NEWS. Finance options may have the X-factor. Banks & Co PLUS. Saying yes to EIS could bring tax benefits. At a glance guide to some other key points

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1 Banks & Co NEWS SUMMER 2013 EDITION Finance options may have the X-factor Businesses could benefit from established ways of freeing up funds that they might not have considered in more upbeat times. PLUS Don t delay on planning ahead Is your business coping with RTI? + RDR and investment advice: what it means for you When the banks say no, P2P offers new options Saying yes to EIS could bring tax benefits Budget 2013: what you need to know At a glance guide to some other key points

2 Welcome Welcome to the latest issue of the Banks & Co Newsletter, our regular bulletin bringing you news and updates on financial and tax issues that may affect your business and private life. We hope you will find our newsletter useful and would also welcome your feedback on the content, or ideas for topics that you would like to see featured in future editions If you would like to comment, please contact us on or at Finance options may have the X-factor When it comes to raising finance, it is not all about borrowing and businesses could benefit from established ways of freeing up funds that they might not have considered in more upbeat times. Take invoice discounting and factoring for instance, which could prove to be a useful option for improving access to working capital and managing cash flow, without the need for additional security. Invoice discounting is an arrangement where a bank or finance company will advance money to a business against its invoices usually between 80 and 90 per cent of the value straightaway, instead of the business having to wait 30, 60 or 90 days for payment. Once the customer settles the invoice, the bank or finance company will pay the balance, with the business managing its own debtors. Factoring is a similar arrangement, but the bank or finance company will chase unpaid invoices. Banks & Co s Martin Herring said: There are a number of advantages to factoring and invoice discounting arrangements. Because you receive cash as soon as your invoices are issued, you know when you will be paid, which helps with financial planning. Having cash in hand could also allow you to benefit from early payment discounts from your own suppliers. And if you use a factoring arrangement, you no longer have to commit in-house time and resources to chasing debts and you can concentrate on running your business and winning new clients. Of course, there are fees involved for using the service and these arrangements will not be right for every business, for example because they do not have the level of turnover providers require to offer these facilities. At Banks & Co, we can advise on your options and on the best way forward for your business, as well as offering access to independent factoring and invoice discounting providers. For more information, please contact us. Is your business coping with RTI? The PAYE system is currently going through its biggest shake-up since its introduction in The introduction of Real Time Information (RTI) in April 2013 now requires employers to electronically inform HM Revenue & Customs (HMRC) about all PAYE payments including tax, national insurance contributions and other deductions on or before payments are made, instead of waiting until after the end of the tax year. But despite the changes, many small businesses were still unaware of RTI, according to research carried out by the Association of Accounting Technicians (AAT). Findings from an AAT survey of 1,000 decision makers, managers and directors of SMEs, released shortly before RTI began, found that more than one in three SMEs (35 per cent) still were unaware of the introduction of RTI. Meanwhile, HM Revenue & Customs (HMRC) relaxed reporting arrangements for smaller businesses, in recognition of the fact that some small employers who pay employees weekly or more frequently, but only process their payroll monthly, needed longer to adjust to real time PAYE reporting. HMRC originally announced on 19 March that until 5 October 2013, employers with fewer than 50 employees, who would find it difficult to report every payment to employees at the time of payment, would be able to send information to HMRC by the date of their regular payroll run but no later than the end of the tax month. On 12 June, HMRC extended that option until April Despite the concession to businesses getting to grips with RTI, employers could still face penalties for inaccuracies on RTI returns submitted in the tax year, although there will be no penalties for late payment until April Banks & Co s Martin Herring said: There are many potential complexities and pitfalls within the new RTI regime for busy employers dealing with payroll in-house. Outsourcing is a cost-effective, efficient alternative to in-house payroll provision, enabling business owners and managers to allocate valuable time and resources more effectively elsewhere. Banks & Co s TFS Payroll Solutions provides a professional service that s flexible enough to meet the payroll needs of any size of business, while always keeping them compliant with changes like RTI and other payroll rules and legislation. For more information, please contact TFS on

