ISSUE 17 | WINTER 2018 RANDALL-PAYNE.CO.UK
Thinking to capitalise on
Budget 2018 Top takeaways after our event
Join the cloud Those who haven’t risk being left behind
RECRUITMENT DILEMMA
Is there another solution? INTRICACIES OF VAT
Are you charging the correct rate?
- BUSINESS ADVISORY PAGES 12 & 13
AUDIT GAP
Examining the role of auditor and auditee
STATE OF THE NATION TIM’S VIEW ON ENTERING AWARDS
CORPORATE FINANCE
IN THE COMMUNITY
GUEST ARTICLE
BUSINESS VALUATION COMMON QUESTIONS
HELLO TO SCOO-B-DOO
WILLANS GIVE EXPERT NETWORKING TIPS
WELCOME
Rob Case | Partner
MEET OUR PARTNERS
Tim Watkins Managing Partner
Welcome to issue 17 of In Focus. The world continues to move at a pace, Making Tax Digital is now just around the corner, as is Brexit! In a time of change we reflect on probably the most important matters faced for a generation. There is a lot of ground to cover in this copy as publication was delayed to include coverage of the Chancellor’s Budget announcement at our prestigious budget day event at Kingsholm. Gloucestershire business leaders joined us to watch the Chancellor and participate in our budget quiz – surprisingly there was a lot of budget knowledge in the room! We provide an overview of what was announced. The MTD Pilot was opened up to most businesses and will be a significant change in the way they interact with HM Revenue & Customs. We are working proactively with our clients to ensure that they are not only compliant but also making the most out of the technology that is available. Unemployment figures remain low but demand for labour remains high. Will’s skills article turns the recruitment dilemma on its head as we look at other ways to fill the gap. We provide some clarity around charging VAT, a subject close to my heart, and it often results in eyebrows being raised during conversations in the office. 2
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We are always pleased to celebrate our fabulous staff and I am pleased that we are able to showcase them as finalists and winners at the British Accountancy Awards. After a successful two years fundraising for the Pied Piper Appeal, culminating in us winning the Jelf award at the Local Business Charity Awards, I am delighted to introduce our new charity partner Scoo-B-Doo, who fundraise in support of the Neonatal unit at Gloucestershire Royal Hospital. Read about our amazing start to our fundraising and raising awareness for them. This issue is full of useful information and celebrating success – I hope you enjoy reading it.
Will’s skills article turns the recruitment dilemma on its head as we look at other ways to fill the gap.
Will Abbott Partner Specialism: Business Advisory Russ Byrd Partner Specialism: Audit Vicky Link Partner Specialism: Accountancy Rob Case Partner Specialism: Tax Rob Stokes Partner Specialism: Outsourcing Ollie Newbold Partner Specialism: Corporate Finance For further information about any of the topics covered in this magazine, please contact Fiona Hughes, Marketing Manager:
T: 01242 776000 E: marketing@randall-payne.co.uk randall-payne.co.uk @RandallPayne Randall & Payne LLP Or drop into Chargrove House, Shurdington Road, Cheltenham GL51 4GA
CONTENTS
IN THIS ISSUE BUDGET | 04 — 07
P4 Budget 2018 round-up
An overview of the Chancellor’s 2018 Budget
TIM’S VIEW | 08 Is entering an award worth the effort?
AWARDS | 09 Celebrating our recent award successes
ACCOUNTANCY & OUTSOURCING | 10 – 11 We answer your concerns about cloud accounting
BUSINESS ADVISORY | 12 – 13 Is there an alternative solution to the recruitment dilemma?
AUDIT | 14 – 15 Bridging the gap between fact and fiction
CORPORATE FINANCE | 16 – 17 Why should you have a business valuation?
TAX | 18 – 19
P10 Making Tax Digital
Are you sure you are charging the correct VAT?
IN THE COMMUNITY | 20 We kick start our fundraising to support premature babies
RANDALL & PAYNE NEWS | 21 Recycling to make a difference and celebrating two new arrivals
GUEST ARTICLE | 22 Expert tips for networking training
EVENTS | 23 Key accounting deadlines and upcoming events
P12 Recruitment Dilemma
randall-payne.co.uk 3
BUDGET 2018
Autumn Budget 2018 The end of austerity? At the Conservative Party conference, Theresa May said that austerity was over. In the opening of his Budget speech, Philip Hammond told us that austerity was “coming to an end” which by definition means it’s not quite over yet! Capital Gains Tax Entrepreneur’s relief James Geary Head of Corporate Tax The Budget was set against the backdrop of what will hopefully be a final Brexit deal in the next month, so it was difficult to see what major decisions he would be able to make with the unknown of what that deal will look like, or indeed if there will be a deal at all. Nonetheless there was plenty of material in the Budget for us to talk about, at our Budget lunch at Kingsholm, where Gloucestershire business leaders watched the Chancellor’s announcement on a big screen. Here we give you an overview of the highlights.
Income Tax and Capital Gains Tax We did not believe that an attack on Entrepreneurs’ Relief was coming and indeed it did not. Hammond explained that the relief is a cornerstone of the British economy and encouraging entrepreneurship. However there were some small changes made. 4
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Firstly a subtle change concerned the requirement that 5% of the business is owned to qualify. This is now being refined to mean 5% of distributable profits and net assets. In a company sense this means that even if a shareholder has 5% of the Ordinary Shares and voting rights, they might not be entitled to 5% of the assets and reserves if there are, for example, preference shareholders or creditors to the company. This will be tricky for investors near the 5% limit as depending upon the company’s performance, this could give a different answer every year. This measure has immediate effect and is intended to ensure that genuine committed investors or business owners are the ones who can benefit from the relief. The second and more straightforward change is that the business asset must have been owned and qualify for relief for two years up to the date of disposal (previously one year). This second measure has effect from disposals on or after 6 April 2019.
