Steve Livingston

Xero cloud accounting offers Virtual FDs for clients

Image representing Xero as depicted in CrunchBase

Image via CrunchBase

As a partner accountancy firm with Xero, it was good to welcome Hamish Edwards (co-founder of Xero) to our offices today to talk about this online cloud based accounting solution and how it can further benefit our fast growth SME clients in Manchester and across the North West.

Having enjoyed talks with Rod Drury (Xero co-founder and CEO) and Gary Turner (UK MD) it was interesting to hear Hamish’s perspective on the vision for Xero given that he is a Chartered Accountant with his own successful accountancy practice (Openside) in New Zealand.

Hamish focused on the increased value role of accountants as “Virtual FDs” via Xero with the ability to access clients’ accounting records in realtime in order to provide timely, proactive accounting, financial and tax advice rather than just dealing with the traditional year end reporting compliance work – this is a crucial practical and mindset change for accountants that is long overdue.

Hamish also talked about “collaboration” as a cornerstone of Xero and the key benefits such as the clear and easy to follow dashboard, live (and growing range of) bank feeds and fantastically intuitive bank reconciliation process.

I am both optimistic and excited about what the likes of saas based Xero technology might mean in terms of accelerating the flow of knowledge and information between accounting firms and clients (versus the curse of traditional knowledge silos). Put another way, there is a whole raft of valuable knowledge available in accountancy firms that is often never fully leveraged because it is perceived to be either “too early” or “too late” or “not quite right now” to discuss with a client. This timing issue can hurt both clients and accountancy firms and results from a widespread and enduring tendency to build the relationship around year end reporting – due in no small part to the lack of ongoing visibility of the accounting records.

We work hard to meet up with our clients at regular intervals for planning meetings and trading updates but I can see technology like Xero being a great enabler for us to work much more closely in the future. Better for us, better for our clients.

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Weekend Reading: The A-Z of Persuasive Communication

As business owners, we sometimes struggle to clearly convey our business message to potential customers e.g. exactly what benefits we can bring or what pain we can alleviate?

In a noisy marketplace we can’t afford to miss selling opportunities – which makes effective communication skills increasingly important.

Fortunately, Andrew Thorp has come to the rescue in the North West with his series of Speakeasy events which aim to help entrepreneurs and business owners hone their business message.

Andrew released a short free ebook fairly recently called The A-Z of Persuasive Communication which is a good incisive read capturing many of the key learning points.

Armed with these tips you’ll feel more focused, confident and ready to get out there to speak to potential new clients and targets.

A holistic approach to tax planning

I couldn’t help but sit down this afternoon to reflect on the sheer complexity of our UK tax code and how it is virtually impossible to advise on specific commercial matters in isolation.

This followed a meeting I’d had with an entrepreneur earlier in the day to discuss future strategic plans and tax planning opportunities, initially aimed solely at the family owned business being as it was fast approaching the company’s year end – although the discussion rapidly spread across other diverse areas of business and personal taxation as these meetings so often do…

For example, one moment we were discussing whether a building should be acquired by the owner’s company, pension fund or personally and the next we were discussing the optimum tax mix of salary, dividends and director’s loan account draw-down. In the midst of this we touched upon maximising VAT recovery on the potential property acquisition, the hideously complicated anti-forestalling regulations in relation to pension contributions and making best use of capital allowances on some machinery. Oh, and we also discussed benefits in kind on a car and how this could be mitigated by use of the LLP in the group structure plus some possible R&D tax credit claims available in the future.

Tax typically has a knock-on effect to other taxes so no sooner than you think you have a potential solution to a problem then something else rears its head in the discussions and puts the brakes on – often VAT! – before we switch gears and head off in the direction of an alternative solution.

For me this is the really enjoyable aspect of being a tax advisor (there are some, honest!) – the chance for a bit of mind-gymnastics – although the investment of time in keeping up to speed with legislative changes and latest ideas is on the increase (this is without taking into account the depth and breadth of experience and expertise that we have in our Firm).

This is leading me to experiment with new ways of capturing, interpreting and disseminating tax information and planning ideas whilst maintaining a holistic approach to tax planning for each entrepreneur’s specific facts and circumstances. More to follow…

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Future of R&D Tax Credits

I was asked by a client yesterday whether I thought the UK R&D tax credit system would be around for the foreseeable future?

