FD PARTNERSHIP NEWSLETTERS
October 2008
Welcome to the edited version of FD Partnership, our newsletter for accounting and finance professionals.
In June we stated that the businesses would grind on in the usual British way of facing adversity. Our experience is that this is exactly what is happening and FD is cautiously optimistic that we are not far from the bottom of the downturn, although we don’t expect things to pick up substantially for at least 12 months.
Following the successful launch of our accountancy practice brokerage we have responded to demand and launched a general business brokerage, based on the FD ethos of offering a 1st class service with attention to detail.
Kensington..
Surveys show that 82% of businesspeople approach their accountant first when deciding to “sell up”.
At Kensington Business Brokers we ensure that your client receives the best possible care when searching for a buyer, to ensure that the successful sale reflects well on you.
The reason for approaching their accountant is simply because they have an established professional relationship with them and can expect to receive impartial advice and an understanding of their position, which often carries an emotional element.
Two main areas that are of concern to sellers are how much they can expect to achieve from a buyer, and the most tax efficient manner of undertaking the sale.
Apart from these two main issues there is a third item on the list of concerns for the seller. Namely, who can they trust to find them a buyer, conduct the negotiations and ensure that everything moves quickly and smoothly – ie which agent to represent them.
Kensington Business Brokers directly addresses this issue, which we know can make or break a deal. Many agents ask for large up-front fees for “expenses” that do not exist and then also charge a king’s ransom in fees once a buyer is found – a double whammy! Our approach is different but very effective. We only charge an advance fee if the client requests a bespoke sales package, which involves direct costs such as marketing and research, and usually achieves a swifter and more rewarding result.
The second difference is that we charge both parties, ensuring that we are impartial and have a greater interest to conclude a satisfactory deal more quickly. Assuming that the conditions are fundamentally fair all parties want to proceed to completion as soon as possible. Most negotiations break down because the agent has to be seen to be standing up for his or her clients’ best interest – ie get as much as you can out of the other side, but any seasoned negotiator will tell you that this is not a good way to achieve a fair deal, and more often than not results in a failed sale at the 11th hour.
Sometimes there is no second chance but the agent smugly tells the client that they had tried their best. We know from experience that an agent who works for both parties achieves more and in far quicker time.
Kensington also screens potential purchasers to ensure that you are only sifting through serious buyers and not dealing with tyre-kickers. Furthermore, our staff have accountancy background so they are at ease when dealing with the seller’s accountant and can identify with their concerns.
In case you think we only act for sellers, think again! Kensington also sources businesses for people looking to expand through acquisition. Once we have a list of your parameters, a plan of action is drawn up and we discreetly make enquiries on your behalf and ensure that your time is not wasted on spurious leads.
Kensington...open for business
To find out how Kensington Business Brokers can help you and your clients call us on 0161 708 2963 or visit www.kensingtonbrokers.co.uk
- Fact 1: 82% OF BUSINESS SELLERS ASK THEIR ACCOUNTANT TO RECOMMEND A BROKER
- Fact 2: WE PAY YOU £250 MINIMUM FOR A SUCCESSFUL BROKERAGE INTRODUCTION
Car Benefit or Mileage Allowance?
Almost all businesses incorporated or not, have motor expenses so it is important that we give the most appropriate advice to clients when dealing with the private use of a car.
The key questions are:-
- What is the level of private use?
- What is the approved CO2 emission figure?
- Is fuel provided for private use?
- Is the client liable at higher rates?
Mileage Allowance
Before discussing car and fuel benefit let us take a look at claiming a mileage allowance. Essentially this is a very simple system in that provided a log is kept of business journeys a claim is made at 40p per mile for the first 10,000 miles (for most cars) and 25p a mile thereafter.
With this in mind, let us examine the considerations in deciding whether to advise a client to claim a mileage allowance rather than claim actual expenses and capital allowances:-
- On the basis that a log is needed (this doesn’t have to be 'War and Peace', but has to specify the destination, date and miles covered) you need to be certain that the client is willing and capable of keeping it up to date and reasonably accurate, which is no easy task.
- The rates have not changed for at least the last 6 years or so, although there have been representations from various accountancy bodies to have these increased due to the current cost of fuel and other increased costs. Common sense says if the car is expensive either in terms of initial cost or running costs the mileage allowance may not cover the actual cost.
