Post on 28-Jan-2018
transcript
Nick Farrant, Corporate Partner
Chair’s welcome
Housekeeping
@pkfFrancisClark
#FDSeminar17
The Role of the FD
Finance
Custodian
Operational
Leadership
Execution
Insig
ht
ServiceChange Finance
Overs
ight
Friendly Food Ltd - background
• Niche luxury pet product business
• Makes and sells expensive treats for pets
• Historically UK only through pet shops
• Started as food treats but now also toys and accessories
• Rapid expansion through web sales
• Expanding overseas in US, China and Northern Europe
• Owned by Kat (85%) and Fred (15%) – they are unrelated
• Kat is looking to retire in the next 2 years, Fred within 5 years
• Second tier management are strong
• They may have some overseas employees in the near future
• Manufacturing and refrigerated storage is energy intensive
www.website.com
Fred the FD
Finance
Custodian
9/10
Operational
8/10
Leadership
7/10
Execution
6/10
Overs
ight
Insig
ht
ServiceChange
Friendly Food Ltd - financials
FY18
Budget
£’000
FY17
Actual
£’000
FY16
Actual
£’000
FY15
Actual
£’000
Sales 33,000 24,000 19,000 16,000
Gross profit 12,000 9,000 7,500 6,500
GPM 36% 37% 39% 41%
Net profit 1,900 1,400 1,100 1,000
Net margin 5.8% 5.8% 5.9% 6.3%
Cash 5,400 3,600 2,500 1,500
Net assets 7,900 6,100 5,000 4,000
P+L reserves 7,800 6,000 4,900 3,900
Programme
Topic Speaker FD role
Financial reporting
update
Stephanie
Henshaw
Custodian
Cyber security Richard
Wilding
Custodian
Topical VAT issues Richard
Staunton
Operational
Brexit John Endacott Leadership
Business tax update Adam Kefford Leadership
Auto enrolment &
payroll update
Ian Townsend Operational
Energy & sustainability Richard Harris Execution
Management buy out Rob Gear Execution
8
Stephanie Henshaw,
Corporate Partner
Financial reporting update
Programme
• FRS 102.2: what to expect from the
forthcoming update
• Keeping on top of intercompany
accounts
• Spotlight on share buybacks
• PSCs: are you making notifications on
time?
FRS 102.2: Where are we now?
FRS 102
• Current version
FRED 67
• Incremental improvements
FRS 102.2
• Periods beginning 1/1/19 onwards
Summary of expected changes
• Policy choice introduced: fair value or depreciated cost
• Option to use FV as deemed cost on transition rather than prior period reversal of value
Intra group property rental
• Removal as part of accounting policy process
• Example impact: must split mixed use property between investment and operating elements
Undue cost and effort
• Confirms exemption from discounting for loans TO small companies by director-shareholders and their close families
• No extension to non-small entities or intra group loans
Non-market rate loans
Summary of expected changes
• Relaxation of separate recognition of intangibles on acquisition
• Separation is policy decision on first acquisition –choose wisely
Goodwill and intangibles
• New description of “basic” (non FV) financial instrument to support detailed conditions
Financial instruments
• Reintroduction of Net Debt reconciliation
• No separate key management personnel compensation when only KMPs are directors
Disclosure changes
Forthcoming changes under IFRS
• Periods beginning on or after 1 January 2018
• Requires detailed analysis of contracts to determine when and how much turnover to recognise
• Restatement of prior year profit in some cases
IFRS 15: Revenue
• Periods beginning on or after 1 January 2019
• Requires lessees to bring all leases on balance sheet
• Restatement of prior year balance sheet and associated profit impact
IFRS 16:
Leases
Illustrative example: IFRS 16 impact
Current rules £000s IFRS 16 £000s
Property plant and
equipment
2,500 Includes future
lease obligations
4,250
Current assets 3,500 3,500
Current liabilities (3,000) Includes 12 months
lease rentals
(3,350)
Net current assets 500 150
Non- current
liabilities
(1,500) Includes 4 years
lease rentals
(2,900)
Net worth 1,500 1,500
Note to accounts
Operating lease
commitment
(5 years x £350k)
1,750
15
UK to IFRS convergence?
