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News and comment from HW Fisher & Company
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News and comment from HW Fisher & Company
The morality of tax - we debate the issue
Economic overview - a look at the positives and negatives
Business tax update - what the changes mean for you
and your business
InsightAutumn/Winter 2012
The morality of tax
By attempting to pay as little tax as he
could, he had committed a cardinal sin -
albeit, admittedly, a legal one.
Even the Prime Minister ventured in,
branding Carr’s decision ‘quite frankly
morally wrong’ (despite the fact, many were
quick to point out, that David Cameron’s
own father was a pioneer of such tax
avoidance schemes).
Danny Alexander, chief secretary to the
Treasury, also threw in his two-penneth,
adding that people who seek to pay as
little tax as they can are no better than
benefits cheats.
Only after a public declaration did Carr get
to put things behind him and get back to
the serious matter of making people laugh.
In hindsight, the K2 storm had been
brewing for some time. In the March
Budget, the Chancellor had announced a
15% stamp duty tax on all properties valued
at over £2m bought through a company,
as it was assumed that buying through a
company would save tax.
The message from the Government, quite simply, was that they will penalize anyone seeking to circumvent tax, even if legally.
Cash-in-hand economyNot long after Jimmy Carr’s K2 dressing-
down, tax and morality emerged once again
in the form of the ‘cash in hand’ debate
ignited by Treasury minister, David Gauke.
It is morally unacceptable, we were told, to
pay people - generally builders and general
tradesman - cash in hand.
As with schemes like K2, cash in hand
payments rob the state of the funds it is
due in order to keep our hospitals and
other public services running. HM Revenue
& Customs (HMRC) puts the ‘tax gap’ at
around £35bn annually.
Essentially, those paying - and being paid - cash in hand are getting a free ride while others are forced to pay more tax to cover the shortfall. The Government view cash-in-hand payments as effectively defrauding the state.
The spate of tax morality stories did not
stop there, either. The next victim of the
media appetite for tax avoiders was the
media itself, as it emerged that a significant
chunk of the BBC’s journalists and
presenters are paid as freelance contractors
through personal service companies.
And if any more proof were needed that
the Coalition Government is committed to
targeting the tax arrangements of the high
net worth, look at its recent ‘anti-affluence’
crackdown on homes worth £2m or more,
or the restriction on wealthy individuals
from fully utilising reliefs which were
formerly uncapped.
Most recently, the media and political
venom felt by Starbucks when it was
discovered the coffee chain has paid just
£8.3m in tax despite over £3bn in UK-
generated sales underlines more than
anything the delicate climate we are in.
Only a foolThe question at the heart of all of the above
is as follows: is it moral to pay as little tax as
you can, if it is legal to do so?
(We are, of course, aware that some readers of Insight will find it ironic that a firm of accountants is discussing the morality of tax. But as we see it, and given that tax is embedded within the very fabric of our society, it is inevitable that we, too, will have an interest in the debate.)
Having read a number of the articles that
ran over the summer, in relation to K2,
the BBC and cash-in-hand, what is clear is
that when it comes to taxation, morality
is inextricably linked - for many people
anyway - to legality.
If something is legal then it is widely construed to be moral.
Rightly or wrongly, the majority of people
will choose to pay less tax if they are in a
position to do so without breaking the law.
Stephen Pollard, a journalist at the Daily
Express, put it thus:
“Let me be blunt: only a fool would pay more tax than he has to. The Government sets the rules and the rest of us follow them. Who would choose to hand over more money than the law requires?”
WorldviewThe question Pollard ends with - “Who
would choose to hand over more money
than the law requires?” - raises a key issue
in the debate surrounding the morality of
tax avoidance.
It is that we are all different and that,
ultimately, there may be no right or wrong.
After all, some people - for political,
personal, religious or other reasons - do
indeed choose to hand over more cash than
the law requires them to do.
When Jimmy Carr ploughed a couple of million into the tax avoidance scheme, K2, he did not have a clue what was about to hit him. Before he could reel off even one of his more laconic one-liners, his morality was being questioned on the front page of every UK newspaper and breakfast TV sofa.
www.hwfisher.co.uk2 | Insight
InsightOthers, meanwhile, will do everything they
can to pay as little tax as possible, as that
fits perfectly with their own worldview.
In short, every person’s relationship to tax
and its payment is intrinsically linked to their
beliefs, their politics and their perception of
what is right and wrong.
By this logic, the morality of legal tax
avoidance is fundamentally subjective and
will never be resolved.
Arbiters of legalityTo look at it another way, surely every legal
framework is deeply political in itself, as
it is shaped and redirected by the political
parties and politicians in power at a
specific time?
Governments that bring in these laws are
widely known to be supported by high-net
worth individuals and companies that have
a vested interest in keeping the tax regime
structured in their own interest. Because of
this, many claim that the
politics of high finance are incestuously
embedded at the very heart of the legal and
tax system.
This is apparently no great secret, either.
A poll in late August by Christian Aid
showed that only 38% of us believe the
Government is genuine in its desire to
combat tax avoidance.
David Cameron’s attack on Jimmy Carr was,
most people acknowledge, for superficially
political rather than profoundly moral
reasons. After a pretty disastrous few
months for his party, he saw a vote-winner
and went for it.
Fertile backdropVery likely, given its ability to sell
newspapers, the tax avoidance versus
tax evasion story will continue to roll.
The tough economic climate is certainly
a fertile backdrop, as austerity puts state
support - therefore taxes - at the front of
everyone’s minds.
In this issue...
The morality of tax
Economic overview
Venturing into venture capital
Red flags - is your business struggling?
Who needs the banks anyway?
Get ready for gender-neutral pricing
Fraud indicators
How charities can make the most of their reserves
Calling all 50% taxpayers
Sustainable is Profitable
The business case for sustainability
In the spotlight... Mark Billingham
The labyrinth of licence agreements
Revolutionising the legal services sector
Why invest in Britain?
The taxing matter of UK residential property
Insurance for start-ups
Business tax update
HW Fisher news
Tony Bernstein, Tax Partner
T 020 7380 4977
GAAR
GAAR - the General Anti-Abuse Rule -
dovetails with the current moral critique
surrounding tax avoidance by putting in
certain tax rules that are based on principles
rather than precise terminology. In an
attempt to reduce the £35bn ‘tax gap’ (the
difference between what taxpayers actually
pay and what HMRC thinks they should
pay), GAAR will essentially empower HMRC
to base a decision on what it feels to be the
case rather than what may be the case
on paper. GAAR will be focused on larger,
organised avoidance schemes - effectively
‘pre-packed’ products - and will not
apply to the centre ground of responsible
tax planning.
This is different from the original GAAR
which was envisaged to stop the wider tax
planning. It was called the General Anti-
Avoidance Rule but has now been heavily
watered down to the General Anti-Abuse
Rule, which allows less provocative tax
planning to continue.
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Ultimately, though, there is no answer to whether it is immoral for people to use tax legislation to minimize their tax payments. The debate is destined never to end, as the views of one will always be different to the views of another.
To quote the German philosopher
Friedrich Nietzsche:
“You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.”
www.hwfisher.co.uk Insight | 3
Economic overview
We are not alone, of course. Autumn 2012
and the global economy remains massively
geared on debt, out of its depth and in the
midst of an unprecedented correction. The
Eurozone is still on the edge of collapse
and the mighty US economy is struggling
to get into gear - in September the Fed
printed even more money to try and
trigger growth - and even China is starting
to go off the boil.
Swiss cheeseHere at home, we went from recession
to double dip recession for much of the
year. All kinds of bodies and agencies
downgraded their growth forecasts for the
UK, not least the International Monetary
Fund. But unemployment fell steadily, and
by the third quarter the economy had shot
back into growth. Question marks still hang
over Plan A, the Chancellor’s commitment
to slash the deficit, as net borrowing - the
deficit - continues to creep up. As one wit
put it in the media, Plan A appears to have
“more holes than a piece of Swiss cheese.”
All in all, it is safe to say that the current
cycle is unlike any cycle we have ever
witnessed before. And all the time, the
credit agencies are circling the UK’s
treasured AAA credit status like vultures
round wounded prey.
The EuroAnd what of the Euro? The Euro is
irreversible, according to the European
Central Bank head, Mario Draghi. But few
believe him. Unless Germany agrees to issue
Eurobonds in order to reduce borrowing
rates for the likes of Italy and Spain, then
most agree the Euro is destined to fail -
and in the not too distant future, either.
Unfortunately, German Chancellor Angela
Merkel is not inclined towards Eurobonds
and the German people are becoming
increasingly fed-up with having to bail out
their Mediterranean counterparts.
$64m questionWhile George Osborne and Ed Balls throw
austerity and growth grenades respectively
at one another, the $64m question on
everyone else’s lips is this: When will it end?
It is more than five years since over two hundred people queued outside the Golders Green branch of Northern Rock on 14 September 2007, but the UK economy - like those savers - remains in a state of panic.
David Breger, Audit Partner
T 020 7380 4943
UK Economy: Positives and NegativesPositives
• Economy returned to growth
in the third quarter of 2012
• Unemployment falling consistently
• Inflation, despite surprise
uptick in July, much lower
than 12 months ago
• Interest rates to remain
low for some time
• AAA credit rating intact
(for the time being)
• Funding for Lending Scheme
to boost bank lending
• Launch of Government-backed
‘Business bank’ (but will it work?)
