Category Archives: Business News

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!

 

Festive tax tips

Tax on the Christmas Party

As the festive season gets underway, here are a few tax pointers to watch out for on rewarding employees this Christmas.

How much can you spend on employees at the Christmas party?

Throwing a Christmas party for your employees will be treated as an income tax exempt benefit, provided the cost of the party does not exceed £150 per head.  The limit is an all or nothing exemption which means if the limit is exceeded, say at £200 per head, the full £200 will be a taxable benefit for each employee.

You can provide your employees with two or more parties throughout the year, however the costs will only fall within the exemption if both parties combined do not exceed £150 per head. If the costs do exceed the limit you can choose which party best utilises the exemption of £150 per head and a taxable benefit will arise on the others.

Ancillary costs such as paying for transport to the party or accommodation will also count towards the £150 per head test.

Can you claim the VAT back?

Any input tax paid on the cost of a Christmas party can be recovered in full if the party is exclusively for employees, even where directors attend the party. This is subject to the normal partial exemption rules.

However, if non employees attend, for example if you invite spouses of employees, input tax recovery must be restricted and only the element relating to employees can be reclaimed.  You should be aware that any VAT incurred on the cost of providing the party, and any ancillary costs, will need to be included in the total cost against which the £150 limit is tested.

If the party is just for business owners/shareholders, input tax cannot be reclaimed.

T’is the season to gift an employee…

As an employer, you can give your employees Christmas gifts without them incurring a taxable benefit if it falls within the trivial benefit exemption. For the exemption to apply, each gift must not:

  • exceed a value of £50,
  • be cash or a cash voucher,
  • be a reward of services performed, or
  • be part of a contractual obligation.

If the gift meets the conditions listed above, it will be completely tax free. However, in close companies (generally, a company is “close” if it is privately owned and controlled by five or fewer individual participators) and the gift is to a director or officer of that company the total tax exemption for trivial benefits is capped at £300 per tax year.

Any cash gifts to employees will be treated as earnings and attract income tax and national insurance through the payroll in the normal way.

What about the VAT?

Any input tax paid on the cost of gifts to both employees or clients can be recovered in full under your normal VAT recovery rules.

If the value of gifts to any one person in a 12 month period is below £50, there is no need to consider output VAT.  However, if it exceeds £50 per person, you should account for output tax on the value of the gifts.

Autumn Budget 2017

Jane Parry, Tax Partner, comments on today’s Autumn Budget announcements…

All in all this Budget was a bit of a damp squib as the Chancellor had no real room for manoeuvre – thanks mainly to the ongoing saga that is Brexit.

In my opinion, it actually threw up more questions than answers, which isn’t great for a Government that needs to promote a sense of stability in what are pretty turbulent times.

It’s positive that he recognised that frictionless trade is important but there’s nothing he can really do to address it right now, as everything is dependent on the outcomes of our negotiations with Europe. The challenge will be to ensure that we don’t drown in a sea of trade bureaucracy once we reach 29th March 2019.

I was pleased to hear him reassert his support for the Northern Powerhouse. However, much of the focus was on Greater Manchester but what about Lancashire and Cheshire who, just like Manchester, need long overdue investment in both connectivity and digital infrastructure? There was quite a bit of talk about cities but not much about towns.

On a more positive note, he resisted the urge to meddle in the pension tax rules which I welcomed.  I also welcome the increased investment in training and growing relevant skills for the future.  Finding skilled people is a huge challenge for many businesses and anything that helps to boost the supply of those people is good news.

For me, this Budget was missing some vital ingredients. Firstly, more effort is needed to reduce the bureaucracy faced by businesses and help them deal with the pressures that Brexit will bring in this regard.  Also, instead of just increasing the main R&D tax credit to 12%, he could have flipped how it operates so it becomes a real time payment rather than retrospective claim. That simple switch would allow thousands of companies to put investment into R&D far more quickly as they would have the cash available.

Announcements like increasing the National Living Wage by 4.4% are great in theory and should really benefit lower paid workers, but it will put additional pressure on small businesses as a significant number of SMEs probably won’t be able to pass all of that new wage burden onto their own clients or customers.