• Originally FRC proposed triennial reviews of
FRS 102 (2019,2022,2025 etc)
• Now awaiting practical implementation
experience of IFRS 15 and 16 before
reviewing
• FRS 102 not intended to mirror IFRS exactly
or automatically
• Watch this space….
In the meantime….
Companies with significant operating leases, especially property:
• Consider potential impact on bank covenants of bringing
leases onto balance sheet
• Covenants incorporating movements in creditors
• If negotiating new funding and covenants consider
• Right to adjust back to “old rules” if accounting rules change
• Right to revisit covenant thresholds without triggering
repricing
• IFRS 16 - affected companies having lengthy discussion with
banks already
www.website.com
Keeping on top of intercompany accounts
• Interdependence of many group companies
• Efficient use of cash and resources
• Tax mitigation via management charges
• “Housekeeping” tips
• Intra group waivers – points to watch
Good housekeeping matters…
Control and transparency
Regular reconciliations
Clearing down balances –
avoids risk of unrealised
profit
Controlling currency
differences
Separate longer term funding and
trading elements
Intra-group waivers
• Formal release from liability, not provision for doubtful debt
• On reorganisation, before disposal of subsidiary
• To reflect reality of investment by parent
• Recognition in accounts when release occurs
• Plan in advance
• Documentation
Intra group waiver: parent to subsidiary
In parent’s books
• Dr Cost of investment
• Cr Intra group debtor
Note – may need to consider impairment of investment balance if NAV of subsidiary < cost of investment
In subsidiary’s books
• Dr Intra group creditor
• Cr Reserves
Note – generally accepted practice is that waiver of loan is form of capital contribution therefore cannot include in profit for the year
Intra group waiver: subsidiary to parent
In subsidiary’s books• Dr P&L Reserve
• Cr Intra group debtors
Note: waiver is form of distribution so must be shown as part of equity. More importantly, cannot waive unless subsidiary has sufficient realised profit to cover waiver
In parent’s books• Dr Intra group creditor
• Cr Distribution received – via P&L
Distribution may not be realised profit unless waiver represents release of liability in relation to cash advanced. E.g. waiver of debt for transfer of property = unrealised profit
www.website.com
Spotlight on share buybacks
• Mandatory redemption or ad hoc repurchase
• Contractual, take out minority shareholder, provide partial exit route for majority shareholder
• Key legal requirements
• Distributable (realised) profit
• Capital Redemption Reserve
• Consequences for failures in process
• Penalties for late filing
• Ineffective buyback – impact on disposal of company!
Sufficient distributable profit?
Last annual accounts £000s Distributable?
Share capital 50 No
Share premium 2,000 No
Revaluation reserve 2,700 Only if distribution
involves revalued asset
Profit and loss account
(includes £900k fair
value gains)
1,350 £450k – yes
£900k – probably not
Shareholders’ funds 6,100
Also consider:
1. performance since last annual accounts
2. Changes to accounting policy or adjustments affecting opening
reserves
Company wants to buy back 10,000 shares for £500,000
What if insufficient distributable profit?
Which is most
appropriate?
Dividend up from subsidiary
Capital reduction (share premium, CRR)
Bonus issue from revaluation
reserve, then capital reduction
Capital redemption reserve
• Potential consequence of buyback or repurchase
• Hold uncancelled shares in “treasury” – separate debit line
on balance sheet
• Cancel shares
• Nominal value of cancelled shares is transferred to Capital
Redemption Reserve
• Applies irrespective of where shares were classified on the
balance sheet i.e. as debt or equity
Illustrative example: buyback with capital
reduction
£000s Capital
reduction
Revised
balance sheet
Buyback £000s
Net assets 6,100 6,100 (500) 5,600
Share capital 50 50 (10) 40
Share premium 2,000 (1,000) 1,000 1,000
Revaluation reserve 2,700 2,700 2,700
Capital redemption
reserve
10 10
Profit and loss
account – realised
450 1,000 1,450 (500) 950
Profit and loss
account - unrealised
900 900 900
Shareholders’ funds 6,100 6,100 5,600
Company wants to buy back 10,000 shares for £500,000
27
PSC notifications
Persons with significant control
• From 26 June – “events driven” notification
• Update PSC register within 14 days of
change
• Notify registrar within further 14 days
(forms PSC01-09)
• Notification via Annual Confirmation
Statement has ceased
• Importance of updating share register
promptly for changes - prima facie evidence
of title to shares, dividend entitlement etc
www.website.com
Audit reports
• Revised format for periods beginning on or
after 17 June 2016
• Reordered and expanded wording
• Specific reference to going concern where
no issues….
