VAT can be Charitable – here’s how your charity can save on VAT

VAT can be Charitable – here’s how your charity can save on VAT

Charities have always had challenges with Value Added Tax. There are, however, concessions available to charities which mean that some goods/services are not subjected to VAT, or are subjected to the lower rate of 5%. VAT Can be charitable.

1. Rent – If a landlord charges VAT at 20% (due to the land being Opted to Tax) and the charity uses the building for a relevant charitable purpose e.g. a shop that raises funds by selling donated goods, the charity can certify its use of the building, in writing, and the landlord can exempt the supply. If the building is used for both charitable purposes and non-business purposes then the rent needs to be apportioned.

2. Advertising – The supply of advertising to a charity is zero rated for VAT. The zero rating covers advertisements on any subject, including staff recruitment, appeals for cash donations and volunteers.  However, only advertising supplies to the charity can be zero rated, not the charity’s other trading companies.

3. Fuel and Power – If a charity uses fuel and power for non-business activities (usually activities with no charge), this can be supplied at the lower rate of VAT at 5%. If this is over 60% of the total fuel and power usage, then all of the supply can be charged at 5%.

What does this mean to our charity clients?

Any overcharges of VAT from suppliers can be corrected going back 4 years, as long as a credit note is received from the supplier.

Do charities pay VAT on fundraising income?

Not necessarily. As long as the event is advertised as a fundraiser and there are 15 or less events at the same location in a financial year then the income can be treated as exempt from VAT.  This exemption applies to charities and their wholly owned trading subsidiaries.

 

 

 

Tony Nickson is a VAT Consultant at the firm. He provides practical VAT advice to a wide range of clients in numerous business sectors and advises on matters relating to sole proprietors, partnerships and corporate bodies on all VAT issues including exporting, importing or providing goods/services within the UK. Please contact Tony on [email protected] or 0114 266 7141.

It’s no sacrifice: Changes to optional remuneration arrangements

It’s no sacrifice: Changes to optional remuneration arrangements

It’s no sacrifice: Changes to optional remuneration arrangements 

If you have made use of salary sacrifice arrangements in connection with the provision of benefits, you will be aware that they enable employees to pay less tax and NIC’s than if they had been remunerated entirely in cash. In addition, employers may achieve employer NIC savings. But the optional remuneration arrangements are changing under new legislation.

 

In the eyes of HM Treasury, the cost of the tax and NIC savings made via these arrangements represent an exchequer cost carried by a majority of taxpayers. Therefore, from 6 April 2017 the Government introduced legislation to reduce the tax and NIC advantages provided through salary sacrifice arrangements.

 

Unfortunately, the legislation is broader than people expected and catches optional remuneration arrangements as well as salary sacrifice arrangements. In this regard, the legislation targets two types of arrangements called ‘Type A’ and ‘Type B’ arrangements:

  • Type A: Covers arrangements under which the employee gives up the right (or a future right) to receive an amount of earnings in return for a benefit.
  • Type B: Covers arrangements in which the employee agrees to be provided with a benefit instead of an amount of earnings.

In either of these arrangements, the employee will be taxed on the ‘amount forgone’, which refers to the amount of earnings given up in order to receive a benefit. More specifically, an employee will always be taxed on the higher of ‘the existing taxable value of benefit’ or ‘the salary forgone’.

 

Take the following example: An employee is given the option to take a car cash allowance of £5,000 or a company car with a taxable value of £4,000. The employee opts for the company car. Under the new rules the employee will be subject to tax and NIC on the higher value being £5,000.

 

As it currently stands the new rules do not apply to certain benefits. Those left unaffected by the new rules include employer pension scheme contributions, employer provided pension advice, employer provided childcare, cycle to work schemes, ultra-low emission vehicles (vehicles that emit CO₂ 75g/km or less), as well as benefits relating to the termination of employment.

 

Grandfathering provisions will ensure that arrangements in place before 6 April 2017 will be protected until 6 April 2018 provided there are no variations or renewals before then. Arrangements involving cars, vans, fuel, living accommodation and school fees will be protected until 6 April 2021 provided there are no variations or renewals before then.

 

Employers will need to urgently review their employee benefit position to see whether they are affected by these ‘optional remuneration’ provisions.

