A large number of “Challenger Banks” have emerged taking advantage of the post Credit Crunch shake up in banking regulations. The FinTech world has been in a frenzy of activity to establish new banking applications, software platforms, “smart” payment cards and mobile banks, whilst the existing big four (Lloyds, Barclays, RBS and HSBC) have spent time grappling with creaking IT systems and a string of mis-selling scandals.

The government are looking at challenger banks to drive greater competition in Britain’s business banking marketplace. As part of its state aid settlement, Royal Bank of Scotland’s Incentivised Switching Scheme will see £700 Million of grants handed to challenger banks to help them increase their market share and promote their services to small business owners.

A string of digital business banking start-ups like Tide and Cashplus have been making their presence felt with their current account services. Analysts say entrepreneurs are opting for these new digital options as their modern IT systems mean they can open accounts speedily. Tide’s quickest account opening time is two minutes and 14 seconds, a stark contrast with Lloyds or Barclays, which can take weeks handling paperwork.

Tide says it now gets one in twelve new business current accounts opened in the UK. It has passed 35,000 customers and served £1 billion of transactions.

But a digital current account is not suited to every business as they have no way to deposit cash or cheques, which means any trader that accepts cash needs another deposit facility.

Price comparison sites show that challengers typically offer the cheapest mortgages and highest interest rates to savers. Oak North, another new bank specialises in business loans to buy-to-let property management companies and property developers and this year is on course to lend a total of £1 billion.  Again, part of its attraction is the speed with which it can make a decision on a loan.

Latest deals for Oak North include a £10 million loan to developers for a four-storey apartment building project in Hackney and a £20 million loan to Brasserie Bar, the French brasserie business inspired by Raymond Blanc, so that it can develop 24 new sites.

Tide is now available when you form a company online with a £40 cash back offer

What is Tide?

Tide is an alternative ‘bank’ account aimed at small businesses, freelancers, and independents. We usually refer to these accounts as being card-based due to the way they work, but in the case of Tide, mobile first, or app-based might be more correct.

In true challenger bank style, the Tide account is based around a smartphone app. And while other popular alternative business accounts also enjoy banking apps they aren’t necessarily as central to their proposition. You won’t find any traditional online banking, costly customer service numbers, or frustrating login procedures. The account is run and managed solely within the app. Customer service also comes via the app, though you can of course email too if needed.

Payments to and from the account can be made immediately, but direct debits can take a few days to setup. Unlike some other card-based accounts, there are no split pools. The money in your account, is in your account. There’s no need to split funds between the account and the card, they are one and the same.

How much does it cost?

Here’s the real boon. The Tide account costs just 20p per transaction. That’s it. Well almost it. There’s a £1 ATM fee, but that’s all.  No monthly cover charges, no hidden fees, just 20p per transaction, and not even on all transactions. If you can receive payments via BACS rather than Faster Payments, then there’s no fee at all.

What can you do?	What can’t you do?
Cost effective	No international payment
Instant sign-up	Totally app based, not so good for those not skilled with technology
No credit checks	No cash payments
No foreign exchanges fees, commission or loading	Cannot accept cheques
App-based	No account access if you lose your phone
Integration with Accounting app Xero is available right out of the box	Faster payments seem slow to show up in the account
Use the account to make and receive electronic payments, to setup direct debits, and standing orders, make card payments and transfer money	No integration with Freeagent
Send and manage invoices directly from the app
Use the card abroad at point of sale, or online, without incurring any foreign exchange fees

 

How will EPC April changes affect the Property market?

From April 2018 there were some important changes made to the minimum EPC rating requirements for rental properties in the UK. Any property rented out in the private rented sector must have a minimum energy performance rating of E on an Energy Performance Certificate (EPC).

This new rating will be based on C02 emissions for commercial and residential properties. This is the EPC graph displayed on the first page of the commercial energy efficiency certificate.

Landlords are required to commission an assessment of their rental property every 10 years, if it continues to be rented out beyond the 10-year mark. A civil penalty will be imposed for breaches.

For most landlords this will mean that they will no longer be able to rent out a property with a rating of F or G after April 1^st 2018.

Who is affected?

Both residential and commercial property in the Private Rental Sector (PRS) will be affected by these EPC changes. Thus, whether a landlord is letting out a commercial property or an apartment to a tenant, it could be unlawful to do so if the property does not meet the new MEES (Minimum Energy Efficiency Standards)

What is MEES?

MEES (Minimum Energy Efficiency Standards) standards were introduced not only to ensure that tenants live or work in an energy efficient building, but also to move few steps closer to UK’s targets of reducing C02 emissions for all buildings. In order to grant new tenancies or leases on residential or commercial properties with an energy performance certificate (EPC) rating below E, will be unlawful, unless the property is registered as an exemption. A failure to meet this will result in the fine up to £5,000.