3 When the banks say no, P2P offers new options In a tough economic climate, many small and medium-sized enterprises (SMEs) continue to face real hurdles in sourcing funding. And according to the eighth and latest quarterly SME Finance Monitor, published in May 2013, the proportion of SMEs using external finance stands at 39 per cent, the lowest level since the research carried out on behalf of the British Bankers Association s Business Finance Taskforce began. The monitor, for which 5,000 SMEs were questioned, found that a similar percentage (41 per cent) fell into the category of permanent non-borrower an SME that does not use external finance and shows little inclination to do so in future. Among those interviewed in Q or Q that would have liked to apply for an overdraft but said something had stopped them, 38 per cent said that the process of borrowing such as the time, hassle or expense had put them off and 36 per cent that they had felt discouraged from applying, for example by assuming the bank would say no and so not applying. Across all the loan and overdraft applications for new or renewed facilities recorded since the monitor started, 70 per cent resulted in a facility and 24 per cent in none. While the financial environment may be challenging, it has provided ideal conditions for the peer-to-peer, or P2P, funding sector to thrive. According to trade body the Peer-to- Peer Finance Association, its members have already achieved loans totaling 100 million in the first five months of Banks & Co s Mark Taylor said: Peer-to-peer lending enables businesses to bypass the banking system, by bringing them together with individuals perhaps people unhappy with the low interest rates currently on offer who see an opportunity to earn a better return on their money. At Banks & Co, we are working with a specialist in P2P lending, who has established relationships with lending platforms like Funding Circle and ThinCats, an online peer-to-peer marketplace that has loaned 27 million since it was set up in January Businesses that want to access finance through ThinCats are required to work with sponsors, who carry out due diligence, prepare their funding propositions and help them to present these in a way that highlights their attractiveness to potential lenders. Our associate became a sponsor in October 2011 and its team has since played a key role in raising 10.4 million for businesses through ThinCats. For more information on our peer-to-peer lending services, please contact us. RDR and investment advice: what it means for you The start of 2013 signalled the start of major changes to the way financial advisers provide investment advice. The Financial Services Authority, the UK s financial advice regulator which has now been replaced by the Financial Conduct Authority (FCA) introduced its Retail Distribution Review (RDR) reforms with effect from 1 January. A brief summary is included here but for more detailed information, please contact us. Adviser status Advisers must now offer independent or restricted advice. Independent advice is defined as unrestricted and based on a comprehensive and fair analysis of the relevant market. It is designed to reflect the idea of a genuinely independent financial adviser being free from any restrictions that could impact on their ability to recommend whatever is best for the customer. A restricted adviser can recommend certain products, certain product providers or both. This means they might only offer products from one company or one type of product. An adviser will offer restricted advice where they work with or for a product provider and only offer advice on its products. Restricted firms cannot describe the advice they offer as independent. It should be made clear if you are receiving restricted advice and what that means in practice. Adviser remuneration Product providers can no longer decide in advance what commission advisers receive. Both independent and restricted advisers must have their own charging structures, without any influence or potential bias from product providers, with fees met through product charging or paid directly to the adviser. Professional standards To continue to be able to provide investment advice, financial advisers had to have achieved a higher minimum level of qualification by 1 January They must also keep their knowledge updated through a tougher Continuing Professional Development (CPD) regime. All advisers must hold a Statement of Professional Standing (SPS), which will be issued by an accredited professional body and renewed annually, subject to satisfying CPD requirements. Client segmentation Advisory firms are now also required to segment clients to help them deliver different services to different types of client to help them establish the right business models and strategies and remove crosssubsidy between clients and ensure they get what they pay for. Summary At Banks & Co, we have partnered with Wessex Investment Management Limited to give our clients access to unbiased, impartial independent financial advice. All advisers at Wessex Investment Management Limited are qualified to FCA requirements and follow a strict CPD regime in order to maintain competence and knowledge. For more information on our independent financial advice services, please contact us.

