Hospitality Newsletter | Winter 2016/17 by Lauren Aston

In the Headlines Hospitality Newsletter | Winter 2016/17

Autumn Statement 2016: Hospitality Sector Highlights

What is Cloud Accounting, and What is the Big Deal?

Have You Considered Invoice Finance Yet?

A look at all of the key announcements and the impact they will have on individuals and hospitality businesses moving forward.

So what is the big deal about doing business on the cloud and why is it beneficial for businesses to embrace this technology?

Invoice financing is ideal for small businesses that may not have access to credit through more traditional forms, such as Banks.

Page 4

Page 10

Page 14

Contents

Welcome and Partners

Special Feature Autumn Statement 2016: Hospitality Sector Highlights

Raffingers Foundation

Upcoming Events

Employee Spotlight

High VAT Rates are Killing my Hospitality Businessâ&#x20AC;Ś What can I do?

What is Cloud Accounting and What is the Big Deal?

Making Tax Digital: Opportunity or Threat?

Pricing for Success

Modern Slavery Act to hit Hospitality and Food Services

Partners Perspective Have You Considered Invoice Finance Yet?

www.raffingers.co.uk

Welcome to our WINTER Newsletter Welcome to our winter newsletter. This quarter, we bring to you all of the latest insights and news hitting the sector. In November, we saw Phillip Hammond announce the last Autumn Statement, which declared several legislative measures set to affect the hospitality sector. Although there was no mention on the much debated Tourism VAT, there were several measures announced that the sector will be influenced by. As a result, we draw attention to these key changes in our special feature, “Autumn Statement 2016: Hospitality Sector Highlights”. Furthermore, the government has recently given the Making Tax Digital consultation the go ahead, which is set to take place from April 2018. For more information on what this will mean, see our article on page 11. Businesses will soon have to come to the realisation that accounting and financial practices are taking a digital turn. With this in mind, we feature two articles that look at the benefits of the cloud: “What is Cloud Accounting and What is the Big Deal?” and “Making Tax Digital: Opportunity or Threat?”, which feature on pages 8 and 9 respectively. Throughout the year, the team hold several events to help support our charity, Raffingers Foundation. To find out more information on what is to come and how much we have raised so far, please go to page 6. As always, if you would like to be featured in our next edition, or have any suggestions for topics that you would like to see discussed, please get in touch.

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

The Partners at Raffingers Paul Dell Partner paul@raffingers.co.uk

Raffingers Foundation - Page 6

Autumn Statement 2016 Hospitality Sector Highlights SPECIAL FEATURE

Support for Rural Businesses Hammond announced a £6.7billion allowance to cut business rates as well as a reduction in the transactional relief cap. This will drop from: • 45 to 43 per cent in 2017 • 50 to 32 per cent by 2018 Furthermore, the government will be giving rural based, small businesses a tax break of up to £2,900 each year. This will increase the Rural Rate Relief to 100 per cent. The government has estimated that nearly 3000 pubs in rural areas will benefit from the relief.

Employment 2.1 National Living Wage and National Minimum Wage Rates From April 2017, the National Living Wage (NLW) will increase by 4.2%, from £7.20 to £7.50. As previously announced the following rates will also apply from April 2017: • £7.05 - the main rate for workers aged 21 to 24 years old (old rate: £6.95) • £5.60 - the rate for workers aged 18 to 20 years old (old rate: £5.55) • £4.05 - the rate for workers aged 16 to 17 years old (old rate: £4.00) • £3.50 - the rate for apprentices (old rate £3.40)

2.2 Class 1 With affect from April 2017 both employer and employee Class 1 National Insurance Contributions (NICs) will become chargeable on earnings above £157 per week.

2.3 Salary Sacrifice This was a great way to incentivise and reward employees because of the tax and Class 1 NICs savings. However, following consultation, with effect from April 2017, the salary sacrifice scheme will only be available on pensions, childcare, cycle to work and ultra-low emission cars. Any schemes in place before April 2017 can continue to run until April 2018.

www.raffingers.co.uk

2.4 Termination Payments Following the 2016 Budget announcement, the autumn statement states that with effect from April 2018, any payment over £30,000 will be subject to income tax and employer Class 1 NICs. The tax will only be applied at basic rate and only where the employee does not work their notice. These changes are being monitored by the government.

2.5 ‘Off-Payroll Working Rules’ Those caught within the ‘IR35 legislation’ and working within the public sector will no longer be entitled to the 5% tax free allowance. This was given to take into account the administration burden. The responsibility to ensure that a worker is paying the correct amount of tax and national insurance will now fall on the body paying the worker’s company. This is an area that the Government is still reviewing.