• See example handout
29
Stephanie Henshaw,
Corporate Partner
Financial reporting update
30
Richard Wilding, Head of cyber
security
Cyber Security
Cyber Crime is growing
• Cyber criminals have huge technical
know-how. Far superior to most
legitimate businesses.
• Businesses are often oblivious to the
threat that results from their lack of
cyber security.
• A company doesn’t have to have a
transactional website to be vulnerable.
• Many SME’s possess intellectual
property that has significant financial
value to cyber criminals
Current risks and threats
Current examples:
• AA, NHS, Deloitte hack, Equifax
• Ransomware, malware, fictitious e-
mails, requests for changes to master
files
www.website.com
Fred the FD as custodian
• Fred is concerned about cyber
security and its risk
• Fred feels he should do something
and would like some more comfort
• Awareness/training, policies/controls
and audit
Awareness and training
• Human error is often the weak link
• Establish a staff induction process (not a one
off exercise)
• Maintain user awareness of the security risks
faced by the organisation
• Monitor the effectiveness of security training
www.website.com
Controls/policies
Policies Controls
Produce a user security
policy
Include in employment
contracts
Online payments
Supplier detail changes
Passwords
Giving the company and FD comfort/assurance
• Cyber Essentials
• Cyber Essentials PLUS
• IASME accreditation
Cyber Essentials
• Self-assessment questionnaire for the company to complete
• Covers 5 key areas/71 questions
• We provide upfront assistance (1.5 days needed) to support how to complete and progress
• It is submitted via a secure portal for us to assess
• Basic vulnerability scan performed
• Assessor feedback provided
• Once successful can use the Cyber Essentials logo for 12m
• Limited insurance provided/can help reduce further cyber insurance
Cyber Essentials PLUS
• We audit and test the 5 key control areas
• Includes detailed vulnerability and limited penetration
testing
• A report is then issued
• Once successful can use the Cyber Essentials PLUS
logo for 12m
• Can help to reduce cyber insurance further
General Data Protection Regulations 2018
• What is GDPR?
• What are the consequences – 2 levels?
Higher of up to 20m Euro’s/4% of global
turnover
Higher of up to10m Euro’s/2% of global
turnover
• What should I do?
IASME (Information Assurance for Small and Medium Enterprises)
• IASME – two levels standard and gold
• 180 questions (including those in Cyber Essentials)
• Includes GDPR specific questions
• Akin to ISO27001
• A report is then issued
• Once successful can use the IASME logo for 12m
www.website.com
Next steps
• See brochure in pack
• Complete form
• 6 December cyber event
• Contact your PKF Francis Clark adviser or
e-mail: cyber@pkf-francislark.co.uk
42
Richard Wilding, Head of cyber
security
Cyber Security
Richard Staunton, VAT Director
VAT update
44
VAT - Agenda
• What’s new? What’s changed?
• Top 10 Tips, Tricks, Twists & Trips…in 20 mins!!
• Whisper it…Brexit
www.website.com
VAT – What’s New?
Disbursements
• Brabners case
• Re-charge of e-search fees
• No VAT on cost
• Re-charged to customer with no VAT
• HMRC view: component of taxable supply
• Tribunal agreed
• Assessment upheld £78k
• History relevant to legal firms, BUT…principles are generic
VAT – What’s New?
Disbursements (cont.)
So what is a disbursement?
• Agent is authorised & acting for client in paying 3rd party
• Client actually receives & uses the goods/services
• Client is responsible for paying the 3rd party
• Client aware that goods/services being provided by 3rd party
• Agent’s outlay must be separately itemised, and…
• Must recover only the exact amount paid to 3rd party
• Goods/services must be clearly additional to agent’s supplies
47
VAT – What’s New?
Disbursements (cont.)
How does this affect me?
• Be clear as to whether cost is
component or addition
• Where qualifies, either:
o Gross in/gross out; or
o Reclaim/recharge VAT
• Issues only when treatment changes: In
→ Out
www.website.com
VAT – What’s New?
