Category Archives: Business News

Introducing Jon Connor: Our new R&D tax specialist

Research and Development (R&D) tax incentives have been around now for quite some time, but are you making the most of them? According to our newly appointed R&D Tax Credits Manager, Jon Connor, these benefits could give you “a competitive edge”.

Uncovering innovation from within a business can often be complex. It may be buried within different areas of your organisation or even outsourced. Whether you’re a recruitment agency designing a new app or a manufacturer developing new production techniques, innovation can come in all shapes and sizes, and is very rarely bound by industry.

However, around nine out of ten eligible SMEs fail to claim for R&D tax relief, indicating that the hidden value of innovation is not known.

“Companies are missing out on valuable R&D tax credits to the tune of thousands of pounds,” says Jon. “Generally speaking, I find it’s the businesses you typically wouldn’t associate with R&D that are overlooking relief.”

“The very term “R&D” often deters many firms from applying,” Jon explains. “Innovation doesn’t always take place in laboratories with scientists in white coats. On numerous occasions I’ve had business owners tell me “we don’t really do R&D”, often perceiving the scope of qualifying activities to be much narrower.”

If you are developing new products, processes or services there is a strong chance that you are eligible for R&D tax relief. The relief allows a company to deduct an extra 130% of qualifying costs from its yearly profit (as well as the normal 100% deduction) to create a total 230% deduction. Qualifying expenditure can include costs spent on employees, software, transformed / consumed materials and subcontractors.

Here at PM+M have helped clients all over the UK recoup over £3m in R&D tax credits in total. In turn, this has enabled business-owners to reinvest in innovation, future-proof their companies and, most importantly, invest in growth initiatives.

Jon says: “If you’re unsure as whether you could qualify for tax relief, it is absolutely worth having a ten-minute phone call with us. The potential outcomes of making a claim could revolutionise your business and help you achieve your financial goals.”

We can help you to identify eligible R&D projects (historic, current and future), highlight expenditure incurred on qualifying activities, optimise the amount of relief available, draft supporting documentation to HMRC and offer support in defending your claim in the event of HMRC raising queries.

Please do not hesitate to get in touch with Jon to discuss your situation and understand whether or not you may be eligible.

HMRC guidance for businesses to prepare for potential no-deal Brexit

Ahead of Britain’s upcoming departure from the European Union (EU), HM Revenue & Customs (HMRC) is warning businesses about the necessary steps they need to take to prepare for the unlikely event of a no-deal Brexit.

Earlier this year HMRC sent an initial warning to businesses who import or export goods within the EU, warning that should we fail to reach a deal, there would be immediate changes about the way that businesses trade with the EU.

More recently, HMRC has prepared a second letter that will be sent to those businesses, detailing the three steps that businesses should take now to prepare for the possibility of no deal.

  • The first of these steps is to register for a UK Economic Operator Registration and Identification (EORI) number at https://goo.gl/paAobk.

Businesses will need an EORI number to continue to import or export goods with the EU after 29 March 2019, should the UK leave without a deal. They will also need the number to apply for upcoming authorisations that will help to make the customs processes easier for businesses.

  • The second step that businesses will be advised to take is to decide whether to hire a customs agent to make import/export declarations, or if the business would like to make these declarations themselves through software that interacts with HMRC systems.

Whatever the decision it is encouraged that businesses take steps to prepare by either contacting an agent to find out what information they require or contacting a software provider to ensure their product meets the requirements of the business affected.

  • The final action HMRC is encouraging businesses to take is to contact the organisation that moves their goods to find out if they require any additional information to allow them to make the correct safety and security declarations for the goods.

More information on these changes can be found at https://goo.gl/EfgXXS

The international team at East Lancashire Chamber of Commerce have also put together a ‘Brexit Hub’ to look the practical actions internationally active companies can take to prepare and mitigate or manage the impact of Brexit, details can be found here https://www.chamberelancs.co.uk/brexit/

If your business is likely to be affected and you are unsure about the actions required, then it is important to seek specialist advice. Contact us on 01254 679131 and speak with your usual PM+M contact should you need any help or email us at enquiries@pmm.co.uk.

