As Surrey tax accountants we see a lot of situations where businesses, most often through no fault of their own, are facing a tax enquiry into their financial affairs. Whilst enquiries are often undertaken by HMRC randomly, often they arise because HMRC have information which does not agree to information included on returns submitted by the business, or because returns submitted do not conform to HMRC’s expectations. (more…)
1 Comment May 16, 2012
After the fanfare of publicity and stern warnings issued in recent months, HMRC has taken a U turn on its business record checks campaign. Now, rather than making threats of indiscriminate inspections to identify record keeping issues, they have declared any future inspections will be much more targeted.
HMRC has said that they will carry out any planned visits but will postpone any new SME business record checks (BRC) until a new approach has been developed which concentrates on higher risk businesses. New visits will not resume until HMRC announces the detail of a ‘revamped’ approach, which is expected some time after April 2012. (more…)
Leave a Comment February 27, 2012
Tax planning is an important issue to bear in mind when SMEs are considering their business strategy to ensure that the business operates in the most tax efficient way. This is why getting to grips with upcoming changes following the release at the beginning of December of draft legislation for Finance Bill 2012, is of the utmost importance. Taxtalk explains what has changed and what business owners should be aware of when making claims for capital allowances. (more…)
Leave a Comment January 23, 2012
There are just 7 days to go before the 31st January self-assessment tax returns deadline and Taxtalk’s Paul Webb outlines some very useful advice for those still needing to get organised. With trading conditions so tough at the moment for many small business owners, many people have had no option but to leave their Self-Assessment tax returns to the last minute and need to complete them in a rush.
Personal tax returns might be something of an administrative burden, but with HMRC out in force to collect as much revenue as possible, it is important to make sure yours is accurate and filed on time. Apart from resulting in an immediate £100 penalty (which will apply even if no tax is payable) and possible daily penalties of £10 per day, it’s never a good idea to fall under the tax officer’s spotlight. It could result in being targeted for an enquiry should HMRC’s officers start to wonder whether your business record keeping is being maintained diligently and whether there might be a tax shortfall to detect.
Taxtalk’s top tips for completing Self-Assessment tax returns (more…)
Leave a Comment January 23, 2012
Before we give the lowdown on the Chancellor’s autumn statement, it’s worth mentioning that pithy overviews of pre-Budget announcements such as this are easier to do when there are some upbeat headlines as well as the inevitable sharp intakes of breath and economic tightening of belts, says Paul Webb, tax partner at Surrey accountant RJP. Not so here. In his speech, Osborne said he would do ‘whatever it takes’ to protect Britain from the ‘debt storm’ in Europe. (more…)
Leave a Comment November 30, 2011
With tax return season looming, there have been some important changes to the penalty system created in the Finance Act 2009 which have just come into force and which those keen to minimise tax with tax planning should take note of.
Leave a Comment November 27, 2011
Exit strategy, succession planning, call it what you will; deciding what to do, and when, with your business to provide a secure future – possibly a retirement or the basis of a second career, is an issue all business owners face. And whether you are considering it because you feel the time is right to move on or step back now, or whether you’re planning ahead; as with all important business decisions forewarned is forearmed.
Whilst, a decade ago, business purchasers were aplenty and the banks had no problem providing the funds required to sustain a hungry M&A market, the recession means that things are now rather different. It is therefore useful to consider a variety options you might not have thought about before; for instance, how much deferred consideration you can afford to take, or whether a ‘partial exit’ may be an attractive alternative.
Indefinitely deferred consideration?
When selling in the good old days, many companies achieved a high goodwill value based on historic profits, and although in an ideal world most sellers preferred the total sale price to be paid in cash on completion, they regularly accepted a slightly lower payment initially and could also look forward to future lump sums paid at intervals in the form of deferred consideration.
Now, typically, the initial payment received on the sale of a company is far less, mainly because the borrowings available to the buyer are less, with a higher balance of the sale proceeds being payable in the future based on the future profits of the company (over which the seller typically has little, if any control). And of course, whilst the level of future profits, and hence the return on those profits is a concern, in the current economic climate, you also need to be sure your buyer is going to be around to actually make the payments. This is a very real issue today as future profits may be vulnerable if, for example, a major client goes out of business or indeed the buyer himself runs into financial difficulties.
If these issues are holding you back from a trade sale, then you might want to consider other alternatives that will give you the outcome you need without unnecessary risk and stress. These outcomes however require forward planning.
Partial exit might offer a win-win?
A partial business exit can be very attractive. It can bring new blood into the organisation whilst allowing you to take a back seat, explore other interests and ideally, enjoy some of the wealth you have generated. It can enable you to take part cash consideration and continue to enjoy a (reduced) level of income from the business – perhaps for helping out on a part time basis, helping with marketing or a smooth customer transition.
The key thing to bear in mind if you choose to take this route is the importance of ensuring continuity within the company both in terms of reassuring the current employees that your commitment is as high as ever and also by making sure that the team you bring in, whether through an MBO or entirely new blood, is up to the job and the process is managed as carefully and diligently as possible. It might also be an idea to retain a reasonable shareholding at the outset in order to reassure colleagues that you are not immediately diluting your own power too much.
Partial exit can give you the liquidity you need and offer a more flexible way to fund your lifestyle.
In order to decide on the best balance, you will need to consider the following:
1. How much time do you want to commit to the business after the sale? Work this out early so everyone involved knows what to expect – including you.
2. Your retirement is apt to go on a bit as we’re all living longer, so do the maths and make sure you’ll have sufficient income for your needs and those of your dependents.