- What is the level of business use? If this is generally low and private use reasonably high again the mileage allowance may not cover the actual expenditure.
- If the amount of private mileage is low then the tax on the car benefit (and car fuel benefit if appropriate) would be disproportionately high. This is particularly so if the client is a higher rate taxpayer.
So in general terms it can be seen from the above if you have a mid range car with business mileage less than 10,000 miles and private mileage is not excessive there will be a tax saving in paying a mileage allowance.
Car and Fuel Benefit
Let us now look at the underlying costs if car and fuel benefits arise.
Example:
A car costing £10,000 does 15,000 miles a year of which 10,000 miles are business.
The CO2 emissions are 180 which give an appropriate percentage of 24% for 2008/2009. The company pays all costs including fuel. Total running costs (including finance) are £2,500 and Capital Allowances £2,500.
In the company accounts there would be a total claim for £5,000.
There would also be a car benefit and car fuel benefit in respect of the director. The car benefit is £10,000 x 24% = £2,400 with a fuel benefit of £14,400 x 24% = £3,456. The cost to the director is therefore £5,856 x 20% = £1,171.20 if he was a basic rate taxpayer or £2,342.40 if higher rates applied. There is also a Class 1A NIC charge on the company of £5,856 x 12.8% = £749.56.
If the mileage allowance was claimed the company could claim £4,000 ie 10,000 x 40p, so there would be an increase in Corporation Tax of £1,000 x 21% = £210. However the director would receive £4,000 with no benefits assessable on him.
There are other advantages other than a tax saving:-
- There is no need to retain invoices
- There is no need to keep a record of expenditure
- There is no need to submit a P11d
As you can see there are a number of variables and each case must be looked at individually but the crux is that if the director’s car is reasonably cheap to run there are definite tax advantages in claiming the mileage allowance. It must also be stressed that even if the net saving was relatively small some directors might consider the reduction in record keeping a huge bonus.
Employer Compliance Reviews by HMRC
We are aware that HMRC are targeting limited companies where there are motor vehicles in the balance sheet but P11ds have either not been submitted or have and do not include a car or car fuel benefit.
This is particularly so when an existing business incorporates and the director continues to use the 'new company vehicle' privately as before.
If it can be shown that the company vehicle is used privately (and do not forget it is an all or nothing charge) there will be a car benefit charge and possibly a fuel charge as well. Home to work travel is private and we have seen cases were the only real private mileage was the short distance to the work place. If a number of years are involved the tax and NIC bill can be substantial.
Self Employed
It isn't just company directors who can claim a mileage allowance. The self-employed should also consider this option. Whilst there are not the potential tax savings in respect of the car and car fuel benefits to consider there is the saving in record keeping etc.
In terms of saving money the biggest winners will be those individuals whose cars are cheap to run. Ideally it would suit someone with a car that does not have finance, has a low value, and whose private mileage is low. There is also no stipulation on what vehicle should be used for business travel and there is nothing to stop someone using their wife’s car for a long journey because it has a better fuel economy.
This is an area that affects almost all small businesses, many of which have been unwittingly non-compliant for several years. If you think that your client is vulnerable to enquiry give our specialists a call on 0800 2800 322.
Taxact...taking the taxing out of tax
Spotlight on Money Laundering Compliance
Money Laundering rules have been around for several years now but many accountancy firms are only now beginning to confront the new reality of how it affects their client relationship.
The starting point for all anti-money laundering compliance is the concept of 'know your client' – often referred to as KYC. Traditionally this was more about understanding the nature of the client’s financial affairs in order to be able to render the most appropriate advice and guidance. However, KYC has taken on a whole new dimension that now encompasses having to understand the source of client funds, in terms of sales, loans and capital introduced. In addition to this due consideration has to be given to a more fundamental matter – that of verifying the identity of your client through independent means. In other words, is the client actually the person they claim to be? In fact it goes even further than this and leads to questions such as whether the client is on a financial blacklist or has a relationship with somebody who poses a problem in terms of money laundering.
When firms realise that they have to verify the identity of people with whom they have had a longstanding professional relationship, simply in order to meet the demands of what is perceived as ill-fitting legislation, they howl in protest. Once they face up to the reality of their new duties they look forhow best to meet the challenge, in terms of avoiding antagonising the client and working efficiently and cost effectively, whilst meeting the requirements of the law.
