Corporate services. Spring Supporting you and your business

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Francine Eaton
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1 Corporate services Spring 2017 Supporting you and your business

It is difficult to fully understand the ramifications of these events at present, therefore 2017 looks to be an interesting year.

After all that the Office of National Statistics (ONS) reported GDP increased by 0.6% during Quarter 4 (Oct to Dec) 2016, the same rate of growth as in the previous 2 quarters.

Many forecasters now suggest a sharp downturn in UK GDP over the next three years is unlikely and that the UK is well placed.

2 Welcome to our spring 2017 Corporate Services newsletter. Few predicted the events of the last 12 months. The Brexit referendum and US presidential election results set directions of travel which will impact 2017 and beyond. It is difficult to fully understand the ramifications of these events at present, therefore 2017 looks to be an interesting year. Immediately after the Brexit referendum there was a lot of talk of the UK falling into recession with growth expected to disappear in the second half of After all that the Office of National Statistics (ONS) reported GDP increased by 0.6% during Quarter 4 (Oct to Dec) 2016, the same rate of growth as in the previous 2 quarters. Growth during Quarter 4 was dominated by services, with a strong contribution from consumerfocused industries such as retail sales and travel agency services. Many forecasters now suggest a sharp downturn in UK GDP over the next three years is unlikely and that the UK is well placed. I m sure it won t all be plain sailing but the landscape appears much more optimistic than many predicted several months ago. During our recent round of Finance Director Seminars we looked at some of the Brexit impacts as we currently see them. Some snap shots of what we covered are included in this newsletter. We hope to see you at our 2017 events. For more details, please visit our website was a busy year for us during which we joined the PKF global network of independent firms to further support our international clients. Whilst remaining the same independent firm as before, we now have a great new international resource available to us. We merged with Princecroft Willis which has offices in Poole and New Milton, giving PKF Francis Clark a combined revenue of 40 million and a team of more than 600 staff and 60 partners across eight offices, consolidating PKF Francis Clark s position as the leading accountancy and advisory firm in the South West. This was supported by the 2016 Western Morning News annual survey which highlighed us within the top 150 companies in Devon and Cornwall (based on employee numbers). In the most recent survey, published in July 2016, our share of audit clients had risen to 40. This compares with a total of 45 for the Big 4 combined, with the remaining 65 companies split between 39 smaller Big 4 combined firms. We think that this is a powerful message, which we are still very keen to build on PKF Francis Clark Top smaller firms 65 Modern Slavery Act not just an issue for large companies The Modern Slavery Act requires businesses to monitor their operations and supply chains to ensure that workforces do not include individuals who are victims of slavery or human trafficking. Affected businesses are required to publish a statement on slavery and human trafficking on their website within six months of accounting periods ending on or after 31 March Although the Act is only mandatory for large businesses (those supplying goods or services in the UK with a turnover (globally) of more than 36m), it is becoming increasingly apparent that the effects of the legislation are cascading down to SMEs. Suppliers which are SMEs are being asked to provide information on their businesses and supply chains in relation to modern slavery, so their large customers can fulfil their obligations. In turn, SMEs have to obtain equivalent information from their own suppliers. Increasingly, large businesses and public entities are including anti-slavery and human trafficking clauses in tender documents and supply contracts, even for existing suppliers. An SME risks losing business if it cannot provide appropriate assurances or its supply chain is not transparent. Given the cascade effect of the new regime it makes sense for SMEs to be prepared. Points to consider: Are you operating in a risky sector for modern slavery? For example, agriculture, tourism and hospitality might be regarded as more risky than, say, education. How complicated is your supply chain? Which parts of your supply chain are most at risk in relation to modern slavery? Potential actions you might take: Include anti-slavery clauses in agreements with your own suppliers. Obtain confirmation from suppliers that their businesses and supply chains are free from modern slavery. Prepare your own slavery and human trafficking statement. Train relevant staff in the new legislation and its implications. Reviewing supply contracts with customers carefully to check whether the business has the resources to comply with anti-slavery clauses imposed. Being aware of clauses that ask the supplier to warrant that the business complies with the customer s anti-slavery policies. Consider taking the initiative to develop your anti-slavery policies and statement, rather than waiting until it is requested. This could be the difference between retaining a lucrative contract and losing it because you can t provide the information in time. Glenn Nicol Partner and Head of Corporate Services

Tax update after the referendum vote and the Autumn Statement Following the Brexit referendum result and the latest forecast contained in the Autumn Statement announcements, it is clear that the

Government strategy seems to be, to promote business investment and to make the UK an internationally competitive place to locate a business.