How do changes in entrepreneurs’ relief following the Budget affect me and when do they come into force?

PM+M’s tax director, Claire Astley, examines the changes to entrepreneurs’relief following announcements made in the 2018 Autumn Budget.

Entrepreneurs’ relief allows the individual owners of business assets, including shares in a “personal company” (see definition below), to pay a reduced rate of tax on any capital gain they make when they sell those assets.  Entrepreneurs’ relief applies to individuals only.  It isn’t applicable to any gains made by limited companies.

Key changes following Autumn Budget

The Chancellor announced two key changes to entrepreneurs’ relief which shareholders need to consider now.

The first change announced was the definition of a ‘personal company’ for entrepreneurs’ relief.  Previously, a personal company was defined as a trading company in which the shareholder:

  • is an office holder, director or employee of the company or group company; and
  • holds at least 5% of the ordinary share capital and of the voting rights of the company.

Following the Budget announcements, the shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain.

As this change will apply to disposals on or after 29 October 2018, the new conditions will need to have been met for a minimum period of 12 months leading up the disposal, this could have an impact on any imminent sales.

The second change, effective from 6 April 2019, is to extend the holding period throughout which the qualifying conditions for the relief must be satisfied before the disposal from one year to two years.

Finally, an individual whose shareholding is below the 5% qualifying threshold due to an issue of new shares will from April 2019 be able to obtain entrepreneurs’ relief on gains made up to the time of the dilution and freeze their entitlement at that point.

Points to note

There has been much discussion in the industry media regarding the impact these changes may have on shareholders with alphabet shares in their personal company and whether such shareholders will meet the new 5% interest in distributable profits condition.  The changes in legislation have led to a great deal of uncertainty in this area and the professional bodies are due to meet with HMRC on 12th December to hopefully clarify the position.

On the bright side these new conditions do not apply to shares issued through the enterprise management investment (EMI) scheme making this an even more attractive option for issuing shares to key employees.

Next steps

Shareholders with alphabet shares should sit tight for now and await the outcome of the discussions with HMRC.  Shareholders with alphabet shares who are in the process of selling their shares please contact us for a review of your position.

Any changes made to share rights without proper advice could result in income tax charges arising for shareholders under the employment related securities legislation, so it is important not to rush into making changes.

For advice on this matter speak to Claire Astley on 01254 679131 or email Claire directly at claire.astley@pmm.co.uk.

VAT: changes on the horizon for the construction industry with huge potential impact on cashflow

Significant VAT changes for the construction industry are due to come into force on 1 October 2019.

New legislation is designed to combat what HMRC describe as “missing trader fraud”, whereby the suppliers charge and collect VAT, but do not pay it over to HMRC.

In essence, the legislation will require the recipient rather than the supplier to account for the VAT due on certain construction services.

The new regime requires careful planning from all construction businesses in order to avoid a cashflow crisis.

How will the new rules work?

Under the new rules, businesses supplying construction services must not charge VAT where their customer:

  • is registered for VAT; and
  • will use the services to make an onward supply of construction services.

Instead of the supplier charging VAT, the recipient must self-account for VAT on the services received. This is known as ‘reverse charge’ accounting.

With each business transaction, the VAT will be calculated as a paper exercise and registered on the invoice as a ‘reverse charge’. Only client-facing organisations at the top of the construction supply chain will be required to pay the tax.

Who will be affected?

As a general rule of thumb, any company that is registered with the Construction Industry Scheme (CIS) – HMRC’s construction-specific tax-collecting regime will fall into the reverse charge category.

The new rules will apply to construction services supplied from 1 October 2019, regardless of value, even if construction is not the main business activity.

The definition of ‘construction services’ is extensive and duplicates the definitions used for the Construction Industry Scheme (CIS). It also includes goods, such as building materials, but only when supplied as a single package within the construction service being provided (e.g. a builder providing bricks).

Exclusions

There are some exclusions, such as the installation of seating, blinds, shutters and security systems. Also excluded are professional services of architects, surveyors and consultants. However, where excluded services are supplied as a package with other services which fall within the new criteria, the whole package will be subject to the reverse charge.

There are further exclusions for construction services which are to be used by the recipient to make an onward supply to a connected party or to make a supply between a landlord and tenant.

