http://thinking.grant-thornton.co.uk/fdintelligence/ Trevor Davis en Copyright 2012 2012-09-13T13:42:36+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/new_cfc_rules_explained_in_our_free_webinar http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/new_cfc_rules_explained_in_our_free_webinar http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/new_cfc_rules_explained_in_our_free_webinar#comment_form Find out about the changes to controlled foreign company (CFC) rules in our free webinar on Tuesday 18 September at 11am BST. Read on for details and how to attend…If your group has overseas subsidiaries, or is considering expanding abroad, this webinar is a must as the new rules on UK controlled foreign companies (CFC) are coming into force on 1 January 2013 and are set to affect every multinational group. For a concise, expert walk-through of through the new regime and to put your questions to our international tax team, we invite you to join us next Tuesday morning. Register for the webinar Title: Get set… Go! An update on the new CFC Legislation Date: Tuesday 18 September 2012 Time: 11am BST Duration: 45 minutes Suitable for: CEOs, CFOs, FDs and heads of tax of UK-based PHBs with £25 million plus turnover, specifically those with existing operations abroad or with aspirations to open a new operation abroad. Also relevant to those with intellectual property (IP), people, functions or risks held or transferred outside the UK. How to join: Register to attend here. Read up on CFCs We’ve posted previously about the new CFC opportunities on FD Intelligence: • Where should you put your business financing operations? – Controlled foreign company (CFC) rules are changing – boosting the UK’s appeal as a holding company location but also giving international groups the chance to finance overseas operations in a much more tax-efficient way. • Setting up a foreign finance company – Our four-step process shows what UK companies need to do to benefit from a partial exemption on tax on profits by including a finance company within their group. Further help To find out more about how we can help manage your risks and seize opportunities, please contact: Martin Lambert Head of Corporate and International Tax T +44 (0)20 7728 2363 E: martin.lambert@uk.gt.com 2012-09-13T13:42:36+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/how_to_break_into_the_brics http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/how_to_break_into_the_brics http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/how_to_break_into_the_brics#comment_form Our FD Intelligence series profiling the opportunities in Brazil, Russia, India and China has just finished. Read on for a series summary…Cracking Brazil For a long time the silent B in the BRICs, Brazil is now taking its place as one of the world’s leaders and British business can no longer afford to ignore it. Find out what’s attracting UK business to Brazil. Opportunities in Russia and Eastern Europe Since the break-up of the Soviet regime 20 years ago, Russia’s economy has steadily evolved. Despite this, Russia still only accounts for one per cent of UK imports and one per cent of UK exports, so there is still plenty of room for growth. Read more in our Russia profile. India – ripe for investment Despite failing to reach the heights of growth expected by some, India’s economy continues to prosper. We offer four considerations for entering India, the BRIC with the closest ties to the UK. Entering China: opportunities, structure and strategy What opportunities exist for UK business in China, and what strategies are best to exploit this complex and diverse region? Cue the three Ps… Taking an international step We have experts based in more than 100 countries, plus Grant Thornton’s UK member firm has two dedicated teams working with China and South Asia offices – see our Emerging Markets page for more details and contacts. Or read more articles on emerging markets on our International blog. 2012-08-22T11:02:27+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/china_bank_lending_set_to_surge_in_europe http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/china_bank_lending_set_to_surge_in_europe http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/china_bank_lending_set_to_surge_in_europe#comment_form The increasing number of Chinese banks opening their doors in Europe is creating new financing opportunities for UK finance directors and CFOs.When Maersk’s Danish CFO Trond Westlie signed a $500 million contract with China Development Bank’s (CDB) to buy containers from a Chinese manufacturer in June, the deal signified China’s growing role as a source of debt financing to European companies. In fact, funding from Chinese banks to European companies may be “set to surge”, according to an article in Europe-based CFO Insight this week, which notes a shift away from political lending where a Chinese business element is required as part of the transaction: “Though still rather unusual, funding from Chinese banks to European companies is set to surge. Finance chiefs should start memorising names such as ICBC, CCB and BOC … Although the loans are generally only of interest to CFOs with procurement from China, at least for the time being, it seems such deals offer companies many attractive conditions, as demonstrated by Maersk’s repeated recourse to CDB.” Read the full story here: China banks arrive in Europe. Sandy Kumar, Partner, Financial Services Group, says: “We are seeing an increasing number of China’s banks operating in Europe’s financial centres – certainly the major ones are all represented in London in an increasingly visible way. At this stage, they seem to be interested in reasonably straightforward, asset-backed lending, where there is a China angle, such as exporting to or importing from that country. “As their experience and infrastructure here increase, it will be interesting to see if they move to fill gaps in the market which might be left by the established Western banks shrinking their balance sheet exposure to certain sectors and types of funding.” Meanwhile, as Chinese bank lending doors open increasingly wider, London is trying to establish itself as a hub for Chinese currency (renminbi). Nick Farr, Head of Grant Thornton UK’s China Britain Services Group, wrote about this on our International blog in January, saying: “George Osborne’s recent deal to allow banks in the City of London to trade renminbi (RMB) … is a potential game-changer for the UK’s trade relations with China. The deal would mean the UK becoming the first city outside Hong Kong to trade the Chinese currency. It demonstrates the good health of the business and political relationship between the UK and China. Further, the deal also confirms China’s perception of London as a major international capital market.” Find out how UK businesses can benefit in Nick Farr’s post here: Osborne’s RMB deal is a major boost for the UK. Image (CC): epSos.de on Flickr You might also find these posts useful: * China’s City banks create financing opportunities in UK infrastructure * How to raise finance in 2012 * Asset-based lending: the perfect way to raise finance in 2012?   2012-08-08T12:24:08+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/alternative_sources_of_finance_versus_risk_and_cost http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/alternative_sources_of_finance_versus_risk_and_cost http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/alternative_sources_of_finance_versus_risk_and_cost#comment_form Raising finance for growth may mean looking beyond traditional means. We chart a selection of non-bank debt providers against cost of capital and risk levels.Following on from our post on 10 tips on accessing capital for growth, we now look at some of the alternatives to bank debt. For those looking to raise finance – whether it be to enable growth, to release value, to refinance or for any other reason – it is often advisable to explore alternative sources of funding beyond simply traditional bank debt. With many non-bank debt providers in the market, the cost of capital and level of risk associated with alternative sources of finance is an important consideration when deciding what is best for your business. This is explored in our diagram – click on it to view at a larger size. If you would like to discuss your funding options or require any further information, please contact: David Ascott Corporate finance partner T +44(0)20 7728 2315 E david.p.ascott@uk.gt.com Or for more information, please visit our Raising finance page. You might also find these posts useful: * ABL helps plug finance gap in food and beverage * Asset-based lending: the perfect way to raise finance in 2012? * How to raise finance in 2012 2012-08-01T15:20:00+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/10_tips_on_accessing_capital_for_growth http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/10_tips_on_accessing_capital_for_growth http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/10_tips_on_accessing_capital_for_growth#comment_form At the FD Summit in June, corporate finance partner David Ascott led a discussion on innovative ways to raise finance. We’ve rounded up some of the key points raised.Successfully raising finance is tough but not impossible in the current economic environment. What did a group of business peers have to say about accessing capital for growth? 10 points to consider when raising funds 1. The new funding landscape calls for a new approach. 2. Don’t just rely on traditional funding sources – they may have dried up! 3. Define your funding requirement carefully – quantum, duration and nature (ie what exactly is being funded: capex, working capital, investment expenditure). 4. Consider the optimum match to meet this requirement. 5. Develop a robust business plan to support your funding requirement. 6. Market the plan to your existing funders – build on existing relationships but explore alternatives. 7. Sell the plan to new sources as a debt-raising project. 8. Prepare for due diligence – anticipate and tackle weak areas in the proposition. 9. Contingency planning is key – we all need a Plan B! 10. Negotiate the new landscape to secure best terms. We’ve also posted some alternative sources of finance and risk levels in our post on the new non-bank debt providers. If you would like to discuss your funding options or require any advice please contact: David Ascott Corporate finance partner T +44(0)20 7728 2315 E david.p.ascott@uk.gt.com Or for more information, please visit our Raising finance page. You might also find these posts useful: * ABL helps plug finance gap in food and beverage * Asset-based lending: the perfect way to raise finance in 2012? * How to raise finance in 2012 2012-08-01T15:12:44+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/affordable_ways_to_de_risk_defined_benefit_pension_plans http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/affordable_ways_to_de_risk_defined_benefit_pension_plans http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/affordable_ways_to_de_risk_defined_benefit_pension_plans#comment_form Is there an affordable way to take the risk out of your pension scheme? Kelvin Wilson, Head of Pension Risk Solutions, finds a more cost-efficient option to transfer risk. For companies with defined benefit (DB) pension plans, buying out pension liabilities with an insurance company is a goal many will have – but it is one that many will find prohibitively expensive to achieve.  Over the past four to five years, many pension schemes have turned to the less expensive buy-in structure, which involves insuring only a portion of liabilities, usually for pensioners in payment (ie, those already drawing a pension from an occupational scheme). However, a perfect storm of low interest rates, volatile investment markets, high inflation and rising longevity expectations has seen the liabilities and funding ratios of many plans deteriorate to such levels that even the buy-in model is becoming increasingly unaffordable to some pension plans.   Why buy-outs/buy-ins fail For comprehensive risk coverage and structural simplicity, buy-outs and buy-ins remain attractive to employers. However, increasingly large single premiums associated with these transactions have deterred many companies from completing transactions. For poorly-funded pension plans, a pensioner buy-in that transfers large assets out of the plan to an insurance company can leave it in a worse funding position, unless it is accompanied by potentially significant capital injections from the plan’s sponsor. It is this significant capital injection, and the inability or unwillingness of the employer to raise the additional funds, that is the main reason why buy-in and buy-out transactions do not complete. However, many pension plans have on-going funding deficits, which by agreement between the trustees and the company, are paid down over a period of time (the Recovery Plan). Financing premiums over time A similar agreement can be made between an insurance company and a plan sponsor over a buy-in or buy-out shortfall. We have begun to see insurance companies offering buy-in/buy-out solutions that have elements of the premiums financed over an agreed period of time, the aim of which is to make the premium payment more affordable.  