Goods vs Services
• Mercedes Benz Financial Services CJEU case
• ‘Agility’ optional purchase scheme
• Agreement end – options:
o Purchase car (final payment)
o Return Car
o Commence new agreement
• Found:
o C. 40% final payment to purchase
o C. 50% customers opted to purchase
49
VAT – What’s New?
Goods vs Services (cont.)
• Historic treatment:
o Supply of goods
o FULL VAT due at outset
• Ruling:
o Supply of services
o VAT due on each payment
• Impact
o VAT cash-flow → Supplier
o VAT recovery (part) → Customer…?...NO!!
VAT – Top 10 Tips, Tricks, Twists & Trips
1. Business Mileage
• Pence Per Mile (PPM) Paid for business mileage
• HMRC accept proportion as ‘fuel’
• AA tables can be used…or
• Apply 1/3rd !*
• VAT recoverable @ 1/6th
• Fuel receipts should be retained…
• Can go back four years
*100% where company car
www.website.com
1. Business Mileage - Example
• Friendly Food Ltd:
o 40 sales staff
o Avge 15,000 business miles each pa.
o Mileage rate @ 45ppm
• VAT recovery:
VAT = 15,000 x 40 x £0.45 x 1/3rd x 1/6th
VAT = £15,000
VAT – Top 10 Tips, Tricks, Twists & Trips
VAT – Top 10 Tips, Tricks, Twists & Trips
2. EU Trade
Friendly Foods…now selling into Europe
• Distance Sellingo Non-VAT registered EU customers
o UK VAT; BUT
o Register & charge EU VAT if > threshold in calendar year
o Threshold varies per EU country €35k or €100k
• Distribution Depotso Move Own goods to EU warehouses/stock hotels
o Distribute from EU locations
o EU VAT registration required!!
VAT – Top 10 Tips, Tricks, Twists & Trips
3. Imports
Friendly Foods…importing from outside the EU
• Deferment Account
• Simplified Import VAT Accounting (SIVA)
• Inward Processing Relief (IPR)
• Customs Warehousing
• Binding Tariff Information (BTI)
VAT – Top 10 Tips, Tricks, Twists & Trips
4. Bad Debt Relief…and Creditors
Bad Debt Relief (BDR)
• VAT recoverable:
o Debtors > 6m old
o Write-off to a VAT BDR a/c
• BUT:
o VAT must have been originally accounted for
o Debt must not have been paid, sold or factored
o Adjust for any subsequent receipts
55
4. Bad Debt Relief…and Creditors
Creditors…the sting in the tail!
• VAT repayable:o Creditors > 6m old
o Irrespective of whether supplier has claimed BDR
• BUT:o VAT can be reclaimed if debt settled
WARNING HMRC are getting really hot on this one!!
VAT – Top 10 Tips, Tricks, Twists & Trips
VAT – Top 10 Tips, Tricks, Twists & Trips
5. Request For Payments
• Time of supply – services:
o Basic – when performed; or
o Issue of invoice; or
o Receipt of payment
• BUT NO ‘Basic’ Tax Point where:
o Ongoing/continuous services
o Long-term project/periodic payments
Consider: ‘Request For Payments’ (RFP)
www.website.com
5. Request For Payments
• RFPo Looks like an invoice…
o But omits key features (VAT # etc.)
Prompts payment
Initial significant VAT saving
Ongoing VAT cash-flow
BDR by default
X Increase administration
X Possible negative customer reception
VAT – Top 10 Tips, Tricks, Twists & Trips
VAT – Top 10 Tips, Tricks, Twists & Trips
6. Partial Exemption
• VAT Recovery
Taxable supplies √
Exempt supplies X
• Mixed supplies
o Attribute costs
o Apportion ‘mixed use’ costs
o De-minimis & NO restriction if Exempt Input VAT (pa):
< 7,500 and
< Total Input VAT
59
6. Partial Exemption
• Beware ‘non-standard’ Exempt Activity e.g.:o Finance/insurance income
o Property letting/sales
Friendly Foods…letting unused warehouse• Exempt income
• VAT on refurb./operational costs?
• De-minimis?
• If not, restriction!
• …or Opt To Tax?
