Wilkins Kennedy

Transfer Pricing – What is it? (You might not want to google it!)

May22

In a briefing published just last month, HMRC claimed that it had secured £4.1 billion of additional tax for the UK Exchequer by challenging transfer pricing arrangements since it set up its specialist group in 2008.

However, this month sees HMRC accused by the Public Accounts Committee of being ‘bamboozled’ by large companies like Google, and the intricacies of the transfer pricing legislation played a large part in the PAC hearing. So what is transfer pricing? Essentially, it is the allocation of profits between more than one entitiy where those entities transact with and are connected with each other.

Multinationals have considerable freedom (and rightly so) to establish business operations in their jurisdiction of choice, and will consider a number of factors, including the local tax regime, when setting up operations. In locating part of a business in another country, a group can reduce the amount of tax it pays by ensuring that at least some of its activities are genuinely undertaken in a low tax jurisdiction.

However, the transfer pricing rules are complex and can be open to exploitation. Very simply, the greater level of profit a multinational group can allocate to a tax haven or low tax jurisdiction, the lower their overall tax liability will be.

A particularly popular move is to locate intellectual property in a low-tax environment, as this is relatively easy to move and relatively complex to value in terms of profit apportionment! However, HMRC should challenge arrangements that do not allocate enough profit to the UK in accordance with the rules and they do have the power to do so within UK legislation.

The current focus on transfer pricing is, if nothing else, a timely reminder for all businesses to consider their transfer pricing position as HMRC can (and indeed do) look into profit sharing arrangements between connected entities, even where transactions are between UK to UK businesses.

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Buying or selling a business?

May14

Here at Wilkins Kennedy, we have noticed an increase in the demand for our services when it comes to buying and selling businesses. The most popular are mergers and these are a great way to save another business from administration, to go into partnership, or even to buy out a business that would allow room for further products and services.

Whatever the reason might be, selling and buying businesses requires practical knowledge and expertise from someone who has a depth of knowledge in this field as there are all sorts of things to consider:

Buying a business

If you decide to buy a business, or indeed invest in one, then there are several things you need to take into account. It is a complicated process, especially if this is your first time, so it is important that you know what you are looking for – and how to negotiate!

Securing the right deal
When it comes to mergers and acquisitions, the path can be fraught with all sorts of risk but there is also a lot to consider in terms of what you wish to gain from a merger, what the acquiring company’s conditions are, whether you are interested in pursuing management buy-ins or buy outs etc.

The best way to securing the right deal is identifying suitable targets and then negotiating towards a compromise which is fair on all sides.

Raising finance
Once a deal is agreed finances will then need to be raised and this is where Wilkins Kennedy can help advise you of the best way forward – it might be that you can raise capital through your business or you may have private funds that you can access in order to secure the deal.

Tax
You may have to consider tangible assets as well as intangible assets when it comes to buying a business and this can be a crucial process that requires professional expertise and knowledge. There will be a way to structure any taxes that are due from the buying of the business, but an accountant will be able to help you out with this.

Selling a business

If you are thinking of selling a business it is important to let HMRC know as soon as possible if you stop trading so that they can adjust your tax and National Insurance. This is so that any owed amounts from either side can be settled accordingly, but if you are having trouble paying any amounts owed you should speak to HMRC in the first instance.

Circumstances will vary from business to business, so you need to make sure that you are obtaining the correct advice from an accountant. If you are thinking of selling up you will also need to consider elements such as:

How much are you worth?
If you are selling your business, you must have thought about its value. Generally, it is five times your net profit, but other things will also be taken into consideration such as a value of assets, shares and even people. It is recommended that you speak to an accountant to make sure that your “worth” is detailed and correct.

What’s your exit strategy?
This is likely to be the most significant decision you will ever make in your business career so planning a clear business exit strategy is essential. Ideally, a good business exit plan is put into place years before an exit actually happens and what you want out of your business exit will depend on your circumstances.

Many business owners plan to retire from the business and sell up at the same time, some feel they have taken the business as far as they can and want a new challenge, while others just want to sell part of the business for financial reasons, but still maintain a management role. Whatever the reason, an exit strategy should be built around your circumstances and what you are trying to achieve.

Finding and selecting a buyer
Have you thought about who would be right to buy? Where would you find them? Do they have the capital? All of this needs to be considered when the time is right.

You can also take on due diligence yourself by investigating an interested buyer’s company’s financials to make sure that they can actually pay you!

