Tax Tips and More Winter 2017/18
10 Things you Need to Know About the Budget 2017
Tax Relief for Buy-to-Let Landlords
High Income Child Benefit Tax Charge (HICBC)
Whilst the Budget 2017 was short on big announcements, the Chancellor did mention a fair few small changes. Here are the 10 key things you need to know.
There have been changes in how the income of landlords will be taxed, most significantly with the phased restriction in relief for mortgage interest.
The HICBC was introduced to claw back child benefit given to “high earners�. However, the system has led to significant marginal rates of tax being suffered.
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Contents
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Welcome and Partners
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Special Feature 10 Things you Need to Know About the Budget 2017
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Tax Relief for Buy-to-Let Landlords
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Buying Property via a Limited Company? Take Note of ATED
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High Income Child Benefit Tax Charge (HICBC)
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Xero Add-On Introducing Receipt Bank
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“I Don’t Need an Accountant...”
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Raffingers Foundation
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R&D in the Creative Industries
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Is Your Employee Benefits Package Competitive?
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Employee Spotlight
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Is it Time to Appoint a Finance Director?
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“Horse-trading with the big-guns”
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Welcome to our WINTER Newsletter Happy Holidays and Happy New Year! 2017 was a great year for us as a firm and it appears for businesses as a whole. The number of businesses in the UK grew to 2.67million (as of March 2017 Office for National Statistics).
Raffingers Partners
Gary Inglis Managing Partner gary.inglis@raffingers.co.uk
The Chancellor also gave relief to small businesses at the Budget 2017, where he announced a reduction in business rate rises and confirmed that the VAT threshold would not be lowered, and instead stay at ÂŁ85,000.
Andrew Coney Partner andrew.coney@raffingers.co.uk
Whilst short on big announcements, the Chancellor’s Autumn Budget did include a fair few small changes, such as those mentioned above. We have highlighted further key points you should be aware of in our Special Feature on page 4.
Lee Manning Partner lee.manning@raffingers.co.uk
In this edition we also bring advice for landlords and property developers. As most buy-to-let landlords are aware there have been many changes in how their income will be taxed, most significantly with the phased restriction in relief for mortgage interest. This means that by 2020/21 relief will be restricted to a basic tax reduction only. See pages 6 and 7 for further information and advice.
Adam Moody Partner adam.moody@raffingers.co.uk
Finally, we would like to take this opportunity to wish you a successful 2018. If you would like to contribute to our next newsletter, contact lauren.aston@raffingers. co.uk. The Partners at Raffingers
Suda Ratnam Partner suda.ratnam@raffingers.co.uk
Barry Soraff Partner barry.soraff@raffingers.co.uk
Paul Dell Partner paul.dell@raffingers.co.uk
Roy Butcher Partner roy.butcher@raffingers.co.uk
Neill Staff Partner neill.staff@raffingers.co.uk
Your Business Our Passion
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10 Things you Need to SPECIAL FEATURE
Know About the Budget 2017
Last year, the Chancellor delivered the Budget 2017. In what was declared a ‘balanced’ Budget that would lay the foundations for a ‘prosperous and inclusive future’, these are the ‘10 Things you Need to Know’.
Personal Taxation and Wages 1. Tax-free personal allowance on income tax to rise to £11,850 in April 2018 2. Higher-rate tax threshold to increase to £46,350 3. National Living Wage to rise in April 2018 by 4.4%, from £7.50 per hour to £7.83 The changes to personal allowances and the higher rate threshold are very much in line with the normal changes.
Business Tax 4. VAT threshold for small businesses to remain at £85,000 for two years There had been speculation that Mr Hammond might lower the threshold to bring it in line with other European countries. He said, however, “I will consult on whether its design could better incentivise growth and in the meantime, we will maintain it at its current level of £85,000 for the next two years.”
