Plymouth - Essential 6-monthly Finance Directors' Update - June 2016

Essential 6-monthly Finance Directors’ UpdatePlymouth 22nd June 2016

Chairman's WelcomeCharles Evans, Partner

pkf-francisclark.co.uk

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Housekeeping

@pkfFrancisClark#FDSeminar16

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Merger with Princecroft Willis

• 1 April 2016

• 11 partner office

• 120 staff

• Turnover £6.8m

• 2 offices

- Poole

- New Forest


PKF Francis Clark

PKF Francis Clark offices

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About the PKF network

• Global network of legally independent firms bound together by a shared commitment to quality, integrity and the creation of clarity in a complex regulatory environment.

• PKF is in the top 12 of worldwide accountancy networks

• PKF in the UK is ranked, by AccountancyAge Top 50 Firms, as number 11 (operating as a network)

• Global network of over 300 independent member firms

• 440 locations in 150 countries

• A team of 14,000 including 2,600 partners

• Over $2.3bn worldwide revenue


PKF International Network


South West Insider Dealmaker Awards 2016Winner:Matt Willmott – Young Dealmaker of the YearFinalists:Corporate Finance Advisory Team of the YearDealmaker of the Year – Andrew KillickYoung Dealmaker – Nick Tippett

Award Nominations


• EU Referendum• NHS• Steel Industry• National Living Wage• US Presidential Election• Tax Havens

UK Economy – period of uncertainty

Programme

Current Issues in Financial Reporting – Stephanie Henshaw

Topical VAT issues – Liam Dushynsky

Corporation tax – where are we headed? – Paul Collings

BREAK

Capital gains tax for corporate investors – Paul Collings

Employee benefits and pension auto-enrolment 3rd anniversary duties – Reme Holland

Transactions and Funding – Paul Crocker

LUNCH


Current Issues in Financial Reporting Stephanie Henshaw


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In this session….

• New audit exemption thresholds: do they make a difference in practice?

• Company secretarial changes: how to stay on top

• FRS 102: the first six months – hints and tips

• New IFRSs and impact on UK GAAP


Thresholds Small companies

Turnover not exceeding £10.2m

Total assets not exceeding £5.1m

Employeesnot exceeding

50 in all cases

Going up: audit exemption thresholds

Periods beginning on or after 1 January 2016 (no early adoption)


Thresholds Small Groups(gross)

Small Groups(net)

Turnover not exceeding

£12.2m £10.2m

Total assets not exceeding

£6.1m £5.1m

Employeesnot exceeding

50 in all cases

Impact of group membership?

Audit exemption only available where worldwide group is below group threshold


• Well understood public report• Checks and balances on management

External perception

• Cheaper credit• Covenant compliance

Third party attitude

• Impact on warranties• Attitude of buyers

Looking to sell?

Advantages of audit?


• Annual guarantee by parent

• All liabilities existing at year end – actual, contingent and prospective

• Until liabilities settled how much risk?

• Procedural requirements apply

Option for subsidiaries: audit exemption via guarantee


Company secretarial changes

Persons with Significant Control

With effect from 6 April 2016

Annual confirmation statements

With effect from 1 July 2016


Introducing PSCs

Persons with Significant

Control

“Registrable individual”

“Registrable Relevant Legal

Entity”


Identify

Confirm

RecordFile

Monitor

Operating the new regime


Condition Action requiredi Individual who holds more than 25%

of the shares (direct or indirect)Review register for holdings in excess of 25%

ii Individual who holds more than 25% of voting rights

Review register of members and articles of association to identify voting rights

iii An individual who holds the right to appoint or remove the majority of the board

Review the articles for information on appointment rights e.g. sole director whom one individual appoints

iv Individual who has the right to exercise or actually exercises significant influence or control

Relevant where individual does not meet I – iii above but does exercise significant control

V Trust or firm would satisfy i – iv if it were an individual

Statutory conditions apply

What is “significant control”?


