Business Matters Autumn 2015

Business Matters McCabe Ford Williams Newsletter | Autumn 2015

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Welcome to the latest edition of our newsletter In this issue we meet long time client Tim Chapman of TC Agri who specialises in servicing and repairing farming machinery.

We also hear from a former bookstore owner on how the MFW Insolvency Team helped him through the painful closure of his business and what their help meant to him.

ACCOUNTS MATTERS

PENSIONS

Tim Chapman and the rest of the TC Agri team

TAX MATTERS

INSOLVENCY MATTERS

New accounting framework in the UK for small companies.

How to pass on your wealth through a pension.

How the summer Budget has changed salary –vdividend payments.

What it means to have the support of our Insolvency Team.

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CLIENT PROFILE

Client Profile: TC Agri Ltd

TC Agri Ltd keeping the wheels of agriculture turning in the South East A little over five years ago Tim Chapman invested his knowledge of agricultural engineering and farming, along with his passion for rural life into his business TC Agri Ltd. As a longstanding and trusted figure within the farming community in Kent for over two decades, Tim has experienced the highs – and lows – with a great many farmers throughout the South East. Be it baking hot summer days in cornfields ensuring belts are running smoothly on a state-of-the-art combine harvester or cold, wet autumnal nights in a cowshed with a failed starter motor on a forklift, the range of Tim’s work means that every day presents a new challenge.

As the son of a farmer and farm building architect, Tim has observed the development of farm machinery over the years and has used his interest and knowledge

Tim Chapman computers and guided by GPS, Tim comments that it is the technological advancement on farms that have paved the way for navigational systems in our cars and air-conditioning as we know them, something which farmers have been using for many years. And such developments mean that Tim attends at farms and fields armed with not just the traditional tools of spanners and wrenches but also a laptop loaded with diagnostic software and schematic diagrams.

to best effect. But it has been the change in farming

Over the course of building his business Tim has

practices that have sparked the greatest advancements

adopted a straightforward approach to his work to

of all and revolutionised the industry. With a growing

ensure that the needs of the local farming community

number of machines and equipment operated by

are met by delivering an effective and professional

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Business Matters Autumn 2015

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The Chapman family have been clients of McCabe Ford Williams for several generations which meant that Tim was familiar with the ethos of our firm. But it was not until Tim engaged our business services that he was able to fully appreciate the range of what we can offer and how this package compliments the pre-existing personal finance services available to him.

recognising the need for adaptations and growth of the same in line with Tim’s business needs, McCabe Ford Williams have sculpted a software add-on to ensure TC Agri Ltd’s business needs are met through a system called Work Flow Max. By incorporating Work Flow Max, Steven Morley, Tim’s Accounts Manager has been able to harness the time-efficient mechanism by which timesheets are automatically synchronised with Xero.

Such changes are streamlining Tim’s need to sit behind his computer and mean that he can spend more time wielding a spanner and providing hands-on training to his workforce, and ensuring that his customers keep the South East of England farming.

As a businessman, Tim required an accountancy service to match his ever-changing business needs, and of course, to meet the demands of the agricultural sector.

At each stage of his company’s development, McCabe Ford Williams are proud to say that they have been with Tim each step of the way; including the all-important transition from sole trader to limited company which was carefully mapped under the ever watchful eye of Emma Andrews, an Associate of our firm, based at our Maidstone office.

With a number of accountancy and bookkeeping packages on the market, Emma has carefully guided him to the software package Xero. With this software Tim can access his accounts in real-time and has instant access to transfers and payments within his accounts.

Using Xero as a principle software package, and in

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L-R – Emma, Tim and Steven

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CLIENT PROFILE

service. Tim’s ability to service and repair machinery ranging from sprayers, forage harvesters and tractors through to re-wiring combine harvesters, and if necessary, re-designing parts, means that Tim can provide a full back-up service to the farming fraternity in the South East. Tim’s dedicated and dynamic workforce - to whom he gives great praise - ensure that TC Agri Ltd can respond to emergency breakdowns, routine services and general maintenance work to keep their customers doing what makes them happy, or at least, makes them money: farming.

Accounts Matters

New accounting framework in the UK for small companies – FRSSE 2015 or FRS 102?

All Directors of small companies will soon have a decision to make in respect of which new accounting framework they intend to adopt in preparing the statutory accounts of the company.

On 31 July 2013 the Financial Reporting Council issued an updated version of the Financial Reporting Standard for Smaller Entities ‘FRSSE’ applicable in the UK and Republic of Ireland.