Negatives
• Public sector net debt of just over £1
trillion (2/3 GDP) as of September
• Will Plan A weaken the UK economy
rather than strengthen it?
• Exports to Eurozone very weak
• Consumers and business
lack confidence
• Banks still may not lend to
marginally higher risk people
and companies
• Inflation still ‘sticky’ and could rise
given volatile commodity markets
The answer is nobody knows. What we
do know, of course, is that it will end. It
will end when consumers, companies and
nation states have reduced their debt levels
to manageable levels. As we covered in the
last issue of Insight, the entire narrative of the
past 15 years has been one of debt - firstly
accumulating it, and then realising that we
have to somehow pay for it. But ironically it
is not all about debt. It is also about credit, or
rather the lack of it. For more than five years
now the banks - understandably - have been
cautious about lending. But this caution is
keeping the economy down, as without a
degree of credit the economy cannot grow.
Our own Nick O’Reilly, Brian Johnson and
David Birne have been banging this drum in
the media for some time. The Government
and Bank of England know this and in July
jointly announced the Funding for Lending
scheme, which is their latest attempt to get
the economy back to life (and an admission,
some say, that quantitative easing has failed).
This is about encouraging the banks to
lend to viable businesses and mortgage
borrowers where previously they may not
have. It is about getting us back to sensible
lending, because right now the banks are
too scared to even do sensible. In other
words, the banks will lend more but once
again not necessarily to the people who
need it - the first time buyers out there, and
those with smaller deposits or less equity.
At the time of writing, in October, it is still
too early to say whether the Funding for
Lending scheme will spur the economy
into life. The general consensus is that it is
unlikely to make a huge difference, as the
banks have been straitjacketed by Basel III,
which requires them to boost their capital
and liquidity base (and to do this, they need
to keep money rather than lend it out).
Companies and consumers alike remain
deeply cautious about whether it will work
(although thankfully there are a growing
number of alternative finance options for
business, see page 7).
Doubts also surround the Business Bank
announced by the Business Secretary, Vince
Cable, in the Liberal Democrats’ recent
party conference. But again, this won’t kick
in for at least 18 months and could prove
to be yet another ‘scheme’ that comes to
nothing. The long and the short of it is
that it is likely to be some time before we
have properly emerged from this crisis.
But perhaps the one silver lining to the
economic clouds hanging overhead is that
times of uncertainty always represent times
of opportunity - and trigger innovation.
The solution is to be bold - because we
have no other choice.
www.hwfisher.co.uk4 | Insight
Jamie Morrison, Tax Principal
T 020 7874 7983
These tax reliefs can prove very valuable to
investors and can offer them immediate
cash benefits to sit alongside their
investment. However, investors are unlikely
to be attracted purely for the sake of
accessing the tax relief; therefore any
proposition would need to be carefully
packaged and presented to potential
investors and would have to make
commercial sense.
There are two principal tax-advantaged
schemes for private investors looking to
make equity investment into SMEs - The
Enterprise Investment Scheme (EIS) and
the new Seed Enterprise Investment
Scheme (SEIS), which was introduced in
the 2012 Budget.
Below is a brief overview of the tax relief
available for such investors and a discussion
of some of the major points to consider
when looking at SEIS or EIS.
Seed Enterprise Investment Scheme (SEIS)
• Total ‘lifetime’ limit of £150,000 can
be raised by investee company
• Investee company must have
gross assets of less than £200k
prior to fundraising
• Trade must be less than 2 years old
• Investee company must have
fewer than 25 employees
• Investee company must not have raised
any other State Aid Venture Capital
• Maximum investor limit of £100,000
Enterprise Investment Scheme (EIS)
• Total limit of £5m annually
can currently be raised
• Investee company must have
gross assets of less than £15m
prior to fundraising and less
than £16m afterwards
• Investee company must have
fewer than 250 employees
• Maximum investor limit of £1m
Venturing into venture capital
Seed EIS EISIncome Tax Relief 50% 30%
Deferral Relief Yes - but 2012/13
gains exempt
Yes
CGT exemption Yes Yes
IHT Relief Yes - after 2 years Yes - after 2 years
The table below provides an overview of the available tax relief for investors:
There are a number of requirements for investors to satisfy, in order to secure the income and
capital gains tax reliefs, the main two of which are:
• The shares need to be owned for a minimum of 3 years
• The investor cannot control, either directly or indirectly, more than 30%
of the voting rights and issued share capital of the company.
For companies seeking to raise finance under these schemes, there are a number of pitfalls to be
avoided, the main ones of which are set out below:
• Funds raised under EIS need to be employed for the purposes of the trade
within 2 years. For SEIS this time limit is extended to 3 years.
• Not all trades are qualifying trades for SEIS / EIS purposes. In broad
terms, companies whose businesses consist of leasing, financial activities,
lawyers, accountants and investment activity will not qualify.
• The 2012 Budget also introduced an overarching anti-avoidance rule, called
‘the disqualifying arrangements rule’. It is designed to prevent investors from
securing tax relief where artificial structures without a commercial purpose have
been established with the sole intent of accessing the available tax relief.
• The investee company must be UK resident for tax purposes or
carry on a trade via a permanent establishment in the UK
• The company raising finance cannot be controlled by another company
• Any company looking to raise equity finance under SEIS or EIS cannot be in
‘financial difficulty.’
If a company raises funds under SEIS or EIS, it must make sure that it complies with the regulations
over a 3 year period following the issue of the shares; otherwise investors could lose the valuable
tax reliefs that incentivised them to invest in the first place. For companies wishing to attract
investors, it is possible to get pre-approval from HMRC that the proposed share issue to investors
will qualify under SEIS / EIS. In practical terms, any third party investor will want to see that the
company has its SEIS / EIS status pre-approved before committing to any investment. Once funds
have been invested, the company is required to provide HMRC with a Compliance Statement
giving details of the investors and the shares issued and HMRC will, in return, provide the
company with the certificates to provide to investors in order for them to claim their tax relief.
At HW Fisher we have significant experience in
helping companies looking to raise finance under
SEIS / EIS and ensuring that they comply with the
relevant tax requirements.
At a time where raising finance is proving a difficult task for many small and medium sized enterprises, the venture capital market can prove a happy hunting ground due to the enhanced tax reliefs available to investors subscribing for equity in qualifying trading companies.
www.hwfisher.co.uk Insight | 5
Red flags - is your business struggling?
I have dealt with hundreds of struggling
businesses over the years and there are
certain ‘red flag’ indicators that every
company should be aware of and act upon.
These red flags are basically signs saying
your company has some issues that need
to be resolved quite urgently. In all cases,
the sooner you seek to resolve the causes
of these red flags, the more likely your
company will pull through unscathed. But
if you continue to ignore them, the more
likely the underlying problem is to grow,
putting your company and the jobs of all
staff at risk.
It doesn’t matter what size or kind of
company you have either. You can be a
sole trader, in a limited company or limited
liability partnership (LLP). The biggest red
flags include:
• Difficulties covering (or failing to cover)
the monthly PAYE, corporation tax and/
or quarterly VAT bills. This is one of the
earliest warning signs and can quickly
snowball into an unmanageable level of
debt. If you are having issues covering
your tax liabilities, it’s essential that
you speak to HMRC ASAP, and even
consider a time-to-pay arrangement
• Experiencing regular cash flow
problems. So many perfectly viable
businesses fail because they do not
have the working capital to keep
themselves going, even if there is plenty
of revenue in the pipeline. Companies
need to be ruthless in ensuring they
have a sufficient cushion of working
capital, and avoid collecting client debts
too late or paying creditors too early
• Being busy but with no discernible
improvement in the financial position
of the business. The key here is to
have a clear strategy and clear goals
in place - what is going wrong, how
can you get out of this position, why
are you treading water? If you find you
are spending more time ‘fire-fighting’
than actually running your business,
you need to rectify the core problems,
not stick your head in the sand
• High incidences of customer complaints
and returns. While new business
is important, existing customers
and clients are arguably even more
important. Make sure that you
do not ignore existing clients and
customers while you seek to acquire
new ones to improve your position
• Failing to invest in new equipment,
resulting in high maintenance costs,
poor efficiency and loss of market
share to competitors. The solution
to this is to invest in your own
company, as over time it pays
dividends. Thrift can sometimes
be fatal.
• Constantly asking the bank for a
higher overdraft limit or larger loan,
or even considering remortgaging
or borrowing from friends to keep
your business going. If you are in this
position then you need to understand
that simply having more money at
your disposal is rarely the solution.
The key is to change something more
fundamental within the business
It is important to understand that not all
red flags are a sure-fire sign your business
is struggling - but they’re certainly a good
reason to take a long, hard look at it.
If a number of red flags apply to your
business then you should certainly seek
appropriate professional advice - and not
just for the sake of the business, but also
for your own personal wealth. After all,
if you are a sole trader rather than, say, a
limited company, your company’s liabilities
are deemed to be your own. This could
result in the loss of personal assets and
even, in extremis, your home. With limited
liability SME companies, directors often
provide personal guarantees and therefore
their own personal position is inextricably
linked to that of the company.
Brian Johnson, Business Recovery Partner
T 020 7380 4989
In such challenging economic times, it’s more important than ever to be aware of the signs that your business could be struggling.
