Head for figures in the cloud

No more software updates. Automatic back-ups. And instant access for your professional adviser too. No wonder David Wilson of chartered accountants and chartered tax advisers Barnett & Turner has become a convert to the ‘cloud’. We accountants are not exactly renowned for being at the cutting edge of new information technology. The stereotype is probably of a cautious or boring bunch. Certainly not people who are known for taking risks. It’s therefore something of a surprise to see accounting firms jumping on the cloud accounting bandwagon. Those who have started to use the software, however, haven’t looked back.

So what is it about cloud accounting that makes it so much more appealing to businesses?

First of all, you’ll never have to install a software upgrade again. As the program no longer sits on your local computer, all changes and updates happen behind the scenes. At the same time, all your accounting data is backed up automatically, so if your computer happened to die, you’d still be able to access the information from another device.

The ability to see your accounting data at any time and in any place is obviously a huge advantage. (This means that if you’re sad enough to want to check your business finances while on holiday, you can pop down to the local internet café and look at the figures just as easily as if you were at home or in the office.)

And the same applies to your accountant. As professionals, we’re able to access your accounting data whenever we need to, without the requirement to exchange files.

Other notable advantages of cloud accounting include:

• the absence of jargon and the fact that there’s little need to master difficult concepts, as the software has been developed with the lay businessperson in mind;

• the ability to capture documentation, invoices or receipts through your smartphone or tablet and integrate them directly into the accounting data; and

• the facility to set up automated links with your business bank accounts and PayPal, with the data being pulled straight into the software – helping to eliminate errors and save time.

If you haven’t already made the leap, it’s worth talking to your accountant to see whether they’re already using the facility with other clients and to take their advice on the best platform to use.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

To get on top of the issues, it’s important to be in touch.

Why it pays for clients and their accountants to have regular meetings and reviews. I was recently phoned by a prospective client who was looking for help in preparing his accounts. He ran a small limited company with a turnover of around £300k, which had a history of losses in the early years. The business had been kept afloat by finance introduced by the proprietor.

Although there were many issues that his current accountant might have chosen to explore with him – including business pricing, development and the repayment of personal loans – it seemed that none of this was actually happening. The professional adviser confined his work to compliance and only ever contacted the client once a year.

Unfortunately, this is all too common a scenario, as many businesses don’t really know the kind of level of service they’re entitled to expect. A little investment of time with your accountant can, however, pay huge dividends.

We try to maintain at least four critical points in the year when it’s essential to make contact with clients. The first three are straightforward and should really be fairly obvious:

Before the year-end

Two or three months before the year-end, it’s time to discuss the expected results and what will happen to this year’s profits, as well as distribution and pension planning. We start the process by letter, phone or setting up a meeting.

In advance of a personal tax return

We often end up handling the personal tax affairs of our business clients. This is another opportunity for a chat about planning, ISAs, pensions and so on.

When the accounts are prepared

There should be a formal discussion when the accounts are being completed and another chance to look at distributions and dividends.

Whilst I appreciate that “time is often money” and that some clients are more receptive than others to regular communication, I would maintain that there is always room for at least one more contact point. This needn’t be at any particular time of the year. It’s a general get-together or phone call in which you simply ask the questions, ‘How are things going?’ and ‘Is there anything else we can do to help?’

If you’re a client of a larger firm, it’s fair to say that your contact at some points in the year may be with senior managers or specific experts in tax or audit. You should still expect that a partner will take enough interest that they’ll call you periodically to check on how the company is progressing and see what your plans are for the future, without an invoice following shortly afterwards.

If that’s not the kind of service you’re currently getting, perhaps it’s time to rethink your arrangements?

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Realtime collaboration: the sky's the limit with Cloud computing

Whether we’re simply storing music and photos, checking our bank account or working on more advanced business applications, most of us will have some experience of using the ‘Cloud’. Rather than storing data on PCs in our home or office, we send it to remote servers, from which we can access it at any time. Accountancy may not have been one of the first and most obvious areas to benefit from Cloud computing, but firms and their clients are increasingly adopting this new way of working – finding it to be extremely flexible and versatile.

The main advantage is that professional advisers can access clients’ accounts in real time and provide up-to-the-minute advice and guidance, rather than relying on outdated year-end data. Bank statement information can be automatically integrated, which reduces processing time and makes accountancy more seamless and integrated. And businesses, of course, are able to free up space on their own hard drives.