Wilkins Kennedy will be running an event in Hertfordshire next month – Buying or selling a business?-How to get the best deal – that will focus on all aspects of buying and selling a business.

It offers concise, practical advice to anybody who is thinking of undergoing a merger, taking on acquisition, or even making an exit from a business, so all are welcome to come along.

The event, Buying or Selling a Business, will be held at Fanhams Hall Hotel in Ware, Hertfordshire, on 5th June 2013. For more information, and to book your place, please visit our events page Buying or selling a business? – How to get the best deal

Posted in Business, Buying a business, Selling a business | Leave a comment

Cash flow report – the continued rise of invoice finance

May13

A new survey from the Asset Based Finance Association (ABFA) is predicting that the invoice finance sector will continue its recent encouraging performance by growing 9% in 2013.

The new figures forecast that total advances will be over £18bn by the year end, up from £16.6bn (2012). The number of companies using factoring and invoice discounting to improve their cash flow also increased, with figures close to 43,000 now being reported.

Kate Sharp, Chief executive of the ABFA, commented:

“These new industry figures confirm the overall confidence in the sector at the moment, predicting encouraging growth across client sales, and an increase in client numbers and overall funding levels throughout 2013. This is not only good for the sector but also the UK economy as the industry is particularly strong in helping fund SMEs to grow and expand.”

Whilst factoring and invoice discounting are ideal in situations where improved cash flow is required to keep pace with the rate of business growth, there are many other event-driven applications where receivables finance facilities also come into their own.

For example, invoice finance can be used to great effect in acquisitions, MBOs and MBIs. It can also provide turnaround finance in distressed situations and offers a valuable negotiating position when securing preferential discounts from suppliers.   We are seeing growth at both ends of the spectrum, from large, structured asset based lending and confidential invoice discounting transactions to smaller factoring deals, testament to the adoption of flexible facilities linked to a company’s sales.

At cash-flow.co.uk, we can introduce factoring, invoice discounting and asset based lending facilities that are designed to help you at every stage of your development, whether you run a young cash-hungry enterprise or a mature expanding organisation.   Whatever the scale of your operation, an appropriate longer-term facility linked directly to your sales will add greater value to your business in respect of availability, flexibility and service.

If you would like a consultation or a free quote, simply fill out the contact form here and one of our team members will contact you to discuss your options.

Posted in Asset based lending, cash-flow, Factoring, Invoice discounting | Leave a comment

When is a dividend not a dividend? …. When HMRC says so!

May08

In April it was announced that PA Holdings had withdrawn its appeal to the Supreme Court, meaning that the Court of Appeal ruling on their case is now final. Time will tell how important this victory is for HMRC and what impact it will have on the remuneration planning in place for many owner managed businesses.

The PA Holdings case has been particularly important because it represents an attack on dividend payments to employees, which HMRC assessed as earnings and subject to Tax and NIC. Of course, the specific detail of the case is complex and the planning aggressive, but the wider impact from HMRC being able to re-assess one form of income as a fundamentally different form could reach even vanilla tax planning.

The ICAEW had actively supported the right to appeal by the taxpayer, issuing the following statement:

“Whereas this is an anti-avoidance case it does not appear to have been decided on a basis of law specific to arrangements entered into for tax avoidance. Our concern is that the judgment of the Court of Appeal has thrown into doubt many common arrangements, which include the way dividends received by director-shareholders are to be treated for tax purposes even in the most straightforward of cases.
Under self-assessment this also creates uncertainty as to the correct form to use to make a return of such income.
We are also aware that the Government is keen to promote share ownership for employees. The tax uncertainty that is created by the Court of Appeal judgment will serve to undermine this public policy objective.”

HMRC now need to step forward and confirm their position on this issue in order to reassure taxpayers that ‘genuine’ dividend payments made by owner managers will not be taxed as earnings.

Wilkins Kennedy will be watching this issue closely and we will continue to provide our clients with solid pro-active tax advice.

Posted in Dividend payments, Self-assessment, Tax | Leave a comment

Do care homes need to put in place better budgeting? You bet!

May01

I was recently interviewed on Radio 4 about the increasing number of care homes that have become insolvent over the last year.

One of the points I made is that care homes that are in financial difficulty need to put in place a rigorous form of budgeting, tracking their costs right down to the last bowl of cornflakes that they plan to serve.

Surely I’m exaggerating for effect?

Some of the care homes that we are asked to turn around have little or no reliable business plan, management accounts or management information systems in place. Managers frequently have no understanding of what their care home needs to spend per resident or where the break-even point is.