Turning things aroundRemember that just because your business
is struggling does not mean it’s all over - as
well as carrying out formal administrations,
insolvency specialists also offer restructuring
advice. The aim of restructuring, or
‘turnaround’, experts is to work closely
with existing management teams, lenders,
creditors, stakeholders and investors to
ensure the best strategy for the recovery of
a struggling business. The type of work we
carry out includes:
• Performance reviews
Working with management to
review the financial performance
of the business and provide
an operational overview
• Recovery strategy
Working collaboratively with
the management team, lenders,
investors and other stakeholders
to develop a robust recovery
strategy that also reduces costs
• Implementation
Providing on-the-ground support
to ensure the restructuring strategy
is being implemented, possibly
by way of the introduction of
an interim manager to help the
existing management team
• Cash flow
Providing a bespoke solution to
help the management overcome
cash flow problems and secure
medium to long-term finance.
Note, too, that if your business is
experiencing difficulties, most insolvency
practitioners and turnaround specialists will
offer an initial consultation for free, so there
is no downside to inviting them in. Time is
of the essence.
www.hwfisher.co.uk6 | Insight
While we welcome this latest initiative to get
the wheels of the economy turning again, it
is by no means guaranteed to work.
Even if the banks do rediscover their
appetite to lend (and the jury is still very
much out), in many cases they won’t be
able to lend due to the 2019 arrival of
tough new standards on capital adequacy
and liquidity, known as Basel III.
Sea changeWhat is clear is that the Credit Crunch and
subsequent recessions have triggered a sea
change in the way SMEs are funded.
In the spring, we saw Tim Breedon, CEO of
Legal & General, publish a Government -
sponsored report, Boosting Finance Options
For Business. Hot on the heels of this
came the Business Finance Partnership, an
initiative focused on formalising alternative
sources of finance for SMEs.
Meanwhile, in the 2011 Autumn Statement,
Chancellor George Osborne announced the
arrival of a new tax break for investors, the
Seed Enterprise Investment Scheme (SEIS).
Essentially, SEIS enables HNWs investing up
to £100,000 per year in an individual start-
up to claim back income-tax relief equal to
50% of the amount invested.
In short, the Government and Bank of
England are acutely aware of the need to
remove businesses’ dependence on the
high street banks as a funding line or cash-
flow solution.
Adjacent, we look at two of the new
alternatives to traditional bank finance -
crowdfunding and invoice trading. One is
about raising money or securing credit, the
other is about circumventing cash
flow problems.
CrowdfundingCrowdfunding enables smaller businesses
and start-ups to raise money online through
interested investors or lenders, whether
private or institutional. It is ‘peer-to-peer’
borrowing or fundraising, rather than going
to the banks.
The money companies borrow is in the tens
or low hundreds of thousands of pounds
- rather than millions - and they could end
up borrowing it from just one investor or
lender or even hundreds of investors or
lenders at the same time - hence the idea of
funding from the ‘crowd’.
There are a number of online platforms
that offer this service, from Funding
Circle to Seedrs and Crowdcube. The
latter two are equity-based and targeted
at smaller businesses, whereas Funding
Circle is aimed at more established,
creditworthy businesses, and focused on
loans (and often requires asset security or
a personal guarantee).
Invoice tradingThis is focused on solving cash-flow
problems, which are growing all the time
as high street banks have reduced or
even cancelled many overdraft facilities.
It basically involves SMEs placing their
outstanding invoices in an online auction
and selling them individually or in bundles
to the best bidder (from institutional
investors and banks to asset-based lenders
and high net worths), thus giving them
quick access to outstanding funds. Sellers
then buy the invoice back from buyers,
generally after 30, 60 or 90 days.
The buyers get a fee for stumping up the
cash, which varies from auction to auction.
Invoice trading is different to traditional
invoice discounting and factoring, which is
usually offered under long-term, exclusive
agreements with a single bank or finance
provider. The two main invoice trading
companies are Platform Black
and MarketInvoice.
Who needs the banks anyway?
Let’s not beat around the bush. The Funding for Lending Scheme, launched by the Government and Bank of England over the summer, was an admission that Project Merlin had failed.
Crowdfunding case studyNorth London-based drinks start-up,
Kammerling’s, produces a ginseng spirit
that contains 45 natural botanicals,
offering an exciting new alternative
to the Gin, Bitters and Pimms product
range for more health-conscious
drinkers. In late 2011, Kammerling’s
successfully raised £180k from 85
investors for 23% equity in three
months (91 days) to ensure the next
stage of its expansion. Kammerling’s
needed the funding to increase
production and sales in the UK market
and to commence distribution to larger
high end stores such as Selfridges and
Harvey Nichols. Their aim is to launch in
select bars and target overseas markets
with the goal of making Kammerlings’
a global brand.
Invoice trading case studyNyman Resourcing recruits and supplies
IT experts to the banking and financial
services sector. Each month it pays a
salary to all its contractors, whether or
not its clients have paid their invoices.
So keeping on top of the business’s
cash-flow is of paramount importance.
In July 2012 the company successfully
auctioned its first invoices through
Platform Black. Nyman Resourcing’s
invoices scored highly on Platform
Black’s Experian-powered credit score,
as its clients are primarily large financial
institutions. It says the terms on which
it was advanced the money were much
more favourable than it would have
got from a bank and now plans to
use invoice trading regularly to stay in
control of its cash flow and ensure it
never misses a salary payment.
Nick O’Reilly, Business Recovery Partner
T 020 7380 4973
www.hwfisher.co.uk Insight | 7
It is on facts - empirical foundations - like these that insurers, for
decades, have based the premiums they charge policyholders.
A 45-year old man, for example, is going to pay more for life
insurance than a 45-year old woman because statistical analysis shows
that he is more likely to pass away while the policy is still live.
It is on this basis that pension providers have also calculated the
annuities they offer - a 65-year old man, for example, will get a more
generous annuity than a 65-year old woman with an equivalent
profile as statistics show that he is unlikely to live as long.
But this is all soon to change. In March of last year, hard facts and
empirical evidence were deemed inadequate by the European Court
of Justice.
In its eyes, insurance companies should not be allowed to discriminate
by gender when calculating insurance premiums and annuities - and
as of 21 December, with the enforcement of the EU Gender Directive,
doing so is set to become unlawful.
Seismic shiftSo-called ‘gender-neutral pricing’ is set to be a seismic shift within
the insurance and pensions world and yet its imminent arrival is
completely off the radar of the vast majority of people.
For example, a survey over the summer by London & Country
Mortgages found that 80% of women are completely unaware of the
EU Gender Directive - despite the fact that it will ramp up their car and
life insurance premiums, and knock down their retirement incomes.
Whatever you think of all this - some will agree, others will consider it
the latest piece of peculiar legislation to emerge from Luxembourg - it
is happening and we all need to prepare accordingly.
Depending on your gender and the type of product you’re looking
for - whether an annuity, say, or life insurance - the cost could change
significantly if you buy before 21 December 2012, or delay until after
that date.
Clearly, cost should by no means be the sole driver of a financial
decision - any course of action must be set against a person’s broader
financial and personal situation.
For example, what if a man were to delay taking out an insurance
policy until after 21 December 2012 in order to save money, but then
died before that date?
It is worth noting, moreover, that the new rules will not apply to
existing policies or contracts, only new ones. The important factor in
all of this is to seek independent advice, and sooner rather than later.
One final thing: the new gender-neutral rules do not apply to annuities purchased with occupational pension schemes, but only to policies that are voluntary, private and separate to a person’s employment.
Understandably, this has led to allegations of a two-tier, and therefore
unfair, annuities market - the kind of thing, some argue, the EU
Gender Directive was meant to do away with.
If you believe you will be affected by the EU Gender Directive,
and would like to take steps accordingly, please contact Eos
Wealth Management:
Richard Brand, Financial Adviser
Eos Wealth Management
T 020 7874 1194
Get ready for gender-neutral pricing
Here is a fact: on average, women live longer than men. Here is another fact: young male drivers are far more likely to have a car accident than young female drivers.
This is set to be a seismic shift within the insurance and pensions world
Eos Wealth Management Limited is authorised and regulated by the Financial Services Authority. Any tax reliefs or legislation mentioned are those currently
available or in force and are subject to change.
Call to actionFor example, it may be cheaper for women to:
• Take out life insurance, critical illness cover and PMI before 21 December 2012
• Wait until after 21 December 2012 before they purchase an annuity
However, it may be cheaper for men to:
• Take out life insurance after 21 December 2012
• Purchase an annuity before 21 December 2012
www.hwfisher.co.uk8 | Insight
Fraud, you see, is everywhere and the global recession is only making
things worse.
Fraud affects all areas of the economy, from the private and public
sector to charities and individuals. Increasingly, because of our reliance
on digital technologies, it is also cyber-related.
As far as businesses are concerned, the prevention and early detection of internal fraud is always more preferable to intervention after the event - the longer fraud goes on, and the more deep-rooted it becomes, the larger the financial, legal and indeed reputational ramifications.
Below are some of the ‘red flag’ fraud indicators that business owners
should be aware of.
If you spot any of these potential indicators of fraudulent activity,
there may be a reason to pay closer attention to a specific employee,
co-worker or even fellow director/partner.