If you are considering an external investor to finance a partial exit, one risk is the possibility that the dynamics of the business may change too abruptly. This can occur for instance if that investor is to be involved with actively running the company and for example, wants to exit in the medium term, having seen a return on his investment. Find a partner who shares your core values and has a good cultural fit with the business and who can take it to the next level while you enjoy some time to rest and relax.
Tax planning opportunities
Depending on how your company is structured and the nature of what is being sold, HMRC will either view the sale proceeds as personal income or capital gains, or a mixture of both, with the latter being taxed at a lower rate. Get tax planning advice and ensure you consider all aspects for you and your team, including entrepreneurs’ relief, gift relief, EIS relief and business property relief.
Grooming your team
If you go down the MBO route, an experienced and balanced team is critical, not just to the funding of the deal but to secure the future success of the business (and of course your future income!). No matter what role you intend to have after the sale, you must analyse the quality and balance of the team. Its skill-set should cover all key aspects of the business including sales, finance, marketing and IT. By ensuring that you groom the right team for the job well in advance and pass the business on to a robust and experienced line up, you are managing part of the risk associated with giving up control and putting your company in the best possible position for future success, hopefully enabling you to enjoy your retirement, or semi retirement without cause for concern.
So whether you sell up completely or partially to existing employees, agree a merger with a competitor or get an outside investor interested, it always pays to be aware of the options available well in advance.
Lesley Stalker is head of tax at RJP, contact her at las@rjp.co.uk
This blog has also been published by Real Business
Leave a Comment October 26, 2011
It’s that time of year again – the date for filing your self assessment tax returns – and of course, paying any tax liability.
Most individuals who are required to fill out their own returns should now be aware of the new(ish) deadlines introduced by HMRC three years ago, but in case you’ve been living on another planet recently, or perhaps have relied completely on your accountant to complete your tax returns, the time has come to take action or you may face an unpleasant fine.
There are two separate deadlines for the tax return; one for the paper return and one for the electronic filing.
Paper filing
For paper filing for the tax year that ended on 5 April 2011 (the 2010-11 financial year), the deadline is 31 October 2011 – days away. If you send a paper tax return it must reach HMRC by midnight on 31 October. You only have longer than this if you received notification after 31 July that you must file a return. In this case you’ll have three months from the date you received that notification.
HMRC will be sending out reminder letters to those who usually file on paper but have not done so by 31 October. It is therefore critical that if you have filed a paper return and you receive one of these letters you contact HMRC immediately. Also, if you have not received your tax calculation by mid-January, then you should check with HMRC whether they do have your tax return, as all calculations are guaranteed by the end of January if you have filed your paper tax return on time.
Electronic filing
If you have missed the 31 October paper-filing deadline, then you can only file electronically; there is no paper alternative.
Electronic filing was introduced to encourage people away from paper filing. It saves man-hours and costs less for the Revenue if the figures which have been input by taxpayers are electronically submitted into their records, rather than having to be manually entered.
You can only start the online filing process if you have a Pin code. HMRC sent out Pin codes to many taxpayers a few years ago and you may well have kept yours; if you have filed online in previous years you will already have a Pin; if you are new to self-assessment, or have forgotten your Pin, you need to register on the HMRC website.
Your online self assessment return must reach HMRC by midnight on 31 January. Again, you only have longer than this if you received notification that you must file a return after 31 October. In this case you’ll have three months from the date you received that notification.
Do bear in mind that there is an earlier deadline of 30 December if you want HMRC to collect any tax due through your PAYE (Pay As You Earn) tax code. You can only ask for this treatment if you owe less than £2,000.
Penalties
Here’s the thing. If you don’t get your paper return in on time and you fail to subsequently file it online by the 31st January, you will face a penalty. If your return is even one day late you will have an automatic fine of £100. This applies even if you have no tax liability at all. If the return is 3 months late, you’ll be charged £10 for each following day up to a maximum of £900; if it’s six months late you will pay an additional £300 or 5% of the tax due, whichever is the higher; and if it’s 12 months late, a further £300 or 5%, whichever is higher. In some cases, HMRC can charge you 100% of the tax due.
Excuses
Although it might not feel like it at times, HMRC does have a heart. You won’t incur a penalty if you have a reasonable excuse for missing a deadline. If your documents have been lost through fire or theft, if you’ve had a life threatening illness or suffered a bereavement of a partner, if there’s been a postal strike or HMRC’s own online system has crashed – these may all be reasonable excuses. Notwithstanding the delay though, you still have an obligation to send the return in as soon as possible once the immediate problem ends.
Extra time
If you think you cannot pay your tax liability, all is not lost. HMRC set up the business payment support service available to businesses and individuals, which means you may, if considered viable, defer your tax payments and escape the tax penalty charges. (http://www.hmrc.gov.uk/payinghmrc/problems/bpps.htm)
For support completing your own self assessment tax return, please contact Paul Webb, pw@rjp.co.uk.
Leave a Comment October 26, 2011
Last month, we held the first of RJP’s inheritance tax (IHT) surgeries and are delighted they were such a huge success. During those meetings, we met with local taxpayers from all walks of life and it became apparent that most people have two assets they are concerned about; their business and their family home. The meetings also highlighted that most people felt there was little or nothing they could do to minimise the inheritance tax liability that would become due on their family home. That’s a misconception we want to change. (more…)
Leave a Comment October 24, 2011
New guidance issued by HMRC suggest it will soon become more expensive for workers to buy a bike through the cycle to work scheme and so less attractive. (more…)
Leave a Comment August 30, 2011
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