Tax Tips and More Autumn 2016
Lee Manning, Partner Shortlisted for... Practitioner of the Year British Accountancy Awards 2016
Digital Reporting Uncovered: The Six Consultations
Brexit: VAT Implications for Your Business
How to Reduce Your Business Rates
A review of the six consultations released by HMRC, highlighting the key points for businesses, self-employed and landlords.
When it comes to VAT, it is true that the future is uncertain, but it is crucial that businesses are aware of the potential consequences.
Business Rates are the second biggest tax you pay. Therefore, have you ever considered if you are entitled to a rebate?
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Contents
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Welcome and Partners
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Special Feature Digital Reporting Uncovered: The Six Consultations
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Salary Sacrifice Benefits Soon to be Limited
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National Minimum Wage Changes for 1 October 2016
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Brexit: VAT Implications for Your Business
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Income Poor, Asset Rich? You Could Leave Your Family with £20,000 in Probate Fees
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Xero Add-On Introducing WorkflowMax
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Raffingers Upcoming Events
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Employee Spotlight
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Raffingers Foundation Update
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R&D Tax Credits: Repayments in Excess of £51,000 Claimed
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How to Reduce Your Business Rates
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Looking to Raise Capital?
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Welcome to our AUTUMN Newsletter Summer may have been quiet for some, but for HMRC it was yet another eventful period. In August, HMRC ramped up its Making Tax Digital campaign by releasing six, yes six, consultations. Whether you are a business owner, self-employed or a landlord, it is essential that you are aware of the key points to ensure you have plenty of time to prepare for the upcoming changes. Instead of making you trawl through these consultations yourself, we have picked out the fundamental points in our special feature on page 4, Digital Reporting Uncovered: The Six Consultations. If you would like further information or advice on what is set to be a massive change, please contact any of us using our details opposite. This quarter, we have inundated you with advice that we hope you will find useful and will be beneficial to you and your business, including an R&D case study, advice on how you can reduce your business rates and a look into the alternative finance options available to businesses looking to develop and grow. Before we go, we are proud to announce that we have been nominated for the Practice Excellence Awards 2016 and our very own partner, Lee Manning has been shortlisted for Practitioner of the Year at the British Accountancy Awards 2016. It is extremely humbling to be shortlisted for yet two more awards and we would like to thank all of our friends, clients and colleagues for their support. Please also get in touch if you would like to contribute to our next edition, or have any suggestions for topics that you would like to see discussed. The Partners at Raffingers
Raffingers Partners Gary Inglis Managing Partner gary@raffingers.co.uk
Andrew Coney Partner andrew@raffingers.co.uk
Lee Manning Partner lee@raffingers.co.uk
Adam Moody Partner adam@raffingers.co.uk
Suda Ratnam Partner suda@raffingers.co.uk
Barry Soraff Partner barry@raffingers.co.uk
Paul Dell Partner paul@raffingers.co.uk
Raffingers Foundation Update page 11
SPECIAL FEATURE
Digital Reporting Uncovered: The Six Consultations
From 2018, the UK will have a digital tax system, which means most businesses, self-employed and landlords will need to use software or an app to keep their records digitally and to update HM Revenue and Customs (HMRC) quarterly. This is all part of HMRC’s ‘Making Tax Digital’ and with six consultations now released, here are the key points you should be aware of. Consultation One: Bringing business tax into the digital age This consultation focuses on the practicalities of digital record keeping, including: • Acquiring and transitioning to digital tools. HMRC considers the practical implications of moving to a digital system and what guidance and support – both practical and financial – it will need to deliver. This includes making free products available for small businesses with straight forward tax affairs. • Process for updating HMRC. Businesses will be expected to use their software to record and categorise their day-to-day activity, such as copies of their receipts and expenses. From this information data summaries will be created, showing the totals of categorised income and expenditure. These will then need to be submitted to HMRC when prompted. • End of year activity. HMRC recommends that all businesses get nine months from their yearend to review the data summaries they have submitted and make a final declaration. • Exemptions. HMRC suggests making ALL incorporated businesses and landlords with a turnover below £10,000 exempt of the new obligations. And for those small businesses and landlords with a turnover above £10,000 and below a threshold to be determined, they will be given the option to defer the start of Making Tax Digital by one year. Side note – those that genuinely cannot use digital tools will not be forced to do so. Currently, Charities and Community Amateur Sports Clubs are exempt.