The amendments to the FRSSE are as a consequence of the revised reporting framework introduced into the UK and Republic of Ireland, with the issue of FRS 100 and FRS 102. As part of the revised reporting framework, the FRC has withdrawn extant financial reporting standards and Urgent Issues Task Force (UITF) abstracts and has made amendments to the FRSSE where it previously referred to standards or abstracts that are now withdrawn.

The FRSSE (effective January 2015) will supersede the FRSSE (effective April 2008) and will be effective for reporting periods beginning on or after 1 January 2015.

However the FRSSE 2015 will only be available for one year as it will become non-compliant with EU legislation from 1 January 2016 and so will be abolished.

Accordingly for years commencing on or after 1 January 2016 it will be mandatory for small companies to adopt FRS 102 in their financial statements.

In July 2015 amendments to FRS 102 were published which require small companies to apply the recognition and measurement criteria of FRS 102 but with reduced

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presentation and disclosure requirements. The amendments are effective for accounting periods beginning on or after 1 January 2016 but with early adoption permitted for accounting periods commencing on or after 1 January 2015.

This now makes it much more appealing for small companies to adopt FRS 102 from 1 January 2015 rather than moving to FRSSE 2015 for one year and then having to adopt FRS 102 the next year.

FRS 102 – A Business Opportunity An entity’s date of transition to FRS 102 is the beginning of the earliest period for which the entity presents full comparative information in accordance with this FRS in its first financial statements that comply with this FRS. For example, a company with a year end of 31 October has a mandatory date of transition to FRS102 of 1 November 2015, but with early adoption, this could be as early as 1 November 2014.

There are a number of exemptions available to an entity when preparing its first financial statements that conform to FRS 102. One such exemption presents an opportunity for companies to strengthen their balance sheets.

a) Fair value as deemed cost A first-time adopter may elect to measure an: (i) item of property, plant and equipment; (ii) investment property; or (iii) intangible asset which meets the recognition criteria and the criteria for revaluation in Section 18 of FRS 102 Intangible Assets other than Goodwill on the date of transition to FRS 102 at its fair value and use that fair value as its deemed cost at that date.

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Accounts Matters

b) Revaluation as deemed cost A first-time adopter may elect to use a previous GAAP revaluation of an: (i) item of property, plant and equipment; (ii) investment property; or (iii) intangible asset which meets the recognition criteria and the criteria for revaluation in Section 18 of FRS 102 at, or before, the date of transition to FRS 102 as its deemed cost at the revaluation date.

Where fixed assets are currently shown below market value, for example properties which are shown at cost, these have the potential to be revalued in order to reflect the true value of the company.

This may be a particularly attractive option for shareholders of companies which may be marketed for sale in the future or in obtaining more favourable credit terms or lending from suppliers and financial institutions.

This exemption could equally be used by a company currently following a policy of revaluation which wishes to remove itself from the burden of obtaining external valuations at least every 5 years. By using a previous revaluation of property as deemed cost no further valuations would be required.

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Plan ahead Many people believed that the new Accounting Standard, FRS 102, would only apply to larger companies – at least for a few years. Now small companies will find themselves having to adopt FRS 102 sooner than they imagined. A large number of companies may see no impact at all as a result of the change but, as with any element of your business, it is important to have an awareness of the opportunities and potential issues that the adoption of FRS 102 may bring to your company. Early planning usually yields the most favourable results.

To find out more about the opportunities that FRS 102 could bring to your company speak to your local McCabe Ford Williams representative.

Author Ashley Phillips, FCCA Associate Sittingbourne Branch

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pensions

Passing on your wealth through pensions In previous articles, we have covered the new rules regarding taking your pension benefits. However, the rules introduced on 6th April 2015 also provide flexibility for anyone who wishes to pass their pension fund to loved ones.

Here is a summary of the new rules on death of the original member:

Payment on death The value of your pension fund will be available to your beneficiaries on your death and can normally be withdrawn as a lump sum or left within the pension wrapper to provide a regular or ad-hoc income, as shown below.

Prior to 6th April 2015, only “dependents” could benefit.

The government has relaxed the rules to include any nominated beneficiary.

The nominated beneficiary can keep the funds inside the tax efficient pension wrapper (the “nominee pension”) and withdraw funds when they need to.

Furthermore, the nominee can then themselves nominate a beneficiary to receive any remaining pension on the nominee’s death. This then becomes a “successor pension”. The same rules apply as in the table below, but the nominee’s age is used to determine the rules on death.

This means that any unused pension fund can be passed down through generations, potentially tax free.

There is usually no inheritance tax except in limited circumstances* *The “2 year rule” continues: payment needs to be made to the beneficiary within 2 years of death to preserve the tax benefits.

