshold from 1 January 2015)
Purchase of goods from non EC countries
• EORI and payment required in order for goods to clear customs
• C79 must be retained as proof for recovery of VAT
48. www.francisclark.co.uk
VAT and International trade - services
Providing services
• B2C services charge UK VAT assuming supplier in the UK
• General rule for B2B – VAT due where the customer belongs
• Business customers in other EC countries
• Any customer outside the EC
• EC Sales List entries required for VAT registered EC customers
• Exceptions for certain services
49. www.francisclark.co.uk
VAT and International trade - services
Receiving services
• Account for reverse charge on UK VAT return
• Entries in boxes 1, 4, 6 and 7 on VAT return
• No effect for fully taxable businesses
• Do not apply to excepted services
53. www.fcfp.co.uk Twitter.com/francisclarkifa
Agenda
• A round-up of the pension changes
• Case Study – positive pension funding
• Tax efficient profit extraction
• Assists with maintaining Entrepreneur's and Business
Property Relief
• Aids succession planning
• Enable assets to be passed on free of Inheritance Tax
• Summary
• Questions
55. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Flexi-access Drawdown (FAD) available
• Full access to pension funds from age 55
• No compulsion to purchase an annuity
• 25% of the fund still tax free
• Remainder of fund taxed at marginal rate when
drawn
• Existing drawdown pensions can be converted to
FAD
• Be aware of Lifetime Allowance – reducing to £1
million from 2016/17 then indexed by CPI in
subsequent years
56. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
New Lump Sum Death Benefit Tax Charges
• 55% tax rate scrapped
• If pension owner under 75 years old on death there
will be no tax charge on the fund – whether income
has previously been drawn or not.
• If death occurs when over 75 the remaining fund
will be payable to any chosen beneficiary at the
recipient’s marginal rate of income tax (from April 16)
• Pension funds can now be passed on to future
generations with no IHT
57. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Busting the objections to pension saving
Restricted access to pension funds
Unlimited access from age 55
Forced to buy an annuity
No longer an issue
Penal rate of tax on death
Abolished
Can’t pass on to children
Can now with no immediate tax liability
58. www.fcfp.co.uk Twitter.com/francisclarkifa
Another Budget on 8 July
• Further tweaks to pension rules/taxation could
be announced
• Prior to the election the Conservatives stated
they would take steps to restrict tax relief for
additional rate taxpayers (45% rate)
• There is also a chance that pension tax relief for
higher rate (40%) taxpayers could be restricted
• Clearly we don’t know what will be announced
but if you are minded to make a pension
contribution in this tax year it would be worth
considering this before the Budget
60. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Case Study – positive pension funding
• Maximum Manufacturing Ltd
• £8m turnover
• £1.7m post tax profit
• £3m surplus cash in the business
• Shareholder Directors, Mr Smart 35% (age 60),
Mrs Smart 35% (age 60) and Mr Smart Jnr 30%
(age40)
• Current remuneration for each is £100k salary
and £50k dividends per annum
61. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Case Study – positive pension funding
• Current concerns are:
• Mr & Mrs Smart Senior want to reduce their
commitment to the business gradually over the
next 10 years and need an income top up
• Concerns around the accumulation of cash in
the business in respect of potentially
disqualifying Entrepreneur's Relief should a
business sale occur
• If cash continues to build, BPR could also be
threatened and would mean the value of
company shares are accountable for IHT
62. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Case Study – positive pension funding
The Solution – maximum funding pensions
• Mr & Mrs Smart already had £50k each in personal
pension plans but they hadn’t contributed for many
years
• The existence of these pension plans allowed them
to use the Carry Forward rules to sweep up unused
annual allowances
• They then fund maximum annual pension
allowances of £40k each per annum for 10 years
Let’s look at the figures……………
63. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Case Study – positive pension funding
Carry Forward – allows you to bring forward the 3
previous tax years annual pension allowances if you
haven’t used them
The annual allowance is £40k in this tax year but in
previous years it was £50k
In the 2015/16 tax year you can bring forward the
following allowances if you haven’t used them:
2014/15 £40k
2013/14 £50k
2012/13 £50k
64. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Case Study – positive pension funding