How to improve your property energy rating?

In order for homeowners to improve their EPC rating above E they should:

• Make sure any cavity walls are filled with insulation materials, such as foam or beads
• Replace an old boiler for a newer, more efficient model
• Ensure the loft insulation is at least 270mm deep to keep the heat inside the property

What will happen if energy rating is below E?

Local authorities will be responsible for ensuring that properties have a minimum energy rating of E. If they conclude that the property performs below this standard, they may issue a fine and stop the Landlord from renting the property.

Exemptions to the legislation change are:

• The improvement works will devalue the property by 5% or more
• The landlord cannot get consent to carry out the works either from the tenant, mortgage lender or superior landlord
• If the landlord cannot afford to carry out any improvement works
• If the relevant improvement works have been carried out but the energy rating remains under a rating of E

How companies can return value to their shareholders

Where a company has accumulated significant distributable reserves, it may desire to return some of this value to its shareholders. This may be to reduce a cash surplus or to return value to the shareholders before a company sale. There are various methods available to make such a distribution and, below, we consider the key mechanisms that can be employed as well as considering the advantages and disadvantages of each method. For more detailed information, please contact us and ask to speak to our Company Secretarial department.

Cash Dividend

This is the most straightforward method of returning value to shareholders. Subject to any limitations and prohibitions set out in the company’s articles of association, cash dividends may be paid as final and/or interim dividend. Where the company’s articles are silent about the amount of dividend and the payment mechanism, the declaration and payment of dividend are governed by the Companies Act 2006 and common law. Before a company can lawfully pay any type of dividend, it must have sufficient distributable profits.

Non-cash Dividend (Distribution in Specie)

Dividends can also be satisfied by the transfer of non-cash assets. This kind of dividend known as dividend in specie, or dividend in kind, operates in such a way that a dividend of a specified amount is declared but the payment of the dividend is satisfied by the transfer of a non-cash asset of equivalent value to its shareholders. An example could be shares held in another company, property, or machinery. To declare a non-cash dividend, the company’s articles must contain an express authority to do so, and the company must have positive distributable reserves. Where a company identifies a non-cash asset that it wishes to transfer to a shareholder or sister company at below market value (for example, as part of an intra-group reorganisation), the transfer is known as a distribution in specie but there is no requirement to declare a dividend.

Share Buyback (Purchase of Own Shares)

A share buyback is useful for when a shareholder is seeking an exit and it provides the flexibility of allowing the share price to be agreed between the company and the departing member. For UK shareholders subject to UK tax, the proceeds of sale are treated as capital for tax purposes.

Usually listed companies arrange for an annual authority to enable them to purchase up to 10% of their share capital and, if a company plans to commence a buyback programme, it will give notice of that intention.

There are some limitations of the share buyback procedure, however:

• the shares to be repurchased must be fully paid;
• premium-listed companies are only able to buy back up to 15% of their shares and they will typically only have authority from shareholders for 10%;
• stamp duty of 0.5% will be payable on the shares that the company repurchases;
• private companies can fund buybacks out of capital, but public companies cannot;
• both private and public companies can finance the buyback out of distributable profits or a new share issue;
• unless the buyback is done by written resolution (only available to private companies), a company must allow at least 15 days for the share buyback process.

B Share Scheme (a Bonus Issue)

Under a B share scheme, a new class of shares is created that can then be redeemed or repurchased, allowing the distribution to be treated as capital instead of income. The shareholders would usually be given the option of whether to participate in the allotment of the bonus B shares but could choose a cash alternative if they would prefer the distribution to be treated as income rather than capital.

Reduction of Capital Supported by Solvency Statement

This mechanism is not available to public companies and therefore they must use the court approved procedure for reducing share capital.

A company may:

• reduce the nominal value of shares;
• reduce a share premium account (or any other capital reserve); or
• cancel shares entirely

An amount reduced/cancelled can be repaid directly to shareholders or transferred to the Profit & Loss account. The key advantage of this mechanism is that there is no stamp duty liability and there is no need to have distributable reserves, which are normally required for a share buyback.

Redemption

This procedure is available only if shares are issued as redeemable. There is no mechanism to convert already issued shares to redeemable shares. Redeemable shares can be redeemed at the option of the issuing company or the holder. The advantage of a redemption over a share buyback is that the company will not have to pay stamp duty.