4 Don t delay on planning ahead Succession planning is a key issue for any business owner, though it s often the case that planning ahead takes a back seat to looking after the requirements of customers and dealing with day-to-day issues. But forward planning is crucial to ensuring as smooth a transition for the business as possible in the future. In a difficult economic environment, seeking retirement and succession planning advice is even more important, particularly for business owners who are nearing, have reached or passed retirement age, as a recent survey highlighted. The Quarterly Survey of Small Business in Britain, published by the Open University, found that 39 per cent of small and medium-sized enterprise (SME) owners aged over 65 did not know when they would retire. The survey of 1,082 SME owners revealed that half had already changed their retirement and succession plans as a result of the economic downturn, with 42 per cent of owners expecting to delay retirement and seven per cent likely to close or sell their business sooner than planned. Among those aged 55 to 64-yearr-olds, 53 per cent expected to have to delay their retirement due to the economic downturn, compared with 25 per cent of those aged under 45. Almost half (47 per cent) were still confident of retiring by the age of 65, but 18 per cent expected to retire between the ages of 66 and 70 and 11 per cent thought they would be running their business beyond their 70 th birthday. Banks & Co s Mark Taylor said: Many business owners face the possibility of having to radically rethink their retirement plans as the economic challenges continue, with some facing the prospect of working much longer than they had planned or hoped to do. As succession planning specialists, we can ask the right questions to help owners plan for and achieve their goals, whether that is to hand on their business to family members or other owners of the enterprise, to maximise its value and sell as a going concern or close it down. For more information, please contact us.

5 Saying yes to EIS could bring tax benefits If businesses are to survive and thrive, it s a natural that shareholders will come and go over time. Existing shareholders may want to cash in an investment to move on to new opportunities or simply so that they can enjoy a comfortable retirement. And new shareholders are crucial to maintaining a company s financial health and its capacity to develop and grow. With substantial sums at stake, it makes sense to structure investments in a way that maximises the benefits for incoming shareholders. The Enterprise Investment Scheme (EIS) which enables individuals to invest up to 1 million a year in smaller businesses that wish to raise funds for growth is one option. As well as providing 30 per cent income tax relief in the year of the share issue, an EIS investment offers an opportunity to defer capital gains tax (CGT) on the proceeds of other transactions, although certain time conditions will apply. Any gain on the EIS investment itself is free of CGT, but once those shares are sold, the CGT due on other held over gains will become due. The main qualifying condition for income tax relief is that the individual must have no connection with the company issuing the shares and they will be considered to have a connection if their interest in the company is more than 30 per cent. However, there are opportunities for people connected with a company to make an investment and retain the income tax relief, including in management buy-ins. Although the rules are complex, they offer scope for an EIS investor who was not previously connected with the company to subsequently become an unpaid or paid director and receive reasonable remuneration in that role and retain income tax relief. There are a number of possible opportunities in this area but expert advice is strongly recommended. Martin Taylor of Banks & Co said: The good news is that there are no restrictions on connection with the company where only CGT deferral relief is claimed, even if the investor owns the whole company. There are risks attached to EIS and it is not a way of investing that is right for everyone. But where it is appropriate to individual circumstances, EIS offers a useful tax mitigation opportunity for investors that may be more flexible than it initially appears. For more information, please contact us. Budget 2013: what you need to know Chancellor of the Exchequer George Osborne has told people who want to work hard to achieve the UK s economic recovery: We are on your side. Delivering the 2013 Budget on 20 March, he told MPs that while the government had made progress in rebuilding the economy there was much more to do and that his Budget was designed to support people who aspire to work hard and get on. He reinforced his Britain is open for business message by announcing a new cut in the main rate of corporation tax. The 23 per cent rate from 1 April 2013 will fall to 21 per cent from 1 April 2014 and then to 20 per cent from April Mr Osborne said that the 20 per cent rate would be the lowest business tax of any major economy in the world and described the new reduction as a tax cut for jobs and growth. He added that by merging the small company and main rates at 20p, complex marginal relief calculations between the two would vanish, giving Britain a single rate of corporation tax for the first time since 1973 and achieving a major simplification of the UK business tax system. He also announced the creation of a new Employment Allowance that will reduce every employer s National Insurance bill by 2,000. Mr Osborne said: It will mean that 450,000 small businesses one third of all employers in the country will pay no jobs tax at all. For the person who s set up their own business, and is thinking about taking on their first employee a huge barrier will be removed. They can hire someone on 22,000, or four people on the minimum wage, and pay no jobs tax. And in a move benefiting both businesses and families, he scrapped the 3p a litre rise in fuel duty planned for 1 September 2013, which had already been twice deferred, from January 2013 and April Banks & Co s Martin Herring said: In a sluggish economic climate, there are a number of measures in this year s Budget that will be seen as good news by many people. While only time will tell what impact they have on the UK economy, we are happy to help you make sense of what has been announced and how it will affect you. For more information, please contact us.

