The latest press releases from Condies ....     New Penalties for late payment of PAYE/NIC May 2010   Dougie Paton Promoted to Partner at Condies August 2009   New Chairman for Fife Licensed Trade Association May 2009   Dougie Paton Appointed Partner Designate at Condies March 2009   VAT Refund Opportunity March 2009   HMRC to Scrutinise Accounting Records Warns Condies February 2009   R & D Tax Breaks December 2008   The Cost of Business Travel August 2008   Is your SIPP a Pension Chalice? December 2007   Getting corporate stationery correct January 2007   Pitfalls of director's loans October 2006   Don’t borrow from the company unless you absolutely have to! August 2006   Condies climb every mountain to make poverty history July 2006   Advice before Action! June 2006   Are you the bank manager’s best friend? May 2006

New Penalties for late payment of PAYE/NIC

From May 2010, penalties in respect of payroll deductions paid late have been introduced.   These penalties are in addition to any interest which may be due.  Penalties are due irrespective of the number of employees in the PAYE scheme.

Penalties range from 1% to 4% of the amount due depending on the number of payments which are late in a year.  The penalty may increase to 5% if a monthly or quarterly amount is not paid in full after 6 months.  A further penalty of 5% may be charged if the amount is still due after 12 months.

Penalties will not apply where there is a ‘reasonable excuse’ for a late payment.   ‘Reasonable excuse’ is something exceptional that could not have been predicted or is outwith your control.   A list of what is and is not considered to be a reasonable excuse can be found on HMRC website (see the address below).

Where you disagree that a penalty is due or with the amount of a penalty, you can appeal against it.   Details of how to appeal against a decision are also on HMRC website.

For more information regarding these new penalties please refer to HM Revenue & Customs website - www.hmrc.gov.uk/paye/problems-inspections/late-payments.

Dougie Paton Promoted to Partner at Condies

Condies, one of Scotland’s leading firms of chartered accountants and business advisors, has promoted Dougie Paton to partner with effect from 1 August 2009.

Dougie first worked at Condies from 2002 to 2004 before joining Morgan Stanley. He spent four and a half years with the merchant bank working in their Institutional Equities division in London and New York.

Dougie originally trained as a chartered accountant with KPMG.  Following a period in corporate finance with RMD he joined the Institute of Chartered Accountants in Scotland where he was responsible for developing the audit syllabus for the CA qualification.

Ian Condie, senior partner, Condies said: "We are delighted to confirm Dougie as a full partner following his return to the firm as partner designate.  His appointment is part of an ongoing development strategy by the firm which will take it into new specialist sectors."

He added: "Dougie’s first class international experience is a huge advantage for the firm and its clients."

Dougie Paton commented: "Condies has great plans for future development and I am delighted to be part of that future.  I thoroughly enjoyed working at Condies first time round and it is great to be back as a partner."

New Chairman for Fife Licensed Trade Association

David Terms, a partner with Dunfermline based chartered accountants Condies has been appointed as the new ‘chairman of the year’ of the Fife Licensed Trade Association (FLTA).

The FLTA has been in existence for 26 years and represents the area’s licensed premises and currently has 150 members throughout the county.

David Terms has been involved in the licensed trade for nearly thirty years helping to advise clients in the sector in all matters relating to finance. The voluntary position will be held by David for two years. 

John Barclay, secretary of the Fife Licensed Trade Association said: "We are delighted that David has accepted the chairmanship of the FLTA.  His first-class experience in advising clients in the licensed trade is a huge bonus to the association and our members."

Dougie Paton Appointed Partner Designate at Condies

Dougie Paton has been appointed a partner designate at Condies, one of Scotland’s leading firms of chartered accountants and business advisors.

It is a welcome return for Dougie as he worked at the firm in 2004 before moving to Morgan Stanley in London to work in their internal audit department for three and a half years followed by a year in their New York office before returning to Condies in February 2009.

Dougie originally trained as a chartered accountant with KMPG.  Following a period in corporate finance with RMD he joined the Institute for Chartered Accountants in Scotland.  Here he was responsible for developing the audit syllabus for the CA qualification.

Dougie’s appointment is part of an ongoing development strategy by the firm which will take it into new specialist sectors.

Ian Condie, senior partner, Condies said: "We are delighted to welcome Dougie back as a partner designate.  His first-class international experience will be a huge bonus to the firm and its clients."

