28/02/15
Few people give consideration to how they will exit their business when the time comes. While it may not be on the priority list for those just starting out, it is an essential part of your financial planning strategy and will help to maximise your financial gains. In addition, it will also help ensure a smooth transition for your business, once you are no longer involved. Developing appropriate strategies at each stage of your business's lifecycle is crucial if you wish to obtain the maximum rewards for your efforts.

Every business owner should develop a personal exit strategy, and some important issues to consider include:
  • passing on your business to your children or other family members, or a family trust
  • selling your share in the business to your co-owners or partners
  • selling your business to some or all of the workforce
  • selling the business to a third party
  • public flotation or sale to a public company
  • winding up
  • minimising your tax liability
  • what you will do when you no longer own the business.

Selling the business on

If you consider your business has a market value, or if you are looking to your business to provide you with a lump sum on sale, it is important to start planning in advance how you will realise that value.

This is especially important if you envisage realising the value of your business in the next 20 years.

Selling your business is a major personal decision and it is vital to plan now in order to maximise the net pro-ceeds from its sale.
You will need to consider:
  • the timing of the sale
  • the prospective purchasers
  • the opportunities for reducing the tax due following a sale.

Let us help you maximise the net proceeds arising from your 'ultimate sale'.

Getting the best price

Anyone who is considering buying your business will want to be clear about the underlying profitability trends. Are profits on the increase or declining?

Up-to-date management accounts and forecasts for the next 12 months and beyond will be close to the top of the list of the information which you will need to make available to prospective purchasers.

Historical profits drive the value attributable to many businesses, and therefore a rising trend in profitability should result in an increase in the business's value.

This means that profitability planning is particularly important in the years leading up to the sale. So, what is the range of values for your business?

A professional valuation will put you on more solid ground than educated guesswork. We can work with you to determine how you can add value to your business.

Business valuation: some key points to consider
  • Are sales declining, flat, growing only at the rate of inflation, or exceeding it?
  • Are stock and equipment a large part of your company's value, or is yours a service business with limited fixed assets?
  • To what extent does your business depend on the health of other industries?
  • To what extent does your business depend on the health of the economy in general?
  • What is the outlook for your line of business as a whole?
  • Are your company's products and services diversified?
  • How up-to-date is your technology?
  • Do you have an effective research and development programme?
  • How competitive is the market for your company's goods or services?
  • Does your company have to contend with extensive regulation?
  • What are your competitors doing that you should be doing, or could do better?
  • How strong is the company's staff base that would remain after the sale?
  • Have you conducted a thorough review of your overheads, to identify areas where costs can be reduced?
  • Have contracts with your suppliers and customers been formalised?

Timing is everything

It is important to consider a number of factors when deciding on the best time to sell your business. These could be factors that may influence potential buyers as well as your own personal circumstances.

Personal factors to take into account might include:
  • When are you planning to retire?
  • Do you have any health issues?
  • Do you still relish the challenges of running your business?
  • Does your business have an heir apparent?
  • Will your income stream and wealth be adequate, post-sale?

You will also need to consider business-related issues including:
  • What are the current trends in the stock market?
  • To what extent is your business 'trendy' or at the leading edge?
  • Is your business forecasting increases to the top and bottom lines?
  • How well is your business performing when compared to other, similar businesses?
  • Is your business running at, or near, its full potential?

CGT - minimising the impact

Taxes are one of the less welcome, but inevitable, aspects of a business person's life. When you raise that final sales invoice and realise the proceeds from the sale of your business, you should be completing one of the last steps in a strategy aimed at maximising the net return by minimising the capital gains tax (CGT) on sale.

CGT basics
As a basic rule, CGT is charged on the difference between what you paid for an asset and what you receive when you sell it, less your annual CGT exemption if this has not been set against other gains. There are several other provisions, which may also need to be factored into the calculation of any CGT liability.

The governing rules for CGT

The taxable gain is measured simply by comparing net proceeds with total cost (including costs of acquisition and enhancement expenditure). The rate of tax depends on your overall income and gains position for 2014/15. Gains will be taxed at 18% to the extent that your taxable income and gains fall within the upper limit of the income tax basic rate band and 28% thereafter.

