Financial Planning for Your Business and You For Now and Later. Monaghan Women in Business 6 September 2016 Rose Tierney Tierney Tax Consultancy

Transcription

1 Financial Planning for Your Business and You For Now and Later Monaghan Women in Business 6 September 2016 Rose Tierney Tierney Tax Consultancy

2 Finance underpins every business and every household No business or household can operate without a bit of financial planning. Finance covers everything from pricing your product or service through to your retirement plan and everything in between.

3 Business Finance Lifecycle Startup Tax Costing/ Pricing Exit Plan Budgets Pension Finance Earnings Cashflow Structure

4 Startup Phase Costing/Pricing Costing Identifying Direct Costs Costs without which the product or service cannot be provided Identifying Indirect Costs Overheads, variable costs, Identifying Fixed/Capital Costs Premises, vehicle, machine purchase Identifying Overhead Absorption Rate The best way to allocate overheads across products and services Pricing Take into account costing plus markup Compare to competitor prices Look at product/service position in market Is there a maximum price?

5 How often should costing/pricing be reviewed? Frequently At every major change VAT registration New staff New premises

6 Startup Phase Financing Look at the first year of trading What needs to be financed? Equipment, Vehicle? Premises rent, rates? Up front training? Staff costs? Own salary??? Sources of Finance Grants? MLEO Feasibility, Priming, Business Expansion, Microfinance Loans. JobBridge employing an unemployed person as intern Jobsplus employing unemployed person grant 7,500-10,000 Crafts Council Friends, Family? Bank/Credit Union Need cashflow projection, ability to repay, security Asset Finance Lease, Hire Purchase

7 Tax Exemption for Start-up Companies New start-up companies which commence trading in will be exempt from tax, including capital gains, in each of the first three years to the extent that their tax liability in the year does not exceed 40,000. However, changes made in 2011 Finance Act restrict this relief Qualifying activities restricted to exclude similar activities which if carried on by the existing company would form part of the same trade. Eg new store in a retail group.

8 Tax Exemption for Start-up Companies Value of relief restricted to amount of Employers PRSI max 5,000 per employee No longer as valuable an incentive for start ups. Maximum relief of 40,000 would require 8 employees at 46,512 salary each % employers PRSI = 5,000 That s a wages bill of 412,097 Start Up? Microtrade? 30 March 2011

9 Tax Exemption Startup Companies Sole Trader SURE EII

10 SURE Startup Refunds for Entrepreneurs (SURE) is a tax relief incentive scheme. If you are interested in starting your own company, you may be entitled to an income tax refund of up to 41% of the capital that you invest under SURE. Depending on the size of your investment you may be entitled to a refund of income tax paid over the 6 years prior to year in which you invest. Not available where you started as a soletrader and then incorporated

11 The Start Your Own Business scheme provides for relief from Income Tax for long term unemployed individuals who start a new business. The scheme will provide an exemption from Income Tax up to a maximum of 40,000 per annum for a period of two years to individuals who set up a qualifying business; having been unemployed for a period of at least 12 months prior to starting the business. It runs from 25 October 2013 to 31 December 2016.

12 Accounts, Budgets, Cashflow what does it all mean? Past Present/Future Future Accounts Tax Returns Cashflow Budgets Snapshot of Earnings & Taxes due on them Measure of Cash in and out as prediction of future cash needs Estimate of Income and Expenses for future periods Used by/for? Business, Revenue, Lenders Business & Lenders Business for planning

13 Financial System How complicated does it need to be? Depends on size of business Sole Trader Microtrade SME or Large Business Uncomplicated Sales, Purchases, Receipts, Payments System Manual(includes Excel, Word etc) or Computerised/Integrated Package Proper integrated Accounting System, Budgets, Cashflows, Management Accounts

14 Applying for Bank Finance Ability to Pay? Historical profits & Cashflow projection Stress test - what is it? why is it used? Security? Personal Guarantee? Loan to Value? 70/80% LTV Remember LTV is based on banks valuation not necessarily cost to build. You may need to raise more than 20/30% yourself.

15 The Employment and Investment Incentive (EII) - Relief for Investment in Corporate Trades I A way to raise finance. Investors get tax relief on investment up to 40%

16 Cashflow is Always Key Set credit policy Try and stick to it be tough! Refuse to do more work until bills are paid Ask for deposits Monitor your debtors days regularly to see improvement or regression Spread creditor payments where you can Keep a check on discretionary spend

17 Debtor Days Creditor Days Debtors X 365 Sales Creditors X 365 Purchases

18 Stock Turnover Quick Ratio Stock X 365 Purchases Current Assets Current Liabilities Less than 1:1 means not able to pay current debts as they fall due

19 Growth Phase Step changes in cost base new staff, new premises etc requires costing/pricing review Structure review Best time to incorporate? Time to insert a holding company? Exit plan?