3 Tax update after the referendum vote and the Autumn Statement Following the Brexit referendum result and the latest forecast contained in the Autumn Statement announcements, it is clear that the financial future of the country remains uncertain. It seems unlikely that government income will exceed expenditure until some time, well into the 2020s. Government strategy seems to be, to promote business investment and to make the UK an internationally competitive place to locate a business. It has already been announced that the UK corporation tax rate will fall to 17% and then, following recent statements by the Prime Minister, it is possible that it might go down to 15% in future. There is also considerable government support for high tech manufacturing and it is likely that there will be further tax incentives for R&D and the exploitation of intellectual property. A potential benefit from Brexit is the UK would no longer be subject to EU state aid rules, such as those used against the Irish Government for supporting Apple in Ireland. Against this, there is a clear need for the UK Government to raise additional tax revenue, and income from property continues to look like a good source of taxation revenue as well as indirect taxes. Business rates have a 98% collection rate and are a good source of revenue and insurance premium tax is also being increased. In his Autumn Statement, Philip Hammond mentioned disguised employment and tax motivated incorporation as being areas where the Government is likely to devote further attention. Falling corporation tax rates will mean that tax relief obtained now is more beneficial than tax relief in the future and indeed deferred tax liabilities will reduce as the tax rate comes down. There is therefore an incentive to invest now. For those businesses concerned about a possible loss of access to the single market, there are English speaking locations to consider throughout Europe notably Ireland, Gibraltar, Malta and Cyprus. There will be a continued focus by some UK businesses on potential relocation as the Brexit negotiations develop. Topical VAT matters During our Winter 2016 Finance Director Seminar, the VAT update covered three main areas. Firstly, the likely impact of Brexit from a VAT perspective was explored. If there is a hard Brexit, EU legislation would cease to apply in the UK from the date of exit and the UK would be free to amend its VAT legislation. Alternatively, the UK could import EU principles into domestic legislation, or if there is a so-called soft Brexit, EU legislation could continue to apply as part of the price for keeping access to the single market. As we now know there will be a hard Brexit, the biggest impact will be on international trade. The largest change will probably arise with the movement of goods from the remaining EU countries into the UK; customs duty and import VAT will be payable on goods coming into the UK. Those involved in the movement of goods into the UK are advised to be proactive and to consider their supply chains and whether any reliefs will be available to minimise the impact of customs duty. The knotty issue of VAT and commercial property was addressed by looking at the questions that should be asked when contemplating property transactions. Case studies were used to illustrate the purchase of a property by a pension scheme and letting of surplus commercial properties. The case studies illustrated the potential traps and highlighted that consideration should be given to the transactions before the event, rather than afterwards. The final subject was the VAT treatment of staff benefits which covered the cycle to work scheme, staff uniforms, mobile phones, and relocation expenses. This section also covered Christmas parties and explained that VAT could be recovered in full on Christmas parties to the extent that only staff - including directors - were attending the party. For these purposes, staff does not include pensioners or former employees and shareholders (unless they are also employees).

Transactions and funding in a post referendum world Despite the continuing economic and political uncertainty, recent corporate transactional activity levels seem to be sharing some of the

4 Transactions and funding in a post referendum world Despite the continuing economic and political uncertainty, recent corporate transactional activity levels seem to be sharing some of the characteristics of the British consumer continuing apace despite what most commentators expected. But again, these are times in which you should expect the unexpected! Encouragingly, not only are many deals completing but new transactions and acquisition plans are being implemented; a trend which will continue well into this year. Following the first fall in the Bank of England base rate for seven years, the low interest rate on savings means that there is a significant amount of money looking for a higher yield. With many banks looking to expand their books, numerous private equity funds being flush with cash, and new P2P offerings emerging all the time, there is a mountain of debt and equity seeking quality proposals to fund. As a result of the referendum vote, projected future interest rates over the next five to ten years are also low. Consequently, there is the unusual opportunity to obtain long term fixed rates that are only slightly above the cost of one year money. The combination of the above enables corporates to plan their approach with confidence that they have the funds to complete, and certainty over future costs. We do, however, have some concerns that the challenges of Brexit are not being adequately recognised or planned for, and similarly the opportunities are only being slowly explored. This may change as we head into 2017 and triggering Article 50 becomes imminent. In terms of inflation, it appears that corporates are being misled by relatively small projected increases in CPI and RPI and the unexpected fall in October. Inflation for corporates is likely to be far higher with the increase in the national minimum wage of 4.1% (and the corresponding knock-on impact on more senior employees), the effect of the circa 17% increase in the cost of $ and denominated imported goods (via exchange rate movements), the increase in business rates and the possible increase in fuel and heating costs driving this up considerably. In summary, corporates need to explore the potential impact of the likely changes ahead, take advantage of long term fixed rates where appropriate, expect higher inflation than they have been used to in recent years and, based upon the experience of the last 18 months, expect the unexpected for the future!