A special tax relief, Entrepreneurs' Relief, is available for those in business, which may reduce the tax rate on the first £10m of qualifying lifetime gains to 10%. Generally, the relief will be available to individuals on the disposal (after at least one complete qualifying year) of:
  • all or part of a trading business carried on alone or in partnership
  • the assets of a trading business after cessation
  • shares in the individual's 'personal' trading company
  • assets owned by the individual used by the individual's personal trading company or trading partnership where the disposal is associated with a main qualifying disposal of shares or partnership interest.

All planned transactions require careful scrutiny to ensure that the available Entrepreneurs' Relief is maximised. Remember to keep us in the picture - we are best placed to help and advise if you involve us at an early stage.

CGT and non-residents

CGT is normally only chargeable where the taxpayer is resident in the UK in the tax year the gain arose, though the provisions of any double taxation treaty need to be checked. CGT may be avoided, provided the taxpayer becomes non-UK resident before the disposal and remains non-resident for tax purposes for five complete tax years.

CGT and death - There is no liability to CGT on any asset appreciation at your death.

The legacy of inheritance tax (IHT)

Lifetime transfer(s)
For the business owner, the vital elements in the IHT regime are the reliefs on business and agricultural property (up to 100%), which continue to afford exemption on the transfer of qualifying property, or a qualifying shareholding.

Transfers on your death
Remember to take into account your business interests when you draw up your Will. While reliefs may mean that there is little or no IHT to pay on your death, your Will is your route to directing the value of your business to your chosen heir(s) unless the disposition of your business interest on your death is covered by your partnership or shareholders' agreement.

Reliefs may be available for CGT
It is possible that reliefs can reduce a 28% CGT bill to zero. To maximise your net proceeds it is vital that you consult with us about the timing of a sale, and the CGT reliefs and exemptions which you might be entitled to.
18/02/15
Real time information (RTI) was supposed to make the reporting of PAYE easier for employers, but it has introduced more filing deadlines, and new penalties for missing those deadlines.

Every employer must now send a full payment submission (FPS) report every time they pay employees, on or before the payment date. There is some relaxation for certain employers who have fewer than ten employees.

If no payment has been made to employees in the tax month the employer should submit an employer payment summary (EPS) by 19th of the following tax month. Alternatively where the employees will be paid in only one month of the year, the employer can register the PAYE scheme as an "annual scheme", and submit RTI reports just once a year.

From 6 October 2014, large employers (50 or more employees) have been charged a penalty for every RTI reporting deadline they have missed, although they are permitted one late filing per tax year. Those penalty notices will start to arrive with employers this month, but HMRC are not sending copies to us as your tax agent. If you receive an RTI penalty notice please let us know immediately.

Smaller employers (up to 50 employees) will be charged penalties for missing RTI filing deadlines from 6 March 2015. Those smaller employers are not permitted to have one penalty free month in 2014/15.

The good news for all employers is that the end-of-year questions which used to be included on the form P35 have been dropped from the final FPS or EPS to be submitted for 2014/15.

If you submit a final FPS or EPS for the 2014/15 tax year after 6 March 2015 in theory you shouldn't have to answer those annoying questions. However, this change in practice was announced too late to be included in most payroll software for 2014/15. Even HMRC's free Basic PAYE Tools software will not be updated for the change to the end of year procedures until July 2015. So it looks like you will have to answer those pointless questions for 2014/15 although HMRC do nothing with the information.
04/02/15
As the 31 January deadline for submitting the 2014 self assessment tax return passed, HM Revenue & Customs (HMRC) revealed that the number of taxpayers failing to file their tax returns on time had increased on last year.

Up to 890,000 taxpayers will now face an automatic �100 penalty for failing to submit their returns on time.

However, the number of individuals who managed to submit their returns on time also increased by 210,000.

HMRC received 10.24 million tax returns by midnight on 31 January, with the number of online submissions reaching record levels. Many individuals chose to leave their tax matters until the last minute, with the peak time for submissions falling between 1pm and 2pm on 30 January.

Following the initial automatic penalty, a series of additional penalties will apply for continued failure to complete the return, after three, six and 12 months.

Ruth Owen, director general of personal tax at HMRC commented, ‘If you're one of the minority who missed the deadline, you still need to get your tax return to us as soon as possible, to avoid further penalties and interest mounting up’.

We can help with all of your tax planning needs, including dealing with self assessment on your behalf. Please contact us for further information.