Even though we knew there were never going to be any major shocks or giveaways I came away feeling pretty deflated; it all seemed a bit gloomy, one dimensional and pessimistic. The downgrading of the OBR forecasts goes against the success and growth stories that we are seeing with our clients every single day and I fear a weak Budget and a weak Government could make businesses and the general public feel jittery and ultimately drive down confidence needlessly.

Phishing Emails and Bogus Phone calls from HMRC – BEWARE

You may think it’s your lucky day if you receive an email, text or phone call telling you that you’re due a tax rebate, or in contrast, your heart may sink if you receive a phone call saying you have outstanding taxes to pay. Either way, this is not always what it seems – a growing number of fraudsters are now targeting victims with some form of tax scam.

This currently seems particularly prevalent in the East Lancashire area, so to make sure you don’t fall for one of the many scams out there, we’re taking you through the most common.

Phone calls

Fraudsters can call up unsuspecting victims, telling them that they are due a tax rebate after being in the wrong tax code for several years.

The person on the other end of the line might ask for your bank or card details in order that you pay an administration fee in advance of receiving the rebate. Without realising the scam, the victim gives out their card details and makes the payment.

A more recent variation on the scam sees fraudsters proclaim that the victims owe tax to HMRC and need to pay this with immediate effect or be subject to prosecution.

One of our clients recently informed us that they themselves had received one of these scam phone calls, in which the person claiming to be from HMRC sounded professional, convincing and as though he was in a position of authority. It was only when our client demanded further information from the caller (such as a VAT registration number, VAT quarter end and previous VAT payment dates), that it became clear that the call was a scam.

If you receive a phone call such as this, alarm bells should ring. HMRC would never phone you for issues such as this, they would always write.

Phishing Emails

We have seen many fraudulent emails purporting to be HMRC, telling you that you need to click a link and enter bank account details to receive your refund.

By clicking on the link, you’ll often go to a page that looks like a genuine HMRC page. This is a copycat website. The page will then ask you to input your personal information such as your debit or credit card details.

The email can also include attachments which could contain malware designed to steal personal or financial information. You should check any email that claims to be from HMRC for spelling and grammatical mistakes, and generic greetings like ‘Dear Customer’.

HMRC’s own website clearly states that:

HMRC will never send notifications of a tax rebate/refund by email, or ask you to disclose personal or payment information by email.

Generally, HMRC would only send you emails regarding support, or deadline reminders and alerts.

Be cautious if the email insists on immediate and urgent action, or says you only have a few days to do something – this is a tell-tale sign of a scam email.

Texts

Be wary of texts claiming to be from HMRC that say you’re due a tax rebate. The text will claim you just need to click the link provided to receive it. The link takes you to a fake website that looks like an HMRC page.

It will usually say that you have a deadline to claim your tax rebate and use urgent language to try to get you to click the link.

What HMRC say

HMRC say they will never use texts or emails to:

  • tell you about a tax rebate or penalty;
  • ask you about specific facts about your tax return and financial status; or
  • ask for personal or payment information.

If you think that you have been the victim of such scams and require further advice, please contact the PM+M team on 01254 679131.

Taxing times deliver opportunities

 

 

 

 

 

 

 

Every industry is being threatened by technological advancements, regulation changes and the challenge of finding and recruiting great staff. The accounting and tax industry isn’t immune, currently we are facing a multitude of problems;

  1.  Information flows that have become automated and confidentiality further restricted.
  2.  Regulations tightened both by government and by our own regulatory bodies.
  3.  Automation is improved within every business in the market and also within our clients
  4.  Recruiting bright and competent people becomes ever harder

In lots of ways it is healthy for the economy as a whole to allow technology to automate tax compliance. Perception suggests, there is little net benefit to the world from a tax return, often the stated opinion of my engineering and nursing friends.

It is however, fundamental to our society that the right type of tax is paid and that people are confident that the accurate amount of tax (and no more) is also paid. Ensuring the first and supporting the second is what we at PM+M do and will continue to do so.

