Entrepreneurs’ Relief

2 min read

Entrepreneurs’ Relief, is available for those in business, which may reduce the tax rate on the first £10 million of qualifying lifetime gains to 10%.

This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.

From 6 April 2019, in a change to the previous rules, entrepreneurs’ relief is available to individuals on the disposal after two complete qualifying years 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 qualifying disposal of shares or partnership interest.

New 5% rules for company shareholders

To qualify for ER, the company needs to be an individual’s personal company where the individual must:

  • be a company employee or office holder
  • hold at least 5% of the company’s ordinary share capital and
  • be able to exercise at least 5% of the voting rights.

For disposals on or after 29 October 2018, they must also satisfy one of the following tests:

  • a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
  • a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.

Thought should be given to the structure of your company at the outset to ensure that the tax benefits of ER are not lost.

Investors’ Relief (IR)

If you do not meet the criteria for Entrepreneurs’ Relief you may still be able to take advantage of the ow 10% rate of tax.

Entrepreneurs’ Relief has been extended to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

•        shares must be newly issued and subscribed for by the individual for new consideration

•        be in an unlisted trading company, or an unlisted holding company of a trading group

•        have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016

•        have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

Talk to us about your ER planning

Loucas can help you to build a tax-efficient financial plan that ensures you are making the most of the reliefs and allowances available to you. 

If you would like to discuss any of the issues raised in this guide please call 01622 758257 or contact us.

Do you have a networking strategy?

By Athos Louca

3 min read

Do you have a networking strategy?

It takes time and commitment to build up and maintain an effective network, but in our experience these are resources well spent. As with so many aspects of business life, it pays to approach networking in an organised, strategic manner. Read our guide on tips to networking.

Networking

Before the Networking Event

Researching networking events before you attend to find out who will be there and what industries they are from is key.  This will help you decide if the event is the right one for you. Will attending likely yo introduce you to the types of customers you are looking for?

One tip to stand out from the other networkers is by offering some invaluable information. This could be useful advice, a contact or information the person you are talking to  is interested in. To help you break the ice and start conversations with others it’s a good idea to give some thought to possible conversation starters you could use.

During the event

Introducing yourself and approaching people you don’t necessarily know can be daunting. Aim to make a personal connection though talking about your hobbies or even better about their hobbies and interests. Don’t feel the need to rush into talking about work related topics or trying to sell something and when you do get round to talking about your business refrain from using jargon.

When contacts are talking, listen intently and show interest in what they are saying.  Avoid getting distracted by just thinking about what to say next. This will help the conversation flow better and you to connect with the potential customers or contacts.  Individuals like talking about their businesses so asking thoughtful questions is a great way to make a lasting first impression.

Remember to smile.  Not only does smiling make it easier for people to connect with you because you are more open and welcoming, it also helps them remember you and your company.

If a fellow networker hands you their business card, make a positive statement rather then putting it in your pocket.  By commenting on their business, it will show that you are interested in them, as opposed to just trying to making a sale.

After the event

Having done the hard bit, it is important to maintain a database of all the contacts you have met.  They should be put into different categories such as potential customer, referral contact or professional advisor.  This will also help you prioritise those contacts that perhaps will be the most useful to you in the future.

After the event, take the time to  email the contacts you made and connect with them on LinkedIn.  If you are able to make reference to their business or the service they are providing it will again demonstrate that you were listening. You stand a far better chance of developing the relationship further.  This is also an opportunity for you to more formally introduce your business and explain how you could work together in the future.

Future growth

To maintain successful business relationships you will need to ensure that you keep in regular contact.  Consider arranging further meetings every few months, even if it is just to grab a quick coffee together. The relationships forged from networking can be invaluable to start a collaboration, partnership or take advice from someone who you consider knowledgeable. Networking doesn’t necessarily have to be frequent or time consuming. If you want your business to grow then it is something business owners need to invest time in. If you don’t, the chances are they will simply fall by the wayside.

To help evaluate and improve your networking approach why not take our Network Strategy Test.

Ratio Analysis: Measuring Business Performance

By Athos Louca

2 min read

Ratios are calculated from an organisation’s financial statements and are an effective business tool in measuring its performance. By comparing the ratios to those of the previous year it is possible to determine whether a business is doing better this year than last year.

It is also possible to compare ratios of one organisation against those of another in a similar industry, a practice known as Benchmarking.  This helps identify areas in which one business is either under performing or indeed is out performing another.  Undertaking ratio analysis and making comparisons to market leaders within your industry will help focus on areas which require attention. It is important not to simply calculate as many ratios as possible, but to identify those most relevant to your business.