What about groups?

Company C

Company C

Company C

Company B

Company A

Company B

Company A

Company B

Company A

Company A

Overseas Company B

Overseas Company C


Maintain register

Part of statutory books

Record details of PSCs or

state there are none

Notify registrar

As part of annual

confirmation statement

On incorporation

Actions required

Annual confirmation statements:replacing annual returns

• File any annual return with due date up to 30 June as normal

• New annual confirmation statement <14 days of:• Anniversary of incorporation;

• Anniversary of due date of last annual return

“Confirmation Date”

• Fee as for annual return (£13 online)

• “Check and confirm” details held at Companies House – add PSC information as part of the first confirmation

• Companies House will be issuing reminders


Points to watch

Loans and preference shares

Distributable profit

Reduced disclosure regime

New disclosures

FRS 102: the first six months


Impact on presentation

• Classify as due within one year unless formal agreement restricts lender’s right

• Non-interest bearing long term arrangements must be discounted • Actual liability > balance sheet creditor(!)• Capital contribution in equity for discount• Discount unwinds via P&L Accounting and tax issues

= If classification is important, consider formalising interest arrangements

Related party loans


• Must meet specific conditions re: interest, prepayment and extension rights

• Non-basic loans at fair value• Review proposed terms for impact on balance sheet

Is it a basic loan?

• Fair values mandatory• Impact on net assets• Where are fair value movements reported?

Caps, collars, swaps and forwards

• Unavoidable obligations still result in treatment as debt

• Market rate coupon?• Beware ratchet impact on basic/non-basic

Preference shares

Third party finance


• New fair value adjustments via P&L

• Tracking mechanism – narrative explanation or transfer to separate “non-distributable” reserve(Also useful if have reorganisations, hive ups via interco)

Distributable profit

FV adjustment Available for distribution?

Investment property NoShort term forward contracts

Yes

Interest rate swaps Is it backed up by cash?


• Available to subsidiaries and parent entity in own accounts

• Exemptions include:• Cash flow statement• Share capital reconciliation• Certain financial instrument and share-based payment disclosure

• Provided shareholders notified in writing and do not object

• Disclose name of parent preparing consolidated accounts, summary of exemptions taken

Reduced disclosure regime


Stock

• Cost of stock included in P&L • Movement in stock provision

Debtors• Movement in doubtful debt provision

Operating leases

• Total commitment under leases, not annual• Analysed by period

New disclosures


IFRS Deals with Effective date for IFRS reporters

Key changes

IFRS 16 Leasing A/Ps beginning 1/1/19

Lessees: All leases on balance sheetExceptions for low value or total lease period < 12 monthsLessors: No change

IFRS 15 Revenue recognition

A/Ps beginning 1/1/18

5 stage process to determining whether and when revenue should be recognised

Forthcoming changes to IFRS


Unclear at this stage

• FRS 102 subject to triennial review

• No amendments expected before 1/1/19 – 3 years from small company application

• Implementation evidence before applied in UK – 2025?

Impact of IFRS on FRS 102?

Topical VAT IssuesLiam Dushynsky

Agenda

• What’s new with HMRC?

• Practical points on international trade

• Brexit – what could it mean for VAT?



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What’s new with HMRC?

• Then and now

• Biggest reorganisation of HMRC in living memory

• Currently a large number of offices spread throughout the UK

• HMRC has been centralising over the last 20 years



HMRC VAT offices open in 2016



…and in 2021


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International Trade: Contents

• Goods held in other EU countries

• Sales via online retailers

• Customs duties

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• Movement to EU = EU VAT Registration• One sale in EU = EU VAT Registration• Call-Off vs Consignment

Consignment Own Stock for distribution Place of supply = Country of location EU VAT Registration Call-Off Stock held for customer/customer’s country Place of supply = Country of location EU VAT registration…? Simplification may apply

