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Insight Autumn/Winter 2012

News and comment from HW Fisher & Company The morality of tax - we debate the issue Economic overview - a look at the positives and negatives Business tax update - what the changes mean for you and your business

The morality of tax When Jimmy Carr ploughed a couple of million into the tax avoidance scheme, K2, he did not have a clue what was about to hit him. Before he could reel off even one of his more laconic one-liners, his morality was being questioned on the front page of every UK newspaper and breakfast TV sofa. By attempting to pay as little tax as he could, he had committed a cardinal sin albeit, admittedly, a legal one. Even the Prime Minister ventured in, branding Carr’s decision ‘quite frankly morally wrong’ (despite the fact, many were quick to point out, that David Cameron’s own father was a pioneer of such tax avoidance schemes). Danny Alexander, chief secretary to the Treasury, also threw in his two-penneth, adding that people who seek to pay as little tax as they can are no better than benefits cheats. Only after a public declaration did Carr get to put things behind him and get back to the serious matter of making people laugh. In hindsight, the K2 storm had been brewing for some time. In the March Budget, the Chancellor had announced a 15% stamp duty tax on all properties valued at over £2m bought through a company, as it was assumed that buying through a company would save tax.

The message from the Government, quite simply, was that they will penalize anyone seeking to circumvent tax, even if legally.

Cash-in-hand economy Not long after Jimmy Carr’s K2 dressingdown, tax and morality emerged once again in the form of the ‘cash in hand’ debate ignited by Treasury minister, David Gauke. It is morally unacceptable, we were told, to pay people - generally builders and general tradesman - cash in hand.

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As with schemes like K2, cash in hand payments rob the state of the funds it is due in order to keep our hospitals and other public services running. HM Revenue & Customs (HMRC) puts the ‘tax gap’ at around £35bn annually.

Essentially, those paying - and being paid - cash in hand are getting a free ride while others are forced to pay more tax to cover the shortfall. The Government view cash-inhand payments as effectively defrauding the state. The spate of tax morality stories did not stop there, either. The next victim of the media appetite for tax avoiders was the media itself, as it emerged that a significant chunk of the BBC’s journalists and presenters are paid as freelance contractors through personal service companies. And if any more proof were needed that the Coalition Government is committed to targeting the tax arrangements of the high net worth, look at its recent ‘anti-affluence’ crackdown on homes worth £2m or more, or the restriction on wealthy individuals from fully utilising reliefs which were formerly uncapped. Most recently, the media and political venom felt by Starbucks when it was discovered the coffee chain has paid just £8.3m in tax despite over £3bn in UKgenerated sales underlines more than anything the delicate climate we are in.

Only a fool The question at the heart of all of the above is as follows: is it moral to pay as little tax as you can, if it is legal to do so?

(We are, of course, aware that some readers of Insight will find it ironic that a firm of accountants is discussing the morality of tax. But as we see it, and given that tax is embedded within the very fabric of our society, it is inevitable that we, too, will have an interest in the debate.) Having read a number of the articles that ran over the summer, in relation to K2, the BBC and cash-in-hand, what is clear is that when it comes to taxation, morality is inextricably linked - for many people anyway - to legality.

If something is legal then it is widely construed to be moral. Rightly or wrongly, the majority of people will choose to pay less tax if they are in a position to do so without breaking the law. Stephen Pollard, a journalist at the Daily Express, put it thus:

“Let me be blunt: only a fool would pay more tax than he has to. The Government sets the rules and the rest of us follow them. Who would choose to hand over more money than the law requires?”

Worldview The question Pollard ends with - “Who would choose to hand over more money than the law requires?” - raises a key issue in the debate surrounding the morality of tax avoidance. It is that we are all different and that, ultimately, there may be no right or wrong. After all, some people - for political, personal, religious or other reasons - do indeed choose to hand over more cash than the law requires them to do.

Others, meanwhile, will do everything they can to pay as little tax as possible, as that fits perfectly with their own worldview. In short, every person’s relationship to tax and its payment is intrinsically linked to their beliefs, their politics and their perception of what is right and wrong. By this logic, the morality of legal tax avoidance is fundamentally subjective and will never be resolved.

Arbiters of legality To look at it another way, surely every legal framework is deeply political in itself, as it is shaped and redirected by the political parties and politicians in power at a specific time? Governments that bring in these laws are widely known to be supported by high-net worth individuals and companies that have a vested interest in keeping the tax regime structured in their own interest. Because of this, many claim that the politics of high finance are incestuously embedded at the very heart of the legal and tax system. This is apparently no great secret, either. A poll in late August by Christian Aid showed that only 38% of us believe the Government is genuine in its desire to combat tax avoidance.

Ultimately, though, there is no answer to whether it is immoral for people to use tax legislation to minimize their tax payments. The debate is destined never to end, as the views of one will always be different to the views of another. To quote the German philosopher Friedrich Nietzsche:

“You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.”

GAAR GAAR - the General Anti-Abuse Rule -

In this issue... The morality of tax


Economic overview


Venturing into venture capital


Red flags - is your business struggling?


Who needs the banks anyway?


Get ready for genderneutral pricing


Fraud indicators


How charities can make the most of their reserves


Calling all 50% taxpayers


Sustainable is Profitable


The business case for sustainability


In the spotlight... Mark Billingham


The labyrinth of licence agreements


Revolutionising the legal services sector


Why invest in Britain?


The taxing matter of UK residential property


Insurance for start-ups


Business tax update


HW Fisher news


dovetails with the current moral critique surrounding tax avoidance by putting in certain tax rules that are based on principles rather than precise terminology. In an

David Cameron’s attack on Jimmy Carr was, most people acknowledge, for superficially political rather than profoundly moral reasons. After a pretty disastrous few months for his party, he saw a vote-winner and went for it.


attempt to reduce the £35bn ‘tax gap’ (the difference between what taxpayers actually pay and what HMRC thinks they should pay), GAAR will essentially empower HMRC to base a decision on what it feels to be the case rather than what may be the case on paper. GAAR will be focused on larger,

Fertile backdrop Very likely, given its ability to sell newspapers, the tax avoidance versus tax evasion story will continue to roll. The tough economic climate is certainly a fertile backdrop, as austerity puts state support - therefore taxes - at the front of everyone’s minds.

organised avoidance schemes - effectively ‘pre-packed’ products - and will not apply to the centre ground of responsible tax planning. This is different from the original GAAR which was envisaged to stop the wider tax planning. It was called the General AntiAvoidance Rule but has now been heavily watered down to the General Anti-Abuse Rule, which allows less provocative tax planning to continue.

Tony Bernstein, Tax Partner T 020 7380 4977 E

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Economic overview It is more than five years since over two hundred people queued outside the Golders Green branch of Northern Rock on 14 September 2007, but the UK economy - like those savers - remains in a state of panic. We are not alone, of course. Autumn 2012 and the global economy remains massively geared on debt, out of its depth and in the midst of an unprecedented correction. The Eurozone is still on the edge of collapse and the mighty US economy is struggling to get into gear - in September the Fed printed even more money to try and trigger growth - and even China is starting to go off the boil.

Swiss cheese Here at home, we went from recession to double dip recession for much of the year. All kinds of bodies and agencies downgraded their growth forecasts for the UK, not least the International Monetary Fund. But unemployment fell steadily, and by the third quarter the economy had shot back into growth. Question marks still hang over Plan A, the Chancellor’s commitment to slash the deficit, as net borrowing - the deficit - continues to creep up. As one wit put it in the media, Plan A appears to have “more holes than a piece of Swiss cheese.” All in all, it is safe to say that the current cycle is unlike any cycle we have ever witnessed before. And all the time, the credit agencies are circling the UK’s treasured AAA credit status like vultures round wounded prey.

The Euro And what of the Euro? The Euro is irreversible, according to the European Central Bank head, Mario Draghi. But few believe him. Unless Germany agrees to issue Eurobonds in order to reduce borrowing rates for the likes of Italy and Spain, then most agree the Euro is destined to fail and in the not too distant future, either. Unfortunately, German Chancellor Angela Merkel is not inclined towards Eurobonds and the German people are becoming increasingly fed-up with having to bail out their Mediterranean counterparts.

$64m question While George Osborne and Ed Balls throw austerity and growth grenades respectively at one another, the $64m question on everyone else’s lips is this: When will it end?

