Entrepreneurs Relief

Entrepreneurs Relief… great news for new shareholders

Entrepreneurs Relief is no longer restricted to just directors or employees of Owner Managed Companies… external shareholders can now take advantage of the 10% rate of Capital Gains Tax on the sale of your company’s shares.

It came as a real surprise when the Chancellor announced it in his latest budget… and it’ll help investors who can’t take advantage of EIS & SEIS

It’s an attractive addition to a package of measures trying to encourage medium term, stable investment in unlisted companies… and it won’t cost the Chancellor a penny until 2019 at the earliest, because it only applies to shares bought after 17th March & held for 3 years…

But as the adverts say… every little helps..

Entrepreneurs Relief… the new rule

Here’s what the Chancellor actually put in his 2016 Budget

Entrepreneurs’ Relief will be extended to long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.

Dividends instead of Salary

Dividends instead of Salary… don’t do it !

There’s only one reason to pay yourself Dividends instead of Salary… to avoid a bit of tax / NI… but here’s 5 reasons not to…

Dividends are not ‘relevant earnings’ for pension purposes.. so payments into your pension can’t be deducted from any Dividend income… but they can be from any Salary

Salary makes your affairs simpler, clearer… with tax paid as you go along… minimising lumpy shocks & payments of extra tax in January & July

Funders don’t really get you paying out their money as Dividends… try telling some of them you’re paying yourselves that way to avoid paying some tax & see how they like it… particularly if you’re trying to raise new money… (I know a Bank Manager who absolutely hates it)… and if you’re looking to work with Venture Capitalists & Angels they’ll often put constraints on the company paying out Dividends

R&D tax reliefs are now so generous that companies will often forego a Grant to keep the tax relief… a Salary for someone working on R&D (that’ll be you too as the company Owner Manager) attracts a lot of relief… Dividends don’t count

Overdoing the Dividends can turn ‘Profits to Losses’… not strictly so… but taking out too many Dividends in any one year can shrink your Balance Sheet… making it look like your company made a loss… when it may have made a Profit… which’ll hurt your Credit Ratings

So… as the tax regime around Dividends gets tightened up… and the smell around some forms of avoidance gets stronger… maybe it’s time to have a word with your accountant… and make sure your Dividend payment policy still suits you…?

 

Source Documents & Calculators

New Dividend Tax Regime

Cracking Tax Calculators to play with

Simple explanation of Pension & Divs for tax year April 2017 and how the company can make tax deductible contributions to your pension… even if your low Salary means you can’t

The picture with this post comes from Salary Versus Dividends & Other Tax Efficient Profit Extraction Strategies: Written by Nick Braun

Capital Allowances

Capital Allowances… have you any waiting to be claimed?

If you’ve spent money on assets you have the right to Capital Allowances… which help reduce your tax bill… but are you claiming all that you can?

Sometimes keeping up with all the rules & wrinkles can be a tad too much for smaller accountancy practices… particularly the rules related to property…

e.g. did you know you can claim capital allowances for fixtures & features on buy to let properties?… without invoices for the work done?

There are specialist tax firms who’ll take a look at an Owner Managed Businesses assets to figure out :

1. if there are claims to be made… and

2. if claims are being made are they being maximised

And they bill on a no-gain-no-pain basis… so what have you got to lose?

Here’s a firm who’ve had a lot of success maximising Capital Allowance claims… Leeds Based

The C3 Group .  and here’s a flier introducing you to Peffs

Permanently Embedded Fixtures & Features (PEFFs) may be claimed on most types of commercial property, from retail or industrial units to offices and factories, to bars, hotels and restaurants. They can also be claimed on more specialised commercial properties such as nursing homes, doctor or dentists surgeries, sport centres and even data storage centres. PEFFs can also be claimed on residential buy to let properties that are let to more than one unrelated persons such as student accommodation.

Why not check it out & claim all the Capital Allowances you can?

grants

Grants… saw this, thought of you…

If you haven’t seen it, here’s a great site for sniffing out grants (& other funding for UK businesses & social enterprises)…

… an email address is all you need…

Idox… grants for business

 

Funding Platforms… a bridge too far?

The Government is forcing banks to point SMEs in the direction of 3 funding platforms when they turn them down for lending… and I’m not sure why…

Why pick only 3… why these 3… in fact why pick any at all?

Government supply-side intervention to open up & ‘perfect’ markets can be worth trying… and their intentions are laudable

But by dictating which platforms the banks must refer their clients to, the Government is picking winners… or rather it is making them… by excluding others from their ‘designated’ list…

Congratulations to BizFiTech , Funding Options , Funding Xchange

… because this intervention brings them firmly into the banking sector’s eco-system & should pretty well guarantee more success than they were having on their own (I certainly know of no companies who’ve used them… and hadn’t even heard of two of these platforms)

But why bother designating funding platforms at all?