Clearly if the construction services qualify to be treated as zero rated then the reverse charge will not apply. For example, a sub-contractor supplying construction services to a main contractor who is building a new residential property would currently charge VAT at 0%. This treatment is unaffected by these new reverse charge rules and the sub-contractor would continue to charge VAT at 0%

In addition, the reverse charge rules will not apply where the recipient of the construction service is not VAT registered. In these circumstances, VAT must be charged in the normal way. However, the non-VAT registered recipient must add the value of construction services received to the value of its sales, when deciding whether it has exceeded the VAT registration threshold (currently £85,000). This is likely to mean that many small contractors who are not currently VAT registered will need to be registered in the future.

HMRC to be strict from 1 October 2019

As an anti-fraud measure, it is expected that HMRC will enforce the new rules strictly:

  • If a supplier charges VAT in error, HMRC may not allow the recipient to reclaim it
  • If a supplier applies the reverse charge rules in a situation where it should have charged VAT, HMRC will most likely seek to collect the under declared VAT from the supplier

In both situations, penalties and interest could apply. The main message we are delivering is that businesses within the construction sector need to have a sound understanding of the new rules and have systems in place ahead of the deadline to ensure that VAT is accounted for correctly.

Many subcontractors will find they are in a regular VAT refund position in the future. They will have VAT to claim on materials and overheads but will not charge VAT on sales where the reverse charge rules apply.

Some businesses will suffer a cashflow disadvantage, where VAT collected from customers is currently used as working capital before being paid over to HMRC.

To correctly apply the new rules, the supplier needs to know what its customer intends to do with the services and will need to be able to evidence this to HMRC. HMRC are undertaking a detailed technical consultation on this issue.

How should you prepare?

Final legislation and HMRC guidance is due to be issued in October of this year, giving businesses 12 months to prepare. Affected businesses should ensure they are fully up to date with the changes and when the VAT should be charged and, likewise when a reverse charge is required.

Well in advance of October 2019 construction businesses need to conduct a full review of supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from October 2019.

It is of course right that the problem of missing trader fraud within the construction industry be tackled, but if traders have not picked up on the forthcoming changes they may be faced with unwanted penalties and interest as a consequence of failing to implement the reverse charge correctly. We would recommend that in the event of doubt, seek guidance from your professional adviser to ensure there are no such unwelcome surprises.

If you would like to discuss how the above changes could impact on your business, please contact our property tax specialist, Jonathan Cunningham, on 01254 604318 or via email at jonathan.cunningham@pmm.co.uk.

PM+M payroll shortlisted at The Rewards 2018

We are pleased to announce that for a second year running, our PM+M payroll team have been shortlisted for The Service Provider Team Award at The Rewards 2018.

The popular ceremony, The Rewards, previously the payroll world awards, is returning for its 7th year and is known as the leading independent awards for payroll, HR and reward professionals in the UK.

The ceremony will be taking place at Hilton London Bankside on November 7 and is the most distinguished event on the industry’s calendar. It is the perfect opportunity to celebrate high achievements and excellence in payroll, reward and related sectors.

Entrants must demonstrate outstanding performance and the judges will be looking for evidence of success in one or more of the following criteria;

  • Outstanding effort under testing circumstances
  • Significant improvements in performance
  • Achievement of targets/incentives
  • Achievement of training/qualifications
  • Implementation of new procedures or systems
  • Excellent teamwork within their own team or with other departments
  • Excellent customer service record

Providing outsourced payroll solutions to over 400 clients, our payroll team at PM+M are highly regarded as one of the leading payroll providers in the North West. Over the past year we have seen many changes to our way of working, having implemented several changes that have enhanced both our procedures and our service delivery to clients.

Julie Mason – head of payroll at PM+M – commented: “The PM+M payroll bureau has grown tremendously and seen a digital transformation over the last twelve months. We have introduced new systems and procedures to improve our services for clients and ensure we provide great value for money.  We work really hard to help our clients and are thrilled to be nominated.  We can’t wait to find out the results!!”