 

For more information regarding these changes and how they may affect the provision of benefits to employee, book a free consultation

Aaron Hemmington

Aaron Hemmington is a Tax Manager based in the Northampton office and specialises in providing tax planning, advisory and compliance services to owner managed businesses across a variety of sectors. For more details and advice, please contact Aaron on [email protected] or 01604 645 600. You can also follow Aaron on LinkedIn. [/author_info]

Fall in the pound boosts UK tourism numbers

Fall in the pound boosts UK tourism numbers

Fall in the pound boosts UK tourism numbers

Since the EU referendum, the value of the pound has fallen, however one positive to come out of its decline is a boost in tourism numbers for the UK, with the UK enjoying record numbers of overseas visitors in the last year.

In 2016 official figures show that there were 37.3m visits to the UK, is up by 3% on the previous year and the highest since records began back in 1961.

With the pound dropping to a three-decade low against the dollar after the Brexit result last June, a large increase in North American visitors to British Shores have been recorded. American’s visiting the UK paid less for hotels whilst also getting more pounds when exchanging their holiday money.

In the final three months of 2016 – the run up to Christmas – North American visits were up by 15% compared with the same period the previous year, according to the Office for National Statistics (ONS).

The rest of the EU has also enjoyed more visits to the UK, with the pound also down against the Euro. Visitors from the EU rose by 8% in the last three months in 2016.

Yorkshire was one of the biggest beneficiaries from the increase in tourism, as it enjoyed a record 476,000 visits from overseas during the three months after the referendum, a 12% increase on the same period a year before.

VisitBritain, the national tourism agency, has suggested that 2017 could follow a similar pattern with a strong year for tourism with flight bookings up by 16% from February to April.

At the end of January the UK was 14% more affordable to visitors from the US and 10% more affordable for those living in the China, compared with a year earlier, according to VisitBritain.

Scott Sanderson, Partner at Hawsons, commented: “The UK continues to have a lot to offer to overseas visitors and the additional numbers of tourists seeking to maximise on the weak sterling vales are a welcomed boost to the UK economy. On a local level it is pleasing to see that Yorkshire has enjoyed a record year of overseas visitors, enhanced by last year’s Tour de France grand depart being staged in the region.”

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]

Futureproofing: preparing your legal firm for succession

Futureproofing: preparing your legal firm for succession

How to prepare your legal firm for succession?

In larger law firms, the changing of the guard is a well-practised art. In smaller firms, however, succession planning is often not seen as a priority. The call to action tends to be the retirement of a partner, an inevitable event, which is often disregarded until it confronts the partnership. But, it is never too soon to start weighing up the options for this unavoidable occurrence.

What succession options are available?

In terms of a (relatively) straightforward succession, it can only be advised to consider who will eventually inherit responsibilities very early on. This allows plenty of time for hand over to occur incrementally.

However, a straightforward succession is not the only exit strategy to deliberate. There is no “one size fits all” in terms of small practice progression. Mergers, for example, have been increasingly more prevalent in recent years. These bring with them their own challenges, not least of which the issue of partner integration. Problems can vary from cultural differences to financial issues such as profit sharing arrangements. It’s important to ensure you know all the details prior to a merger taking place to avoid problems down the line.

One final option not to be disregarded is shutting up shop altogether. Although, it is understandable why many smaller firms are deterred from this as an exit strategy. A controlled closure still requires run-off cover, and the premiums can range from anywhere from 2, to 4 times the annual premium.

Transitioning

Both the succession process and transition itself need careful thought.The departing partner needs to hand over the reins in a way that passes on wisdom, goodwill and trust. A manageable method is to pass on responsibilities gradually to the successor, and therefore focus on long term aims like maintaining the brand, culture, and reputation of the firm.

Moreover, a straight transfer of all responsibilities from one person to another is not always the answer. It’s rare that someone in their 60s can be effectively and instantly replaced by someone 20 years their junior. Finding one person to replace the partner who is leaving is, more often than not, hard to achieve. A more fitting method can be to assess the different roles the exiting partner fulfils, and find how each of those roles can be occupied effectively. Put the right people in the right roles.

Furthermore, it’s important that, while internal changes are hugely distracting, clients still remain at the forefront of your mind. It’s recommended that you only let clients know about upcoming events once the solution has been agreed. If a departing partner is remaining in the firm through a consultancy role, this will keep clients at ease, and enable a seamless transition, but that consultancy role should be clearly defined with a timescale for full handover in mind.

Never underestimate the value of the young talent growing and developing in the firm. If their wants and needs are not addressed or their expectations managed, then you run the risk of losing them, which can dent the succession plan.

