How to boost businesses tax efficiently

Investing in smaller, start-up businesses can be more risky, which is why the government offers tax incentives through specialist schemes. Jono Wilson of Barnett & Turner guides us through some of the rules. When you’re selling a business or shares in a qualifying company, it’s fairly well known that it’s possible to claim entrepreneurs’ relief, which will help limit your capital gains tax liability to just 10%. What’s more, if assets are being sold because you need to replace them, you may be able to avoid CGT liability with an application for ‘rollover’ relief.

As the economy picks up, it may be that you’re looking to dispose of investments or non-business assets which are increasing in value. The problem is that, if you’re a higher earner, your gains will be taxed at 28%. Unsurprisingly, many clients ask whether there might be a way of lessening the blow.

One tax-planning option is simply to use your spouse or civil partner’s annual exemptions, as well as your own. It’s usually a sensible approach, but the savings are never going to be huge. The joint maximum figure will be £22,000, so the most you can save is approx. £6,000. Also, if your spouse or civil partner does not already use the whole of their basic rate tax band then it might be possible to reduce tax on part of the gain to 18%.

Another possibility is that you take advice from an IFA and consider options such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which are designed to encourage support for small, unquoted companies.

The government recognises that if you invest in up-and-coming businesses, there’s a greater degree of risk attached, which is one reason why they offer relief on both income and capital gains tax, provided certain conditions are met.

With EIS, where the maximum investment is £1m, you can obtain 30% income tax relief on the total amount invested in the tax year (which can also be carried back to the previous year, if preferred). Remember, you can’t have been an employee or director of the business and your interest in the company must be less than 30%. The relief is deducted from your income tax liability, which can be reduced to zero, but no further.

On the capital gains tax front, you can defer payment by reinvesting in EIS shares up to one year before – or three years after – your liability arises. In fact, the tax can be deferred until the point you dispose of the EIS shares and can be deferred again if you make a new EIS investment. If the gain is still deferred at the time of your death, then it won’t come back into charge. What’s more, EIS shares are themselves exempt from CGT on their disposal, provided income tax relief was obtained on the investment and you have held them for a minimum of three years.

SEIS was introduced in 2012 and is designed to support companies that are perceived as slightly riskier investments. If shares are acquired within two years of the business starting to trade, 50% income tax relief is available on the total amount invested in the tax year (or, again, a previous tax year if that’s more desirable). In this case, the maximum investment is £100,000, providing relief of up to £50,000, which is deducted from your income tax liability. As with EIS, it can only be used to reduce your tax liability to zero.

SEIS shares can be exempt from capital gains tax, but the gain and the SEIS investment must be made in the same year, subject to limited carry-back rules. A difference with EIS is that up to 50% of the gains reinvested in the SEIS are exempt from CGT rather than simply being deferred.

The investments mentioned above can in some circumstances have Inheritance Tax advantages but that should be considered as part of a larger IHT planning exercise.

This information is published without the responsibility on our part for the loss occasioned to any person acting or refraining from action as a result of any information published herein.

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

A new start with the one-stop shop

VAT rules changed on 1^st January 2015 and there are important implications for businesses supplying digital services to consumers outside the UK. Barnett & Turner’s Managing partner, Jonathan Wilson, brings us up to date. As part of a strategy to create a level playing field across Europe, rules about VAT on digital services have recently changed.

Instead of accounting for VAT in this country when selling to consumers, you need to account for it in the country the customer is based. And while in the UK there’s generally no obligation to register for VAT unless your turnover is £81k or above, there is no lower threshold when you’re supplying services to consumers in another EU member state.

The change has led to a considerable amount of commentary on social media, particularly as many people thought that they might need to account for VAT on everything they sold, just because of one or two incidental sales of digital services supplied overseas. This isn’t, in fact, the case.

It’s true that a UK VAT registration number will be needed, as this allows you to sign up for the new VAT Mini One Stop Shop (VAT MOSS) platform. But once you’re on the VAT MOSS system, you can account for the tax in any European country via one return and you don’t need to pay VAT on sales within the UK unless you go over the £81k turnover figure.

A statement was issued by HMRC in December 2014, attempting to make the situation crystal clear:

“If you make taxable supplies of digital services to customers in other EU member states, and your UK taxable turnover is below the UK VAT registration threshold, you may use the VAT MOSS to account for the VAT due in other EU member states but you do not need to account for and pay VAT on sales to your UK customers.”