International Trade: Goods held in other EU countries


• Amazon only an example, other providers likely to be very similar

• Likely to become more widespread, authorities likely to latch on to tax raising opportunities

• Issues where a business has Amazon as their sales partner, rather than buy-sell

International Trade: Amazon


• MFN → Merchant Fulfilment Network Amazon market goods Goods from supplier’s warehouse B2C (Business to Consumer) contributes to Distance Selling

• EFN → European Fulfilment Network Fulfilled by Amazon Supplier picks Amazon warehouse UK → B2C contributes to Distance Selling EU → EU VAT registration

• MCI → Multi Country Inventory Goods moved to various Amazon warehouses Supplier unaware until stock report Potential multi-EU registrations

International Trade: The Amazon Effect


• Is your business involved in importing goods from non-EU countries?

• If yes do you take advantage of appropriate reliefs eg inward processing relief?

• Do shipping agents classify goods for you?

• Duty savings affect bottom line

• Impact of changes to Union Customs Code from 1 May 2016

International Trade: Custom Duties


YES

Brexit: Will VAT be affected?


• Fortunately (for me) we are likely to keep it – VAT accounted for 20% of receipts (ironically)

• In most circumstances UK VAT law is derived from EC Directives

• Immediate impact would be that the UK would not be bound by CJEU decisions



• Could expand zero rate

• Could have extra rates

• Standard rate higher than 25%

• Super high rate for things we don’t like, tobacco, sugary drinks

• Likely to impact on cross border sales in EC



And finally….

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Corporation Tax – Where are we heading?

Paul Collings


• Big Announcement….

Where are we heading?

• 23 June – EU Referendum

• Fundamental uncertainty as to direction of Tax Policy

• But, that said, we do have “A Road Map” as to preferred direction….


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The Old Map

• George Osborne - May 2010

• Corporate Tax Road Map

• Most competitive Corporate Tax regime in the G20

• Stable economy

• A level playing field for taxpayers

• Aligning tax with modern business practice

• Avoiding complexity


• Corporation Tax rate unchanged 1 April 2016 – 31 March 2017 - 20%. Past and future corporation tax rates:

Tax Competition or Tax Haven?

Northern Ireland – 12.5%


• Taxes should be low but must be paid?APNs/Follower Notices

• Encourage Entrepreneurship?Low Rates of CT/10% rate of ER

• Not Reward Aggressive Tax Avoidance?Introduction of GAAR – July 2013

What else have we seen?


Measures to ‘clamp down on artificial structures used to gain a tax advantage’ since 2010

• Disguised remuneration

• Corporate loss buying

• Partnership review

• Offshore intermediaries

• Diverted Profits Tax

• Phoenixing

• High profile ‘wins’ collect £494million

Anti-Avoidance


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• Government’s approach to business tax for the Parliament

• Supporting small business

• Continuing to deal with avoidance and aggressive tax planning

• Level playing field for all tax payers

• Simplifying and modernising the tax regime

Business Tax Road Map - 2020


• Business Rates

• Business Energy Efficiency Taxation

• International Matters

• OECD (BEPS)

• EU directives

• G20 (tax haven transparency)

Business Road Map – specific areas worthy of mention


• Relief for rateable values of £12,000 or less;

• Previously £6,000 or less

• Clearly good news for the smaller “bricks and mortar” business

• Climate Change Levy increasing over 4 years

• CCL ‘Relief’ enhanced – good for heavy users

• Tata Steel and BHS?

