Northern Rock

HMRC has published a briefing document which will be required reading for all former Northern Rock shareholders and their agents. Following the bank’s collapse, special legislation was passed to transfer all shareholdings into the possession of the Treasury and this took place on 22 February 2008. Effectively all Northern Rock shareholders have lost their shareholdings, and the possible compensation due to them will be evaluated later this year.

The briefing document states that HMRC will consider this transfer to be a disposal for Capital Gains Tax purposes – and this will effectively mean a loss can be claimed by the former shareholder, since no consideration was received for the shares. The loss will consist, as usual, of all the allowable costs of acquisition, and can be carried forward to set against any future taxable gains if it is not set against any other gains in 2007/08. The window for claiming a loss on disposals made in 2007/08 will remain open until 31 January 2014.

Shareholders who are entitled to receive compensation may wish to treat the disposal slightly differently. The compensation, if and when it is made, will be chargeable to Capital Gains Tax as a gain, and it will arise in the tax year in which compensation is received. Where a former shareholder has not claimed a loss for the Northern Rock transfer, any allowable costs in acquiring the shares may be deducted from the compensation in order to arrive at the gain. Any taxpayer not in the self-assessment system who doesn’t expect to make any other gains over the next few years may therefore prefer to take this option, thus avoiding any unnecessary self-assessment, until the actual year in which the compensation is paid. One variable to be borne in mind when deciding when to claim the loss is the change in Capital Gains Tax rates. For gains made in 2007/08 tax is payable at 40% for higher rate taxpayers, whereas gains in the current and future years are chargeable at the new flat rate of 18%.

The briefing document also sets out the consequences for Northern Rock shareholders who shares were held under various employee share schemes, such as Save as You Earn (SAYE), Share Incentive Plans (SIPs) and Company Share Option Plans (CSOPs). In accordance with the general extinguishing of rights to acquire shares which occurred at the same time as the nationalisation process, it will no longer be possible for shareholders under these schemes to exercise the various rights they hold to acquire shares. As for actual shareholdings, this extinguishing of rights may also become a matter for compensation, to be dealt with for Capital Gains Tax purposes as explained above. The only exception to this is in the case of CSOPs, where any compensation received for the extinguishing of rights to acquire shares may be treated as an employment benefit in kind, and will therefore count as employment income in the year in which the compensation is received.

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.