Mr & Mrs Smart therefore put in place a plan to maximum
fund their pensions for the next 10 years as follows:
Starting assets in existing plans £100,000
2015/16 Annual Allowances X2 £80,000
2015/16 Carry forward allowances X2 £280,000
2016/17 – 2024/25 2X Annual Allowances X9 £720,000
Assuming 5% investment growth along the way could see
a final combined fund of £1,675,523
What does this mean in practical terms……………
65. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Case Study – positive pension funding
• From the combined pension fund of £1,675,523
• They can take 25% as a tax free lump sum = £418,880
• Residual fund of £1,256,643, provides £56,548pa
income (they could take more but might erode the fund)
• The cash build up in Maximum Manufacturing has
slowed thus helping to alleviate the ER & BPR
concerns
• Maximum Manufacturing received 20% Corporation
Tax relief on the £1,080,000 contributed to the pension
plans saving £216,000 in tax
66. www.fcfp.co.uk Twitter.com/francisclarkifa
A new pensions landscape
Summary
• Barriers to pension saving removed
• Efficient way of extracting funds from company to
personal balance sheet
• Aids succession planning
• Can play a role in reducing threats to ER’s and BPR
relief’s
• Reduces Corporation Tax
• Unused pension funds can be passed on to
beneficiaries
68. www.fcfp.co.uk Twitter.com/francisclarkifa
Contact details
Andrew Welch – Chartered Financial Planner
01392 667000
andrew.welch@francisclark.co.uk
David Clifton – Chartered Financial Planner
01872 276477
david.clifton@francisclark.co.uk
Richard Wright – Consultant
01752 301010
richard.wright@francisclark.co.uk
69. www.fcfp.co.uk
No responsibility can be accepted for any action taken as a result of information contained in this
presentation. We therefore strongly recommend that no action should be taken before obtaining
detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from
them may go down as well as up and an investor may not get back the amount invested.
Francis Clark Financial Planning is a trading style for Francis Clark Financial Planning Limited,
which is authorised and regulated by the Financial Conduct Authority.
Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay, TQ2 7FF.
Registered in England No. 05413603
Exeter Plymouth Salisbury Taunton Tavistock Torquay Truro
This PowerPoint presentation is for general information only and is not intended to constitute professional advice.
Though Francis Clark Financial Planning Ltd is confident on its accuracy, no duty of care is assumed to any direct Recipient of this presentation and no liability is accepted for any
omission or inaccuracy.
Important Statement
Twitter.com/francisclarkifa
75. www.francisclark.co.uk
Example - licences
• Base cost on asset sale of £2m (£1m of indexation)
• No tax relief on intangibles as share deal – cost £3m
• After tax cost of £3.25m asset purchase - £2.6m
• Simpler cheaper deal
• Stamp duty saving - £15k
• Cashflow implications/time value of money etc
77. www.francisclark.co.uk
Tangible assets – capital allowances
• Rates of plant & machinery allowance have reduced as corporation
tax rate has fallen
• Main pool 18%
• Special rate pool 8%
• Annual allowance £500k but only £25k from 1 January 2016
• Annual allowance restricted if change during accounting period
• March Budget Speech - will be “much more generous than” £25k
• Short life asset elections now very important
78. www.francisclark.co.uk
Tangible assets – fixtures
• There is plant & machinery in buildings
• Fixtures & integral features
• Election requirement – s198/199 since April 2012
• Pooling requirement since April 2014
• Rules still poorly understood – check you are getting good advice
• Need to consider at an early stage on acquisition
• Don’t forget VAT/SDLT
79. www.francisclark.co.uk
Overseas expansion – tax developments
• National tax systems overlaid with double tax treaties
• Principles developed in the 1920s - worked until the 1980s (or so)
• What changed?:
• International tax competition (Eire)
• Better communications (fax/internet) & cheaper travel
• Online businesses
• Growth of genuine multi-national businesses – not just country by
country subsidiaries
• Current system open to abuse
80. www.francisclark.co.uk
Enter BEPS
• Base Erosion & Profit Shifting (BEPS)
• Various action plans being pursued by OECD
• Depends on international co-operation
• BEPS agreements to overlay double tax treaties
• BUT – still unilateral actions by governments (Diverted Profits Tax)
& US approach
81. www.francisclark.co.uk
Diverted profits tax
• Finance Act 2015 measure
• From 1 April 2015 – 25% tax rate
• Tax avoidance motive or entities that lack economic substance
• Notification requirement but HMRC assess
• SME exemption
• Guidance from HMRC updated on 20 April 2015
82. www.francisclark.co.uk
What are the key areas?