Dealing with the environment we trade in, we see the key challenges to sustaining our business for the future to be:

  1. Building and developing relationships with clients who require human intervention in their tax processes. As automated as we can make it, tax is still a complex requirement
  2. Recruiting and developing a team with a broad range of ages and backgrounds to secure succession and communicate well with the varying cultures of our clients
  3. Retaining technical competence as the volume of legislation grows (and making sure we have all the necessary specialists either in house or reliably available elsewhere)

And most importantly;

4. Maintaining the culture of our firm and our partnership, after all there is no point in     running a firm if you can’t bring everyone on your journey.

One of the great things about a growing tax team that occupies 20% of your headcount, is that you can have your say to directly influence  the journey of the business, ensuring we all grow and succeed in an exciting period of evolution.

Our first and most important step has been to set out, by committing to a vision for our business, not because consultants told us to or because we thought it was trendy, but because asking ourselves and our team to commit to being “the best North West firm of finance professionals” allows us to drive change with integrity throughout the team. Those changes and the reinforcement of great things we have done that haven’t changed allow you to deal with the challenges the world throws at you.

The next key step was to re-emphasise to everyone within our team how important our culture and values are. We are hugely proud of the culture we have built and of our values of quality, achievement, fun and doing the right thing.

Based on our values, we are building a firm of bright and inspiring people who want to make a difference. We have committed to trusting in people and particularly trusting in youth – recruiting apprentices and graduates and investing in professional training, coaching/mentoring and interpersonal training. We have given our people at all levels freedom to express their personality and build fantastic relationships with clients.

The effect of our decisions, commitment, vision and values: A great motivated team; higher sales than ever; strong relationships with clients at all levels; and great quality and technical capacity.

We have now hit the point that our need is not how to manage and deal with individuals challenged by technology and regulation, it’s how to continue to lead them to continued growth and success – we need more leaders and particularly tax partners.

Feel free to call us if you are interested in joining us on our journey, we would love to hear from you.

Brexit: Opportunities to be found

Brexit Part 2: Acquiring UK businesses

As time passes by, it feels that the word ‘Brexit’ will eventually become an unspoken word, like ‘The Scottish Play’. It will be associated with bad luck. However, as the UK starts to negotiate our exit from EU, we believe there are some positives aspects that should be considered by EU based companies that may be looking at setting up a business in new territories

From an economic view, the current rate of corporation tax in UK is the lowest in the G20 and this rate is set to continue to reduce over the next few years.

The workforce in the UK is the second largest in the EU and is one of a very small number of EU countries that expect to have a labour supply growth in the next 15 years. Furthermore, the flexible employment laws mean companies can employ staff in a way that suits the business.

The UK has an excellent infrastructure and there are significant projects planned to improve the current transport systems. These include Crossrail in the south east and High Speed 2 which will link eight of Britain’s ten largest cities.

The fall in the value of sterling in recent months makes the UK very attractive from a cost of investment perspective. Clearly how long and to what degree the pound will remain relatively weak is unknown. However, EU companies should consider taking advantage whilst they can.

Away from the financial and commercial aspects, the UK is very diverse for such a relatively small place. There is a wide variety of communities all over the UK and the variety of businesses to acquire reflect the diverse nature of the UK. There are therefore undoubtedly business opportunities to satisfy all requirements.

The exit by the UK of the EU will undoubtedly result in several negative outcomes for UK based businesses. However, there will also be considerable opportunities for those ensuring they are best placed to take advantage. As matters currently stand there appears to be no U-turn on the agenda for the UK leaving the EU, therefore it seems obvious that business owners from across the globe should ensure they are best placed as matters develop. The close proximity of the UK to mainland Europe gives a clear first mover advantage to European businesses.

Companies that have a strategy to acquire or establish a business in the UK should ensure they have UK based advisers, who are capable of dealing with acquisitions or setting up a new business. This will also include advising on any tax implications of trading in the UK and an understanding of the interaction with overseas tax legislations. Obtaining the right advice from the outset is critical.

In conclusion, EU business owners should invest some time and money now to thoroughly research the UK market place and potential acquisition targets. Those who have a well thought out plan in place for the UK’s exit will not consider ‘Brexit’ to be a cursed word and may indeed consider it to be a word associated with good luck and future prosperity.