VAT – Top 10 Tips, Tricks, Twists & Trips
VAT – Top 10 Tips, Tricks, Twists & Trips
7. Preregistration Input VAT
• Goods
o Up to 4 years < registration
o On hand at date of registration
o Purchased by the registered entity
o HMRC backed down on ‘depreciation’ argument
• Services
o Up to 6 months < registration
o Cannot have been ‘consumed’ < registration
Can be issues with partially exempt businesses
VAT – Top 10 Tips, Tricks, Twists & Trips
8. Z/R Certificates
• Charities
o Medical equipment
o Relevant goods
o Certain building adaptions
o Advertising services
• Buildings
o Relevant Residential Purpose
• Ships
o Qualifying vessels (supply/repair/maintenance)
VAT – Top 10 Tips, Tricks, Twists & Trips
9. Transfer Of Going Concern (TOGC)
• VAT-free sale of business, IF:
o Business or part of a business
o Capable of operating as such
o Similar business
o No immediately consecutive transfers
o No significant break in trading
o Must be registered or liable to be
www.website.com
9. Transfer Of Going Concern (TOGC)
Beware:
• A → B → C ≠ TOGC
• Land & Property
o Opted & new commercial properties
o Capital Goods Scheme
o Property letting
• VAT charged…OR NOT CHARGED
• Registration!
VAT – Top 10 Tips, Tricks, Twists & Trips
VAT – Top 10 Tips, Tricks, Twists & Trips
10. Reverse Charges
Services received ex-UK – no VAT but:
• VAT Registered Businesses:
o Reverse charge applies
o May not be entitled to full recovery
• Non-VAT Registered Businesses:
o If value exceeds threshold (currently £85k pa)…
o VAT registration required
o …and may not be entitled to recovery
VAT – Top 10 Tips, Tricks, Twists & Trips
+ VAT! Cars vs. Commercials
When is a car not a car?
When it’s a commercial…
‘Car’ ≠ Payload ≥1 Tonne
Consider twin-cab pick up AND reclaim the VAT!!
Friendly Foods…Fred & Kat both drive Porsches…
Bye-bye Porsche…hello Mitsubishi L200!!
VAT – Brexit
What happens post-March 2019?!
• VAT will still exist in the UK!
• Adoption of all current UK/EU law…
• …but with more flexibility
VAT QUIZ
Clothing for young children. What is the VAT liability?
Zero rated (Group 16, Schedule 8 VATA 1994)
What if trimmed with fur skin?
Zero rated unless either more than a 1/5 of the area or if new more than half the cost
What about rabbit skin?
No, that’s not fur skin, so zero rated if all rabbit
How about tanned skin of bovine cattle or goats?
No while that’s fur skin, it is not in the VAT definition of fur skin, so zero rated again
Ok, so Tibetan goat is ok then? So children's clothes lined with fur skin, more than 20% made from Tibetan goat is zero rated?
No. Clearly not. That’s specifically excluded. As is Yemen and Mongolian goats.
Dog skin is fine though. My dog will always therefore have a job.
Richard Staunton, VAT Director
VAT update
69
John Endacott, Partner & Head of Tax
Brexit – what should you
be doing now?
PKF FC Brexit team leaders
Stuart Rogers, Head of International Tax
Liam Dushynsky, Customs Specialist
Change management –
contingency planning
• Brexit – known unknowns & unknown unknowns
• FDs need to show leadership, execute changes & consider operational impact
• How could Brexit impact your business?
• What are the possible options & opportunities for your business?
• Risk management
72
Brexit possibilities
• No Brexit
• Exit March 2019 - no deal with EU
• Exit March 2019 - same terms as now (WTO
approved free trade arrangement)
• Transitional period from March 2019 –
probably on same terms as now
www.website.com
Impact on business
• Impact on sales, direct costs &
overheads?
• Consider:
• Tariff impact – imports/exports
• Exchange & interest rates
• Subsidies
• Labour supply
• Border logistics
• Restrictive practices
• Likelihood of impact?
• Timescales for change?
Operations management
• Supply chain options
• Sales & costs – both in the EU or neither in the EU
• Does Inward Processing Relief help?
• Manage exchange rate risk?
• Contractual risks?
• Financial impact if outsourced arrangement fails?
• Transport, storage & ports - do you need AEO status?