A common model is to take out a software subscription which allows ongoing access to the service. It needn’t necessarily be that expensive and it means that you and your accountant are able to interrogate data whenever you please from any location. In some cases, this might even mean the use of an app that can be downloaded to a smartphone or tablet. It’s often possible to get training through seminars and webinars, although if you’re already moved beyond Excel spreadsheets and are familiar with accountancy software, there shouldn’t be too huge a leap involved.

While traditions die hard and many accountants have yet to move over to the Cloud, it’s certainly worth discussing the options. Two of the big-name players in the small-business market are Xero and KashFlow, which was acquired by IRIS in 2013. Sage is, however, also on the scene and has the advantage of being a very well-established multinational with major brand recognition. There will probably be ever-increasing choice available as the market continues to evolve.

What are the potential pitfalls? Well, security is obviously a concern for everybody, but in a world in which we quite happily bank from our smartphones and pay with our credit cards online, we’re already placing a great deal of trust in sophisticated encryption software. Is it really that much of a leap to share accountancy data too?

Another issue that frequently comes up is ownership of the information held in the Cloud. You should check terms and conditions of any contract to ensure it’s quite explicit that you retain the intellectual property to your data. At the same time, you’ll obviously be granting the supplier a licence to use and store the data for the purpose of providing their service. It’s a trade-off that most people would probably feel pretty comfortable with.

A hotter legal question is perhaps where your supplier chooses to store the data. Some accountants and clients might prefer to know that the host servers are based in the UK.

All in all, there’s no doubt that the convenience of being able to access your accounts at any time from any location. And the ability of your accountant to access the same data will increasingly mean that you can get more precise and meaningful advice exactly when you need it.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Keep it in the family: planning your business for the next generation

Business coverage in the press often focuses on large multinationals and publicly-listed companies, but the reality is that most firms are family owned. Although the failure rate for new enterprises can be high in the early days, once a family business has established itself, it can often become very long-lived. And that raises very important questions about succession planning. It’s sometimes difficult to envisage the circumstances in which you’d relinquish the reins of a company that you or your parents helped to found. After all the blood, sweat and tears that have been involved in building the company up, you may be understandably protective of what you’ve created. But an exit strategy of some kind is essential if you want to make sure the company is in safe hands when you’re no longer able to continue playing an active role.

It’s worth reviewing your options at an early stage in conjunction with your accountants. One possibility is obviously that you start to wind the business down. Another route is a straightforward trade sale. But if, like many people, you want to keep wealth and ownership within your family, there are some important questions you need to address.

Although your children are the obvious choice as successors, things may not always be clear cut. Perhaps they don’t actually show any inclination to follow in your footsteps? The ideal successor will often be a son or daughter who’s shown an active interest in the business and already played some role in its success. Can you be sure, however, that they have a broad enough perspective to help the company meet the challenges that lie ahead?

Some business owners actively encourage their children to go out into the wider world to pick up skills and experience that can ultimately be transferred back to the family firm. Gaining a qualification in law or accountancy can be very useful, for instance. Or perhaps developing an in-depth understanding of sales and marketing while spending time with a blue-chip corporation.

If you’re thinking ahead in this way, you might also want to consider other changes. Is there an argument for strengthening the management team? Or bringing in non-executive directors with relevant expertise?

Your accountant can provide an independent sounding board for this type of planning. At the same time, they’ll be able to talk you through any tax implications of a handover from one generation to another.

Generally speaking, such transfers will be exempt from inheritance tax, as we’re talking about a business asset which would be exempt and therefore effectively sit outside your estate. If you choose to sell the business and pass on the cash raised, however, that will be classed as part of your estate for inheritance tax purposes.

One option to consider is the transferring of shares well in advance of your death, perhaps over a period of time. Although Capital Gains Tax will be payable, Entrepreneur’s Relief should apply to lessen the burden.

Most accountants will have experience of addressing this type of issue alongside their clients. But their message would be that it’s never too early to start the discussion.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Why EMI options could be exactly the right incentive for your key staff members

There are plenty of ways of measuring the success of a growing economy, but one very specific signal that things are on the up is the increased interest in Enterprise Management Incentive (EMI) options. Although they’ve been around for a few years now as a way of retaining and rewarding key staff, more and more businesses are starting to take notice. The bottom line is that EMI options are a tax-efficient way of granting shares to key employees. Critically, they qualify for Entrepreneur’s Relief under most circumstances, which means the capital value of any shares would only be taxed at 10% on the sale of a business.