20 What is the best time to incorporate? When more taxable profits are generated than owner s income needs When drawings are less than the profits and there are surplus profits Example Salary taken 40k Profits before salary of Saving with company 40k 70k 100k 0 11,850 23,700 20

21 Advantages of Company Structure Limited Liability? 12.5% tax rate Financing a premises Pension Planning Easier Succession planning with shares UK resident?

22 Transfer of existing business to a company CGT relief S600 TCA 1997 Assets to be transferred premises goodwill Potential double charge to CGT- premises in company Other considerations such as retirement relief, creditors Stamp duty issues Two options for shares or for directors loan 22

23 Time to Insert a Holding Company Why a holding company? Potential tax free sale of trading subsidiary Access to cash surplus in trading company without taxing funds in shareholders own name

24 Tax at Every Phase Tax on Startups Tax on Growth Tax on Exit

25 Personal Financial Planning Eggs in One Basket? Pensions Private, State, Self Admin Savings Always use a QFA Qualified Financial Adviser preferably an independent one

26 Pensions What s the point? Saving for retirement Getting tax relief on contributions at higher rate of tax and drawing down the pension at a lower rate of tax Private Pension Managed fund (hopefully) growing in value Self Administered you have control of investments Occupational Pension Employer organised defined benefit or defined contribution

27 Tax Relief on Pension Contributions Age Limited to under 30 years 15% of *net relevant earnings years * 20% of *net relevant earnings years 25% of *net relevant earnings years 30% of *net relevant earnings years 35% of *net relevant earnings 60 years plus 40% of *net relevant earnings For employees, earnings means gross pay for tax purposes. For the self-employed, earnings means net relevant earnings, that is, earnings less allowable expenses.

28 Pension Drawdown Lump Sum Usually 25% of fund Balance often transferred to an ARF Approved retirement fund Annuity payable annually minimum 5% taxable

29 Levy Taxation of Pension Lump Sum Since 1 January 2011 there is a limit of 200,000 on the amount of the tax-free retirement lump sum. Lump sum payments above that limit will be taxed as follows (in 2014 and 2015): Amount of lump sum Income tax rate Up to 200,000 0% 200, ,000 20% Over 500,000 Taxpayer's marginal rate

30 Self Administered Scheme Company can contribute a much higher percentage of earnings eg 100% Ability to borrow within the scheme to purchases investments Beneficiary controls the investment strategy

31 Other Issues Amalgamating pensions watch transfer fees Preserved benefits Pension parked

32 Exit Strategy Retirement, Getting out, Passing on the Business Exit Strategy Sale, Liquidation Succession within the Family After Tax Amount of Proceeds Reliefs Available

33 Entrepreneurs Relief 20% up to 1m of gains Must have owned the business for 3 years and been a working proprietor/director No age limit Retirement Relief Over 55 and owned business for 10 years and been a working proprietor/director for 10 years Relief on sale if under 66 up to 750,000 of gains from 66 on 500,000 To a child (pr niece/nephew who worked in the business) tax free up to 66 then capped at 3m

34 Inheritances Minimising the exposure for your Family Reliefs Business Property Relief 90% Thresholds Remainder Interests

35 Efficient Cash & Property Extraction Shareholder Property Trade Cash Newco Trade 1. Transfer the trade to Newco in return for issue of shares to shareholders. No CGT - S615 TCA; Stamp relief S80 SDCA. 2. The existing company is liquidated and property is distributed in specie to the shareholder on liquidation or property bought out if retirement relief to be claimed. 3. Existing 1 company subject to CGT at 33% on property disposal. Shareholder subject to CGT at 33% /20% on entire proceeds cash and property received on liquidation. No stamp duty on distribution in specie.

36 MBO and Trade Sale Shareholder Newco Holdco Sub 1 Sub 2 1. Transfer of trade or 100% subsidiary to Newco in return for issue of shares by Newco to shareholders of Holdco CGT relief - S615 TCA; Stamp duty relief S80 SDCA; 2. Sell shares in Newco 33%/20% CGT for shareholder; 1% Stamp duty for acquirer of Newco

37 MBO and Trade Sale Planning Management shareholders Original Shareholders 1. Company buys back shares from original shareholders; 2. Automatically a distribution unless for the benefit of the trade; 3. Revenue will accept: a controlling shareholder retiring as director to make way for new management; removing a dissenting shareholder; removing an outside shareholder; or sale by personal representatives of deceased shareholders shares; All qualify for trade benefit test provided that the shareholder sells entire shareholding - there might be exceptions; 4. NEED TO HAVE: Sufficient distributable reserves

38 Lots of different ways of restructuring businesses to assist with exit, retirement, etc Take advice early

39 Contact Details Rose Tierney Tel Fax