(https://www.gov.uk/guidance/authorised-economic-operator-certification)
www.website.com
What should you be doing now?
• Have contingency plans & team in place
• Explore all options
• Have alternatives
• Watch long term commitments & legal
undertakings
• Get in early as HMRC may not be able to
cope
• Be prepared for opportunities
76
John Endacott, Partner & Head of Tax
Brexit – what should you
be doing now?
Coffee Break
Adam Kefford, Tax Director
Business tax update
Business tax
• The liberalisation of substantial shareholdings
exemption
• Group vs parallel company structuring
• Corporate loss changes and restriction
• Corporate interest restriction
Substantial shareholding exemption (SSE)
• Exemption of certain gains
• Major changes effective 1 April 2017
• Historically restricted to trading groups
• Extended to include investment groups
• No impact on other areas of tax law
• No change to the specific issue regarding FA2011 changes
Substantial shareholding exemption (SSE)
Key Criteria Pre 1 April 2017
Post 1 April 2017
10% ordinary share capital Yes Yes
Minimum twelve month holding period in two years prior to sale
Yes 2 yrs now 6
Target is a trading company before Yes Yes*
Target is a trading company after Yes No*
Disponor is a trading company or holding company of a trading group before
Yes No
Disponor is a trading company or a holding company of a trading group after
Yes No
Group vs Parallel?
• During growth – typically group structure
• Access to group relief
• Access to SSE – reinvest profits tax free
• Continued status as a trading group
• Commercial strength
• Banking requirements / cross guarantees
Group vs parallel company structuring
Hold co
(Friendly
Food Ltd)
Trade co1 Trade co2
Fred
Friendly Food Ltd disposes of Trade co2 and
claims SSE
Friendly Food Ltd pays
a dividend to Fred,
taxable at up to 38.1%
Friendly Food Ltd
reinvests proceeds tax
free into group
www.website.com
Group v parallel company
structuring
Trade co1 Trade co2
FredFred disposes of Trade co2
and are taxed at CGT rates
(20% / 10%)
Demerge?
• Transition from group to parallel?
• (Largely) tax free demergers
• Statutory demerger (a distribution in specie)
• Non statutory demerger
• Complex transactions
• Accounting implications
• Advance planning a must
Why Demerge?
• The sale of only part of the group is likely thus demerging
enables proceeds to be paid directly to the shareholders.
• Splitting of commercial risk and isolating high risk activity
from low risk – “protect the crown jewels”.
• Splitting ownership of the group into separate
entities/groups to resolve shareholder dispute
• To assist with family succession – different parts of the
business to be owned and operated by different family
members
• Preserving trade related tax reliefs on the trading arm of
the group by removing investment activity
Corporate tax losses -pre and post April 2017 losses
• Pre and post April 17 losses to be split
• Post April 17 losses – offset against profits on
group basis
• Pre April 17 losses – subject to old rules
• Choice on what to use in priority
• Transitional rules will create some complexity
• Increased compliance burden
www.website.com
Corporate tax losses £5m deduction allowance
• UK company's / groups entitled to £5m ‘deductions allowance’
• Exceed allowance – only 50% profits are reduced by b/f losses
• Large b/f losses & large profits –unexpected CT
• Transitional rules – review opening year positon
• Allocation of the £5m allowance
Corporation tax lossesExample – Friendly Food Limited
Loss memo
Brought forward loss £10m
Against CY profit (£5m)
Against CY profit (£1m)
Carry forward £4m
www.website.com
Corporate interest restriction
• OECD BEPS driven
• Applies if net interest expense of ≥ £2m
• Fixed ratio rule - 30% of Tax EBITDA
• Group ratio rule (by election)
• Interest not deducted is carried forward
Corporate interest restrictionWho will be affected?
• Highly leveraged groups
• Members of multinational groups
• Private equity owned companies / groups
• Property investment / capital intensive
• Companies expanding by acquisition
Autumn Budget 2017
• Government wants (needs) to raise more tax revenue
• Tax clampdown on freelancers using personal service
companies
• Patient Capital Review – announcements expected on
EIS/SEIS etc
• How long will favourable capital tax reliefs last?
• This and more will be picked up at our Spring Tax
Update.
