FD PARTNERSHIP NEWSLETTERS
February 2010
Welcome to the 9th edition of FD Partnership, our newsletter for accounting and finance professionals.
By the time the next edition of FD Partnership hits your desk the election will be over, the economy will still be sick and no doubt the country will be swallowing some bitter medicine without any spoonfuls of sugar.
As for the accountancy profession, we expect to see further merger and acquisition activity. Larger firms will jostle for position in the coveted top 50 surveys, as decent organic growth isn't easy to come by at the moment, and small ones will be looking for operational efficiencies and diversification.
We hope to share in some of that action with our Kensington practice brokerage division bringing buyers, sellers and mergers together. We had a busy 2009 although the deals have taken longer to come to fruition - a trend that we don't expect to change much this year.
Eagle-eyed readers will notice our new strapline, carefully chosen to reflect our expanding client profile due to appreciation of our customer care and high standards.
FD: The choice of professionals and business...a quality partnership
Kensington Business Brokers seeks agents – apply within!
FD’s business brokerage division is seeking to expand rapidly by appointing agents around the country. Work is well under way and the first agents are in the final stages of their selection.
Accountancy firms throughout the country are being sought to act as local agents taking advantage of the synergies between practice and brokerage, creating a win-win situation for both the agent and FD.
The accountant gains by having a valuable extra division for his or her practice with a zero overhead, and although not every lead or introduction will crystallise into a sale, it is a great way to meet potential new clients and stand out from the crowd.
What’s more, we will handle all the negotiations from our office, meaning that the agent has all the back-up they require and does not spend excess time getting bogged down in the minutiae of the discussions between the buyer and seller.
From FD’s point of view it means that we will have local representatives who can act as our face and service the leads that come in, as well as generating extra business using the advantage of local knowledge.
To learn more about how you can grow your practice as an FD Kensington Agent, call us on 0800 2800 321 or email [email protected]
Treasury solicitor removes motif after FD complaint
Our restoration department manager called me over to his computer in December and pointed out to me that a government website was featuring a logo that looked remarkably like one we had commissioned for use on our own website.
My eyes almost popped out of my head when I realised that it looked like the Treasury Solicitor had copied part of the motif used in our company restoration section and pasted it onto its own website.
We hastily fired off a solicitor's letter alleging a breach of copyright and by the next day the motif had vanished from their website – coincidence? Who knows, but when pressed on the matter we received a terse letter from them advising us that the item had been removed.
Both my designer and myself were most flattered by the surprise appearance on an official website...famous for 15 minutes!
In Business…Staff - asset or liability?
Hardly a week goes by without a business colleague grumbling to me about problems with their staff or a friend complaining at the manner in which their boss treats them. Open any newspaper and you're bound to read about an employment dispute covering treatment of staff or bosses harping about the workers having too many rights.
So what is it about staff / employee relations that are so charged with emotion and takes up almost as much time as discussing the weather? Are staff really such a liability and why do they need so much protection?
We've moved on some way since slavery and in the capitalist model that we know employees are not on an equal footing with business owners. Is there an optimal approach?
In short the answer depends on many factors and my view is that you have to do what works for your business but there are a couple of fundamental rules that apply to all situations: - workers have to be treated with respect and dignity, and in return they need to understand that the boss is in charge and that there is a hierarchy.
The problems arise when either party forgets the above ground rules or applies them incorrectly. My preferred approach is that the employer has to take the lead in establishing a solid working relationship. By definition the business owners will ordinarily have a different level of commitment to the enterprise as they eat sleep and breathe their work 24 hours a day, 7 days a week. This creates the ideal opportunity to create and foster a good working relationship with their workers by reinforcing their position at the top of the staff tree through showing that they are not detached and actually care about their workers in spite of the fact that they work even longer.
After all, aren't the workers creators of wealth in the business? Shouldn't they be treated and shown respect like you would do to an expensive item of machinery by oiling it, polishing it, changing the parts and painting it on a regular basis – just like the operational manual says. Nobody would dream of abusing the apparatus that churns out widgets on the factory floor; abuse the machine and it won't work properly, so why is it so difficult for many bosses to understand that people need treated in a certain manner as well?
The standard answer you receive is that the workers are looking for every possible opportunity to take advantage or shirk their duties. If this is the case, as human beings they will respond accordingly if treated with respect and made to feel that their contribution is valued – the need to take advantage will be obviated.
Unfortunately over the years legislation to protect workers has become too prescriptive and unwieldy leading to friction and resentment of workers' rights by bosses. So what's the answer? In my opinion, certainly for the SME sector, much of the legislation should be rolled back and common sense should prevail. It's like the experiments at dangerous road junctions that reduced accident rates by removing signs and markings. Why? Because it let people realise the potential dangers and navigate a way around it themselves in a sensible manner watching out for other people, often letting them pass in front in a civil manner. So, let me summarise in one word how employers and employees can optimise their working relationship – flexibility!
HMRC’s New Tribunal System - Better or Worse?
The old Commissioners are dead and the new Tribunal System is well and truly with us. If you have already experienced the new system do you think there are any differences between the Commissioners and the Tribunals?
