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December 2011

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To December’s Tax Tips & MYOB News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

Please contact us for advice in your own specific circumstances. We’re here to help!
December 2011
· Earning a 40% Return by Selling your Firm
· Autumn Statement Tax Summary
· Pension Lifetime Allowance Decrease
· Low Value Consignment Changes
· December Question & Answer Section
· December Key Tax Dates
Earning a 40% Return by Selling your Firm top
We don’t want you to sell your firm if you don’t want to.  However what if you have no choice?  What if you need to retire suddenly through ill-health?  And while you may not want to sell now, it is not inevitable that you will have to sell the firm some time?  You might be better preparing it now to establish its value.

The 40% return
The eventual sale of your firm is the key financial transaction that you will make during your development of the business.  Imagine you have built your firm up over ten years.  You and your spouse have each taken say £40k pa out in benefits, dividends and salaries.  You’ve paid say £5k each pa in corporation tax on the dividends and nothing significant on the salaries.  Net you have taken out £700k over the ten years.

The firm has now been trading for ten years, is growing and now has operating profits of £110,000 pa.  On a conventional valuation this firm may be worth, say £550,000.  If you sell this firm it will currently be taxed at CGT rates of 10%. Net of agents commission, legals, accountancy and tax your business sale will net you say £450,000.  This is nearly two thirds as much again as all the earnings you have had. Over 40% of the total return from your business comes from its eventual sale.  

The value of the work you have done is basically locked into the eventual sale value of the firm.  The firm’s value is also your insurance policy, your retirement fund, and your legacy to the industry you have served.

Reasons why you should think hard about selling now
Now is a good time to sell.  Smaller businesses have started to come onto the market in increasing numbers, but the demand is even higher.  Business transfer agents have experienced a 15% increase in sales volume in the past year and 85% in total sales value.  The reason is probably that there was supressed demand for acquisitions since the onset of the recession since 2008.

The vendors of the businesses are often those who are retiring.  The Baby Boomers generation are starting to reach that age (65). There will be a flood of smaller businesses arriving on the market in the next 18 years. 

There are good tax reasons to sell. CGT rules are about as good as they will ever be. As the recession and bites and the government seeks to redress the deficit, Capital Gains Tax might become more stringent.  For these reasons you are probably best selling your business sooner rather than later.

Who should you sell to?
The sale of a business is not (primarily) a legal or tax issue.  It is not the stuff of conventional accountancy.  It is a marketing issue. 

Simple Accounting.
…has a different attitude to the bulk of the accountancy industry.  We are systems and management accountants rather than tax accountants or lawyers.  We are motivated by the whole problem of running a firm, profitability, financially, tax.As our standard contract we expect to plan and develop your business for sale.

What will you sell your firm for?
Usually a firm is reckoned to be worth either:
7 times earning after after tax profits or
5 times earning before tax profits.

The actual value of a business is of course… what a new buyer will pay for it. The object is not to get any ‘correct’ value.  The object is to get the best value. 

How do you therefore get the best value for your firm? You should prepare it for sale as well as you can.  Make sure that the buyers are thinking about what the firm is worth to them… not what you as vendor will accept as a minimum.  You should market the firm widely. 

The reason that a buyer will buy a company is predominantly to get access to its customer base.  Access to customers is key. The appeal and the systems of the products. 

To demonstrate this you need good systems.  This is where Simple Accounting can help. Have a look at our Business Companion Service to see what it includes.
Autumn Statement tax Summary top
Pension Lifetime Allowance Decrease top
George Osborne did not have great tidings to impart when he presented his Autumn Statement to the House of Commons on 29 November 2011. The best he could offer the ordinary taxpayer was a freeze in road fuel duty until 1 August 2012, when it will increase by 3.02p per litre. Train and tube fares were due to rise by a whopping 8.2% next year, but this rise will be limited to (wait for it…) 6.2%.

Businesses who occupy small commercial premises receive some generosity with an extension to the business rates relief scheme to 1 April 2013 (already extended for a year to 1 October 2012). Different business rates relief schemes apply in England, Wales and Scotland so ask your local authority what relief applies to your building. Occupiers of larger business premises may be able to defer payment of up to 60% of the increase in business rates for up to two years.

Other key tax announcements for businesses and individuals were:

– New anti-avoidance rules for employer asset backed pension contributions, effective from 29 November 2011.
– State pension age rises to 67, to be phased in
over two years from April 2026.
Read More
There is another change due in April 2012 that will affect tax relief for pension contributions. The Lifetime Allowance, which is the maximum tax favoured fund you can have in a pension scheme, will reduce from £1.8 million to £1.5 million from 6 April 2012.

The maximum fund of £1.8 million will produce an indexed linked pension of around £75,000 p.a. for a man retiring at 65, using current annuity rates. So the new cap of £1.5 million is not helpful. If you already have pension funds, which in total are worth more than £1.5 million, you may need to apply to HMRC to ring-fence your existing pension savings for tax purposes, under what is called ‘fixed protection’. Read More
Low Value Consignment Changes top
December Question & Answer Section top
Businesses in the UK who sell small value items by mail order have long complained that they are undercut by shipments coming in from the Channel Islands. This is due to the operation of low value consignment relief (LVCR), which exempts from VAT parcels coming into the UK from outside the EU, where the value of the goods is less than a prescribed limit.

The Channel Islands are outside the EU, but close enough to the UK to make shipping relatively cheap.
Read More
Q. I own a number of rental properties; a mixture of self-contained flats and houses. I’ve received an email from a property expert that says I can claim capital allowances as a percentage of the cost of these properties, which will produce a guaranteed tax refund for me. Is that true? Answer

Q. My employer has given me a form P11D, which shows that I am taxed on the cost of my smart phone. I thought each employee could have one tax-free mobile phone, so why are I taxed on my only mobile phone? Answer

Q. I work as a nurse in a NHS hospital. My professional organisation tells me I can claim tax refunds for the last 6 years, for the cost of the particular shoes and socks I need to wear for work. Is there a limit on what I can claim? Answer
December Key Tax Dates top
19/22 – PAYE/NIC and CIS deductions due for month to 5/12/2011

31 – Deadline for 2010/11 self assessment online returns to be filed if you are an employee and want tax underpaid to be collected by adjustment to your 2012/13 PAYE code (for underpayments of up to £3000 only). VAT reclaim deadline for submission of all claims for non EU traders wanting to reclaim VAT in the UK

31 – Deadline after which MYOB/Mamut will no longer reconfirm MYOB UK datafiles. We can help you move to alternative software. Or join the MYOB User Group – to allow you to carry on reconfirming your files.
Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Mamut, Acclivity, Solar Accounts, Quickbooks or Clearbooks. We offer a range of accountancy services despite being specialists.

‘All clients using these software packages can benefit from our support. Visit our website for a look at the resource on offer.’

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