2.6 Employee Shareholders Shares Any arrangements entered into from 1 December 2016 will no longer benefit from the first £2,000 worth of shares being exempt from income tax and the first £50,000 worth of shares being exempt from capital gains tax on disposal. Arrangements entered into before 1 December 2016 will continue to benefit from the exemptions (within the set limits).

Individuals 3.1 Personal Allowance The personal allowance currently is £11,000, rising to £11,500 from April 2017. The government today announced that this will increase to £12,500 by the end of parliament. Thereafter the personal allowances will increase in line with consumer price index.

3.2 Pensions and Savings The government is continuing to support savers by increasing the ISA limit to £20,000 (from £15,240) in April 2017. In addition, the starting rate for savings will remain at its current level of £5,000 for 2017/18.

Insurance Premium Tax The tax on insurers will increase by 2% to 12% from June 2017.

For further advice or information on the changes set to take place, contact: Neill Staff 020 8418 2671 neill@raffingers.co.uk

Your Business Our Passion

Raffingers Foundation

£3,520 Thank you to everyone that has supported us in 2016, helping us to raise a massive £3,520 for Pancreatic Cancer Research Fund and Ovarian Cancer Action.

Raised so far

Our latest fundraising attempt saw our team put on a cake sale in our local offices, raising £221. To get involved or to donate, visit:

www.raffingers.co.uk/community.

Cake Sale On 16 December 2016, the team at Raffingers opened their doors to local businesses at Bourne Court, Woodford Green, with the team donning their favourite Christmas Jumper. We are pleased to announce that we managed to raise £221 for Raffingers Foundation. A massive thank you to all those that donated or baked cakes for the sale.

Join us at our first Charity Ball and help us raise awareness and much needed funds for Pancreatic Cancer Research Fund and Ovarian Cancer Action. Tickets: £75 per person, or, tables of 10 are available for £700 (includes three course dinner and live band). We are also looking for 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.

www.raffingers.co.uk

To attend any of our events contact miranda@ raffingers.co.uk.

Upcoming Events Fancy Some Free Cash for your Business?

Employee Spotlight

• • Date: Wednesday 1 March 2017 • • Where: WeWork, 1 Primrose Street, London, EC2A 2EX

•• When: 6pm-7pm Did you know thousands of companies are eligible to claim money back from HMRC and aren’t doing so? This money is available through the R&D Tax Credit Scheme and despite what you might think; it’s not just for tech companies.... In the last year alone, we’ve managed to claim money back for businesses in design, recruitment and the arts. You could be leaving serious money on the table if you don’t check it out for yourself! To find out if you can claim, join us on 1 March at 6:30pm at WeWork, Spitalfields.

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 Cloud Accounting Assistant, Daniel Stopp. Name: Daniel Stopp Email: daniel@raffingers.co.uk Career: After completing my A-Levels I worked for a telecommunications company for a year. I then moved to my first accountancy practice where I worked for two and a half years. It was here that I developed a passion for cloud accounting. I then joined Raffingers in June 2016 as a Cloud Accounting Assistant.

Lunch and Learn: Simplifying Your Finances

I am currently studying towards AAT Level 4 and plan to move on to ACCA once I have finished.

•• Date: Wednesday 29 March 2017 •• Where: WeWork, 1 Primrose Street,

Interests: I play league cricket as an opening batsman for Harlow Cricket Club and also play Sunday League Football for Risden Wood FC.

London, EC2A 2EX

•• When: 1pm-2pm Have you heard about HMRC’s Making Tax Digital (MTD)? MTD will require all businesses to keep their financial records digitally and submit these to HMRC quarterly. But, it is not all bad news. It will also allow you to use cloud accounting software to transform your business. With everything in one place, you can view your financial figures whenever you want, spot trends in your data and forecast for your year ahead. For the first time ever you will have complete visibility and control over your finances. To be the first to know about this event, get in touch.

I am also an Arsenal fan and try to go to as many home games as possible. When I am not working or playing sport, I like to spend time with my girlfriend in Sweden. I am also learning the Swedish language. Partners Report: Dan joined us back in June last year and I do not know what we would do without him. Dan has taken on his own portfolio of clients with ease and has been an instrumental part of the cloud team and the enablement process. Dan has great knowledge of cloud accounting and with his eagerness to learn and his great attitude to work, we know he is a great asset to the team.