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Consultation Two: Simplifying unincorporated businesses
tax
for
For Making Tax Digital to work, HMRC is aware that it needs to reduce the work involved for businesses to comply with all of the current tax obligations. Its proposals are: • Cash Basis Entry Threshold. HMRC proposes simplifying the way businesses with trading income calculate profit. Currently, businesses enter cash basis if their turnover is below the VAT threshold (£83,000). HMRC is seeking views to raise this threshold to anywhere between £100,000 and £166,000. • Reforming the distinction between capital and revenue expenditure within cash basis. It is common for businesses to adjust profits for tax purposes, including distinguishing between capital expenditure (one-off expenditure) and revenue expenditure (day-to-day costs). To make it easier for businesses to determine which costs can be deducted when calculating taxable profits, HMRC proposes to provide upfront relief for all types of expenditure (other than excluded assets, such as property). • Reforming reporting periods. It is hoped that in the long-term businesses will be able to choose an accounting period and pattern that suits them. Through more regular updates, either quarterly or more frequently, if the business desires, people will be able to view their tax affairs in a ‘near real time’ basis.
Consultation Three: Simplified cash basis for unincorporated property businesses The third of the consultations looks at letting certain landlords pick whether they would like to account on a cash or accruals basis. It is thought that this will simplify the process for landlords and, by proposing no turnover limit, means every landlord will be able to choose their preferred accounting option.
Consultation Four: Voluntary pay as you go Making Tax Digital will give everyone the opportunity to make voluntary payments throughout the year towards their tax liabilities. This will be of benefit to most as it will give everyone more control over their cash flow and how much and how often they make payments to HMRC. This consultation looks at how these payments would be managed and how the payments will be allocated across the different taxes.
Consultation Five: Tax administration HMRC is looking at how it will adapt its current tax administration legislation to Making Tax Digital. As part of this they are proposing new penalty methods that will be easier to understand and will give people the chance to rectify mistakes before they are penalised. These include: • Late Submission Penalties. HMRC proposes a graduated model where points will be given for each non-deliberate failure and a penalty will only be given after several failures. Those that are deliberately non-compliant will face stronger sanctions. It is also worth noting that HMRC will take a softer approach to penalties in the first year of a business’s Making Tax Digital obligations. • Late Payment Penalties. HMRC are looking for a fair response for late payment of tax and suggests a new penalty interest regime, which gives leeway to those that have accidentally under paid or overlooked their tax liability.
It is thought that a better use of this information will reduce customers who build up under or over payments. HMRC is also looking at ways to use the account to get additional income information from individuals. In this way it is hoped that customers will never have to update HMRC about information it already has. Once HMRC has an efficient process set up for third party data, new sources of information will then be looked into, such as how to get information of investment income (including dividends and shares, peer to peer lending and income from property) into the digital tax account. It is important to note that HMRC will release a consultation on how to obtain and use this additional information before it comes into fruition.
Making Tax Digital is the future and all businesses, self-employed and landlords will need to abide by the new rules. To be prepared for the changes, I advise that you begin getting your affairs in order now and get used to keeping regular records. You should also be speaking to your accountant on a regular basis to ensure that they are up-to-date with all of your financial information. Consultations are open until 7 November 2016. You can personally respond by visiting www.gov.uk. If you would like help choosing a digital software or support with keeping your records up-to-date, please contact:
Consultation Six: Transforming the tax system through the better use of information Here HMRC looks at how it can use the information it already gets from third parties (employers, banks, building societies) to give a more accurate account of an individual’s or business’s tax liabilities.
Gary Inglis 020 8551 7200 gary@raffingers.co.uk
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Salary Sacrifice Benefits Soon to be Limited The government is making good on its plan to limit the tax advantages of some benefits-inkind (BiK) when provided as part of a salary sacrifice arrangement. This will affect benefits, such as mobile phone contracts and workplace parking, but not those more traditional benefits, such as pensions and health care.