Next generation

Aspiring equity partners are no longer a given in the younger generation. There are multiple risks in owning a business, and firms planning for succession should acknowledge that uncertainty over the future of the profession can stop the younger salaried partners and associates from stepping into those roles. They may not want the risks and responsibilities that come with being an equity partner. You should also consider generational differences when it comes to attitudes towards work. Work-life balance is becoming increasingly important and firms that cannot adapt risk losing bright, young talent.

Clearer thinking is needed when considering the future of a business, and the aim of succession should not be forgotten: to ensure that the business keeps running, and that staff are happy and fully informed about what’s coming next.

The cost of change

Valuation is a difficult matter for small businesses, especially in professional services. When it comes to external financial advice, a fresh and objective pair of eyes to look over accounts can ensure that the best decisions for the firm can be made, and any potential problems can be dealt with before they emerge. An external adviser can, and will safeguard your sights for the future, alongside bringing perspective to the situation the firm is facing.

 

Simon Bladen Partner

Simon Bladen is the partner responsible for looking after the firm’s legal clients and has worked at Hawsons throughout his career. For more information or advice on anything covered in this article, please contact Simon on [email protected] or 0114 226 7141.[/author_info]

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How to value your road haulage business this summer

How to value your road haulage business this summer

The summer vacation can be a time of reflection for the business owner

Away from the day to day demands of the office, there is chance to give an overview of how that business is performing, where it is heading over the coming years, and what that business is ultimately worth. In this article we take a brief look at valuing your haulage business.

Why do it?

There are many reasons why business owners look at the value of their road haulage business:

Sale – If a business owner is thinking of selling a business, a valuation will enable them to choose the best time to sell from the viewpoint of maximising their return.

Purchase – Conversely if a business owner is thinking of investing in a road haulage business, a valuation is crucial to ensure that they are not paying a higher sum than the business is realistically worth.

It is important that both buyer and seller understand what the value of a business is so that the sale can be made with realistic expectations from both parties.

If a business owner is looking to increase the value of their business, a valuation can highlight areas where improvements can be made and show issues that can be addressed to increase profits.

In addition, business valuations can be a motivator for its staff as it can expose flaws in a business as well as encourage management to focus on the most important issues.

Retirement, inheritance tax planning, internal shares market, and occasionally, just curiosity, are all reasons why someone would choose to have their road haulage business valued.

How do you do it?

There are various valuation methods used to determine the value of any business, and the methodologies employed are far from an exact science. At its most basic level, the value of a business is what someone else would be prepared to pay for it, but there are a few rules of thumb that can be observed.

Most valuation methods look at either the assets value of a business, its past profitability, expected future profitability, or some combination of the three. Depending on the nature of the business, differing weightings may be given to each of these approaches.

As part of the process, we may need to establish the true underlying profitability of the business.

Typically, when valuing a haulage business we would take the following approach to establish the true underlying profitability of the business:

  • Look at the published profit for the past 4-5 years as disclosed in the accounts;
  • Adjust these for payments made to the owner and other shareholders;
  • Consider adjusting for depreciation and interest costs on external borrowings;
  • Adjust for costs that maybe be capable of being reduced under new ownership, such as excessive overheads, or staff costs;

Once that figure has been arrived at, a price earnings multiple can be applied to estimate the value of the business. The level of this multiple can vary widely, and can depend on a number of factors such as:

  • The marketability of the shares in the company – quoted companies tend to have higher P/E multiples than privately owned companies. However, a simpler share ownership pattern in a private company may be more attractive to a purchaser than one with a wide range of smaller shareholders.
  • Businesses with higher forecasted profits tend to attract better multiples – so a haulage business with a new lucrative contract will be in a better position than one with a major contract coming to an end that has not yet been renewed.
  • Wider economic conditions can play a part also, with the success of the haulage sector being very much linked to the underlying economic cycle. However, haulage business owners can put some measure in place to help themselves here too, by maintaining strong customer relationships, hedging against fuel cost and interest cost risks, and looking to improve fleet efficiency.

How can I Increase the value of my haulage business?

As a general rule, the more a new owner can ‘plug and play’ with regard to a potential acquisition, the more they will be willing to pay for it.

Making sure that your haulage business has the right people and the right processes in place is crucial to this.

It is always worth taking time to carry out a review of your haulage business to see if its value is matching up with your expectations and to identify where matters could be improved and then put actions into place to achieve this.

Acting now ahead of any possible rushed sale in the future can yield beneficial results.

For more information about how Hawsons can assist your haulage business please click here to book a free initial meeting

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]