At FD we have a solution that addresses both these issues. Our electronic online client verification has proven to be popular with firms of all sizes due to its ease of use, speed and cost effectiveness. It takes the whole client identity issue to a new level, giving an added layer of protection so that you can show the authorities that you are taking the issue seriously and of course protecting your practice from becoming unwittingly entangled in money laundering.
Specialist firms Wilson, Willis & Mercer* approached us when they realised that they had to check up 760 existing clients and going forward they expected to gain an average of 8 a month. They shopped around for a solution and quickly realised that cheaper is not better. After a 30 minute noobligation chat with our specialists their senior manager, Charles Lee, had the outline of a plan that was devised and implemented seamlessly over a period of 2 months.
Firstly we helped them to draft a letter to all clients explaining the nature of the exercise and how the checks would be performed. Secondly a timetable was put together to ensure that the checks would take place in batches with any problem clients being sidelined until the end.
The average time taken to check each client was 2 minutes, meaning a total of almost 25 hours was needed for the data input, which was easily handled by the administration team working around an extra 4 hours a week. By identifying 29 problematic clients they found that data was incorrect in 21 of the cases, 6 clients were deceased, and a further 2 were found to have had unexplained identity issues and were subsequently dropped as clients.
"Well worth it", stated Charles Lee, after the exercise was complete. "All files covered in 25 hours – we could never have done it the old fashioned way – going back and forth between files as and when the data dribbled in. And that’s aside from the checks such as politically exposed persons and Bank of England blacklist."
Aziz Raziz & Co* approached FD after going through 12 months of fruitlessly chasing clients for passports and address verification, and managing to get many of them hot under the collar. We implemented a plan for them and in 3 weeks all 110 of their clients were checked out and the files were updated without any further disturbance of clients necessary.
"We were tearing our hair out and just not getting the job done" says Ismail Mohammed, who as a sole practitioner, could do without being bogged down on such matters. “What’s more, FD didn’t charge for any of the advice, only for the checks we purchased. We even managed to recharge it as a compliance cost, just like a security levy when you fly, netting us a gain of £1,000, Mohammed proudly explained.
FD deals with practices of all sizes all over the country. To find out how we can help you ring us on 0800 2800 323 and speak to Tony or Yomi.
*Names have been amended but circumstances are accurate.
Lifting the Veil: Harry Sheena Profile
"I joined FD twelve months ago," says Harry Sheena, after previously working for many years in a retail environment. I was looking for a change of direction and a former work colleague of mine suggested I “knock-on” at FD, who were based on the next parade to where we both worked. A year after being interviewed they rang me to come and try it out as they had a vacancy.”
With little computer expertise the friendly Irishman with a charming smile started on the bottom rung but was hungry to learn and keen to please. Aside from the detailed and practical training regime he encountered, FD’s combination of professionalism & efficiency appealed to Harry and after a few months he was firmly in place as a popular member of the team.
“I feel that it is of the utmost importance to have a pleasant work environment”, continues Harry,“and am pleased to say that I enjoy the friendly, helpful & cooperative atmosphere, where customer care is paramount, allowing me to use my retailing experience.”
Amongst other things, Harry enjoys the FD ritual that staff bring a cake to celebrate a special occasion such as a birthday or exam success, but you have to be quick or it’s all gone in minutes!
Harry ends by stating his hope that FD will continue to flourish in all its endeavours & that hemay continues to contribute to it in a positive and mutually beneficial way.
Congratulations
FD is delighted to announce another success at ACCA final examinations. Mike, team leader In the restoration department, qualified in this summer's sitting.
"If it wasn't for the support and detailed training I received from my colleagues and the boss I would never have made it," he explains with a smile of relief on his face. Mike is looking forward to an increased workload and responsibility at our other divisions, which are showing steady and continued growth.
STOP PRESS!
What's in a name? From October 2008 new rules will allow complaints to be made where a company has been registered with the intention of extracting money from the complainant or to prevent him from registering a name in which he has goodwill ("opportunistic registration").
Any person or company can object about an "opportunistic registration" of company name by writing to the Company Names Tribunal, which will be based at the UK Intellectual Property Office.
Companies House is only responsible for ‘too like’ and ‘same as’ objections.
There is a right of appeal to the High Court by a company which has been directed to change its name and the rules of the Company Names Tribunal will be retrospective.
More information about the Company Names Tribunal is available at www.ipo.gov.uk/cna