• Employer pension contributions • Employer-provided pension advice • Employer-supported childcare and provision of workplace nurseries • Health related benefits, such as cycle-to-work • Holiday trading schemes
The government’s ‘Consultation on salary sacrifice for the provision of BIK’ was released in August 2016. Here is what you need to know.
However, for other salary sacrifice schemes the government is looking to remove the income tax and NICs benefits. This will be done by making the employer account for the value of the BiK on their P11d or through their PAYE, which will mean income tax and Class 1A NICs will be charged on the BiK. BiK currently offered on top of salary will not be affected by the proposed changes.
A salary sacrifice arrangement is when an employer and employee agree to reduce the employee’s cash salary in return for a non-cash benefit. In the past these benefits included pension contributions, childcare vouchers and cycle-to-work schemes. However, more recently benefits have included cars, mobile phones and gym memberships, and it is this increase in benefits provided that has instigated a review by the government. The reason these schemes are so popular is because they benefit employees and employers through reducing the amount of income tax and employer and employers National Insurance Contributions (NICs) due on the employee remuneration. It is thought that this is unfair as not all employees are entitled to a BiK through salary sacrifice and not all employers offer the benefit. The government therefore wish to level the playing field. The changes Before looking at the changes in store, it is worth noting that the more traditional salary sacrifice schemes will be unaffected:
Despite these changes the consultation makes it clear that it ‘does not prevent employers from providing BiK to their employees through salary sacrifice, but it will remove the tax and NICs advantages that come from doing so’. Salary sacrifices are a great way to incentivise and reward employees. The core schemes will remain unaffected, but it is important that you are aware of your tax liability should you deliver benefits that will now be taxable. Approved changes will come into force from April 2017. For further information or advice, please contact: Andrew Coney andrew@raffingers.co.uk
National Minimum Wage Changes for 1 October 2016 If you pay any of your staff the National Minimum Wage (NMW), you need to be aware that as of 1 October 2016 new rates now apply: • £6.95 - the main rate for workers aged 21 to 24 years old • £5.55 - the 18-20 rate • £4.00 - the 16-17 rate for workers above school leaving age, but under 18 • £3.40 - the apprentice rate, for apprentices under 19, or 19 or over and in the first year of 6
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their apprenticeship • National Living Wage - remains unchanged at £7.20 for workers aged 25 and over What you need to do Make sure your payroll is updated and you are following the new rates. If you need help with your payroll or have any questions regarding the NMW, please contact our Suda Ratnam at suda@raffingers.co.uk.
Brexit: VAT Implications for Your Business
Brexit is no longer an argument, but a fact. It is going to have an impact on businesses, particularly those that import and export to the EU. Although, whether in the long run this impact is going to be good or bad, remains to be seen. When it comes to VAT, it is true that the future is uncertain, but it is crucial that businesses are aware of the consequences and what they need to look out for. One point to first clear up is that despite VAT being introduced by the EU, the abolition of VAT is extremely unlikely. VAT raises around £120billion per annum and no politician in their right mind will transfer this tax onto other taxes. However, what might change is… The UK will no longer be restricted by EU rules and laws and will have more control over deciding where transactions arise and what VAT rate, if any, applies. Unfortunately, this does mean that businesses that rely on EU law in applying a particular VAT treatment may no longer be able to once the Brexit takes place.
goods to the EU is that UK businesses will no longer have to submit an EC Sales List or an Intrastat declaration in the UK. The above all stands as long as ‘normal rules apply’. One thing is clear right now though – there will be a commercial impact. On one hand EU customers will not want to process the additional administration burden if the same goods can be sourced elsewhere in the EU. On the other hand, if the UK business takes away the administration burden from their customers, which they will have to do to keep their customers happy, they will need to register for VAT in an EU country, increasing their compliance costs. Those that supply services For those that supply services, they will face fewer barriers. VAT treatments are likely to remain the same in these instances and businesses may even face significant benefits as exports will be treated as nonEU sales and given higher input VAT recovery rights.