• Digital economy – permanent establishment
• Stop tax treaty shopping & abuse of reliefs
• Economic substance of the entity
• Transfer pricing
• Country by country reporting
• State Aid issues
Relevant to future structuring and will impact on UK tax policy
83. www.francisclark.co.uk
Permanent establishment
• New definitions and approach required
• Warehouse issue
• Staff presence in country
• Nexus approach
• May catch Amazon in UK BUT overseas representative offices
could become PEs
• Implications for businesses expanding abroad
84. www.francisclark.co.uk
Transfer pricing
• Increased focus on transfer pricing
• Not a major issue for HMRC (20% tax) but other countries may get
stricter
• Arm’s length definition – profit splitting now the usual approach
• Have to have the supporting documentation in place
• SME exemption in UK but different approaches elsewhere
85. www.francisclark.co.uk
Intellectual property
• IP innovation regimes introduced throughout Europe
• UK system – Patent Box from April 2013
• Patent Box tax rate of 10% – unfair competition
• State Aid issue
• Deal negotiated by UK government in late 2014
• UK system to be phased out & replaced by a BEPS compliant
system by 2021
86. www.francisclark.co.uk
Patent Box – current position
• New UK scheme likely from April 2016
• Italy has first BEPS compliant IP innovation scheme (likely model
for others)
• Nexus approach being suggested
• UK scheme too generous & not sufficiently connected with IP
activity in the UK
• Some R&D activity will have to be carried on in the UK
87. www.francisclark.co.uk
Loan arrangements & losses
• Interest tax relief coming under scrutiny (The Economist leader 16
May 2015)
• More restrictions on loan interest relief likely – both domestically &
internationally
• General anti-abuse & specific limitations
• Treaty benefits likely to be precluded unless genuine commercial
activity in the country concerned
• Loan conduit companies most exposed to attack – intermediate
holdcos with loan & no activity (lack of economic substance)
• More restrictions on carry forward of losses possible
88. www.francisclark.co.uk
UK tax losses – asset vs share purchase
• Some businesses currently have large accumulated tax losses
• Tax losses can be acquired on a share acquisition
• Tax benefits carried forwards can be:
• Trade losses
• Investment business management expenses
• Capital allowance pools
• Restrictions if major change in the nature or conduct of a trade or if
activities have become negligible
• Trade losses must follow a trade on a hive across
89. www.francisclark.co.uk
Losses – Leekes tax case
• Leekes (department stores) purchased Coles (furniture stores with
warehouse)
• Coles trade was loss-making
• Coles trade was transferred into Leekes (hive across)
• Trade losses automatically carry forward against future profits of
same trade as long as liabilities transferred
• Old anti-avoidance measure to prevent terminal loss claims
• Losses available – but against what profit?