Ratio Categories

There are many different ratios that can be calculated and which can be grouped together into five main categories:

  • Profitability
  • Liquidity
  • Operational
  • Solvency
  • Gearing

Different interpreters of the financial statements will be more interested in certain ratios than others.  For example, lenders will be interested in Gearing ratios such as interest cover and debt to equity. Whilst other business owners are likely to concentrate on Profitability and Operational ratios.

Measuring Business Performance and Target Setting

By carefully selecting the most suitable ratios business owners and managers can use the results to gain a better understanding of how their organisation is performing.  The same ratios can also be used to set future targets.

For example, a business may be experiencing cash flow problems.  The business owner believes that his customers are taking too long to settle their accounts.  By calculating their debtors days and recording the results, it will be possible not only to establish what the current position is, but also to set targets for the future.  This may be to reduce the debtor days from thirty five to twenty five days.  A reduction in debtor days will help ease cash flow and reduce the risk of bad debts.

An organisation should select a number of ratios which provide key information about its performance.  These are known as Key Results Indicators.  Whilst these will vary from business to business some of the most common are listed below:

  • Gross Profit Margin
  • Net Profit Margin
  • Trading Overheads as percentage of Turnover
  • Debtor & Creditor Days
  • Current Ratio
  • Debt to Equity
  • Return on Capital Employed

The calculated ratios should be recorded in a concise format and form part of the management information reports.  The use of graphs will allow trends to be easily identified, avoiding the risk of getting lost in the numbers.

We have helped many clients design and implement effective ratios as part of their business key performance indicators to help them assess where their business is.  If you would like any assistance on selecting the right ratios and other key performance indicators, please do not hesitate to contact us.

How does Receipt Bank work?

By Becky Morgan

3 min read

Technology is constantly changing. New tools are designed to assist business owners with the day to day management of their business’ finances.  Receipt Bank makes the gathering, storage and processing of expenses a seamless and efficient process.

What is Receipt Bank?

Receipt Bank is a platform that automatically extracts data from your receipts and imports that data into your Cloud Accounting software. Not only that, it also retains copies of your receipts in the cloud so there is no need for you to retain the original hard copies.

Receipt Bank integrates with a number of cloud accounting systems including Xero, Quickbooks Online, MYOB, Sage Accounting, Kashflow and FreeAgent. For the purposes of this post we will be looking at the integration of Receipt Bank with Xero.

 

How will Receipt Bank benefit my business?

Using this automated software brings a number of benefits to businesses:

  • Using the Receipt Bank app on your smart phone you will be able to scan receipts and invoices on the go.
  • You will no longer need to retain copies of your receipts as once they are in Receipt Bank they are stored in the cloud.
  • The risk of losing receipts will be reduced as you can upload copies of your receipts into Receipt Bank as soon as you have purchased something.
  • The automated data extraction process will avoid the need to key in data.
  • Add your team to Receipt Bank and keep control of their expenses.
  • Human error is minimised as the data is automatically extracted from the receipts.
  • It’s free to our clients!

 

How does it work?

There are a number of different ways in which you can upload copies of your receipts into Receipt Bank ready for importing into your cloud software.

 

Using Receipt Bank:

App

The Receipt Bank app is simple to use.  A picture is taken of your receipt and the data is automatically extracted in real time and upload to Receipt Bank.  It is possible to scan in receipts individually or combine multiple receipts on one page.

Using the Receipt Bank App, you can check the data has been extracted correctly. It also ensures it is being coded to the correct cost centre.  When satisfied this is then published to Xero straight from the App ready to be paid/matched to bank payments.

The App is very easy to use and is a free download from Google Play Store or Apple App Store.

Email

Once you are set up, a receipt bank email address will be assigned to you. If you receive emails with copies of invoices in the body of the email or as an attachment, you can simply forward this email onto your receipt bank email address and it will appear there ready to be imported into Xero.

PDF Documents

Using your Receipt Bank online account, you can drag and drop PDF documents into Receipt Bank. The data will then be extracted by Receipt Bank in the normal way ready to be published into Xero.

 

What will Receipt Bank cost me?

To use the software you will need to pay a monthly subscription fee to Receipt Bank. To all of our clients, Receipt Bank will be provided free of charge!

 

Get started with Receipt Bank?