Other areas Formations Direct can assist in:

• designing ways for a shareholder to exit the company under the provisions of a shareholders’ agreement and/ or the company’s articles;
• designing bespoke articles of association with preferential share rights for investors and specific investor provisions such as matters requiring investor’s consent, capital maintenance and directors duties in a shareholders’ agreement;
• share sales, acquisitions of companies, share purchase agreements with cash and non-cash consideration provisions including, share-for-share exchanges and buying out shareholders;
• intra-group reorganisations, including transfer of subsidiaries within a group, intra-group loans, dividends and share issues;
• designing articles with employee shareholder provisions, including bad and good leaver provisions and growth shares;
• alteration of share capital by subdividing or consolidating shares, converting shares into different classes, creating additional new classes of shares (e.g. redeemable and/ or preference shares) or redenominating shares into different currencies;
• re-registering public companies as private limited and unlimited companies and private companies as public;
• board support.

Thinking of having children under 18 hold shares in a company?

Our Company Secretarial team are increasingly helping clients looking after family companies interested in this route for tax purposes – however, you may not be aware of all the legal issues involved. Seeking advice prior to issuing the shares can help avoid future problems. We have outlined below a couple of the solutions we are currently providing to our regular clients.

Potential Pitfalls of Issuing Shares to a Minor

Strictly speaking, there is nothing under English law to prevent a child under the age of 18 (a ‘minor’) holding shares. However, as a minor lacks legal capacity having them as a shareholder raises a number of problems for companies:

• Where a minor holds voting shares it is not clear that they can validly exercise their voting rights before turning 18. This could potentially hinder the company’s ability to meet quorum requirements necessary for general meetings.
• Even where a minor is old enough to both sign documents and understand what they are signing, any agreement or obligations that minor enters into regarding company shares will not be legally binding on them and can be renounced up until the point that they turn 18.
• Banks have, in some cases, refused to open a bank account for a company where there are minors holding shares.

Our Company Secretarial Team offer the following solutions

1. We can set up a trust for the minor until they turn 18 (preferred). The adult trustee would be shown as the shareholder at Companies House/in the company’s books, but would have a separate trust deed in place stating that they are holding the shares on trust for the minor. This can include a signed, undated stock transfer form in favour of the minor which can be dated and put into effect when the child turns 18.

   Our prices start from £75 +VAT per trust deed
   

2. We can also set up multiple classes of shares with a non-voting class for issue to the minor. This avoids the problem of the minor blocking company decisions set out above, although there will still be problems with them being asked to pay for their shares or transferring shares before they turn 18.

          Our prices start from £150 +VAT for creating multiple share classes

Please contact our CoSec helpline if you want advice on the best structure for you or your client: 0800 085 45 05.

We’ve certainly come a long way from the early days of e-commerce when we were all a little dubious about purchasing online. Big players such as Amazon exploded onto the scene and revolutionised the way we shop. Throw in pocket size mobile devices that allow us to purchase at the click of a button wherever we are in the world and it’s no surprise that the ecommerce market is worth billions each year.

But what is the best solution? Is it more profitable just to set up a purely online company or do you need a physical shop as well. With the increased competition online, many major outlets including Amazon, are starting to invest in bricks and mortar.

The Pros and Cons of E-Commerce

Pros

• Convenience: There’s no doubt that shopping online is very convenient. If you suddenly need a product and don’t want to leave the comfort of your own home, you can simply go online, pick a shop and buy it with a few clicks of a mouse button. For retail businesses, it also allows you to have more products up on your site, unconstrained by space as you would if you were in a physical store
• Lower Set Up Costs: Setting up online has a much lower cost than opening a physical store. It can often take just a few minutes with just a little knowhow to open an ecommerce store and begin trading. You have great scalability as well – you have the opportunity to start small and then build your brand and product over time
• Greater Reach: The big advantage for online retail store owners is the reach that comes from being interconnected with the rest of the world. You can sell just as easily to someone in China as you can to a customer down the road as long as you can attract their attention
• 24/7 Opening: Of course, your store is open all the time. That means you can attract buyers across different time zones and you don’t have worry about having staff on the payroll to handle orders. It’s all done automatically at the point of sale.

Cons

It’s not all positive for online stores, though most of it is. There’s the issue of security and protecting payments, the wider damage on social media that can be done to your business if you get it wrong. There’s also the investment you have to put in with marketing, building your brand online and reaching out to potential customers. Then there’s the work you have to do in building images and perhaps even video that show your products in the best light.

The Pros and Cons of a Physical Retail Store

A lot depends on the type of products you sell. High end or expensive products such as furniture and clothing, certainly benefit if you have a physical store. There’s that sense of adventure that many consumers get when they walk into a really well designed shop. There’s the chance to build greater customer loyalty by delivering the personal touch which many online stores don’t possess.

That bond between buyer and seller is very useful when you want to create repeat business and develop your brand. That’s why many large retail businesses retain their physical stores even though much of the profit is coming online. Even Amazon has started opening physical stores in recent times.