I answered “Yes”. Here’s a summary of my current thinking:

  • James Dyson‘s Ingenious Britain Report, as commissioned pre-election by the Conservative party into re-energising the British economy, gave the UK R&D tax credit system a whole-hearted thumbs-up – in fact, he recommended that this valuable tax incentive should be further enhanced for innovative high tech UK small companies;
  • The Tories pledged to push forward with a planned review of the taxation of intellectual property this Autumn. The Coalition government is keen to make the UK tax regime one of the most competitive in the G20 and to do so demands a well structured and favourable tax framework for intellectual property – otherwise big multi-nationals look to move their prized assets i.e. their intellectual property (IP) to a more favourable tax jurisdiction and worse, our home-grown talent (- export value – jobs) can be tempted to follow suit;
  • The Autumn review of IP tax is also expected press forward on plans to introduce a new patent box to tax income derived from intellectual property at a lower corporation tax rate – a tax incentive already enjoyed by our Dutch neighbours for example, so it is good to see that UK resident companies should enjoy similar tax benefits in the near future;
  • Generally there appears to be a growing understanding and acceptance (echoed from all political parties: from Alistair Darling to George Osborne to Vince Cable) that the most viable opportunity for rebuilding a long-term sustainable UK economy is to invest in building first class hi-tech innovative and intellectual property rich companies that can export their valuable know-how globally. A recent Nesta report on Rebalancing the UK economy is well worth a read in reaffirming this perspective. In essence: we don’t necessarily have to make the stuff but we can develop the ideas, know-how and proprietary IP for global manufacturers, distributors and retailers to license and sell!

On the negative side:

  • there was a momentary concern in the final stages of the election that the Conservatives would drop the R&D tax regime if elected when they pledged to reduce the headline corporation tax rate and “simplify the corporation tax regime” – could this have meant the death of the R&D tax scheme and other valuable incentives such as capital allowances? (although this proved not to be the case in the Emergency Budget).
  • The Coalition government also put a stop to proposals to introduce a video games tax relief which appears at odds with a perceived overarching aim to focus entrepreneurs on building IP rich digital and technology businesses.

So there have been some wobbles but fingers crossed these are isolated lapses (as a side-note I really hope the gaming tax relief proposals get back on the cards very soon).

What are your thoughts on the future of UK Research and Development tax credits?


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Blogging as a relationship builder for entrepreneurs

I’ve long been a fan of Fred Wilson’s blog (‘A VC’) – if you’re a start-up entrepreneur or business owner you really should subscribe too.

The above video is a great snap-shot of the benefits of blogging in business. The gist of Fred’s words:

“blogging allows for the opportunity for VCs to enter into a dialogue with entrepreneurs over a period of time…to get to know one another…well before an investment decision needs to be made”

It is only fairly recently that such tools have become widely available and this has sooo much potential for every business owner and adviser.

We all now have the opportunity to demonstrate our approach to business thinking and to get to know one other (virtually) over a period of time before potentially entering into a (real-world) business relationship or project in the future.

Its all a bit like online (business) dating – but perhaps far more likely to find the right match over the longer term than traditional – yet speculative – business networking and marketing!

What are your thoughts on business blogging?

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Crowd sourcing for cost saving ideas – HM Treasury

Its interesting to see HM Treasury being sufficiently forward thinking to ‘crowd source’ for cost saving ideas. This Spending Challenge initiative enters its second stage today in which the general public are invited to vote upon the 44,000 ideas submitted.

If HM Treasury can tap into this wisdom of the crowds, could your business be doing more to listen, learn and shape new ideas?

Getting maximum tax relief on new equipment purchased for your business

When considering purchasing that shiny new MacBook, desk, printer etc (or pretty much any other capital item) for use in your business, you should think about how you can get the best tax result (as well as considering the best model and price).

Purchased computer equipment, furniture and other plant & equipment is not simply deducted from your profits for accounts and tax purposes. Such items are treated as ‘fixed assets’ in your business accounts and depreciated over their useful economic lives e.g. a £600 laptop might be written off against your business profits over say 3 years (at £200 per year). But tax doesn’t necessarily follow this treatment – that would be far too straightforward!

The Capital Allowances tax regime governs the UK tax treatment of fixed assets in order to provide a degree of uniformity given that depreciation policies can differ between different companies.

The good news is that the capital allowances regime has been significantly simplified over the past few years for the majority of UK businesses. Since 2008, the Annual Investment Allowance (AIA) was introduced which allows businesses (except LLPs) to deduct expenditure up to a certain amount each year from taxable profits in Year one ie 100% tax write off immediately against profits.