Business Rates & Green Taxes


• BEPS has a large focus on digital businesses

• Enlarged definition of permanent establishment

• Increased emphasis on commercial & economic substance

• Increased emphasis on VAT & destination principle

• Transfer pricing, treaty abuse & hybrid mis-matches

• UK already implementing

BEPS Initiatives


• Interest expense• Amount of tax relief on interest

• Capped at 30% of EBITDA

• Exceptions for groups with legitimately high interest

• UK measure from 1 April 2017

BEPS Action 4 - Interest


• Extend withholding tax to use of trademarks & brand names

• Taxing “outbound” royalties

• Means of ensuring MNCs can’t avoid UK tax

• More taxation of inbound royalties by other countries

• Finance Bill 2016 measure

BEPS Structuring - Royalties


• Current scheme introduced from April 2013

• 10% CT rate for profits derived from qualifying IP rights (UK and EU patents)

• OECD considers a ‘harmful tax practice’ (Action 5)

• New scheme from 1 July 2016 for new IP and new entrants

• Current scheme grandfathered until 30 June 2021

• 2 year time limit for electing into old regime – the latest accounting period being one which straddles 1 July 2016

Patent Box – New BEPS compliant regime


• What’s new?

• Restriction on Patent Box profits where >30% of R&D subcontracted to connected parties

• Restriction is calculated by a ‘nexus fraction’ (connected vs unconnected R&D)

• If 100% of R&D is subcontracted to connected parties = fraction will be 0% (no relief available)

• R&D spend is cumulative for 15 years in fraction, recalculated annually

• Applies to UK and non UK subcontractors – so all UK groups with R&D in a separate company to income will be restricted



• Streaming income and expenditure for each patent will be mandatory

• Nexus fraction applied to each Patent Box stream

• Increases administrative burden

• Once grandfathering expires, nexus fraction must include streamed R&D spend – need to start streaming this now

• Complex situation for companies needing to apply both regimes until 2021!

• Is it worth it? Yes if the Patent Box income stream is high margin



• Company can use a trade loss against profits of the same year

• Can be carried back against profits of the previous 12 months

• Group relieved against profits of that year; or

• Carried forward against profits of the same trade

Trade Losses – Current Position


Losses – Old Rules

Year 1 Year 2

Rental Profit 300,000 300,000

Trading Profit - 50,000

Loss c/y profit (300,000) vs same trade (50,000)

Taxable Profit - 300,000Corporation Tax - 60,000

Trading Loss 500,000 200,000

Used vs Trade - year 1 (300,000) (50,000)

Loss Carried forward 200,000 150,000


• Losses incurred from April 2017

• Apply to both standalone companies and group companies

• Allow carried forward losses to be used against other income and gains

• For taxable profits in excess of £5 million, restrict to 50% the amount of profits that can be offset through losses carried forward

Trade Losses – New Rules


Losses – New Rules

Year 1 Year 2

Rental Profit 300,000 300,000

Trading Profit - 50,000

Loss c/y profit (300,000) (200,000)

Taxable Profit - 150,000Corporation Tax - 30,000

Trading Loss 500,000 200,000

Used vs Trade - year 1 (300,000) (200,000)

Loss Carried forward 200,000 -


• Impact on Deferred Tax?

• Need to stream losses for pre and post 2017

• Timing of expenditure/projects

Losses


• Annual pay bills >£3,000,000

• <2% of employers will pay

• 0.5% of excess over £3,000,000

• Introduced with effect from April 2017

• Class 1 NIC – apprentices under 25

Apprenticeship Levy


• Annual pay bills >£3,000,000

• <2% of employers will pay

• 0.5% of excess over £3,000,000

• Introduced with effect from April 2017

• Class 1 NIC – apprentices under 25

• Auto-Enrolment – additional 3% (6 April 2019)

Apprenticeship Levy


• Corporation Tax rate unchanged 1 April 2016 – 31 March 2017 - 20%. Past and future corporation tax rates:

With one hand he giveth…

YearCommencing

1 April

Main Rate

%

Small profits rate %*

Auto Enrolment %

Apprenticeship Levy %

2010 28% 21% n/a

2011 26% 20% n/a

2012 24% 20% 1% n/a

2013 23% 20% 1% n/a

2014 21% 20% 1% n/a

2015 20% - 1% n/a

2016 20% - 1% n/a

2017 19% - 1% 0.5%

2018 19% - 2% 0.5%

2019 19% - 3% 0.5%

2020 17% - 3% 0.5%


Old rules vs new rules

• SDLT on commercial property transactions aligned with residential property rules – “slab-based” to “slice-based”.