Behavioural indicators• Employees who consistently work longer hours
than their colleagues for no apparent reason
• Employees who are excessively secretive in relation to their work
• Employees under apparent stress without identifiable pressure
• Employees who delay providing information or who
provide different answers to different people
• Employees who ask to defer internal audits or
inspections to ‘properly’ prepare, or who ask for
significant detail about proposed inspections
Financial indicators• Rising costs with no explanation, or that are not
proportional with an increase in revenue
• Large volume of refunds to customers
• Unusual transactions or transfers (even small amounts)
• Employees who submit inconsistent and / or unreasonable
expense claims
• Employees with unexplained sources of wealth
Procedural indicators• Employees making procedural or computer-system enquiries
inconsistent with, or not related to, their normal duties
• Customers or suppliers insisting on dealing with
just one individual in your organisation
• Key managers with too much hands-on control
• Managers who avoid using the purchasing department
• Tendering to one supplier only or always to the same suppliers
The key for business owners is to use ‘red flags’ in conjunction with
other risk management strategies. It is also important to be on top of
any changes in your company’s activities that could open up new or
potential fraud risks.
One good way to reduce the risk of fraud is to involve staff in identifying
fraud risks and how to prevent fraud within your organisation.
It is also worthwhile having a fraud response plan in place that
outlines the policies and procedures that must be followed in the
event of a fraud being detected or even suspected.
Alan Lester, Compliance Partner
T 020 7380 4979
Fraud indicators
A piece of major research into fraud carried out recently by the National Fraud Authority, found that fraud is currently estimated to cost £765 for every single adult.
www.hwfisher.co.uk Insight | 9
A charity’s reserves, if you are not overly
familiar with the finances of the third sector,
are the pool of funds that it presides over.
Some of these funds are ‘restricted’ or
‘designated’ and these must be used for
pre-defined purposes, as dictated by the
donors or as a result of internal decisions by
the board of trustees.
However, all charities have what are called
‘unrestricted’ funds, which are not allocated
to a specific area but can be used for any
purpose deemed appropriate by the charity.
Unrestricted funds constitute free reserves and the charity’s buffer for a rainy day.
Trustees are required to have a policy as to
what reserves they need to hold and why,
a statement which is published in their
annual accounts.
It is fair to say that many UK charities in
the past have been too cautious about
proactively using these unrestricted reserves,
and this can be exacerbated by a lack of
understanding as to what they need to hold
and what the figure they have represents.
In the current economic climate, many have
had to dip into their unrestricted reserves to
maintain their core services, but what they
have not done historically is think through
how these reserves, used proactively, could
help further the charity’s strategic plans.
Charities need to get the basics right.
Accurate budgets and up-to-date
management accounts are crucial if
a charity is to understand its financial
position and reserves needs. Many charities,
especially the smaller ones, are simply not
on top of their management accounts.
Also, many charities keep their unrestricted
reserves at a historical round figure
regardless of whether this may be too much
or too little. For example, a charity may
keep £500,000 in reserves but have no idea
what that figure represents - is it too much
or too little?
To get an accurate picture of their reserves position, charities need to look at their finances and reserves on a real time basis, not simply once a year when it comes to filing their annual accounts.
An assessment of the predictability of
income and expenditure, for example when
it will be received or need to be paid, will
assist with forecasting and projecting the
actual cash flow - and if and when it will
be necessary to use any reserves. It is this
kind of common sense-based monitoring
that can improve the confidence of a
charity’s trustees and ease them away from
stockpiling unjustified, fixed figure reserves
- a kind of ‘comfort blanket’ - that can hold
a charity back.
Charities should also have some form of
action plan for re-building reserves, which
may involve exploring new sources of
income such as trading activities. It is not, of
course, easy to find new ways to generate
income, but the process of the Board of
Trustees looking at diversifying income is an
important measure to undertake.
During difficult times charities should
ensure they focus on what they do best and
their core activities. This may mean dipping
into reserves to invest in improvement or
enhancement - this should certainly be
the first port of call before considering
diversifying into areas where the charity
is less familiar. However, charity trustees
should also not be afraid of making bold
decisions at the moment, and a sound
understanding of reserves needs will in turn
give trustees the confidence to do so.
How charities can make the most of their reserves
In our recent poll of 800 UK charities, we found that a significant 39% of them have not strategically adjusted their reserves policies since the economic downturn began. This came as quite a surprise.
Andy Rich, Charity Partner
T 020 7380 4988
Fresh thinking and a strategic fight-back,
involving looking at ways unrestricted
reserves can be used to enhance their
position rather than protect it - through
marketing, say, commercial opportunities
or regular impact assessment, will therefore
pay far greater dividends.
www.hwfisher.co.uk10 | Insight
This means that pension tax relief will also
go down.
If you are thinking of making a pension
contribution, it will pay not to delay, as right
now this means an additional 5% of relief.
Carry forwardCarry forward allows an individual
to contribute more than the annual
allowance (currently £50,000) without
incurring a tax charge.
Through carry forward, contributions that
exceed the annual allowance in one tax year
can use up unused annual allowance from
the three previous tax years.
For most individuals, tax relief can be
carried forward from the three tax years
immediately before the tax year in which
they are paying their contribution. So, for
someone wanting to make a contribution
during 2012/13 and use carry forward it is
typically possible to use up tax relief from
2009/10, 2010/11 and 2011/12.
In order to carry forward tax relief from an
earlier tax year an individual must simply
have been a member of any registered
pension scheme in that tax year and have
earnings in the current year that equal the
amount of the contribution, in order to gain
the relief.
Pension Input Periods - make the most of the rulesThe amount of the annual allowance
used by pension savers is worked out by
looking at the contributions paid in the
pension input period which ends in a
particular tax year.
Calling all 50% taxpayers - pensions tax relief at 50% - use it or lose it!
The additional rate of tax is going down to 45% with effect from 6th April 2013.
Eos Wealth Management Limited is authorised and regulated by the Financial Services Authority. Any tax reliefs or legislation mentioned are those currently
available or in force and are subject to change. Prepared using 2012/13 tax rates. The Financial Services Authority (FSA) does not regulate tax advice.
Most providers link the end date of pension input periods to the end of the tax year because it
makes it simpler for individuals to work out how much annual allowance they have used in a
given tax year. However it is possible to end your pension input period on a different date, so in
effect, it finishes in a different tax year.
This could enable you to make a contribution of up to £250,000 and receive 50% tax relief now, rather than 45% tax relief when the rate goes down in April 2013.
For example, the following case study illustrates how this could be possible: Betty has her own
interior design business and has had a great year of trading. Her anticipated earnings during
2012/13 are around £500,000. Betty is allowed to contribute £50,000 to a pension per year, as
a high earner, but hasn’t contributed to pensions for around 6 years, as this has not been high
on her list of priorities. Betty’s input period runs from 6th April 2012 to 5th April 2013. Betty
can use carry forward and pension input period rules to make the following contributions:
* It is possible for Betty to receive tax relief of 50% on this contribution by changing her input period so
that it finishes in the 2013/14 tax year.
How this works is that she makes a contribution of £200,000 now and receives allowance for
her three previous tax years and the current tax year.
She then changes her input period to 15th December 2012 and makes a further contribution of
£50,000. As this input period ends on 15th December 2013, this falls into the 2013/14 tax year. This
will give her an additional £12,500 of tax relief which she wouldn’t receive if she waited until after
April 2013. Acting now can give you an additional 5% tax relief, so speak to your financial adviser to
reap the benefits.
Tax year Unused Allowance Cumulative Carry Forward
2009/10 £50,000 £50,000
2010/11 £50,000 £100,000
2011/12 £50,000 £150,000
2012/13 £50,000 £200,000
2013/14* £50,000 £250,000
Russell Brooks, Financial Adviser
Eos Wealth Management
T 020 7874 1190
Insight | 11 www.hwfisher.co.uk
Sustainable is Profitable
With Governmental and public bodies urging businesses to become more transparent in reporting environmental performance, and energy prices soaring, there is an ever-growing incentive for businesses to accurately measure and report their emissions.
With this in mind, and after extensive analysis of the sustainability field, we
have built a team of experts that is able to offer true best practice and best
value solutions for clients.
We believe that adopting a pro-active sustainability strategy can enable
our clients to differentiate themselves, better enable the management of
risk and significantly reduce costs and carbon emissions. Our four-strand
approach to sustainability is outlined below.
Our approach to sustainability
• Energy and carbon auditing - provides an energy
and carbon footprint for the business and is a bespoke
product focused on your business needs
• Solutions audit - focuses on the opportunities for reducing energy
consumption and opportunities for generating energy more effectively
• Additional sustainability services - this could involve
drafting Corporate Social Responsibility (CSR) policies
or helping clients integrate sustainable procurement or
to set up an Environmental Management System
• Training - educating management, employees, customers and
suppliers in the adoption phase of a sustainability strategy.
www.hwfisher.co.uk12 | Insight
The business case for sustainability
Often in our discussions, clients say that they understand the need
for change and that they are interested in environmental and social
issues - but from a practical point of view they have not got a clue
where to start.
This is where a carbon audit is helpful, as it enables an organisation
to establish a baseline in terms of how much energy is being used,
what that energy costs and what the carbon emissions are that are
associated with that consumption.
This is often as far as many organisations go, but really, it should only
be the first step - simply measuring is not enough. The audit should be
used in such a way that it leads to increased efficiency in practice.
This is where a solutions audit comes in, where we follow the
energy hierarchy model of firstly identifying opportunities for
energy reduction (removing the need) and then looking at
opportunities for generating energy more efficiently through
improvements in on-site systems and - where appropriate -
renewable energy generation systems.