The AIA originally started at £50,000 per annum, then went up to £100,000 with effect from 1 April 2010 for companies (5 April 2010 for unincorporated businesses) although it has recently been announced that this will decrease to £25,000 from April 2012.

A key tax planning point therefore is to accelerate planned future significant capital expenditure before the capital allowance rates decrease in 2012.

Care needs to be taken in applying these limits in periods where the limit has changed e.g. a business with a 31 December 2010 year end would need to pro-rata the AIA limit given that the allowance changed from £50,000 to £100,000 with effect from 1 April 2010 for companies.  The entitlement is broadly £87,500 AIA for a 31 December 2010 year end, however, some nifty legislative drafting ensures that companies that may have already invested the full £50,000 before the 1 April 2010 (as it otherwise would have been permissible pre the Budget announcement) are not unfairly penalised.

Note that cars are not eligible for the AIA – although there is a some simple tax planning available to fund car purchases with significant tax relief, but I’ll leave that for a future post…

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As always the above information is for guidance and educational purposes only and does not constitute professional advice. Please seek professional advice specific to your facts and circumstances (as tax law can be pretty complex and changes fairly frequently!).

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Digital NW: News round up for the week to 13 August 2010

Here’s a round up of the key digital, tech and creative business north west news that caught my eye this week:

Fun story about two NW teenagers who have managed to solve a problem related to bus timetables by developing a mobile app within a matter of weeks and on a shoe-string. Even better (or not?) is that Greater Manchester Transport Passenger Executive hadn’t managed to solve this problem despite having a £259m budget! Exciting possibilities…

Good to see NW digital agencies holding their own on high profile national projects with news of the recent contract win by Loaf Creative to provide the England team with digital content for individual and commercial supporters for the World Cup 2018 bid. Well done guys!

Congratulations to How-Do on their recent move to city centre offices in Manchester – welcome.

Best reads of the week:

Emerging companies launching in a recession – a good article from The Drum on the recent increase in digital startups with insightful comments from NW digital and creative entrepreneurs who have been there and done it before. Interesting to note how the complexity and red-tape around getting the business off the ground is drawn out as a particular issue – something is keen to address!

Social Media and common sense – a simple guide how – straight talking and valuable advice for all from social media newbies to veterans by Ned Poulton from PushOn.

Forthcoming digital NW events:

Techcelerate Late Summer BBQ

15 September 2010 – Kicks off from 5.30pm at Atlas Bar, Manchester

BVCA Financing and Funding the Digital Age

16 September 2010 – All day event at Lowry Hotel, Manchester 

Beyond 2010 – Harnessing the influence of Social Media (How-Do)

20th September (9am – 5pm), The Point, Lancashire County Cricket Club

What does Entrepreneur’s Relief mean for you as a business shareholder?

It was nice to be quoted in today’s North West (registration required) on why now might be a good time for entrepreneurial business owners to consider selling or exiting their business. I thought it might be useful to expand on this short published article.

You may have heard in the fairly recent Emergency Budget that the 18% flat tax rate on capital gains was increased to 28% for higher rate tax payers with effect from 23 June 2010 – the higher rate tax kicks in where total income, including capital gains, exceeds approx £43,000.

So does this mean that you might suffer tax at 28% on the gain if and when you come to sell your business?

For most hands-on digital entrepreneurs the answer should be “No”. On the sale of your business, you should (subject to the qualifying conditions below) qualify for Entrepreneurs Relief which provides a preferential tax rate of just 10% on capital gains crystallised on lifetime gains up to £5m [Note that this increased to £10m].

Compare this with the current super tax rate of 50% for earned income in excess of £150,000 [45% from 6 April 2013]. The difference between capital gains (as suffered on the sale of a business or shares in a company) as opposed to earned income is absolutely critical!

Further, the June 2010 Emergency Budget made Entrepreneurs’ Relief even better by increasing the lifetime allowance from £2m to £5m (saving a potential additional £540,000 of tax) so it is vitally important that you structure your business to take maximum advantage of this valuable tax break [Note that increased to £10m – even more important….!].

Key qualifying conditions for entrepreneur’s relief to apply to the sale of shares in your company:

  • You must hold at least 5% of the ordinary shares and voting power
  • It must be a trading company (most digital, tech and creative businesses would satisfy this condition)
  • You must be an officer or employee of the company
  • You must hold the shares for a minimum of 12 months prior to sale.