We've had a number of cases that have gone to the Tribunal and there are some definite differences between the old and the new.
· The new system is most definitely more formal. In most cases HMRC are represented by their own staff but in certain situations you could be up against a barrister
· The new system is more time consuming both in terms of preparation and the actual day itself.
· The arbiter is in most cases a judge who is assisted by an untrained helper
· The ruling is not given for up to 10 weeks
· The judgement by both the Commissioners and the Tribunal is clearly made on the facts and the legislation. However in our experience it was possible to use fairness and the financial effect on the client with the Commissioners. Although it is only some 11 months with the new system it is our experience that the Tribunal will only consider the legislation and their ruling will not consider fairness at all, which is of course a major consideration
So were does that leave us as accountants? We will look briefly at how the process works from start to finish and then bring three cases we were involved in and compare the differences in a practical setting.
HMRC Decision to go to the Tribunal
Most visits to the Tribunal will be as a result of a disagreement with HMRC in an enquiry case. It has always been thus with Inspectors using the threat of the Tribunal (or previously the Commissioners) to negotiate a settlement. What has changed is that in the last 3 years HMRC has set up an appeals unit which is concentrated in 5 or 6 locations nationwide. Their role is to decide whether to go in the first place and also to actually take the case. It is fairly obvious then that they will gain expertise as time goes on. Under both systems HMRC only take the case formal if they think they are going to win, however with the appeals unit set up there should be a more consistent approach and it should cut out an over officious Inspector being heavy handed. It is our experience that if there is an element of doubt there will be some pressure on the Inspector to settle by negotiation.
Accountant's Decision to go to the Tribunal
We have ex-HMRC staff on our enquiry team who are experts in this type of work. They feel that going to the Tribunal will be a last resort as it should be possible to negotiate a settlement in the vast majority of cases.
However it is imperative that you the accountant are in control of the enquiry and are proactive in dealing with all aspects of it. If you reach a critical point you need to consider where you going with the enquiry and not put your client in a position you cannot get them out of. At this point we are always happy to offer an opinion on how to take the case forward, and as a general rule a negotiated settlement is the better solution.
The Tribunal
You must be as fully prepared as HMRC will be. They will produce a bundle of documents that gives their resume of the case, witness statements and all relevant documents. They will also call the Inspector as a witness along with anyone else they feel will help prove their case. You are not legally obliged to produce a similar bundle but at the very least you need to have a brief plus copies of any documents you wish to produce. However from a professional point of view you may feel a bundle is advisable.
The whole process is very formal with evidence normally given under oath. As previously mentioned HMRC can be represented by a barrister who will be very experienced in this type of work. Even if it is a HMRC officer they are likely to be far more experienced than you.
Every case must be judged on its merits and if it is right to go to the Tribunal then so be it. However it is our advice that there must be a very good reason for going. There will normally be 2 major considerations. Firstly, the client may believe fundamentally that the Inspector is wrong, plain and simple. That may well be a fact but you must be professional in balancing the cost of going (which could be considerable bearing in mind the preparation and the day itself) with the chances of winning. The other situation will be when the amount of tax is so a large it is worth the risk.
Most accountants will have been to the Commissioners at some stage and have been comfortable with the process and the make up of the proceedings. Our view was that it was very relaxed and at times like an “old boys club”. Make no mistake - the Tribunal is completely different but there will be occasions when you have to take a case before them. However, you must be aware of the dangers, notably the potential cost and the fact that we feel it is more difficult to win.
Examples of Tribunal Cases
1. This was an old investigation case involving a partnership, closed using estimated figures due to a lack of response from the accountant. This happened in 1999 and an appeal was not submitted. That accountant continued to act until 2000 when another accountant was appointed.
For whatever reason, the old Inland Revenue did not press for payment and the new accountant was unaware that an investigation had been started or closed down using estimated figures. To complicate matters the file at Enforcement Office was lost and the situation only became apparent in 2008 when Enforcement Office started bankruptcy proceedings. A meeting took place between a local Inspector and the new accountant. At that meeting HMRC expressed the view that it was pointless appealing because of the length of time between the date of the assessments and the likely date of appeal.
That was a reasonable point but the amount of tax and interest at stake - £135, 000 - meant the case was worth appealing. We were approached belatedly to submit appeals and these were heard in September 2009. At the hearing we stressed:-
· The assessments were estimated. It is worth pointing out it was highly likely that the correct liability was about £10,000
· The first accountant had been highly unprofessional and at times worse than useless
· The second accountant was unaware that assessments were in place
The judgement went for HMRC and looking at the reasons behind this it was quite clear that the second accountant should have submitted late appeals following the meeting in 2008. Although the judge recognised that his ruling may be considered unfair it was based on the legislation in force.
It is our opinion that if the appeal had gone before the Commissioners they would have been more likely to have accepted the unfairness of it all and by accepting the late appeal it would have still given HMRC an opportunity to negotiate a settlement. It is in cases like this that the client is likely to be worse off under the new system.