5. £2.3billion allocated for investment in Research and Development (R&D) The measures for R&D affect large companies carrying out qualifying R&D and claiming the R&D Expenditure Credit (RDEC). They also affect some SME companies that are required to claim R&D under the Large Company Scheme. The RDEC (also known as the ‘Above the Line’ credit) is a stand-alone credit that is brought into account as a receipt in calculating profits. The current general rate is 11% of qualifying R&D expenditure. This measure increases the rate of the RDEC from 11% to 12%. 6. Removal of Capital Gains Indexation Allowance for companies from 1 January 2018 The changes to indexation will affect any company that disposes of a capital asset which gives rise to a chargeable gain, and any company that holds shares in a share pool. This measure means that when a company makes a capital gain on or after 1 January 2018, the indexation allowance will be calculated up to December 2017. 7. £540million to support the growth of electric cars, including more charging points The chancellor has unveiled extra funds and tax incentives for electric car drivers, including a new £400million charging infrastructure fund, an extra £100million in the Plug-In-Car Grant, and £40million for research into charging.
By continuing to invest in Britain’s infrastructure, skills and R&D we will ensure the recovery in productivity growth that is the key to delivering our vision of a stronger, fairer, more balanced economy. - Chancellor of the Exchequer, Philip Hammond
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8. Increase to the annual chargeable amounts chargeable under ATED for 2018 to 2019 The new charges will apply to the 2018 to 2019 chargeable period, which begins on 1 April 2018. ATED is a tax payable by any “non-natural person” – in practice this normally means a limited company – purchasing or owning residential property valued at more than £500,000 (as at 1 April 2012 or acquisition if later).
Stamp Duty and Housing
Tax Revenues
9. Stamp duty is to be abolished immediately for first-time buyers purchasing properties worth up to £300,000 This is a measure that is clearly designed to help those in London, and other expensive areas, by making the first £300,000 of the cost of a £500,000 purchase exempt from stamp duty for all first-time buyers. The chancellor said that he expected the measure to benefit 95% of all first-time buyers with 80% of first time buyers not paying stamp duty. He also said that the government’s long-term goal is to build 300,000 homes a year by the mid-2020s.
10. The chancellor says the government has “raked in an extra £160billion over seven years” because of HM Revenue & Customs’ (HMRC’s) compliance work since 2010 There have been claims and counter-claims about the amount of money that HMRC has saved or recovered for the exchequer as a result of their compliance work and particularly the efforts being invested to counter tax avoidance and evasion. The way that HMRC’s yield is measured leaves some room for uncertainty as it includes future yield figures as well as cash collected.
For advice on any of the items highlighted, contact: Gary Inglis, Managing Partner 020 8551 7200 | gary.inglis@raffingers.co.uk
Your Business Our Passion
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Tax Relief for Buy-to-Let Landlords
As most buy-to-let landlords are aware there have been many changes that will affect how your income is taxed, most significantly with the phased restriction in relief for mortgage interest. This means that by 2020/21 relief will be restricted to a basic tax reduction only. In addition to this major change in legislation, HM Revenue & Customs (HMRC) appear to have somewhat sneakily changed its “view” on whether tax relief is available for “new” borrowings taken out on buy-to-let properties. Previous advice issued by HMRC in their tax guidance manuals was clear in addressing a fairly common scenario: when a landlord buys a property with, say, a 65% loan to value mortgage and pays the balance of the purchase price from their own funds. (E.g. A property is purchased for £200,000 with a mortgage of £130,000). Sometime later the property increases in value and the landlord remortgages, using the increased funds available to repay some, or all, of the original capital they had used to pay the balance of the original purchase price. (E.g. The property is revalued at £300,000 and is re-mortgaged for £195,000, with the original mortgage being redeemed and the “additional” £65,000 used to repay most of the capital originally provided by the landlord). In such a case, HMRC’s guidance was clear in that, as long as the total borrowings did not exceed the original purchase price (£200,000 in our example), then the entire mortgage interest paid on the new loan would be available to offset against the income received from the property (this would of course now be subject to the basic rate restriction referred to above). However, HMRC now seem to be moving the goalpost, even though there has been no change in the relevant legislation. In HMRC’s updated property income guidance they now state, “If you increase your mortgage loan on your
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If you increase your mortgage loan on your buy-to-let property you may be able to treat interest on the additional loan as a revenue expense, as long as the additional loan is wholly and exclusively for the purposes of the letting business. - HMRC
buy-to-let property you may be able to treat interest on the additional loan as a revenue expense, as long as the additional loan is wholly and exclusively for the purposes of the letting business.” HMRC do not appear to have clarified anywhere what they mean by “...wholly and exclusively for the purposes of the letting business”, but it does seem to leave the door open to them being able to challenge claims for interest relief where landlords seek to re-mortgage in order to repay some of their original capital investment.