Adam Kefford, Tax Director
Business tax update
94
Ian Townsend, Chartered
Financial Planner
Auto Enrolment &
Payroll Update
Agenda
• Contribution Increases
• Cyclical Re-enrolment
• Developments
• Reviewing your existing scheme
• NOW:Pensions
• Payroll Outsourcing
• Questions
Contribution Increases
• Minimum contribution rates increase on 6 April 2018
• and again on 6 April 2019
• The minimum rates may differ slightly if an alternative salary definition has been adopted. The Pension Regulator website provides full details;
http://www.thepensionsregulator.gov.uk/en/employers/phasing-calculating-contributions-using-different-elements-of-pay.aspx
Date
From
Minimum
Employer
Contribution
Staff
Contribution
Minimum Total
Contribution
Current 1% 1% 2%
April 2018 2% 3% 5%
April 2019 3% 5% 8%
www.website.com
Cyclical Re-enrolment
• ‘Re-enrolment’ has to be carried out every 3 years
• flexibility on the date you select to complete the process
• ‘Eligible’ staff (between age 22 and state pension age and earning above £10,000p.a.) who opted out of pension scheme previously will have to be re-enrolled
• A re-declaration of compliance has to be made to the Pension Regulator
98
• October 2017 - 5th anniversary of Auto Enrolment
• All existing employers subject to duties by February 2018
• New employers must start duties as soon as they start paying staff
• ‘Master Trust Assurance Framework’ voluntary standard
• The Pension Schemes Act 2017 - stronger regulation of master trusts
• With experiences it is now possible to review;
investment performance
service levels
scheme governance/financial stability
charges
• Significant differences in scheme provider offerings –not all good
Developments
www.website.com
Reviewing your existing scheme
• An important employee benefit
• Staff recruitment and retention
• Review for continued suitability
• Scheme providers successes and failures -some Master Trusts have already closed
• Poor performance, or scheme closure detrimental to the employers affected
• Significant hassle to rectify closed scheme
• Unsettling for your employees
NOW:Pensions – a failing scheme?
• Historic poor service levels - to employers and employees
• Contributions not allocated correctly
• Member charges increasing to £1.50 per month from April 2018
• Removed from the Master Trust Assurance Framework
• Large financial losses – £16.6 million loss related to £1.3 million revenue in 2016
• NOW:Pensions suggest members with small preserved funds transfer to alternative scheme
• Francis Clark Financial Planning Ltd can review your existing AE scheme and recommend the best way forward
101
Outsourcing Payroll &
AE Administration
Risk Areas of Payroll Compliance
• Real Time Information, Auto
Enrolment, Gender Pay Gap
reporting and Apprenticeship
Levy – Government changes to
legislation
• GDPR– May 2018
• Fines imposed on the employer
• In-house costs
• Responsibility and anxiety of
providing this.
Outsourcing costs may pleasantly surprise you!
103
Fear of outsourcing
• Loss of control
• Concerns on data protection
• Incorrect or late payments
• Inadequate reports
• Errors not corrected
You authorise the payroll and payments
Personalised reports
Dedicated team of professionals providing
support
www.website.com
Benefits of outsourcing
• Skilled payroll professional processing your
payroll
• Ensure compliance with legislation
• Business Intelligent reports
• Employees paid on time and accurately
• Neutralising compliance risks
105
Health Check
• Review of internal processes and software
• Review of data processed to date
• Advice on correcting potential risk
• Advice on how to stay compliant with
legislation
• Implement contingency plan
• Guidance on completing the re-enrolment
process
• Skilled payroll professional contact
106
Ian Townsend, Chartered
Financial Planner
Auto Enrolment &
Payroll Update
107
FD seminars - Market changes Q4 2017
Energy
Richard Harris, Corporate Finance Director
108
www.website.com
1. Manage costs: Corporate PPAs
2. Leverage estate: On site generation and storage
3. Create investment income
• Owning generation assets
• Demand side response
Combatting energy costsQ4 2017
Transforming a variable cost into an opportunity
109
Projects seeking fixed price power price agreements (“PPA”s)
• Large number of new projects seeking offtake agreements
• No requirement for physical relationship
Benefits of a corporate PPA to you