Perhaps you’re an owner-manager of a business and thinking about the best way to incentivise a key member of staff? Although it’s always important to take professional advice from your accountant, here are some key facts that are worth bearing in mind.

First, the granting of options allows a level of protection for existing shareholders. The options will lapse if the beneficiary chooses to leave, which gives reassurance and reduces the burden on the business of costly shareholder disputes.

Another point to note is that trigger points or ‘conditions’ can be built into the arrangements. Usually the options can only be realised when the business has moved beyond certain profit thresholds. As a result, your employee is strongly motivated to help the company grow. And although current owners might lose some shareholding, they are compensated by the overall increase in value.

For Entrepreneur’s Relief to apply in normal circumstances, a director or employee must hold more than 5% of the voting share capital in a business for more than the 12 months preceding the sale of the shares. With EMI options, you can still qualify for relief with a lower percentage shareholding and the 12-month clock starts when the option is granted and not when it is exercised. It is therefore possible to exercise the option immediately prior to a sale and still benefit from Entrepreneur’s Relief. It’s a flexible system that gives you a lot of control, provided you are a business with fewer than 250 people and the options aren’t worth more than £250k at the date of grant.

A typical scenario might be an owner of a business who hopes for a trade sale in a few years and who has one or more employees that will be critical in growing the value of the company. The business owner can grant options which trigger when specific targets have been met. The staff member involved would then exercise the options prior to the sale. This either provides a share in the overall value on exit or provides an amount which the employee could use to support a management buy-out.

The agreement itself doesn’t necessarily need the involvement of lawyers and can often be handled by your accountants. So if you’re looking for a way to incentivise key staff members and grow your business, why not talk through the possibilities?

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

The dividend that comes with sensible remuneration planning

When you’re running a small business, it’s all too easy to end up paying more tax than you actually need. One of the problems, of course, is that you’re very much focused on the day-to-day priorities of the company and ensuring its success. And if your enterprise is a family concern, with joint ownership between a husband and wife, even keeping up with your cashbook accounting and VAT can sometimes be a challenge if you’re pressured for time and worrying about securing the next sale. It’s definitely worth creating a space to talk to your accountant about remuneration planning, however. Some very straightforward steps can help to minimise your liabilities and get the most out of the business you’re trying to grow.

An example might be a company in which a husband and wife are both paying themselves significant salaries. Perhaps one partner is a director on £75,000, while the other takes home a pay cheque of, say, £26k. In this scenario, two problems arise straight away. The first is the high level of PAYE and National Insurance within the company and the second is an unnecessary burden of extra personal tax. The spouse on the lower salary is not using up their basic rate band, while the higher earner finds themselves in the higher-rate tax bracket.

The solution here might be to reduce both salaries to the level at which no national insurance is due and for the two business owners to both take dividends up to their basic rate bands instead. Rather than a 20% levy on the £26k salary, there would be a 10% tax on dividends under the basic-rate band. The director, meanwhile, would end up paying less tax on their dividends than they did via PAYE.

This strategy would provide a significant additional joint net income of approximately £19k a year to the director and their partner, while the cost to the company would remain the same.

If you’re in any doubt about whether your own affairs are arranged in the most efficient way, then a conversation with your professional adviser is the first starting point. A small amount of planning can potentially reap a big reward.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

There’s a downside to every upturn, which is why it pays to think ahead.

After a turbulent few years, there are now plenty of signs of recovery in the British economy. Inflation and unemployment are falling and business confidence has picked up markedly. In theory, this paints a rosy picture for small and medium-sized enterprises, but the reality may be rather more complex. In fact, there can be a number of hidden dangers at the start of any upturn. And it’s only by working closely with your professional advisers that you can be sure of avoiding the pitfalls. The first and perhaps most obvious thing to say is that many businesses have stretched themselves to the limit during the downturn. Weathering a recession often means living on reserves and relying on the goodwill of creditors and HMRC.

Banks – although much criticised in recent years for their reluctance to lend – have often been reticent about pulling the plug on long-standing clients who have been struggling to survive. Now that the climate is changing for the better, there’s a tendency for decisions to become more hard-headed.