Many DB-operating businesses understand the importance of good risk management and wish to manage their risk exposure better. A buy-in or buy-out remains their most comprehensive pension risk management solution as it covers the four key risks faced by pension plans: investment, interest rate, inflation and longevity. Poor and deteriorating funding levels make many sponsors think that a buy-in/buy-out is beyond them. The development of buy-out structures that have flexible payments attached to them provides companies and businesses with a genuine comprehensive pension de-risking option. These solutions are bespoke to the profile of pension plan liabilities, take account of the plan’s level of funding, and finally take account of the financial situation and any liquidity constraints of the business that supports the pension plan. A genuine opportunity to transfer risk Companies should recognise that a genuine opportunity to transfer risk out of the pension plan exists and that the cost of the transfer might not be as high as previously thought. For more information, contact Kelvin Wilson at Grant Thornton UK at kelvin.wilson@uk.gt.com or on 020 7865 2402. You might also find these links useful: * De-risking defined pension fund liabilities - What are the options for private equity buyers? * Download our DB pension plan de-risking brochure * Visit our Pension Scheme Advisory Services page for further information and contacts 2012-07-24T14:54:15+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/welcome_to_fd_intelligence_email_5 http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/welcome_to_fd_intelligence_email_5 http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/welcome_to_fd_intelligence_email_5#comment_form Welcome to the latest edition of FD Intelligence, which focuses on ‘Growth in turbulent times’. If you’re looking to grow your business, you’ll be interested in our article outlining the different tax treatments companies face, depending on their size. In light of the recent events surrounding PLUS markets, we also help you assess whether being a public or private organisation is right for you as you grow. What’s more, if you’re seeking growth by entering new markets, why not take a look at India? Our profile outlines the opportunities there for UK businesses.FD Intelligence blog is regularly updated with hot topics by Grant Thornton specialists. Please visit FD Intelligence regularly for new posts, subscribe to updates using our RSS feed or to speak with a Grant Thornton specialist, email us at fdintelligence@uk.gt.com Here’s how to subscribe to our regular FD Intelligence email. You can also register via fdintelligence@uk.gt.com to attend our FD Intelligence events programme specifically for UK finance directors and CFOs. 2012-07-04T09:45:12+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/size_matters_when_it_comes_to_tax http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/size_matters_when_it_comes_to_tax http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/size_matters_when_it_comes_to_tax#comment_form As your company grows it is important to be aware of the impact the size of your organisation will have on tax treatments. We outline what companies of different sizes will need to look out for. Does size really matter? When it comes to businesses, the answer is yes. There are a number of areas of taxation where the size of a company, or the size of the group, will determine the tax treatment. As your company grows it is important to be aware of these differences so you can prepare for them. As well as the Company Act and European definitions of small, medium and large companies, there are also circumstances where the tax legislation prescribes its own measures of size. And in each case the criteria is different. Here, we identify the key definitions of size and summarise the key issues that surround these limits. We’ve also summarised the information in a tax thresholds table for you to download and print out.  CORPORATION TAX RATE Here, the taxable profit limit of £1.5 million is divided by the number of associated companies that the company had at any point during the period. The limit is also proportionately reduced for short accounting periods. If the limit is exceeded then the company will pay corporation tax at the main rate, which is currently 24%. The company will also be required to pay corporation tax by quarterly advance instalments. As above, the limit is reduced by taking associated companies and the length of the accounting period into account. If a company has a tax liability of less than £10,000 then it is not required to pay by instalments. Companies are not required to pay by instalments for the first period that they become large, unless the company’s taxable profits exceed £10 million (divided by one plus the number of associated companies at the end of the previous accounting period). Any tax due on outstanding loans to participators will also be liable to be paid by instalments, and companies that are liable to pay corporation tax by instalments, and are members of a group, may find it beneficial to set up a group payment arrangement. COMPANIES ACT SIZE LIMITS In order to qualify as a small company, or group, the company must satisfy two or more of the following requirements, in both the current and preceding financial year: • Number of employees – not more than 50 • Turnover – not more than £6.5 million net (or £7.8 million gross) • Balance sheet total – not more than £3.26 million net (or £3.9 million gross) If a company, or group, is not small it may still qualify as medium-sized if two or more of the following requirements are satisfied, in both the current and preceding financial year: • Number of employees – not more than 250 • Turnover – not more than £25.9 million net (or £31.1 million gross) • Balance sheet total – not more than £12.9 million net (or £15.5 million gross) Why does this matter? Financial reporting and auditing requirements: A small company can choose to disclose less information in its financial statements than medium sized or large companies. A small company will not normally require an audit, as long as none of these limits are exceeded. A medium sized company can choose to disclose less information in its financial statements than large companies. Enquiry window time limits: If a company is a standalone company, or part of a small group, the time limit for HM Revenue & Customs (HMRC) to enquire into a tax return is 12 months from the date the return is submitted. Otherwise the time limit is 12 months from the normal due date (assuming the return is not submitted late). A company that is part of a group that is not small is required to inform HMRC by checking the relevant box on the front page of its corporation tax return. TAX ADVANTAGE SCHEMES To be eligible for the Seed Enterprise Investment Scheme, companies must have gross assets not more than £200,000, and fewer than 25 employees. The company must also have begun its qualifying trade no more than two years before the shares are issued. There are also further conditions that must be met by the company, the investor and the form of the investment. To be eligible for the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme, the following conditions apply: the company must have gross assets of not more than £15 million and fewer than 250 employees. The gross asset test applies to the aggregate gross assets of the group. The gross assets must not exceed £16 million after the EIS or VCT investment. There is an annual investment limit of £5 million for both EIS and VCT, and these limits were increased in the Finance Act 2012 (which is still subject to Royal Assent). Before this, smaller limits existed. To be eligible for the Enterprise Management Incentive scheme, companies must have gross assets of not more than £30 million and fewer than 250 employees. Further conditions must be met for a company to qualify, and if the company is the parent of a group then it is the group’s assets that must not exceed £30 million. Only eligible employees can participate in the scheme. EUROPEAN SIZE LIMITS An enterprise is small for these purposes if it has fewer than 50 employees and has either a turnover that is not more than €10 million, or a balance sheet total of not more than €10 million An enterprise is medium-sized for these purposes if it has fewer than 250 employees and has either a turnover of not more than €50 million, or a balance sheet total of not more than €43 million. The company’s size only changes in the second successive period in which it breaches the limits. These limits are on a group basis and related enterprises must be taken into account. Why does this matter? Transfer pricing: Large companies are required to account for transactions with certain connected enterprises on an arms length basis, or make adjustments in their corporation tax returns. A company that is small or medium-sized will normally be exempt from the transfer pricing legislation. For transfer pricing purposes these limits are applied to the employee numbers and financial data for the current period only, and so the transfer pricing rules apply from the first period that a company becomes large. This exemption only applies if the connected business is in a territory with which the UK has a double tax treaty containing a non-discrimination provision. An irrevocable election can be made for the transfer pricing exemption not to apply. HMRC can direct medium-sized enterprises to apply the transfer pricing rules. Dividends exemption: Dividends received by small companies are exempt from the charge to corporation tax, provided a few further conditions are met. Dividends received by companies that are not small may also be exempt if they fall into any of the specific exemptions available. Worldwide debt cap: The worldwide debt cap rules apply to large groups. For worldwide debt cap purposes these limits are applied to the employee numbers and financial data for the current period only so the rules apply from the first period a company becomes large. SENIOR ACCOUNTING OFFICER (SAO) A company is within the rules, if in the previous financial year, it had turnover exceeding £200 million, or a balance sheet total of more than £2 billion. Companies that exceed the limit are required to identify a senior accounting officer to take responsibility for the adequacy of their accounting systems. When the company is the member of a group, the turnover and balance sheet totals must include the figures for all UK companies that were members of the same group at the end of the company’s previous financial year. The company is required to notify HMRC of the identity of its senior accounting officer. RESEARCH AND DEVELOPMENT (R&D) TAX RELIEF There are two separate R&D tax relief schemes, one for large companies and a more generous one for small or medium sized enterprises (SME). A company is a SME for R&D purposes if it has fewer than 500 employees and either a turnover not more than €100 million or a balance sheet total of not more than €86 million. There is an upper limit of €7.5 million on the total amount of aid that can be received on an R&D project. The limits are on a group basis, and related enterprises must be taken into account. For R&D tax relief purposes a company does not move size bands until the second consecutive year in which the limits are breached, unless an SME loses its status due to the company. VAT LIMITS For VAT purposes the size to watch for is a VAT liability exceeding £2.3 million in a period of 12 months or less and turnover exceeding £1.35 million. The VAT cash and annual accounting schemes are not available if company turnover exceeds this amount. VAT – payment on account limit: the company will be required to make payments on account for VAT above this limit. You might also find these posts useful: * SEIS the day? Potentially up to £103,000 of tax relief for a £100,000 seed investment * Transfer pricing questions for companies trading overseas * Treasury announces further consultation into an above-the-line tax relief for R&D in large companies (April 2012) 2012-07-04T09:39:46+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/time_for_a_public_exit http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/time_for_a_public_exit http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/time_for_a_public_exit#comment_form The recent financial failure of PLUS Markets has raised the importance of making sure you’re in the right market for your organisation at the right time.Recent events surrounding the future of PLUS Markets, London’s exchange for small and fledgling companies have left the FDs and CFOs of the 156 companies on the platform considering their next move. But there are lessons here for other UK finance directors, too. PLUS Markets put itself up for sale in February, but announced in May that it would begin winding down its operations after failing to find a buyer or securing fresh financing. An offer from ICAP for the stock exchange arm of PLUS Markets was recently approved by shareholders, prompting companies that traded on PLUS to consider their next move. Some organisations have already indicated that they will move to AIM or the Main Market of the London Stock Exchange. However, many companies do not want the trappings of a full stock market quotation and had originally opted for PLUS as it offered them a trading platform without the potentially onerous regulatory requirements of AIM or the Main Market. There is no direct fast-track transfer process from PLUS to AIM or the Main Market and a move can cost around £400,000 – a level of expense that most businesses trading on PLUS will be unable to meet. Some PLUS businesses may instead consider a move to the likes of Sharemark, an alternative share trading platform for smaller companies that comes with significantly less regulatory burden. All things considered, some finance directors whose companies are currently traded on PLUS may be wondering whether remaining in the public space is appropriate for their business, and whether these recent developments should