Recent Blog Posts

It’s an unfortunately fact of life but you or your business could face a tax enquiry at any point, often through no fault of you or your accountant.

HM Revenue and Customs (HMRC) have the power to start an enquiry at any time, and they don’t have to give any specific reason for doing so!

For the tax payer or business owner there’s worry and confusion. “What’s the tax man looking for?” “What have I done wrong?” “What will they find and will I be facing a massive tax bill at the end of it?”

Tax investigations arise for a variety of reasons, the most basic being that the tax inspector spotted something unusual in your accounts or feels they are not seeing a full picture.

For any business a tax investigation can be a disruptive, time consuming and stressful experience but take a deep breath and try and take control back.

Our team of accountants suggest to anyone facing a tax inspection that they follow these critical steps:

1. Respond quickly – don’t sit on a request for information or ignore correspondence in the hope it will all go away. Respond straight- away, putting the ball back in the court of the inspector. This can often work to your advantage, as HMRC are traditionally slow to respond, giving you time to prepare any information and take advice. 
2. Second-guess the tax man – try to pre-empt the next question they will ask and prepare for all possible scenarios. 
3. Be honest – but don’t say too much. Only answer the questions you are asked. 
4. Check your rights – is the tax man entitled to ask the question or request the information they have? You may not have to supply all they ask or answer every question posed. 
5. Get specialist advice – the tax man will rely on the Inland Revenue rules – you may have tax law on your side, do make sure you get the best possible advice to make a defence if needed. It’s worth realising that not every accountant will have dealt with tricky HMRC enquiries – make sure yours has.

With an estimated £3 billion per year lost through tax evasion, and HMRC inspectors using anti terrorism measures to crack down on the real criminals, unfortunately some innocent business owners seem to get caught in the crossfire. I genuinely hope you’re not one of them.

Andy Parker
Chartered Accountant

Business owners are showing less confidence according to the recent Business Confidence Monitor Survey from the Institute of Chartered Accountants in England and Wales (ICAEW).

Around one fifth (19%) of firms said they were less confident about the future due mainly to the tax rises announced in the emergency Budget and promised public spending cuts.
Having come through recession, business owners now face a challenge to survive the recovery. Uncertainty is a key factor resulting in a cautious approach by many firms.

Michael Izza, chief executive of the ICAEW has been pretty clear what he thinks; “The Government needs to deliver on its commitment to ensure Britain is open for business whilst taking tough decisions to tackle the deficit.”

What’s your view? What are you doing to make sure your business survives the recovery?

Here are just a few thoughts based on what our clients tell us they are doing:

• Don’t neglect planning and budgeting just because things are tough, if anything they are more important than ever before. 
• Keep a close watch on your Key Performance Indicators (KPIs), making especially sure that they are the right measures for your particular circumstances. 
• From a personal perspective look to maximise your earnings by minimising your tax liability. Turnover and profits may be down, but there may be ways to extract those profits more tax efficiently, or even be ways to pay employees differently that significantly reduces cost. 
• Keep in touch with customers – if you’re not talking to them your competitor might be. Don’t let them forget you. 
• Think hard about how you are structured and whether everyone in your business adds real value. If necessary take the tough decisions needed to reassign staff or make redundancies if you have to. 
• Think, and be, positive – look at the things that are going well in your company or industry – can you build on these element? If nothing else no one wants to deal with someone who can only see doom and gloom ahead. 
• Set time aside, at your Board meeting for example, to look beyond the day to day challenges and think about the future. It’s amazing how liberating this can be sometimes, even resulting in solutions to problems you’ve been struggling with for some time.

What’s your top tip for surviving, or even thriving over the next 12 months?

Andy Parker
Chartered Accountant and optimist

HM Revenue & Customs (HMRC) has announced its Corporation Tax roadshow is visiting Birmingham this autumn.

From April 2011, Company Tax returns (for accounting periods ending after 31 March 2010) must be filed online in a data format called iXBRL, and the events are an opportunity for businesses to find out more about the software available to support this major change.

The "Corporation Tax Online" events are free and open to all. The Birmingham event will be held on 3rd November 2010, at Birmingham City FC, St Andrew's Stadium, St Andrew's, Birmingham, B9 4NH from 09.30 to 17.00.