2. This next case involves VAT. A repayment was refused because an invoice provided by a builder showed a VAT number that related to a Chinese takeaway. HMRC argued that technically the invoice was invalid and in their opinion the input tax was not available for repayment.
The accountant acting referred the HMRC official to booklet V-13 which confirms:-
· That an invalid invoice alone is not enough to refuse repayment
· Alternative evidence can be sought and an officer cannot simply reject claims without having fairly and reasonably considered all of the circumstances
· HMRC have a duty to use common sense and ensure that businesses pay no more tax than is properly due from them, but this has to be balanced with their duty to protect the Revenue
HMRC asked for other evidence and information but decided this did not satisfy them and had formerly refused the repayment. It is our view that a VAT Inspector generally takes a far harder line than a Tax Inspector and is less likely to negotiate.
We were asked to review the case and give our opinion on whether an appeal was likely to succeed. Our view was positive and we were appointed to prepare and take the case to the Tribunal.
It was accepted that the invoice was invalid but it was unfair for the client to suffer just because the builder had not declared the income. We won and the crux of the matter was that we were able to demonstrate that payment had been made in full and that included the VAT charged.
We are certain this type of case would have been won at either the Commissioners or the new Tribunal. However the main issue here is that there will always be cases that have to be taken to the Tribunal and a trained eye will be able to offer an honest opinion on a likely victory.
3. This example concerns a pub when HMRC provided evidence of there being two tills but the declared takings reflected only one. The accountant accepted this was the case but the methodology used by the Inspector to determine additional profits was unfair, unreasonable and just plain wrong.
Due to the impasse we were asked to take over and attempted to negotiate a settlement. It is always advisable to settle by agreement but despite our best efforts this was not possible. The Inspector originally wanted £250,000 to settle but offered to accept £175,000.
At the Tribunal we were able to demonstrate that on the balance of probability the second till was only in situ for 2 years rather than the 6 years that HMRC were contending. The methodology used by the Inspector was shown to be unreasonable and the Tribunal accepted our method instead. The revised settlement was £80,000.
Again, this was a case that warranted a visit to the Tribunal due to the large amounts of money at stake.
As always our team of ex HMRC staff are available to offer support in taking over the whole case or looking at a particular aspect.
FD Website completes revamp
It's been a long time in the making but we've finally completed the website makeover that was planned a year ago. Due to the fundamental changes in company formation our technical team had to make do with an interim change last spring and concentrate on the October 1st deadline.
Well, the deadline has come and gone. Since then the techies were allowed a few hours to recover and have got back to work, with the new site rolling out recently.
So what's new about the site?
· Fundamental change to layout, making it easier to navigate
· Internal search facility, allowing faster answers to questions
· Easier to read layout, encouraging users to stay on for longer
· Business advice section, catering for both novices and entrepreneurs
· Ringback, allowing us service queries better suited to your timetable
· Shortcut on order form for own appointees
Banks force change of habit with companies
One of the more tangible signs of the recession was of course a drop in the number of new incorporations, something felt acutely at Formations Direct and elsewhere. In particular the number of new companies registered by those in the property sector fell most sharply. Recent months saw a small revival as the professional players who had cash took advantage of the distressed state of the market. Of late an unexpected phenomenon has arisen as banks seek to exact revenge (yes, you read correctly) on investors who borrowed at ridiculously low rates and are now due to have their loans renewed. They are repossessing whole portfolios due to a problem on an individual property on the basis that each loan within a company carries a cross collateralisation for the rest of the company's loans and assets. Wherever possible, finance brokers and accountants are advising their clients to split up their portfolios to remain as defensive as possible. This is not only incurring refinancing expenses but it is also unfavourable from a taxation point of view due to associated company rules. It's not for nothing a banker is describer as a man who lends you an umbrella when the sun is shining and takes it bank when the rain starts to fall.
FD is on the move
After 15 years at the same premises in Salford we’re moving. Locally it’s headline news as we’ve been a fundamental part of the scene at Leicester Road. We’ve enjoyed an excellent relationship with our landlord and we’re still talking to our neighbours!
An opportunity arose to acquire premises of our own in Prestwich and we jumped at the chance, taking advantage of a difficult property market. The move is scheduled for the bank holiday weekend at the start of May and is expected to take a couple of days if everybody mucks in and rolls up their sleeves. As for me, I’ll drive the removal lorry and delegate all the heavy lifting to the youngsters. We’ll be advising you of the full postal address and new telephone numbers nearer the time.
We will do our utmost to ensure that there will be no disruption to service, if need be operating from two sites during the changeover week. All registered office and service address customers will be contacted individually.
For Sale Grosvenor Trust Ltd
A rare opportunity has arisen to acquire a prestigious limited company name -
“Grosvenor Trust”.
Our client currently owns this name and has instructed us to sell it. The company is at present registered in a PLC format and this can be continued as a PLC (subject to regulations) or changed to LTD.
For the avoidance of doubt please note that the acquirer will be only be purchasing the name and not the company.
Due to the expected value of the name “Grosvenor Trust” we are inviting offers from interested parties.
If you would like to discuss this matter or make an offer, please do not hesitate to contact us on [email protected] or by telephoning 0161 708 2963.