Sooner or later an unprofitable care home is going to become an insolvent care home and risk making its residents homeless. Closing a business is rarely easy but when that business is a care home there is the extra worry of the closure’s impact on potentially vulnerable residents.

So it is absolutely vital that private sector providers are sustainable businesses. Not just so that they can keep a roof over their residents’ heads but also so that they can continue to invest in their staff and facilities.

But a care home that doesn’t know its outgoings – especially in a period of falling income – risks sleepwalking into disaster.

With financial stress so rife in this sector a sensible basic step for all care homes should be to build up a much more detailed understanding of their businesses. How much do they pay for their electricity? How much wastage is there in the kitchen? From whom are they purchasing their supplies?

If they are overpaying, especially for basic commodity purchases and can painlessly reduce these costs, that allows reinvestment in those areas of their business that the residents really care about – like social activities, refurbishment of rooms and landscaping.

Knowing the cost base and keeping those costs under control can actually help create the money needed to provide residents a premium service.

Posted in Insolvency | Leave a comment

Have you submitted your tax return?

Apr30

Anyone under self-assessment who still hasn’t filed their Tax Return for the year ended 5 April 2012 would be well advised to submit that Return before the end of April when additional penalties kick in. Fines may become significant as more time lapses.

It is thought that around 10.34 million people in the UK are currently in self-assessment and 93% filed their 2012 Return on time in January, but this still left over 700,000 people facing the consequences of late submission. The number of ‘on-timers’ is not entirely wholesome, as a considerable number of these were received at the last minute. HMRC received 578,000 returns, that’s around 12 per second, on 31 January.

From 1st May 2013, individuals who have still not submitted their 2012 online Tax Returns will begin to face penalties. New charges came into force last year which saw the introduction of daily £10 fines up to £900 if the tax payer is more than three months late in filing their Return. If six months passes without submission, individuals could face charges of a further £300 or 5% of tax due, whichever is higher, and HMRC reserve the right to ask for the entire amount due up front.

The biggest reason for not submitting on time is procrastination, but there are also recent changes which came into force for 2013, such as to child benefit, which will result in even more people falling within self-assessment for the first time. There are also the usual software glitches which are inevitable as well as lost or forgotten login details which this year were sent by email as opposed to by post.

But, mistakes happen and reaching deadlines can be stressful. My advice would be to submit any outstanding Return as soon as you can. If you are still struggling, speak to an accountant who will be able to advise on the best steps you should take next or could even help you speak to HMRC.

Whatever you decide to do, don’t put it off as once it is completed it will be dealt with for another year – penalties are a waste of hard earned cash, so it is worth getting out the way as soon as you can!

Posted in Self employed, Self-assessment, Tax | Leave a comment

Funding for Lending – right on or a write off?

Apr18

Last year, the government announced the launch of a new scheme which was set to stimulate the economy. The Funding for Lending Scheme, which began in August of 2012, allowed banks and building societies to increase lending to UK households and businesses so that funds could be made more readily available for things such as mortgages or business loans. But, according to the latest figures, even though 39 lenders have signed up to the scheme, only 13 people are actually using it and lending actually fell in the last three months of 2012. So, the question remains as to why the FLS is not working as it should be and if not, why not?

If a bank was to sign up to this scheme, it can borrow money cheaply from the Bank of England – as long as that money is then lent out again to consumers and small businesses. After the Eurozone crisis, banks in the UK were facing higher funding costs which were to have a knock on effect on lending as these costs were passed on through the chain. This was, of course bad news for creditworthy small businesses who were denied credit unfairly – so on the outside it seemed that the Funding for Lending Scheme was a welcomed ray of light in the grey, deep winters of the UK’s bleak economy state.

But, it appears that very few people are yet to see a positive effect of this. Granted, it is still very early days, and it could take a while for this to build up – that is until you look into some of the areas that the FLS should be benefitting who have in fact seen a decline.

The mortgage market, for example, is something which the FLS was designed to help, but it has in fact temporarily stalled. The number of people taking out mortgages in February of 2013 actually fell, according to the British Banker’s Association (BBA). Around 30,000 loans were approved which is 6% lower than in February 2013 and overall the amount of money being lent to homeowners fell by £65m, compared to January.