• Price stabilisation and potential cost savings
• Achieve sustainability and decarbonisation objectives
• Provide additionality
Recent UK examples
Corporate PPAsQ4 2017
110
www.website.com
New projects being constructed despite subsidy cuts
Proximity to the grid is key
Investment case is strengthened by co-location
On-site generationQ4 2017
Emergence of subsidy free generation
Relevance to Friendly Foods Ltd
Deliver attractive investment return
Enable private PPA with generating asset
Delivering significant reduction to annual energy cost
111
Energy storageQ4 2017
Need driven by increase in UK intermittent generation
Developers seeking sites with good access to grid
Units typically the size of a shipping container
Opportunity to generate additional revenue
Options for Friendly Foods Ltd
Rental income* Investment return*
Rental model £20k-£50k p.a Rent only
Self develop £400-£500k/MW >10%
* Numbers are for illustrative purposes only and will be site specific
112Demand side responseQ4 2017
Being smarter about how and when we use energy
By managing the timing your power demand you can receive payments for this flexibility
Example – Sainsbury’s smart refrigeration system
Relevance to Friendly Foods Ltd
Become part of a virtual power station
Responding to frequency response demands and earning income:
Managing refrigeration demand
Managing heating demand
113
Increased price of secondary assets due to limited supply
Index linked returns for up to 25 years
• Onshore wind and solar investment returns – 6-7%
• Higher for Biomass/EfW
Removal of subsidies requires the supply chain to adjust
Energy infrastructure investmentQ4 2017
Relevance to Friendly Foods Ltd
Utilise surplus cash to deliver >6-7% return
Scope to include within the pension plan
Assets qualify for Business Property Relief
114
FD seminars - Market changes Q4 2017
Energy
Richard Harris, Corporate Finance Director
MBO / alternative to a full
business sale
Rob Gear, Corporate Finance
Objectives of today
Exploring future plans of business owners in
order to allow business continuity
• Kat looking to retire in 2 years
• Fred within 5 years
Alternatives to sale:
- Share buyback
- MBO’s
1. What is an MBO?
2. Why an MBO maybe preferred over a full
sale?
3. How to fund an MBO?
What is a MBO?
• Purchase of a business by its management
• Allows management to participate in equity and
success
• Management are purchasing future cash flows
• Value is realised through exit, either trade sale…or
secondary MBO!
• Types - Vendor backed MBO, FAMBO
• Once in a lifetime opportunity
www.website.com
Why is a MBO preferred over a 100%
sale?
• Price – Trade does not always result in
higher value
• Flexibility on timing of exit (for Kat)
• Enables de-risking with possible upside
investment
• May allow for continued involvement
• Confidentiality maintained
• Allows for non-financial considerations
• Incentivises and rewards management
• Less Warranties and Indemnities
Friendly Food Limited
Friendly
Food Ltd
FredKat
15%
Valuation
2017 (Adjusted EBITDA) £2m
Profit Multiple 6
Enterprise Value £12m
Add Property £4m
Less Debt (£6m)
Equity Value £10m
Kat Selling 60% £6m
Kat roll over 25% £2.5m
Fred roll over 15% £1.5m
85%
Example Structure
Value - £10m
Kat
Friendly Food
Ltd
FredKat
15%85%
NewCo
Kat FredA N
Other
Friendly
Food Ltd
£6m
Funding
60%25%
A N
Other
A N
Other
5%5% 5%
Kat
www.website.com
How we can help
• Assisting owners and managers overcome
potential lack of awareness of options
• Team has undertaken >100 MBOs
• Assist with initial feasibility report
• Optimum structure for all (valuation, payment
terms, tax considerations)
• Favourable environment for MBOs
• Assist with business plan / projections
• Aware of active funders and terms
Making sure the right deal is secured for the
management team and owner in a timely manner
MBO / alternative to a full
business sale
Rob Gear, Corporate Finance
Nick Farrant, Corporate Partner
Chair’s close
Dates for the diary
FD seminars June 2018
• Plymouth – Monday 11 June, Boringdon Park Golf Club
• Exeter – Wednesday 13 June, Exeter Racecourse
• Bournemouth – Thursday 14 June, AFC Bournemouth
• Bodmin – Tuesday 19 June, Lanhydrock Golf & Country Club
• Taunton – Wednesday 20 June, Somerset County Cricket Club (tbc)
Disclaimer & copyright
c) copyright PKF Francis Clark, 2017
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