Those that sell goods
The only area these businesses will face additional administration burdens will be in regards to VAT MOSS, which allows businesses to account for all EU VAT through a single UK portal. It is unlikely this scheme will be available in the UK, which means businesses will have to register for VAT in every EU country in which they supply services or register under a non-union MOSS scheme.
Those that sell goods will face more administration burdens, predominantly because a Brexit will mean border controls will be put in place and consequently import and export declarations will be required. It is also possible that additional custom duties will be payable.
Before exit negotiations get underway it is difficult to make plans to mitigate the effect. However, we do recommend that you take steps now to solidify your relationship with your EU customers. This will ensure that when the time comes you will be in a stronger position to renegotiate contracts.
Just to note, despite the UK having more freedom, EU VAT rules will still stand and businesses that make transactions in EU countries will be subject to the local rules.
Consequently, businesses that sell goods to the EU will need to decide whether their business or their EU customer is the importer for VAT purposes. This will determine whether the UK business needs to register and account for EU VAT.
For further information or advice, please contact: Lee Manning lee@raffingers.co.uk
The only burden that will be reduced when selling Your Business Our Passion
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Income Poor, Asset Rich? You Could Leave Your Family with £20,000 in Probate Fees
If a relative passes away and leaves assets valued over £2million, beneficiaries can expect to be hit with £20,000 in probate fees, thanks to the government’s latest cost cutting initiatives. Probate administration looks at the execution of an estate once a person passes away. A consultation by the Ministry of Justice in February 2016 has proposed a reform of the probate flat-rate fee, currently the application fee is £215 for individuals (£155 for solicitors and accountants) with estates over £5,000. This will be replaced with a new sliding scale that is more reflective of the value of the estate. The reform proposes seven thresholds: • N/A if value of estate is less than £50,000 • £300 for estates £50,000- £300,000 • £1,000 for estates exceeding £300,000 £500,000 • £4,000 for estates exceeding £500,000 £1million • £8,000 for estates exceeding £1million £1.6million • £12,000 for estates exceeding £1.6million £2million • £20,000 for estates worth more than £2million What about Inheritance Tax? Inheritance Tax (IHT) is calculated at 40% where the individual’s estate exceeds the threshold of £325,000. Individuals with estates worth less than £325,000 will not be liable for tax. Yet, at the Summer Budget 2015, Osbourne announced that by 2020/2021, a “main residence exemption” band will be introduced, where an additional £175,000 will be added on to the threshold if the estate is of main residence and is passed on to direct descendants, e.g. children (including fostered, adopted and stepchildren) and grandchildren, increasing the tax free allowance to
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£500,000 per person (£1 million for couples). This threshold will be achieved over the next four years by the following increase in rates: • • • •
£100,000 in 2017 to 2018 £125,000 in 2018 to 2019 £150,000 in 2019 to 2020 £175,000 in 2020 to 2021
Already, spouses are allowed to transfer their estate tax-free to their partner when they die if they are married or in a civil partnership. As a result, by 2020, the sliding scale will be favourable for more parties irrespective of how much their estate is worth, once IHT has been calculated. This can be best illustrated with an example: Matt has an estate worth £600,000 and has decided to transfer his entire estate, including his main residence, to his two adopted children. Under the 2015/2016 IHT legislation, Matt would pay a £215 fixed probate fee and £110,000 in IHT. However, under the 2020/2021 legislation, with the threshold increasing to £500,000, IHT will drop to £40,000 and probate fees will increase to £1,000. This leaves Matt with fees only at £41,000; saving matt just under £70,000. It is important to note that for properties over £2million, £1 will be deducted for every £2 above the value of £2million. This will take effect from 2017.