serve as a catalyst for taking their business private. Philip Secrett, from Grant Thornton’s Capital Markets Division, Corporate Finance, says the PLUS Markets situation should serve as a reminder to all FDs and CFOs of the need to continually assess whether the choice of trading platform and the status of being a public company continues to fit the needs of the business. “It is clear from the ongoing issues around PLUS Markets and the wider negative sentiment impacting public companies that FDs should make an ongoing assessment of the choice of market that their business is quoted upon and whether the benefits of being a public company continue to outweigh the challenges and costs. “At Grant Thornton we have a raft of experience helping organisations assess whether a public quote is delivering on the needs of the business and what alternative options might be available to help deliver future growth.” For further help and information on this topic, read our PDF: Back to basics for equity markets: Are London’s equity markets failing the small cap sector? You might also find these posts useful: * Download A Guide to Aim from our Capital Markets page * The AIM of the game: why and how to list on the Alternative Investment Market * Crisis in UK small caps threatens UK growth 2012-07-04T09:35:09+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/executive_pay_shake_up http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/executive_pay_shake_up http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/executive_pay_shake_up#comment_form Executive pay is under scrutiny following the ‘Shareholder Spring’ and plans to give shareholders more say over remuneration rates. Is a single total pay figure per director a viable solution to the pay conundrum?In 2012 we have seen a ‘Shareholder Spring’, with institutional investors revolting against some executive pay awards. Statistics have shown that a well-structured pay policy will result in improved corporate performance. In announcements in June 2012, Business Secretary Vince Cable demonstrated his determination to give shareholders a say in how these policies are formed. While shareholder votes on executive pay will only apply to listed companies, investors are likely to expect any resulting change in corporate governance best practice to be applied more widely. Many commentators will have some sympathy with the concerns raised about the disparity between listed company performance and directors’ pay, and between the levels of remuneration for the highest and lowest paid employees in a typical FTSE company. However, there is significant concern that the Government’s proposals will result in the UK becoming one of the least attractive countries in Europe for executives to work. Remuneration proposals The proposed changes will split remuneration reports into two sections, dealing with both past and future pay policy. The reports will need to explain how that policy is linked to corporate strategy, the input from employee consultation and the way in which performance will be translated into reward. Shareholder involvement Much of the focus in the press in recent weeks has surrounded the binding vote to be held every three years on executive pay policy, as well as an annual advisory vote on how that policy has been applied in the previous year. This means that pay policy must be set and voted on by shareholders.  If the resulting remuneration structure is to be meaningful then what this also means is that corporate policy must be determined in advance for each three-year period, and investors must understand and determine whether the remuneration policy not only supports but will also promote the achievement of these commercial goals.  A single total pay figure will be published for each director. However, the question vexing those who will have to prepare and sign off these reports is exactly how a meaningful figure can be calculated. Calculating a single meaningful figure Executive pay is typically made up of both fixed and variable elements. This will include basic pay, annual bonuses and shares, and so on. The long-term incentives take a wide variety of forms, depending on what the company and remuneration committee want to achieve. These elements all need to be valued, including vested share awards in the relevant year, and then amalgamated to create a single meaningful figure. Putting a number to some of these elements, such as basic pay and the cost of some employee benefits, will be quite straightforward. Evaluating the variable elements will be far more complex. The ‘right amount’ to attract talent However, the question should not be what the board is paid but rather is this the right amount to attract and retain the right people, and are they being rewarded for success, however that is measured? It should not simply be a question of whether a listed company is showing large increases in profitability each year, but whether it is remaining profitable while investing for the future and weathering the economic storm. This is the challenge to the Government. If they come to fruition, Vince Cable’s proposals will change the face of executive pay – and one number will be the key. You might also find these posts useful: * The return of performance management * Technical notes: Employee remuneration * Executive salaries and bonuses – time to take stock (2011) 2012-07-04T09:30:24+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/india_ripe_for_investment http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/india_ripe_for_investment http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/india_ripe_for_investment#comment_form Despite failing to reach the heights of growth expected by some, India’s economy continues to prosper. We profile the opportunities for UK FDs and suggest four considerations for entering this BRIC.Although slowing down ever so slightly recently, with growth at five per cent, India’s economy is still flourishing compared with the Western world. With declining poverty, improving standards and agricultural growth, India remains appealing to foreign businesses. But what India offers in particular for FDs is market access to a huge, growing middle class of more than 300 million people. Add that to the demographic of a country in which more than 50% of the population is under 25 years old, and India is a very attractive proposition. Where are the opportunities? Hunger for Western products and services among India’s young middle classes is creating a great opportunity for UK business – not least because English is also widely spoken. Although the retail industry is, in some circumstances, restricted to major UK corporations, individual brands and retailers certainly have the opportunity to capitalise on the demand for luxury goods and services. There is also great demand for some of the business services that operate around the financial sector, such as broking. Healthcare and education are strong areas of opportunity, as is the infrastructure sector and services relating to the development of infrastructure. These are also areas where the UK is strong and makes a good match. The UK-India relationship Many UK businesses are now beginning to take advantage of the opportunities India has to offer and, after some years of reluctance on the part of UK FDs to enter India, the market is far from saturated. In 2011, UK exports to India increased by 45% making India, the UK’s largest non-EU market, and the UK and India aim to double bilateral trade to around £26 billion by 2015. Also India is the third-largest investor in the UK and out of the 1,200 Indian companies in Europe, 700 are located in the UK. The Indian market is very relationship-driven and success can depend on building relationships and partnerships with other businesses. As a result, Grant Thornton has seen an increasing number of FDs seeking guidance in this area. Anuj Chande, Partner & Head of South Asia Group, Grant Thornton, says: “In the past year, for example, [South Asia Group] has been working closely with Pizza Express to help the company set up a joint venture partnership, which has helped it build the brand, and begin operating, in India. Other India success stories include BP, which has established a $7 billion partnership with Reliance; Serco has made an investment of £385 million in Intelenet; and JCB’s Indian operation is growing at 15% per year.” Like any new market, it can take a little time to enter India but, once you have taken the decision to do so, it is a relatively straightforward process to invest or to set up a venture or a partnership there. Our top four issues to consider when taking your business into the Indian market are: 1. How to take advantage of the opportunity India is a very exciting emerging market offering excellent opportunities but companies need to ensure they do their homework when structuring their business, choosing the place, partner and product, and deciding how to staff their operations. 2. Cultural understanding India is a very relationship-driven and hierarchical society.  It is important that investors understand the cultural differences and have the patience to deal with the implications. 3. Regulating framework and bureaucracy While barriers are coming down and most sectors are open, India does still have a fair amount of regulations and bureaucracy that need to be navigated. 4. Setting up in India Setting up in India is a relatively easy process; investors have two choices which need to be carefully evaluated. They can set up either as a foreign entity through a branch or project office, or as an Indian entity, which is wholly owned or joint venture with a local partner depending on the sector the company is in. You might also find these posts useful: * Opportunities in Russia and Eastern Europe * Entering China: opportunities, structure and strategy * BRICs: Cracking Brazil 2012-07-04T09:25:24+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_influencing_tax_laws http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_influencing_tax_laws http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_influencing_tax_laws#comment_form With a short timeframe for responses, now is the time for accountancy firms and companies to respond to proposals for changes in tax laws. Here’s how to have your say…Around this time of year the Government publishes a multitude of tax consultations, most of which were announced in the Budget in March. Grant Thornton will respond to many of these consultation documents – and we encourage those affected by the proposals to have their say, too. We draw together all these thoughts and opinions, in addition to our specialists’, to include in our responses, and then use these to push for constructive change, and to lobby for a better tax system. Lobbying for change For example, Grant Thornton recently submitted responses to the consultations on the controlled foreign companies reform and the proposed statutory residence test – both areas that our clients and employees felt strongly about. In particular, we have been actively involved in the proposed statutory residence test rules and have supported the delayed implementation of the legislation to April 2013, rather than April 2012. In our view, it was better if the Government didn’t rush the legislation but took more time to get it right first time and avoid making amendments at a later date. Our comments sometimes mirror those produced by other accountancy firms and professional bodies, and this is no bad thing. We all want legislation to be as clear and concise as it can be, and there is great strength in a large number of separate organisations each stating the same good point. This is what makes the Government sit up and listen, and consider making the changes suggested. Make your voice heard So it is possible to influence legislation and it is worthwhile getting involved if you feel strongly about a particular proposal under consultation. We would be pleased to take your comments on board when preparing our consultation responses this summer. If you would like to see what tax consultations are currently open take a look at the consultation tracker on HM Treasury’s website. You may be interested, for example, in the consultation on ensuring the fair taxation of property transactions or the introduction of a general anti-abuse rule (GAAR). Both are topical issues and many of our clients have specifically expressed concern over the property tax consultation that, at present, appears to catch innocent commercial structures. One of our tax directors, Andrew Cockman, has been selected to take part in the technical working group on the property tax consultation, so he will be able to feed in directly at a high level, in addition to our written response. Consultation on The Code Aside from tax consultations, many other areas of legislation and guidelines are often consulted on. From a financial reporting perspective, the Financial Reporting Council has recently issued a consultation on the UK Corporate Governance Code. The proposed changes include requesting FTSE 350 companies to put their external audit contract out to tender at least every 10 years. While the new rules are not proposed to be mandatory, they are likely to have a major impact on the audit tendering process, and if companies choose not to comply with the new rules they will need to explain why to their shareholders. Again, Grant Thornton will be responding to this consultation, so your thoughts and comments are more than welcome. How to have your say You can add your response to a current tax consultation in several ways: by reviewing the relevant consultation on HM Treasury’s website and responding directly before deadline, or by adding your