Andrew Coney 020 8418 2710 andrew.coney@raffingers.co.uk
Buying Property via a Limited Company? Take Note of ATED The Annual Tax on Enveloped Dwellings (ATED) has been with us now for almost five years and yet it is still one of the least understood and more importantly, complied with taxes. ATED is a tax payable by any “non-natural person” – in practice this normally means a limited company – purchasing or owning residential property valued at more than £500,000 (as at 1 April 2012 or acquisition if later), unless any of the specified reliefs are available to the company. In reality these reliefs are quite comprehensive and will exempt most property held for investment and development unless it is occupied by anyone “connected” to the owner. Which begs the obvious question - why is the level of compliance not always what it should be? I think the first problem is that ATED requires even those companies that are exempt from making a payment – which is the overwhelming majority of them – to submit a return claiming the exemption. That is very easy to overlook, particularly where taxpayers do not have advisers. The next issue with compliance is undoubtedly timing. For properties owned on 1 April of each year, a return must be filed by 30 April in relation to the coming year (so, for example, the deadline for filing the 2017/18 ATED return was 30 April 2017). What is often trickier, however, is when companies acquire or develop property within the ATED regime for the first time. In those instances, a return or relief declaration needs to be submitted within 30 days of acquisition (the deadline for new-build properties is within 90 days of the date it is first occupied or first becomes a dwelling for council tax purposes). Given that many property lawyers do not advise on ATED, even when they are filing the Stamp Duty Land Tax return, this is very easy to overlook. The next problem seems to be a lack of awareness that a company may have fallen within the ATED thresholds, when previously they had not. There are two main ways in which this can and does happen. Firstly, because the threshold itself has been reduced twice since ATED was first introduced. Initially, only
properties valued more than £2million were affected, but in 2015 that became £1million and was finally reduced to £500,000 in 2016. There is also only limited awareness that, with effect from returns for 2018/19 (due for filing by 30 April 2018), the valuation date against which the £500,000 threshold should be considered becomes 1 April 2017 (ATED has provision for this to happen every five years). So, a property previously below the threshold could suddenly be above it and require a return. Of course, the final issue is that valuation is by its very nature subjective. Who can really say, in the absence of a sale, that a property might be worth £500,000 or £475,000 for instance? In light of that, and the penalty regime detailed below, the best advice where relief is available has always been to file an ATED return if there is any doubt. So, what are the penalties for non-compliance? Well they can be extremely harsh, and recent case law has confirmed that ignorance of the obligation is irrelevant, even when the resulting penalty is disproportionately high (say because no ATED payment is due). Ignoring the additional penalties for non-payment where applicable, failure to file a return attracts a fixed £100 penalty. If you are three months late (which in the case of first time purchases during the year can be quite common), there is a daily penalty of £10 per day, up to a maximum of 90 days/£900. Six months and an additional £300 would be due, 12 months another £300. They build up quickly! If you are buying property via a limited company, take advice, particularly if in doubt. It is always good practice to speak to an advisor before acquiring property to ensure the structure is properly in place to minimise risks, taxes and other liabilities.