Dougie Paton commented: "I thoroughly enjoyed working at Condies first time round.  I am delighted to be back.  The firm is ambitious and has great plans for the future.  I am very excited to be part of that future."

VAT Refund Opportunity
Article by Helen Whyte , Business Services Manager

Following the decision in the "Fleming" case, an opportunity has arisen for businesses to reclaim VAT overpaid prior to 1997.

If your business has previously made a claim for VAT overpaid (prior to 1997) which was rejected under the three year capping rule or where you would have made a claim had it not been for the three year capping rule, you may now be able to reclaim the overpaid VAT.

Claims can go back as far as April 1973 and a degree of estimation may be used to establish the amount of the claim where records are no longer available.  However, claims must be made by the deadline of 31st March 2009.  Claims for compound interest on the principal sum may also be possible.

In particular, Motor Dealers who held franchises and paid VAT on the sale of demonstrator cars between 1973 and 1996 can now make claims.

Other areas which may prompt a claim:

	input VAT incurred on past share issues
	VAT on vehicle expenses
	VAT on fundraising costs
	VAT on staff entertaining costs

Please contact Helen Whyte, our Business Services Manager, if you think your business may wish to make a claim

HMRC to Scrutinise Accounting Records Warns Condies
Article by Scott Hallesy, Tax Strategist

Condies, the leading chartered accountants and business advisers, warns businesses to ensure their accounting records are up to date and accurate.

According to the firm’s tax strategist, Scott Hallesy, under new HMRC rules organisations must have their books constantly up to date.  The authorities can now give seven days notice (amended from an earlier proposal for 24-hours notice) that they wish to inspect a company’s accounting records.   This will include the following "normal business records" - annual accounts (including profit and loss accounts), bank and building society statements, paying in slips, pass books, import and export documents, order notes, invoices, delivery notes, purchase and sales records, purchase invoices, copy sales invoices or till rolls, relevant business correspondence, cash book or similar record and petty cash book.

If it is found that the records are not up to date penalties of £60 per day can be imposed.  HMRC can also remove any documents which they feel pertinent to the investigation.

R & D Tax Breaks
Article by Scott Hallesy, Tax Strategist

Scott Hallesy, tax strategist at Condies (chartered accountants and business advisors) reveals that many more companies than thought possible may be able to take advantage of research and development tax breaks.

It is commonly assumed that R&D allowances are only available to men in white coats working on some revolutionary new drug.  However, the scope of activities which qualify is actually quite broad.  For example, it could cover software development or enhancement of an existing technology.  There are also special allowances for "green technology" product development.  What’s more the allowances are retrospective for three years.

How does it work?   For every £1 invested in qualifying R&D projects you receive a tax credit of 24p.  Therefore if, for example, you spent £105,000 you would get back £24,200.

Costs which come under the R&D umbrella include staff, software costs, materials, market research and sub-contracting.

The one condition which must be met is that the allowance is open only to SME’s so annual revenues must be below £10.8m.

If you are unsure if your R&D expenditure will qualify consult your professional advisors.

The Cost of Business Travel
Article by Scott Hallesy, Tax Strategist

Businesses need to examine closely how they pay business mileage allowances to employees using their own cars warns Scott Hallesy, tax strategist with Condies chartered accountants.

Hallesy says HM Revenue & Customs is tightening up on the rules and organisations need to check their compliance with the regulations.

The 40p per mile allowance is paid for legitimate business travel between a company’s permanent base and customers and/or temporary places of work.  However, the definition of permanent base is open to interpretation and this is where problems could arise.   Say, for example, you have customers throughout Scotland who you visit on a regular basis.  HM Revenue & Customs has said that a geographical area can be defined as a permanent base.  Likewise, if all your business is conducted in the City of London this could be defined as your permanent place of work for business mileage purposes.

Problems will arise if your business is subject to a tax inspection.  This can go back six years and if it is found that your organisation has incorrectly paid business mileage allowance to employees PAYE, NI, penalties and interest may be payable.

Another twist on the business mileage allowance is the treatment of short business journeys.  The revenue says that a ‘normal’ commuting distance is ten miles.  Journeys between home and your permanent place of work are not allowable under the business mileage rules.  Therefore the revenue will disallow any business journey under ten miles.

If you are unsure if your business is applying the rules correctly it is advisable to consult your professional advisers.

Is your SIPP a Pension Chalice?
The Sctosman - By Scott Hallesy, Tax Strategist

Is it always wise to transfer your commercial property into your pension fund?