• New non-residential SDLT rates are as follows:

Stamp Duty Land Tax (SDLT)

Value SDLT Rate %

Up to £150,000 0%

Between £150,001 and £250,000 2%

Above £250,000 5%


• Example - purchase of commercial property costing £300k SDLT is reduced by £4,500.

SDLT – illustrative calculation

Old SDLT £ New SDLT £

On the whole £300k – 3% 9,000 On the first £150k – 0% -

Between £150k and £250k – 2% 2,000

Final £50k – 5% 2,500

9,000 4,500


• More than one dwelling

• SDLT rate is arrived at by taking:

• Aggregate consideration for dwellings

• Divided by the number of dwellings

• Subject to a minimum percentage of 1%

• Usually now at least 3%

• Can be 15%

• Can also be treated as non-residential

SDLT – Multiple Dwellings Relief (“MDR”)


• We have already seen the 2020 Roadmap

• Review of Substantial Shareholdings Exemption (SSE) and Double Taxation Treaty Passport (DTTP)

• Anti-avoidance measures

• Publication of tax strategy for large businesses

• New QIP dates for large companies from 2019• All 4 payments will be made within the 12 month accounting period

• Bringing in line with other G7 countries (and increasing cash flow advantage for HMRC!)

2020 and Beyond


• Clear Roadmap as to plans to 2020

• But major T-junction in place on 23 June!

• The most important slide is the next one…

2020 and beyond

(c) copyright PKF Francis Clark, 2016

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Disclaimer & copyright


BREAK

fcfp.co.uk

Capital Gains Tax for the Corporate Investor

Paul Collings


• Dividends or capital gains?

• Completely different tax regimes

• Enterprise investment schemes (EIS), entrepreneurs’ relief (ER) & investors’ relief (IR)

• Changes to ER proposed by Finance Bill 2016

Returns to shareholders


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Dividend taxation

Effective tax rates taking account of tax credit (2015/16) but ignoring £5,000 dividend allowance (2016/17):

2015/16 2016/17 Increase

Basic rate 0% 7.5% 7.5%

Higher rate 25% 32.5% 7.5%

Additional rate 30.6% 38.1% 7.5%

Other Changes – removal of the “Notional Tax Credit” and also the £5,000 dividend allowance.


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Capital Gains Tax

Note – excludes residential property (28%) (subject to Royal Assent of FB 2016)

2015/16 2016/17Basic Rate Taxpayer

18% 10%

Higher Rate Tax Payers

28% 20%

With Entrepreneurs’ Relief

10% 10%

With Investors Relief

10% 10%


• Tax rates on income much higher than capital

• Promotes entrepreneurial flair

• Extraction as capital advantageous

• Even better if you can claim EIS, ER or IR

• Targeted Anti-Avoidance Rules (TAAR) on liquidation

Capital or Income?


Investor qualifies for ER if:-

i) Hold 5% of the ordinary shares & 5% of the votes;ii) Are an officer or employee of the company; andiii) Shares are in a trading company

Must be throughout a 12 month period immediately prior to the disposal.

Entrepreneurs’ Relief on shares


• CASTLEDINE V HMRC

Ordinary Shares

Mr C> 5%

Others< 95%

Company


Deferred shares created; they had• no dividends rights• no voting rights• no realistic participation in winding up

• Mr C held no deferred shares

Ordinary Shares


• CASTLEDINE V HMRC

Ordinary Shares

Mr C< 5%

Others< 95%

Company

Deferred Shares


• Deferred Shares are ordinary shares

• Shares diluted Mr C’s shareholding

• Moral of the story…….