thoughts to ours by emailing Francesca Lagerberg, Head of Tax, at Francesca.Lagerberg@uk.gt.com. 2012-07-04T09:20:24+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_property_tax_trap http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_property_tax_trap http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_property_tax_trap#comment_form New tax charges on residential properties valued above £2 million were proposed in Budget 2012 that may catch out corporate owners.The Government has recently published a consultation paper on its proposals, announced in the 2012 Budget, of introducing two new tax charges on high-value residential property. The first change is the introduction of an annual charge on residential properties valued above £2 million that are owned by certain ‘non-natural’ persons (broadly companies, partnerships including companies, and collective investment schemes). The second is to extend capital gains tax (CGT) to disposals of UK residential property above £2 million by certain non-resident ‘non-natural’ persons. The Government intends to introduce legislation in the Finance Bill 2013, with the charges coming into effect in April 2013. These proposed new charges are in addition to previous announcements which, from March 2012, introduced a new seven per cent stamp duty land tax (SDLT) rate on the purchase of residential properties that sell for in excess of £2 million, and also a new 15% SDLT rate payable where residential property is purchased by certain ‘non-natural’ persons for homes in excess of £2 million. Many of our corporate clients have commercial structures that, as the proposals stand, will be caught by the new tax rates, even though there is no tax avoidance element involved. We are involved in a key working group on the consultation and also preparing a full written response, but to read the legislation as it currently stands, please download our PDF: Consultation on proposed new charges on high value residential property. You might also find these posts useful: * Mansion tax ‘lite’ set to bring CGT, annual charges and higher stamp duty * SDLT avoidance measures bring property pitfalls * Introduction of a GAAR for the UK 2012-07-04T09:15:21+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_setting_up_a_foreign_finance_company http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_setting_up_a_foreign_finance_company http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_setting_up_a_foreign_finance_company#comment_form Our four-step process shows what UK companies need to do to benefit from a partial exemption on tax on profits by including a finance company within their group.The finance company partial exemption, within the new controlled foreign company (CFC) regime, represents a pragmatic effort by the Government to make the UK a more attractive place in which to do business. Following our previous technical note on CFC reform and where to put your business financing operations, we now turn to how UK organisations can take advantage of the new regime and maximise value by including a finance company within their group. The benefits will be available from the CFC’s first accounting period, beginning on or after 1 January 2013. What are the benefits? One of the key benefits of the new CFC regime is a partial exemption from UK tax on the profits of a foreign finance company. The exemption provides certainty of tax position while exempting 75% of the finance company’s profits from UK tax, resulting in a 5.5% effective tax rate from 2014 (when the UK rate of corporation tax drops to 22%). Can any group with an international footprint derive value from these changes? Yes, in principle, but there are clearly questions of scale. In these difficult economic times growth is key, and a foreign finance company can be pivotal in: • funding overseas growth and acquisitions • facilitating the tax-efficient circulation of cash • reducing the group’s overseas tax burden. This could result in: • a tax saving of £412,500 on £50 million of debt (assuming an interest rate of 5% and comparison of tax at 22% v 5.5% under new regime and proposed 2014 rates) • a significant reduction in the group’s overall effective tax rate. What should your tax team be focusing on? With a view to maximising the benefits available at the earliest opportunity –  ie, from 1 January 2013 – we recommend that your tax team apply the four-step process described below. You can also download our flowchart on setting up a foreign finance company (PDF). Step 1: Feasibility study This is to assess whether it is commercially practicable to establish a foreign finance structure, the value thereof, and how to maximise the benefits. Typically, this will involve consideration of around five potential finance structures, with the aim of narrowing this to just two or three. By the end of this stage you will know: • the location and type of two to three finance structures that will bring the maximum benefit to your group, as well as being appropriate to your commercial profile and risk appetite • the practicalities and mechanics of operating the foreign finance structures, including local substance and ruling requirements • the extent to which overseas debt can be increased and existing debt reorganised through the proposed finance structures • how foreign exchange risks may be managed. Step 2: Options assessment This would narrow the field to a single preferred structure suitable for your group. Undertaking an options assessment will involve detailed modelling of the cost/benefits of the proposed finance structures, and by the end of this stage you will know the: • preferred location and finance company structure • cost/benefit of the preferred finance structure • impact of foreign exchange and how this will be managed • steps required to reorganise existing debt and push down additional debt. Step 3: Detailed technical analysis The aim of this is to: • provide security that you are compliant with UK and overseas tax laws • give confidence to your investors that corporate governance and risk management obligations are met • ensure that there is no adverse impact on any existing bank covenants. These assurances are met via a detailed technical analysis, together with a step plan typically provided in a single paper supported by overseas tax rulings, where appropriate. Step 4: Implementation By the end of this stage you will have a fully implemented and operational finance structure. If you wish to learn more about this, please contact one of our specialists: Martin Lambert +44 (0)20 7728 2363 martin.lambert@uk.gt.com Zoe Wyatt ++44 020 7728 2435 zoe.e.wyatt@uk.gt.com You might also find these posts useful: * Where to put your business financing operations * The return of performance management * Do holding companies still hold all the tax advantages for entry into China? 2012-07-04T09:10:24+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/fd_interview_arif_kamal_group_fd_gl_hearn http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/fd_interview_arif_kamal_group_fd_gl_hearn http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/fd_interview_arif_kamal_group_fd_gl_hearn#comment_form Arif Kamal, Group Finance Director at property consultants GL Hearn, talks about how his career has progressed and what needs to happen for growth to return to the UK.What was your route to becoming a finance director? After graduating in economics and public administration from the London School of Economics and Royal Holloway College (University of London), I trained for a professional accountancy qualification and joined a firm of chartered accountants. For four years, I worked with clients mainly from the film and entertainment industry. I stayed in practice for nine years after qualifying. One day, I was reviewing an audit file and got really bored! There was no sense of achievement. So I joined a firm of international architects, Wilson Mason and Partners, in 1993, and was there for three years. They had operations in Russia, the Middle East and Eastern Europe. It was quite exciting, with the rouble exchange rate changing by the minute. Then, in March 1997, I got a call from a head-hunter to join GL Hearn. It was a partnership at that time. I joined as the Group Financial Controller and in May 2003 was invited to join the main board as the Group FD. Since then I have seen an enormous amount of change. Soon after joining GL Hearn, I completed the MBA that I had started at Wilson Mason & Partners at Cass Business School. My dissertation was on GL Hearn itself, which I found informative and useful, as I had to research the company and learn about the business and its people. It’s a continually changing business and that’s what keeps my interest going. Change is the only constant in life. What was the single best decision you made in your career? I believe the best decision in my career so far was to do an executive MBA. It broadened my outlook from pure accountancy to general strategic business. It means that I can contribute more meaningfully to board discussions, not just on finance and performance-related matters, but in all areas, including corporate governance, HR, IT and marketing. What business trends keep you awake at night? In this time of economic turbulence, to put it mildly, what is going on in the eurozone is having an impact worldwide, and indeed in the UK. Clients are taking longer to make decisions and transactional income is affected significantly. Though it is only a small part of our business, it still has an impact. Delays in completing deals, clients changing their minds and just the generally challenging economic conditions are a cause for concern. What is your take on the double-dip recession? I think we are in it for the long haul. Although predictions in mid to late 2011 were that we would not be in a double-dip situation, the first two quarters of 2012 have shown no growth and we have negative GDP in the UK. For the rest of Europe, only Germany has shown a positive trend. It’s a turbulent business climate – something that I don’t think most, if any of us, have experienced before. But we should not assume that we can’t grow in a downturn. We need to see how we avail the opportunities that will undoubtedly present themselves. What are the three biggest challenges facing your sector? First, there is a lot of consolidation going on in our sector, with generalist firms not doing too well. Our philosophy at GL Hearn is that we will not do everything, but in all the areas that we do operate in, our strategy and aim is to be the best in class. Second, liquidity is a problem for many businesses. Some are facing huge problems in securing finance. Lastly, some clients are feeling the pinch, which in turn is impacting our fee levels and margins. A few of our clients are also threatened with administration or liquidation. It is particularly important that we work with our clients, rather than taking a quick decision of taking them to court to recover our debts. What is the best piece of advice you have been given about your role? To be totally independent when advising the board and colleagues, without having any preconceived ideas, with the interest and success of the business being paramount. Do you have a business hero? There are quite a few names but I wouldn’t call them heroes. I would rather call them successful business people from whom we can learn. I don’t have heroes as such. I think Richard Branson is one; Jack Welch of GE is another one. Dennis Turner, the chief economist of HSBC, who has recently retired, is a business thinker that I particularly admire and value his opinions. What are you most proud of in your career? Being part of GL Hearn as a business for the past 15 years, and being instrumental in most of the changes that have happened within the company – changing from a partnership to a corporate entity in 1999 was one of the biggest changes, culturally and otherwise that I have been involved with. The group turnover was £8 million when I joined, with 250 people. Now our turnover is just over £20 million with 200 people operating from six offices. Being part of a successful business that is going places, and the colleagues I work with, is something that I value and relish. What factors do you think will unlock UK growth? I believe that the banks need to play their part. We have had big rounds of quantitative easing from the Bank of England in the economy – some £250 billion worth – but it appears the money has gone to enhance the banks’ balance sheets rather than promoting and boosting the SME sector, which accounts for approximately 80% of the total economy. Unless lending and funding of these businesses is addressed, we will not see the growth we are looking for. What are your biggest concerns for the next 12 months? I feel liquidity is a major concern for most. Furthermore, clients taking much longer to make their minds up in terms of investments etc, and instructions being reduced. A squeeze on our fee levels obviously has an impact on profitability, along with margins. But we must not automatically assume that we cannot do good business in this climate. We have got to make our own luck and achieve success with decisive actions. Where do you see the biggest opportunities for mid-market firms in the next 12 months? It depends on which sector you operate in. In our sector [property] the opportunities lie in working with our clients in partnership, understanding their needs and advising them on where they should be going. Our advice should either be making money for our clients or saving money for our clients. Success is based on not just delivering results but on building long-term, sustainable relationships with all our