Barry Soraff 020 8418 2663 barry.soraff@raffingers.co.uk
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High Income Child Benefit Tax Charge (HICBC) A few years ago, the government introduced the High Income Child Benefit Tax Charge (HIBC) to claw back the child benefit being given to “high earners”. If the income of any person within the household – both married and unmarried couples – exceeds £50,000, any child benefit received is clawed back at the rate of £1 for every £100 of income. At the point that income reaches £60,000, the full child benefit received is clawed back via an equivalent tax charge on the higher earner. As with most things that politicians introduce, the workings of the system can lead to anomalies and some significant marginal rates of tax being suffered. Some examples of such anomalies are given below: Example One Household One has a total income of £99,000, with person A earning £49,500 and person B earning £49,500. They have two children and are receiving child benefit of £1,800. Household Two has a total income of £70,000, with person A earning £60,000 and person B earning £10,000. They have two children and are receiving child benefit of £1,800. Under the HICBC rules, Household One will have no claw-back of its child benefit as neither person earns in excess of £50,000, whereas Household Two will suffer a full claw-back of its child benefit with person A suffering an additional tax charge of £1,800. So, Household Two has £29,000 less total income than
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Household One and suffers an additional tax charge! Crazy, but true. If at all possible, try and ensure that as much as possible the family income is equalised. Example Two Jane earns £50,000 and receives child benefit of £1,800. She has a student loan which is currently being repaid. She is paid a bonus of £10,000. Tax on the bonus will be:Income Tax
40%
£4,000
NIC
2%
£200
Student Loan
9%
£900
HICBC
100%
£1,800
Total
69%
£6,900
So, Jane suffers a marginal rate of 69% on her bonus! What she should consider doing is to divert her bonus into a pension plan, thereby avoiding all the charges shown above and effectively receiving 69% tax relief on her pension contribution. Furthermore, if your income is around the £50,000 level and you are in receipt of child benefit, any additional income or bonus will suffer significant marginal rates of tax so plan early to avoid this if possible.
Paul Dell 020 8418 2688 paul.dell@raffingers.co.uk
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Introducing Receipt Bank
XERO ADD-ON
One Xero add-on that demonstrates all of the advantages of moving to the cloud is Receipt Bank, an add-on that has enabled us to save our clients time through more straightforward and real-time accounting. Receipt Bank is a bookkeeping tool that will help us save you time and money. The key feature of Receipt Bank is its simplicity, allowing you to easily get receipts and invoices into Xero. You can take a picture using the Receipt Bank mobile app, send an email to your unique Receipt Bank email address or link it straight up to your PayPal account; never will you have to worry about losing a receipt again. You can also use Receipt Bank to better manage your own and employee expenses.
Depending on the level of service you want from Raffingers you can oversee the whole process, and become more efficient at doing your own bookkeeping, or you can take a picture and leave the magic up to us; giving you a real time bookkeeping service and an up-to-date financial picture in Xero. This not only saves you time, but gives you the opportunity to stop working in your business and start working on your business: we know you didn’t go into business to do bookkeeping. Clients using Receipt Bank, as part of our cloud offering, are already benefitting from a more accurate and reliable set of accounts, enabling us to give more targeted and proactive business advice. To find out more or to see how Receipt Bank can be used in your business, please contact Amy Townsend at amy.townsend@raffingers.co.uk.
Receipt Bank is a bookkeeping tool that will help us save you time and money.
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“I Don’t Need an Accountant...” There seems to be this perception now that us Accountants are an unnecessary cost. In fact, a lot of entrepreneurs I meet, whose businesses are at that early part of the cycle, often view us as a little superfluous, and a bit expensive.
2. Taxes are a pain, and need to be managed. This is likely to be the biggest concern for anyone starting out. The reality is that taxes are not simple, and having proper advice and guidance at the start, cannot be overstated enough.
I often receive the following feedback, “Maybe when my company grows and proves successful, then I will contact Raffingers”. I sense that when businesses first start out they feel too small to justify paying an accountant, particularly when our sector is saturated with online alternatives offering a full service at £19.50 per month!
3. Accountants do not just file returns. We are not here for the sole purpose of filing your accounts and returns, which is something that a lot of people still perceive to be the case. Your accountant should be delivering a full advisory service to give you real insights into your business.