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The answer is nobody knows. What we do know, of course, is that it will end. It will end when consumers, companies and nation states have reduced their debt levels to manageable levels. As we covered in the last issue of Insight, the entire narrative of the past 15 years has been one of debt - firstly accumulating it, and then realising that we have to somehow pay for it. But ironically it is not all about debt. It is also about credit, or rather the lack of it. For more than five years now the banks - understandably - have been cautious about lending. But this caution is keeping the economy down, as without a degree of credit the economy cannot grow. Our own Nick O’Reilly, Brian Johnson and David Birne have been banging this drum in the media for some time. The Government and Bank of England know this and in July jointly announced the Funding for Lending scheme, which is their latest attempt to get the economy back to life (and an admission, some say, that quantitative easing has failed). This is about encouraging the banks to lend to viable businesses and mortgage borrowers where previously they may not have. It is about getting us back to sensible lending, because right now the banks are too scared to even do sensible. In other words, the banks will lend more but once again not necessarily to the people who need it - the first time buyers out there, and those with smaller deposits or less equity. At the time of writing, in October, it is still too early to say whether the Funding for Lending scheme will spur the economy into life. The general consensus is that it is unlikely to make a huge difference, as the banks have been straitjacketed by Basel III, which requires them to boost their capital and liquidity base (and to do this, they need to keep money rather than lend it out). Companies and consumers alike remain deeply cautious about whether it will work (although thankfully there are a growing number of alternative finance options for business, see page 7).

Doubts also surround the Business Bank announced by the Business Secretary, Vince Cable, in the Liberal Democrats’ recent party conference. But again, this won’t kick in for at least 18 months and could prove to be yet another ‘scheme’ that comes to nothing. The long and the short of it is that it is likely to be some time before we have properly emerged from this crisis. But perhaps the one silver lining to the economic clouds hanging overhead is that times of uncertainty always represent times of opportunity - and trigger innovation. The solution is to be bold - because we have no other choice.

UK Economy: Positives and Negatives Positives •

Economy returned to growth in the third quarter of 2012

Unemployment falling consistently

Inflation, despite surprise uptick in July, much lower than 12 months ago

Interest rates to remain low for some time

AAA credit rating intact (for the time being)

Funding for Lending Scheme to boost bank lending

Launch of Government-backed ‘Business bank’ (but will it work?)

Negatives •

Public sector net debt of just over £1 trillion (2/3 GDP) as of September

Will Plan A weaken the UK economy rather than strengthen it?

Exports to Eurozone very weak

Consumers and business lack confidence

Banks still may not lend to marginally higher risk people and companies

Inflation still ‘sticky’ and could rise given volatile commodity markets

David Breger, Audit Partner T 020 7380 4943 E

Venturing into venture capital At a time where raising finance is proving a difficult task for many small and medium sized enterprises, the venture capital market can prove a happy hunting ground due to the enhanced tax reliefs available to investors subscribing for equity in qualifying trading companies. These tax reliefs can prove very valuable to investors and can offer them immediate cash benefits to sit alongside their investment. However, investors are unlikely to be attracted purely for the sake of accessing the tax relief; therefore any proposition would need to be carefully packaged and presented to potential investors and would have to make commercial sense.

The table below provides an overview of the available tax relief for investors:

There are two principal tax-advantaged schemes for private investors looking to make equity investment into SMEs - The Enterprise Investment Scheme (EIS) and the new Seed Enterprise Investment Scheme (SEIS), which was introduced in the 2012 Budget.

There are a number of requirements for investors to satisfy, in order to secure the income and capital gains tax reliefs, the main two of which are:

Below is a brief overview of the tax relief available for such investors and a discussion of some of the major points to consider when looking at SEIS or EIS.

Seed Enterprise Investment Scheme (SEIS) • Total ‘lifetime’ limit of £150,000 can be raised by investee company • Investee company must have gross assets of less than £200k prior to fundraising • Trade must be less than 2 years old • Investee company must have fewer than 25 employees • Investee company must not have raised any other State Aid Venture Capital • Maximum investor limit of £100,000

Enterprise Investment Scheme (EIS) • Total limit of £5m annually can currently be raised • Investee company must have gross assets of less than £15m prior to fundraising and less than £16m afterwards • Investee company must have fewer than 250 employees • Maximum investor limit of £1m

Seed EIS


Income Tax Relief



Deferral Relief

Yes - but 2012/13 gains exempt


CGT exemption



IHT Relief

Yes - after 2 years

Yes - after 2 years

• The shares need to be owned for a minimum of 3 years • The investor cannot control, either directly or indirectly, more than 30% of the voting rights and issued share capital of the company. For companies seeking to raise finance under these schemes, there are a number of pitfalls to be avoided, the main ones of which are set out below: • Funds raised under EIS need to be employed for the purposes of the trade within 2 years. For SEIS this time limit is extended to 3 years. • Not all trades are qualifying trades for SEIS / EIS purposes. In broad terms, companies whose businesses consist of leasing, financial activities, lawyers, accountants and investment activity will not qualify. • The 2012 Budget also introduced an overarching anti-avoidance rule, called ‘the disqualifying arrangements rule’. It is designed to prevent investors from securing tax relief where artificial structures without a commercial purpose have been established with the sole intent of accessing the available tax relief. • The investee company must be UK resident for tax purposes or carry on a trade via a permanent establishment in the UK • The company raising finance cannot be controlled by another company • Any company looking to raise equity finance under SEIS or EIS cannot be in ‘financial difficulty.’ If a company raises funds under SEIS or EIS, it must make sure that it complies with the regulations over a 3 year period following the issue of the shares; otherwise investors could lose the valuable tax reliefs that incentivised them to invest in the first place. For companies wishing to attract investors, it is possible to get pre-approval from HMRC that the proposed share issue to investors will qualify under SEIS / EIS. In practical terms, any third party investor will want to see that the company has its SEIS / EIS status pre-approved before committing to any investment. Once funds have been invested, the company is required to provide HMRC with a Compliance Statement giving details of the investors and the shares issued and HMRC will, in return, provide the company with the certificates to provide to investors in order for them to claim their tax relief. At HW Fisher we have significant experience in helping companies looking to raise finance under SEIS / EIS and ensuring that they comply with the relevant tax requirements.

Jamie Morrison, Tax Principal T 020 7874 7983 E

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Red flags - is your business struggling? In such challenging economic times, it’s more important than ever to be aware of the signs that your business could be struggling. I have dealt with hundreds of struggling businesses over the years and there are certain ‘red flag’ indicators that every company should be aware of and act upon. These red flags are basically signs saying your company has some issues that need to be resolved quite urgently. In all cases, the sooner you seek to resolve the causes of these red flags, the more likely your company will pull through unscathed. But if you continue to ignore them, the more likely the underlying problem is to grow, putting your company and the jobs of all staff at risk. It doesn’t matter what size or kind of company you have either. You can be a sole trader, in a limited company or limited liability partnership (LLP). The biggest red flags include: • Difficulties covering (or failing to cover) the monthly PAYE, corporation tax and/ or quarterly VAT bills. This is one of the earliest warning signs and can quickly snowball into an unmanageable level of debt. If you are having issues covering your tax liabilities, it’s essential that you speak to HMRC ASAP, and even consider a time-to-pay arrangement • Experiencing regular cash flow problems. So many perfectly viable businesses fail because they do not have the working capital to keep themselves going, even if there is plenty of revenue in the pipeline. Companies need to be ruthless in ensuring they have a sufficient cushion of working capital, and avoid collecting client debts too late or paying creditors too early • Being busy but with no discernible improvement in the financial position of the business. The key here is to have a clear strategy and clear goals in place - what is going wrong, how can you get out of this position, why are you treading water? If you find you are spending more time ‘fire-fighting’ than actually running your business, 6 | Insight

you need to rectify the core problems, not stick your head in the sand • High incidences of customer complaints and returns. While new business is important, existing customers and clients are arguably even more important. Make sure that you do not ignore existing clients and customers while you seek to acquire new ones to improve your position • Failing to invest in new equipment, resulting in high maintenance costs, poor efficiency and loss of market share to competitors. The solution to this is to invest in your own company, as over time it pays dividends. Thrift can sometimes be fatal. • Constantly asking the bank for a higher overdraft limit or larger loan, or even considering remortgaging or borrowing from friends to keep your business going. If you are in this position then you need to understand that simply having more money at your disposal is rarely the solution. The key is to change something more fundamental within the business It is important to understand that not all red flags are a sure-fire sign your business is struggling - but they’re certainly a good reason to take a long, hard look at it. If a number of red flags apply to your business then you should certainly seek appropriate professional advice - and not just for the sake of the business, but also for your own personal wealth. After all, if you are a sole trader rather than, say, a limited company, your company’s liabilities are deemed to be your own. This could result in the loss of personal assets and even, in extremis, your home. With limited liability SME companies, directors often provide personal guarantees and therefore their own personal position is inextricably linked to that of the company.