If you would like to discuss any of the points raised, we would be happy to help, please contact Tim Mills  (tim.mills@pmm.co.uk)

Do I qualify for research and development tax credits?

What are research and development tax credits?

Research and development (R&D) tax credits are a government tax incentive for UK companies, especially small and medium sized enterprises (SMEs), designed to encourage investment in innovative products, processes and services.

The government announced in March 2017 at the Spring Budget its commitment to R&D tax incentives going forward, which is particularly helpful and reassuring post Brexit. There will be an additional £4.7 billion invested by 2020-21, which will include improving awareness of the R&D scheme amongst SMEs, as it is widely accepted by HM Revenue and Customs (HMRC) that only a small proportion of SMEs undertaking qualifying R&D have claimed the tax relief. This represents a significant opportunity for SMEs undertaking innovative activities that have yet to claim R&D tax credits.

What is it worth?

R&D tax credits are extremely valuable for SMEs and are worth the equivalent of up to 33% of a company’s R&D expenditure being available as a cash repayment from HMRC or reductions of tax bills.

What type of work qualifies for R&D?

Whilst the Government plans to increase certainty and simplicity around making R&D claims, currently HMRCs R&D conditions are very broad. Therefore, SMEs in most sectors and industries can potentially qualify for R&D tax relief.

If you are not sure if the project you are undertaking is scientifically or technologically feasible or you don’t know how to achieve the desired outcome, it is likely that your project will qualify for R&D tax relief. This is even the case where you have incurred expenditure but your project has not been successful.

The type of project work could include creating new products, services or in-house processes. It could also include significantly changing or adapting your current products, services or processes.

Basically, if you are doing something that your competitors are not doing and would be impressed by, there is a reasonable chance that it could qualify as an R&D activity.

What costs qualify?

The main cost is usually the salaries of people engaged in the R&D activity, including employer’s national insurance and any pension contributions. Other allowable costs typically include consumables, sub-contractor’s costs, software and some utility costs if these can be directly related to the R&D activities.

How we can help?

Here at PM+M we have a wealth of R&D experience and have made hundreds of successful claims on behalf of our clients. Each client and R&D project is unique, so at PM+M we offer a no obligation meeting with a member of our tax team. This allows us to understand your business and the type of project(s) you are working on, with a view to assisting you in starting to identify any qualifying R&D activities.

Below is a summary of our most recent R&D claims made on behalf of our clients:

  • Mattress manufacturer – unique mattress designs improving comfort and reducing heat retention. This claim resulted in a £50,000 tax refund from HMRC.
  • Classic Car Company – the company redesigned a continuation model of a 1950’s racing car which involved a complete overhaul of the internal setup of the car for safety purposes and making it road worthy. The claim resulted in a £60,000 tax refund from HMRC.

If you would like to discuss R&D or if you have questions, please contact Jonathan Cunningham (jonathan.cunningham@pmm.co.uk) or Claire Astley (claire.astley@pmm.co.uk)

2020 Vision For Making Tax Digital

 

 

 

An announcement yesterday from HM Treasury delayed the timetable for the Making Tax Digital (MTD) initiative imposing quarterly tax returns on businesses. The change in policy has been driven by concerns from business owners and professional bodies regarding the pace of the proposed changes. The new timetable gives business owners until 2020 to adapt to keeping digital records and updating HMRC for other taxes. Those businesses below the VAT threshold will be able to voluntarily file digitally for other taxes should they chose to do so.

From April 2019 businesses with turnover above the VAT threshold (currently £85,000) will have to keep digital records for VAT purposes only, filing returns with an MTD compatible software. Critically however businesses will not be asked to keep digital records, or to update HMRC quarterly until at least 2020.

The government’s original plan, laid out in the March 2015 Budget, required unincorporated businesses with turnover above the VAT threshold to submit quarterly returns to HMRC from April 2018 and those with lower turnover to follow suit from April 2019. Limited companies of all sizes we due to follow these rules from April 2020.

If you would like to discuss any Cloud Accounting requirements or find out about how Making Tax Digital will affect your business, please contact Jill Morris (jill.morris@pmm.co.uk)