For further information or for advice on how to reduce your IHT liability, please contact: Paul Dell 020 8418 2688 paul@raffingers.co.uk
+ XERO ADD-ON
Introducing WorkflowMax ...a Xero owned all-in-one job, time and invoice management software
From leads to quotes, to time-tracking, all the way to invoicing - our all-in-one, cloud based job management software is the modern and efficient way to run your business. A recent survey showed on average, WorkflowMax saves each of our customers 628 hours of time and $22,000 every year. The closest integration with Xero around Owned by Xero, WorkflowMax offers the best integration with Xero accounting of any available app. Create an invoice in WorkflowMax and simply push that data through to Xero. Enter information into one system and it pops through on the other automagically. Low, flexible monthly pricing WorkflowMax’s low monthly pricing - without setup fees or contracts! - makes it affordable for businesses of any size and it’s easy to try with a free trial. Loved by thousands around the world Over 8500 other businesses already use WorkflowMax
to stay organized, streamline their workflow, and save time and money. WorkflowMax has also been recognised by leading independent software review sites such as TrustRadius and GetApp as the Top Rated Project Management tool for businesses. Over 30 integrations with leading software products We integrate with 33 other third-party software solutions (like Salesforce, Hubspot, Zendesk, Dropbox, iPayroll) - that’s more than any other comparable app in the market. All-in-one platform From lead management and quotes, to jobs, project management, time tracking, invoicing, reporting and much more - WorkflowMax offers you everything you need to manage your workflow in one single integrated cloud-based solution. – WorkflowMax makes doing business easy, so you’ve got more time to focus on growing your company.
For more information, contact: Natalie Prescott-Brann natalie.p-brann@xero.com | 07718 243217 Start a free trial today! workflowmax.com/start Your Business Our Passion
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Raffingers Upcoming Events Cloud Drop-in
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October
25
November
Where: Raffingers Head Office, 19-20 Bourne Court, Southend Road, Essex, IG8 8HD When: 2pm-6pm Drop in to our offices to receive free, one-to-one support on your cloud accounting software. Our Cloud Drop-ins take place on the last Friday of every month, between 2pm-6pm, and give you the opportunity to receive free advice and support on your cloud accounting software.
Annual Tax Update
2017 March
Where: Prince Regent, Chigwell, London, IG8 8AE When: 9am (8:30am arrival) Following the 2017 Budget, join us for breakfast to discuss the latest changes and what you can do to mitigate your tax liability following the update. As always, we will delve into pensions, dividends and all things tax, helping to ensure your affairs are up-to-date and you are in the best possible position.
For further information or to attend any of these events, please contact lauren@raffingers.co.uk.
career in Accountancy and Finance.
Employee Spotlight In this slot we introduce you to a valued member of our team, allowing you to put a face to a name. This quarter we speak to our Audit Senior, Ansa Archibong. Name: Ansa Archibong Email: ansa@raffingers.co.uk Career: Accountancy is my second career after a graceful period working within the shipping industry and being part of the family business. After graduating from the Maritime Academy of Nigeria, the obvious choice was to work within the Maritime Sector where I got involved in cost accounting as a Marine Transporter and Shipping Executive. It was an amazing experience, but I later decided to pursue a 10
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In the UK, I graduated from the University of West London, with a 2.1 in Accountancy and Finance. After several years of experience with many different entities, including KPMG, PK Group Partners, Richmond Gatehouse LLP and a few others, I gained ACCA Membership and obtained my General Practising Certificate in early 2016. I joined Raffingers in April 2016 as an Audit Senior, to broaden my audit experience, which I am very keen to become an expert in. Interests: I am an avid fisherman, extremely passionate motor biker and enjoy boxing, as well as martial arts. My other passion is travelling and seeing remarkable parts of the world as this gives me a much better appreciation of the universe. You only live once! Partners Report: Since joining in April, Ansa has hit the ground running. Not only is Ansa instrumental in our audit process, but through his drive and his eagerness to learn, he has already contributed significantly to our IT and marketing departments. Just this month, Ansa has been the driving force behind our training videos, which will be released shortly. Watch this space.
Raffingers Foundation Update Summer saw our team transform into superheroes and pick their fantasy football league team, helping us reach a total of £3,299. All of which will be split equally between Pancreatic Cancer Research Fund and Ovarian Cancer Action. However, our fundraising does not stop there and we are pleased to confirm that we have set a date for our 2017 Charity Ball. Our Ball will be held on Saturday 16 September 2017 and we would love for you to be there. Further details can be found below or you can visit us at:
£3,299 Raised so far
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Superhero Day We know our team are already superheroes, but on Friday 22 July 2016 they donned their best superhero outfits to help raise a total of £240.