Starting up a business is one of the toughest decisions anyone can make, but can potentially prove to be one of the best, and most rewarding. Statistics unfortunately support a fact that 20% of new businesses formed in the UK will fail in the first year, rising to nearer 50% within the first five years. Clearly there are many reasons a business will fail, but many of the risks could be reduced, or even avoided altogether, if a new venture is approached in the right way. A new business owner should always consider from the outset some key areas, but unfortunately not all will: • A well thought out business plan • Detailed knowledge of your market and competition • Strong business management skills • Business structuring and other legalities • Application of social media and online marketing • Understanding the true cost of bureaucracy and regulation • Cash flow forecasts and financial management Running a business can be a lonely existence and a struggle at times, therefore having someone who is not directly involved in the day-to-day tasks, but who can be objective, able to discuss technical issues clearly and can assist in identifying the real drivers to your business, is an invaluable resource at any stage to have. A few things to consider: 1. You are running a business now, you are going to be busy. When you start out, it is likely that you will be your only employee. That means you will already be wearing far too many hats. Keeping your records and finances upto-date is critical, and if you start to let that slip, it could be very damaging.
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4. Banks and Investors like accountants. Entrepreneurs know how to pitch an idea, but Investors want to see figures, growth projections, and hard numbers. Even if you are years away from bringing investment capital in, having an accountant at the start of your journey means having someone who knows, and has watched your business grow from the beginning. 5. Accountants can aid growth. How do you know when it is a good time to expand? How far can you stretch your working capital without putting your core business at risk? A lot of entrepreneurs like to go with their gut feeling when making these decisions, and business acumen is of course a large part of successfully running any company. We can support by providing an advisory role at these key stages of the cycle. We can assist by examining, alongside you, key changes in your business data, by designing financial, non-financial and KPI reports. We can build in control thresholds, to trigger notifications, giving you time to consider alternative courses of action. No matter how strong a concept you think you have, coming across hurdles that your experience just does not allow you to deal with, could cost you your business before it has even had a chance. An accountant should be more than a form filler, it needs to be someone who will actively seek to take an interest in your business, to listen, understand and provide an objective view and opinion.
Roy Butcher 020 8418 2673 roy.butcher@raffingers.co.uk
After a successful year of fundraising, we have raised over £19,000! Raffingers Foundation raised over £19,000 in 2017 thanks to Quiz Nights, cake sales and our Charity Ball, which raised over £12,000 on its own. The Foundation also had two great supporters – Roy Butcher, who raised £1,140 through his Tri Event Challenge (London Marathon, a Sky Dive and The Suunto Great Swim), and Chris Keri-Nagy who raised £1,135 completing the NDW50 (50-mile run) and the SDW100 (100-mile run). Thanks to everyone’s generosity, Raffingers Foundation is able to donate £7,500 each to Pancreatic Cancer Research Fund (PCRF) and Ovarian Cancer Action (OCA). The remaining £4,000 will be kept aside for the Raffingers Foundation Fund, which allows anyone affected by pancreatic or ovarian cancer to apply for funding of up to £500. This funding can be used for private counselling or even family weekends away. To apply contact charity@raffingers.co.uk. Raffingers Foundation was launched in 2016, in memory of Jason Kew. Jason was a dear husband and friend of Raffingers who sadly lost his life to pancreatic cancer. The Foundation is also in memory of those members of the team who have lost loved ones to ovarian cancer. Lee Manning, Partner at Raffingers and Chairman of Raffingers Foundation said, “We cannot believe how much support we have received in our first year and are delighted to be able to donate such a significant amount to two amazing charities.”
£19,000 Raised so far
Catherine Taylor, Chief Executive of OCA states: “Ovarian Cancer Action are delighted to partner with Raffingers who have shown such commitment to our cause over the past year. With Raffingers’ support this year and in the coming years, we will be able to continue our fight against this horrible disease so that one day we live in a world without ovarian cancer.” Maggie Blanks, Founder of PCRF states, “Thanks to everyone at Raffingers who helped to fundraise for us this year. It’s a wonderful way to pay tribute to Jason and we’re extremely grateful for your support. Our sole focus is to find ways of ensuring more people survive pancreatic cancer and this superb sum will help fund more world-class research towards achieving this goal.” Date for your Diary! Our next Charity Ball will be held on 15 September 2018 at Prince Regent Chigwell. It promises to be a great night. Tickets are £75pp or tables of 10 are available for £700. To confirm your place, contact charity@raffingers. co.uk.