Main residence relief There is a tightening of the rules for disposals of an individual’s main residence – the relief which allows us to sell our main home free of Capital Gains Tax. In the last couple of years there has been a reduction in the final “period of grace” from three years to 18 months – this allows for a delay in selling the old property so that it can still qualify up to 18 months after you move out before the actual sale. However the period of grace will be shortened again to 9 months for disposals on or after 6 April 2020. There is also a significant restriction to the “lettings relief” element, which is worth up to £40,000 in terms of discounting a gain, which allows for a period of absence where the property is let out before being re-occupied. This will now be restricted to where the letting period is actually a period of co-ownership, meaning the owner must in fact continue to live there. In practice this would appear to make the relief redundant in most circumstances, and one questions whether it is in fact needed at all. This change is also effective from 6 April 2020.
BUDGET 2018
Capital Gains Tax annual exemption The Budget also confirmed that the Capital Gains Tax annual exemption for 2019-20 will be set at a round £12,000 (£6,000 for trusts).
Tax free personal income allowance The final rabbit from the hat was the announcement that not only will they stick to their election promise to achieve a tax free personal income allowance of £12,500 and Higher Rate Tax threshold of £50,000 by 2020-21, they will in fact bring this forward a year. These will therefore be the rate for both tax years 2019-20 and 2020-21, and for future years they will increase annually in line with Consumer Prices Index.
Company Taxation The Budget was short on mainstream changes to Corporation Tax, but there are a number of nonetheless significant changes which will affect businesses in certain sectors.
Exemption for charities to have trading income increasing to £80,000 Charities have for many years enjoyed an exemption for non-primary purpose trading income of up to £50,000, a figure which has not moved with inflation. This is now set to increase to up to £80,000,
meaning that charities can carry out a slightly higher level of trading without having to go through the process of setting up a trading subsidiary.
Such companies can now only claim to enhance their tax losses to be relieved when (if) they ultimately start to make profits.
Changes to the personal service company rules for private sector contracts
Introduction of a Digital Services Tax
Following the introduction of new rules for the treatment of personal services companies carrying out contracts for the public sector (the so called “gig economy”), as expected it has been confirmed that the changes will also be rolled out to the private sector. However, the good news is that the government has listened to the considerable feedback from professional bodies such as ICAEW, CIOT and the Professional Contractors Group, and has delayed implementation until April 2020. They will consult on the finer detail, but have announced that the “smallest 1.5 million businesses” will not be affected by the changes.
Hammond also confirmed that the UK will indeed be looking to “go it alone” on a Digital Services Tax, targeted at the large online companies such as Google, Facebook and Amazon. There has been much discussion at international level but he felt this was moving too slowly and, despite threats from those companies to “offshore” their UK operations, has decided to push ahead. This will not come in until 2020 and there will be consultation on the detail, but it will only affect companies with over £500 million of revenues. He expects the tax to raise around £400 million per year, which given the size of some of these companies actually seems quite modest.
Reintroduction of a cap on R&D payable tax credits In less savoury news, the reintroduction of a cap on R&D payable tax credits to relate to the claimant company’s PAYE and NIC paid in the year is very unfortunate for small companies who cannot yet afford to take on fully employed staff, yet are carrying out important technological innovations. randall-payne.co.uk 5
BUDGET 2018
Business Tax and Capital Allowances
Capital Allowances for Special Rate Pool will reduce
Aside from the company tax changes, this Budget contained quite a few headline changes to the Capital Allowances system, not all of which featured in the speech itself.
The SBA will be funded by a cut in the annual allowance rate for “special rate” expenditure from 8% to 6% (this pool includes integral features such as lighting, heating and air conditioning, as well as higher emission cars and “long life” assets). To give this a context, with the 8% rate it took businesses 28 years to get tax relief on 90% of the cost of an asset, and with a 6% rate it will take 38 years.
Annual Investment Allowance for plant and machinery is to temporarily increase
New Structural Buildings Allowance A completely new allowance is to be introduced with immediate effect, called the Structural Buildings Allowance (SBA), available on new non-residential structures and buildings, where eligible construction or improvement costs are incurred. The allowance will be a flat rate of 2% over a 50 year period. Although this was introduced as a new relief, as far as we can see from our initial review, this appears to be virtually identical to the old Industrial Buildings Allowances introduced in the 1960s and abolished in 2011! 6
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The biggest announcement on Capital Allowances relates to the Annual Investment Allowance (AIA). Two years after announcing that there would be a “permanent” rate of £200,000, we are going to have another temporary increase, this time to £1 million, from January 2019 to December 2020. It is unfortunate that the transitional rules for accounting periods straddling the change dates are the same as before, as these rules are highly complex and costly to get wrong. Businesses are advised to plan the timing of machinery purchases very carefully over the next few months to ensure they can maximise relief.
Employment Allowance is retained but only for smaller businesses Finally for business tax, we expected changes in relation to the Employment Allowance (which gives businesses a £3,000 discount from Employer National Insurance contributions) and indeed there was a change. Fortunately this only affects larger businesses, as the allowance will no longer be available to businesses with an employer NIC bill of at least £100,000 annually. This will take effect in April 2020.
BUDGET 2018
Indirect and Environmental Taxes Alongside the many changes to other duties are a few other tax changes worth mentioning.
VAT registration threshold frozen at £85,000 On VAT, Hammond has resisted calls to lower the registration threshold and has frozen this at £85,000 until March 2022. This will particularly impact businesses close to the registration threshold who with only modest growth may find themselves not only having to register for VAT sooner than they had anticipated, but also crucially having to make the transition to Making Tax Digital at the same time.