Welcoming more members to our growing payroll team

In celebration of National Payroll Week, we are pleased to welcome two members to PM+M’s growing payroll team, our new payroll administrator, Andrea Wellock and payroll apprentice, Mohammed Aamir Patel. The addition of Andrea and Mohammed to PM+M has taken our payroll department to a team of eight, allowing us to dedicate even more time to helping our clients achieve more through their outsourced payroll solutions.

Whilst Andrea joined our team a few months ago, Mohammed joined our team only this week, following our appointment of six other apprentices across the firm. Working across all teams at PM+M, each apprentice will be studying towards a recognised qualification over the next three years, as well as gaining invaluable ‘on the job’ training.

Jane Parry, managing partner of PM+M, commented: “As a firm, we are fully committed to making sure that we invest in young local talent, so the apprenticeship programme is a hugely important part of the business. We are confident that these new recruits will further enhance the level of service that our clients have come to enjoy and we are really pleased to guide them through their studies and watch them develop as professionals.”

 

Spring Statement 2018

Jane Parry, Tax Partner, comments on today’s Spring Statement announcements…

As expected, the Spring Statement was a bit of a non event which was refreshing as I know many businesses didn’t want another ‘mini budget’. They’re tired of hearing new policy announcements along with additional tax and spending measures; they simply want to focus their time and effort on growing despite the ever present uncertainty of Brexit and things like the Making Tax Digital regime and the looming shadow of GDPR.

The news around consultations on tackling the issue of single-use plastics and the taxation of the profits of digital giants like Facebook and Google is all well and good, but action is what’s needed not more consultations.

On a positive note, it was good to learn that tax receipts are covering day-to-day government spending for the first time since the 2008 financial crisis, that borrowing is £4.7bn lower than expected and that growth is slightly higher than forecast last year. However, we’ve still got one of the slowest growth rates in the G7 and public debt as a percentage of national income remains well above 80%.

The consultations on productivity improvement and tackling late payment are both good news for local businesses, as is the additional funding to help smaller businesses take on apprentices.

What I want to see from the Government over the next few months is simple: more clarity around Brexit and how it plans to help businesses grow by closing the skills gap and helping them to improve productivity. These are the real issues that need to be addressed, everything else comes second.

If you would like to discuss any of today’s announcements with the PM+M team, please call 01254 679131.

Could an MBO be the best exit for you?

Congratulations to all you SME owners out there!

According to Government Statistics, 99% of all private sector businesses at the start of 2017 were SMEs, accounting for 60% of private sector employment and 51% of private sector turnover. SMEs account for 99.5% of businesses in every main industry sector.

But let’s not fall into the trap of thinking that these are all tiny businesses. The definition of a medium sized enterprise is a headcount of up to 250, a turnover of up to 50 million euros and a balance sheet value of up to 43 million euros. In my book, a business at the top end of that range doesn’t feel quite so small.

As regional corporate finance advisers, we are often asked to advise businesses at the lower end of the range, let’s say those with a turnover in the region of £5 million. You know the type – great businesses that make healthy profits and have provided their owners with a comfortable lifestyle. On paper, they look to have a high potential value and quite often, the owner believes that a large trade buyer will sail over the horizon and snap them up. But how often does that really happen?

Whilst each year, we see many success stories involving trade buyers and SMEs, it doesn’t work for everyone. Trade buyers can often say “it’s just too small for us”, “it’s not as scalable as we’d like”, “there is too much reliance on a single product or customer”, or “we are looking for second-tier management”, after looking further into an opportunity. In these circumstances, an MBO deal is often a great alternative for the shareholder.

MBOs are currently very attractive, due to large amounts of available funding at historically low rates of interest. Typically, a successful MBO needs three things: a profitable and cash generative business, a competent and complete management team and a flexible seller confident enough in the new management team to be part of the funding solution.

Let’s take it as read that you have a good business. Your critical task is to develop or find a management team with the ability and experience to run the business such that you feel able to take the risk of part funding the deal.

If you are a business owner or a management team and you think that the MBO route might be the answer for you, don’t put off thinking about it because these things take time. Talk to us, and let us give you the benefit of our experience.