But…contrast with McQuillan Case….….zero coupon preference shares

Ordinary Shares


• Dispute between Mr Moore and other shareholders

• Feb 2009 agreed the company would buy his shares

• Clearance for capital treatment granted

• Agreed that employment to be terminated

• May 2009 General Meeting resolved to purchase shares

• Date of resignation of directorship 28 February 2009

• Entrepreneurs’ relief refused

Employment – Moore case


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Entrepreneurs’ Relief – Joint Ventures

Finance Act 2015 changes introduced to prevent ‘abuse’

E.g. 10 individuals each own 10% of a management company

Family

10% 10%

30%70%

10 individuals ER?Pre FA 2015 aFA 2015 rNow r

ManagementCo

TradeCo


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Finance Act 2015 inadvertently caught commercial arrangements

100%100%

50% 50%

Trade Co

Mr A Mr B

ER qualifyingPre FA 2015 aFA 2015 rBudget ‘16 announcement- March 2015 onwards a


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• New definitions of trading company and trading group

• Treated as carrying on a proportion of the activities of JV

• Claim ER if effective 5% interest and control

Entrepreneurs’ Relief – Joint ventures

Co A

Co B

20%

40%

Mrs A

20% x 40% = 8% effective control


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E.g. 10 individuals each own 10% of a management company

Family

10% 10%

30%70%

Effective 3% Control

ManagementCo

TradeCo


• 10% CGT rate on newly subscribed shares in unlisted trading companies

• Cannot be an employee or director

• Trustees are not eligible

• Spouse transfers take original holding period & status

• £10m lifetime allowance additional & separate from £10m ER lifetime allowance

• So a director owning 3% is entitled to…..

Investors’ Relief (IR)


• Held continually for 3 years before disposal after 5 April 2016

• New issue of shares on or after 17 March 2016

• Measure continues theme to make equity more attractive than debt

• Full EIS investment still more attractive in the long term as Capital Gains Tax free

Investors Relief (IR)

Entrepreneurs’ relief versusNew investors’ relief - summary

Condition ER IR

Acquisition of shares From anyone at any time - shares can be second hand

Subscribe for new shares on or after 17 March 2016

What shares qualify Includes all types of shares, preference and securities (debentures) Only ordinary shares

Period to hold shares 12 months to date of disposal 36 months to disposal, period starts no earlier than 6 April 2016

Minimum proportion of shares in issue to hold 5% of ordinary share capital No minimum

Employment conditionInvestor must be employee or officer of

company for at least 12 months to disposal

Requirement that not officer or employee

Company Trading company or holding company of trading group

Unquoted trading company or holding company of trading group

Maximum life time gains covered by ER £10 million £10 million


Investors Relief Enterprise Investment Scheme10% Rate of Capital Gains Tax Free Gains

Any Trading Company Beware of Excluded Trades

3 year holding period 3 year holding period

Can be an exit plan No pre-determined exit plan

What about EIS Relief?


• Important for ER, IR and EIS

• HMRC to be reviewing “trading” definition

• Important for South West with:• Hotels• Holiday parks• Farms• Marinas• etc

Trading…..

When is this going to be law?

• Would normally be by 21 July – when Summer Recess starts

• However may not be until MP’s Summer Holiday ends – 5 September

• Then less than two weeks before Conference Season starts

• Very little time for Committee Stages

• Latest date for Royal Assent is 16 October

• So any number of changes might be removed

• Legislation might be revisited!

Employee Benefits and the AE Triennial Review

Reme Holland

Agenda

• Employee benefits• What are employee benefits?

• Market background

• Why bother?

• Getting benefits right for your company

• Auto-enrolment Triennial Review• How to approach it

• Summary

fcfp.co.uk

What are employee benefits?• Benefits provided by employers, for their employees:

• Pension!

• Death-in-Service

• Group income protection

• Group critical illness

• Private medical insurance

• Salary sacrifice – Eye care vouchers – cycle to work – childcare vouchers - etc

Employee Benefits

fcfp.co.uk

Employee Benefits

• Advisers could set up a plan for employers

• “no charge” to the employer

• A large commission paid up front

• Paid for by high charges within the plan

• “the good old days”

Market background

fcfp.co.uk

Employee Benefits

• Auto-enrolment has raised employee awareness

• …and expectations

And….