6 Audit Corporate Tax Planning Personal Tax Planning Self Assessment VAT Estate Planning Business Start up Payroll Strategic Planning Retirement Strategies International Services Bookkeeping/Accounting FOR MORE INFORMATION ON THE SERVICES WE OFFER PLEASE CALL At a glance guide to some other key points Businesses There will be consultation on legislation to counter the use of limited liability partnerships to disguise employment relationships and the artificial allocation of profit or loss to gain tax advantages. A new disincorporation relief will be introduced for five years from April The relief will allow a company to transfer goodwill and an interest in land to its shareholders so that no corporation tax charge arises on the company on the transfer. The relief will be available to businesses with total qualifying assets not exceeding 100,000. The capital gains tax (CGT) holiday will be extended for the Seed Enterprise Investment Scheme (SEIS) from April 2013, giving investors making capital gains in per cent CGT relief when they reinvest the gains into seed companies in either or SEIS is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors buying new shares in the companies. Entrepreneurs Relief on capital gains tax liabilities will be extended to cover gains made on shares acquired through the exercise of Enterprise Management Incentives (EMI) options, to apply to qualifying share disposals from 6 April EMI options are intended to help smaller companies with growth potential to recruit and retain the best employees, and offer generous tax advantages to employees of those companies which qualify. The government will exempt from capital gains tax gains of up to 50,000 of shares received by individuals adopting the new employee shareholder employment status and the first 2,000 of share value that anyone receives under the new status will be free from income tax and NICs. The exemptions will apply to shares received from 1 September 2013, when the new status comes into force. Employee shareholders will receive a minimum of 2,000 in shares but have different employment rights to other employees. The government will provide 50 million in annual funding from to support employee ownership. This will include the introduction of a CGT exemption on qualifying disposals of a controlling interest in a business into an employee-owned structure from April It will also invest 30 million in a Growth Vouchers programme in England, which will test innovative approaches to helping SMEs overcome barriers to growth. It will target a number of specific areas of advice, such as making a successful loan application to a bank or taking on an employee. Later this year, the government will consult on improving its collection of tax debts through the PAYE coding out system. The current limit of 3,000 per year will be replaced with a graduated scale introducing higher limits for those with higher earnings, or up to 17,000 for those earning 90,000 or more. Personal The income tax personal allowance increased by 1,335 to 9,440 in April 2013 and to 10,000 from April 2014, a year ahead of schedule. The basic rate limit will be set at 31,865 in and the higher rate limit at 41,865. The inheritance tax threshold will be frozen at 325,000 until Legislation will also be introduced to close a deduction from the value of an estate for an outstanding debt, regardless of whether or not the debts are paid after death or how the borrowed funds have been used. A single flat-rate pension equivalent to around 144 a week in today s terms will be brought forward a year to A new scheme will be introduced from autumn 2015 to support families where all parents are in work with their childcare costs. For childcare costs of up to 6,000 per year per child, support of 20 per cent will be available, worth up to 1,200. All children under five will initially be eligible and it will eventually include children under 12. There will be payments of 5,000 for individuals who lost money on Equitable Life annuities bought before 1992, with an extra 5,000 for those on lower incomes. The Chancellor announced a 5.4 billion package of financial support for the housing market, including the launch of two Help to Buy schemes. Equity loans of up to 20 per cent of the value of a new build property will be available to people able to raise a five per cent deposit from 1 April 2013 and the Help to Buy mortgage guarantee will be available from January 2014 for people who want to buy any residential property, worth up to 600,000, with deposits between five and 20 per cent. 1 Carnegie Road, Newbury, Berkshire, RG1 5DJ T: +44 (0) F: +44 (0) E: office@banksco.co.uk W: DISCLAIMER: The matters discussed in this newsletter are by necessity brief and comprise summations and introductions to the subject referred to. The content of this newsletter should not be considered by any reader to comprise full proper legal advice and should not be relied upon.