The Chancellor’s Pre-Budget report at the start of this month saw him propose replacement of the effective 10% rate of capital gains tax (CGT) available to higher rate taxpayers by withdrawing Business Asset Taper Relief and replacing it with an 18% flat charge on capital gains. This 80% tax rise may prompt some of those holding personally held trade properties to transfer to a SIPP to minimise CGT on any future growth as well as take advantage of the historically low 10% CGT rate before the changes next year.

Historically the rationale behind placing the business premises into a related pension scheme has been the ability to enjoy capital growth tax-free even if those business premises are frequently sold. In addition the commercial rent paid by any related employer has been tax deductible and tax-free in the hands of the pension fund.

But consider the following before acting:

You could say, of course, that you’ve saved 8% CGT on the gain to the date of sale; on the other hand the pension fund may well have incurred stamp duty as buyer, you have accelerated the payment of CGT and the later rise would probably have been covered by existing exemptions if still held personally.

The location of your business premises may be a large part of the business’ goodwill and you would never consider selling them anyway.

You may have saved a notional 8% CGT but that may not have been incurred anyway given the importance of the location to the value of the business and the consequent likelihood of sale. In addition to that you may have exposed a large part of any post transfer growth to higher-rates of income tax when the pension is taken.

If the rent paid by your business, although commercial, provides a small pool of liquid reserves from which to fund the purchase of an annuity and the trustees have been unable to borrow enough against the value of the pension fund the answer may well be that you have to sell the premises.

If as pointed out above the premises are unique to your business it may be that the only buyer can be the existing business tenant who may or may not have the ability to raise the funds to pay for the premises back. Any other course may be disastrous for the business you have so carefully built up over the years.

So look before you leap when it comes to putting your commercial property into a SIPP.  It may not provide the golden retirement you had dreamed of.

Getting corporate stationery correct
Commercial Portfolio Q&A - January 2007

Q: I am about to start my own business but I worried about getting my corporate stationery correct as I have heard there are some recent changes to what is required.

A: Yes there have been changes recently but firstly it is worth reviewing what the legal requirements are generally.  For limited companies all letters and orders must have the name of the company, country of registration, address of registered office, company registration number and the forename or initial and surname of all or none of the directors.  Invoices must have the name and address of the company and the VAT registration number (if the company is registered for VAT).   In addition, the name of the company must be displayed in a conspicuous position outside every office or place where business is conducted and the address of the registered office has to be displayed prominently within the premises. Sole traders operating under a business name must state on letters, orders, invoices and receipts his or her own name and business address plus invoices must state the VAT registration number where relevant.  The regulations for Limited Liability Partnerships (LLPs) are similar to Limited Companies.  Partnerships must state on all corporate stationery the names of all partners together with the principal office of the partnership.  Alternatively, they must indicate where a list of partners may be inspected. 

Coming to the recent changes these came into effect on 1st January 2007.  Basically it makes it an offence to omit details about the company from the company website and electronic communications.  These details include the company’s name and registered office address.  This requirement was introduced without any warning and reflects the general trend from Companies House to get tough on compliance issues.  Fines for breaching these new rules can be up to £5,000.  However, by making a few amendments to your website you can easily avoid falling foul of the law.

Pitfalls of director's loans
Commercial Portfolio Q&A - October 2006

Q: I have been considering taking a director’s loan from my company.  Are there any pitfalls I should be aware of? 

A: It is OK for a director to lend money to the company but borrowing money from the company actually contravenes Section 330(2) of the Companies Act 1985.  However, there are exceptions in that loans under £5,000 made to a director where the purpose is to enable the director to meet any expenditure to perform his duties or to meet expenditure for company purposes are allowable subject to prior approval at an annual general meeting of the company. 

Section 342 of the Companies Act 1985 states that if a director knowingly permits the company to make an illegal loan he is guilty of an offence and is liable on indictment to up to two years in prison and/or an unlimited fine. 

It sounds great in principle.  If the business is cash rich why not take an interest-free loan?  Well, in addition to the Companies Acts requirements there are strict tax rules governing directors’ loans and HM Revenue and Customs is taking an increasingly dim view of those who try to bend the rules.  Timing is particularly crucial as loans must be repaid within nine months of the company’s financial year end to avoid tax charges of 25% of the loan outstanding and the tax authorities scrutinise company accounts for any overdrawn directors’ loans.  The best policy is therefore repay any loans as quickly as possible.  Moreover, any hint that loans are being used as a means to avoid PAYE on directors’ remuneration will incur the wrath of HM Revenue and Customs

Don’t borrow from the company unless you absolutely have to!
Edinburgh Evening News - August 2006

Imagine being able to borrow from a bank where the interest rates are zero and you pay the money back when you like.