• Commission no longer payable

• Employee Benefit Consultants (EBCs) changing their proposition• Higher employer costs, and/or

• Reduced service

• Member-level service all but gone

Market background – the times they are a-changing…

fcfp.co.uk

Employee Benefits

Why bother?

• Employee expectations

• A ‘given’ for larger employers

• ……..don’t be left behind

• 43% of employers provide PMI for all/some staff*

• 26% provide income protection/long-term disability cover*

* “Absence Management 2015” published October 2015 by CIPD

fcfp.co.uk

Employee Benefits

Why bother?

• Employee market is tightening

• Harder to get the right people;

Over 75% of employers that attempted to fill vacancies in 2015, encountered difficulties, regardless of sector*

• Retention more important

• Reduced recruitment costs

* “Resourcing and Talent Planning” published June 2015 by CIPDfcfp.co.uk

Employee Benefits

Why bother? – an example

• 25 Employees

• Average salary: £47,500

• Group Life cover (4 x salary) - £540 p/month

• Group Income Protection - £745 p/month

• Total: £1,285 p/month

• £15,420 pa• Recruitment costs for one person?

• Two people?

fcfp.co.uk

Employee Benefits

Why bother? – an example

• Average salary: £24,000

• Group Life cover (4 x salary) - £270 p/month

• Group Income Protection - £372 p/month

• £7,700 pa• Recruitment costs for one person?

• Two people?

fcfp.co.uk

Employee Benefits

Why bother?

• When was the last time benefits were reviewed?• Are renewals completed ‘automatically’?

• Are benefits in line with a modern market?

• And at a competitive market rate?

• £7,700pa (previous example) could be £10,000pa if you’re not paying attention!

fcfp.co.uk

Employee Benefits

Why bother?

• 66% of staff saying they would be more likely to stay with an employer that offered good benefits 1

1Employee Insight report 2015 - Capita Employee Benefits

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Employee Benefits

Why bother?

• Pension contributions are deductible for Corporation Tax purposes

• Salary Sacrifice offers an Employer NI saving

• Relevant Life policies are hugely tax efficient

• Group Income protection: qualifies for Corporation tax relief

• As does Group Critical Illness

fcfp.co.uk

Employee Benefits

Why bother?

• Relevant Life policies:

fcfp.co.uk

Employee Benefits

Identify those employees in skilled, strategic positions

Or those in areas with high turnover

Consider an ‘inclusive’ benefits package for these employees

Offer ‘benefits lite’ for other staff (lower-skilled, more transient)

Getting benefits right for your company

fcfp.co.uk

Employee Benefits

Death-in-Service

• Relevant Life policies for owner-managers; 15 x salary!

• 4 x salary for key personnel

• 2 x salary for ‘blue collar’ workers


fcfp.co.uk

Employee Benefits

Group Income Protection

• Bespoke benefit for owner-managers

• 75% salary for key personnel

• 50% salary for ‘blue collar’ workers

• 6 month deferred period – or specify for each category of benefit


fcfp.co.uk

Employee Benefits

Group Private Medical Insurance

• To include partners and children for key staff

• Basic benefits for others


fcfp.co.uk

Employee Benefits

What to do first?

• Pension!

• Thereafter, consider the needs of your workforce…• DIS

• Group Income Protection

• Group PMI

• Group Critical Illness


fcfp.co.uk

AE Triennial Review

How to approach it

• Establish review date (three months either side of third anniversary of staging date)

• Review scheme for suitability

• Review scheme for AE purposes

• Review payroll interaction

• Reassess workforce, including opt-outs, and re-enrol appropriate staff

• Complete Declaration of Compliance

fcfp.co.uk

Summary

• Employee benefits can cover their own cost

• Existing benefits should be reviewed

• Expected (and appreciated) by an increasingly savvy workforce

• Why wouldn’t you promote them?