Your Business Our Passion
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R&D in the Creative Industries CLIENT NEWS
Background Traditionally Research and Development (R&D) tax credits have been associated with those in the technology sector; yet any business from any sector may be eligible. Art&Graft is a prime example. Art&Graft is an award-winning design and animation production studio based in London. The team of highly skilled design specialists have worked on projects for The National Lottery, Virgin Atlantic and Nationwide – to name but a few. They may not seem your typical company to be eligible for R&D tax credits, but after speaking to them we recognised that some of their innovative work may qualify.
Research and Development After an initial discussion with our R&D Tax Specialist and Partner, Neill Staff, it was clear that Art&Graft was carrying out qualifying R&D activities. The director, Mike Moloney explained that there was an ongoing internal programme to continually test, develop and create new visual language system outputs, and that since the company’s launch in 2010, Art&Graft had invested economic resources to the pursuit of discovering new creative approaches through the considered and unique combination of technical animation procedures, software and rendering processes. In order to establish what the qualifying R&D costs were, it was necessary to understand that, as a design and animation studio, Art&Graft combines both a creative and technical skill set, and that the company is in a constant process of research and development to push its technological capabilities within the studio. Key areas
For a free assessment to see if your business qualifies for R&D, contact our Partner and R&D specialist, Neill Staff: neill.staff@raffingers.co.uk 020 8418 2671
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of research focused on the industry-wide trend toward integration of technical and creative approaches for audience engagement across multiple visual platforms, with the intention to intelligently combine these technical approaches to develop new and unique visual aesthetics. Qualifying projects and costs Neill and Mike identified five key research and development areas inter-connected within the realm of 3D visuals, including character animation pipeline, modelling, texturing, rigging and the 3D rendering process. There were also two longer term projects which involved R&D undertaken in the field of 3D simulations and 3D particle systems. After identifying the specific projects that qualified for R&D, it was then a case of Neill and Mike identifying the qualifying R&D expenditure.
The Result Neill guided the company through the R&D claim process and was able to claim over ÂŁ70,000 in tax credit repayments. For a hi-tech design company of this calibre, this had a positive impact on their cash flow and meant the company could take on even more projects.
Is Your Employee Benefits Package Competitive? All businesses want to attract and retain the best candidates, and implement procedures to ensure the greatest level of productivity. One way to do this is to implement a competitive benefit package.
those surveyed stated they wanted their opinions on workforce experiences heard, yet many organisations do not consult their employees. Almost half of UK workers have never been asked for their input by their employers.
66% of employees said they are more likely to stay with an employer that offered good benefits, and over a third report that perks at work are the most important consideration before accepting a job. A study of global workers by Sage, however, uncovered that there is a disconnect between the benefits employers provide and what employees want.
Business’ HR practices are key to supporting the implementation of a flexible benefit package. The personalisation and flexibility of such schemes can address the diverse needs of the workforce, and also provide a cost-effective approach to company benefits.
Therefore, it is important to ensure that your benefits package is relevant to your workforce. Just because it works for Google does not mean it will work for you. Only 9% of employees believe company outings are a valuable benefit and only 6% valued office games, such as ping-pong. In fact, in some cases people felt these ‘games’ were doing more harm than good. Productivity is a major issue for businesses, which is clear with more than half of respondents stating that they are productive in their role for less than 30 hours per week. Distractions, such as ping pong, could therefore be adding to the issue rather than solving it. Crucially,
Not everyone needs the same perks at work. At different times of life, and in different family situations, different things are important. When creating or reviewing a benefits package, employers need to consider the demographic of their workforce. Paul Burin, VP at Sage People said “Organisations need to make it a priority to know what motivates and drives their people, and work with them to create positive experiences so that their people are doing their best work.”
