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

Think you’ve sorted auto-enrolment? Think again...

Many businesses and their employees are aware of the legislation surrounding auto-enrolment for pensions. Indeed, the ‘staging’ dates for bigger companies have already come and gone, so quite a few lessons have been picked up along the way. Perhaps your own date still lies ahead, but you’ve talked to your IFA and identified a provider? It would be easy to think you’d done the hard work. But actually, the real issues may still lie ahead. Data compliance, processing and communication are all potential headaches for businesses. After assessing your existing pension and selecting a new scheme, you need to identify your eligible employees, conduct an impact assessment and then communicate about the staging date. And when the staging comes, you’re into the business of doing the payroll deductions, physically paying the pension provider and again communicating with your staff.

Some accountancy firms provide a ‘bureau’ solution for payroll – overseeing the process on behalf of numerous businesses. If you make use of this kind of service, it certainly reduces your stress, but you need to make sure that your professional partner is geared up to the communication aspects of the new pension regime. Telling employees they are enrolled and when the money’s being deducted for instance, or compiling a remittance file and sending it to the pension provider.

Of course, you can choose to manage the process yourself, but penalties for non-compliance can be up to £10,000 a day, so even the most professional of businesses might want to look at an outsourced option. It soon becomes obvious that the pension commitment itself is only part of the cost of the new legislation. It can potentially eat up time and internal resources. And that’s before you consider the cost of purchasing specific pieces of software or signing a formal outsourcing contract.

Some of the third-party software solutions on the market can integrate seamlessly with your payroll platform, but it’s possible to create even more technologically advanced solutions. Imagine, for instance, communicating with your employees via Android, IoS or other mobile platforms. It’s relatively easy today to send P60s, payslips and pension communications, for instance, directly to employees’ phones.

The advice from experts, as you might expect, is to think ahead. If you give yourself a year to plan before your staging date, you will not only ensure that you select the right pension provider, but you’ll also have in place everything you need for practical implementation.

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

Commercial property transaction? Think of the pool before you jump in.

The start of 2014-15 tax year heralded a significant change which is set to have an impact on commercial property transactions. It’s always been the case that buildings will contain items classed as ‘fixtures’, on which it’s possible to claim capital allowances. Historically, however, owners of properties may not always have identified everything that can potentially be claimed. All in all, it didn’t matter too much. If you were buying, you’d employ a valuer to estimate the current replacement value of the fixtures and make a claim based on their report.

HMRC thought the system was open to abuse and a potential source of tax leakage, as it was possible that claims might be made for fixtures on which the owner had never paid tax as a disposal value. Under new rules, a ‘pool’ has to be established which contains all the items that can potentially be claimed.

As a purchaser of a property, you can only claim capital allowances for expenditure the seller has already pooled. And if you acquire a property where no pooling has taken place, no one will be able to claim a capital allowance. It will then become an ongoing issue.

Commercial property contracts will now include a clause that requires the seller to pool all relevant assets prior to the completion of the sale as standard. A buyer will then employ a specialist valuer to look for anything that may have been missed. It’s worth remembering that more items qualify for the list than ever before. Back in 2008, it was decided that capital allowances could be claimed on ‘integral’ fixtures, such as electrical, power and heating systems. Essentially, anything that is fixed within the building, and which can’t easily be removed, counts for these purposes.

A couple of points to bear in mind. The rules about pooling don’t apply if the seller has a specific tax exempt status, such as a charity, pension fund or local authority. And the new interpretation of integral features doesn’t apply retrospectively to items bought pre-2008, which are dealt with under a different procedure.

Whether you’re a buyer or a seller, it pays to be aware of the new rules. It’s also well worth having a discussion with your professional accountancy adviser about the best approach to the issue of allowances.

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 new tax climate that no one can avoid

Accountancy isn’t always a discipline that gets the general public talking excitedly. But there are few people who don’t have an opinion about taxation. In the Budget of 2014, the Chancellor raised a new spectre which was guaranteed to cause controversy – the proposal that HMRC would be allowed to dip into taxpayers’ bank accounts and take the monies it believes are rightfully owed to the government.