stakeholders, including clients and staff. WORKING WITH GRANT THORNTON Why do you use Grant Thornton? When we were looking to appoint auditors we had a ‘beauty parade’ of accountancy firms, including one of the Big 4, and some second-tier firms. I found the people from Grant Thornton came across very well: they are proactive and believe in ‘working with their clients in a team spirit’; they really wanted to understand our business and what our needs were, rather than just applying ‘standard or best practices’. In my view, every single organisation has its own DNA, with unique strengths and weaknesses. Not all things can be applied uniformly to all organisations. Can you describe the initial engagement? When we started working with Grant Thornton in 2006. Mark Cardiff, who has been our audit partner since day one, brought in a lot of new ideas as to how we could do things differently and make improvements – many of which we have implemented. We continually look for proactive-ness in all our suppliers, including our auditors and tax advisors. What changes or benefits have you seen since you started working with Grant Thornton? From a corporate point of view, some of our practices have improved technically. Our internal controls have been enhanced and the structure of the business has received some useful and constructive advice, particularly with respect to our management and share ownership structure. You might also find these posts useful: * Interview with Colin Wardale, FD, Hill Dickinson * Interview with Tony Harris, FD, Arena Leisure * Interview: Tim Croston, Group FD, Nichols plc 2012-07-04T09:05:27+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/economic_indicators_july_2012 http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/economic_indicators_july_2012 http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/economic_indicators_july_2012#comment_form A quick round-up of movement across UK and global economic indicators to keep you up to date with the economic climate.UK rate of inflation Inflation in the UK fell last month to a two-and-a-half year low, owing to slowing fuel and food prices. The Consumer Prices Index (CPI) measure fell to 2.8% in May from 3% in April, according to the Office for National Statistics. The Retail Prices Index (RPI) measure fell to 3.1% from 3.5% in April. Conference Board Consumer Confidence Index The Conference Board Consumer Confidence Index®, which had declined in May, fell further in June. The Index now stands at 62.0 (1985=100), down from 64.4 in May. The Expectations Index fell to 72.3 from 77.3. The Present Situation Index, however, increased to 46.6 from 44.9 last month. UK real estate investment index, from IDP The IPD UK Monthly Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next, and for May 2012 returned 0%. In April it had registered 0.2%. Composite Leading Indicators (CLI) from the OECD The CLIs for Japan, the United States and Russia continue to signal improvements in economic activity. However, the deceleration in these countries’ CLIs over the past four months provides tentative signs that growth may moderate in the near term. In France and Italy the CLIs continue to point to sluggish economic activity. The CLIs for Germany, Canada, the UK and the euro area as a whole continue to point towards economic activity slightly below long-term trend. The assessment for China and India has changed significantly since last month. For both countries, the CLIs point towards economic activity below long-term trend. In Brazil, the CLI continues to point towards a turning point, with economic activity returning towards long-term trend, but with a weaker intensity. UK Consumer Confidence Index The main Consumer Confidence Index fell by three points in May to 41 and is just four points above its lowest ever level of 37 in October 2011. The main Index is more than 34 points below its long run average and sits at its lowest level so far this year. The Index sits 16 points lower than this time last year. 2012-07-04T09:00:24+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/join_us_at_the_fd_summit http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/join_us_at_the_fd_summit http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/join_us_at_the_fd_summit#comment_form At next week’s FD Summit, we’ll be leading an interactive session on ‘Accessing capital for growth’ – looking at innovative ways to raise finance and sharing success stories (and challenges) with a group of peers. We’d like to invite you to join us for this ‘boardroom style’ discussion…The FD Summit takes place on 14 June at the prestigious venue of One Whitehall Place in London. There is a whole day of events featuring three keynotes, panels and interactive ‘boardroom style’ sessions. Here’s the full 2012 FD Summit programme. Our sponsored session, scheduled for 11.45am, is all about ‘Accessing capital for growth’. David Ascott (pictured), corporate finance partner and head of the funding solutions team, will be leading the discussion on how to successfully raise finance in the current tough economic environment. The session details are as follows: As such uncertainty remains over available bank debt funding, raising the capital needed to enable new investment continues to present a significant challenge. As a result, businesses are looking at increasingly innovative ways of raising finance. In this interactive session we will explore your financing options, address key challenges and share success stories with your peers. Drawing on real experiences, experts will also be able to advise on alternative sources of finance and new debt providers, and how you can optimise your chances of successful fundraising. We look forward to seeing you at the event. If you haven’t got your ticket for the FD Summit yet, here’s how to book a place. Meanwhile, our own programme of FD Intelligence events continues apace with events lined up for June and July. If you’re a finance director or CFO interested in attending, please email fdintelligence@uk.gt.com to register. You might also find these posts useful: * Subscribe to FD Intelligence for the latest FD hot topics, news and technical notes * How to raise finance in 2012 * Lost faith in modern capitalism? 2012-06-06T11:15:04+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/welcome_to_fd_intelligence_email_4 http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/welcome_to_fd_intelligence_email_4 http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/welcome_to_fd_intelligence_email_4#comment_form Welcome to the new edition of FD Intelligence – our easy-to-access guide to the latest issues and hot topics that matter to you as FDs. In this issue, we’re focusing on cash generation strategies. In the current economic climate, generating cash can be a challenge. But our articles on leasing rather than buying equipment, and on improving performance, both highlight how cash savings can be made and then reinvested elsewhere in the business. We also look opportunities in Russia and other FD-relevant issues.FD Intelligence blog is regularly updated with hot topics by Grant Thornton specialists. Please visit FD Intelligence regularly for new posts or to speak with a Grant Thornton specialist, email us at fdintelligence@uk.gt.com Here’s how to subscribe to our regular FD Intelligence email. You can also register to attend our events programme specifically for UK finance directors and CFOs. 2012-05-17T13:28:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/the_return_of_performance_management http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/the_return_of_performance_management http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/the_return_of_performance_management#comment_form Performance management – or, specifically, improvement – has lived in the shadow of cost reduction in recent years. Now it’s back on the FD’s agenda and the returns can be considerable…Economic instability and fears of a continued challenging economic climate have led many organisations to turn their backs on investing in performance improvement in recent years, as they chose instead to focus on cost reduction. However, signs of economic recovery – combined with regulatory pressures and an increasingly competitive landscape that is forcing companies to provide faster and more accurate data – mean that many FDs are once again investing in performance improvement. Where to add value CFOs’ and FDs’ clients, both internally and externally, are looking for a more sophisticated approach than simple cost-cutting – one that is driven by adding value across the business, whether that’s in finance, HR, procurement, the supply chain or any other business function. Therefore, investment, operational and back-office business processes are on the up, and the results can be considerable – ranging from short-term ‘quick wins’ to medium or longer-term efficiencies and cost savings that require slightly more investment, but which will provide greater returns that can then be ploughed back into the business. In addition, investment in performance management can provide a valuable opportunity to keep your business ahead of your competitors, as well as ensuring that it’s fit for the future. Operational and back-office business processes Grant Thornton’s Performance Improvement team has been working with organisations of all sizes and from all sectors to help them review and restructure operational and back-office business processes. In particular, the team has been helping a number of organisations review their existing agreements with outsourcing and offshoring providers. This work has focused on helping businesses and their outsourcing providers form a genuine partnership to ensure increased efficiency and a better service for the company. It has also been working with businesses to improve procurement processes – ensuring that those companies are getting value for money from spends on suppliers, not just with regards to raw materials, but in terms of all suppliers. This work includes tightening a company’s supply chain and facilitating a more collaborative approach to supply chain management. At the same time, other FDs have been continuing to engage Grant Thornton’s Performance Improvement team to help them achieve further cost reductions in the business – doing things better for less, increasing efficiency or improving the quality of services. While performance improvement is back on the agenda for many FDs, there are many areas of any business that can benefit from a review of systems and processes. 10 areas to boost business performance Grant Thornton’s Performance Improvement services can help your company improve the value of its operational and back-office business processes. Below are some of the options to consider: 1. Finance transformation – Create substantial benefits for the entire company by reinventing the finance and accounting organisation. 2. Business process re-engineering (BPR) – Streamline operational and back-office business processes to create efficiencies and reduce costs. 3. Planning, budgeting and forecasting – Improve your organisation’s ability to execute on strategy by aligning operational and financial plans. 4. Business intelligence – Make informed, proactive business decisions by obtaining relevant, timely management information. 5. Strategic sourcing and spend management – Achieve substantial and rapid cost savings associated with purchased materials, goods and services, while maintaining or improving service levels from suppliers. 6. Change enablement – Secure support and commitment for your performance improvement initiatives by understanding stakeholder needs and impacts. 7. Working capital management – Analyse cash flow and develop recommendations for enhancing liquidity. 8. Revenue enhancement – Identify short- and long-term methods of increasing revenue. 9. Portfolio profit improvement – Achieve full profit potential through our analysis and quantification in order to identify where profit growth can be attained. 10. Business transformation assessment – Identify opportunities for reducing costs in processes while increasing the value they provide to the business. 