Negative interest rates on the horizon? The recent base rate decrease combined with the Bank of England making lines of credit directly available to banks at 0.

5 Negative interest rates on the horizon? The recent base rate decrease combined with the Bank of England making lines of credit directly available to banks at 0.25% has seen deposit account interest rates plummet to new lows. With the undoubted upcoming challenges to the economy following the Brexit vote it is hard to see interest rates picking up any time soon. Now is perhaps the time to look at actively managing your company cash resources and explore alternative banks and building societies that are still paying reasonable rates of return. An extra 0.5% on 500,000 is a 2,500 uplift, definitely a worthwhile exercise which PKF Francis Clark Financial Planning can help you to facilitate. Looking for returns greater than a deposit account? There are a number of investments a company can make that have the ability to produce higher returns than those available from cash deposits. These investments invariably carry some form of investment risk in order to achieve the higher returns and the risk versus reward profile should be considered in detail before investing. With interest rates at historic lows and inflation (at least for now) also low by historic standards, now is a good time to at least be considering risk controlled investment options for cash that is not required for day to day operations, and can be invested for a period of at least five years. Any tax consequences of investing in this manner should be considered with your professional adviser before investing. A reminder about the recent changes to pension planning rules The lowering of the lifetime allowance, restrictions to annual allowance for higher earners, reducing opportunities to carry forward allowances for higher earners, more flexible death benefit options and increased flexibility in how you can access your pension assets, are all reasons to review your pension planning strategy. We are finding that many existing pension plans are not able to accommodate the new flexibilities, leaving pension holders stranded with uncompetitive products and in the worst cases, not able to efficiently access their pension plans or pass on assets to their beneficiaries in a tax efficient manner. There has never been a more appropriate time to reassess your pension planning strategy to ensure it is fit for purpose moving forward. If you wish to find out more please speak to your usual PKF Francis Clark contact. Alternatively, you can call or hello@fcfp.co.uk

6 Finance Directors events feedback Our most recent round of the Finance Directors Update began in Taunton on 29 November. With other events in Plymouth, Exeter, Bournemouth and Bodmin held during November and December, these ever more popular six-monthly updates had a packed programme. Over 300 Finance Directors and Controllers attended from across the South West to hear from PKF Francis Clark s experts on topics including a Brexit and Autumn Statement briefing; financial reporting FRS 102 tips, traps & company law roundup; VAT; pensions and investments; corporation tax rates and deferred tax, capital investments, making the most of tax losses and R&D tax credits; transactions and funding funding update, examining the impact of Brexit on funding and transactions and demystifying MBOs and FAMBOs. Perhaps the reason for the popularity of these events was highlighted by one delegate who said: Excellent best so far. I do go to others but this is the best by some distance well done. Forthcoming Finance Directors events Set out below are details of the next round of our Finance Directors Update events, scheduled for June 2017: Wednesday, 14 June Thursday 15 June Wednesday 21 June Wednesday 28 June Thursday 29 June Somerset County Cricket Club Taunton Somerset TA1 1JT Exeter Racecourse Exeter Devon EX6 7XS AFC Bournemouth Vitality Stadium Bournemouth Dorset BH7 7AF Lanhydrock Golf and Country Club Bodmin Cornwall PL30 5AQ Plymouth Science Park Derriford Plymouth Devon PL6 8BX PKF Francis Clark experts in financial reporting, corporation tax, VAT, financial planning and funding and transactions will once again be examining the latest financial issues affecting your business. A full programme and invite will be distributed at the end of April. However, you are already able to book your place online at: Alternatively, please contact: Devon Hawes Events Co-ordinator E devon.hawes@pkf-francisclark.co.uk T We have offices in: EXETER NEW FOREST PLYMOUTH POOLE SALISBURY TAUNTON TORQUAY TRURO Please visit our website for your local office expert PKF-FRANCISCLARK.CO.UK If you would like to be added to, or deleted from our mailing list, please contact Peter Finnie, peter.finnie@pkf-francisclark.co.uk or sign up online at: PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at The term Partner is used to refer to a member of Francis Clark LLP or to an employee or consultant with equivalent standing and qualification. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is produced by Francis Clark LLP for general information only and is not intended to constitute professional advice. Specific professional advice should be obtained before acting on any of the information contained herein. Whilst Francis Clark LLP is confident of the accuracy of the information in this publication (as at the date of publication), no duty of care is assumed to any direct or indirect recipient of this publication and no liability is accepted for any omission or inaccuracy.

Topical Tax Points. supporting you and your business

Topical Tax Points. supporting you and your business Topical Tax Points We have set out some topical tax points you may like to consider during the 2017/18 tax year to ensure that you are minimising your tax liabilities by maximising your reliefs and exemptions.