For more information, either call the HMRC bookings team on 0845 603 2691 or visit www.hmrc.gov.uk/ct/ct-online-ixbrl.htm.

If you need support and help filing tour Company Tax returns contact Parker Chartered Accountants here.

With a ‘choppy’ economic recovery predicted by the governor of the Bank of England and the media talking up a double dip recession in response to the recent drop in house prices business owners would be forgiven for throwing their arms up in despair and ‘giving in’.

This morning Mervyn King lowered the Bank’s economic growth forecast and warned inflation will stay higher than previously predicted. He doesn’t seem too confident that the banks will help-out business either, with bank lending, or the lack of it, being a factor in limited economic growth.

In the face of this what can business owners do? Swim against the tide, ride out the storm? Most of us will just knuckle down and keep sailing on. But just getting on with things isn’t always enough. Reassessing the situation and charting a new direction can make a big difference when it comes to surviving in turbulent waters.

When times get tough taking considered action, developing a detailed plan and getting everyone working together can make a big difference.

With clients we use a Planning Checklist to help them draw up an action plan designed to reduce debt, improve profits and get cash flowing. The checklist has 18 points for the business owner to consider. Including advice such as ‘Get rid of can’t pay / won’t pay customers’ and tips on establishing the Key Performance Indicators for a business the checklist is really useful for any business owner who finds the going difficult in the ‘choppy’ waters ahead.

A free copy of the Tough Times Checklist can be downloaded here.

We’d be interested in your views and tips on how to survive in ‘choppy’ waters, nautical or otherwise!

Cash - you can never have too much, but you can often have too little.  Staying on top of cash flow is critical for every business.  These 10 tips will help you boost cash flow.

1. Invoice as soon as possible. It’s far better, from a cash flow point of view, to bill throughout the month than stick rigidly to one billing day, often at the end of the month.
2. Give it focus. Cash flow is the most important element of your business. Don’t delegate the task and ignore progress. Let everyone in the business know how important it is, give it emphasis and manage. 
3. Pick up the phone. Too many businesses are afraid to chase payments. Don’t be. Pick up the phone – sometimes you’ll be surprised by how quickly the money comes in as a result. 
4. Hire a great credit controller. Chasing money isn’t everyone’s favourite job. It requires determination. You need someone who is a good rule follower and will stick to the company line and not empathise with those who try to delay. 
5. Offer direct debit or standing orders. Direct debits can be one of the quickest ways to boost cash flow, it reduces admin and helps with your financial planning as you know which direct debits are due for payment, when. 
6. Look at when and how you pay VAT. If your VAT-taxable turnover is less than £1.35m you might consider switching to HMRCs Annual Accounting Scheme for VAT which allows you to spread payments helping you to avoid large cash fluctuations. Alternatively opting for the Cash Accounting Scheme for VAT will mean you don’t have to pay VAT on sales until you have been paid. 
7. Credit-check clients. Credit checking clients can help filter out those that are likely to have problems paying your invoices. You might then insist on payment up front or refuse to supply.
8. Use email. E-invoicing can help cut costs and delivers your invoice sooner. Using tracking facilities can also provide ammunition when you have to chase for payment and a customer claims never to have received the invoice. 
9. Take credit cards. Cheques can get lost in the post, you may not want to handle cash, but credit cards make it easy to take payment in person and over the telephone. 
10. Cut costs. Always be on the look-out for ways to minimise costs in your business. Ask – ‘does this save money or make money?’ If it doesn’t think very carefully about whether you really need it.

For more Great Financial Ideas subscribe to the Parker newsletter.

Andy Parker
Chartered Accountant

As accountants working with entrepreneurs and the owners of family businesses we come across all sorts of businessmen and women. Many run excellent businesses and build a legacy they are able to leave to their families alongside sufficient wealth for themselves to allow them to live a prosperous life in retirement. We’ve noticed however that those who succeed when it comes to exit planning take a very proactive and positive approach to business and strategic planning. Those who are less successful, or sometime bemoan their ability to ever retire or sell their business for any real value, can be characterised as follows:

• the ostrich, who buries their head in the sand and tries not to think about it;
• the wide boy, who’s looking for exit before they have even really got a business worth exiting from, typically your internet and hi tech businesses where they have a fabulous idea they want to cash in on but don’t really want to stick around and have the hard work of running the business;
• last minute Harry, the average family business owner who wants to leave a financial legacy but doesn’t give them self enough planning time to really maximise the potential sales value of their business.