It’s important to remember that the new rules only apply if your services are being bought by consumers. There are different regulations in place to account for VAT in business-to-business transactions.

The term ‘digital services’ is obviously fairly broad and covers everything from telecommunications and broadcasting and e-services. It’s the latter category that is perhaps most likely to affect smaller businesses, which may be involved in selling apps, music downloads, e-books and games. (The definition of an e-service is one which is fully automated and requires little or no human intervention.)

If you’re supplying a service of this type, there’s an onus on you to identify the country in which your customer is based, so if your website currently doesn’t gather this information, it’s something you need to address.

You then have to account for VAT at the rate applicable in the customer’s location. That’s where the VAT MOSS system is going to prove useful, as it simplifies the process and means that you don’t have to register numerous times in different jurisdictions.

Although your accountant can’t take responsibility for the actual registration on VAT MOSS, they’ll be able to guide you through the process and can file returns for you once you’re set up.

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

Self Assessment: don't leave it all to the wire

If you’re relying on your accountant to help you with your self-assessment tax returns, the earlier you’re able to get organised the better, suggests TRACY HENSON of Barnett & Turner. As accountants, we always like to be proactive and remind clients of the need to get their records, receipts and other relevant information ready as far as possible in advance of their filing deadlines. Inevitably though, pressures of business and life can get in the way and the records only arrive as January 31^st looms.

Of course, any professional accountancy firm will do their best to turn things around speedily, but it’s not an ideal scenario from anyone’s point of view for things to be done last minute. I have had clients in tears for instance, when they realise that cashflow isn’t good enough to cope with the imminent tax demand and there is no time left to budget for the liability.

If you’re able to get ahead of the game, you’ll not only avoid last-minute panics and the danger of possible surcharges and interest for late payment of tax, but you may well have the opportunity to spend some time discussing tax planning options with your accountant too.

Another issue is that a last-minute rush may mean your accountant can’t always plan resources effectively. If your tax affairs aren’t that complex, it might be that a relatively junior member of staff can happily take on the work but if they’re already allocated to other projects, a more senior accountant may be needed. Many firms like Barnett & Turner will do their best to avoid penalising clients financially and even discount senior rates but you want to be certain about the fee level you’re going to pay and help yourself avoid any nasty surprises.

So the message is to think ahead and give your accountant a call. See if you can get your adviser the information they need early enough to recalculate any payment on account you have to make in the summer. It may well be that reducing your July payment is worth considering, especially if your income is down on the previous year and accounts have been prepared early which confirm this. For employees who file self-assessment returns, your reminder to take action could be as soon as you have received your P60.

We can then consider the tax that will be due the following January and you can start to budget based on your cash-flow projections. It’s a common sense approach, which will allow both you and your accountant to sleep that little bit easier each New Year.

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

Property a hot topic as CGT changes loom

Draft legislation is about to herald a new era in capital gains tax. The changes – due to come into effect in April 2015 – will have an impact on all non-UK residents who dispose of a residential property located in the UK. Any gains realised by either a sale or a gift will be subject to CGT, regardless of the value of the sale. It’s not just individuals who will be affected by the change. The rule also applies to non-resident companies, partnerships, trustees and personal representatives of deceased non-UK residents. Although institutional investors (non-UK resident pension schemes or foreign real estate investment trusts investing in UK residential property) will be exempt, no reliefs or exemptions are generally available if the property is held for investment purposes, even if it has always been rented out.

What’s more, the charge will apply to properties under construction and being adapted for residential use – including land that forms the garden or grounds of a residential building.

Only gains from 6^th April 2015 will be charged. Normally, the property will be rebased to its market value at that date. Time apportionment can, however, be used to calculate the gain after 6^th April or the gain and loss can be computed over the whole period of ownership.

Companies with properties already subject to Capital Gains Tax on Enveloped Dwellings (CGTED) for the entire period from 6^th April 2015 to the date of sale, will not be subject to the new provisions.

Can Main Residence relief be claimed?

If a nomination is made, it’s possible for Main Residence relief to be granted. The property does, however, have to be located in the same country in which the taxpayer is resident for tax purposes. It’s also essential that the taxpayer spends 90 midnights in the property during the tax year.