We could see this announcement as just one part of a wider picture of the Revenue cracking down on tax avoidance, of course.

There’s been plenty of high-profile debate about large businesses organising their affairs in such a way that they can seemingly duck out of paying corporation tax in the UK. Critics may see this as a cynical attempt to avoid corporate responsibility, while others point to the fact that these companies are employing large numbers of people and paying significant amounts of national insurance.

Whatever the rights and wrongs of the issue, the climate has noticeably shifted and many accountants find that clients are reluctant to take advantage of perfectly legitimate planning opportunities to reduce their tax liability.

One long-standing option for small business people, for instance, is to pay themselves a modest salary and remunerate themselves via company dividends. When used to its full advantage – perhaps in a company where a husband and wife each have a 50% stake – this strategy reduces national insurance contributions and can take individuals out of the higher-rate personal tax bracket.

Other arrangements are more elaborate and require what is called a Disclosure of Tax Avoidance Scheme (DOTAS) to the Revenue. There has never been a guarantee that such schemes, often promoted by specialist firms, will be accepted by HMRC. In fact, they are frequently challenged in court and the government will attempt to recover the sums of tax they claim are due. Promoters of the schemes may well arrange insurance to cover clients’ professional fees in these circumstances.

Under new regulations in the Finance Bill, however, HMRC will be able to take the tax at source before any proceedings begin. The burden of proof seems to be shifting towards the assumption that the scheme is irregular. It’s only if you manage to prove your case that you can recover the sums involved. And in the meantime, the government has being sitting on your cash.

No one likes uncertainty. So as high-net-worth individuals consider their options, it may be that more and more will choose to play safe. It’s also worth bearing in mind that the fees charged by specialists in these tax schemes can be quite off-putting. There’s always a danger that the lure of a tax saving is actually disguising arrangements which are not quite as financially beneficial as they first appear. So the message might be: don’t let the tax tail wag the commercial dog.

It’s difficult to be certain of how this area of regulation will develop in the coming years. Perhaps there’s a potential silver lining in what seems an increasingly cloudy world? If the overall tax take increases and avoidance is reduced, some might argue that tax rates are likely to fall. In the meantime, the important thing is that you consult with your accountancy firm carefully and go into any scheme with your eyes wide open. Be aware of the facts. And understand the risks.

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

When you’re thinking about school fees, it pays to do the maths.

  Parents understandably want to give their kids the best possible start in life and, for some, that means digging deep into their pockets for private education. At the moment, around one in every fifteen children attends a fee-paying institution, according to the Independent Schools Council (ISC), but the percentage climbs quite rapidly once you reach the post-16 age group. In fact, 18% of young people are privately educated after they’ve completed their GCSEs.

If you’re thinking of sending your own son or daughter to an independent school, it’s probably a good idea to have a chat with your accountant first, as you’re actually making a significant financial decision. Although some schools may offer discounts if you’re able to pay up front or have more than one child to educate, average fees for day pupils in the UK are over £3,300 a term, so unless you’re incredibly wealthy, you need to be doing some forward planning to cover the costs.

Of course, your capacity to shoulder the financial burden is closely inter-related with your other household outgoings. Perhaps you need to look again at your mortgage, for instance, and think about the way of getting the best possible deal. With some renegotiation, you might find you can change your payments or switch to a more advantageous rate.

What about ISAs? Remember that the limit for investment was raised this tax year to £15,000 (from 1July 2014), so make sure you make the most of your tax-free allowance. Every extra saving you can make is going to make a difference if you’re taking on a new and significant expense.

Although it’s obviously always good to take professional advice about your own finances, there may be other people in the equation too. Grandparents may be able to assist with fees and can possibly reduce their inheritance liability. They should also consider using a trust to make any contribution if they’re looking to maximise the tax advantage.

The overriding message is to plan ahead. Even if you might not intend to invest in private education for some years yet, it pays to start the discussion now.

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