So based on these conditions, 20 employee shareholders could theoretically shelter a gain of £100m taxed at just 10%!

It is vitally important therefore that you consider the following potential opportunities and pitfalls in structuring your company shareholdings and arrangements to secure entrepreneur’s relief:

  • % of shares awarded – you would be seriously peeved off if you were awarded 4% of the shares and voting power if, with a little advance planning, an additional 1% could have saved you approx £800,000 in tax if the business ultimately sold out for c£100m – this is a key issue for founders to consider plus for incentivising key management
  • rights attached to the shares – what if you were awarded 10% of the shares of a class that held no voting rights and then found out years later on exit that you were subject to tax at 28% when your colleagues paid tax at just 10% because they all had voting rights (you didn’t think this minor omission was all that important at the start…)?
  • duration of the shareholding – many tax advantaged share schemes such as HMRC approved Enterprise Management Incentive schemes (EMI) used to be more valuable as, not only do they allow you to pick and choose who will be awarded share options, they also allowed for the lowest capital gains rates of 10% under the old CGT regime in pretty much all cases. Not necessarily now… Most EMI schemes are structured such that the options are exercised at the point of a sale of the company or exit, however, if this pattern of facts unfolds you would not have held the shares for the necessary 12 months. You would fail the test. You would have had to have exercised the share options and acquired the shares 12 months before the deal to qualify for entrepreneur’s relief (this assumes that you had the cash to fund the share acquisition which is often a practical difficulty in itself)
  • role of shareholders – there is no requirement to work a specific minimum number of hours or hold a particular post but to qualify you must formally hold a post within the company, either as an officer or employee. Non-executive directors should qualify so long as they are formally engaged – but what does this mean for many angel investors? Also, consider advance planning if you are a husband and wife company – shares can be transferred between a husband and wife (or civil partnerships) without triggering a taxable capital gain so it is sensible tax planning to consider transferring a minimum of 5% of the shares as soon as possible and ensuring that the recipient spouse carries out some role (with a title) in the business.

The key tipping point for shareholders is on gains exceeding £7.5m as this is the point at which the hike in tax rates from 10% to 28% (as opposed to 18%) but compensated for the increase in lifetime allowance to [£5m] (from £2m) really bites.

Although this is splitting hairs for most entrepreneurs as getting the most out of your business at the end given all the blood, sweat and tears suffered in building it is absolutely paramount. So don’t risk leaving it until you (and your team) are sitting on a capital gain of £8m+ before you start thinking about this stuff. Fancy a coffee?

The above information is for educational and entertainment purposes only and does not constitute professional advice. Please contact me if you would like to discuss factors specific to your circumstances or discuss with your professional adviser.

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Using Goals to build a high performance business culture

If you haven’t already set goals for yourself and your team then recent research further strengthens the argument that effective goal setting improves performance and results.

“We found that specific, difficult goals consistently led to higher performance than urging people to do their best….In short, when people are asked to do their best, they do not do so…..This is because do-your-best goals have no external reference ….This allows for a wide range of acceptable performance levels, which is not the case when a goal level is specified.”

You will no doubt be well aware of the importance of using specific or SMART (Specific, Measurable, Achievable, Realistic and Time-bound) goals and this research further emphasises this need. The research paper goes on to explain 4 mechanisms by which goal-setting improves performance:

  1. Goals serve a directive function; they direct attention and effort toward goal-relevant activities and away from goal-irrelevant activities. This effect occurs both cognitively and behaviourally;
  2. Goals have an energizing function. High goals lead to greater effort than low goals;
  3. Goals affect persistence. When participants are allowed to control the time they spend on a task, hard Goals prolong effort;
  4. Goals affect action indirectly by leading to the arousal, discovery, and/or use of task-relevant knowledge and strategies.

Goals are often set for team members in larger organisations as part of the (dreaded!) annual appraisal process, however, my own observation is that these goals are rarely kept front-of-mind – frequently being filed away until the half year and then year end appraisal. Given the findings above, are businesses missing a trick in developing a high performance culture?

The research points to the importance of inclusive or participatory goal setting to allow for information exchange, however, it is vital that an ongoing feedback loop is maintained so that team members know and are constantly reminded of what they should be focusing on and how they are performing against their written goals. How often does this happen in businesses?

As high performance coach Brian Tracy famously notes:

“3% of the population have written goals and plans for how they will achieve them. The remaining 97% work for these people.”

What are you doing to build a high performance culture in your business?

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