Dust off your dancing shoes, grab your black tie and join us at our Charity Ball 2017 and enjoy: • • • • •
A superb three course dinner Live Music Magician Silent Auction Raffle (which has theme park and concert tickets, iPads and restaurant vouchers up for grabs)
Tickets: Tickets are £75 per person, or, tables of 10 are available for £600 Dress Code: Black Tie Sponsors and Donations: If you would like to donate an item for our auction or purchase an advert in our Charity Ball Brochure (prices start from £50), contact lauren@raffingers.co.uk
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R&D Tax Credits: Repayments in Excess of £51,000 Claimed CLIENT NEWS
Background
The Result
VideCom Security Ltd is one of the country’s leading CCTV installation and maintenance companies. The company supplies and installs a wide range of audio door and electronic access control systems, which are used to control access through a single door or multiple doors, multiple sites, vehicle barriers, gates and turnstiles. The company’s product ranges include conventional hard wired systems, as well as dedicated network based IP products working over TCIP networks. To find out more about VideCom Security Ltd, visit www.videcom.co.uk.
We have now submitted two R&D claims to HMRC for VideCom Security Ltd, and the company has received R&D tax credit repayments in excess of £51,000.
Research and Development In addition to manufacturing CCTV hardware, the company undertakes substantial software development, which enables it to provide an ever increasing diversity of product. We worked with the company director and the senior technical staff to understand the nature of the technological uncertainties and to identify the R&D projects. We established that the company’s developments represented advances in the capability of technology to deliver solutions to address their customers’ needs, where no existing alternative was available. We then set about reviewing the qualifying expenditure which, in this case, included employee staffing costs, consumable supplies and subcontracted R&D activities. We prepared a formal claim, which was submitted to HMRC and accepted without query.
For a free assessment to see if your business qualifies for R&D, contact our Senior Tax Manager and R&D specialist, Neill Staff: neill@raffingers.co.uk 020 8418 2671
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Having initially researched R&D tax credits we already had some understanding of the possibilities open to us, interestingly Raffingers beat us to the question and asked if we had considered an R&D claim. Following discussions we were introduced to Neill who worked with us on the preparation and submission of our claim. It was a pleasant surprise when a cheque arrived on the desk much sooner than expected. The advice, support and quality of preparation was excellent and enabled a rapid conclusion to our submission. - Bill Mead, Director, VideCom Security Ltd
How to Reduce Your Business Rates Business rates are the second biggest tax you pay. Yet did you know that if you are a landlord or tenant paying more than £20,000 in business rates then you may be eligible for a refund, even if you have appealed before? Business rates are calculated based on a rental valuation of your property. This is called your Rateable Value and it is set by the Valuation Office Agency (VOA). The VOA is meant to be as accurate as possible in setting Rateable Values, but they can be wrong. We have teamed up with a provider, Six Forward, to help our clients confirm whether their business rates are right and whether they can make savings. Did you know that business rate periods usually run for five years? The current period which started in 2010 was extended for two years due to the 2015 general election. This means that from 1 April 2017 the VOA will be updating the rateable value of all business properties. You can no longer appeal the period 2010 to 2015 as this period is now closed by the VOA. You can however appeal your rates since the period started in 2015 to 2017 and now is the time to see if you are eligible for a rebate. Additionally, when the new ratings period begins in 2017 (your rateable value will be known by the end of November 2016) you will
have to appeal again to make savings for the future. The government is operating stealthily by not bringing the savings directly to the attention of landlords and tenants. Through Six Forward you can appeal your business rates and benefit from: • Six Forward will carry out a no obligation analysis to see whether your business has the possibility to claim. There is nothing to pay up-front. • If Six Forward deems you eligible and you are happy to go forward, Six Forward will engage with the VOA as your agent. • During the process you will be provided with regular updates in line with the new VOA: Check, Challenge and Appeal Process. • Six Forward has an 85% success rate due to their relationship with VOA. • With Six Forward you will not pay standing fees nor be tied in for long periods at no value to you. You will only pay a fee if a saving is made. • Six Forward deliver a managed process to help reduce overheads and enhance profitability. It may be worth your while reviewing your rates bill and appealing for a reduction now and for the future. To see if your business is eligible for a rebate, contact Barry Soraff at barry@raffingers.co.uk.