Also, in some circumstances inheritance tax can be payable where the member has transferred their pension within two years preceding their death.

Death pre age 75

Death post 75

Uncrystallised

Can pass on completely tax-free to any beneficiary as a lump sum or as a drawdown pension (up to the lifetime allowance)

Any beneficiary can draw down on it at their marginal rate or 45% charge if paid as a lump sum (marginal rate from 2016/17)

Crystallised

Can pass on completely tax-free to any beneficiary as a lump sum or as a drawdown pension

Any beneficiary can draw down on it at their marginal rate or 45% charge if paid as a lump sum (marginal rate from 2016/17)

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This is all good news, but you need to be aware: • The pension provider you have may be unable to actually facilitate nominee and successor pension schemes

So it is now very important to review your pensions, and seek independent advice.

High earners This all means that many investors are using their pension wrappers as a means to pass on wealth efficiently, rather than as a source of retirement income. As we know, the tax relief for contributions is very attractive, especially given the new choices for taking benefits.

In the summer budget, the Chancellor announced that • Pension tax relief would be reduced for high earners from April 6th 2016. The mechanism for this is a tapering reduction to the annual allowance for high earners, taking this down to potentially only £10,000 allowance for the year rather than the usual £40,000.

In plain English, if you are looking to maximise pension contributions, you may have more scope to do so before 5th April. This may be a closing opportunity, especially for high earners.

The value of your Pension Plan and any other investment can fall as well as rise and you may not get back the full amount invested. Past performance is not a reliable indicator of future performance. The benefits you receive are dependent upon future contribution levels, the age at which you take benefits and external influences such as investment returns, inflation, interest rate, annuity rates and charges. The benefits can therefore be lower than those illustrated. Any assumptions about the tax position of the plans and recommendations made in this report are based on current law and HMRC (Her Majesty’s Revenue & Customs) practice, which may be subject to alterations, including retrospective changes in the future.

The tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Not all individuals are eligible for a pension.

• There would be two special Pension Input Periods (PIPs)* (i) The pre-alignment PIP 6th April 2015 to 8th July 2015 (budget day), with a special allowance of £80,000 (ii) The post-alignment PIP 9th July 2015 to 5th April 2016 (with a special allowance of zero, but the ability to carry forward up to £40,000 unused from the pre-alignment PIP) *This has yet to receive Royal Assent.

Auto Enrolment Seminars www.mfw.co.uk

Author Lee Giles DipPFS Senior Financial Planner, Argentis Financial Management Limited Argentis Financial Management Limited is regulated and authorised by the Financial Conduct Authority

We will be running a series of Auto Enrolment Seminars starting from this October.

If you would like to register for one of our Seminars then please contact your local MFW office.

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pensions

• You need to have actually nominated the beneficiary on your pension documents. If there is no nominee then the pension may only be payable to dependants.

What this means is that if you invested money in your pension in the pre-alignment PIP, you potentially have the ability to invest further funds in the post alignment PIP, plus use your carry-forward allowance from previous years.

Tax matters Matters tax

Salary versus Dividend – What has changed?

Up until now it has been tax efficient for individuals employed by their own companies to remunerate themselves by taking a low salary topped up by dividends but following the recent budget, is this still the case?

For the salary aspect, the director/shareholder can decide how often they would like to be paid, normally either on a weekly, four-weekly or monthly basis. If an employee receives a salary between £8,060 and £42,385 they will pay Class 1 National Insurance Contributions (NIC) at 12% on the earnings in that range. On earnings above this level, the employee will pay Class 1 NIC at 2%. The company will pay Class 1 NIC at 13.8% on the earnings above £8,112 with no upper limit. By paying NIC the employee becomes entitled to statutory benefits. Most businesses are eligible to receive an Employment Allowance each year of £2,000, which is offset against the employer’s NIC bill. With the personal income tax allowance currently at £10,600, there may be an overall saving by suffering some employee’s NIC at 12% and reducing corporation tax by 20%, but it will depend upon whether the employee has income from other sources, or whether the company has other employees to make use of the Employment Allowance.

With regard to dividends, the individual can decide when to receive a dividend as they are available at any time provided that there are available profits in the company accounts. To take a dividend a directors’ meeting needs to be held, minutes of the meeting need to be taken and tax vouchers produced. Dividends attract a tax charge of 10%, 32.5% or 37.5% depending on whether the individual receiving them is a basic

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rate taxpayer, a higher rate taxpayer or pays tax at the additional higher rate. Currently a 10% “notional” tax credit is available to offset and no further tax is payable by a basic rate taxpayer.