90. www.francisclark.co.uk
Leekes tax case (continued)
• Leekes claimed the loss brought forward in Coles against its total
profits
• HMRC argued losses only available against the profits of the old
Coles trade – so streaming required
• In this case there was an amalgamation of trades
• First-tier Tax Tribunal held that loss streaming was not required
• Too difficult to stream on an amalgamation – could not have been
intended by Parliament
• Appeal by HMRC is likely
91. www.francisclark.co.uk
Entrepreneurs’ relief changes
• Significant tinkering in Finance Act 2015
• Goodwill
• Associated disposals
• Trading company definition
• Loss to the exchequer greater than thought
• 10% rate of CGT on first £10m of gains
• 10% not available on goodwill etc obtained from connected person
• Write down of goodwill in company no longer tax deductible
(intangible asset amortisation)
92. www.francisclark.co.uk
Trading company definition
• Impacts on joint venture arrangements
• Now different rules for entrepreneurs’ relief, CGT gift of shares and
SSE – watch out
• Inheritance tax business property relief definition is different again
• Previously shareholders with < 5% could qualify for entrepreneurs’
relief if they could get within a joint venture structure
• Management company structure no longer works
• Review of such structures now required
94. www.francisclark.co.uk
Future UK tax policy
• Budget – 8 July 2015
• AIA announcement & support for capital expenditure likely
• More tax relief restrictions likely
• Consultations on future tax policies could be announced
• The future?
• Support for innovation & international trade
• 20% tax rate to remain (Northern Ireland?)
• BEPS action plans implemented to a greater or lesser extent
• Loss & interest relief could be introduced
95. www.francisclark.co.uk
Contact details
John Endacott – Head of Tax
01392 667000
John.Endacott@francisclark.co.uk
Paul Collings – Tax Partner
01752 301010
Paul.Collings@francisclark.co.uk
Damian Lannon – Head of Corporate Tax
01392 667000
Damian.Lannon@francisclark.co.uk
98. www.francisclark.co.uk
Background to the grant landscape
• Demise of the RDAs / Creation of the LEPs
• European Programmes 2013-2020
• Regional Growth Fund
• Assisted Area Map
• Revolving door approach
99. www.francisclark.co.uk
What is available?
• Grant search for general manufacturing business in
SW generated >100 grant schemes
• Match future plans with grant scheme
• Understand whether:
• Capex Job creation
• Research & Development / Innovation
• Exporting
• Leadership & Management
100. www.francisclark.co.uk
Capital expenditure Job creation
North Devon + Cornwall Marine
Fund
South West Growth
Fund
Area HotSW LEP South West
businesses in
marine sector
Wider South West –
as far as Wiltshire
and Dorset
Applicants All companies SMEs All companies
Level of
grant
£25K to £499K £50k to £500K £15k to £1m
Timetable Open for
business
Closes 31 July
2015
Opens in the summer
101. www.francisclark.co.uk
• Grant support for SMEs:
• Proof of market (9 months, £25k, 60%)
• Proof of concept (18 months, £100k, 60%)
• Development of prototype (2 years, £250k, 35% / 45%)
• Timeframes
• SMART v R&D Tax Credits - cannot have both for
same project
Research & Development - SMART
103. www.francisclark.co.uk
Investment ready
Preparation is key…
1. Project
2. Eligibility
3. Robust Business Case
4. Business Plan (and Financial Projections)
5. Dialogue with fund holders
6. Understanding their requirements: strategic and operational
7. Need for grant
8. Patience/ Completeness
9. Understanding timelines
10. Match funding
105. www.francisclark.co.uk
Keeping up to date
http://www.francisclark.co.uk/services/grant-advisory/
David Armstrong
david.armstrong@francisclark.co.uk
07810 056164
David Bullen
david.bullen@francisclark.co.uk
01872 276477
Richard Wadman
richard.wadman@francisclark.co.uk
07854 763049
108. www.francisclark.co.uk
Deal activity and Valuations
Q1 2015 lower than Q4 as caution exceeds
completions for tax planning reasons
Source: Experian
0
200
400
600
800
1,000
1,200
1,400
1,600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
UK M&A Activity: Number of Deals per Quarter
Number of Deals
2013 20152014
109. www.francisclark.co.uk
Deal activity - SW
Source: Experian
0
20
40
60
80
100
120
140
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
South west M&A Activity: Number of Deals per Quarter
Number of Deals
2013 2014 2015
110. www.francisclark.co.uk
The Politics of Transactions
……and uncertainties
• Pre Election
• Post Election
• Longer term planning
• Grexit
• Brexit/EU Referendum
….and then interest rates…. exchange rates…..