Coupled with this is the all-important realm of behavioural change.
The most powerful energy saving technology, after all, is the human
finger (turning it off).
Adjacent are two case studies of clients that have gone through this
process. They highlight the business case for energy reduction and
turning what is often viewed as an uncontrollable cost into something
that can be managed and improved upon.
Energy costs affect the bottom line of any business.
If savings of £50,000 are able to be delivered in a business with a
payback period of under four years, then that same business won’t
have to sell as many products or services to earn that profit.
Alternatively, a client of ours is interested in selling their business in
2-3 years. Every £50,000 of profitability in that business can be worth
on average 4.5-10 times that amount in the capital value of the
business. As such, that £50,000 of utility savings can translate into
£225,000-£500,000 of additional value in the business.
It is not a decision between being sustainable or being profitable.
Sustainable business is just about business common sense.
It can be hard for people to get their heads around the idea of sustainability within business, as huge issues like climate change, on the surface at least, have little to do with the day-to-day running of companies.
Jae Mather, Sustainability Director
T 020 7874 7985
Energy Saving and
Energy Production
Measures
Estimated
Saving /
Income p.a.
Estimated
Cost
Payback
(Years)
Return on
Investment
Driver Solution 1 £18,376 £700 for 35
Drivers
‹1 month 2625%
Driver Solution 2 £15,000 £700 for 35
Drivers
‹1 month 2143%
Vehicle Solution 1 £25,400 £11,275 for
35 Vehicles
5.3 months 225%
Vehicle Solution 2 £20,000 £3,250 for 10
Vehicles
2 months 615%
Totals £78,776 £15,925 ‹ 3 months 494%
Energy Saving and
Energy Production
Measures
Estimated
Saving /
Income
p.a.
Estimated
Cost
Payback
(Yrs)
Return on
Investment
Tonnes
of CO2
Savings
Switching Solution £537 £994 1.9 54.0% 2.8
Cooling Solution 1 £4,914 £9,992 2.0 49.2% 27.4
Boiler Solution £1,469 £5,700 3.9 25.8% 12.4
Cooling Solution 2 £838 £9,992 2.0 34.9% 4.5
Voltage Solution 1 £3,747 £17,422 4.6 21.5% 19.6
Heating Solution £424 £2,055 4.8 20.6% 2.2
Voltage Solution 2 £1,290 £7,708 6.0 16.7% 6.7
Lighting Solution £794 £7,106 8.9 11.2% 3.2
Totals £16,413 £58,879 3.59 27.9% 78.8 or
16% of
total
emissions
Transport Based Company
Energy reduction case studies
Medium Scale Office Based Company
Insight | 13 www.hwfisher.co.uk
As a fellow comedian, what’s your take on the Jimmy Carr K2 tax saga? Well, I’m sure a lot of people have been doing much the same thing,
but he is a high-profile comic, so it all made good copy. It also gave a
lot of other comedians plenty of material!
Talking of tax and money, is George Osborne right to stick with his ‘Plan A’, namely austerity?I’m no big fan of Mr Osborne, though I DID once go to a reception
at his house and the nibbles were top of the range! His plan certainly
seems to have lost the backing of a good many financial experts. It
clearly fits into a right-wing agenda and I’m personally not in favour
of curbing welfare spending or ‘shrinking the state’.
Where do you get inspiration from for your novels and stand-up acts? Ideas come from anywhere. If you let people know you’re a comedian
they always want to tell you jokes, but now people know I’m a crime
writer they’re keen to tell me all manner of beastly stories; from nasty
goings on among their neighbours to the best way to dispose of a
body. All material is gratefully received and tucked away.
What would you say is your biggest professional success? Definitely the books. I was thrilled that my last three novels went to
number one on the bestseller list. Obviously my kids see that and
immediately expect an increase in pocket money. When that happens,
I strictly enforce my own austerity package...
Who is your favourite author and stand-up comedian?Lots of favourites. Among the classic mystery authors, I love Dashiell
Hammett and Arthur Conan-Doyle and of the contemporary crowd I
would urge anyone who hasn’t already read such writers as George
Pelecanos or John Connolly to rush out and buy their books. I love the
sixties stand-up of Woody Allen and, of the current crop, I’m a huge
admirer of Louis CK. There’s great stand-up to be found almost every
night on the London circuit which is still the best in the world.
What do you expect from your accountants? Well, it sounds obvious but I expect sound advice based on an
understanding of how I make my money and what my attitude is to
spending it. I expect that the price I pay for this will be money well
spent, considering how much I get in return and how much better off
I will be in the long term.
What’s your biggest ever indulgence financially? I was going to say property, but I’m not sure that IS an indulgence.
It still seems like a pretty sound investment to me, however iffy the
housing market might be at the moment. So, probably my car, which
will only ever go down in value, but which makes me feel very happy
every time I get into it.
What’s the best piece of advice you’ve ever been given? If it’s going badly, get off. If it’s going well... get off!
In the spotlight... Mark Billingham
Our client, Mark Billingham, is a stand-up comedian and an award-winning crime novelist.
www.hwfisher.co.uk14 | Insight
For example, not so long ago Microsoft
was ruled to have abused its dominant
market position when it demanded a
royalty on each computer sold by a supplier
of its operating systems, irrespective of
whether or not the computer contained
Windows software.
Now this will seem frankly quite ludicrous but it underlines the brute commercialism of some licensors - and the need for licensees to stand their ground and understand their rights.
Likewise, a global semi-conductor company
tried to impose anti-competitive practices
on a UK software reseller, whereby the
latter could only sell in France at a price
higher than was the case in other territories.
The UK software reseller countered with
Article 102 of the Treaty of the Functioning
of the European Union (TFEU), which states
it is illegal for companies ‘to directly or
indirectly impose unfair purchase or selling
prices or any other trading conditions’.
Licensee libertiesBut it is not always licensors that are at
fault. I have dealt with countless cases
where licensees have gone outside the rules
of the agreement with the licensor.
For example, it is not uncommon for
licensees to sell licensed products outside
their designated territory, which can cause
licensors, who have relationships with
multiple licensees, a major headache.
One argument licensees often give when
breaking agreements in this way is that the
sales outside their designated territory were
‘unsolicited sales’, which, under current EU
law, are legal.
In reality, what can happen from time to
time is that the licensee actively seeks the
sales outside its territory - thus breaking the
agreement with the licensor - and, when
it is found out, argues that the company
it sold to outside its designated territory
approached it, rather than vice versa.
Sometimes, to muddy the waters, the
licensee may attempt to be especially clever
and sell to a company within its designated
territory who then passes on the product to
a buyer outside the territory.
In all cases like this, the onus is upon
the licensor to prove otherwise, which
can be extremely time-consuming
but, depending on the scope of the
agreement, extremely worthwhile.
Abuse backfiresLicensees have to be careful, though, as
abusing the terms of an agreement can
seriously backfire. For example, when they
enter into an agreement, licensees will
generally pay a minimum guarantee, or
advance royalty, to the licensor.
Now, whenever the licensee sells products
according to the rules of the agreement,
those sales can be offset on their statement
against the advance royalty. But if the sales
are to non-designated territories, then they
cannot be offset against that royalty.
We have seen so many cases where
unsolicited out-of-territory sales have
been set against the minimum guarantee
payment by the licensee and we have
successfully challenged this, meaning the
licensee has to pay over additional royalties
on these sales, even if the minimum
guarantee has not yet been recouped.
Example:Licensee pays a minimum guarantee of £25k
on sales of branded T-shirts.
Licensee subsequently sells £300k of those
branded T-shirts, declaring a 10% royalty of
£30k and pays over just the additional £5k.
Through the audit, the licensor discovers that
£100k of the T-shirt sales were unsolicited
sales outside of the authorized territory.
Conclusion: only £20k of royalties
(£200k@10%) can be offset against the
minimum guarantee, requiring an ‘overage’
payment of £10k, not £5k.
Having the SSNIP
Returning to licensors and anti-competitive
rules under EU law. All licensors must
beware that they do not impose anti-
competitive conditions on their licensees.
For example, if say, the licensor wants
to dump inventory into the market or
aggressively target a competitor’s products
(and send it out of business), it cannot force
a licensee to charge a minimal price.
Alternatively, it cannot abuse its market
dominant position and demand that a
licensee charges too much for its product,
or slowly force the licensee to raise its prices
(thus influencing market price).
In the latter case, if the licensor fails the
SSNIP (Small but Significant and Non-
transitory Increase in Price) test and also
controls more than 40% of the market,
then it could be fined a phenomenal 10%
of its global turnover.
Regular reviewsIn summary, and as stated at the very
beginning, licensing agreements can
throw up all kinds of challenges and it
is important that both parties regularly
review the agreement.
Whatever the law and whatever the rules within an agreement, it is important to bear in mind that these will always be looked at against a backdrop of commercial reality.
The moral of the tale is this: whether you
are a licensor or a licensee, don’t take
anything for granted and always seek
professional advice.
Stuart Burns, IP and Royalties Partner
T 020 7380 4964
The labyrinth of licence agreements
One area that is especially prone to smoke and mirrors is the law regarding anti-competitive practice.
www.hwfisher.co.uk Insight | 15
We don’t need to drill down into the numerous intricacies of the ABS
here today, but the main thing to understand is that, for the first time,
they enable legal firms to be owned by, or take external investment
from, non-legal firms.