Stamp Duty Land Tax – first time buyer exemption extended
properties costing up to £300,000, the exemption has now been extended for shared ownership properties costing up to £500,000. The measures explained above are the principal ones we have identified from our first look through the detailed Budget documentation, but more may become clear as the details are analysed over the coming weeks. It will also be very interesting to see how the Brexit talks progress and conclude in the next month, because Hammond has stated that he may choose to make the 2019 Spring Statement a “full fiscal event” which seems likely if we end up with a “No Deal” Brexit, which will undoubtedly lead to some difficult decisions having to be made.
Book your one-to-one Budget advice session Nobody likes change, so if you’re unsure about how the Budget may affect you, either from a business or personal perspective, why not book a one-toone session with one of our specialists for an hour free-of-charge? For further information, contact 01242 776000 or email clinics@randall-payne.co.uk
Contact James Geary for more information by emailing james.geary@randall-payne.co.uk or call 01242 776000. Photos courtesy of media partner for the event Cotswold Life Business & Professional
Finally, following the previous introduction of a Stamp Duty Land Tax exemption for first time buyers on randall-payne.co.uk 7
TIM’S VIEW
Tim Watkins | Managing Partner
Entering for an Award? Entering for any award can be a tough decision. Is it going to be worth the time and effort putting the entry together, especially if the entry isn’t successful? Over the past few years I have been involved with awards from two angles, first where we have entered the British Accountancy Awards and second as a judge for the Gloucestershire Business Awards. An entry is hard work and I am sure many businesses and individuals might be put off entering as a result but just submitting an entry can have a number of benefits.
The exercise of entering can then act as a driver for making the next change, innovation to drive the business forward further, or the development of another individual
The exercise of putting it together forces a review of the period identified by the award. That in itself acts as a reminder of all the good things that have been achieved, some of which may have been forgotten with the passing of time. It might also point to things which haven’t quite gone as planned and can be further improved. With continual learning we are all constantly exposed to new things and it may be what has already been achieved can be built upon. The exercise of entering can then act as a driver for making the next change, innovation to drive the business forward further, or the development of another individual.
can be obvious disappointment, but there would have been a very good reason to enter and that shouldn’t be overlooked, it can be built on and should be recognised.
I know from our experience that entering brings an air of excitement and can help bind teams together. I see this as a judge, where the pride that comes through from the Gloucestershire Business Awards entries is tangible. That excitement and pride is great for engagement.
Contact Tim Watkins for more information by emailing tim.watkins@randall-payne.co.uk or call 01242 776000.
Not all entries are successful! If an entry does not make the list of finalists there 8
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Making the list of finalists is a huge achievement and cause for celebration. Winning is great for morale and engagement, be it for the business or an individual. Both bring with it recognition and the opportunity to showcase what you do. Entering for an award should be seen as a positive experience and I would urge anyone or any business with a story to tell to “have a go”.
AWARDS
Winning at ‘the Oscars of the accountancy industry’
Winning fundraising efforts
We are delighted that Gina was awarded Rising Star of the Year at the British Accountancy Awards.
We were thrilled to win the Jelf Award for our fundraising for the Pied Piper Appeal.
Gina Gardner received the ACCA sponsored Rising Star of the Year award at a glittering ceremony held at the Grosvenor House in London, which was attended by over 800 guests from the UK’s leading accountancy firms.
The Local Business Charity Awards were founded by Jelf in 2014, to recognise the support given by Gloucestershire companies to local charities. Their emphasis is on the word ‘local’ and their aim is to thrust the companies and people, who do amazing things to support local charities, into the spotlight, to receive the praise and recognition they deserve.
The judges had the following to say about Gina; In a highly competitive category, judges were delighted to see so many excellent submissions, demonstrating a bright future ahead for the profession. Judges were impressed by Gina’s work in inspiring future generations in schools and in looking not only inwardly but outwardly to support the wider community. Rob Case, partner and overall head of tax commented: “Gina has won an amazing accolade and we are incredibly proud of her development and performance at Randall & Payne. It goes to show what you can achieve when you put your mind to it and we are delighted that the culture and environment here has helped Gina achieve her potential.” As a firm we were also finalists for the Audit Team of the Year award for a second year in a row, and New Partner of the Year, Vicky Link, narrowly missing out against stiff competition.
We were a finalist for the Jelf Award, for charities with an income of more than £200,000 a year, recognising our two years of fundraising efforts which resulted in a playground being built at Belmont Special School in Cheltenham. The winning charity would also receive £1,000. A few of us from Randall & Payne attended the awards evening together with our friends at Pied Piper on Thursday 6 September at the National Star in Ullenwood. We were thrilled to be announced as the winner for our category but what’s more, Jelf announced on the night that they would take on the charity who won as their corporate charity. It was a double celebration, to have won the award but also because the Pied Piper Appeal had Jelf as a new supporter for a year! We were honoured to be part of the celebrations to recognise the fantastic work of Gloucestershire businesses for very deserving Gloucestershire charities.
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ACCOUNTANCY & OUTSOURCING
‘With 88% of UK businesses having already adopted cloud technology, those that haven’t, risk being left behind.’
Rob Stokes | Partner
Is your head in the cloud or the sand? Whatever your preferred media choice, you cannot escape the cloud accounting message - be it radio, TV, business magazines or the free magazine from a hotel chain. Articles and adverts explain what cloud accounting is, usually in great technical detail, but when speaking to clients many questions remain unanswered. This is why we think many business people still have their heads in the sand rather than the cloud. Here are the questions and the advice we have given to our clients:
What’s the difference between cloud and desktop? To use desktop accounting software, you must install it on your computer – standalone or server – and run it there. Cloud accounting software runs on the internet with nothing to install. To access the software you visit a website and sign in with a username and password, which means you can use cloud accounting software from virtually any device, as long as you have an internet connection.