Facts and figures at a glance

• The annual exemption amount (£11,000 for 2014/15) is available to non-resident individuals.
• CGT for non-resident individuals will be 18% at basic rate and 28% for higher rate taxpayers.
• Non-resident trusts will pay 28%, while non-resident will be charged at 20% and indexation allowance will be available to take inflation into account.

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

You can, when you plan...

Time is ticking away if you want to do some serious tax planning in this financial year, writes Jono Wilson of Mansfield-based firm Barnett & Turner. With a general election on the horizon, taxation – and each party’s various policies regarding wealth – will be high on the agenda in the coming weeks and months. You may therefore be forgiven for thinking that the money that remains in your pocket is entirely decided by those in power. In reality, you might be more in control than you imagine.

Although this week’s budget gives us a little warning of what the future may hold, planning can only be based on the here and now, starting with the approach of the end of the tax year.

It’s hard to believe, so soon after the 31st January self-assessment bombardment, that there are only a few weeks remaining of the 2015 tax year to plan and adapt.

Tax planning itself will vary in complexity between individuals, but there are a number of things that we all should look at before 5th April 2015 in order to ensure we don’t miss out:

Individual Savings Accounts (ISAs)

Have you taken advantage of your full annual entitlement to these tax-free accounts? The regulations for 2014/15 were relaxed last summer, meaning that you have an annual allowance of £15,000 which can be invested however you choose. The ability to select between cash and/or stocks and shares gives you much greater flexibility than ever before.

Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS)

Investments in these schemes may bring an increased risk, but the tax breaks are attractive. Is now the time to consider whether the relief offered is worth the additional risk?

Pension Contributions

Have you used your full annual allowance of £40,000? Is there any unused allowance from the previous three tax years that you could take advantage of too? Remember, relief from 2011/12 tax year must be used by 5th April 2015.

Personal Allowance

With a tax free earnings allowance of £10,000 per person, it may well be that planning between spouses is necessary in order to obtain maximum advantage. At the other end of the scale, the personal allowance decreases by £1 for every £2 that your adjusted net income exceeds £100,000, giving nil allowances to an individual earning £120,000 or above. Could your adjusted net income perhaps be reduced via pension contributions and gift aid?

Capital Gains

Remember to make use of your Annual Exemption of £11,000 before the end of the tax year. This exemption is per individual, so think carefully about the ownership of any assets that you intend to sell.

Capital Allowances

Consider the timing of asset purchases. Would it be beneficial to buy earlier, in order to take advantage of the allowances at the earliest possible point in time?

It’s easy to see that it’s a really great time to take careful stock of your finances, but the suggestions above are only a starting point. Are you doing everything that you can to help yourself? Why not sit down with your accountant and draw up a plan for maximum tax efficiency?

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 ahead on VAT compliance

Before the inspectors come calling, it pays to give your business a VAT healthcheck. David Wilson of Barnett & Turner talks us through the process. An annual VAT healthcheck is essentially a review of the VAT practices of a business – something akin to a mock VAT inspection but with added benefits. Many people in accountancy firms who provide this kind of service may be ex-VAT officers themselves, so they’ll know exactly the kinds of issues that are likely to raise concerns with HMRC.

For you, a healthcheck is a reassurance that your VAT affairs are in order, which will give you peace of mind – and additional credibility – if an inspection is called. Of course, in the current climate, there is a lot of pressure for the taxman to bring in more money, so scrutiny is only likely to increase. In addition, a healthcheck is an opportunity for a friendly VAT expert to look at ways in which the business could improve its VAT position – something the VATman won’t necessarily tell you!

When I go through the activities of a business, I start with fundamentals such as where VAT should and shouldn’t be charged. A common area here is cross-border compliance. Although the regime was simplified in 2010, it’s still a confusing world which many of our clients find problematic. There’s also the issue of expenditure and whether a client has claimed back VAT in areas they shouldn’t. I’m thinking here specifically of expenses such as business entertainment, which is a common target of the VATman.

After the healthcheck, it’s normal to write a report outlining findings to the client, quantifying errors and suggesting ways of dealing with them. My recommendation would always be to disclose any mistakes, as this openness with HMRC will be a mitigating factor when it comes to deciding on penalties. However, if you’ve been prompted to make a disclosure by, say, the threat of an inspection, it’s more likely that a penalty will be imposed. The fine can be up to 30%, but can often be mitigated down or sometimes be waived altogether.