Debt can start to spiral during the economic hard times too. How many small business owners have over-extended themselves, perhaps taking on personal liabilities by extending their mortgages or even maxing out their credit cards? With interest rates likely to rise from their historic low in the medium-term, pressure will soon be mounting.

So the irony of an upturn is that it can actually signal a potential rise in insolvencies. That’s why forward-thinking businesses need to plan ahead – working closely with their accountants to draw up a strategy for survival and ultimate growth. Honesty is definitely the best policy. There’s always a danger that you can stick your head in the sand and pretend that everything will work out.

With the help of your professional adviser, you can look objectively at critical issues such as your product range, margins and terms of business. You can also examine capital expenditure and staff resources. This can result in the kind of robust cash-flow predictions that are able to withstand scrutiny and stress-testing.

A good approach might be to go to your bank with a revised business plan, providing a ‘state-of-the-nation’ report. Even if it’s just an honest recognition of problems and a statement of how you intend to survive the next couple of years, it will be a welcome sign that you’re addressing the issues that need to be tackled. And the fact that you’ve involved your accountant to provide a holistic overview will undoubtedly give the exercise much more credibility.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Thinking of becoming a limited company? Time to go goodwill hunting...

It’s a conversation that many sole traders periodically have with their accountants. Is it a good idea for me to incorporate as a limited company? Although the answer isn’t always clear cut and can depend very much on individual circumstances, there are clearly a number of potential advantages. The rate of corporation tax for small companies is attractive, of course. There are savings on national insurance. And by finding the optimum balance between salary payments and dividends, you can manage your tax affairs more efficiently.

Often accountants will present the transition as being very straightforward, which at many levels is exactly right. The paperwork is fairly minimal and you can simply transfer the assets of your sole proprietor business and move on. But this might turn out to be a missed opportunity.

Forward-thinking advisers will take advantage of the change in status to undertake a tax planning exercise. By making use of existing rules, it’s sometimes possible to save substantial sums in personal tax by capitalising the future earnings of the business. This idea of accounting for ‘goodwill’ on incorporation can often be missed, but it’s a simple idea. Your business is actually worth more than its tangible assets and this should be taken into account in any valuation.

You should always feel confident your accountant has a good, current understanding of the tax regime and recognises the opportunities that potentially exist. With the correct adjuster clause in a legal agreement, you’re protected even in the unlikely event of there being a dispute over the figures. The valuation can simply be readjusted and reflected in the records of the business.

So although it’s important not to let the tax tail wag the commercial dog, if you decide that incorporation is the right route for your business, make sure you look at all the possibilities. We even managed to save one client enough money to help him invest in a new house. It’s just a question of thinking that little bit bigger.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

When assets need replacing, there’s no need to sweat.

In many businesses, the key asset might be the knowledge and experience of the staff or possibly a valuable piece of intellectual property. Other companies, however, depend heavily on very specific capital assets. The presses used by a printer, for instance. The limousines of a wedding-hire firm. Or perhaps the fixtures and fittings of a gym. But what happens when these vital pieces of equipment or property start to deteriorate? The investment required to replace them can often seem daunting to a small or medium-sized business, particularly if they are already trying to manage existing financial repayments.

One option is to replace assets piecemeal, but very often that’s not the best solution. If you’re a hotel, for instance, your reputation might depend on a rating from the AA or RAC. Doing up your rooms on an ad-hoc basis over the next five years isn’t going to impress any inspector. And it’s a recipe for ongoing disruption and inconvenience for your guests.

Another solution is to work closely with your professional advisers to renegotiate and consolidate the terms of any finance. Draw up a wish list of everything you hope to do but are currently putting off. Then arrange a meeting with your bank at which you put forward a clear proposition.

While individual circumstances clearly vary hugely, it may well be possible to refinance over a sensible timeframe, meaning that there’s no obvious hit to the business on a month-by-month basis. There may also be a chance of negotiating a flexible loan which you can draw down over a period of, say, six or nine months as you require it – allowing you to keep careful control over costs and spend only what you need.

Of course, if you already have a qualified professional on your board, they may be able to provide valuable input. But don’t exclude the idea of involving your accountancy firm. By working in tandem, you’ll be able to make a more credible case to your bank. In many instances, it may be that your advisers will be happy to attend a meeting and answer some of the trickier questions that are likely to crop up during the discussion. It’s an added reassurance for the bankers. And it may be the start of a bright new period of business investment.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk