Business Matters McCabe Ford Williams Newsletter | Autumn 2014
www.mfw.co.uk
Welcome to the autumn edition of Business Matters In this edition we discover what it is like to venture into business with friends and also look at the importance of shareholder agreements and whether your business needs shareholder protection.
SHAREHOLDERS
Shareholder Agreements An update on your rights and obligations as a shareholder Page 03
At the time of writing this edition the Scottish referendum is looming and it seems too close to call on the Yes or No vote for Scottish independence. However, we can report back on the success of client Sarah Gray who narrowly missed out on a bronze medal in the women’s Skeet competition in the Commonwealth Games recently held in Glasgow. Well done Sarah!
Kent Business Boost Scheme
Keeping things north of the border, we also feature a snippet on Eleanor Keel, the daughter of a former client, who has recently been taking the Edinburgh Festival by storm, see page 10 for further details.
Find out more about this new scheme and other Kent funding initiatives
BUSINESS
Page 05
TAX MATTERS
What is Inheritance Tax? MFW Tax Manager, Philip Cragg provides an update on Inheritance Tax Page 07
CLIENT PROFILE
Client Profile: Amici
Amici – Ristorante Italiano Friendship - the recipe for success You might think that working with friends could turn out to be a real recipe for disaster but for clients of our Ashford office, working together is actually proving to be the recipe for success. When two couples Nino and Claire Costa and Massimo and Justyna Deidda became friends over their love of Italian food, Amici (meaning friends in Italian) was the perfect choice of name for their newly established restaurant in North Street, Ashford. Although Nino and Massimo both originate from Sardinia they first met when Nino and Claire visited the coffee shop originally owned by Massimo and Justyna and over time became firm friends. Nino and Claire had experience of the hospitality and catering industry too, having been previous owners of the Halfway House at Challock. However, having sold their business with a view to taking life a little
01
Business Matters Autumn 2014
Nino and Massimo share a passion for food easier, the couple soon found that they missed the buzz of running a business and started to look for a new challenge. Discussing this with Massimo and Justyna the friends decided it made sense to join forces and open the Amici Ristorante Italiano in June this year, turning the former coffee shop into a new and intimate Italian restaurant.
instead to offer something different to their customers.
Un vero sapore D’Italia (A real taste of Italy)
The menu offers a large selection of classic Italian dishes, many of which centre on fish and meat dishes typical of a Sardinian diet. Examples include the classic Sardinian seafood casserole, Cassola di Pesce e Fregola together with Vongole, Fregole e Orata (or roasted sea bream on a bed of sautéed clams and Sardinian cous cous with white wine, garlic and chilli).
From the outset the friends were determined that the restaurant would offer real tastes of Italy, so steering away from opening a typical pizzeria, the friends opted
Meat eaters are not to be disappointed, with a wide selection of menu choices, naturally also including a range of authentic Sardinian dishes.
www.mfw.co.uk
Cozy and friendly atmosphere – The Amici Way
La Dolce Vita
Chefs Nino and Massimo use only the highest quality ingredients and wherever possible these are always sourced locally. Equally important to the Amici friends, however, is the customer experience you can expect to receive. To this end Claire, who runs the front of house, ensures that everyone receives the highest level of customer service and attention. Instead of running a large restaurant with a large number of covers and rapid turnover the Amici approach is to provide a friendlier and cozier environment, offering the type of ambiance you would want to experience when amongst friends. This friendly approach is already winning them great customer feedback, repeat bookings and recommendations and, whilst the restaurant has only been open for a few months, it is already achieving much success including a high ranking on the TripAdvisor website.
A warm welcome awaits from Claire At the initial meeting Barrie established that the benefits Massimo and Justyna had built up within their own company should be preserved within the new business structure. It was also important that Nino and Claire would have the opportunity to do likewise. Whilst both couples obviously want the business to be successful, consideration also had to given in respect of their own personal goals.
Making friendships work together
Leaving aside the friendship, agreements were entered into so that they were all clear in their own minds as to how the new business would operate.
Barrie Wright, Partner at our Ashford office previously acted for Nino and Claire with their business at the Halfway House and was responsible for helping them set up the friends’ new business, Amici Ristorante Italiano.
Since the restaurant has opened the MFW Ashford team continue to assist Amici in the provision of book keeping, VAT and payroll services for the restaurant, helping the friends to concentrate on what they do best serving great food!
Search for ‘Amici Restaurant Ashford’ on Tripadvisor.com
www.mfw.co.uk
For more information visit: www.amici-ashford.co.uk or call 01233 666945
Business Matters Autumn 2014
02
CLIENT PROFILE
The restaurant is open Monday to Saturday for lunchtime and evening bookings. Friday and Saturday evenings are very busy so if you want to visit at these times you need to book early to avoid disappointment. Alternatively, why not lunch like a true Italian, taking time out to enjoy one of the Amici lunchtime specials and celebrate La Dolce Vita in style.
SHAREHOLDERS
Shareholders’ Agreement:
• what to do if a shareholder wants to exit the business and what price should be paid; • how to remove a shareholder if that shareholder is no longer able to act for themselves;
a survival kit for a company and its shareholders!
• what to do if a third party offers to acquire the company;
If an individual or a corporate is thinking about becoming a shareholder in a company or, a company is thinking about taking on new shareholders, it is key for all parties to ensure that they understand their rights and obligations to one another from the outset.
• a dispute resolution process, if the parties are unable to agree on major decisions relating to the future of the company; and
A shareholders’ agreement provides the parties to it with a set of rules on how to deal with a range of issues which may crop up in the day-to-day running and management of the business as well as some mechanisms for dealing with more one-off scenarios, such as a shareholder wishing to exit the business or the parties being unable to agree an approach on a certain matter. In preparing this type of agreement, the parties are given an invaluable opportunity to really focus their minds on their expectations for the company and their investment and accordingly, how they would expect a whole range of matters which may arise during their time as a shareholder or the life of the company to be dealt with. Typical provisions to include would be: • what each individual shareholder’s roles and responsibilities will be; • which key decisions, if any, all shareholders will have to agree on collectively; • which decisions the shareholders are happy for the board to make independently;
03
Business Matters Autumn 2014
• how to fund the business in the future;
• how to close down the company. As you can imagine, attempting to come to a decision on even simple things when tensions are running high and everyone seems to be at loggerheads will be extremely challenging, so having a set of guidelines in place to steer you will mean that deadlock situations can be diffused, or at best avoided and the chances of conflict between the parties can be minimised. Unfortunately, the alternative is to resort to the stressful route of negotiation and if that fails, litigation. Each of these alternatives is often disproportionately time-consuming, emotionally draining and costly for the parties. Ensuring a shareholders’ agreement is in place should be a top priority when considering entering into an existing business or alternatively, forming one with others.
Sara Carpenter Partner, Corporate Team Rix & Kay Solicitors LLP Sevenoaks www.rixandkay.co.uk
www.mfw.co.uk
TAX SNIPPETS
Tax Snippets RIP – The Tax Disk
Late filing penalties
The tax disc, which was first introduced in 1921, will cease to exist in paper form from October 1, with a new electronic system being put in its place. You will still need to register and pay tax for your vehicle or face being caught out by number plate recognition cameras which track every vehicle. Anyone renewing their car tax before 1st October will still receive a printed disk although these won’t need to be displayed after the end of September.
Where payment information is not received as expected on an FPS, or you haven’t told HMRC that no employees have been paid in a tax period by sending an EPS, late filing penalties will apply. These rules apply to each PAYE scheme, rather than each employer. Therefore, if you operate more than one PAYE scheme you need to make sure that the FPS for each individual PAYE scheme reference is submitted on time or, where there were no payments made to any employees for a particular scheme for a tax period, you have informed HMRC by sending an EPS.
It’s also worth while noting that when buying and selling a car the tax will no longer transfer to the new owner so buyers will need to renew the tax immediately to avoid driving an untaxed vehicle. Sellers are responsible for informing the DVLA of a change in ownership (V5C form) with penalties of £1000 if they fail to do so.
Important News New late filing returns announced HMRC have announced new late filing penalties which will apply to returns due for the tax year 2014-15 onwards. The new penalties will now start from 6 October 2014 and therefore all submissions due must be up to date by 5 October 2014. These new deadlines follow customer feedback which has resulted in HMRC deferring the start of these penalties to give all parties time to adapt to reporting in real time.
www.mfw.co.uk
New, automated in-year late payment penalties will start from April 2015. In the meantime, however, HMRC will continue to charge late payment penalties - on a riskassessed basis - on payments due from employers for the tax year 2014-15 onwards. Details of PAYE/National Insurance late payment penalties are outlined on the HMRC website.
Paying penalties Also be aware that penalties are due for payment 30 days following the date of the penalty notice and those which are not paid on time will attract interest as outlined here.
Autumn Statement – a date for your diaries The Autumn Statement will take place this year on Wednesday 3rd December.
Business Matters Autumn 2014
04
GROWTH
Kent County Council continues to fund growth Kent County Council continues to show its commitment to the economy of Kent and to increasing employment within the region. The launch of its latest funding scheme, the Expansion East Kent Small Business Boost, on 23rd July 2014 gives a clear indication that the council’s continuing focus is to assist businesses within the county to succeed and expand.
Kent County Council
The scheme is targeted at start-ups and small businesses who may have previously considered themselves too small to be considered for an Expansion East Kent loan. In order to make these 0% interest loans more accessible Kent County Council has relaxed the qualifying criteria within the new Small Business Boost scheme, which provides loans of between £2,000 and £50,000.
The business must have fewer than 50 employees and be able to fund 20% of the required investment through private sector sources, such as the applicant’s own funds or through a commercial lender. This is a significant reduction from the 50% match funding required through the Expansion East Kent main scheme for non-priority sectors. Unfortunately, due to restrictions imposed by government legislation, the loan scheme is not currently available to companies where profits have been distributed via a dividend.
The scheme is open to sole traders, partnerships, limited companies and not-for-profit businesses which have been in existence for less than 6 years and are located, or seeking to locate in the scheme eligible area covering the local authority areas of Ashford, Canterbury, Dover, Shepway and Thanet.
In addition to the basic qualifying criteria above, each proposal will have to demonstrate the need for financial support in order for the plans to go ahead and also how the proposal would have a positive impact on employment in the eligible area, specifically creating new jobs or safeguarding jobs within the business.
05
Business Matters Autumn 2014
As well as relaxed qualifying criteria, the online full application requirements will be reduced to alleviate the administrative burden for small businesses which has been considered to be acting as a barrier to the number of applications being received from small businesses through the Expansion East Kent scheme. The appraisal team, which is set up by Kent County Council and includes individuals from various sectors of the local business arena is less than that of the Expansion East Kent main scheme. This will provide a less daunting prospect for potential small business applicants, as well as helping to speed up the appraisal process. The Small Business Boost will run alongside the main Expansion East Kent scheme, which itself continues
www.mfw.co.uk
Other funding opportunities Kent County Council runs a number of similar schemes covering other areas throughout Kent, through which a number of businesses have already received significant funding to both create new and safeguard existing jobs. The TIGER (Thames Gateway Innovation, Growth and Enterprise) Scheme provides 0% interest loans of between £10,000 and £2.5million to businesses throughout Dartford, Gravesham, Medway, Swale and Thurrock.
What not to do before bankruptcy or liquidation The Insolvency Act has been drawn up to prevent individuals or companies from preferring certain creditors over others and to ensure assets are not dissipated prior to formal insolvency. It is not unusual for an individual considering bankruptcy to tell me how they have managed to transfer assets, such as their home, savings or motor vehicle out of their name in contemplation of bankruptcy. Of course it isn’t that easy. Even transferring the matrimonial home from joint names into the sole name of the spouse at a time when the individual is going into partnership, with a view to protecting the property should bankruptcy ensue many years later, could fall foul of insolvency legislation.
Escalate has funding available in the form of 0% interest loans of up to £1million for businesses located in Hastings, Maidstone, Rother, Sevenoaks, Tonbridge and Malling, Tunbridge Wells and Wealden.
Likewise directors sometimes do not always appreciate that they may not draw dividends at a time when their company does not have the reserves, repay their directors loan account when the company is insolvent or pay ‘Uncle Fred’ when there is a queue of other creditors who will not receive a penny.
The Marsh Million provides 0% interest loans of between £2,500 and £10,000 to small and micro businesses and start ups with the potential for growth in Romney Marsh.
Trustees and liquidators have a range of not-insignificant powers including the power to enable them to look back and see what happened in the period leading up to the insolvency. They can even compel information be provided to assist with their enquiries from third parties such as banks and advisors if necessary.
Full guidance on each scheme can be obtained via the Kent County Council website at: http://www.kent. gov.uk/business/business-loans-and-funding. If you believe that your business may qualify for funding through one of Kent County Council’s loan schemes and wish to explore your options then please contact your local MFW office for further assistance.
by Ashley Phillips, ACCA Audit & Accounts Manager Sittingbourne
www.mfw.co.uk
If there are any antecedent transactions identified the insolvency practitioner can apply to court for the transaction to be overturned if it occurred within certain time scales of the insolvency depending on the nature of the transaction. Beware though, there is no time limit whatsoever for a transaction defrauding creditors!
by Amanda Ireland, MIPA, FABRP Partner and Insolvency Practitioner Sittingbourne
Business Matters Autumn 2014
06
INSOLVENCY
to provide loans to businesses across the eligible area. This has also been extended to include Ashford, offering a new opportunity for larger businesses within the area to apply for funding.
TAX MATTERS
What is Inheritance Tax? Inheritance Tax (IHT) is the tax on certain lifetime gifts and also on a person’s estate after they die, if those gifts and the estate exceed the IHT nil rate band, which is currently £325,000. It is likely to remain at this level until 2018, which will drag more estates into the IHT net as house prices increase. Not everyone pays IHT. But if you own your own house, and have some savings, life assurance policies and other assets, your estate could be liable.
Who pays Inheritance Tax? IHT is usually paid by the executor, personal representative or administrator (for estates where there is no will), using funds from the deceased person’s estate. Sometimes, the executor has to borrow the money or pay it from their own funds because the money in the estate is tied up in assets that have to be sold. In this case, the executor can be reimbursed from the estate before it is distributed to the beneficiaries. The trustees are responsible for paying IHT on land or assets already held in a trust. Otherwise, it is usually paid by the person making the transfer – the ‘settlor’ – and not the trustees. Sometimes, but not often, people who have received gifts or an inheritance from the deceased have to pay IHT. This should only occur if: • They receive a share of an estate after a death, and the executor cannot pay the IHT due; • They receive a gift from someone
07
Business Matters Autumn 2014
who dies within seven years of making a gift; • They benefit from assets in trust at the time of death or receive income from those assets • They are the joint owner (other than a spouse/civil partner) of a property.
What is taxable? IHT is payable on the value of a person’s estate at the time of death, less the unused IHT nil rate band. The value of someone’s estate comprises the value of all assets owned at the time of death including a house, any other property, possessions, money and investments - less any debts that the deceased may have had, including mortgages, loans, credit cards, household bills and funeral expenses. An estate also includes the deceased’s share of any jointly owned assets and the value of any assets held in trust. It is also important to review any gifts that the deceased has made in the seven years before death to ensure that they are covered by the exemptions below, and if not, include them in the overall value of the estate.
When is Inheritance Tax payable? In most cases, IHT is payable six months after the end of the month in which the deceased died. If it takes longer than six months to deal with the deceased’s affairs, it is necessary to make payment of the estimated liability due. Interest may be paid if the tax was overpaid as a result of the estimate. Interest will be charged on any amounts outstanding, after six months, and penalties may be charged if a full IHT account is not submitted within twelve months of the date of death. An IHT form has to be completed as part of the probate process, even if no IHT is due, and it is necessary to pay some or all of the IHT due before probate is granted. Some estates can be excepted from this process if certain conditions are met.
What exemptions and reliefs are available? Spouse/civil partner relief IHT is not usually due on anything left to a spouse /civil partner if they are domiciled in the UK, or on any gifts made to them whilst the deceased is alive. If a deceased person leaves
www.mfw.co.uk
Annual exemption A person may give up to £3,000 away each year, either as one gift or as a number of gifts adding up to this amount, without any IHT implications. Any unused allowance from the previous year may be used, but the current year’s allowance must be used first. Small gift exemption It is possible to make any number of small gifts up to a value of £250 to different individuals without any IHT implications. Note that this exemption cannot be used along with the ‘annual exemption’ for the same recipient. Potentially exempt transfers If a person survives for seven years after making a gift, the gift is usually IHT exempt, regardless of the value of the gift. However, if that person continues to benefit from something given away (known as a ‘gift with reservation of benefit’), this will continue to form part of the estate until the benefit ceases. The seven year clock only starts to tick once the benefit is foregone. Wedding or civil partnership gifts Gifts to a couple getting married or registering a civil partnership are
www.mfw.co.uk
exempt – subject to certain limitations of timing, value and the giver’s relationship with the couple involved. Charity exemption
opportunities available and thereby minimising the amount of money that is paid over to HM Revenue and Customs.
Any gifts made to a ‘qualifying’ charity – either during lifetime or through a Will – will be exempt from IHT. If a percentage of an estate is donated to charity in a Will, this may also reduce the rate at which any remaining IHT liability is calculated.
There are many issues to consider when planning to transfer an estate and one needs to ensure that the right balance is struck between maximising tax savings and making adequate provision for yourself and your spouse/partner during later life.
Business, Agricultural, Woodland and Heritage Relief
In simple planning terms
If the deceased owned a business, farm, woodland or Heritage property, some IHT relief may be available. Normal Expenditure Out of Income Exemption This is a very valuable relief that exempts regular (i.e. typical or habitual) gifts made out of surplus income after taxes have been paid, normal living expenditure and other normal expenditure gifts. This does need to be documented carefully but could cover gifts on a regular basis to cover a grandchild’s school fees, a child’s mortgage, fund a child’s or grandchild’s pension contributions, etc. and make them exempt from IHT without having to wait for seven years to expire.
Inheritance Tax planning In order to maximise provision for beneficiaries, it is necessary to plan one’s affairs in advance. The earlier arrangements are made, the greater the chance of taking full advantage of the IHT planning
• Make a Will if you do not already have one. If you die without a Will your Estate will be subject to the intestacy rules, which are changing on 1 October 2014. • Review the terms of your Will. • Utilise exemptions and lower tax rates on lifetime transfers of assets including transfers between spouses • Consider transferring business (including shares in family companies) or agricultural property • Consider transferring assets into trusts. Contact your local MFW office for a review of your affairs and advice on a strategy to minimise any potential IHT liability so that your family and friends keep more of any estate that you leave.
by Philip Cragg, CTA Tax Manager Dover
Business Matters Autumn 2014
08
TAX MATTERS
their whole estate to their spouse/ civil partner, this means that the deceased’s IHT ‘nil rate band’ has not been used, and this can be transferred to their partner’s estate when they die, effectively doubling their IHT threshold.
SHAREHOLDERS
Does your business need shareholder protection? What is shareholder protection? This is an extremely important area of planning for any business with more than one owner. However it is often overlooked. Consider the following company: ABC Engineering Ltd has been valued at £1million. There are three directors: Alan – 25% shareholding Ben – 25% shareholding Patricia – 50% shareholding
If Patricia dies, her shares pass under her Will to her husband Frank. This will cause the following issues: Frank now owns 50% of the business, so is entitled to major voting rights and future dividends. He may be unable to effectively contribute to profit. Alan, Ben and even Frank may be uncomfortable with this. Frank has lost his wife, who was also the “breadwinner”; he needs the cash and/or the income. So what are the options?
09
Business Matters Autumn 2014
1. Alan and Ben try and buy Frank’s shares. However where do they get the money from? The shares were valued at £500,000 so they may not have this in reserve, especially as a potentially key director has died. The bank may be unwilling to lend this money, especially as the company is in a vulnerable position. 2. Frank sells the shares to a third party. He will likely get much less than the value, and this causes Alan and Ben a big problem
So how do you avoid this situation? An effective shareholder protection arrangement can provide an excellent solution A properly constructed arrangement will have three elements. Unfortunately we often find arrangements have not been constructed properly, leading to potential tax, legal, and financial problems. 1. The cross option agreement This should be a “cross option” or “double option”. This allows both parties to call the “options”. In the above example, Alan and
Ben have the option to buy the shares from Frank at the agreed value, and Frank has the option to sell the shares to Alan and Ben. If one party calls the option, the other must comply. Under a cross option, Business Property Relief is maintained, as the contract for sale does not become binding until after the shareholder has died, and only if either party chooses to exercise the option. If you have one of the other types of agreement, a “buy and sell” or “auto-accrual”, this relief will not be preserved, causing potential tax issues. 2. The Life policies These provide the money to fund the consideration of the shares. So in the above example, Alan and Ben should be insured for £250,000 each, and Patricia should be insured for £500,000. Great, sounds simple, and now we don’t have to find the money from another source. But where does the money end up? Here is where the third element is also important. 3. The Business Trust This is a type of flexible (discretionary) trust used for shareholder protection
www.mfw.co.uk
MFW Dover help sponsor Macaroon Productions at the Edinburgh Fringe Festival
DOVER OFFICE
Lee Giles DipPFS Senior Financial Planner Argentis Financial Management Ltd
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue & Customs’ practice. Levels and bases of tax relief are subject to change. Argentis Financial Management Limited is authorised and regulated by the Financial Conduct Authority. The FCA does not regulate tax advice. You should consult your accountant on all tax matters.
www.mfw.co.uk
SHAREHOLDERS
arrangements. This is specially designed to allow benefits to be paid to shareholders in the business. A normal discretionary trust would not be suitable as it lists spouse and children as potential beneficiaries, which would render the whole arrangement inappropriate. Without the trust, Patricia’s life policy would have been paid into her estate, leaving Frank with the money and the shares; a potentially catastrophic outcome.
Eleanor, Isobel and Lara from Macaroon Productions at the Edinburgh Festival
Our Dover office have been bringing culture to MFW recently by sponsoring Eleanor Keel, director of Macaroon Productions and daughter of a former client, and at the Edinburgh Fringe Festival. Macaroon Productions is an Oxford-based student production company specialises in high-quality modern British drama. Their portrayal of Lucy Kirkwood’s play NSFW (Not Safe for Work) received rave reviews from audiences and critics alike, including a much coveted 5 star award from Broadway Baby http://www.broadwaybaby.com/shows/nsfw/701302
Business Matters Autumn 2014
10
This publication is intended for general guidance only. Every case is dependent on its particular facts and circumstances, and whilst it is believed that the content is accurate, the material should not be taken or relied upon as giving specific advice on any particular matter. Neither McCabe Ford Williams (the firm), its partners or employees accept any responsibility for any loss or damage (including but not limited to loss of profit or anticipated profit, damage to reputation or goodwill, loss of business, damages, costs, expenses or tax liabilities) caused or occasioned to any person acting or omitting to act in reliance upon the information contained in this publication. Any person wishing to obtain specific advice on any particular matter should contact a partner of the firm directly, and advice can be provided on a case by case basis.