Or put another way, the advent of ABSs is enabling existing suppliers
of consumer services to branch into legal services, giving them the
moniker ‘Tesco Law’ (although ironically, of the supermarkets only the
Co-op, and not Tesco, has registered an ABS thus far, Co-operative
Legal Services Limited).
Legal watchdog, the Solicitors’ Regulation Authority, confirmed the
first three applications from non-legal firms at the end of March and
at the time of writing in October around 30 non-legal companies have
successfully applied to enter the sector. August was a particularly busy
month, seeing 13 new ABSs approved. Things are heating up.
Many existing law firms have also applied, and been approved, for
ABS status, as it enables them to seek external investment. Examples
include Parabis and Irwin Mitchell. So there is plenty of activity not
just from outside the sector, but also from within.
Traditional law firms, as you would imagine, are facing a major
challenge here, especially those focused on more commoditised
legal sectors, such as: Wills and Probate, Conveyancing, Family Law,
Personal Injury and Employment Law (all the sectors the Co-op is
focusing on, in fact).
Insolvency trade body, R3, is very wary of the threat ABSs represent to
traditional high street law firms and believes up to 2000 small firms
are at risk of failure over the next year.
It expects many of them to be overwhelmed by the arrival of new,
financially stronger firms, which will be far more competitive on
price and also much slicker in terms of their brand, marketing and
IT systems.
Lee Manning, R3 President, commented that: “Law firms are
operating in a challenging environment and the marketplace seems to
be getting tougher and tougher.” He is not wrong.
So what developments are likely in the months ahead? Could a
household name within financial services snap up a big UK firm of
solicitors and launch into the sector aggressively?
Might we also see an increased level of merger activity, whether
an accountancy firm teaming up with a law firm to create a multi-
disciplinary practice or even a law firm jumping into bed with a big
estate agency firm to offer an end-to-end property solution?
Whatever happens, I don’t expect we will be waiting too much longer
for a Big Bang event.
HW Fisher & Company surveys law firms on ABSs
Alternative Business Structures (ABSs), came into being in the Legal Services Act 2007. If they sound lacklustre and uneventful, they are quite the opposite. In fact, it is fair to say that they have the potential to revolutionise the legal services sector in the months and years ahead.
Nauzer Siganporia, Professional Practices PartnerT 020 7380 4965E [email protected]
Paul Beber,Professional Practices PartnerT 020 7380 4961E [email protected]
Revolutionising the legal services sector
What is clear is that, in the current fast-changing environment,
capital raising initiatives, M&A opportunities and, most importantly
perhaps, exit strategies, must be at the very top of a law firm’s
priorities if it is to survive and thrive in the years ahead.
If you would like to receive a copy of our SME Legal Practices
Survey 2012, please email [email protected]
To discuss capital raising initiatives, M&A
opportunities and the most appropriate exit
strategies for your firm, please contact:
With corporate giants like Co-op already in the legal services arena,
you would think SME law firms would be doing everything they can
to prepare for the potentially life-or-death battle ahead.
But as yet, according to our survey of SME law firms that we carried
out earlier this year, over half (52%) of SME law firms think the
Legal Services Act (LSA) will not even affect them over the next 12
months, while just 15% believe they will lose business. Are they
being overly optimistic? R3, see above, certainly thinks so.
Encouragingly, 22% of respondents to our survey believe the LSA
will help them gain more business over the next 12 months, due
to merger plans or other opportunities created by a broader legal
services market - while 26% are now seriously considering seeking external investment (up from 11% last year).
www.hwfisher.co.uk16 | Insight
The overseas money keeps pouring in because Britain is seen as a deeply stable place to invest.
According to UK Trade & Investment (UKTI), Foreign Direct Investment
(FDI) in the UK created or safeguarded 112,659 jobs from 1,406
projects in the financial year ending 31 March 2012, confirming its
role as a vital driver of the UK economy.
Indeed, UKTI confirms that the number of jobs attributed to FDI
increased by 19% last year on the previous year, while the number of
FDI projects remained stable, despite the recent economic difficulties
in Europe.
Also, companies from 58 countries invested in the UK in the latest
financial year, up from 54 the previous year. Despite the economic
downturn, things are on the up.
UKTI’s figures are confirmed by other organisations, not least the
Financial Times. In its fDi Intelligence Report 2012, the FT ranks the
UK as the primary FDI location in Europe.
So why is the UK such a popular place for international firms to invest
and set up base? Some of the major reasons given by UKTI and
HW Fisher & Company (one of its partners) are outlined below.
• Perfect Euro beachhead - The UK economy is one of the
largest and most sophisticated in the world and a proven
gateway to the US$17 trillion European Union market. And
being outside the Eurozone, the UK provides the perfect
beachhead: easy access to the EU market but at the same time
insulated to some degree from volatility in the single economy.
• Not lost in translation - As an English-speaking country,
the UK has an advantage over many of its continental rivals.
Investors in Britain can feel confident that everyone in the
country speaks the international business language, English.
• Unrivalled business environment - The UK is the best major
location for ‘ease of doing business’ in Europe according to an
independent assessment by the World Bank that considered
a range of key commercial operating factors (such as setting
up and running a business, labour regulations and obtaining
finance). UK employment laws and red tape are frequently
less onerous than those of our European neighbours.
• Competitive tax environment - In March, the Chancellor made
Britain an even cheaper place to do business, announcing a
larger than expected cut in the main rate of corporation tax from
24% to 22% by 2014 and a reduction in the top rate of income
tax. Innovative companies will also be able to benefit from an
additional reduction in corporation tax through the upcoming
‘Patent Box’ initiative and through recent enhancements to the
UK’s generous research and development (R&D) tax credit scheme.
• Future-proof skills base - The wealth of skills for international
companies to draw from will remain secure for the future -
over half a million full-time and part-time students graduate
each year from the UK’s 170 universities and higher education
institutes, the highest graduate output in Europe.
• Europe’s R&D head - Companies operating in the UK
benefit from being in the strongest R&D environment in
Europe, with direct access to a range of world-class research
institutes and eight of Europe’s top nine universities.
The results are clear - the UK has a long and prestigious
track record of developing and launching market-leading
innovations across all key business sectors, from life sciences
and advanced engineering to environmental technologies.
• Quality of life - As one of the most cosmopolitan countries
in the world, Britain provides a welcoming environment for
international business executives and their families. With
its mature property market, first-class health service and
world-renowned education system, international executives
relocating to the UK enjoy a superb quality of life.
• Long-term ROI - Many thousands of international companies
have already made the UK their preferred choice for their
business investments. Each year, hundreds of these companies
also make repeat investments in the UK by adding new
facilities and recruiting more employees - the strongest possible
commercial endorsement of the UK’s business environment.
With its unfamiliar laws and regulations, opening a business in a foreign country - even one as stable and internationally recognised as Britain - can be intimidating, but it needn’t be overwhelming.
It goes without saying that it should not be attempted without first
doing some detailed research and seeking expert advice, which, at
HW Fisher & Company, we are more than happy to provide.
Michael Davis, Managing Partner
T 020 7380 4963
Why invest in Britain?
Nobody can deny that the British economy is bruised, battered and on the back foot. Despite this, Britain remains a key market for international companies, rising above the vagaries of the economic cycle.
www.hwfisher.co.uk Insight | 17
Here we take a top-level look at the main
taxes that enter the equation when buying
or selling residential property in this country
for both UK and non-UK residents.
They are: Income Tax, Capital Gains Tax,
Inheritance Tax and Stamp Duty Land Tax.
Given the complexity of these taxes, and
to ensure you pay no more tax than you
should, it is important to seek advice
sooner rather than later.
Clearly, the specific level of tax you
pay in each of these categories can vary
considerably according to your
specific circumstances.
UK Residents• Income Tax - if you rent out a property,
Income Tax of up to the highest tax
rate of 50% (this year) is due on the
net rent after all available deductions.
Income Tax at the appropriate rate
also applies to the profits on sale of
certain development property, e.g.
where that property was developed/
refurbished for immediate sale, and
also if you are a trader of properties.
• Capital Gains Tax (CGT) - only applies
to second homes (that is not your
main home) or investment properties.
When sold or gifted, these properties
will generally incur CGT of up to 28%
on the gain. There are some situations
where gains can be taxed at a lower
rate of 10%, e.g. the sale or gift of
a short-term holiday let. Non-UK
domiciled individuals can sometimes
avoid CGT altogether through the use
of offshore trusts.
• Inheritance Tax (IHT) - levied, on
death, at 40% of the net value of a
property (after the deduction of any
outstanding mortgage debt). There is
currently a Nil Rate Band on property
of £325,000, so if the net value does
not exceed that, no tax is payable.
Properties gifted between spouses or
civil partners are often exempt from
IHT. Non-UK domiciled individuals
can sometimes avoid IHT if they
own a property through a non-UK
company, although there may well be
changes in this respect from 2013.
Non-UK Residents• Income Tax - non-UK residents owning
a UK rental property will have to pay
Income Tax on the net rent of up to the
top Income Tax rates. However, only
basic rate tax is payable if the property
is owned through an offshore company.
Income Tax - rather than CGT - still
applies at the appropriate rate to the
profits if the UK Revenue consider you
are a trader. (However, if the property is
owned by an offshore company and the
owner is non-UK resident, only the basic
rate of tax is payable on such trading
profits.) If you are developing property,
then this will bring the offshore
company into the UK Corporation
Tax regime, with a maximum 24%
liability on any UK profits.