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How would I benefit from switching? Cloud accounting is mobile, tends to be more user-friendly and requires less technical expertise to set up. You can generate invoices on the go or process payments immediately. Data capture and entry are more automated using apps, reducing the time required. Software is secure and backed up online, so you never need to worry about your computer crashing and losing your data. You will also be compliant with HMRC’s Making Tax Digital for VAT regulations from 1 April 2019.
Software is secure and backed up online, so you never need to worry about your computer crashing and losing your data
Do I need to know about accounting to use the software? No is the simple answer as most are designed for non-accountants to use. However you will need basic knowledge as if you put inaccurate information in you’ll get inaccurate information out. Accounting software helps you identify trends, spot opportunities and give you confidence that you understand where your company stands. However, your accountant can also log into the live data with you should questions arise.
How do I choose the best cloud accounting package? We can help you evaluate what you need by considering your existing accounting methods, take into account your future plans and ensure the software package, with any ‘add-ons,’ fits with your needs. We also suggest that we get key employees involved when evaluating different packages as they may be
ACCOUNTANCY & OUTSOURCING able to provide a different perspective, or offer helpful insights into how the software might be used.
What would happen if I had a technical problem? We are here to help you during working hours and our experience tells us it would be a simple issue. However, most established providers have dedicated support teams available 24/7, 365 days a year.
First Base Employment choose Xero
How secure is my data? Your data is hosted on secure servers with multiple sites in order to provide resilience against server failure. Most, if not all, cloud accounting software providers use 128 bit encryption and also two-level user authentication for access.
Will cloud accounting help with tax issues? Yes as it provides the base data with which to calculate potential tax liabilities. With one of the benefits being shared access, and with the help of automation, the accounting information being more regularly up to date, we can help you plan for potential liabilities.
Contact Rob Stokes for more information by emailing rob.stokes@randall-payne.co.uk or call 01242 776000. Bite-Sized Thinking
›› Regard cloud accounting software as a positive way to improve your business. ›› Ask about the different software packages and establish which one fits best with your current business processes. Download our Making Tax Digital summary from randall-payne.co.uk / services/accountancy/ making-tax-digital
First Base Employment needed a cloud based accounting solution and turned to us to help them make the right choice whilst taking into account their longer term strategic needs. Tricia Hay started First Base Employment in 1997 and 21 years on they have gone from strength to strength with an increasing customer base and clients who are impressed with the quality of candidates, fast response times and the quality of service. Following the sale of their accountants, they reviewed their requirements which is where we were invited to step in. It was apparent that the accounting function was not efficient and did not lead to timely information being available from which to make decisions. As Xero gold partners we agreed that it would best suit their requirements. Sage 50 was converted and transferred across to provide a couple of years of history. Training was provided to allow the team to do data entry alongside the direct feed from their bank account to enable Xero to pull in the transactions. Our team provided some of the outsourced functionality, making sure postings
were correct. This system now means that statements can be issued to customers directly from Xero and they can keep a better eye on the company’s debtors and, ultimately, cash flow. ReceiptBank has since been introduced and is saving the team so much time. We will continue to support Tricia and team to ensure they are getting the most out of Xero. Tricia comments: “I have been extremely impressed with the smooth transition over to Xero and all of its capabilities. The assistance we received from Randall & Payne was instrumental in achieving a more joined up accounting function. They listened, understood our frustrations with our existing systems and proposed a solution. Randall & Payne have worked with my team and we to continue to streamline our processes”.
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BUSINESS ADVISORY
Will Abbott | Partner
Solving the Recruitment Dilemma Recruiting where there’s a skills gap for businesses poses a real dilemma – turning the problem on its head and doing more with what we already have is a good way to resolve this common issue. Recruitment is an issue in almost every business across all sectors that we work with. We seem to be faced with the contradiction of relatively low wage inflation but a shortage of people to do the work we have. Due to low confidence, employees have been reluctant to change jobs, although this now appears to be changing. This of course is a double edged sword, increasing opportunities to attract people from other firms whilst increasing the risk of losing good people from our teams.
If this is the problem, what is the solution? Much has been written about the differences between generations and many businesses have recognised this. Motivation goes beyond money and community impact, well-being, flexible working, lifelong learning and culture are just some of the influences when individuals are making job 12
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choices. It does no harm to reflect on which of those areas we can do more of, although business managers are often quick to point to the cost of these initiatives, especially when the benefits are less tangible. For me the real key is productivity. The UK continues to lag behind other countries in lifting productivity and as the economists will remind us, in the long run productivity is almost everything. It is simply the case that most businesses could be more efficient but rarely find the time to look seriously at how they operate, with a clear goal to improve performance. Whilst staff shortages will invariably drive the adoption of new technology including robotics and AI, every business has the opportunity to increase efficiency in its processes, without necessarily making large investments.
Reviewing the current skills, processes, customer-base and working environment, then making necessary improvements, will help to retain your key staff, who will be highly motivated and perform their jobs more efficiently
BUSINESS ADVISORY
Three things we should regularly review: 1. Every business is working with loss making customers so you need to look beyond the price paid. Is the customer highly demanding, disruptive to process as well as hard on price? It may be counter-intuitive but the numbers will demonstrate that it is possible to make more profit by doing less work, if you cull some of your less desirable customers. The bottom 20% of your customers will be taking up valuable staff resource that could be better deployed elsewhere, as well as draining morale. Recognising the customers that don’t fit and encouraging them towards a more suitable supplier will pay dividends for your business. 2. Due to changes in the market or customer needs over time, processes become bloated and often we continue to carry out tasks that add no value to the customer. Put simply, if we cut out the 20% of the time when we add no value, we could all be working four days a week and generating the same output. Yet the priority is often to generate more sales to drive profit, when the business is already struggling to cope with the work it has.