Turning things around Remember that just because your business is struggling does not mean it’s all over - as well as carrying out formal administrations, insolvency specialists also offer restructuring advice. The aim of restructuring, or ‘turnaround’, experts is to work closely with existing management teams, lenders, creditors, stakeholders and investors to ensure the best strategy for the recovery of a struggling business. The type of work we carry out includes: • Performance reviews Working with management to review the financial performance of the business and provide an operational overview • Recovery strategy Working collaboratively with the management team, lenders, investors and other stakeholders to develop a robust recovery strategy that also reduces costs • Implementation Providing on-the-ground support to ensure the restructuring strategy is being implemented, possibly by way of the introduction of an interim manager to help the existing management team • Cash flow Providing a bespoke solution to help the management overcome cash flow problems and secure medium to long-term finance. Note, too, that if your business is experiencing difficulties, most insolvency practitioners and turnaround specialists will offer an initial consultation for free, so there is no downside to inviting them in. Time is of the essence.

Brian Johnson, Business Recovery Partner T 020 7380 4989 E

Who needs the banks anyway? Let’s not beat around the bush. The Funding for Lending Scheme, launched by the Government and Bank of England over the summer, was an admission that Project Merlin had failed. While we welcome this latest initiative to get the wheels of the economy turning again, it is by no means guaranteed to work. Even if the banks do rediscover their appetite to lend (and the jury is still very much out), in many cases they won’t be able to lend due to the 2019 arrival of tough new standards on capital adequacy and liquidity, known as Basel III.

Sea change What is clear is that the Credit Crunch and subsequent recessions have triggered a sea change in the way SMEs are funded. In the spring, we saw Tim Breedon, CEO of Legal & General, publish a Government sponsored report, Boosting Finance Options For Business. Hot on the heels of this came the Business Finance Partnership, an initiative focused on formalising alternative sources of finance for SMEs. Meanwhile, in the 2011 Autumn Statement, Chancellor George Osborne announced the arrival of a new tax break for investors, the Seed Enterprise Investment Scheme (SEIS). Essentially, SEIS enables HNWs investing up to £100,000 per year in an individual startup to claim back income-tax relief equal to 50% of the amount invested. In short, the Government and Bank of England are acutely aware of the need to remove businesses’ dependence on the high street banks as a funding line or cashflow solution. Adjacent, we look at two of the new alternatives to traditional bank finance crowdfunding and invoice trading. One is about raising money or securing credit, the other is about circumventing cash flow problems.


Crowdfunding case study

Crowdfunding enables smaller businesses and start-ups to raise money online through interested investors or lenders, whether private or institutional. It is ‘peer-to-peer’ borrowing or fundraising, rather than going to the banks.

North London-based drinks start-up, Kammerling’s, produces a ginseng spirit that contains 45 natural botanicals, offering an exciting new alternative to the Gin, Bitters and Pimms product range for more health-conscious drinkers. In late 2011, Kammerling’s successfully raised £180k from 85 investors for 23% equity in three months (91 days) to ensure the next stage of its expansion. Kammerling’s needed the funding to increase production and sales in the UK market and to commence distribution to larger high end stores such as Selfridges and Harvey Nichols. Their aim is to launch in select bars and target overseas markets with the goal of making Kammerlings’ a global brand.

The money companies borrow is in the tens or low hundreds of thousands of pounds - rather than millions - and they could end up borrowing it from just one investor or lender or even hundreds of investors or lenders at the same time - hence the idea of funding from the ‘crowd’. There are a number of online platforms that offer this service, from Funding Circle to Seedrs and Crowdcube. The latter two are equity-based and targeted at smaller businesses, whereas Funding Circle is aimed at more established, creditworthy businesses, and focused on loans (and often requires asset security or a personal guarantee).

Invoice trading This is focused on solving cash-flow problems, which are growing all the time as high street banks have reduced or even cancelled many overdraft facilities. It basically involves SMEs placing their outstanding invoices in an online auction and selling them individually or in bundles to the best bidder (from institutional investors and banks to asset-based lenders and high net worths), thus giving them quick access to outstanding funds. Sellers then buy the invoice back from buyers, generally after 30, 60 or 90 days. The buyers get a fee for stumping up the cash, which varies from auction to auction. Invoice trading is different to traditional invoice discounting and factoring, which is usually offered under long-term, exclusive agreements with a single bank or finance provider. The two main invoice trading companies are Platform Black and MarketInvoice.

Invoice trading case study Nyman Resourcing recruits and supplies IT experts to the banking and financial services sector. Each month it pays a salary to all its contractors, whether or not its clients have paid their invoices. So keeping on top of the business’s cash-flow is of paramount importance. In July 2012 the company successfully auctioned its first invoices through Platform Black. Nyman Resourcing’s invoices scored highly on Platform Black’s Experian-powered credit score, as its clients are primarily large financial institutions. It says the terms on which it was advanced the money were much more favourable than it would have got from a bank and now plans to use invoice trading regularly to stay in control of its cash flow and ensure it never misses a salary payment.

Nick O’Reilly, Business Recovery Partner T 020 7380 4973 E

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Get ready for gender-neutral pricing This is set to be a seismic shift within the insurance and pensions world Here is a fact: on average, women live longer than men. Here is another fact: young male drivers are far more likely to have a car accident than young female drivers. It is on facts - empirical foundations - like these that insurers, for decades, have based the premiums they charge policyholders. A 45-year old man, for example, is going to pay more for life insurance than a 45-year old woman because statistical analysis shows that he is more likely to pass away while the policy is still live. It is on this basis that pension providers have also calculated the annuities they offer - a 65-year old man, for example, will get a more generous annuity than a 65-year old woman with an equivalent profile as statistics show that he is unlikely to live as long. But this is all soon to change. In March of last year, hard facts and empirical evidence were deemed inadequate by the European Court of Justice. In its eyes, insurance companies should not be allowed to discriminate by gender when calculating insurance premiums and annuities - and as of 21 December, with the enforcement of the EU Gender Directive, doing so is set to become unlawful.

Seismic shift So-called ‘gender-neutral pricing’ is set to be a seismic shift within the insurance and pensions world and yet its imminent arrival is completely off the radar of the vast majority of people. For example, a survey over the summer by London & Country Mortgages found that 80% of women are completely unaware of the EU Gender Directive - despite the fact that it will ramp up their car and life insurance premiums, and knock down their retirement incomes. Whatever you think of all this - some will agree, others will consider it the latest piece of peculiar legislation to emerge from Luxembourg - it is happening and we all need to prepare accordingly. Depending on your gender and the type of product you’re looking for - whether an annuity, say, or life insurance - the cost could change significantly if you buy before 21 December 2012, or delay until after that date.

Call to action For example, it may be cheaper for women to: • Take out life insurance, critical illness cover and PMI before 21 December 2012 • Wait until after 21 December 2012 before they purchase an annuity However, it may be cheaper for men to: • Take out life insurance after 21 December 2012 • Purchase an annuity before 21 December 2012

Clearly, cost should by no means be the sole driver of a financial decision - any course of action must be set against a person’s broader financial and personal situation. For example, what if a man were to delay taking out an insurance policy until after 21 December 2012 in order to save money, but then died before that date? It is worth noting, moreover, that the new rules will not apply to existing policies or contracts, only new ones. The important factor in all of this is to seek independent advice, and sooner rather than later.

One final thing: the new gender-neutral rules do not apply to annuities purchased with occupational pension schemes, but only to policies that are voluntary, private and separate to a person’s employment. Understandably, this has led to allegations of a two-tier, and therefore unfair, annuities market - the kind of thing, some argue, the EU Gender Directive was meant to do away with. If you believe you will be affected by the EU Gender Directive, and would like to take steps accordingly, please contact Eos Wealth Management:

Richard Brand, Financial Adviser Eos Wealth Management T 020 7874 1194 E

Eos Wealth Management Limited is authorised and regulated by the Financial Services Authority. Any tax reliefs or legislation mentioned are those currently available or in force and are subject to change.

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Fraud indicators A piece of major research into fraud carried out recently by the National Fraud Authority, found that fraud is currently estimated to cost £765 for every single adult. Fraud, you see, is everywhere and the global recession is only making things worse. Fraud affects all areas of the economy, from the private and public sector to charities and individuals. Increasingly, because of our reliance on digital technologies, it is also cyber-related.

As far as businesses are concerned, the prevention and early detection of internal fraud is always more preferable to intervention after the event - the longer fraud goes on, and the more deeprooted it becomes, the larger the financial, legal and indeed reputational ramifications. Below are some of the ‘red flag’ fraud indicators that business owners should be aware of. If you spot any of these potential indicators of fraudulent activity, there may be a reason to pay closer attention to a specific employee, co-worker or even fellow director/partner.