• Capital Gains Tax (CGT) - currently,
no CGT is payable on the gain from
the sale or gift of a UK residential
property personally held by non-UK
residents. But beware: from next
year, owning residential properties
valued at £2m or above through a
non-UK company could incur CGT
and also a potential annual payment
(‘Annual Charge’) of up to £140,000.
• Inheritance Tax (IHT) - as with UK
residents, IHT is levied, on death,
at 40% on the net value of the UK
property (reduced by outstanding
loans). Again the Nil Rate Band,
currently £325,000, is available so if
the person’s net value does not exceed
that, no tax is payable. Properties gifted
between same domiciled spouses or
civil partners are often exempt from
IHT. Non-UK domiciled individuals
can sometimes avoid IHT on their UK
assets if they own them through a
non-UK company, however given the
proposed changes from April 2013
affecting properties valued at greater
than £2m (mentioned earlier), this
will require careful consideration and
advice should always be sought.
Stamp Duty Land Tax (SDLT)SDLT is payable upon purchase of any UK
residential property (wherever the owner is
situated) at the following rates:
Nb: Properties valued above £2m owned
through a ‘non-natural’ entity, such as a
company (whether that company is UK
based or offshore), will be liable for SDLT
at 15%.
If you would like advice on any tax issues
relating to the purchase or sale of UK
residential property, please contact:
For most people, buying or selling UK property can be a daunting event - all the more so if they are not based in the UK or are not UK resident for tax purposes.
Alan Lester, Property Partner
T 020 7380 4979
The taxing matter of UK residential property
Purchase Price
<£125,000 0%
£125,001-£250,000 1%
£250,001-£500,000 3%
£500,001-£1,000,000 4%
£1,000,001-£2,000,000 5%
£2,000,001+ 7%
www.hwfisher.co.uk18 | Insight
This is not necessarily wise. The moment new businesses, however
small, have staff, premises, hardware, software and engage with
external companies or clients, they are exposed to numerous risks -
many of which could cause them serious financial harm.
Including insurance as a cost in the business plan prevents any surprises further down the line. After all, the balance of cover and price is crucial when you are setting up.
Most people think of some of the obvious insurances such as the
premises and contents cover. However, there are many types of
insurance that start-up companies should consider - they vary from
business to business, of course, and some cover is compulsory, so it is
vital to seek appropriate professional advice. Here are a few examples:
Professional Indemnity InsuranceProfessional Indemnity (PI) insurance is generally taken out by
companies providing advice or professional skills. It protects their
businesses against claims for loss or damage made by a client or third
party if they are deemed to have been negligent, or to have made
mistakes during the course of their day-to-day activities. Usefully, PI
insurance also covers the potentially sizeable legal costs that can arise
during a dispute. Many professions e.g. solicitors, mortgage brokers,
financial advisers, PR agencies and accountants have to have this
cover by law. Many though, who are not required to take out this
cover compulsorily, would be wise to consider it in order to protect
their business from financially damaging litigation.
Directors and Officers’ LiabilityThe directors and officers within any business have numerous duties
and responsibilities relating to their position. They will generally be
held responsible for a number of areas, including; health and safety;
fraud; negligence; data protection; and maintaining satisfactory
accounts. Directors’ and Officers’ (D&O) liability insurance protects
the directors and officers of a company from any claims against them
in these areas. If a director or officer is found to have accidentally
acted outside their terms of reference and this results in a claim,
compensation and legal fees will be covered by the D&O policy. If,
however, the act was deliberate, then it may not be covered.
Being properly insured from the outset can minimise business risk and for a relatively small outlay, companies can protect themselves against these risks and then concentrate on growing their business with renewed peace of mind.
Employers’ Liability Insurance
If you employ staff, you are required by law to have a minimum of £5 million cover for Employers Liability.
Employers’ Liability insurance helps businesses cover the costs of
damages and legal fees when employees are injured, or become ill
at work, due to the negligence of the employer (note that ‘illness’
can include stress, depression or being overworked). It is a legal
requirement for employers to have this insurance and to be covered
for a minimum of £5m, but most insurers tend to provide cover
of £10m anyway. In some cases, employees injured due to an
employer’s negligence can seek compensation even if the business
goes into liquidation.
Public Liability InsuranceCompanies need public liability insurance if members of the public,
clients or customers visit their premises. This type of insurance also
covers any damages awarded to a 3rd party as a result of an injury,
or damage caused to their property, by a company member. As a rule
of thumb, this will cover all expenses, legal fees, costs and hospital
treatment. Premiums can vary quite considerably depending on the
type of business, e.g. hotels and restaurants, with their large footfall,
will generally be required to pay more for their insurance.
When businesses launch, for the first year or two they are primarily focused on growing market share, building their client or customer base, driving up sales, developing products and establishing themselves financially. What most start-ups do not pay a thought to is insurance. In fact, it is fair to say that insurance is often the last thing on their minds.
James Agnew
Stackhouse Fisher
T 01483 407454
Insurance for start-ups
We also provide the following corporate insurance services to established businesses:
• Professional Indemnity
• Office packages
• Directors’ and Officers’ Liability
• Commercial combined cover
• Fleet insurance
www.hwfisher.co.uk Insight | 19
Here, we look at some of the areas of
business tax that have proved particularly
eventful or interesting in recent months.
What’s been happening, what is set to
happen in the near future and, above all,
how could it affect you and your business?
Real Time InformationReal Time Information (RTI), if you have
not come across it before, is set to
fundamentally change the way employers
provide HMRC with information relating to
PAYE payments.
Starting for most businesses in April 2013
and for all businesses in October of next
year, RTI will require companies to inform
HMRC about PAYE, NIC and Student
Loan payments at the exact time that they
are made, if not earlier - in ‘real time’ -
rather than monthly, quarterly or annually
in arrears.
The idea is to bring the PAYE system into
the 21st Century, and there is no doubt
that it represents one of the biggest
changes in this area since PAYE was first
introduced in 1944.
RTI, unsurprisingly perhaps, has attracted a
lot of criticism. Due to practical difficulties,
HMRC have relaxed the rules so that some
payments can be reported shortly after they
are made.
Even with these relaxations, you have to
question the practicalities of the new
RTI regime and the burden they place
on employers.
A number of professional bodies are
currently lobbying HMRC, urging it to give
employers time to adapt to the RTI regime
- and to adopt a ‘light touch’ approach to
penalties in the initial years. In fact, the
changes are deemed to be that radical, they
are seeking to get HMRC to agree to no
penalties at all in Year 1.
Non-compliance may be a real issue,
particularly for those within the
Construction Industry Scheme (CIS).
Even those small employers currently
allowed to use ‘simplified’ payrolls and who
are exempted from the mandatory online
returns, will be pulled into the new system
in due course.
Unless you have confidence in HMRC’s
charitable nature to waive the penalties,
what is important is that companies start
making preparations now for RTI. How
will it affect payroll and broader business
processes? What happens if businesses do
not comply?
If you have any questions about this then
by all means speak to your usual point
of contact in the firm. It is an area that is
evolving fast but we are more than happy
to keep clients up-to-speed with the
latest developments.
Avoidance or evasion?An article ran recently in economia
magazine, the official publication of the
ICAEW (Institute of Chartered Accountants
in England and Wales), looking at the
difference between tax avoidance and tax
evasion within business.
It sought the views of experts in the industry
and asked them the following question: Is
tax planning a means for companies to get
out of paying what they owe, or simply the
most efficient interpretation of the rules?
Our corporate tax partner, Brian Lindsey,
was one of the experts on the panel and
here is what he had to say:
“Just because companies pay taxes at a different rate doesn’t mean they are arranging their taxes in a particular manner to reduce their tax liability. We wouldn’t countenance any form of evasion but clients would like us to ensure they are paying the correct amount of tax, based on what the legislation says, so we will always advise on what allowances are available.”
In the article, Brian admitted that in the
current climate there is a far greater
emphasis on what is perceived as fair, and
clients increasingly have to factor this into
any decisions they make (see our cover
feature, ‘The morality of tax’, on page 2).
Brian also noted that the introduction of
the GAAR (General Anti-Abuse Rule) should
provide a greater degree of certainty in the
long run, although in the short term there is
still the potential for greater confusion:
“All parties would prefer a simpler system but every time there is a new Budget the legislation gets more complex. A system with fewer rates of tax where everyone knows where they’re heading with their tax position would be helpful.”
It would be helpful, certainly, but previous
‘simplification’ measures have not lived up
to their billing.
Some will argue to the contrary but as we see it there is never a dull moment in tax. The rules are constantly changing, it is always in the news and, one way or another, it affects each and every one of us.
Business tax update - what the changes mean for you and your business
www.hwfisher.co.uk20 | Insight
Patent BoxAfter almost three years of consultations,
the ‘Patent Box’ rules have now been
passed as law. The Patent Box, which we
have covered in previous issues of Insight, provides a 10% tax rate for profits from
patents within the regime - although this
preferential rate is being phased in over
four years.
It is important to understand that the 10%
rate will only apply to patent profits within
the regime, but this applies from April 2013
- next year - with the benefits being tapered
in until fully operational after April 2017.
So it is important to start planning as soon
as possible.