Some of the banks had already heeded Vince Cable’s call to help out SMEs that the banks themselves couldn’t help… e.g. Santander were already pointing declined customers Funding Circle’s way…

And frankly the Alternative Finance sector is in rude health right now… and getting feckin’ ruder every month…

The FSB Q1 members survey showed it… nearly 10% applied for Alternative Finance

Screen Shot 2016-04-13 at 10.32.40

The Altfi site shows it too…  the incredible exponential growth the Alternative Finance scene is experiencing is amazing…  and this isn’t chump-change … this is £bns…

Altfi growth

Who wouldn’t like to see a ‘sales’ curve like that…?

And whilst surveys show less than the 50% of SMEs are aware of these funding alternatives (o yeah??).. who reading this blog doesn’t already know they exist… ?

… so whilst I welcome some government intervention in the Owner Managed Business sector… I worry that they’re over-reaching a tad… by trying to pick winners & fix something that looks to me like it’s working pretty well…

… and they may well wake the law of unintended consequences…

eg… as the Alternative Finance scene gets sucked / regulated into the eco-system of the mainstream banks I suspect we’ll see less innovation… which will be a big shame… and certainly wasn’t intended…

… and I also suspect it’ll mature the SME Alternative Finance sector pretty damned quick…

… all it’ll take is a downturn to finish the job off…

… and finish off a fair few of these brave new upstarts too… particularly those that the government and the banks haven’t ‘picked’ ?    🙁

 

 

 

R&D Tax Relief

R&D Tax Relief… use it to raise money?

R&D Tax Relief isn’t just a great way to get HMRC to help fund your Research and Development… you can use it to raise money

Already Claiming?

26% of declines by banks are because of affordability… which means your business plan & forecasts haven’t convinced them that you can afford the borrowing you’ve applied for …

So make sure your plan takes into account that you’ll be paying out less in tax every year you’re doing R&D… or even getting money in from HMRC… (because if you make a loss you can surrender your tax relief for cash from HMRC)

I’ve recently seen business plans from two companies that already claim R&D Relief… and will keep on claiming it year in year out… but their forecasts didn’t take that positive ‘cash-flow’ and profit effect into account…

Not Claimed R&D Tax Relief yet?

Why not? HMRC really are keen for you Owner Managed Businesses to do it.

So much so they’ve recently introduced ‘Advanced Assurance’ ...

If you’ve never claimed R&D Tax Relief before… have Turnover less than £2m… and less than 50 employees… you can go online and see if your R&D plans qualify for this cracking tax break…

… and they will give you a written confirmation that your plans will qualify for up to the next 3 years…

… so when you model your cash flow & profit forecasts you can take account of the reduced tax you’ll pay… or the tax that HMRC could actually end up paying you…

… that will make your plan more realistic… and any funding you’re trying to raise will look more affordable…

DIY

Like me, HMRC are aware that a lot of you have accountants / advisors who aren’t working the R&D wrinkle for you… so they’re happy for you to go DIY… take a look… the Advance Assurance is all done online…

 

 

 

 

 

banks data share

Banks to share your company data?

Later this year the big banks will start sharing the data they have on your company with 3 Credit Rating Agencies…

… who will then package it up with their existing data and pass it on to whoever’ll pay for it…

Obviously you have to agree… but equally obviously your agreement will be buried in your bank’s Ts & Cs… that you never read…

Good Thing?

Hell yeah…

The Credit Ratings of Owner Managed Businesses rarely reflect reality… and that’s because of the dearth of info out there for the agencies to use…

Agencies & the financial community aren’t firemen… they don’t rush to danger… they step back in the face of little or no information… and SME credit ratings suffer as a result…

So the more data they’ve got to work with the better… and Experian are pretty clear that commercial data from banks… “tend to be predominantly positive rather than negative”

A perfect market needs perfect information… so information asymmetry is a perfect place for some Government supply-side intervention…

Here’s their thinking

The control of credit information by existing providers is a barrier to entry in the market for lending to smaller businesses.

Opening up access to credit data held by the big banks will increase the reliability of credit scores, enabling alternative finance providers to make better-informed decisions about finance provision to smaller businesses.

But this is about much more than financing decisions…

Most of you aren’t looking for funding… but better Credit Scores do so much more than help raise money…

… they can help Owner Managed Businesses attract new Customers and get better terms from Suppliers too…

… so what’s not to like?

 

Sources

Government Announcement on the Credit Data Sharing

Right now they’re testing the security of the sharing system between the banks & the Credit Agencies… expect it to be live later this year

Banks that’ll be sharing the Information on their SME customers

Banks can’t share info on companies that are no longer their customers… so if you’re sensitive to this data-sharing… time to find a bank that’s not on the list and move?

Who they’ll be sharing Info with (the 3 Credit Agencies… scroll down)

Expect more agencies to apply to become involved when the Government re-open applications, probably later this year

The actual Regulations… for Geeks who like going to the actual source… like me 

Interesting to note this in the Regs

3.—(1) A designated bank must provide credit information that it holds about each customer of the bank which is a small or medium sized business to a designated credit reference agency

My underlining… hopefully this loose wording means it’ll not just apply to Limited Companies… but partnerships too…  the Credit Agencies really do struggle to rate them… because Partnerships don’t have to file accounts etc at Companies House ?