3. Scope creep is one of the most common and damaging causes of reduced profitability that we see in businesses. Often people are driven by the desire to help customers under the guise of delivering great customer service. “Going the extra mile” is often touted as a differentiator and the team are happy to carry on doing just that, solving unanticipated problems within the original scope of the contract, oblivious to the additional drain on resources. Tackling this requires both discipline and an appreciation of the extra value being delivered. We are quick to acknowledge if things have not gone well, but slow to take the credit when we have over delivered.
The bottom 20% of your customers will be taking up valuable staff resource that could be deployed elsewhere, as well as draining morale
So recruitment may not always be the answer! Reviewing the current skills, processes, customer-base and working environment, then making necessary improvements, will help to retain your key staff, who will be highly motivated and perform their jobs more efficiently. A happy workforce and a stress-free environment will increase productivity, which may then alleviate the need to recruit.
Contact Will Abbott for more information by emailing will.abbott@randall-payne.co.uk or call 01242 776000. Bite-Sized Thinking
›› Filling a vacancy, immediate recruitment may not always be the answer. ›› Every business should regularly review their customer-base, their processes and the project scope. ›› Making improvements will help with motivation, efficiency and ultimately improve productivity. To find out more about any of the topics discussed in this article, visit randall-payne.co.uk randall-payne.co.uk 13
AUDIT
Mind the gap In the complex world of auditing, the respective roles of auditors and auditees alike are often misunderstood – here we explain ‘The Audit Expectation Gap’.
Ben Burch Audit & Assurance Accountant at Randall & Payne The audit profession has been thrust into the spotlight in recent times following the collapse of household names such as BHS and Carillion, with many posing the question, ‘how could the auditors let it happen?’ Perceptions of the auditor’s responsibilities may have become clearer following the introduction of the extended audit report but there is still more work to be done in this area. We find that all too often the expectations of the profession differ from the expectation of the entity requiring the audit. Jennings et al defined the expectation gap as “the difference between the public expectations about the responsibilities and duties of the auditing profession and what the auditing profession actually provides.” 14
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We consider the ‘expectation gap’ by examining the facts and highlighting what is fiction.
FACT:
FICTION:
Auditors will give an opinion on whether they believe the financial statements prepared under current legislation, present a true and fair view to the stakeholders.
It is the auditor’s responsibility to detect fraud within a company.
FACT: Auditors will report their findings on the directors’ choice of going concern basis used in the financial statement.
FACT: Auditors will declare whether in their opinion the financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UKGAAP) and the Companies Act 2006.
FACT: Not anymore… Fraud detection has not been the principal objective of audit since the 1920’s! Fraud Risk is assessed at the planning stage and our tests are designed so as to give a reasonable expectation that such issues will be detected. It is the responsibility of the management of an entity however, to prevent and detect irregularities and fraud internally.
AUDIT
FICTION: An auditor will detect all material instances of fraud – a 1994 study by MA Geiger found that 70% of investors expected absolute assurance of this statement 1.
FACT: Auditors are required to plan and perform the audit in a way that will reduce to an acceptably low level, the risk of misstatements in the financial statements as a result of error or fraud.
This does not mean however that all instances of fraud will be identified by the audit process, and it cannot be relied
on to do so. Transactions are tested on a sample basis – not every transaction is tested. We’re probing but we’re not quite Poirot! It is important to us that our team of auditors has strong relationships with our clients, and that they ask the right questions and management are trusting and open in their responses. At the end of the day, the responsibility for preventing and detecting fraud lies with the directors within their respective companies as they are charged with governance, but we understand that they may be nervous about disclosure of anything which could unsettle their investors and we help them put it into context. A key purpose of the statutory audit after all is to provide an independent opinion on the truth and fairness of the financial statements to shareholders,
Transactions are tested on a sample basis – not every transaction is tested. We’re probing but we’re not quite Poirot!
without prejudice, even if investor confidence may be influenced by the opinion given. 1 I nvestors’ views of audit assurance: recent evidence of the expectation gap, Marc J Epstein and Marshall A Geiger, 1994 https:// scholarship.richmond.edu/accounting-facultypublications/18/
Contact Ben Burch for more information by emailing audit@randall-payne.co.uk or call 01242 776000.
Bite-Sized Thinking
›› An auditor will give an opinion on the truth and fairness of financial statements. ›› Directors are responsible for preventing and detecting fraud within their respective companies. ›› An open and honest working relationship between auditor and the directors will ensure the right outcome. To find out more about any of the topics discussed in this article, visit randall-payne.co.uk randall-payne.co.uk 15
CORPORATE FINANCE
Ollie Newbold | Partner
Business valuation Q&As Having provided numerous business valuation reports over the years we have often been asked similar questions regarding valuation work, so thought we would share our thoughts in this complex area. Q What is a business valuation? A A business valuation typically
assesses the price that a business would achieve from negotiations between a willing buyer and a willing seller.
Q When would I need a valuation? A Business valuations can be used
for a range of purposes, including preparing for sale, admittance of a new shareholder, agreeing a value with HMRC, divorce etc.
Q What is the benefit of having a valuation? A � Maximising Value: Valuations are an ideal method of identifying which aspects of your business are driving value up and areas of weakness that may be eroding value.