From April 2016, however, there are two proposed changes* that will have a significant impact on the above: 1) The Employment Allowance will increase to £3,000 but the allowance will no longer be available to companies where the only employee is a Director; and 2) The “notional” tax credit attached to dividends will be abolished. Instead each individual will have a dividend tax allowance of £5,000. Dividend income exceeding this threshold will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional higher rate taxpayers.

So in the future, will it still be worth paying a lower salary topped up with dividends? In short, yes, as the overall tax/NIC bill will still be less, but the overall savings will be much reduced from 2016/17 onwards.

Whilst writing, please be aware that the salary/dividend balance does have an impact with regard to pension contributions which is something that must be considered carefully when planning for the future. The reason for this is because if dividends are the individual’s only source of income they will not count as relevant earnings for pension contributions and the maximum gross amount that they could contribute to a pension would be £3,600 per year (£2,880 net). It is also important not to overlook paying a salary above the lower earnings limited (LEL – currently £5,824) so as to count as a qualifying year for future State pension entitlement. *Please note: The above is based upon our understanding of the proposed changes announced in the July Budget. These changes are subject to Royal assent and have therefore yet to be enacted. We will keep you posted of any future changes. If you need any additional assistance on this matter then please do contact your local MFW office.

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National Living Wage Employment matters

On 8 July 2015 the Chancellor George Osborne announced the introduction of a National Living Wage (NLW), predicting that around 2.7 million low wage workers will benefit.

The NLW is due to be introduced in April 2016 for all working people aged 25 and over, and will be set at £7.20 per hour. It will continue to rise incrementally to reach £9 an hour by 2020 at a rate to be determined by the Low Pay Commission. The current National Minimum Wage for those under the age of 25 will continue to apply so there will be five statutory wage rates as follows: 1. the apprenticeship rate (applies to those aged 1618 and those aged 19 and over in the first year of their apprenticeship); 2. the 16-17 year old youth rate; 3. the 18-20 year old youth rate; 4. the former adult NMW rate that now just applies to those aged 21-24; and 5. the new NLW for those aged 25 and over (from April 2016).

The compulsory NLW is not to be confused with The Living Wage and the London Living Wage which are based upon voluntary schemes administered by the Living Wage Foundation. There are two rates of living wage, one for London (£9.15) and one for the rest of the UK (£7.85) – both are higher than the introductory rate of the NLW (£7.20). Rhys Moore, The Living Wage Foundation director, was delighted by the announcement in the Budget but said it was effectively a higher national minimum wage and not a true living wage due to the different ways the two rates are calculated.

The Government intends to offset the impact on businesses of providing higher wages through the planned corporation tax reduction and an increase in the employment allowance against employer National Insurance Contributions. From April 2016, the ‘employment allowance’ which allows every UK

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business to save on employer NICs will be increased from £2000 to £3000. Further Corporation tax reductions announced by the government will reduce the rate paid by businesses from 20% to 19% from April 2017, and from 19% to 18% from April 2020.

Mr Osborne’s NLW announcement received a mixed reaction from business groups. Simon Walker, Director General of the Institute of Directors said now is the time for companies to increase pay, whilst the Confederation of British Industry (CBI) warned that legislating for a living wage does not reflect businesses’ ability to pay and meant taking a big gamble that the labour market can absorb year-on-year increases of an average 6%.

Businesses that genuinely cannot afford the increase in wages should be considering options now such as increasing the price of goods or services; decreasing staff numbers and/or reducing hours. Consultation is likely to be required for any changes involving staff and taking legal advice at an early stage is recommended.

Author Melissa Nelson Solicitor, Furley Page LLP 01227 863102 | mjn@furleypage.co.uk

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Insolvency Matters

Insolvency Matters

Providing help when it’s most needed In an ideal situation businesses always flourish and grow but in today’s competitive world unfortunately this isn’t always the case and some businesses are faced with the painful decision to close their doors and cease trading.

The MFW Insolvency team have been helping individuals and businesses with their financial difficulties for over fifty years and are qualified in all areas of both corporate and personal insolvency. It is their experience and friendly approach which has recently helped the director of an independent bookstore through a difficult period and enabled him to resolve the company’s problems and envisage a future without the worries and stress of running a failing company.

The director (who we will call Mr Jones for the purpose of this article) had been running an independent bookshop since May 2006, initially as a sole trader and from 2012 through a limited company, incorporated on the advice of his accountant.