 

Offshore

Offshore Furore

When I was a trainee accountant I sat in a meeting where a client asked one of our Partners to put some of his money Offshore…

The Partner thought about it… then stunned the room by waving at the door and saying “That’s the way Offshore… f*ck off”

Lord knows what that Partner would say to the Prime Minister…

Evading the discussion about Avoidance

Avoidance is legal, evasion is not… but one man’s avoidance is another man’s evasion… whatever the law actually says… and that’s the problem for the PM…

Punting money abroad to manage your tax liability seems tacky, dirty, or downright dishonest to a lot of Brits…

But do they feel the same about putting money into a pension & getting a tax break… or into an ISA where the income is tax free…

Or is it really all about availability… ?

If avoiding tax Offshore was available to all and pushed & promoted by the Chancellor as Pensions & ISAs are … would the PM be having such a tough time… ?

Who’s next in the firing line?

It’ll be interesting to see if this spills over into a more general look at other wrinkles that help some pay less tax… wrinkles that aren’t available to all…

e.g. you guys taking Dividends instead of Salary to avoid National Insurance

e.g the ‘Entrepreneurs-only’ 10% tax rate on Capital Gains made when selling your business…

Both completely indefensible in my book…

But like I say… one man’s ‘let’s do it’… is another Partner’s ‘f*ck off’

Bank Appeal

Bank turned you down?… Is Appealing Appealing?

If your company’s been turned down for funding by your bank is it worth appealing?

Yes !

Roughly a third of appeals succeed… and for some banks it’s higher…

There are a few reasons why appeals work… (e.g. you might supply more or better info on your company during the process)… but I suspect a fair bit of it is having someone else within the bank take a look at your application… someone at a higher pay grade and with greater authority & capacity to take a risk…

Who cares why… appealing works for a third of applicants

Simply follow your bank’s appeals process… or do it totally foc through Better Business Finance 

… but act quickly… there’s a 30 day limit from the day you’re turned down…

… and then within 30 days of your appeal you’ll know if you’re one of the one in three who get what they want…

… and if you’re not… the banks are now supposed to recommend you on to another funder who may well give you the money you need (something I’ll blog about soon)

So why do they turn down companies in the first place?

Bank Appealing reasons for refusal

The single biggest reason for refusal is a poor Credit Score…

… but frankly there’s no reason to let your Credit Score get in the way… if you ‘manage’ it in the month or so before you apply for funding you can get it up where you need it to be…

… it can be easily done (sign up in the sidebar for a free book on understanding UK Company Credit Ratings and boosting them)

… and nobody dies…

My 2p worth… Here’s Hoping the Successful Appeal Rate Falls ???

Professor Russell Griggs OBE  independently monitors and reports on the banking sectors’ appeals process…  and like him I’m hoping the % of successful appeals keeps falling as it has done for several years…

… because I’d take it as a sign that the banks’ appetite for lending to SMEs is improving… so fewer companies that should get funded don’t…

… and those SMEs that get refused & then appeal will increasingly only be those that don’t play the game when it comes to tidying up their Credit Score and fail to prove the affordability of the funding they’re seeking…

.. basic stuff to get right before you apply imo

Sources :

Better Business Finance 

 

website cost or not

Website… a Cost or an Asset?


Your own view doesn’t really matter… but what your accountant thinks does… because your website can be treated as an Asset and not a Cost…

… which means a boost to this year’s Profits… a strengthened Balance Sheet… and an improving credit rating…

Old Rules

For most of you, in the past when you bought or built a new website the cost was written off through the Profit & Loss…

A lucky few who built their own may have had an accountant prepared to use UITF Abstract 29 Wesbite Development Costs (issued in February 2001) to take those costs and put them into the Balance Sheet as a Tangible Asset…

… and a luckier few who paid for a site to be built for them had accountants happy to capitalise website costs as an Intangible Asset

New Rules

For year ends December 2015 & onwards there’s a new set of accounting rules FRS 102 replacing the old rules…

… if you’ve recently bought or are developing a new website for yourself you need to get your accountant to look carefully at how those costs get treated…

Because I see no reason for most of those costs to hurt your bottom line (unless you want them to!)… a bought website can be capitalised as an Intangible Asset… an internally built website can be Tangible or Intangible…

As the ACCA say … FRS 102 leaves it up to you and your accountant to ‘develop a suitable accounting policy’…

The Tax Man

So what does the tax-man make of your website…? well… here’s what they say

“The cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital; the cost of changing the display from time to time is revenue”

So the Tax Man says the building or buying of your new website can be an Asset… later content & changes can be Costs…

But bear in mind that if you do choose to treat your new website as an Intangible Asset…

… your taxable Profits will go up (by moving costs out of the profit and loss)…

… and in future years they will be lowered by Amortisation (a fancy word the Depreciation of an Intangible Asset)

So… Website… a Cost or an Asset?

Up to you & your accountant really… but I guess that decision will be informed by whether or not you want boosted Profits & Balance Sheet this year?

Either way…

‘Nobody Dies’