Behavioural indicators • Employees who consistently work longer hours than their colleagues for no apparent reason

Procedural indicators • Employees making procedural or computer-system enquiries inconsistent with, or not related to, their normal duties • Customers or suppliers insisting on dealing with just one individual in your organisation • Key managers with too much hands-on control • Managers who avoid using the purchasing department • Tendering to one supplier only or always to the same suppliers The key for business owners is to use ‘red flags’ in conjunction with other risk management strategies. It is also important to be on top of any changes in your company’s activities that could open up new or potential fraud risks. One good way to reduce the risk of fraud is to involve staff in identifying fraud risks and how to prevent fraud within your organisation. It is also worthwhile having a fraud response plan in place that outlines the policies and procedures that must be followed in the event of a fraud being detected or even suspected.

• Employees who are excessively secretive in relation to their work Alan Lester, Compliance Partner

• Employees under apparent stress without identifiable pressure

T 020 7380 4979 E

• Employees who delay providing information or who provide different answers to different people • Employees who ask to defer internal audits or inspections to ‘properly’ prepare, or who ask for significant detail about proposed inspections

Financial indicators • Rising costs with no explanation, or that are not proportional with an increase in revenue • Large volume of refunds to customers • Unusual transactions or transfers (even small amounts) • Employees who submit inconsistent and / or unreasonable expense claims • Employees with unexplained sources of wealth

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How charities can make the most of their reserves In our recent poll of 800 UK charities, we found that a significant 39% of them have not strategically adjusted their reserves policies since the economic downturn began. This came as quite a surprise. A charity’s reserves, if you are not overly familiar with the finances of the third sector, are the pool of funds that it presides over. Some of these funds are ‘restricted’ or ‘designated’ and these must be used for pre-defined purposes, as dictated by the donors or as a result of internal decisions by the board of trustees. However, all charities have what are called ‘unrestricted’ funds, which are not allocated to a specific area but can be used for any purpose deemed appropriate by the charity.

Unrestricted funds constitute free reserves and the charity’s buffer for a rainy day. Trustees are required to have a policy as to what reserves they need to hold and why, a statement which is published in their annual accounts. It is fair to say that many UK charities in the past have been too cautious about proactively using these unrestricted reserves, and this can be exacerbated by a lack of understanding as to what they need to hold and what the figure they have represents. In the current economic climate, many have had to dip into their unrestricted reserves to maintain their core services, but what they have not done historically is think through how these reserves, used proactively, could help further the charity’s strategic plans. Charities need to get the basics right. Accurate budgets and up-to-date management accounts are crucial if a charity is to understand its financial position and reserves needs. Many charities, especially the smaller ones, are simply not on top of their management accounts.

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Also, many charities keep their unrestricted reserves at a historical round figure regardless of whether this may be too much or too little. For example, a charity may keep £500,000 in reserves but have no idea what that figure represents - is it too much or too little?

Fresh thinking and a strategic fight-back, involving looking at ways unrestricted reserves can be used to enhance their position rather than protect it - through marketing, say, commercial opportunities or regular impact assessment, will therefore pay far greater dividends.

To get an accurate picture of their reserves position, charities need to look at their finances and reserves on a real time basis, not simply once a year when it comes to filing their annual accounts. An assessment of the predictability of income and expenditure, for example when it will be received or need to be paid, will assist with forecasting and projecting the actual cash flow - and if and when it will be necessary to use any reserves. It is this kind of common sense-based monitoring that can improve the confidence of a charity’s trustees and ease them away from stockpiling unjustified, fixed figure reserves - a kind of ‘comfort blanket’ - that can hold a charity back. Charities should also have some form of action plan for re-building reserves, which may involve exploring new sources of income such as trading activities. It is not, of course, easy to find new ways to generate income, but the process of the Board of Trustees looking at diversifying income is an important measure to undertake. During difficult times charities should ensure they focus on what they do best and their core activities. This may mean dipping into reserves to invest in improvement or enhancement - this should certainly be the first port of call before considering diversifying into areas where the charity is less familiar. However, charity trustees should also not be afraid of making bold decisions at the moment, and a sound understanding of reserves needs will in turn give trustees the confidence to do so.

Andy Rich, Charity Partner T 020 7380 4988 E

Calling all 50% taxpayers - pensions tax relief at 50% - use it or lose it! The additional rate of tax is going down to 45% with effect from 6th April 2013. This means that pension tax relief will also go down. If you are thinking of making a pension contribution, it will pay not to delay, as right now this means an additional 5% of relief.

Carry forward Carry forward allows an individual to contribute more than the annual allowance (currently £50,000) without incurring a tax charge. Through carry forward, contributions that exceed the annual allowance in one tax year can use up unused annual allowance from the three previous tax years. For most individuals, tax relief can be carried forward from the three tax years immediately before the tax year in which they are paying their contribution. So, for someone wanting to make a contribution during 2012/13 and use carry forward it is typically possible to use up tax relief from 2009/10, 2010/11 and 2011/12. In order to carry forward tax relief from an earlier tax year an individual must simply have been a member of any registered pension scheme in that tax year and have earnings in the current year that equal the amount of the contribution, in order to gain the relief.

Pension Input Periods - make the most of the rules The amount of the annual allowance used by pension savers is worked out by looking at the contributions paid in the pension input period which ends in a particular tax year.

Most providers link the end date of pension input periods to the end of the tax year because it makes it simpler for individuals to work out how much annual allowance they have used in a given tax year. However it is possible to end your pension input period on a different date, so in effect, it finishes in a different tax year.

This could enable you to make a contribution of up to £250,000 and receive 50% tax relief now, rather than 45% tax relief when the rate goes down in April 2013. For example, the following case study illustrates how this could be possible: Betty has her own interior design business and has had a great year of trading. Her anticipated earnings during 2012/13 are around £500,000. Betty is allowed to contribute £50,000 to a pension per year, as a high earner, but hasn’t contributed to pensions for around 6 years, as this has not been high on her list of priorities. Betty’s input period runs from 6th April 2012 to 5th April 2013. Betty can use carry forward and pension input period rules to make the following contributions:

Tax year

Unused Allowance

Cumulative Carry Forward
















* It is possible for Betty to receive tax relief of 50% on this contribution by changing her input period so that it finishes in the 2013/14 tax year.

How this works is that she makes a contribution of £200,000 now and receives allowance for her three previous tax years and the current tax year. She then changes her input period to 15th December 2012 and makes a further contribution of £50,000. As this input period ends on 15th December 2013, this falls into the 2013/14 tax year. This will give her an additional £12,500 of tax relief which she wouldn’t receive if she waited until after April 2013. Acting now can give you an additional 5% tax relief, so speak to your financial adviser to reap the benefits. Russell Brooks, Financial Adviser Eos Wealth Management T 020 7874 1190 E

Eos Wealth Management Limited is authorised and regulated by the Financial Services Authority. Any tax reliefs or legislation mentioned are those currently available or in force and are subject to change. Prepared using 2012/13 tax rates. The Financial Services Authority (FSA) does not regulate tax advice.

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Sustainable is Profitable With Governmental and public bodies urging businesses to become more transparent in reporting environmental performance, and energy prices soaring, there is an ever-growing incentive for businesses to accurately measure and report their emissions. With this in mind, and after extensive analysis of the sustainability field, we have built a team of experts that is able to offer true best practice and best value solutions for clients. We believe that adopting a pro-active sustainability strategy can enable our clients to differentiate themselves, better enable the management of risk and significantly reduce costs and carbon emissions. Our four-strand approach to sustainability is outlined below.

Our approach to sustainability • Energy and carbon auditing - provides an energy and carbon footprint for the business and is a bespoke product focused on your business needs • Solutions audit - focuses on the opportunities for reducing energy consumption and opportunities for generating energy more effectively • Additional sustainability services - this could involve drafting Corporate Social Responsibility (CSR) policies or helping clients integrate sustainable procurement or to set up an Environmental Management System • Training - educating management, employees, customers and suppliers in the adoption phase of a sustainability strategy.

12 | Insight

The business case for sustainability It can be hard for people to get their heads around the idea of sustainability within business, as huge issues like climate change, on the surface at least, have little to do with the day-to-day running of companies. Often in our discussions, clients say that they understand the need for change and that they are interested in environmental and social issues - but from a practical point of view they have not got a clue where to start. This is where a carbon audit is helpful, as it enables an organisation to establish a baseline in terms of how much energy is being used, what that energy costs and what the carbon emissions are that are associated with that consumption. This is often as far as many organisations go, but really, it should only be the first step - simply measuring is not enough. The audit should be used in such a way that it leads to increased efficiency in practice. This is where a solutions audit comes in, where we follow the energy hierarchy model of firstly identifying opportunities for energy reduction (removing the need) and then looking at opportunities for generating energy more efficiently through improvements in on-site systems and - where appropriate renewable energy generation systems. Coupled with this is the all-important realm of behavioural change. The most powerful energy saving technology, after all, is the human finger (turning it off).   Adjacent are two case studies of clients that have gone through this process. They highlight the business case for energy reduction and turning what is often viewed as an uncontrollable cost into something that can be managed and improved upon.