• Auto-enrolment still has to be done correctly

Conclusions

fcfp.co.uk

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF. Registered in England No. 05413603.Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro


fcpp.co.uk

Transactions and FundingPaul Crocker


.

Agenda

• Bank covenants – ensuring that they work for you

• Transactions – is the current environment the new norm?

• Strategic planning in an uncertain world – a good time to revisit and plan ahead


.

Bank covenants

• Bank covenants – often receive little attention until it’s too late!

• Different Banks have different approaches to setting covenants

• Covenants become more important when there is change in:• Interest rates – interest cover

• Asset values – tangible net worth

• Trading performance – CFADS/Debt service


.

Bank covenants - breaches

• Designed to be an early warning system and contain an element of headroom

• Technically, committed facilities (i.e. loans) become repayable on demand

• You may be able to obtain a waiver for the breach

• Timing of the waiver is key – there may be a cost involved

• Discuss with your bank ahead of any forecast breaches

• ‘Flexibility’ can change with changes in relationship Manager/Credit Manager


.

Bank covenants

• Definitions – is there certainty of how they are calculated?

• Accounting changes – e.g. leases?, FRS102?, profit?

• Basis of valuation for assets?

• Change in year end?

• Acquisitions/disposals?

• Audited accounts?

• Timing – Quarterly, Annual, Rolling 12 months


.

Transactional environment

For Buyers/borrowers for expansion:

• Interest rates – lowest ever, borrowing margins – low

• Inflation – low

• Availability of debt and equity – improved dramatically since 2009

For Vendors:

• Multiples/pricing – relatively high

• Capital taxes – very low


.

Actual transaction multiples

Blue line represents EBITRed line represents profit after tax (PAT)


.

Deal volumes


.

Economy

Economic forecast 2017: GDP (%) Unemployment (%)

UK 2.2 5.00

Germany 1.6 4.8

France 1.3 10.0

Italy 1.2 10.9

Spain 2.3 19.5

Greece (1.7) 27.8


.

Transactions – the new norm?

• 7 years or more of near zero interest rates

• Inflation <5% for 10 years

• What is ‘normal’ in today’s world?

• Does your age influence your views?


.

Transactions – economic influences

• Gordon Brown didn’t break boom and bust

…but will ultra low rates reduce some of the “bust” risk?

• Could we survive a material interest rate rise??

• BREXIT?! Impact on current transactions


.

Transactions – Debt v Equity

• Debt is being attacked

• Equity being given more tax benefits (IR, ER, EIS, SEIS)

• Consider transaction funding structures carefully – what may seem fine now, could be viewed quite differently in the future


.

Strategic Plans

• Post Election

• Autumn spending review

• EU Referendum

• Political stability?

• Longer term planning

• Next Election?

• US Election?


.

Strategic Planning

• Think broadly – life and markets move fast – look ahead, new applications and developments?

• It’s not just opportunities – what about risks/threats and new competitors?

• Revisit it every few years or when there has been a significant change

• Just because you’ve heard some bad news – doesn’t mean that it will affect your business!


.

Summary

• Covenants – give them the attention they deserve!

• Don’t look back and regret not undertaking a transaction

• Consider your views and whether the economic landscape has changed

• Undertake a Strategic Review into which your annual Budgeting process will fit

Any Questions?Charles Evans


• Taunton - Tuesday 8th November, Somerset County Cricket Club

• Plymouth - Wednesday 9th November, Borringdon Golf Club

• Bournemouth - Thursday 17th November, AFC Bournemouth

• Exeter - Wednesday 23rd November, Exeter Racecourse

• Fraddon - Thursday 24th November, Kingsley Village

November FD Seminars

(c) copyright PKF Francis Clark, 2016

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PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC349116. The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at www.pkf-francisclark.co.uk. The term ‘Partner’ is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