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By identifying these factors, you are positioned to focus on the changes that need to be made in order to have the best chance of receiving the maximum consideration when you decide to sell. � Strategy: By analysing the current
economy and market conditions, specifically in the sector you are operating in, you can gain an understanding of where your business fits within the market. From this, you are able to identify and focus on strategies that will enable you to adapt to the current climate rather than be adversely affected by it. � Legal: We are often engaged by
lawyers to undertake valuations for use in probate, divorce proceedings and as Expert Witnesses, producing reports in a concise and understandable manner.
Q How do you approach a business valuation? A Without extensive research and
company fact finding, it is hard to gauge an accurate understanding of a business and identify the areas of weakness which may be having a detrimental impact on value. Our valuations not only look at your business and the inherent factors which may be making your business more or less valuable, we also look specifically at the industry as well as the wider economy to support the valuations and consider external impacts. We subscribe to a trusted market research site and a transaction database in order to gain a full understanding of the industry and look at recent transactions that have occurred within your sector. This gives us a realistic view of the structure and value of the transactions that are being undertaken. By adopting
CORPORATE FINANCE
this approach to valuations, our clients can be assured that their valuation is based on key supporting evidence.
Q Can I obtain a cheaper alternative online? A We focus on understanding the
value drivers in your business and will ask the detailed questions that a website is not able to. Understanding some of the intricacies which cannot be achieved by simply inputting numbers or checking a box can have a significant impact on the valuation and its robustness. In addition, we have experience of preparing numerous valuations over many years, throughout different economic conditions. This knowledge and experience allows us to thoroughly consider whether the valuation of the business ‘feels right’ and if there are aspects of the valuation that you want to discuss in greater depth or understand further, we will do so.
Contact Ollie Newbold for more information by emailing oliver.newbold@randall-payne.co.uk or call 01242 776000.
Business valuations can be used for a range of purposes, including preparing for sale, admittance of a new shareholder, agreeing a value with HMRC, divorce etc What is the output from a Randall & Payne valuation report?
We offer two types of valuation report: 1. SHORT FORM:
This is typically 2-3 pages long and provides the overall value of the entity, summarising the key points that have been considered in determining a value, taking in to account the most appropriate valuation approach. In arriving at a value, we research sector specific transactions that have been undertaken recently, as we believe that these provide the best supporting evidence. Additionally, we address the industry outlook as well as the wider economy and consider how this may have an impact on value.
2. L ONG FORM:
This report is a more in depth version and provides further analysis of the valuation process. A greater depth of explanation is given in respect of the effect that each contributing factor has had on the valuation and we will identify aspects of your business that are improving or eroding value. This report type provides the greatest strategic value as the output can directly filter into actions to increase business value.
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TAX
Rob Case | Partner
Should I charge VAT with that? It is very difficult to know some of the finer details, or intricacies, of VAT and every VAT registered business at some point will ask, should I charge VAT on that? So what are the potential problem areas? Food The legislation around food is probably the worst written law I know. Everyone knows about the Jaffa Cake case, but there are countless examples of inconsistencies with seemingly similar products. If you are supplying food products I would suggest taking advice. Property Letting surplus space or a room, is most likely to be exempt for VAT (unless you have Opted to Tax), but that can depend what you supply with it. Are you supplying food and drink with it? What about service charges, telephone and utilities recharges? The treatment depends upon the specific circumstances and agreement, but it is easy to fall foul and get it wrong. Often with property sales the value of transactions is high, and therefore the VAT, so getting the position right is really important and often it is not considered early enough in the transaction. 18
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Delivery Do you supply delivered goods? Perhaps you make a separate charge for delivery, but what rate of VAT should apply? Ultimately that will depend upon the underlying goods being supplied and also the contractual position with your customer. It is probable that the delivery could be Standard Rated, but equally there are circumstances where it could be different and if your customer is a private consumer it could impact the price they pay. Recharges If you have an agreement to recharge expenses you incur in fulfilling a contract, which includes train or air travel you have taken (zero-rated), what rate do you charge to your customer? The trap to avoid is to automatically follow the VAT treatment of your costs. Just because you were not charged VAT, doesn’t mean that you should not charge VAT on your recharge. If it is effectively an additional charge for your services, then the VAT rate follows the main element of your supply.
Don’t forget HMRC can potentially charge penalties too, it’s like having their Jaffa Cake and eating it!
What if I am supplying multiple things? Perhaps you supply a vehicle for hire and insurance for its use, or food in a decorative container that is designed to be reused, or maybe a new caravan with some furniture in it. Where there are multiple items with potentially different VAT rates you must take care to ensure you charge the right VAT and this again is a complex area the subject of countless case law over the years.
TAX
Should I charge the Standard Rate of 20% VAT by default? The onus is on the supplier to charge the correct amount of VAT. If one of the VAT exemptions or reduced rates (0% or 5%) apply then they override the Standard Rate, so whilst it may seem sensible to charge 20% VAT where you are unsure, that could be incorrect and the consequences can be significant. VAT incorrectly charged is not technically VAT, HMRC have the powers to refuse your customer’s input VAT reclaim, but also could refuse to refund the supplier. Don’t forget HMRC can potentially charge penalties too, it’s like having their Jaffa Cake and eating it!
And finally, what about Brexit? International matters cause greater complexity and compliance requirements for businesses. Brexit will not only change the ultimate jurisdiction of the tax, but subject to the deal agreed there is real concern about the potential significant additional administrative and financial burdens put on business, which are likely to mean the slow movement of goods across borders affecting supply chains, projects and serviceability of customers.
Contact Rob Case for more information by emailing rob.case@randall-payne.co.uk or call 01242 776000.