Andrew Coney 020 8418 2710 andrew.coney@raffingers.co.uk
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 Cloud Accounting Semi Senior, Mira Ejaz.
the next few years.
Name: Mira Ejaz Email: mira.ejaz@raffingers.co.uk
Interests: Outside of the office, I enjoy being a part time makeup artist, eating good food and partaking in outdoor activities such as hiking, camping and canoeing. I am an avid camper and can never get enough of the beautiful Idaho scenery.
Career: I began my career as an apprentice in 2012. From knowing nothing about accountancy, I am now MAAT qualified and have been privileged to be able to gain a great understanding of cloud accounting services for SMEs from various sectors. I wish to further develop my career and have started my ACCA qualification in the hopes of being a fully qualified Chartered Accountant in
Partners Report: Mira has been a great addition to the cloud department. She has taken on her own portfolio of clients with ease and helped clients improve their internal processes from day one. Mira has great knowledge of cloud accounting and has a great attitude to work. Mira is a great asset to our team and we look forward to seeing her excel in the years to come.
Your Business Our Passion
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Is it Time to Appoint a Finance Director? BLOG
Blog by Lee Manning, Partner
When is the right time to appoint a Finance Director and if I’m not ready to make this investment, what should my finance team be doing to help grow the business? A question I am asked many times. Investing in an FD is a decision that should not be taken lightly. The cost of employing an FD and finding the right person that fits within your business’ culture, can be expensive and time consuming. However, if you get it right then the benefits far outweigh the cost and will have a positive impact on your business. The most common reason why you would appoint an FD is to improve the company’s credit control and cash flow. For any business that struggles with cash flow, having someone on the ground, looking at the accounts on a daily basis and putting in place systems to improve the number of days customers pay, will really help put your business in a strong position. However, this is no longer the prime purpose for an FD. The role has moved on a great deal in recent years and it is now not uncommon to see the FD undertake: • System reviews. With so many Cloud systems that can automate and speed up accounting processes, it is important that FDs are keeping upto-date with the market and what systems their business can be using to save time and costs • Corporate governance. This is particularly key, especially with The Criminal Finances Act and the GDPR affecting most businesses • Maintaining sensible growth. The FD has the responsibility of ensuring the business is not over trading and running out of cash However, if appointing an FD is a pipe dream at the moment, then you must at least ensure your existing finance team is undertaking the following: • Reviewing non-essential costs and ensuring costs are reviewed on a regular basis • Monitoring debts and improving credit control • Managing payment plans to take advantage of trade discounts and to work within the bank facility
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• Identifying which parts of the business are profitable and improving those that are suffering • Establishing stringent cash management and internal controls to provide working capital needed to survive or grow • Implementing new or more efficient IT accounting systems, for example Xero and Receipt Bank • Finding finance to fund growth organically or through acquisition, flotation or MBO. There is a growing market of non-traditional finance opportunities offering competitive terms compared to the high street banks • Identifying opportunities to reduce tax bills and bank or currency charges (with the help of a good accountant of course!) • Developing management information systems to understand commercial and financial drivers of your business. This is an area that is ignored by finance teams as they do not normally have the time and expertise to do this properly, however this is the most important part of the finance team’s role. They should be monitoring the following KPI’s as a minimum: • Debtor Days – showing how quickly customers pay the company • Gross Profit per Fee Earner – this will show how profitable your fee earners are and whether you are overstaffed • Staff costs to net fee income % - assessing this ratio instantly tells you how productive your work force is and whether you are overburdened with non-fee earners • Asset to debt ratio - this is the ratio of total assets to total debt, so how much of company debt is covered by assets held e.g. customer debtors list, bank account etc. Ideally if the result is greater than the debt, then the company is in an excellent position. Enhancing the structure and calibre of the finance department should be a priority for any business that wants to ensure it survives and thrives in the current economic climate.