This is especially the case as not all patent
profits will qualify. There will be a deemed
profit from activities other than from
patents; for example, a notional profit is
attributed to the ‘brand’ which will be
outside the “box”. Transfer Pricing issues
will also require consideration.
It is not just UK patents that can be put into
the box. Patents granted by the EU Patent
Office and a number of other EU countries
can also be included. In order to qualify, the
company (or a member of its group) must
either own or have an exclusive licence to
the product and whatever the ownership
rights, must have developed the IP or a
product that uses them.
The rules surrounding the Patent Box are
extremely complex and the calculations of
applicable profits really quite convoluted,
but the possible application of a 10% tax
rate to profits may well make use of Patent
Box very attractive to many UK and overseas
owned companies within the charge to UK
Corporation Tax.
As ever, we are happy to advise any
companies on whether the Patent Box could
benefit them.
SEIS and Shelf CompaniesThe Chartered Institute of Taxation (CIOT)
has publicly criticised the Government’s
decision to exclude ‘shelf companies’ from
the new Seed Enterprise Investment Scheme
(SEIS - see page 5 for a closer look at SEIS
schemes and how they work).
The CIOT has basically said that it
is concerned that people setting up
companies, or investing in them, may
not be aware that by purchasing a shelf
company from a corporate provider -
common practice among those establishing
new companies - entrepreneurs may
unwittingly exclude themselves from access
to the SEIS.
John Barnett, Chairman of the CIOT’s
Capital Gains Tax and Investment Income
Sub-Committee, said that “denying SEIS
relief for shelf companies seems bizarre and
illogical. EIS companies are not subject to
the same requirement, so why deny relief
to SEIS companies? SEIS companies will, by
definition, be smaller start-ups, which are
likely to use a shelf company in this way.”
Barnett continued as follows: “Of course,
those that are able to take advice will avoid
this pothole by setting up the company
from scratch rather than buying a shelf
company, but I fear that many may be
caught unawares. This is, unfortunately,
one of many nit-picking points that bedevil
venture capital reliefs. The Government
has introduced these reliefs to help
entrepreneurial companies, but HMRC then
seems to hedge the relief about with so
many conditions.”
We couldn’t have put it better ourselves.
More on this issue as it develops.
CHANGEAHEAD
Tim Walford-Fitzgerald,
Senior Tax Manager
T 020 7380 4927
www.hwfisher.co.uk Insight | 21
Providing efficiencies for our clients FisherE@se is an online accounting service that essentially becomes your company’s back-office.
HW Fisher news
Personal considerations• How to maximise pension allowances
• Pension tax relief and retirement planning
• Investment ideas
Partnership considerations• Partnership protection
• Succession planning
• ABS impact for lawyers - and similar
considerations for other professions
Date: Thursday 29 November 2012Time: 8.00amRSVP: Juan Muguerman ([email protected])
Navin Thaker, Partner
T 020 7874 7958
Upcoming seminarsSmart planning for legal professionals
This breakfast session is aimed at lawyers, solicitors and professional
partners generally that want to move their personal finance up the
agenda as well as discuss ideas for the partnership as a whole.
Key benefits: • Smaller businesses can access a team of dedicated back-office specialists that
would otherwise be unaffordable
• No need for investment in expensive software and training
• Larger organisations can make savings by allowing us to provide the back-office
support that is normally an expensive overhead
• Review records or check progress online at any time
• All clients have their own user name and password, so information is kept secure
and confidential.
Our services include: • Regular bookkeeping assignments
• Monthly management accounts
• VAT return preparation
• Payroll services
• Accounts receivable
• Accounts payable
• Bank account reconciliations
• Ad hoc assistance with SAGE 50
and Quickbooks
• Routine large volume transaction processing
The seminar will cover:• How to create a seamless supporter
journey across your website
• How to be a social charity, encouraging
participation and cultivating communities
• How to measure and monitor success
• VAT and tax updates
Speakers:Tom Latchford, CEO of Raising IT - keynote speaker
HW Fisher & Company experts - tax and VAT advice
Date: Thursday 29 November 2012Time: 3.30pmRSVP: Juan Muguerman ([email protected])
Reduce costs and increase income using digital media
This seminar focuses on one of the most important issues facing all
charities today - how to reduce your costs and increase your funding.
www.hwfisher.co.uk22 | Insight
HW Fisher news
Award recognitionWe are delighted to have been announced as a finalist at The British Accountancy Awards
2012 in the ‘Mid-tier firm of the year’ category. It is the second year in a row that HW Fisher
have been shortlisted for an award at this prestigious event. The shortlist selection was based
on criteria such as; profitability/growth; professionalism; measurable success; innovation;
people; and corporate social responsibility. We look forward to the ceremony on Wednesday 21
November 2012.
Specialist pensions audit and advisory servicesHW Fisher & Company has a specialist Pensions Group acting for approximately 80 pension schemes located throughout
the country and ranging from SSAS’s to multi-employer and defined benefit schemes with assets up to £350m. We offer
a specialist audit and advisor service to pension schemes and we are ideally placed to be able to assist and advise you
in respect of negotiations with your Actuary and the Pension Regulator with respect to key issues such as compromise
arrangements, the employers’ covenant, actuarial valuations and deficit reduction plans. Our pension specialists also
offer a full range of advisory services to directors including pension planning, auto-enrolment and flexible benefits.
HW Fisher interviewed for ‘Responsible Business’
Our specialists have been interviewed by Collaborative Media to create a programme that looks at good
financial planning and discusses the important part it plays in the success of every major company.
Nick O’Reilly (Business Recovery Partner), David Breger (Audit Partner) and Jae Mather (Sustainability Director)
provide their views on the current economic climate and how to plan ahead for growth and future success.
The programme will appear on SKY 212 and BBC/ITV Freesat 401 in December. We will keep Insight readers
informed of the exact broadcast date nearer the time.
David Breger, Pensions Partner
T 020 7380 4943
Hilary Mantel wins 2012 Man Booker Prize
HW Fisher & Company would like to congratulate our client Hilary Mantel for her outstanding achievement.
With over 100 novels submitted for the “Man Booker Prize” there was only one winner: Hilary Mantel’s Bring up the Bodies.
Hilary previously won the Man Booker Prize for her novel Wolf Hall (in 2009) making her the first woman to
receive the award twice.
The prize, which has been running since 1969, aims to promote the finest in fiction by rewarding the best
novel of the year written by a citizen of the United Kingdom, the Commonwealth or the Republic of Ireland.
www.hwfisher.co.uk Insight | 23
HW Fisher & CompanyBusiness advisers - A medium-sized firm of chartered accountants based in London and Watford.
Related companies and specialist divisions:
Fisher Corporate PlcCorporate finance and business strategy
FisherE@se LimitedOnline accounting and back-office services
Fisher ForensicLitigation support, forensic accounting, licensing and royalty auditing
Kingfisher CollectionsRoyalty administration and collections services for IP owners
Fisher PartnersBusiness recovery, reconstruction and insolvency services
Fisher Property Services LimitedProperty investment, management and finance
Jade Securities LimitedBusiness divestments, mergers, management buy-outs and acquisitions
Stackhouse Fisher LimitedSpecialist insurance services
Eos Wealth Management LtdIntelligent wealth management and financial services
VAT Assist LimitedUK VAT representative
London officeAcre House11-15 William RoadLondon NW1 3ERUnited Kingdom
T +44 (0)20 7388 7000F +44 (0)20 7380 4900E [email protected]
Watford officeAcre House3-5 Hyde RoadWatford WD17 4WPUnited Kingdom
T +44 (0)1923 698 340F +44 (0)1923 698 341
HW Fisher & Company and HW Fisher & Company Limited are registered to carry out audit work in the UK and in Ireland. A list of the names of the partners of HW Fisher & Company is open to inspection at our offices.
Fisher Forensic, Fisher Okkersen, Fisher Partners and Kingfisher Collections are trading names of specialist divisions of HW Fisher & Company, Chartered Accountants.
HW Fisher & Company Limited, Fisher Corporate Plc, Fishere@se Limited, Fisher Property Services Limited, Jade Securities Limited, Fisher Forensic Limited, VAT Assist Limited, Eos Wealth Management Limited and Stackhouse Fisher Limited, are related companies of HW Fisher & Company, Chartered Accountants.
HW Fisher & Company, HW Fisher & Company Limited and Jade Securities Limited are not authorised under the Financial Services and Markets Act 2000 but are regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. They can provide these investment services only if they are an incidental part of the professional services they have been engaged to provide.
Fisher Corporate Plc is authorised and regulated by the Financial Services Authority under reference 193921.
Eos Wealth Management Ltd is authorised and regulated by the Financial Services Authority under reference 543025.
Stackhouse Fisher Limited is an Appointed Representative of Stackhouse Poland Limited who are authorised and regulated by the Financial Services Authority under reference 309340.
Insight is produced with the intention of providing general information. Examples used are for guidance only and not a substitute for personalised professional advice. Views expressed are those of the authors and do not necessarily represent the views of HW Fisher & Company. All liability is excluded for loss or damages that may arise as a result of any person acting or refraining to act in reliance upon any material and information appearing in this newsletter.
www.hwfisher.co.uk
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© HW Fisher & Company 2012.Print date: Nov 2012. All rights reserved.
HW Fisher & Company is a member of the Leading Edge Alliance, an alliance of major independently owned accounting and consulting firms that share an entrepreneurial spirit and a drive to be the premier providers of professional services in their chosen markets.