111. www.francisclark.co.uk
Business lessons from Politics?
• Predictions and projections can be out by ‘a bit’
….which can have a significant impact on the
overall outcome!
• Strong leadership and a clear campaign can win
against the odds:
114. www.francisclark.co.uk
Being approached, and how to respond
• Many SW company sales are reactive to approaches
• We act for a number of acquirers - what have they
seen?
• Its an opportunity to demonstrate your expertise and
knowledge, and perhaps you can turn the threat into
a bigger opportunity?
• Seek advice before responding/ignoring the
approach
115. www.francisclark.co.uk
Being approached – the traps
• A “confidentiality letter” or exclusivity agreement
that binds you in
• Sending the last three years accounts and
management accounts as requested
• Receiving an offer based on the historical results
• Initial offers being ‘subject to…’
• Your costs not being covered if they pull out
116. www.francisclark.co.uk
Being approached – be prepared
• Document the reasons for historical financial
results and be aware of any profit enhancing
adjustments
• Ascertain what a Buyer is after from your business
• Consider providing information looking forwards to
enable a Buyer to see the future value
Valuation may simplistically = Earnings X Multiple
117. www.francisclark.co.uk
Being approached – Adjustments
£’000
Profit per accounts 300
- One-off costs of new development 50
- Excess owners remuneration/pension 80
- Recruitment of Sales Director 20
Adjusted profit/maintainable earnings 450
At a multiple of 5, the value impact could be £750,000!
118. www.francisclark.co.uk
Being approached – the traps
“Our offer is £5m for 100% of the shares, subject to
the continuation of recent financial performance and
Due Diligence”
Offers and Heads of Terms should go into sufficient
detail to avoid major misunderstandings/different
interpretations at a later date.
Perhaps you could be the buyer through an MBO?
119. www.francisclark.co.uk
Current Bank/Lending behaviour
• Many Banks saw a fall in activity pre-Election
• Appetite is strong and they expect to be busy
• There is still a significant contrast between
businesses that present themselves well to
Funders and those that seem to want to make
the process hard for themselves….
120. www.francisclark.co.uk
Facility renewal: be properly prepared
• Prepare a pack to include:
- Last years results and YTD – WITH narrative
- Update on any changes in/affecting the business
- Future plans and Budgets/projections – WITH….?
- Details of any changes in security
- Any changes in facilities required? If so;
- What’s any new money required for?
- When will it be repaid?
- What additional security is there?
121. www.francisclark.co.uk
Funding: obtaining the best terms
Understand what the funder is after
It’s a negotiation – so treat it like one
Consider giving something of value to them that
doesn’t cost you much
Use competition if you are not getting a suitable result
If you are suitably prepared with a pack of information
it wont take long to explore the market
122. www.francisclark.co.uk
Summary
• Uncertainty will come and go – work out what is
relevant to you rather than global economics
• Be prepared to be approached…it can make a real
difference to the Company valuation and your own
future prospects
• Be prepared to retain or obtain funding
125. www.francisclark.co.uk
Dates for the diary
November/December 2015: Finance Directors’ Update
Taunton: Wednesday 11th November Somerset County Cricket Club
Exeter: Thursday 12th November Exeter Racecourse
Plymouth: Wednesday 18th November Boringdon Golf Club
Southampton: Tuesday 8th December Chilworth Manor
Fraddon: Thursday 10th December Kingsley Village
128. www.francisclark.co.uk
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Editor's Notes
This award seeks to recognise the corporate finance advice that has delivered the greatest measurable benefit to clients.