It’s a mistake to think that all VAT issues will be uncovered by regular accountancy work unless it’s been specifically agreed as part the terms of engagement with your accountant. This is one of the things that makes the VAT healthcheck so essential. But how much work is actually involved? Well, it will probably depend on whether you’re asking your adviser to look at a specific issue or simply asking for them to take an overview and highlight any identified areas of concern. It may also be that you’re able to do some of the groundwork yourself, which would reduce the time commitment and fees of your accountant.

A typical scenario might lead to uncovering an underpayment of VAT. A client might then choose to engage us to handle that issue, manage the process and get things sorted out with HMRC. On the plus side, it may be that the healthcheck identifies efficiency savings which can then reduce the debt.

Overall, if the Revenue can see that a VAT healthcheck has been undertaken, they may well take comfort that you are acting responsibly and doing your best to comply with regulations. This will ultimately make your life easier so it is good sense to think ahead and to work proactively with your accountant in this complex area.

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

Your accountant as your new best friend – part 2

In the second part of a two-part blog (part one is here), Jono Wilson of Barnett & Turner, explains the role that accountants can play in offering their clients business advice. I’ve already outlined how important accountants can be to a business owner or manager when the company is just getting started. As your enterprise grows, however, there are plenty more opportunities for your accountant to act as a trusted and influential adviser. Critically, they will be able to ask you questions and challenge your strategy from an impartial perspective.

Most straightforwardly, there will be those regular meetings in which you review accounts and look back at what has been happening over the past year.

Perhaps the accountant spots that you’ve taken on sub-contractors? They appear at first glance to be self-employed, but might the Revenue argue that they’re effectively employees, leaving you liable to pay their national insurance contributions and additional penalties? Maybe there has been an increase in advertising expenditure in the same period. Is there a reason for this and is it possible to demonstrate that it’s been effective at bringing in new business?

All kinds of other issues might arise, of course. In the age of cloud computing, maybe it’s pointless to invest in costly new IT equipment. Your accountant may be able to provide some expertise in this area and draw on the experiences they’ve gained through supporting other clients. What about your insurance policies? Are you covered in the event of key people within the business moving on or becoming incapacitated?

Most fundamentally, your accountant can look at your profit figures and help you to set them in a wider context. Is the market shrinking or growing? What are competitors doing? It might be that you need to look at refocusing your business on areas that are most profitable.

Your accountant should be aware of important legislative changes – pension auto enrolment, adjustments to retail rates relief and so on. They should also help you look to the future and think about strategies for organic growth, acquisition and the raising of finance.

Last, but by no means least, you may want advice on an exit some years down the line. Do you need to think about succession planning? Or consider the respective merits of a trade sale against, say, a management buy-out?

Whatever the size of your business and your long-term goals, your accountant really can become an adviser, impartial sounding board and friend. So make the most of them!

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

Is your accountant your new best friend?

Accountants aren’t just there to look at the numbers, argues Jono Wilson of Barnett & Turner. They act as a useful of source of general business advice too. In the first segment of a two-part blog, he outlines the specific ways they can help your company to prosper. If you think that accountancy is all about compliance work – tax returns and the preparation of formal accounts – then you’re probably underestimating the degree of help that your professional adviser can give you.

It’s worth remembering that accountants are typically dealing with a number of different businesses of varying sizes. These companies will have reached stages of development and maturity and they will operate in a diverse range of sectors. As a result, the accountancy firm will be picking up useful insights which may well be relevant to the issues you’re facing in your own business.

Let’s face it. As busy manager or owner, you often don’t have the time to sit back and reflect on the priorities and future direction of your business. It’s great to have some impartial advice and someone who can act as a sounding board. Your bank is one option, of course, but very often the relationship will be transactional and you’ll end up discussing your overdraft facility.

When you first set up a business, an accountant may be one of the first people you speak to. And right from the start of the relationship, they’re likely to be going beyond the figures and giving you advice. When an individual chooses whether they should become a sole trader or incorporate as a limited company, for instance, it’s not only a question of the tax differential. Simplicity and flexibility might be just as important in determining the decision as the bottom line.