YourBusiness BusinessOur OurPassion Passion Your

High VAT Rates are Killing my Hospitality Business… What can I do? SPECIAL FEATURE

Value Added Tax (VAT) has been set at 20% for nearly five years and is having a negative impact on tourism in the UK, especially when compared to other cities in Europe. With changes to VAT currently at a standstill, what can be done to help businesses who are struggling with the high VAT rate? Earlier in the year, the Office for National Statistics (ONS) announced that the current UK trade deficit stood at £13.3billion a year and the most viable solution was to drop the standard 20% VAT by 5%. Upon speaking to several clients, it became apparent that the UK’s high VAT rate was hindering their growth and making their business appear less attractive to other European businesses with lower VAT rates. Further reading and research supported this notion that my clients have. According to the Cut Tourism VAT campaign, the UK

www.raffingers.co.uk

is currently ranked 140 out of 141 countries that are priced competitively, thus making it less attractive for domestic and foreign tourists to want to vacate in the UK. With 80% of SMEs accounting for hospitality and tourism based businesses, a reduction in VAT would be the most optimal option. However, with no future plans to change the VAT rate SMEs should be aware of other areas and resources that could boost their business. These include:

Tax Reliefs and Benefits The government has introduced a range of tax reliefs, schemes and incentives in order to help SMEs save on tax and to promote survival. For SMEs operating in the hospitality and tourism space, there are many reliefs available. These include reduced business rates, employee allowances and more commonly, allowable expenditure.

The UK is currently ranked 140 out of 141 countries that are priced competitively, making it less attractive for domestic and foreign tourists. Pricing Strategy Your pricing structure can massively impact the amount of people you attract to your business. When reviewing your prices, the most logical thing to do is speak to an accountant. It is important to estimate how much you can afford to make â&#x20AC;&#x201C; or lose â&#x20AC;&#x201C; if you decide to make a change. Creating financial forecasts, reports and scenarios with your accountant is the quickest and most logical method when reviewing your pricing. You may find that you may be underpricing or have the wrong pricing structure. Our article

on pricing for success can help guide you with pricing your business.

Supply Chain and Technology An ineffective supply chain model â&#x20AC;&#x201C; or no supply chain model - can quickly increase your costs and make your business run less efficiently. Changes in the supply chain process can make it a lot easier for businesses to streamline their process and reduce costs significantly. One of the easiest ways businesses are doing this is through technology. Using technology can help you with reporting and invoicing, inventory management and Point-of-Sale.

Marketing Marketing is an effective tool for hospitality, tourism and food based businesses. Not only does it open you up to thousands of potential clients that you usually would not have access to, but it also gives you the opportunity to target offers and promotions specifically to customers and potential customers.

Reviewing your cost structure can be a time consuming task. For further advice: Adam Moody 020 8418 2683 adam@raffingers.co.uk

Your Business Our Passion

What is Cloud Accounting, and What is the Big Deal?

So what is the big deal about doing business on the cloud and why is it beneficial for businesses to embrace this technology?

You have more flexibility and the option to use add-ons to improve your processes and efficiencies.

I get asked by clients all the time why they should change their systems, which have been working fine for all these years, to a new way of working. Firstly, cloud technology is not that new, internet banking and Dropbox have been around for a while now, yet we take this for granted within our business.

•

Secondly, security has developed. In the past, security has been an issue for a lot of clients; however I came across this great quote the other day, which says it in a nut shell:

• You have more flexibility and the option to use add-ons to improve your processes and efficiencies

“Cloud computing is often far more secure than traditional computing, because companies like Google and Amazon can attract and retain cyber-security personnel of a higher quality than many governmental agencies.” - Vivek Kundra, former federal CIO of the United States Many software applications run through the cloud without you really noticing it, with the main benefits being: • No need to download the software on to your server • Upgrades carried out automatically in the background

You can access the software from any device at any time

I have a great example of a client who has truly taken on board this new technology. They were using a desktop bookkeeping system - timesheets were manually completed, expenses were completed on a spreadsheet by the salesmen and purchase invoices manually entered into the system. With cloud technology all of these admin tasks take place virtually automatically, saving a huge amount of admin processing time each month. Consequently: • Timesheets are now completed using Tsheets where the employees use their mobile phone to record the hours they work • Expenses are now recorded by simply taking a

www.raffingers.co.uk

Making Tax Digital: Opportunity or Threat? For further advice: Andrew Coney 020 8418 2710 andrew@raffingers.co.uk

picture of the receipt, which the software then reads and allocates to the relevant cost account • All purchase invoices are now either scanned when received in the post or forwarded to an email address where, again, software such as Receipt Bank or AutoEntry reads all of the information contained in the invoice and process it into Xero (without having to manually type in any data whatsoever) • Finally, their CRM software is integrated with Xero, meaning that all of the company’s client’s data is kept in one place and there is no need to keep multiple databases. In addition, clients who have moved over to the cloud have seen an added advantage in the way they now see their financial information, which is real time, upto-date and in a graphical format. There is also the ability to prepare financial forecasts to include ‘what if’ analysis to see what the impact is on the business if certain actions are taken. These can be done on a regular basis and at a fairly low cost. This is all very relevant for all businesses of all sizes as the introduction of Making Tax Digital (MTD) from April 2018 will force a lot of SME businesses to adopt cloud systems into their way of working. This may seem daunting, but I think the benefits that they will obtain by converting to the cloud will transform their businesses.