Energy costs affect the bottom line of any business. If savings of £50,000 are able to be delivered in a business with a payback period of under four years, then that same business won’t have to sell as many products or services to earn that profit. Alternatively, a client of ours is interested in selling their business in 2-3 years. Every £50,000 of profitability in that business can be worth on average 4.5-10 times that amount in the capital value of the business. As such, that £50,000 of utility savings can translate into £225,000-£500,000 of additional value in the business.   It is not a decision between being sustainable or being profitable. Sustainable business is just about business common sense.

Energy reduction case studies Medium Scale Office Based Company Energy Saving and Estimated

Estimated Payback Return on

Energy Production Saving /





Investment of CO2 Savings

Income p.a.

Switching Solution






Cooling Solution 1






Boiler Solution






Cooling Solution 2






Voltage Solution 1






Heating Solution






Voltage Solution 2






Lighting Solution











78.8 or 16% of total emissions

Transport Based Company Energy Saving and




Return on

Energy Production

Saving /





Income p.a.

Driver Solution 1


£700 for 35

‹1 month


‹1 month


5.3 months


2 months


‹ 3 months



Driver Solution 2


£700 for 35 Drivers

Vehicle Solution 1


£11,275 for 35 Vehicles

Vehicle Solution 2


£3,250 for 10 Vehicles

Jae Mather, Sustainability Director T 020 7874 7985





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In the spotlight... Mark Billingham Our client, Mark Billingham, is a stand-up comedian and an award-winning crime novelist. As a fellow comedian, what’s your take on the Jimmy Carr K2 tax saga? Well, I’m sure a lot of people have been doing much the same thing, but he is a high-profile comic, so it all made good copy. It also gave a lot of other comedians plenty of material!

Talking of tax and money, is George Osborne right to stick with his ‘Plan A’, namely austerity? I’m no big fan of Mr Osborne, though I DID once go to a reception at his house and the nibbles were top of the range! His plan certainly seems to have lost the backing of a good many financial experts. It clearly fits into a right-wing agenda and I’m personally not in favour of curbing welfare spending or ‘shrinking the state’.

What’s your biggest ever indulgence financially? I was going to say property, but I’m not sure that IS an indulgence. It still seems like a pretty sound investment to me, however iffy the housing market might be at the moment. So, probably my car, which will only ever go down in value, but which makes me feel very happy every time I get into it.

What’s the best piece of advice you’ve ever been given? If it’s going badly, get off. If it’s going well... get off!

Where do you get inspiration from for your novels and stand-up acts? Ideas come from anywhere. If you let people know you’re a comedian they always want to tell you jokes, but now people know I’m a crime writer they’re keen to tell me all manner of beastly stories; from nasty goings on among their neighbours to the best way to dispose of a body. All material is gratefully received and tucked away.

What would you say is your biggest professional success? Definitely the books. I was thrilled that my last three novels went to number one on the bestseller list. Obviously my kids see that and immediately expect an increase in pocket money. When that happens, I strictly enforce my own austerity package...

Who is your favourite author and stand-up comedian? Lots of favourites. Among the classic mystery authors, I love Dashiell Hammett and Arthur Conan-Doyle and of the contemporary crowd I would urge anyone who hasn’t already read such writers as George Pelecanos or John Connolly to rush out and buy their books. I love the sixties stand-up of Woody Allen and, of the current crop, I’m a huge admirer of Louis CK. There’s great stand-up to be found almost every night on the London circuit which is still the best in the world.

What do you expect from your accountants? Well, it sounds obvious but I expect sound advice based on an understanding of how I make my money and what my attitude is to spending it. I expect that the price I pay for this will be money well spent, considering how much I get in return and how much better off I will be in the long term.

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The labyrinth of licence agreements One area that is especially prone to smoke and mirrors is the law regarding anti-competitive practice. For example, not so long ago Microsoft was ruled to have abused its dominant market position when it demanded a royalty on each computer sold by a supplier of its operating systems, irrespective of whether or not the computer contained Windows software.

Now this will seem frankly quite ludicrous but it underlines the brute commercialism of some licensors - and the need for licensees to stand their ground and understand their rights. Likewise, a global semi-conductor company tried to impose anti-competitive practices on a UK software reseller, whereby the latter could only sell in France at a price higher than was the case in other territories. The UK software reseller countered with Article 102 of the Treaty of the Functioning of the European Union (TFEU), which states it is illegal for companies ‘to directly or indirectly impose unfair purchase or selling prices or any other trading conditions’.

Licensee liberties But it is not always licensors that are at fault. I have dealt with countless cases where licensees have gone outside the rules of the agreement with the licensor. For example, it is not uncommon for licensees to sell licensed products outside their designated territory, which can cause licensors, who have relationships with multiple licensees, a major headache. One argument licensees often give when breaking agreements in this way is that the sales outside their designated territory were ‘unsolicited sales’, which, under current EU law, are legal. In reality, what can happen from time to time is that the licensee actively seeks the sales outside its territory - thus breaking the agreement with the licensor - and, when it is found out, argues that the company it sold to outside its designated territory approached it, rather than vice versa.

Sometimes, to muddy the waters, the licensee may attempt to be especially clever and sell to a company within its designated territory who then passes on the product to a buyer outside the territory.

Having the SSNIP

In all cases like this, the onus is upon the licensor to prove otherwise, which can be extremely time-consuming but, depending on the scope of the agreement, extremely worthwhile.

For example, if say, the licensor wants to dump inventory into the market or aggressively target a competitor’s products (and send it out of business), it cannot force a licensee to charge a minimal price.

Abuse backfires

Alternatively, it cannot abuse its market dominant position and demand that a licensee charges too much for its product, or slowly force the licensee to raise its prices (thus influencing market price).

Licensees have to be careful, though, as abusing the terms of an agreement can seriously backfire. For example, when they enter into an agreement, licensees will generally pay a minimum guarantee, or advance royalty, to the licensor. Now, whenever the licensee sells products according to the rules of the agreement, those sales can be offset on their statement against the advance royalty. But if the sales are to non-designated territories, then they cannot be offset against that royalty. We have seen so many cases where unsolicited out-of-territory sales have been set against the minimum guarantee payment by the licensee and we have successfully challenged this, meaning the licensee has to pay over additional royalties on these sales, even if the minimum guarantee has not yet been recouped. Example: Licensee pays a minimum guarantee of £25k on sales of branded T-shirts. Licensee subsequently sells £300k of those branded T-shirts, declaring a 10% royalty of £30k and pays over just the additional £5k. Through the audit, the licensor discovers that £100k of the T-shirt sales were unsolicited sales outside of the authorized territory. Conclusion: only £20k of royalties (£200k@10%) can be offset against the minimum guarantee, requiring an ‘overage’ payment of £10k, not £5k.

Returning to licensors and anti-competitive rules under EU law. All licensors must beware that they do not impose anticompetitive conditions on their licensees.

In the latter case, if the licensor fails the SSNIP (Small but Significant and Nontransitory Increase in Price) test and also controls more than 40% of the market, then it could be fined a phenomenal 10% of its global turnover.

Regular reviews In summary, and as stated at the very beginning, licensing agreements can throw up all kinds of challenges and it is important that both parties regularly review the agreement.

Whatever the law and whatever the rules within an agreement, it is important to bear in mind that these will always be looked at against a backdrop of commercial reality. The moral of the tale is this: whether you are a licensor or a licensee, don’t take anything for granted and always seek professional advice.

Stuart Burns, IP and Royalties Partner T 020 7380 4964 E

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Revolutionising the legal services sector Alternative Business Structures (ABSs), came into being in the Legal Services Act 2007. If they sound lacklustre and uneventful, they are quite the opposite. In fact, it is fair to say that they have the potential to revolutionise the legal services sector in the months and years ahead. We don’t need to drill down into the numerous intricacies of the ABS here today, but the main thing to understand is that, for the first time, they enable legal firms to be owned by, or take external investment from, non-legal firms. Or put another way, the advent of ABSs is enabling existing suppliers of consumer services to branch into legal services, giving them the moniker ‘Tesco Law’ (although ironically, of the supermarkets only the Co-op, and not Tesco, has registered an ABS thus far, Co-operative Legal Services Limited). Legal watchdog, the Solicitors’ Regulation Authority, confirmed the first three applications from non-legal firms at the end of March and at the time of writing in October around 30 non-legal companies have successfully applied to enter the sector. August was a particularly busy month, seeing 13 new ABSs approved. Things are heating up.