As the business develops, you’ll start confronting a whole range of other issues. Employment law, commercial questions, IT provision and the raising of finance. While your accountant may not be an expert in any one of these areas, they are an excellent first port of call, as the chances are they will have useful contacts and be able to make recommendations.

Next time: how your accountant can challenge you and help you prepare for the future.

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

Converting to limited company status? The choices just got harder.

Following changes to the rules around partnership and LLP structures, many businesses have been looking to convert to limited company status, writes Jonathan Wilson of Barnett & Turner. But the announcement in the Chancellor’s Autumn Statement on goodwill has now left people scratching their heads. When the Chancellor announced changes to entrepreneurs’ relief in the Autumn Statement, it came as something of a bolt out of the blue. With more and more clients in partnerships and LLPs looking to convert to limited company status, the news that relief would no longer be granted on the sale of goodwill caused many owners to revisit their strategy.

The context, of course, is a series of moves which have made partnership status less attractive. For many businesses, a partnership structure has the flexibility needed to bring new people in to an equity stake. Recent changes mean that ‘salaried members’ have to go on to the payroll and the use of ‘corporate partners’ is, in many cases, prohibited, leading to potentially very high tax rates being suffered irrespective of whether profits are available to be drawn out.

As a result, many accountants and advisers have been helping clients to make the transition to a limited company. Although this structure is more rigid, one of the clear benefits of the change of status has – until now – been the ability to pay only 10% tax on a profit from the sale of goodwill to the limited company.

When the Chancellor announced that this would no longer be possible, it was mentioned within the general context of closing loopholes on tax avoidance. The decision has, however, caused a great deal of concern – particularly to businesses which were in the middle of the conversion process. For some it’s a “double whammy”, because as well as removing the availability of entrepreneur’s relief, any deduction within the company for amortisation relief has also been removed.

With a little time to reflect, it’s clear that the decision to convert to limited company status is now much more finely balanced, but many clients may still decide to make the change. There’s always the option of gifting goodwill on incorporation rather than selling it. It’s also important to look at the question of whether you have ‘base cost’ in your goodwill, in circumstances when it might have been bought from previous retiring partners. If so, there may be a small tax advantage still, although it’s fairly marginal.

Ultimately, the circumstances which were provoking LLPs and partnerships to change their company structures haven’t gone away. It’s just that the Chancellor has removed one of the attractive carrots that was previously dangling in front of business owners. Your accountant will be able to look closely at your circumstances and give you appropriate advice in light of all the recent changes.

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

A mentor could be a motor for your business

Forward-thinking businesses will often recognise the need to offer their FDs and senior executives independent advice and guidance, writes Jono Wilson of Barnett & Turner. And it may be that accountancy firms are uniquely placed to step into the role of mentor. Let’s imagine a scenario in which someone has newly been appointed as Finance Director of a business, perhaps after a number of years as an accountant. The company sees their potential and knows they’re ready for a new leadership role, but it’s not always a straightforward transition to make. The advice of an impartial mentor can be a great confidence boost and help to solve a number of practical issues – at both a tactical and strategic level.

Accountancy firms will often be able to offer a mentoring service to their clients. Five key areas in which a mentor can help a busy FD or business owner include:

Setting the company’s financial scoreboard – not merely looking at the accounts, but communicating meaningful information to the wider management team.

Forecasting financial requirements – thinking about cashflow, the input that may be coming from external funders, dealing with the bank and addressing invoice finance.

Managing the accounting function – building a team, although not necessarily working within it.

Liaising with external professionals – providing the tools to help in proactively managing professionals such as lawyers, bankers and financial advisers.

Managing corporate finance and capital requirements – overseeing the investment of venture capitalists, as well asset and bank finance.

In practice, there are a number of different ways of managing the relationship with your mentor. It can be as structured and formal as you need it to be.

You can meet together for, say, an hour and a half on a monthly basis and simply tackle the biggest issue that’s currently on your agenda. But you can also use the session to start drawing up a road map for the next six months. Or look ahead over a three or five-year timescale if you happen to be, for instance, the owner of a small business who’s looking for an exit strategy.

Ultimately, though, you can think of a mentor as someone who can help to grow your business and be a sounding board. Perhaps they’ll make a very obvious difference – helping you to access money from a venture capitalist when a bank refuses to lend, for example. Or it may be that they’ll simply offer you sound, impartial advice that will allow you to make steady progress month by month.

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