We have been shortlisted!
Lee Manning, Partner Practitioner of the Year British Accountancy Awards 2016
Raffingers Medium Practice of the Year Practice Excellence Awards 2016
2016 has been another tremendous year for Raffingers and we are pleased to have been shortlisted for yet another two prestigious awards. A huge thank you goes to all of our team and clients, without which this just would not have been possible.
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BLOG
Looking to Raise Capital? Blog by Roy Butcher, Associate Partner
Financing has become a competitive business with the investors or institutions that own or manage these funds now having an obligation to be more responsible. Consequently, raising and securing a capital base for any business, particularly SMEs, is becoming even more challenging, but necessary for the advancement of even the greatest ideas to develop and grow. Clearly these challenges to raise the necessary capital are not all external; the entrepreneurs are not without responsibility in their lack of funds. Typically, some SMEs have, over time, displayed poor management as well as a poor maintenance culture of their current facilities. This has hampered their ability to raise and retain finance. So, what are the options when considering raising finance? High street banks. These are the primary source of funding for start-ups’ financing debt. In recent years there has been a perception that banks do not lend; however, banks are certainly open for business, with sufficient area funding and bespoke solutions available for SMEs who have sound business ideas, direction and strong support teams. Asset Finance. Hire/Lease Financing allows equipment to be purchased without the need for a large capital outlay from a limited cash resource. This enables businesses to utilise cash resources efficiently to fund
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the current business operations. This is unlikely to be an option for all start-ups, but one to be considered further down the line. Invoice Finance. Invoice financing enables the release of funds currently tied up in outstanding customer invoices, ideal for providing a cash flow injection for working capital management. This area of lending is a more affordable and flexible way of financing, with agreements normally built around a 30 day rolling contract. Crowd Funding and P2P Lending. Generally online platform based lending, enables many small lenders to pool their cash investments together, giving enterprises an alternative pool of finance to banks. These funding pools will set out to match their own risk criteria with that of the businesses seeking funds, and ultimately the returns required on those funds invested. The Business Angels. This type of funding reflects a range of models and approaches, such as angel networks, small groups and syndicates, and is ideal for business owners looking for more than a funding solution, but also for strategic support and contacts. Venture Capitalists and Private Equity. Essentially capital finance provided in return for an equity stake in potentially high growth companies. Business Grants. This is a highly overlooked source of funding and broadly fits into one of three categories:
• Government grants • European grants • Local grants Each scheme has its own set of criteria to determine whether a business can be considered for this type of investment. Friends and family. The cheapest form of finance, but with potential problems which may affect longterm relationships. Other methods. Commercial mortgages, mezzanine finance and, that all important working capital management. Before applying for funding it is important to be aware that a poor credit score, a lack of personal guarantees and a poor financial management history, are serious barriers for business owners looking to secure funding. Furthermore, the business model or indeed the individual may be deemed a high risk due to a lack of trading history or sufficient asset base. A high proportion of applications are turned down by banks, but mainly due to a lack of clear direction by the business owners or even a poorly assessed management support network. Understanding the requirements of lenders and being open to the range of finance options will enable SMEs and start-ups’ to overcome these financial hurdles.
The business idea and plan. Investors and loan providers will want to review the business idea and plans, and assess the likelihood of profitability and return. A continually updated business plan is therefore essential. Matching a lender to your own funding requirements. What financial option best matches the needs of your business. Some funding organisations and investors favour specific business models, so do your research to see if a funder has a history of investing in a particular sector. Also are you willing to dilute your own equity and control? Is the entrepreneur ready? People buy from people. Following the global recession, ensuring you can provide the business confidence, passion and the vison is all the more essential. Research your funding sources to ensure it is the best solution for you and the stage your business is at. Whether you are looking to start a business or are an established business looking to take that next step, please contact our Associate Partner for any funding advice:
Roy Butcher 020 8418 2673 roy@raffingers.co.uk
How to assess your own viability: -
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