Seem to be fewer routine visits
On management charges, the debt must be discharged in the balance sheet ie not included in debtors/creditors
Control Conditions
>50% control
parent company of the group member within the definition in section 1159 of and Schedule 6 to the Companies Act 2006
you would be a parent company of the group member if you were a company
you are empowered by statute to control that body’s activities
Could accelerate having to join payments on account
Could accelerate having to join payments on account – VAT liability £2.3M
Mention other penalties – deliberate and not concealed/ deliberate and concealed
This slide covers EC Sales of goods
This slide covers distance sales
This slide covers direct export of goods
This slide covers indirect exports of goods
This slide deals with purchase of goods from overseas
B2C – exception for electronically supplied services
Exceptions - Land-related services, short term hire of means of transport, services supplied where performed
Excepted services = land related’ ‘where performed’ etc
Let’s be topical and start off with Deal activity and how Politics can influence it, then cover how to (and how not to) respond to approaches to buy your business, look at funding and how best to approach facility renewal, and finally a few thoughts on an area that may enhance profits…..
Q1 down 28% on Q4. The volume of deals that completed in April fell even further to there lowest level for several years.
Financial Services and Insurance were the most active sectors.
Increase in the number of out-bound deals with UK businesses acquiring overseas targets.
We find this fall in the statistics curious and it may be due to slow reporting rather than a significant fall. This may have contributed to Francis Clark being 9th= (with Goldman Sachs), just ahead of Deutsche Bank.
A Huge fall of nearly 50% in local deal volumes comparing the last two quarters.
Overall Q1 being 33% lower than Q1 last year, and of the deals that disclosed their size, Small deals (£500K - £10m) being 46% down, Mid-market (£10m - £100m) being 75% down and Large (£100m - £1bn) being 60% down.
There is no doubt that the Election accelerated certain elements of deal activity with a number of business owners looking to sell out before the Election and bag the current 10% Entrepreneurs Relief.
For others, especially those looking to invest or make acquisitions, there has been the uncertainty of the political/business environment post Election and therefore we are aware that a number of transactions were put on hold /stalled. However, the statistics may be influenced by delays in deals being reported as we certainly saw an increase in deal volumes.
Post Election we have continuation of a generally Business-friendly environment and continuation of low interest rates. We have seen a number of Management teams therefore looking to push ahead with transactions. However, it seems that to many the Election came as a bit of surprise in that people had progressed with planning a transaction and then stalled it, rather than wait until after the Election to consider it.
Looking ahead, unless there is civil unrest and an unravelling of Tory control, the next Election is highly likely to be 5 years away…..but don’t ignore planning for it! Company’s looking to make an acquisition or MBO and exit “in 5 years time” may want to consider whether they intend to exit at about year 4 or 6, but probably not in exactly 5 years time!
So, what about the next uncertainties? The Press will always look for issues to make into problems and we don’t have to look further than Europe for several of these…and then interest rates….and then…
Although we have seen an increase in plans to undertake transactions, this doesn’t appear widespread yet and activity levels around Bristol are somewhat subdued.
In the SW sea of blue - Ben Bradshaw increased his proportion of the vote from 38.2% to 46.4% and in absolute numbers from circa 20,000 to just over 25,000
Longest time on record that Base Rate has been so low (although note that this is still higher than in Europe and the US) and whilst many Economists predicted that rates would rise in late 2014 or early 2015, this certainly hasn’t been the case as we previously suggested. Not surprisingly, rates are predicted to rise ‘shortly’ although its notable that the recent predictions for the US are that rates will rise later than previously thought a few months ago, with those in the UK expected to rise quicker and further/steeper.
However, few of us has been in the current interest rate environment – in some countries you now have to PAY interest to somebody to have your money…(e.g. EURO deposits)
Bond markets…..where next?