A business sale which maximises the value for the business owner is what we work with clients to achieve. It’s sad to see however how many business owners leave it too late or fail to get the right advice which means they don’t achieve this goal.

Our recommendations to all clients are to:

• Start planning for exit NOW, it’s never too early – your plan at this stage might be fairly lose but it’s better to start with a lose plan that can be tightened up later than start planning when it’s too late.
• Consider succession and exit planning at a Board meeting at least once a year. Involve your professional advisors in this meeting. Use their knowledge to inform the options open to you.
• Be flexible, don’t dismiss options today that might seem more suitable in 5 years time.
• Talk amongst your peers and business owners you know who’ve been through the process – learn from their mistakes.
• Once you’ve decided on the exit route structure your business, both in terms of people, management and systems and in terms of financial and tax planning, to generate the best possible return.

The most effective and profitable exits are those that are planned. You know what they say – ‘failing to plan is planning to fail!’

Andy Parker
Chartered Accountant

Discretionary trusts can be a good way of avoiding inheritance tax on your capital. They can also allow you to exert control over the trust assets by being a trustee.

However, there is an entry tax (or chargeable lifetime transfer) of 20% on all transfers that exceed an individual’s inheritance tax nil rate band (£325,000 in 2009/10 tax year). This can be a major obstacle where assets exceed this amount.

Normally a gift into trust is still chargeable to inheritance tax in the first seven years of the gift into trust. For someone in poor health this could again present an inheritance tax problem

You can however avoid IHT lifetime transfer and remove assets from the estate in 2 years rather than 7. You can resolve both of these tax problems in the following two stage process:

• Move the asset into a Business Property Relief qualifying investment. It is held in this investment for 2 years when it will be eligible for Business Property Relief and also exempt from inheritance tax.
• After this two year holding period has been met we will then arrange for you to move the assets into trust with no chargeable lifetime transfer
  Your assets are secure at all times and you have full control and access to your money whilst it is in the business property relief investment.

When the asset is transferred into trust, as trustee you will be able to determine how the assets are used. You can arrange for the trust to pay an annual income if this is desired.

Those who wish to pass more than the current inheritance tax limit (£325,000 in 2009/10 tax year) into trust and avoid the 20% chargeable lifetime transfer tax and those in ill health or elderly who wish to remove their assets from a charge to Inheritance Tax within the next two years rather than waiting the normal 7 years will definitely benefit from this kind of approach.

Andy Parker
Chartered Financial Planner

To discuss how Parker Chartered Accountants and Financial Advisors can help you save Inheritance Tax call 0121 764 5161.

Recent research from Coutts amongst some of the UK’s leading entrepreneurs highlighted that business owners are under-prepared when it comes to business exit. 46% of pre-exit entrepreneurs surveyed believed it would take less than a year to sell; the reality is it will take up to two years of planning before a sale completes.

Business owners admit to being naive when it comes to understanding fully the process of selling their business. Getting good advice from the right advisors is essential in negotiating the best prices and providing access to new possible exit channels. Advice from fellow entrepreneurs who’ve already been through the process is seen as important too.

Whilst the sale might be occupying a lot of head space it’s essential the business owner ensures the business continues to run smoothly and successfully otherwise they jeopardise the chance of maximising the value in a sale.

Alongside these and other useful pointers for business owners and entrepreneurs Coutts offer 5 Golden Rules for Exit Planning:

1. Always have the end game in mind
   
2. Build your exit path into your business plan, but prepare to be flexible
   
3. Be realistic about what you can achieve from the start
   
4. Keep an eye on profitability
   
5. Leave scalability in the business

We’d add a few Golden Rules of our own:

• Design your business and the sale in a tax efficient way so you, rather than the tax man, benefit from the sale
• Put in place excellent systems, controls and management reports which make it easy to report to potential buyers
• Do the calculations to show how much you need in realisable assets at the date you plan to retire, work less or be financially independent

The Long Goodbye: Myths, realities and insights into the business exit process is available on the Coutts website.

Andy Parker
Chartered Accountant