Investing in our people…

At PM+M, we recognise that the foundation of us being the best North West firm of finance professionals is our people.  We need to attract, develop and retain the very best people. To do this we work really hard to create and maintain a vibrant culture where people are motivated and empowered to develop, grow and drive change.  We know that we are at our best when our people are at theirs.

We’ve just done a full team survey via Investors in People, as part of our gold accreditation, and had some amazing feedback.  Here are some of the highlights:

100% of the team agree that PM+M is a great place to work and has a bright future

98% agree that PM+M has a plan for the future to ensure our continued success

99% feel encouraged to take initiative in their role

98% feel encouraged to achieve high performance

93% feel motivated to achieve exceptional results

94% feel appreciated for the work we do

100% recognise that we are always seeking ways to improve

Jane Parry, Managing Partner at PM+M, said: “These are amazing results and I’m really proud to be leading such a great team. Maximising potential is a fundamental part of our culture and we invest heavily in it.  It’s the foundation which allows us to help our clients achieve their goals.”

If you’re interested in joining the PM+M team get in touch.  Please email: recruitment@pmm.co.uk or contact us on 01254 679131.

Blockchain and Bitcoin – an introduction for beginners written by a beginner

I am pretty interested in finance and economics (often useful as a professional accountant) and I have worked with enough tech companies over the years to feel vaguely competent in understanding at least the business models of most technology businesses and the markets they operate in. It has however taken quite a while to get me to the point of feeling like I understand anything at all about blockchain, bitcoin, cryptocurrencies and the whole related world which seems to have become really prominent recently.

Talking to fellow professionals and business owners I realised that it wasn’t that I was a long way behind the curve on this – it was simply that this stuff has usually been really badly explained by the specialists who are all over it and generalists like me can’t keep up. I decided to try and shed some light on this whole topic and if some tech expert finds I have misunderstood it, please just correct me!

So first of all, “blockchain” – this really is a set of data “blocks” linked together in a way quite similar to a chain. Each data block is encrypted and the way the encryption works is that part of it is linked to the previous block in the chain.  Even if you can’t read the data (because you don’t have the key to the encryption) you can tell that the data in the previous block is unchanged because the link to that previous block in your current block still works – i.e. the chain is unbroken.

These data blocks are stored on a large number of independent computers linked together in a peer to peer network (no-one computer is in charge of the network) and the common feature is that they have all agreed to run the same protocol (i.e. programme). Because the computers are all linked any change to any block would be instantly highlighted – the “chain” on one computer would no longer work and would be different from the chain on every other computer from that point on.

This is therefore a very flexible and resilient way to store data transparently – and the fact that the data is encrypted and only the people with the key know what it actually means makes the process very private as well.  A really clever way of squaring the circle.

Bitcoin is a specific blockchain. An individual Bitcoin is a particular number that meets a set of criteria. There are only around 21 million numbers which meet these criteria and so there is a restricted supply of Bitcoins. Identifying numbers which meet the criteria is a very computer processing intensive exercise – this process is known as “mining bitcoins” and there are untold thousands of computers devoting processing power to it all the time. When you read that “bitcoin mining is using more power than the entire state of Mexico”, it illustrates just how much effort is being put into this computing.

So an individual number which meets the criteria is a bitcoin and forms one of the blocks. The block is encrypted but if you have the key to the encryption then you “own” it and have the capacity to transfer the key to someone else – this transfer of the key is the transfer of value and the encryption keys are therefore the real Bitcoin currency.

The potential of blockchain however goes well beyond Bitcoin. There are other cryptocurrencies (the most prominent of which is probably Ethereum) and a whole host of other applications which people are devising for using the squared circle of transparency and privacy that blockchain offers. An interesting idea I have seen is a register of all large diamonds – you can put the details into blocks in a blockchain with the physical details unencrypted and ownership and cost details attached but encrypted. This would allow much easier verification of the ownership of valuable assets.

I think the key value of blockchain is that it allows some transactions and relationships to be conducted very quickly, without needing to take the time to build trust as has previously been needed. In lots of ways, in the world we live in now, there is already a huge degree of trust and the extra admin of using blockchain is completely unnecessary. In other cases, it can be a game changer.

And if you think I am going to tell you what the future value of Bitcoin is, think again.  I am an accountant, not a prophet!