The Bank of England also reported that, as well as individuals, net lending to businesses suffered too with overall lending falling by £2.4bn in the last quarter of 2012. Retailers were the worst hit, and according to our own latest figures here at Wilkins Kennedy, in the year to the end of December 2012, banks appear to have cut the amount they lend to retailers by around 5.7%. Over the last three years, loans to High Street shops had fallen by more than 18% and it is figures such as these which begin to make one wonder if recent casualties such as Jessops, Comet and Blockbuster could have in fact been prevented if such lending had been granted.

So is the Funding for Lending Scheme actually working?

Giving banks access to cheaper funding has also been playing havoc with savings accounts too as banks offer less in rates to savers as the need to raise capital lessens. Business and mortgage lending are down and even Vince Cable himself has admitted that the Scheme may need “adapting”, but the banks themselves also need to be “ready” to lend more freely and be less scrutinising with who they are lending to. It sounds radical, but, after all that is what the funding is there for, so more businesses and individuals should be taking advantage.

But other measures have since been introduced to suggest that there are weaker areas of the FLS that need addressing.

If we look at the Chancellor’s recent Budget, for example, this covered a Help to Buy scheme that will commit £3.5bn of capital spending to offer equity loans worth up to 20% on a new build home for anybody looking to move up the mortgage ladder.

He also spoke about a new mortgage guarantee, which will be sufficient enough to support £130bn worth of loans and is set to be introduced to help people who cannot afford a big deposit. It is hoped that measures such as these – added to the fact that those who are already in a mortgage will benefit from the lower interest rates – will help to stimulate the mortgage market so that 2013 could see the number of loans rise.

As for small businesses, the Budget also outlined plans to “take the tax off jobs” to help small businesses that need to grow, creating an employment allowance to reduce every business’ National Insurance payroll taxes by £2000. So, businesses are still being supported, but it remains to be seen as to whether or not the Government has done enough.

Hopefully, it will just be a matter of time and once the banks that have access to the money, they need to stop kicking their heels as they struggle to let go of their old mind set. Is being less scrutinising in order to approve more loan applications going to help? Are the government doing enough to stimulate lending? Only time will tell – after all you have to spend money to make money.

Posted in Budget, Funding for Lending Scheme (FLS) | Leave a comment

Shrewd Psychology Fuels Funding Verdicts

Mar27

“The business of investing in small companies is addictive. Each case is a soap opera. Every time you receive a new business plan you are introduced to new characters and a plot and become a part of it.” Paul Traynor, a venture capital veteran, is still hooked on the story after a working life spent hunting down strong opportunities.

Paul spent 15 years with 3i Group, the predecessor of so many of today’s venture capital concerns. His initial career as a business talent scout saw him scouring 1980s Britain for concerns that needed as little as £125,000 to get off the ground. Today the marketplace that Paul inhabits as member of WK Capital’s Investment Committee is very different. “If you are a small business trying to raise capital now the environment is very much worse than it was 20 years ago.”

During his stint at 3i Paul handled a large number of deals requiring investments of £500,000. The sums available increased and by the mid-1990s first investments began to average £1.7m. And these arrangements were overseen from start to finish by one member of the team. “We were expected to do six or seven deals a year and look at a portfolio of 30 to 40 cases. Today you’d struggle to find a private equity firm that would do anything like that volume of business.” Looking back he recalls, rather ruefully, an era when “there was an industry of funding small businesses.”

If you would like to read the full article, please follow this link: http://www.wkcapital.co.uk/news/shrewd-psychology-fuels-funding-verdicts/

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Government says: Have a house and a job – oh and have a beer on us!

Mar21

So the budget has now been revealed and the Chancellor has laid out plans to help ‘aspiring’ families and businesses – they’ve also taken the opportunity to reduce beer duty!

The Government claims to have listened to its constituents, who have been struggling with rising costs in fuel and day to day living. Families were calling on the Government to help with the rising cost in childcare, which allegedly caused many parents to give up work, and which in turn put a strain on families as income dropped.

In response, the Chancellor has announced a 20% relief on childcare costs, scrapped the planned rise in fuel duty tax in September 2013, and increased the tax-free personal allowance to £10,000.

There were also plans to get more people on the housing ladder with a “Help to Buy” scheme reminiscent of the Thatcher Government’s “Right to Buy”. As well as implementing an equity scheme there will be a new mortgage guarantee scheme which will be in force from 2014 and will offer security to lenders where prospective purchasers have only small deposits available. It is hoped that this will have two effects: firstly, that it will encourage and enable more people to buy their own home, and secondly that it will increase the demand on starter homes, which will in turn stimulate and support the construction industry. This will be welcome news to the sector, which has flat lined for so long.