2012-05-17T13:21:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/fd_interview_colin_wardale_fd_hill_dickinson http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/fd_interview_colin_wardale_fd_hill_dickinson http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/fd_interview_colin_wardale_fd_hill_dickinson#comment_form Colin Wardale, director of finance for international law firm Hill Dickinson, talks about the people and places that have helped shape his career, and the five keys to becoming a good FD. How did your career begin and how did it lead to your role as an finance director? It is still something of a mystery how I ended up in a commercial role. At school I was always thinking I would be a doctor, but then, on discovering that I hated chemistry with a passion, I decided to stick a pin in a list of subjects, literally, and ended up doing commerce at university. In terms of my taking on a role as an FD, I can credit that to my training at Arthur Andersen, which exposed me to a huge variety of businesses, world-class training, world-class people. It was through this that I took on an FD role at a small public company called Ronald Martin Groome back in 1989, where I learned, in the four years that I was there, a huge amount about the way the industry works. Are there any business trends that you don’t like? You just have to adapt and deal with business trends no matter what, so I tend not to worry too much. But if there are any recent trends that I don’t personally like it would be the proliferation of email marketing and Twitter feeds. They just create so many distractions in your everyday life that we can do without them. What is the biggest barrier to success in your role? I tend not to like to think about barriers really. The role of an FD is trying to create solutions to problems. At the moment in our industry there is a huge amount of change taking place that’s creating new challenges for FDs that they have never had to deal with before. The legal industry has been quite an esoteric place for quite a long time. I know over the past few years it’s certainly starting to enter the world of corporate finance and presenting us with many different challenges, but most specifically many new opportunities that lawyers wouldn’t have dreamt of only a few years ago. What companies do you think have a strong finance model that we should follow? I have been in the legal industry now for more than 20 years and it is pretty difficult to gain any deep appreciation of the financial models of other law firms other than by extensive networking. Even with the development of law firms becoming limited liability partnerships and having to file accounts, it is pretty difficult to gain a deep understanding of how their finance model actually works. However, if we take one legal firm that has developed in a way that we’d all like to aspire to, I suppose that might have to be DLA, which has grown from a small Yorkshire debt collection firm into an international global practice. What is your take on the double-dip recession? The view that we all take at the moment is that we are in an ongoing recession and that’s just about it really. The only way that we can deal with this is to make sure that we manage our own business in the best way we can, and work harder and smarter and with better teamwork to get through it. In a business like Hill Dickinson, which is a very broad base of different products and services, we have managed our way through the recession in a better way than most. It may well take a time before the activity on the corporate side emerges from the darkness of the past few years, but I think that when it does we’ll be in a great position to make further improvements. What are the biggest challenges facing your sector? Change is coming in many forms. In particular, there is a huge amount of consolidation and merger and acquisition activity taking place. Hill Dickinson has always been a very acquisitive firm and while, say five years ago, we may have been having a dialogue with one or two other firms, now there are many more conversations taking place dealing with potential acquisitions, joint ventures and new products in areas that hitherto might not have been regarded as legal products. It is very exciting. There’s also a huge amount of pressure from clients with regard to price reduction and, in order to do that, we’re adapting our own cost base and looking at different ways of working. Having said that, it really is a great place to be at the moment and we look forward to the future with a great degree of optimism. Can you name five key assets that are prerequisite to becoming a successful FD? Firstly, have a great team. At Hill Dickinson I have been fortunate in having the same four senior guys around for the past seven or eight years. They have helped me take the business from a turnover of £25 million to almost £110 million. They have developed hugely during that time and have transformed this business in all of its aspects, particularly those relating to financial systems and financial controls. Secondly, is the ability to communicate at all levels, but also the need to communicate strongly with the partners and the stakeholders of the business. It is crucial for the FD to be able to tell it as it is, in a language that the lawyers understand. Thirdly, while it is really important to guide the business from a strategic perspective, it is very important not to ignore the detail. In a legal business most of the P&L account affects the individual stakeholders on a personal level far more than it would in a corporate business. It is very important for the FD to be familiar with detail and have the individual accounts dealt with the same degree of professionalism. Fourthly, the relationships that FDs have with the banks at the moment are absolutely essential for the success of the business. There was a time not so long ago that the renegotiation of banking facilities took place over a coffee and a handshake. That is no longer the case. Finally, with the legal industry changing so significantly, the FD really needs to have his ear to the ground and to watch what is taking place in the market very carefully. There are many opportunities out there for us in a growing acquisitive business and the FD can really play a key part in achieving those objectives. Do you have a business hero? Jim Martin, who was the former chief executive of the N Brown Group, transformed it over a period of 18 to 20 years from a small retail business into a major force in the UK market. Jim was very profit-focused, a hard bargainer, he embraced the changes that were necessary in that industry and developed a great business. Perhaps most importantly he also developed his successor, Alan White, who has continued to take that business from strength to strength since Jim retired. What are you most proud of in your career to date? We have won Law Firm of the Year twice and to be part of a business that has grown so significantly as a major force in the UK legal industry is hugely satisfying. We’ve got a great management team here, we’re poised for further success on the domestic and international stages, and I look forward to that future with a great deal of relish. If you were not an FD what would you have liked to do instead? At the time that I was considering taking on an FD role when at Arthur Andersen, the option was there for me to move into management consultancy. I have always felt more comfortable in a consulting environment where one is free to explore many different solutions to problems without the repetitiveness, perhaps, of the month end and other regular features of an FD’s life. What I would have liked to have done, however, is to have become a singer. I am not saying that I have given up on that aspiration as many of my friends will know, but that is what I enjoy doing best. How do you switch off from the pressures of work? I really like to spend time in the Lake District with my family. We have a house in Backbarrow and try to spend as many weekends there as possible. Outside that, as I have said, I like to sing. I also work with Community Foundation for Merseyside and sit on its development advisory group trying to use my network to help raise funds and awareness of the causes that it is acting for. I often supplement that with charitable events of any nature really, usually half marathons, but occasionally things like skydives or abseiling to help raise funds. What has been the biggest challenge in your FD career? I would say the recent acquisition of the Liverpool and Sheffield offices of Halliwells from administration. This transaction was probably the most important and sizable in the legal industry’s recent history. It had to be concluded with speed and I had to deal in areas of professional expertise that I never had to inhabit before, such as the murky world of insolvency. We have been able to assimilate the Halliwells business from Liverpool and Sheffield into our own. It is bang on plan. We have got some great people and it really has been a success. You might also find these posts useful: * Interview with Tony Harris, FD, Arena Leisure * Interview: Tim Croston, Group FD, Nichols plc * Interview: Tarsem Dhaliwal, FD, Iceland 2012-05-17T13:18:22+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/opportunities_in_russia_and_eastern_europe http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/opportunities_in_russia_and_eastern_europe http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/opportunities_in_russia_and_eastern_europe#comment_form Since the break-up of the Soviet regime 20 years ago, Russia’s economy has steadily evolved. Despite this, Russia still only accounts for one per cent of UK imports and one per cent of UK exports, so there are plenty of opportunities to grow your business by entering this BRIC nation…UK-Russia trade Russia’s GDP has recently been estimated by the IMF at $2 trillion, compared with $2.4 trillion for the UK. High oil and gas prices have sustained annual Russian GDP growth at around four per cent and probably helped President Putin to another term in office. But despite the scale of the two markets, Her Majesty’s Revenue and Customs (HMRC) estimates that Russia only accounts for one per cent of UK imports and one per cent of UK exports, as reported in Grant Thornton’s* recent Grow Global guide. Why so low? As a major oil and gas producer, Russia generates significant reserves to re-invest into national champions. With Russia due to join the WTO and OECD, transparency and market access will no doubt improve. But with a growing high net worth and middle class, certain luxury brands, such as Jaguar and BMW, will still continue to offer products that Russian brands cannot yet displace. Entry points and opportunities One leadership area for the UK is our understanding of public-private partnerships for infrastructure finance at federal or municipal level. There are considerable infrastructure upgrades due, from older water treatment and district heating systems to newer solar, wind and other renewable energy projects. Ports, road and rail are specialist areas for UK engineers. The UK also offers an excellent forum for financial and legal services, with the recent Abramovich and Berezovsky case High Court case a high-profile example. Looking beyond Russia, the large, well-educated populations of Poland and Romania, which together match that of the UK at around 58 million, or Turkey with a population of 74 million and GDP growth of around nine per cent, offer excellent prospects. A recent roundtable of UK businesses with international appetite suggested that their biggest “uncertainty” was how to enter these markets and generate profits. Grant Thornton’s Grow Global survey and cross-border M&A reports provide useful insights into those who have overcome those challenges, driven either by a strategic or opportunistic growth agenda. Some follow the international expansion of existing clients, which reduces market risks. Others research in detail how to enter a new market to find new customers for their existing products. The second approach is still possible, but it may become critical to have a strong and reliable local business partner. Businesses keen to enter the supply chains of Germany and Turkey would do well to look to Central and Southeast Europe to establish manufacturing and distribution centres. There is a great variety of growth and investment opportunities across the diverse economies in the region. Political and budgetary stability, labour and trade reforms also have a key impact on investment decisions. Within the larger countries, such as Russia, there is strong internal competition between districts, which look to leverage their local resources, markets and technical advantages, often linked to R&D units within regional universities. Several tax-free zones have been set up, which add appeal but may not be the decisive factor within the minds of strategic investors. Where else? Georgia enjoys 16th place in the World Bank Doing Business league tables and Azerbaijan has a bid in for the 2020 Olympics. Further east, Kazakhstan and other Central Asian states want to exploit their natural resources and renew Soviet-era infrastructure, and are keen to find partners with relevant know-how and access to finance. Next steps into Russia and beyond Grant Thornton has a presence in virtually every country across the region. Our firms support strategic and financial investors with market and feasibility studies, identify potential targets and local partners, clarify the local and cross-border commercial and tax environment, and assist with the development, financing and execution of acquisition and distribution expansion strategies. Local and international IFRS assurance services and transfer pricing specialists ensure good governance and profit repatriation. Connections to local and global finance, including capital markets and international financial institutions such as the European Bank for Reconstruction and Development and the International Finance Corporation, can be made to optimise risk/reward balance sheet structures. From Russia to the UK Looking at financial flows coming the other way, Grant Thornton UK, as the fifth largest assurance, tax and advisory firm in the country, is seeing increasing interest from Eastern European and Central Asian entrepreneurs and corporate groups on how to set up and manage businesses and assets effectively in the UK. Some use offshore financial centres, such as Cyprus and the British Virgin Islands, to benefit from taxation advantages and legal structures outside the country in which assets and operations are based. Grant Thornton’s ability to form cross-border teams quickly, and to provide fast, researched inputs to support important investment decision-making, is seen by our clients as a key strength. Contacts For further information on any of the above points, please contact our UK team for the Russia/Eastern Europe region: • Jatin Radia, Grant Thornton UK’s International Business Director. (T) + 44 20 77282320 (E) jatin.m.radia@uk.gt.com • Nigel Davies, an associate director with Grant Thornton International – he coordinates advisory solutions across the region, having spent eight years working on a variety of corporate finance and restructuring projects there earlier in his career. (T) +44 20 7728 3126 (E) nigel.davies@uk.gt.com • Iain Stern, an associate director in the Grant Thornton UK tax team – he leads the assistance to clients on UK tax affairs and can call upon our international tax colleagues in country and in offshore jurisdictions as necessary. (T) +44 1908 359600 (E) iain.j.stern@uk.gt.com Grant Thornton also has member firms in the following countries and territories: • Central Europe: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic. • South-east Europe: Albania, Bulgaria, Croatia, Cyprus, Kosovo, FYR Macedonia, Greece, Romania, Serbia, Turkey. • Commonwealth of Independent States: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Russia, Tajikistan, Ukraine and Uzbekistan. For further information on the services we provide in the UK or across the region, please visit www.gti.org for the particular country of interest or contact the Grant Thornton representatives above. * Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (Grant Thornton International). References to “Grant Thornton” are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms, which are not responsible for the services or activities of one another. Grant Thornton International does not provide services to clients. 