Lee Manning 020 8418 2662 lee.manning@raffingers.co.uk
Tax From the Trenches | Neill Staff
“Horse-trading with the big-guns” I had the house to myself last Saturday, after being spared the agony of going clothes shopping with my other half. So, as you do, I settled down to watch a good old fashioned British Rom-Com. You may be asking how this can possibly link into a tax article? Well one of the stars of the film, whose name I cannot mention of course, was the subject of some HM Revenue & Custom (HMRC) interest back in the day when I was an investigation compliance manager. Her tax return had been flagged because we believed, wrongly as it turned out, that there were some additional receipts relating to royalties and a book advance that were not in her tax return. We didn’t feel it warranted a full enquiry as the fault could well lay with her accountant, who was something of a family friend. So, an opening letter was issued and within a week we received a letter from one of the “Big-Four” firms, notifying of their intention to take over her tax affairs. A few weeks later we received a complete response to our queries, allaying most of our concerns. I think deep down we had hoped that a meeting might be necessary with the well-known actress, but it wasn’t to be. The new agents continued, however, that having reviewed their client’s affairs in some detail, they had identified some £20,000 of additional expenses that should be claimed against her self-employed profits. In their opinion all the costs were allowable, and they would be more than happy for us to visit their offices to inspect everything. I don’t think for a minute they expected us to go, but they had seriously misjudged us. A few weeks later me and the Inspector working the case, we’ll call him Tim, set off like two carefree schoolboys. We were met at the accountancy offices by a very senior partner who had something of the Gregory Peck about him, and a lady manager who was an 80% fit for Rosa Klebb (James Bond Villain). We were whisked through the offices to a very grand conference room with several folders of invoices for us to look at. Gregory and Rosa followed us in and Gregory made small talk whilst dropping all manner of names from the entertainment industry. Eventually they left us on our own to start looking through the invoices, but not before someone had brought in an impressive tray of sandwiches and assorted grapes. Within ten minutes we were bored. We’d looked at all manner of invoices including clothes, designer dresses shoes, makeup and goodness knows what else. It was clearly a try-on. The HMRC penalty regime was a
lot different back then and the plan had clearly been to claim for absolutely everything and then try and negotiate a percentage. There seemed little point in reviewing any more invoices, so we settled on tucking into the sandwiches. At that moment, I’m not sure what possessed me, but I picked up a grape and launched it at Tim, just as Rosa Klebb walked in. I was very lost for words and could feel the deepest of blushes coming on as Rosa stared intently at me. The rest of lunch was a taut affair. After what seemed like an eternity, Gregory joined us to ask if we were happy with the receipts. “Not really” I replied. “You’ve claimed for absolutely everything she’s spent in the year. Possibly a few expenses might relate to her role as an actress, but not many. I’ll allow 5% because the prawn sandwiches were nice”. I smiled at him with my best “You weren’t expecting that were you?” look. Gregory gave me a pained smile and looked at Rosa. Rosa smiled at me, “I thought the grapes looked a bit bruised”. She left her comment hanging in the air like a bad smell. Tim stifled a giggle, a few seconds passed, then I saw it, the crease lines in her cheeks followed by a genuine chuckle. Rosa had a sense of humour! and I warmed to her as she said “Our client is in the media spotlight all of the time; her image is her brand and her image is everything from her clothes to her hair and makeup. Let’s say 75%”. I smiled back. “Your client spends money like it’s going out of fashion, she’s always being photographed when she goes shopping and I don’t think she should be getting tax relief for everything she buys. Incidentally there are some invoices for underwear and lingerie, I’m guessing she wears undies in everyday life or are you saying they’re needed for specific acting roles? Let’s say 10%.” The horse-trading continued for another minute or so and we eventually agreed on something around the 15% mark from memory. When I think of how hard it is these days to try and horse-trade a deal, because HMRC Inspectors have so many forms to fill in and everything needs to be approved, I think back to the good old days of horse-trading where life just seemed so much easier.
By, Neill Staff 0208 418 2671 neill.staff@raffingers.co.uk
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