Insolvency trade body, R3, is very wary of the threat ABSs represent to traditional high street law firms and believes up to 2000 small firms are at risk of failure over the next year. It expects many of them to be overwhelmed by the arrival of new, financially stronger firms, which will be far more competitive on price and also much slicker in terms of their brand, marketing and IT systems. Lee Manning, R3 President, commented that: “Law firms are operating in a challenging environment and the marketplace seems to be getting tougher and tougher.” He is not wrong. So what developments are likely in the months ahead? Could a household name within financial services snap up a big UK firm of solicitors and launch into the sector aggressively?

Many existing law firms have also applied, and been approved, for ABS status, as it enables them to seek external investment. Examples include Parabis and Irwin Mitchell. So there is plenty of activity not just from outside the sector, but also from within.

Might we also see an increased level of merger activity, whether an accountancy firm teaming up with a law firm to create a multidisciplinary practice or even a law firm jumping into bed with a big estate agency firm to offer an end-to-end property solution?

Traditional law firms, as you would imagine, are facing a major challenge here, especially those focused on more commoditised legal sectors, such as: Wills and Probate, Conveyancing, Family Law, Personal Injury and Employment Law (all the sectors the Co-op is focusing on, in fact).

Whatever happens, I don’t expect we will be waiting too much longer for a Big Bang event. Nauzer Siganporia, Professional Practices Partner T 020 7380 4965 E

HW Fisher & Company surveys law firms on ABSs With corporate giants like Co-op already in the legal services arena, you would think SME law firms would be doing everything they can to prepare for the potentially life-or-death battle ahead. But as yet, according to our survey of SME law firms that we carried out earlier this year, over half (52%) of SME law firms think the Legal Services Act (LSA) will not even affect them over the next 12 months, while just 15% believe they will lose business. Are they being overly optimistic? R3, see above, certainly thinks so. Encouragingly, 22% of respondents to our survey believe the LSA will help them gain more business over the next 12 months, due to merger plans or other opportunities created by a broader legal services market - while 26% are now seriously considering seeking external investment (up from 11% last year).

16 | Insight

What is clear is that, in the current fast-changing environment, capital raising initiatives, M&A opportunities and, most importantly perhaps, exit strategies, must be at the very top of a law firm’s priorities if it is to survive and thrive in the years ahead. If you would like to receive a copy of our SME Legal Practices Survey 2012, please email To discuss capital raising initiatives, M&A opportunities and the most appropriate exit strategies for your firm, please contact: Paul Beber, Professional Practices Partner T 020 7380 4961 E

Why invest in Britain? Nobody can deny that the British economy is bruised, battered and on the back foot. Despite this, Britain remains a key market for international companies, rising above the vagaries of the economic cycle. The overseas money keeps pouring in because Britain is seen as a deeply stable place to invest. According to UK Trade & Investment (UKTI), Foreign Direct Investment (FDI) in the UK created or safeguarded 112,659 jobs from 1,406 projects in the financial year ending 31 March 2012, confirming its role as a vital driver of the UK economy. Indeed, UKTI confirms that the number of jobs attributed to FDI increased by 19% last year on the previous year, while the number of FDI projects remained stable, despite the recent economic difficulties in Europe. Also, companies from 58 countries invested in the UK in the latest financial year, up from 54 the previous year. Despite the economic downturn, things are on the up. UKTI’s figures are confirmed by other organisations, not least the Financial Times. In its fDi Intelligence Report 2012, the FT ranks the UK as the primary FDI location in Europe. So why is the UK such a popular place for international firms to invest and set up base? Some of the major reasons given by UKTI and HW Fisher & Company (one of its partners) are outlined below. • Perfect Euro beachhead - The UK economy is one of the largest and most sophisticated in the world and a proven gateway to the US$17 trillion European Union market. And being outside the Eurozone, the UK provides the perfect beachhead: easy access to the EU market but at the same time insulated to some degree from volatility in the single economy. • Not lost in translation - As an English-speaking country, the UK has an advantage over many of its continental rivals. Investors in Britain can feel confident that everyone in the country speaks the international business language, English. • Unrivalled business environment - The UK is the best major location for ‘ease of doing business’ in Europe according to an independent assessment by the World Bank that considered a range of key commercial operating factors (such as setting up and running a business, labour regulations and obtaining finance). UK employment laws and red tape are frequently less onerous than those of our European neighbours.

• Future-proof skills base - The wealth of skills for international companies to draw from will remain secure for the future over half a million full-time and part-time students graduate each year from the UK’s 170 universities and higher education institutes, the highest graduate output in Europe. • Europe’s R&D head - Companies operating in the UK benefit from being in the strongest R&D environment in Europe, with direct access to a range of world-class research institutes and eight of Europe’s top nine universities. The results are clear - the UK has a long and prestigious track record of developing and launching market-leading innovations across all key business sectors, from life sciences and advanced engineering to environmental technologies. • Quality of life - As one of the most cosmopolitan countries in the world, Britain provides a welcoming environment for international business executives and their families. With its mature property market, first-class health service and world-renowned education system, international executives relocating to the UK enjoy a superb quality of life. • Long-term ROI - Many thousands of international companies have already made the UK their preferred choice for their business investments. Each year, hundreds of these companies also make repeat investments in the UK by adding new facilities and recruiting more employees - the strongest possible commercial endorsement of the UK’s business environment.

With its unfamiliar laws and regulations, opening a business in a foreign country - even one as stable and internationally recognised as Britain - can be intimidating, but it needn’t be overwhelming. It goes without saying that it should not be attempted without first doing some detailed research and seeking expert advice, which, at HW Fisher & Company, we are more than happy to provide.

Michael Davis, Managing Partner T 020 7380 4963 E

• Competitive tax environment - In March, the Chancellor made Britain an even cheaper place to do business, announcing a larger than expected cut in the main rate of corporation tax from 24% to 22% by 2014 and a reduction in the top rate of income tax. Innovative companies will also be able to benefit from an additional reduction in corporation tax through the upcoming ‘Patent Box’ initiative and through recent enhancements to the UK’s generous research and development (R&D) tax credit scheme.

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The taxing matter of UK residential property For most people, buying or selling UK property can be a daunting event - all the more so if they are not based in the UK or are not UK resident for tax purposes. Here we take a top-level look at the main taxes that enter the equation when buying or selling residential property in this country for both UK and non-UK residents. They are: Income Tax, Capital Gains Tax, Inheritance Tax and Stamp Duty Land Tax. Given the complexity of these taxes, and to ensure you pay no more tax than you should, it is important to seek advice sooner rather than later. Clearly, the specific level of tax you pay in each of these categories can vary considerably according to your specific circumstances.

UK Residents • Income Tax - if you rent out a property, Income Tax of up to the highest tax rate of 50% (this year) is due on the net rent after all available deductions. Income Tax at the appropriate rate also applies to the profits on sale of certain development property, e.g. where that property was developed/ refurbished for immediate sale, and also if you are a trader of properties. • Capital Gains Tax (CGT) - only applies to second homes (that is not your main home) or investment properties. When sold or gifted, these properties will generally incur CGT of up to 28% on the gain. There are some situations where gains can be taxed at a lower rate of 10%, e.g. the sale or gift of a short-term holiday let. Non-UK domiciled individuals can sometimes avoid CGT altogether through the use of offshore trusts.

• Inheritance Tax (IHT) - levied, on death, at 40% of the net value of a property (after the deduction of any outstanding mortgage debt). There is currently a Nil Rate Band on property of £325,000, so if the net value does not exceed that, no tax is payable. Properties gifted between spouses or civil partners are often exempt from IHT. Non-UK domiciled individuals can sometimes avoid IHT if they own a property through a non-UK company, although there may well be changes in this respect from 2013.

Non-UK Residents • Income Tax - non-UK residents owning a UK rental property will have to pay Income Tax on the net rent of up to the top Income Tax rates. However, only basic rate tax is payable if the property is owned through an offshore company. Income Tax - rather than CGT - still applies at the appropriate rate to the profits if the UK Revenue consider you are a trader. (However, if the property is owned by an offshore company and the owner is non-UK resident, only the basic rate of tax is payable on such trading profits.) If you are developing property, then this will bring the offshore company into the UK Corporation Tax regime, with a maximum 24% liability on any UK profits. • Capital Gains Tax (CGT) - currently, no CGT is payable on the gain from the sale or gift of a UK residential property personally held by non-UK residents. But beware: from next year, owning residential properties valued at £2m or above through a non-UK company could incur CGT and also a potential annual payment (‘Annual Charge’) of up to £140,000.