Of course, the downside of having a physical store is the cost. You have to find the right premises, design it with your brand in mind, hire staff to work there and cope with all the other costs such as rates, electricity and security. Your access to a wider customer base is not as great as with an online provision but that’s not always the point of a physical retail store.

For retail, the act of trying on clothes or sitting down on a bed or sofa to test it out is an important part of the buying process for many consumers. And, according to some experts, bricks and mortar is becoming more important as a differentiator while the online world becomes cluttered and competitive. According to the Guardian recently:

“The trend also reflects the broader industry imperative around “omni-channel” retailing, where merchants aim to provide customers with a seamless experience whether shopping online via desktop or mobile device or at a traditional retail store.”

The question of affordability probably lies at the heart of why some businesses forego the development of physical stores. When you are just starting out as a retailer, you need to keep the costs as low as you can and maximise those profits. For many, this is simply enough and they don’t need to build their brand beyond the online world. For others, there may come a time when moving into a physical store becomes more imperative – after all, 60% of us still like to shop in the old fashioned way, particularly for items such as clothing.

It seems there’s a new lifestyle movement cropping up every five minutes. Whether it’s keeping fit, eating healthier or becoming more politically active, there’s plenty for us to choose from. But does the lifestyle change or new fad effect more than just the individual? Could a bunch of people deciding to become vegans impact on your industry?

Here are a few examples to consider:

• If people are getting fit are they less likely to buy your wine?
• If someone can work from home, will they think twice about whether they need to buy a car?
• If a person switches to a vegan diet, is it going to impact on your animal farming business?
• If consumers are changing to online shopping, will it reduce the number of people visiting your retail shop?

There is absolutely no doubt that changes in behaviour on a large scale can have a significant impact on businesses and different sectors.

Veganism and Dairy Farming

The rise of the vegan movement over the last few years, according to some, has certainly had an impact on the dairy industry. Vegans are a step up from vegetarians in that they don’t include any animal products (including dairy and eggs) in their nutrition. This means they don’t go out and buy milk or cheese but opt for substitutes instead. Vegans point to the environment and health benefits of their lifestyle but also the way in which animals are treated by farmers.

According to the Telegraph, the number of vegans has risen in the UK by 360% over the last ten years. This has been driven in part by various celebrities who have promoted their lifestyle with TV programmes and books. The change is seen mostly in the young, those in their late teens and early twenties, creating a population that takes its nutrition seriously. There are half a million vegans in the UK right now. But what about in another ten years, twenty?

Of course, there are still plenty of people who buy milk and cheese at their local supermarket and dairy farmers have a lot more to worry about than just the rise of the vegan lifestyle.  One of their main issues is the price milk is being sold for, as well as non-vegans opting for dairy alternatives.

Going Green and Energy

Another movement that is perhaps having a bigger impact is the desire to live in a greener, cleaner, less climate compromised world. The ability to switch utility suppliers has given consumers more of a choice and those that want to see more renewable technologies can now opt to sign up with companies that have sustainability at the heart of their operation. This in turn has led to more businesses coming onto the market that are divesting themselves of fossil fuel supplies and promising that their power comes from wind, solar and hydro rather than nuclear and coal fired sources. It’s also made bigger utility companies improve their sustainable credentials.

Utilities are being forced to accept renewables via the EU and climate change regulations and agreements. But those in the green lifestyle are having their impact as well.

The Impact of Changing Behaviour in the Population

Lifestyle changes don’t happen easily on a large scale. Usually there is a small number of people adopting a particular fad. New Year resolutions where we try to get healthier may well impact on the local pub or reduce wine sales for a short while but they normally recover. To create any significant change, large numbers of the population need to take up a particular behaviour and maintain it for a long period of time to cause significant disruption.

This has happened in the past. Each generation exerts its own force on the market place. Millennials were largely responsible for the response to using social media and growing our digital connectedness online. The new Generation Z are more tuned into health and fitness than ever before. According to Forbes:

“Gen Z knows a lot (or think they do), and they think a lot about being ‘balanced.’ More so than any other generation, Gen Z looks to exercise as a way to treat or prevent illness, and it is particularly relevant for emotional and stress-related issues.”

Each emerging demographic is going to change the world in their own way. The impact on industry could be major or subtle, depending on how a certain lifestyle movement develops and ingrains itself in the popular psyche. It’s not all destructive for industry either. The rise of the fitness and wellbeing lifestyle has been a boon to the bicycle manufacturers with more of us getting out on our bikes. Health food shops are getting better business and supermarkets now offer a more diverse range of products than they did just 30 years ago.

Could a lifestyle movement impact your industry? Certainly, especially if you fail to adapt and the change becomes more popular. In general, the number of individuals who adopt a new lifestyle is not disruptive enough to fatally damage a whole industry, there are just too many of us with diverse views of the world – that doesn’t mean, however, that it couldn’t happen in the future.