Bite-Sized Thinking
›› When supplying multiple products take care as different VAT rates may apply
THE INTRICACIES OF VAT WHEN SNACKING
VAT may appear to be mundane to most, but for us accountants it can actually be quite a fun topic of conversation! VAT was introduced 45 years ago but it still causes drama to this day. A cake or a biscuit, chocolate coated or not? One of the well-known debates is around the McVities Jaffa Cake being a cake and not a chocolate covered biscuit. Cakes and biscuits, in the eyes of the law, are necessities and are zero-rated, however a chocolate covered biscuit is regarded as a luxury which means the full rate of VAT is payable. In 1991 the Jaffa Cake was the subject of a case taken to a tribunal after the taxman argued that they should be subject to VAT based on their shape and size and because people ate them like biscuits. However, McVities argued that they were small cakes because like a cake they go hard when they are stale rather than soft like a biscuit. McVities won the case and they remain zero-rated.
Interestingly, if you buy your dried fruit from the baking aisle rather than the snacking section, you can save yourself the VAT
›› The onus is on the supplier to charge the correct VAT ›› If you are unsure about the VAT to charge – just ask! To find out more about any of the topics discussed in this article, visit randall-payne.co.uk
For snacking or baking? Due to the intricacies of VAT legislation, similar food items could differ in cost from one aisle to the next. Confusing rules can result in the standard rate of 20% being
applied to a similar food item which is zero-rated due to its use or what it’s mixed with. Nuts are zero-rated, unless shelled, apart from peanuts! However they are subject to VAT if they are roasted or salted, but if you add peanuts to a fruit and nut mix, and more than 25% of the contents are standard-rate, as is the case with dried fruit and chocolate, they are subject to VAT. Nuts right?! Interestingly, if you buy your dried fruit from the baking aisle rather than the snacking section, you can save yourself the VAT. If it is assumed to be for baking rather than non-essential snacking it is zero-rated, but the packaging must demonstrate this and if they give the “overwhelming impression” that they are more in line with confectionery or snacking they will be subject to VAT (even if the small print says they are for baking).
Percentage of potato content? You could save yourself the VAT by choosing non-potato savoury nibbles such as Twiglets, prawn crackers, tortilla chips or vegetable crisps. It’s the potato content which makes it interesting… Procter & Gamble ended up owing millions when it was decided that a Pringle was actually a crisp and therefore subject to VAT. It had previously been declared exempt by a High Court judge, who decided it wasn’t a crisp because it was made of less than 50% potato and was packaged in a tube.
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IN THE COMMUNITY
Introducing … SCOO-B-DOO SCOO-B-DOO has been selected by staff as our corporate charity from July 2018 through to June 2020. Fiona Hughes Marketing Manager SCOO-B-DOO was established in 1982 by a small group of grateful parents, doctors and nurses. The registered charity is still run entirely by volunteers and compliments the support given by NHS to the Neonatal Unit at Gloucestershire Royal Hospital, which cares for sick and premature babies. With the NHS under constant financial pressure, the money SCOO-B-DOO raises is vital in supporting the service and that is critical to the survival of these vulnerable patients. Over 80% of the equipment used on the ward every day has been funded by SCOO-B-DOO, helping to ensure the babies are given the best possible care. 100% of every donation goes to help the ward’s tiny patients and their families. We publicly launched our support for the charity on September 7th when staff and families walked from Chargrove House in Shurdington to Gloucestershire 20
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Royal Hospital, raising over £1900 in sponsorship.
This figure completely surpassed our target and expectation and we are overwhelmed by people’s generosity. Matron and staff on the ward welcomed us after our “little stroll” with tea and cake, and even ice-lollies. To say that they were grateful for the efforts was an understatement, as every penny raised, as well as awareness about the charity, is considerably needed. With the walk and a few in-house fundraising events, we are pleased to announce we have raised £2004 for SCOO-B-DOO in the first quarter. We are sure you must agree this is a fabulous start to our support for a wonderful cause. There are so many deserving charities to support so having a corporate charity
to channel our activities help us to stay motivated, to come up with ideas to fundraise and encourages our incredibly generous and caring staff to engage. We would encourage more companies to do the same. We will share any future campaigns on our website, Twitter and Facebook pages so if you want to help us support such a worthy cause please feel free to get in touch.
We are pleased to announce we have raised £2004 in the first quarter Contact Fiona Hughes for more information by emailing marketing@randall-payne.co.uk or call 01242 776000.
RANDALL & PAYNE NEWS
Anyone for tea? Our annual Zero to Landfill Certificate from Printwaste confirms our recycling efforts have generated enough energy to invite the whole of Cheltenham district and most of Stroud for a cuppa! Zero waste to landfill is where no waste streams go to landfill. Instead, materials are diverted to other uses, for example: � Cardboard goes to paper mills � Glass goes to be re-melted � Plastic goes to be made into new packaging � Food waste goes to composting
Waste which cannot be re-used or recycled is recovered via methods such as energy from waste, incineration, plasmosis and gasification. Waste-toEnergy is the last option and Printwaste, our recycling partner, aim to recycle and confidentially destroy as much as they possibly can. Waste-to-Energy is the service that has enabled them to offer a complete waste management package that diverts 100% of materials away from landfill. This year, our annual Zero to Landfill Achievement certificate states that 3.57 tonnes of general waste over the past year following an energy-to-waste route has generated enough energy to boil 22,321.5 kettles, making 178,500 cups of tea or coffee!
Blessed with a pigeon pair – twice! Folklore believes that pigeons sit on two eggs at a time and that they are always a boy and a girl, so having a second child born of the opposite sex is fondly referred to as a “pigeon pair”. Two of our senior accountants welcomed their second child recently and surprisingly both completed their families with a “pigeon pair”. Shannon and husband Charlie welcomed Ruby Florence on 2nd August 2018 weighing 9lbs completing the pigeon pair with older brother Harry, who is three. Shannon breezed into having a second child as just a couple of weeks later she was a bridesmaid at a friend’s wedding, with both baby and toddler in tow! Top left image Charlotte and husband Mathew, welcomed Lucas James into the world’ on 1st October 2018, weighing 6lbs 15oz. Lucas’ older sister Grace came back from nursery to the surprise that she was a big sister. Both parents are so proud at how well Grace has accepted her little brother into the family. Top right image Congratulations to both families from all of us at Randall & Payne.