Using Receipt Bank with Xero will allow you to save administration time and reduce risk of error. It is helpful as it avoids missing tax relief on lost receipts.

Loucas have a dedicated team with an extensive knowledge of both Xero and Receipt Bank.  If you would like to discuss the benefits of Receipt Bank and how it can help your business, please contact us and we will be happy to assist you.

Please note: The information contained in this site is provided for information purposes only and is of a general nature. It is not a substitute for specific professional advice related to your own circumstances therefore you are recommended to obtain specific professional advice before you take any action.

Enterprise Management Incentive Scheme (EMI) Options

3 min readAn Enterprise Management Incentive (“EMI”) scheme is an HMRC approved share option scheme aimed at smaller businesses to retain and motivates key employees. This guide will discuss what EMI schemes are and how they work.

So what is an EMI share options scheme ?

A share option gives the right to someone to purchase a share in a business at an agreed price at some point in the future.  Typically, but not necessarily, this would be at the point of sale. The option holder must be an employee of the company and must spend at least 75% of their working time at that company.


Why would you consider using an EMI scheme ?

EMI schemes are becoming more and more popular with businesses with HMRC reporting a marked increase in the number of business implementing the schemes during 2017.

The main reasons businesses consider introducing EMI schemes are to motivate and retain key members of their workforce.

Employees will have a sense of ownership and will also benefit from the increased value of the business.


Is an EMI scheme complicated to implement ?

At the outset there is a procedure that needs to be followed which is likely to require the assistance of professional advisors.
Outline of Procedure:

  • Prepare a market value valuation of the business and agree with HMRC
  • Agree the terms of the scheme and set out in an option agreement
  • Possibly minor amendments to the company’s Articles of Association
  • Grant the options to the employees and get them to sign the option agreement
  • Notify HMRC of the options that have been granted

Other than an annual declaration that has to be made to HM Revenue and Customs (HMRC) each year notifying them of any changes to the options that have been granted there is no on-going work required to maintain the scheme.

Much of the documentation that is mentioned above can be used for further granting of options at a later stage.  It may be necessary to obtain a further agreement from HMRC as to the value of the shares.


What are the Tax Advantages of EMI share options ?

EMI schemes have a number of tax advantages attached to them over unapproved share options.

  • Providing the options have an exercise price which was no less than the market value at the time of granting then there is no income tax or national insurance contributions payable.
  • Once the options have been exercised and sold then the employee will pay capital gains tax on any gain. The gain should qualify for Entrepreneurs Relief which will mean they will be taxed at a rate of 10%.  This is far less than if they were to pay income tax on the gain as they would do for unapproved options, which could be as much as 45% or possibly more if NICs were to become payable.
  • Key employees are likely to stay with the company as the probability of a profitable capital return, motivates them. Employee’s motivation and interests are aligned towards the shareholders and the board when they have a tangible interest in the company’s ownership. As a result, everyone is focused on adding more shareholder value.
  • Employees feel more valued in a share option scheme in the long term. Employees have an incentive to grow of the business and make themselves more accountable.


What will it cost me ?

Typically to implement an EMI scheme will cost around £2,500 to £3,000 plus VAT.  This may vary depending on how many employees are to be included in the scheme.


What are the downsides of an EMI scheme ?

If the trigger point for exercising the options is based around the sale of a business and the owner subsequently decides not to sell this can act as a demotivator for employees as the scheme may no longer be fit for purpose.

There are a number of disqualifying events laid down by HMRC which could affect the tax status of the scheme.  Whilst in most cases these may not be relevant, consideration needs to be given to them when making some business decisions.

The initial setup costs are high if options are only going to be granted to a small number of employees.

How we can help  ?

As an accounting firm, we are able to provide a wide range of services tailored to your particular industry. With over 40 years experience our team at Loucas has set up many EMI schemes for a variety of businesses in numerous business sectors. We have a dedicated team to ensure that you are guided though share option schemes with ease.

We believe by staying up to date with not only current but changing legislation and industry news we are better placed to help our clients and their businesses succeed.

If you would like to discuss you options with EMI share option schemes or how Loucas can assist you please do not hesitate to contact us.

Enterprise Management Incentive Scheme (EMI)

Further Information

The information contained in this publication has been prepared for general guidance and is not intended as advice. Whilst every care is taken to ensure the accuracy of the information, no responsibility can be accepted by Loucas for any loss resulting from acting or refraining from acting as a result of any material in this publication. The information in this publication is not designed as a substitute for seeking professional advice.

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