HM Revenue & Customs (HMRC) has confirmed that it will be going ahead with Making Tax Digital (MTD) from April 2018. Sole traders and buy-to-let landlords will be the first to be affected, with a major pilot to be launched this April. Making Tax Digital will use cloud software to submit quarterly information to HMRC, which will mean all businesses will need to have their bookkeeping records on a cloud bookkeeping package. As these packages are becoming more intelligent, the traditional bookkeeping services will more than likely be automated and businesses will be looking to their accountant for help to implement the systems and provide the necessary training. When Making Tax Digital was first announced, many accountants were worried as it appeared their core compliance driven service was going to be significantly reduced. However, we saw it as a huge opportunity to be able to, at last, provide businesses with proactive advice to help them succeed at a cost that is reasonable. As the cost for dealing with the day to day bookkeeping will reduce, businesses will be able to afford to pay for more valuable services, such as help with their pricing strategy, a review of their internal systems and efficiency improvement suggestions using the latest technology. In addition, Making Tax Digital will enable accountants to finally deliver up to the minute financial information, financial forecasts to show where improvements can be made in the future, a complete financial review to ensure the business owner is planning for retirement, help with estate planning and finally be a virtual finance director for businesses no matter how small they are. Making Tax Digital will come with its own challenges, but in the long run business owners will benefit as long as their accountant has evolved their service offerings, and are experienced enough to provide the advice that business owners expect from its trusted advisor.

Your Business Our Passion

Pricing for Success It’s funny what you come across when you have a bit of a tidy up. I was rummaging through some old papers the other day and came across a video that was given to me a number of years ago by AVN. The video was a story about dogs (it was not that type of video). It was in fact a video about Triple A dog kennels and their journey from a very old, run down kennels in the North East into a five star boarding home for dogs. The owners transformed the business by looking at their pricing and decided to menu price their services. Triple A did this after years of reducing their prices to compete with the competition. Eventually they realised no new customers were coming through the door and they were continuing to lose money. So what did they do to turn the business round? They did what no one else was doing; they raised their prices. The current business model was not working, which lead to the Triple A team taking a serious look at their service offerings, and after a brainstorming session, they put together a three, four and five star service. These services included a direct video link to the kennels, grooming service and even a choice of beds for the dogs. The team was very clever with the menu price and made sure the four star service, which included most of their existing offerings, was higher as they thought most customers would go for this ‘middle’ pricing option. Once the model was in place, the team was able to estimate (using some clever software) what the impact

www.raffingers.co.uk

would be on the business and how many clients they would lose due to the changes. The results were quite staggering; the majority of customers went for the five star menu price, a considerable amount more than they expected, and they only lost 5% of their customers rather than the 10% they predicted. With the help of software like CrunchBoards and having real time up-to-date financial information, a business like Triple A can now very quickly perform ‘what if’ analysis; flexing the numbers to see what the impact would be on their cash flow if they increased their prices further or if they employed more staff. What I love about using real time financial information is that you can set up alerts that can warn clients if the bank account drops or is likely to drop in the near future below a certain level, or if certain expenses are exceeding budgets. CrunchBoards has enabled me to now give clients proactive advice on how the business is performing right now and in the future, rather than historically. Businesses like Triple A show you the importance of occasionally stepping back from your business and actually looking at whether what you are doing is working. There are so many great pieces of software now too that can help businesses to review their planning models that there really are no excuses for complacency.