Whilst Business Recovery experts may be relatively quite and helping to restructure groups at present and …[SH] any significant rise would have a significant impact on many people as a 1% rise would have a massive proportional impact and therefore Politically it would be a potential disaster for rates to rise significantly for many consumers. But Consumers have very short memories and if they feel more confident about the future, there is the risk that they take on more borrowing just as rates begin to rise……
Interest rate protection – Have you considered? Has your bank raised with you?
None of us have been in the current interest rate environment – in some countries you now have to PAY interest to somebody to have your money…
Bond markets…..where next?
Inflation? – a number of you are probably too young to remember the last time that we had deflation
Bank of England – View deflation as a temporary phenomenon. Office National Statistics project inflation to rise above zero % during second half of 2015
Will the next miss-selling ‘scandal’ be that Financial Institutions DON’T sell interest rate management products and complex financial instruments to reduce the risk of the effect of interest rate rises??!
Consider the average house. Unless recently bought, it probably needs some work/repairs or redecoration. The garden may need weeding. Papers, magazines and children’s toys may be lying about the living room and the kids could be running around chasing each other and screaming……early on a Sunday morning you might still be in your PJ’s - would that be the best time to open the door to a potential purchaser who has knocked on the door?!
By this time next year, the company’s that some of you work in will have been bought by a Predator that approaches the shareholders directly…..
Unless you plan and prepare for it you cannot be proactive and obtain the best deal. On a personal level, as finance professionals we are often deemed to be easily replaceable or our work covered by the new ‘Head Office’….there is possibly quite a bit at stake.
Often a potential Buyer will try and restrict your actions and the sensibly sounding ‘confidentiality’ letter may actually prevent you from marketing the business to anybody else.
Historic accounts without narrative are unlikely to present the best picture of the business (family salary and costs, additional remuneration or pension payments). All prepared numbers would include adjustments that would show the maintainable underlying profits.
If financial performance is improving, the future prospects are key and the value to a Purchaser is in the future performance and not the past and therefore appropriately presenting the future opportunities and projections should be the basis to derive a valuation.
In years to come you may not recall why the results came out the way that they did. People only see the numbers in Accounts – rarely do the Statutory Accounts provide the story behind the numbers. Ideally you should present adjusted numbers to reflect the underlying maintainable earnings.
What earnings figure? What adjustments? What multiple? If the is a great growth story then the multiple should be higher than for a static business.
If you were actively marketing the business you would want to demonstrate the highest possible maintainable profit to support a higher valuation – so why only show a potential purchaser the unadjusted results if they approach you?!
Adjustments have a multiple impact – say the sector multiple for your business is 5, any adjustment may be worth £5! In the above example the value impact is £750K!
Is the £5m dependent upon anything? A certain level of profits in the current year? Is it all payable at Completion? Net assets of what? What warranties and claim levels? What about working capital?
Offers may not include all the detail (the structure of the deal and deferred or earn-out amounts, assumed net assets at completion, the basis of accounting for them, debt-free cash-free, the definition of ‘debt’, warranty levels, consultancy period and terms….)
Notes:
Have a look back first of all and comment on what happened last year and recently.
Have you shared your most recent set of Audited Accounts? Improving results will have a positive impact on your Bank’s risk assessment. Impact on cost of borrowing.
Your relationship manager may have heard of factors that he or she might think will affect you – put them fully in the picture – you’re the expert about your business.
Engage your relationship in a strategic dialogue – ensure they are aware of your future plans / aspirations
Look ahead and give them information about the future, but be realistic and recognise risks but state how you are monitoring them and controlling their impact.
Despite what you think – they are human! They probably have a lot of work to do, so if you provide information in a format that they can use for their application to Credit…….
As with any negotiation, understand what is important to them, what are they measured upon, what are they trying to achieve.
See if there is something that could help them but not cost you much - ??personal banking, private mortgage? Insurance?