• Inheritance Tax (IHT) - as with UK residents, IHT is levied, on death, at 40% on the net value of the UK property (reduced by outstanding loans). Again the Nil Rate Band, currently £325,000, is available so if the person’s net value does not exceed that, no tax is payable. Properties gifted between same domiciled spouses or civil partners are often exempt from IHT. Non-UK domiciled individuals can sometimes avoid IHT on their UK assets if they own them through a non-UK company, however given the proposed changes from April 2013 affecting properties valued at greater than £2m (mentioned earlier), this will require careful consideration and advice should always be sought.

Stamp Duty Land Tax (SDLT) SDLT is payable upon purchase of any UK residential property (wherever the owner is situated) at the following rates: Purchase Price <£125,000 0% £125,001-£250,000






£1,000,001-£2,000,000 5% £2,000,001+ 7%

Nb: Properties valued above £2m owned through a ‘non-natural’ entity, such as a company (whether that company is UK based or offshore), will be liable for SDLT at 15%. If you would like advice on any tax issues relating to the purchase or sale of UK residential property, please contact:

Alan Lester, Property Partner T 020 7380 4979 E

18 | Insight

Insurance for start-ups When businesses launch, for the first year or two they are primarily focused on growing market share, building their client or customer base, driving up sales, developing products and establishing themselves financially. What most start-ups do not pay a thought to is insurance. In fact, it is fair to say that insurance is often the last thing on their minds. This is not necessarily wise. The moment new businesses, however small, have staff, premises, hardware, software and engage with external companies or clients, they are exposed to numerous risks many of which could cause them serious financial harm.

Including insurance as a cost in the business plan prevents any surprises further down the line. After all, the balance of cover and price is crucial when you are setting up. Most people think of some of the obvious insurances such as the premises and contents cover. However, there are many types of insurance that start-up companies should consider - they vary from business to business, of course, and some cover is compulsory, so it is vital to seek appropriate professional advice. Here are a few examples:

Professional Indemnity Insurance Professional Indemnity (PI) insurance is generally taken out by companies providing advice or professional skills. It protects their businesses against claims for loss or damage made by a client or third party if they are deemed to have been negligent, or to have made mistakes during the course of their day-to-day activities. Usefully, PI insurance also covers the potentially sizeable legal costs that can arise during a dispute. Many professions e.g. solicitors, mortgage brokers, financial advisers, PR agencies and accountants have to have this cover by law. Many though, who are not required to take out this cover compulsorily, would be wise to consider it in order to protect their business from financially damaging litigation.

Directors and Officers’ Liability The directors and officers within any business have numerous duties and responsibilities relating to their position. They will generally be held responsible for a number of areas, including; health and safety; fraud; negligence; data protection; and maintaining satisfactory accounts. Directors’ and Officers’ (D&O) liability insurance protects the directors and officers of a company from any claims against them in these areas. If a director or officer is found to have accidentally acted outside their terms of reference and this results in a claim, compensation and legal fees will be covered by the D&O policy. If, however, the act was deliberate, then it may not be covered.

Employers’ Liability Insurance If you employ staff, you are required by law to have a minimum of £5 million cover for Employers Liability. Employers’ Liability insurance helps businesses cover the costs of damages and legal fees when employees are injured, or become ill at work, due to the negligence of the employer (note that ‘illness’ can include stress, depression or being overworked). It is a legal requirement for employers to have this insurance and to be covered for a minimum of £5m, but most insurers tend to provide cover of £10m anyway. In some cases, employees injured due to an employer’s negligence can seek compensation even if the business goes into liquidation.

Public Liability Insurance Companies need public liability insurance if members of the public, clients or customers visit their premises. This type of insurance also covers any damages awarded to a 3rd party as a result of an injury, or damage caused to their property, by a company member. As a rule of thumb, this will cover all expenses, legal fees, costs and hospital treatment. Premiums can vary quite considerably depending on the type of business, e.g. hotels and restaurants, with their large footfall, will generally be required to pay more for their insurance.

We also provide the following corporate insurance services to established businesses: • • • • •

Professional Indemnity Office packages Directors’ and Officers’ Liability Commercial combined cover Fleet insurance

James Agnew Stackhouse Fisher T 01483 407454 E

Being properly insured from the outset can minimise business risk and for a relatively small outlay, companies can protect themselves against these risks and then concentrate on growing their business with renewed peace of mind.

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Business tax update what the changes mean for you and your business Some will argue to the contrary but as we see it there is never a dull moment in tax. The rules are constantly changing, it is always in the news and, one way or another, it affects each and every one of us. Here, we look at some of the areas of business tax that have proved particularly eventful or interesting in recent months. What’s been happening, what is set to happen in the near future and, above all, how could it affect you and your business?

Real Time Information Real Time Information (RTI), if you have not come across it before, is set to fundamentally change the way employers provide HMRC with information relating to PAYE payments. Starting for most businesses in April 2013 and for all businesses in October of next year, RTI will require companies to inform HMRC about PAYE, NIC and Student Loan payments at the exact time that they are made, if not earlier - in ‘real time’ rather than monthly, quarterly or annually in arrears. The idea is to bring the PAYE system into the 21st Century, and there is no doubt that it represents one of the biggest changes in this area since PAYE was first introduced in 1944. RTI, unsurprisingly perhaps, has attracted a lot of criticism. Due to practical difficulties, HMRC have relaxed the rules so that some payments can be reported shortly after they are made. Even with these relaxations, you have to question the practicalities of the new RTI regime and the burden they place on employers.

A number of professional bodies are currently lobbying HMRC, urging it to give employers time to adapt to the RTI regime - and to adopt a ‘light touch’ approach to penalties in the initial years. In fact, the changes are deemed to be that radical, they are seeking to get HMRC to agree to no penalties at all in Year 1. Non-compliance may be a real issue, particularly for those within the Construction Industry Scheme (CIS). Even those small employers currently allowed to use ‘simplified’ payrolls and who are exempted from the mandatory online returns, will be pulled into the new system in due course. Unless you have confidence in HMRC’s charitable nature to waive the penalties, what is important is that companies start making preparations now for RTI. How will it affect payroll and broader business processes? What happens if businesses do not comply? If you have any questions about this then by all means speak to your usual point of contact in the firm. It is an area that is evolving fast but we are more than happy to keep clients up-to-speed with the latest developments.

Avoidance or evasion? An article ran recently in economia magazine, the official publication of the ICAEW (Institute of Chartered Accountants in England and Wales), looking at the difference between tax avoidance and tax evasion within business.

Our corporate tax partner, Brian Lindsey, was one of the experts on the panel and here is what he had to say:

“Just because companies pay taxes at a different rate doesn’t mean they are arranging their taxes in a particular manner to reduce their tax liability. We wouldn’t countenance any form of evasion but clients would like us to ensure they are paying the correct amount of tax, based on what the legislation says, so we will always advise on what allowances are available.” In the article, Brian admitted that in the current climate there is a far greater emphasis on what is perceived as fair, and clients increasingly have to factor this into any decisions they make (see our cover feature, ‘The morality of tax’, on page 2). Brian also noted that the introduction of the GAAR (General Anti-Abuse Rule) should provide a greater degree of certainty in the long run, although in the short term there is still the potential for greater confusion:

“All parties would prefer a simpler system but every time there is a new Budget the legislation gets more complex. A system with fewer rates of tax where everyone knows where they’re heading with their tax position would be helpful.” It would be helpful, certainly, but previous ‘simplification’ measures have not lived up to their billing.

It sought the views of experts in the industry and asked them the following question: Is tax planning a means for companies to get out of paying what they owe, or simply the most efficient interpretation of the rules?

20 | Insight


SEIS and Shelf Companies

After almost three years of consultations, the ‘Patent Box’ rules have now been passed as law. The Patent Box, which we have covered in previous issues of Insight, provides a 10% tax rate for profits from patents within the regime - although this preferential rate is being phased in over four years.

The Chartered Institute of Taxation (CIOT) has publicly criticised the Government’s decision to exclude ‘shelf companies’ from the new Seed Enterprise Investment Scheme (SEIS - see page 5 for a closer look at SEIS schemes and how they work).