2012-05-17T13:15:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_patent_box_and_rd_tax_credits http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_patent_box_and_rd_tax_credits http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_patent_box_and_rd_tax_credits#comment_form What finance directors need to know about upcoming changes to the research and development tax regime and the new Patent Box…R&D tax credits The research and development (R&D) tax regime has undergone many changes since it was first introduced, with more changes expected to apply from April 2013. A key upcoming change is the introduction of an ‘above the line’ tax credit for larger companies. This is designed to encourage them to undertake more R&D in the UK and to allow loss-making companies to get an immediate benefit from their qualifying R&D activities. It is expected to involve a payable cash credit rather than an enhanced deduction – a useful cash injection for the company. Patent Box April 2013 also sees the introduction of a new regime – called the Patent Box. Its aim is to “to provide an additional incentive for companies in the UK to retain and commercialise existing patents, and to develop new innovative patented products”. The key features of the Patent Box regime are: • It will apply to both existing and future qualifying patents. • To qualify, a company must have undertaken qualifying development by making a significant contribution to either the creation or development of the item protected by the patent, or a product incorporating the item. • The regime is not restricted to the owners of the patent but can also include those that license patent rights. • Following a phased introduction, companies will be able to pay tax at the rate of 10% on qualifying profits that fall within the patent box regime. This is a substantial reduction compared with the main rate of corporation tax, which will be 23% when the patent box regime is introduced next year. Questions for FDs and CFOs These changes become effective from April 2013. Finance directors should consider carefully how these changes will affect their company/companies, in order to get the maximum benefit. Budgets for R&D activities are often set way in advance so being aware of such changes can influence the board’s decisions. In particular, the following questions should be considered, seeking professional advice where necessary: • Has the company not been interested in R&D in the past because it is loss-making? If so, could the company make use of the proposed ‘above the line’ tax credit? • Does the company carry out R&D activities outside the UK? If so, would it be beneficial to bring those activities back to the UK? • Does the company have any products that do, or could, include patented elements? The company’s corporation tax charge could be reduced by maximising profits attributable to the patent box regime As always, commercial factors should be considered, along with the tax ones. Further details More details can be found in our R&D and patent box briefing papers. Download the PDFs: * Patent Box opportunities: Reduce your tax charge * Briefing on changes to Research and Development (R&D) tax relief 2012-05-17T13:12:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/leasing_the_best_of_both_worlds http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/leasing_the_best_of_both_worlds http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/leasing_the_best_of_both_worlds#comment_form Companies looking to obtain new equipment and goods could be missing a trick by buying rather than leasing – and there are benefits for the lessor, too…Leasing business equipment and systems has traditionally been less popular in the UK than in countries such as the US, where it is extremely well established. But the leasing industry is growing, and there are clear benefits to be had for companies of all sizes and sectors. As an FD, you will be well aware that, in the current economic climate, leasing can deliver many benefits – not least freeing up capital to be invested elsewhere in the business. But there are other benefits, too. One is that leasing guards your business against the diminishing value of assets and, if you use an operating lease or contract hire, the responsibility for maintenance or servicing will be held by the lessor, as this will be part of the lease agreement. As such, the leasing company carries the risk if the equipment breaks down and there should be savings on these costs due to the increased purchasing power of the lessor. This allows you to focus on your core business activities without these distractions. In addition, there may be other monetary and tax advantages. In most instances, you should be able deduct the full cost of lease rentals from taxable income. On leases of more than seven years, and sometimes of more than five years, known as long-funding leases, only part of the lease rental is allowable but you can usually claim capital allowances on the cost of the assets. Benefits for all The benefits of leasing are not restricted to lessees either. For leasing companies there are advantages to be had around tax, too, which in theory can help keep the cost of leasing down for the lessee. The greatest advantage for the lessor in relation to long-funding operating leases is tax relief by way of depreciation. If the lessor is in a high tax bracket, it can lease out assets with high depreciation rates and, therefore, as it will pay tax on the lease rentals received less depreciation, it can reduce its tax liability substantially. Agreements can be suitably structured so as to pass on some of this tax benefit to the customer. Areas for consideration Of course, there are disadvantages to leasing – in the longer term it can prove more expensive to lease than to buy; not owning the product means you cannot add it to your asset sheet; some agreements will not include maintenance, for example, and businesses looking to make the most of tax advantages are likely to need technical guidance. For example, the VAT treatment will depend upon whether the supply received is one of goods or services. Where it is contemplated that you will own the asset at the end of the lease or hire purchase period, there is a supply of goods for VAT purposes. The supplier will consequently charge VAT on the whole of the taxable amount at the start of the contract. Conversely, if you will not become the owner of the asset at the end of the arrangement, the supply is one of services. In that case, the supplier will charge VAT periodically throughout the lease or hire purchase period, ie, when payments are made or invoices are issued. If you are registered for VAT, any input tax incurred on the supply that you receive should be recoverable if the asset is to be used by you to make taxable supplies and you have the necessary evidence to support a claim. If you own the asset at the end of the arrangement, it is also important to remember that you may have to account for VAT when it is eventually sold or given away. Further help and information However, the benefits of leasing are clear, and Grant Thornton has been working with a host of businesses to help them raise finance for, and make the most of, leasing opportunities, whether helping businesses raise finance – either for leasing or as a leasing company – or advising on tax issues and contracts. For more information on Grant Thornton’s leasing advisory services, please visit our Leasing page. This article is based on the current accounting and tax requirements. The International Accounting Standards Board (IASB) has an active project to develop a new approach to lease accounting. A revised Exposure Draft is expected to be issued by the IASB and Financial Accounting Standard Board later this year. The specific requirements are still being finalised, however it appears certain that all leases will be on balance sheet for lessees with lessors likely to need to de-recognise a part of the leased asset. Lessees and lessors need to consider the impact of these changes for future leasing decisions and also their business models. For further information, read Grant Thornton International’s paper on Preparing for global lease accounting standards. 2012-05-17T13:11:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/sdlt_avoidance_measures_bring_property_pitfalls http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/sdlt_avoidance_measures_bring_property_pitfalls http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/sdlt_avoidance_measures_bring_property_pitfalls#comment_form The speculated crackdown on stamp duty land tax was finally confirmed by Chancellor George Osborne in his Budget 2012. We outline what the changes could mean to you…The clampdown on stamp duty land tax (SDLT) was finally confirmed in the 2012 Budget statement on 21 March, targeting wealthy buyers of expensive properties who were organising their affairs in such a way that they bought property via a company. This meant that stamp duty was due on the shares acquired at 0.5% instead of SDLT at a far higher rate – up to five per cent before the announcements in the Budget. A number of anti-avoidance measures have come in as a result. These are designed to discourage ownership of UK residential property through corporate-style entities – referred to as ‘non-natural persons’ – including an eye-watering 15% SDLT on purchasing property via that method. Although the Government is trying to crack down on aggressive tax avoidance, there is a risk that the changes will also catch some genuine commercial business transactions. The Government has also announced that it will consult on the introduction of an annual charge on residential properties valued at more than £2 million owned by ‘non-natural persons’, and also on introducing a capital gains tax (CGT) charge on the disposal of such a property. Interestingly, the measures, along with a higher seven per cent rate of SDLT, only apply to residential properties with values of more than £2 million. So planning is likely to continue in the same way for properties at or below the £2 million mark. So how will this affect the property market? Will the price of properties valued at more than £2 million fall to reflect the new SDLT rate? According to HM Revenue & Customs, there will be a fall in the value of those properties, and we agree with this. There are also likely to be tough price negotiations for properties valued at just over the £2 million mark in order to try and bring them below the threshold. This is likely to have the most impact in areas such as London, where more properties fall over this threshold. At a time when London is trying to boost the housing market, this could have disastrous consequences. Despite the changes, there are still opportunities to minimise SDLT charges, but care and professional advice should be taken. The UK Government’s position on the matter is clear, with the chancellor describing extremely aggressive tax avoidance as “morally repugnant” and with promises of retrospective legislation to counteract it. Find out more… * Download our guidance paper: Briefing on the new charges on high value residential property - What do they mean to you? * Read Mansion tax ‘lite’ set to bring CGT, annual charges and higher stamp duty * Budget analysis: Stamp duty and SDLT 2012-05-17T13:10:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_accounting_for_deferred_tax http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_accounting_for_deferred_tax http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_accounting_for_deferred_tax#comment_form Deferred tax liabilities can come as a nasty surprise, taking the gloss off the results for the year. Do you know how deferred tax will impact your results?Whatever your company’s growth strategy, the impact of deferred tax on your accounts will need to be considered. IAS 12 Income Taxes (the Standard) is not always well understood and the results of applying it are not always intuitive. The following fact sheet can help you to understand the key features of the Standard and highlights some common issues in its application. Download the PDF: IAS 12 Income Taxes 2012-05-17T13:08:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_employee_remuneration http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_employee_remuneration http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_employee_remuneration#comment_form