There was some good news for business in the Budget too as the headline rate of Corporation tax is set to be cut by 1% from 1 April 2015. However, perhaps more significantly for small businesses, in a move to stimulate small business employment, the Chancellor has announced a measure that will see a reduction in employer’s National Insurance for all businesses and charities of up to £2,000. This could mean that some small firms no longer have an employer’s National Insurance liability at all. The Chancellor stated during the Budget that a lot of small businesses found it difficult to employ staff due to the crippling cost associated with being an employer, and in a country where unemployment has risen again this year, this is far from ideal. It may be considered a move in the right direction for many SMEs who will be encouraged by this announcement.

The Budget also recognised the importance in improving the tax system and closing tax avoidance loopholes. However, the Public Sector did not fare so well. Government departments will suffer further cuts of around 1% per year over the next two years. Schools and the NHS will be protected from this, but they may not be completely safe as a further £11.5bn of cuts is set for the 2015-16 Spending Review.

Some may argue that there was also a lack of support for the elderly. The flat-rate pension was brought forward a year although a cap on social care costs was confirmed.

There is room for improvement. It was disappointing to note that the Government has now extended a freeze in the inheritance tax threshold at £325,000 until 2017-18. This decision will hit Middle England hard by dragging more and more families into the inheritance tax net. The Government expects to earn an extra £270m from families as a result of this freeze. By 2018, the threshold won’t have moved for almost a decade, and this is from a Chancellor who once pledged to raise the threshold to £1m. This means that it is more important than ever before for families to use the inheritance tax reliefs that are available to them. Reliefs like Potentially Exempt Transfers or ‘Gifts out of Income’ are unaffected by inflation.

So overall, whilst the Chancellor made some positive changes for low income families and for businesses, there is more that could be done to help stabilise other areas of the economy and, at the same time, provide help to those who need it most. In a Budget which again downgraded previous growth forecasts, are austerity measures working? Would you pay more tax if it meant better schools or better healthcare? Should there be more means testing, or better regulation to ensure that taxes are being spent wisely? A final thought from Sir Winston Churchill – “… for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”

Let’s see what the changes bring.

Posted in Budget, Corporate Tax, Inheritance Tax Reliefs | Leave a comment

SRA Handbook – Changes Easy as ABC?

Mar11

The Solicitors Regulation Authority (SRA) have announced new rule changes effective of January 2013 which sees a difference in the way that Financial Services are regulated in the areas of conduct and compensation. Some of these changes are likely to affect the way that your practice operates, so here is a summary of a few key changes that the new Handbook (version 6!) will be including:

SRA Code of Conduct 2013

Parts 6.2 and 6.3 have been amended to the previous version, which include changes to required outcomes and indicative behaviours. These alterations mean that regulated individuals will no longer be obliged to refer clients who need investment advice to an independent financial adviser. Instead, in the case of referrals such as these, regulated individuals will assess the best interests of the client in terms of how to pursue a matter, whether it is investment advice or making referrals.

SRA Compensation Fund Rules 2011

In previous editions of the Handbook, the Compensation Fund has been limited by the Legal Services Act, to not allow the SRA to collect contributions from licensed bodies (ABSs), or make payments from the fund to clients of ABSs.

There was a temporary measure in place which allowed the SRA to collect contributions to and make payments from the fund to clients, known as the 2011 Order. This was replaced in December 2012 with a clause which meant that in the absence of a further Order, the relevant provisions would expire on that date and the SRA would no longer be able to collect contributions or make payments from the Fund. Since this date, a further order has been made, seeing the removal of this provision.

Rules 1 and 2 have been amended to ensure that SRA Compensation Fund Rules 2011 apply to licensed bodies indefinitely.

SRA Financial Services (Scope and Conduct of Business) Rules 2001

The wording with regard to referencing of a “packaged product” has been replaced. Rules 5.1 and 5.3, and in rules 8.1 to 13.1 the reference has been replaced with references to “retail investment product”.

Glossary Changes

There are also a few changes to the Glossary, relating to wording. The definition of “independent intermediary” has been replaced with the definition of “independent financial adviser”. This is in addition to the definition of “packaged product”, as outlined previously, which came about as a response to the changes flowing from the FSA’s Retail Distribution Review, providing compatibility between the SRA Handbook and the FSA Handbook.

Wilkins Kennedy hold regular seminars to help solicitors understand more about the SRA Accounts Rules changes as well as other topical areas relevant to those operating within the legal profession.

For more information visit our WK Events page, or email wklaw@wilkinskennedy.com