For further advice: Lee Manning 020 8418 2662 lee@raffingers.co.uk

Modern Slavery Act to hit Hospitality and Food Services It has been a year and a half since the launch of the Modern Slavery Act 2015. In that period, several hundred cases have been brought to light; consequently, the government is now introducing further measures, which businesses earning over £36million will need to comply with. The UK Modern Slavery Act came into force in March 2015 and was designed to tackle slavery and trafficking in the UK. With the act now well established, over 289 cases have been revealed. Consequently, in July 2016, Theresa May injected a further £33million into the act in order to tackle further cases and implement a “radical new comprehensive approach to defeating this vile crime”. As a result, the government will be scrutinising the hospitality and food services sectors as they have some of the highest rates of modern slavery and illegal workers. As of October 2016, the Transparency in Supply Chain Provisions clause is now enforceable. The section states that companies who supply goods and services with an annual turnover of £36million will be expected to report on their plans to stamp out slavery. The government require that every business should therefore produce a report known as a ‘Slavery and Human Trafficking Statement’, outlining what the company is doing and the steps that have been actively taken during the financial year to ensure that modern slavery is non-existent

in their supply chain or in the organisation. The new clause has been enforceable since October 2016. However, the government has given businesses some leeway and the opportunity to adapt to the new changes. This means that companies with an accounting period in March would be the first affected as all statutory accounts must be filed within nine months of their financial year. Franchises will, however, be excluded from the act unless the franchisee claims an annual turnover of over £36million and reports as a separate entity. It is important that businesses are aware of the new clause as those who fail to comply could potentially face a court injunction, which will follow with an unlimited fine. Furthermore, those who state they were unaware will still face punitive measures as the act states that businesses ‘ought to have known’. The government is determined to seize malpractice in the workplace and will not be taken lightly. Ensuring that you are financially compliant with the law should always be a priority.

For further information: Suda Ratnam 020 8418 2681 suda@raffingers.co.uk

Your Business Our Passion

Have You Considered Invoice Finance Yet? Blog by Roy Butcher, Associate Partner BLOG Many small businesses are still struggling to access suitable funding to support their plans for future growth and development. It is especially tough for businesses who are experiencing increased trade; who do have that capacity to take on new contracts, but have to turn away work just on the basis that they cannot afford to offer suitable credit terms. There is a continued trend in the business climate that many large enterprises are happy to work with small and medium sized companies, but only on their terms. This essentially means that SME’s have to sometimes wait up to 90 days for payment. Clearly this can place an incredible strain on their essential working capital requirements.

Slow Payers and Cash Flow Management When customers are on longer credit terms, it means that unless careful cash management is in place, small companies can risk not being able to replenish stock, cover core operating costs or even meet their key payroll commitments. Small companies have to ask key questions if they face a potential large sale that requires longer terms. • Do they take the order and risk working capital issues? • Do they turn away the order and risk losing future business? It’s a fundamental problem for a lot of small businesses, but there is an alternative funding option available:

Invoice Financing This type of finance is ideal for small businesses, especially for those that may not have access to credit through more traditional forms, such as Banks. This is because unlike a bank loan, which involves a variety of credit checks on your business, with invoice finance it is the strength and spread of your customers that is of primary importance. Being able to release funds against a large percentage of your committed sales at an early stage, means the release of vital cash to free up working capital resources. This means you are then in a better position to take on those new orders, and to ultimately grow your business.

www.raffingers.co.uk

In simple terms, it can be viewed as an overdraft facility secured against your debtors’ ledger. As long as simple checks confirm your ability to service the finance facility, the funds can be released on average within two to three working days. Most new lenders in the market will normally now only tie you in to a 30-day rolling contract. Additionally, a number will also not restrict the lending facility against concentrated debt. See our example below. Example: how this helped a client Our client was involved in a long-term building development and began facing difficulties with their customer on the release of vital application funds. Clearly vital in order to progress on the build. They

Partner’s Partner’s Perspective Perspective

were looking to raise a facility of £350K. We were approached to see if there was a solution in the short term. Generally, this proves to be difficult, in view of the inherent issues within the industry, and the process of staged application payments’. However, we were able to source a provider for them. The lender, after speaking to us and our client, was able to successfully arrange the required facility needed, secured against the outstanding applications concentrated within this one specific customer.

In Summary Invoice financing can be used to extract liquidity currently tied up in outstanding customer invoices,

but also staged applications, SAAS, maintenance and other licensing contracts. Releasing that cash injection earlier for working capital management. This area of lending has become much more competitive, creating an affordable and flexible way of financing for your business.

For further advice contact: Roy Butcher 020 8418 2673 roy@raffingers.co.uk

Your Business Our Passion

Head Office 19-20 Bourne Court, Southend Road, Woodford Green, Essex, IG8 8HD Tel: 020 8551 7200 Fax: 020 8551 0912 Email: info@raffingers.co.uk London Office 3rd Floor, 5-10 Bury Street, London, EC3A 5AT Tel: 020 7167 6880 www.raffingers.co.uk facebook.com/Raffingers

@RaffHospitality

www.raffingers.co.uk

linkedin.com/company/raffingers