It is important to understand that the 10% rate will only apply to patent profits within the regime, but this applies from April 2013 - next year - with the benefits being tapered in until fully operational after April 2017. So it is important to start planning as soon as possible. This is especially the case as not all patent profits will qualify. There will be a deemed profit from activities other than from patents; for example, a notional profit is attributed to the ‘brand’ which will be outside the “box”. Transfer Pricing issues will also require consideration. It is not just UK patents that can be put into the box. Patents granted by the EU Patent Office and a number of other EU countries can also be included. In order to qualify, the company (or a member of its group) must either own or have an exclusive licence to the product and whatever the ownership rights, must have developed the IP or a product that uses them. The rules surrounding the Patent Box are extremely complex and the calculations of applicable profits really quite convoluted, but the possible application of a 10% tax rate to profits may well make use of Patent Box very attractive to many UK and overseas owned companies within the charge to UK Corporation Tax.

The CIOT has basically said that it is concerned that people setting up companies, or investing in them, may not be aware that by purchasing a shelf company from a corporate provider common practice among those establishing new companies - entrepreneurs may unwittingly exclude themselves from access to the SEIS. John Barnett, Chairman of the CIOT’s Capital Gains Tax and Investment Income Sub-Committee, said that “denying SEIS relief for shelf companies seems bizarre and illogical. EIS companies are not subject to the same requirement, so why deny relief to SEIS companies? SEIS companies will, by definition, be smaller start-ups, which are likely to use a shelf company in this way.” Barnett continued as follows: “Of course, those that are able to take advice will avoid this pothole by setting up the company from scratch rather than buying a shelf company, but I fear that many may be caught unawares. This is, unfortunately, one of many nit-picking points that bedevil venture capital reliefs. The Government has introduced these reliefs to help entrepreneurial companies, but HMRC then seems to hedge the relief about with so many conditions.” We couldn’t have put it better ourselves. More on this issue as it develops.

Tim Walford-Fitzgerald, Senior Tax Manager T 020 7380 4927

As ever, we are happy to advise any companies on whether the Patent Box could benefit them.


Insight |


HW Fisher news Providing efficiencies for our clients FisherE@se is an online accounting service that essentially becomes your company’s back-office.

Our services include:

Key benefits:

• • • • • • • •

• S maller businesses can access a team of dedicated back-office specialists that would otherwise be unaffordable • No need for investment in expensive software and training • Larger organisations can make savings by allowing us to provide the back-office support that is normally an expensive overhead • Review records or check progress online at any time • All clients have their own user name and password, so information is kept secure and confidential.

egular bookkeeping assignments R Monthly management accounts VAT return preparation Payroll services Accounts receivable Accounts payable Bank account reconciliations Ad hoc assistance with SAGE 50 and Quickbooks • Routine large volume transaction processing

Navin Thaker, Partner T 020 7874 7958 E

Upcoming seminars Smart planning for legal professionals This breakfast session is aimed at lawyers, solicitors and professional partners generally that want to move their personal finance up the agenda as well as discuss ideas for the partnership as a whole.

Reduce costs and increase income using digital media This seminar focuses on one of the most important issues facing all charities today - how to reduce your costs and increase your funding.

Date: Thursday 29 November 2012 Time: 8.00am RSVP: Juan Muguerman (

Date: Thursday 29 November 2012 Time: 3.30pm RSVP: Juan Muguerman (

Personal considerations

The seminar will cover:

• How to maximise pension allowances • Pension tax relief and retirement planning • Investment ideas

• How to create a seamless supporter journey across your website • How to be a social charity, encouraging participation and cultivating communities • How to measure and monitor success • VAT and tax updates

Partnership considerations • Partnership protection • Succession planning • ABS impact for lawyers - and similar considerations for other professions

22 | Insight

Speakers: Tom Latchford, CEO of Raising IT - keynote speaker HW Fisher & Company experts - tax and VAT advice

Specialist pensions audit and advisory services HW Fisher & Company has a specialist Pensions Group acting for approximately 80 pension schemes located throughout the country and ranging from SSAS’s to multi-employer and defined benefit schemes with assets up to £350m. We offer a specialist audit and advisor service to pension schemes and we are ideally placed to be able to assist and advise you in respect of negotiations with your Actuary and the Pension Regulator with respect to key issues such as compromise arrangements, the employers’ covenant, actuarial valuations and deficit reduction plans. Our pension specialists also offer a full range of advisory services to directors including pension planning, auto-enrolment and flexible benefits. David Breger, Pensions Partner T 020 7380 4943 E

Award recognition We are delighted to have been announced as a finalist at The British Accountancy Awards 2012 in the ‘Mid-tier firm of the year’ category. It is the second year in a row that HW Fisher have been shortlisted for an award at this prestigious event. The shortlist selection was based on criteria such as; profitability/growth; professionalism; measurable success; innovation; people; and corporate social responsibility. We look forward to the ceremony on Wednesday 21 November 2012.

Hilary Mantel wins 2012 Man Booker Prize HW Fisher & Company would like to congratulate our client Hilary Mantel for her outstanding achievement. With over 100 novels submitted for the “Man Booker Prize” there was only one winner: Hilary Mantel’s Bring up the Bodies. Hilary previously won the Man Booker Prize for her novel Wolf Hall (in 2009) making her the first woman to receive the award twice. The prize, which has been running since 1969, aims to promote the finest in fiction by rewarding the best novel of the year written by a citizen of the United Kingdom, the Commonwealth or the Republic of Ireland.

HW Fisher interviewed for ‘Responsible Business’ Our specialists have been interviewed by Collaborative Media to create a programme that looks at good financial planning and discusses the important part it plays in the success of every major company. Nick O’Reilly (Business Recovery Partner), David Breger (Audit Partner) and Jae Mather (Sustainability Director) provide their views on the current economic climate and how to plan ahead for growth and future success. The programme will appear on SKY 212 and BBC/ITV Freesat 401 in December. We will keep Insight readers informed of the exact broadcast date nearer the time.

Insight |


HW Fisher & Company

Business advisers - A medium-sized firm of chartered accountants based in London and Watford. Related companies and specialist divisions: Fisher Corporate Plc Corporate finance and business strategy FisherE@se Limited Online accounting and back-office services Fisher Forensic Litigation support, forensic accounting, licensing and royalty auditing Kingfisher Collections Royalty administration and collections services for IP owners Fisher Partners Business recovery, reconstruction and insolvency services Fisher Property Services Limited Property investment, management and finance Jade Securities Limited Business divestments, mergers, management buy-outs and acquisitions Stackhouse Fisher Limited Specialist insurance services Eos Wealth Management Ltd Intelligent wealth management and financial services VAT Assist Limited UK VAT representative London office Acre House 11-15 William Road London NW1 3ER United Kingdom

Watford office Acre House 3-5 Hyde Road Watford WD17 4WP United Kingdom



+44 (0)20 7388 7000 +44 (0)20 7380 4900

+44 (0)1923 698 340 +44 (0)1923 698 341

HW Fisher & Company and HW Fisher & Company Limited are registered to carry out audit work in the UK and in Ireland. A list of the names of the partners of HW Fisher & Company is open to inspection at our offices. Fisher Forensic, Fisher Okkersen, Fisher Partners and Kingfisher Collections are trading names of specialist divisions of HW Fisher & Company, Chartered Accountants. HW Fisher & Company Limited, Fisher Corporate Plc, Fishere@se Limited, Fisher Property Services Limited, Jade Securities Limited, Fisher Forensic Limited, VAT Assist Limited, Eos Wealth Management Limited and Stackhouse Fisher Limited, are related companies of HW Fisher & Company, Chartered Accountants. HW Fisher & Company, HW Fisher & Company Limited and Jade Securities Limited are not authorised under the Financial Services and Markets Act 2000 but are regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. They can provide these investment services only if they are an incidental part of the professional services they have been engaged to provide. Fisher Corporate Plc is authorised and regulated by the Financial Services Authority under reference 193921. Eos Wealth Management Ltd is authorised and regulated by the Financial Services Authority under reference 543025. Stackhouse Fisher Limited is an Appointed Representative of Stackhouse Poland Limited who are authorised and regulated by the Financial Services Authority under reference 309340. Insight is produced with the intention of providing general information. Examples used are for guidance only and not a substitute for personalised professional advice. Views expressed are those of the authors and do not necessarily represent the views of HW Fisher & Company. All liability is excluded for loss or damages that may arise as a result of any person acting or refraining to act in reliance upon any material and information appearing in this newsletter.

HW Fisher & Company is a member of the Leading Edge Alliance, an alliance of major independently owned accounting and consulting firms that share an entrepreneurial spirit and a drive to be the premier providers of professional services in their chosen markets. If you would like to subscribe / unsubscribe to our publications, please email This briefing is printed on Essential Velvet recycled paper. Š HW Fisher & Company 2012. Print date: Nov 2012. All rights reserved.

Insight Autum/Winter 2012  

News and comment from HW Fisher & Company

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