Engaging employees and making them feel part of something can reap rewards during times of economic turbulence, when companies need to extract as much value as they can from people on the payroll. Here’s how…For most businesses, the cost of employing people is a major item on the company profit and loss account so it’s tempting to pare down on salaries as much as possible. Many businesses have already undergone a period of austerity, with pay freezes or downsizing. However, there’s only so far these strategies can take you. Increasingly at Grant Thornton, we are finding that a creative and holistic approach to staff reward can help employers to get the best value out of people. Below we show how reasoning and instinct can unlock savings and improve employee engagement. Recent research on employee engagement from The Gallup Organisation in the US, for example, shows that if you are getting 100% of value from your engaged employees (which typically constitute 30% of your workforce) and only 50% effort from those who are either ‘not engaged’ (typically 50% of the workforce) or ‘actively disengaged’ (the remaining 20%) and this level of engagement is spread equally across the workforce, then you are not getting value from 35% of your employees. So, how do you increase engagement? It’s all about a cultural shift. Making sure that employees have a voice in your organisation’s mission and vision, that the management style is open and transparent, and that everybody can and does make a difference. Engagement doesn’t have to mean expensive surveys or spending money on collateral. It’s about behaviour – organisational and personal – and making those shifts on an incremental basis. It may seem a human resource type concept but improving engagement can also have tangible cost benefits. From another perspective, is your organisation paying unnecessary National Insurance (NI) on staff benefits? For example, an employer pension contribution bears no NI, whereas an employee contribution is paid out of income on which NI has been paid. Asking employees to exchange salary in return for an improved employer contribution to a pension will save NI for both parties. All UK employers will be required to enrol staff into a pension plan in the next few years, and a salary exchange is an excellent way to contain some of the costs. Salary exchange will also lead to savings when used for tax-protected benefits, such as childcare vouchers and employee-funded training. These are strategies that are applicable for all employees, but you may also wish to provide incentives to key players. Losing such people at a critical stage in business development costs much more than the bare cost of replacing them, and coping with the inevitable period when the new colleague is getting up to speed. There are several strategies that can be used around the equity of a business, which can ensure that reward is linked with business performance. For further information visit our Employer Solutions page. All of these issues, and more, will be discussed at our forthcoming FD Intelligence event: The war for talent – what it means for the bottom line, which will be held on Tuesday 12 June 2012 at the elegant Dartmouth House in Mayfair. Hear from our guest speaker Lorraine Heggessey, former Controller of BBC One and participate in our facilitated round table discussions. To book your place please email fdintelligence@uk.gt.com. 2012-05-17T13:07:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/technical_notes_introduction_of_a_gaar_for_the_uk http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_introduction_of_a_gaar_for_the_uk http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/technical_notes_introduction_of_a_gaar_for_the_uk#comment_form Francesca Lagerberg, Head of Tax at Grant Thornton, provides an update on the forthcoming General Anti-Avoidance Rule and its effect on corporates.In the last budget, the UK Government committed itself to introducing a General Anti-Abuse Rule (GAAR) – also known as a General Anti-Avoidance Rule – by April 2013. Although the new GAAR won’t have a major impact on your general tax work, it will be significant for all corporates as it will look at and work to stop aggressive tax planning. Watch the video to find out more… 2012-05-17T13:06:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/economic_indicators_may_2012_update http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/economic_indicators_may_2012_update http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/economic_indicators_may_2012_update#comment_form Check our quick round-up of movement across UK and global economic indicators and keep you up to date with the economic climate.UK rate of inflation Inflation in the UK fell on the Consumer Prices Index (CPI) measure in April, to 3% from 3.5% in March. The Office for National Statistics said the fall was driven by lower price rises for air and sea transport, clothing and alcohol. Conference Board Consumer Confidence Index 

The Conference Board Consumer Confidence Index, which had declined slightly in March, was virtually unchanged in April. The Index now stands at 69.2 (1985=100), down slightly from 69.5 in March. The Expectations Index declined to 81.1 from 82.5, while the Present Situation Index improved to 51.4 from 49.9 last month. UK real estate investment index, from IDP The IPD UK Monthly Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next and for April 2012 returned 0.2%. Composite Leading Indicators (CLI) from the OECD The CLIs for Japan and the United States continue to show strong signs of regained momentum in economic activity. The CLI for the euro area indicates a potential turning point but with diverging assessments for the four major European economies. The CLIs for Italy and France point to continued sluggish economic activity. In Germany and the UK, the CLIs continue to show signs of a positive change in momentum but these are weaker than in last month’s assessment. The assessment for Brazil, India, Russia and, in particular China, shows stronger positive signals compared with last month’s assessment. UK Consumer Confidence Index The main confidence index dropped three points between March 2012 and April 2012 to -31. 2012-05-17T13:05:53+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/portillo_on_boards_bribery_and_ethical_capitalism http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/portillo_on_boards_bribery_and_ethical_capitalism http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/portillo_on_boards_bribery_and_ethical_capitalism#comment_form More self-governance, less forcing of boardroom diversity and more ‘heroes’ like Richard Branson – just some of the highlights from Michael Portillo’s speech at our FD Intelligence event last night. An audience of senior business people, finance directors and CFOs attended last night’s dinner at the National Gallery in London for the third event in our FD Intelligence series: Restoring faith in capitalism. The evening kicked off with two governance and ethical risk management experts from Grant Thornton – Simon Lowe, Chairman of The Grant Thornton Governance Institute, and Sterl Greenhalgh, Forensic and Investigation Services Partner – debating the role good governance practice and ethics have to play in addressing the failures of capitalism. The former Conservative cabinet minister turned broadcaster Michael Portillo shared his views on the current anti-business rhetoric and the moral maze of modern capitalism. After joking about his membership of the ‘former future Prime Ministers club’ – future members including David and Ed Miliband – he outlined his views on: Banker bashing He doesn’t believe there has been enough ‘banker bashing’. In order to bring about behavioural change two things are needed: legislation and stigmatisation – declaring certain behaviour unacceptable to bring about change. Public regard is the prize that businesses win for acting ethically – as achieved by Richard Branson (founder, Virgin Group) and Jack Welch (former CEO, General Electric), whom Michael Portillo referred to as “heroes”. Both have built reputations for selling good products, outstanding leadership and good ethics. Capitalism and democracy Portillo explained that for years politicians have promised wealth and the economy has delivered. But today the role of the politician has shifted from over-promising to managing people’s declining expectations, amid a backdrop of wider cynicism in the democratic process. Alternative models of capitalism, without democracy, such as China, are shifting economic power away from Europe. Board diversity In seeking to diversify boards, Michael Portillo believes that we risk ending up with people who know nothing about the business or business itself. Understanding the business should be the priority, not diversity. He was asked whether a lack of diversity drove a singular view on ethics. He replied that the issue is proper governance and the best qualified people being on the board. Bribery Act He referred to the Bribery Act and the US Foreign Corrupt Practices Act as “bold expressions of extra-territorial reach” that have affected how companies act around the world. He added that if businesses want less regulation, they need to take control and make changes by putting their own controls in place. Our next London event takes place on 12 June on ‘The war for talent’. If you are a finance director interested in attending any of our networking events, please email fdintelligence@uk.gt.com to register your interest. You might also find these posts useful: * Subscribe to FD Intelligence for the latest FD hot topics, news and technical notes * 2012 networking and events diary for FDs * Read more posts on corporate governance and risk management on our Boardroom blog or download our Corporate Governance Review (PDF) 2012-05-03T15:51:04+00:00 Grant Thornton http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/entry/abl_helps_plug_the_finance_gap_in_food_and_beverage http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/abl_helps_plug_the_finance_gap_in_food_and_beverage http://thinking.grant-thornton.co.uk/fdintelligence/index.php/blog/abl_helps_plug_the_finance_gap_in_food_and_beverage#comment_form FDs working in the food and beverage (F&B) sector may be finding access to finance challenging at present but asset-baset lending is plugging the gap for many, according to our investor survey out this week. To better understand what is driving investors to get involved in the F&B market, we commissioned a research project to assess the views of senior representatives from private equity houses and companies currently investing in the F&B sector across the UK and Ireland. The full report Where is the smart money going in Food & Beverage? is available for download (see below) but it shows that the availability of debt funding is currently the biggest barrier to consolidation in the sector. (UK food and beverage has been in the process of consolidation for many years and this is showing no signs of slowing in the immediate future.) Access to finance in UK food and beverage Despite the evidence to suggest that M&A volumes in the F&B sector are likely to continue rising, the market is not without its hurdles. As potential buyers, both PE and corporate investors identified the main challenge as low availability of debt funding. As one corporate manager said: “It will be a case of cash flow survival for most people in the short term.” In addition the capital markets issue extends beyond the provision of acquisition capital and in to more operational areas of funding. This feedback isn’t surprising as despite Government efforts and pledges to loosen the purse strings of the banks, we are in a completely different place than we were pre-credit crunch. In 2007 and before, there were far more sources of finance available with more UK banks in the market as well as a whole host of European and other overseas entities looking to place debt and equity into UK businesses. Not only did this provide a great deal of choice, that competition added to the far more aggressive funding environment meant that it was far easier to borrow money. This gap has yet to be plugged and some of the remaining banks have had bad experiences with over-leveraged businesses in the sector, which means that their credit teams are negative around lending more to the sector, especially given the current levels of consumer confidence and spending allied to the multiple retailers fighting so hard for every pound spent. To an extent asset-based lending (ABL) has filled some of the gap and this is likely to continue as: 1. The mainstream banks are keen to focus on ABL due to their capital requirements. 2. ABL is generally suitable to the food sector given the financial strength of the large customers and the security that provides. 3. There are a number of ‘independent’ ABL providers who are building up strong portfolios in the sector, which is making them more comfortable around some of this issues faced. Download the F&B report The above looks at financing in UK F&B. For more information, read the key points and download the full report: Where is the smart money going in Food & Beverage? The 22-page report contains: The UK and Ireland Food and Beverage review Investor predictions Drivers of growth Consumer trends Consolidation Access to finance For further information on our sector services, visit our Food and Beverage page. You might also find these posts useful: * Asset-based lending: the perfect way to raise finance in 2012? * How to raise finance in 2012 * Subscribe for the latest FD hot topics, news and technical notes 2012-05-01T11:20:44+00:00