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GUEST ARTICLE
Felicity McClintock, Head of Marketing & Business Development | Willans LLP
Making the most of networking Effective networking is a critical skill required for any professional yet 99% of us dread doing it and most of us never receive training. As part of Willans commitment to investing in it’s staff, the marketing team turned a lawyers’ training session into a networking event benefitting the wider business community, inviting other professional firms such as Randall & Payne. Author, trainer and international speaker, Will Kintish, spent the session helping people to become more confident and effective networkers.
Regardless of one’s position, industry or confidence levels, Will had tips for everyone: 1. Prepare and relax: Do your research.
Have an idea of who you’d like to meet ahead of attending. Be friendly and courteous, and make good eye contact. 2. Work the room: No room has more than six formats – from people on their own through to large groups with open and closed couples in between. Study each group, then make your approach. If hosting an event, don’t 22
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just talk to your colleagues and leave your guests by themselves. 3. Never forget a name: Listen carefully during the introduction and associate the person’s name with something that is known to you, so that you won’t forget it. 4. Describe what you do, not who you are: Explain what you do in an interesting and engaging way. For example, one of the delegates reintroduced himself as ‘I help businesses protect their ideas’ rather than say that he was an intellectual property lawyer. 5. Follow Will Kintish: He often posts interesting articles on social media and has a wealth of information on his website. Let’s face it, it isn’t rocket science, but Will’s teachings certainly did make everyone stop and think about how to handle networking. This interactive workshop matched with a feedback score for
worthwhileness of well over 90%, is to me, money well spent.
When you are next networking remember… � People do business with people
they know (get out there), like (find common ground) and trust (be yourself). � Get to an event early. � Ask lots of questions and don’t go
into ‘sales’ mode! � Be sure to follow up.
Willans’ highly regarded lawyers have a range of specialisms and advise national as well as local businesses, charities & not-for-profit organisations, international corporations and individuals. Find out more at www.willans.co.uk
EVENTS
Key Events
KEY DEADLINES
EPIC Business Leader’s Workshop Become An Agile Leader 28 November, 9am-1pm Your opportunity to see how our EPIC business leader’s workshops help business owner develop new strategies, learn new leadership skills and solve challenges.
Do you: � Find it Difficult to make time to work on the business rather than in the business?
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� Feel isolated and wholly responsible at the top? � Struggle to keep up with strategy development and best practice? � Think you would you benefit from a confidential environment where you can discuss
key issues with experienced facilitators and like-minded peers? If you answered yes to one of the above come along to this free taster session. To join this workshop, contact Will Abbott on 01242 776000 or email EPIC@randall-payne.co.uk
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2019 future dates 26 February; 4 June; 10 September; 19 November
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Advice Clinic
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Every Monday, 1:30-4:30pm Got a tricky business question or need advice to move forward? Whether you want to raise finance, tackle your profit and growth issues or get some tips on saving tax or investing wealth, our expert team can provide the right professional guidance at our next Advice Clinic. Give us a call to book your free one-hour slot with the relevant expert on 01242 776000.
Christmas Bazaar 1 December, 2-5pm
Corporation Tax due – period ended 28/02/18 Due date for 2018/19 PAYE month 8 PAYE & Class 1 NIC payments (electronic) Deadline for SA Tax return 2017/18 – to be collected via PAYE Accounts deadline to Companies House – periods to 31/03/18 Corporation Tax return deadline to HMRC – periods to 31/12/18
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CHRISTMAS FUNDRAISERS
orporation Tax due C period ended 31/01/18 Due date for 2018/19 PAYE month 7 PAYE & Class 1 NIC payments (electronic) Accounts deadline to Companies House – periods to 28/02/18 Corporation Tax return deadline to HMRC – periods to 31/11/18
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Randall & Payne Bazaar 7 December, from 1pm Our annual Christmas fundraiser for our corporate charity.
Corporation Tax due – period ended 31/03/18 Due for 2018/19 PAYE month 9 PAYE & Class 1 NIC payments (electronic) Accounts deadline to Companies House – periods to 30/04/18 Corporation Tax return deadline to HMRC – periods to 31/01/18 Due date for balance payments for 2017-18 and/or 1st payment on account for 2018/19 Due date for SA tax return 2017/18
FEB Staff and any visiting clients can buy bargain Christmas gifts and stocking fillers, whilst enjoying a coffee and a cake. All proceeds go to the charity. If you would like to join us or donate any items for the bazaar, contact 01242 776000 or email marketing@randall-payne.co.uk
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C orporation Tax due – period ended 30/04/18 Due for 2018/19 PAYE month 10 PAYE & Class 1 NIC payments (electronic) Accounts deadline to Companies House – periods to 31/05/18 Corporation Tax return deadline to HMRC – periods to 28/02/18
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Spreadsheets Clouding Your Judgement? Knowledge is power, so they say.
And in a fast-paced business world brimming with opportunity, it’s never been more important to be able to pinpoint where your business stands at any given moment. Ditching the spreadsheets and switching to cloud accounting will give a real-time view of your finances, enabling you to use today’s data to drive tomorrow’s business. So when it comes to your accounts, isn’t it time your business stopped just floating along?
To harness the benefits of cloud accounting, call our cloud transition experts on 01242 776000 or visit randall-payne.co.uk