The business survived numerous struggles including the banking crisis in 2007, the growth of on-line sales, the discounting from major brands including the larger supermarkets and the growing popularity of electronic books. Even the increase in the number of charity shops had an impact on the business but it still continued trading through the difficult times and made modest profits.

However by early 2015, the problems had escalated and in order to continue Mr Jones started to introduce personal money into the company in order to pay staff wages and creditors. At that time there was of course insufficient money available to draw any wages for himself. By the end of June 2015, Mr Jones was unable

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to fund the business any further, having reached the credit limits of both the company bank account and credit card and his personal funds were exhausted.

Mr Jones who was passionate about books and his bookshop had to reluctantly accept that he had no other alternative than to cease trading.

Mr Jones recalls the time as being very overwhelming.

His major concern was of letting people down. He worried about the effect on the company creditors and staff and also how the regular customers might react to the bookstore’s closure. It was at this stage that Mr Jones contacted his accountant who recommended the help and advice of Amanda Ireland, Partner and Insolvency Practitioner and head of the MFW Insolvency team.

Mr Jones says that he realised he was facing an emotional and stressful time and it is at times like those when you need to have the support of someone who is experienced in dealing with a failing business and is a trusty helping hand. He was impressed at how quickly Amanda responded to his accountant and then to him.

Within a couple of days he and Amanda met and he was impressed both with her knowledge and friendly and approachable manner. The first thing Mr Jones recalls is Amanda putting him at ease and reminding him that he was not the only person to have gone through this process.

Amanda went through the possible options available to Mr Jones and it was clear from their discussions that the appropriate course of action to take was to put the company into liquidation.

Meeting Amanda gave Mr Jones the reassurance that he had made the right decision in ceasing to trade. He felt more able to face the Creditors’ meeting knowing

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Amanda has commented “Mr Jones sought professional advice early on which is always advisable. There are often more options the earlier advice is sought, including assisting the directors in turning the fortunes of the company around. It should be remembered that an Insolvency Practitioner will always try to salvage a business rather than wind it up. If, however, it is clear that the company cannot continue and liquidation does eventually ensue then any claims against the directors such as wrongful trading are less likely to arise if early steps are taken to seek professional advice”.

In summary Mr Jones found the painful and stressful time of closing the business and winding up the company a lot easier because of the support and professionalism of Amanda and the rest of the MFW Insolvency team.

Asked what he might like to advise others in a similar situation he responded, “Be frank and honest about your situation, act fast and seek the help of a qualified Insolvency Practitioner”. He said of his situation, “Whilst a success for many years it has been a great relief to put the failing business of the bookshop behind me.

With Amanda’s help I have averted a real business and emotional calamity and I’m now in a position to move forward with my life. I highly recommend Amanda and her MFW insolvency team to anybody in similar circumstances”.

For more details about our Insolvency and Business Rescue Service visit http://www. mfw.co.uk/services/insolvency-solutions or call Amanda on 01795 479111.

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Pension Tax Relief

Insolvency Matters

Amanda was literally beside him. He felt he had support from someone who knew the procedures and could advise and assist where necessary.

In the July Budget George Osborne announced a Green paper or discussion document with the aim of seeking views on pensions. This paper called “Strengthening the Incentive to Save: a consultation on pensions tax relief” looks set to lay the groundwork for the biggest changes to pension legislation since 1909.

Whilst the main goal announced by the Chancellor was to encourage more people to save for their retirement it seems that the issue of how and when pensions are taxed will also be reviewed in the hope of saving the treasury much in the way of pension tax relief.

Some experts are also predicting that the current system of paying tax on withdrawing funds could be changed to one which could remove or reduce tax relief on pension contributions but allow people to withdraw their money tax-free. Such a swing in policies could potentially release billions of pounds now helping to reduce the national debt. Highest to be hit would surely be the higher earners from such a swing in policy so it makes sense that advice is sought on how to maximise your pension tax reliefs now to better prepare for your retirement planning.

Contact your local MFW office who will be able to assist you in assessing your own circumstances and helping you make the most of your retirement.

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This publication is intended for general guidance only. Every case is dependent on its particular facts and circumstances, and whilst it is believed that the content is accurate, the material should not be taken or relied upon as giving specific advice on any particular matter. Neither McCabe Ford Williams (the firm), its partners or employees accept any responsibility for any loss or damage (including but not limited to loss of profit or anticipated profit, damage to reputation or goodwill, loss of business, damages, costs, expenses or tax liabilities) caused or occasioned to any person acting or omitting to act in reliance upon the information contained in this publication. Any person wishing to obtain specific advice on any particular matter should contact a partner of the firm directly, and advice can be provided on a case by case basis.