Sounds like a dream doesn’t it? Unfortunately, this is how many company directors’ treat money they use or borrow from their own company. If not handled carefully the dream can turn into a nightmare!

It is fine for a director to lend money to the company but borrowing money from the company is actually in contravention of Section 330(2) of the Companies Act 1985. There are exceptions to this general prohibition in that loans under £5,000 made to a director and advances up to £20,000 where the purpose is to enable the director to meet any expenditure to perform his duties or to meet expenditure for company purposes, are permissible subject to prior approval at an annual general meeting of the company.

Section 342 of the Companies Act 1985 provides that if a director knowingly permits the company to make an illegal loan he is guilty of an offence and is liable on indictment to up to two years in prison and/or an unlimited fine!

In principle some directors think that taking loans are a good idea because if your business is cash rich why go to the bank and pay interest when you could borrow what is effectively your own money. However, in addition to the Companies Act requirements there are strict tax rules governing directors’ loans and the HM Revenue and Customs is taking an increasingly dim view of those who try to circumvent these regulations.

Timing of taking a loan is crucial. Loans must be repaid within nine months of the company’s financial year end to avoid the taxman charging the company 25% of the loan outstanding under Section 419 of the Taxes Acts. The amount levied under S.419 would eventually be repayable to the company after the loan had been repaid to the company by the director.. In addition to a possible charge under S.419 the company has an obligation to declare the beneficial loan interest (the notional interest payable) on a P11D as a benefit in kind and the director must then self assess this on their own personal tax return. Thus the Inland Revenue will look closely at any overdrawn directors’ loans as a lucrative source for possible underdeclared tax. The best policy is therefore to try and pay back the loan as quickly as possible.

In many small family companies the line between company and family funds can frequently become blurred. This is particularly dangerous in terms of directors’ loans. Any hint that loans are being used as a means to avoid PAYE on directors remuneration will incur the wrath of HM Revenue and Customs.

The golden rule is really to only borrow from the company if you really have to otherwise you may find yourself in hot water! The best course of action is to seek advice first from your professional adviser.

Condies climb every mountain to make poverty history

Five intrepid members of Condies have successfully scaled the three highest peaks in Scotland, England and Wales in aid of charity CARE International.

The event required the team to ascend and descend each of the mountains within 24-hours! The challenge was completed over the weekend of 10-11 June - some of the hottest days of the year - making the task even more gruelling.

A total of 31 teams from throughout the UK took on the three-peaks challenge starting at Ben Nevis progressing to Scafell Pike and finishing at Snowdon.

"Apart from the odd bruise and blistered feet we survived the challenge intact," said Steve Gray, business development manager, Condies and team leader of the "expedition". "I am pleased to say that we contributed nearly £5,000 in sponsorship for CARE International UK and an astounding £218,000 was raised overall by the event . Congratulations to the climbing team and also the back-up crew who not only drove us around the UK but kept us fed and watered."

CARE International is an international relief and development agency working with poor communities in 70 countries worldwide, reaching over 45 million people every year. It has been running outdoor challenge events for 12 years.

For further information please visit www.careinternational.org.uk

Advice before Action!
Edinburgh Evening News - By Graham Pascall, Partner, Condies

Could you run your business without a firm of accountants? It may seem an odd thing for an accountancy firm to ask.

Many people rush headlong into starting a business without seeking the proper advice up front. For example, choosing the wrong company structure (limited company, sole trader or partnership) at the start can mean costly mistakes need to be unravelled later on.

If you have not run a business before, the subject of record keeping can be a bit of a mystery. Yet unless you get this right from day one it could lead to missing deadlines and falling foul of Her Majesty’s Revenue & Customs. Expert advice is needed on which records should be kept and how they are structured, especially if you are not familiar with computerised accounting systems. The same goes for payroll systems.

Do you have a business plan for your enterprise? A professional adviser can give you an objective appraisal of how realistic your numbers and projections are before taking it to the bank. It is vitally important that the first impressions a bank has of your business is a positive one. Having wildly optimistic sales forecasts will not endear you to the bank manager.

Sometimes a quick call to your professional adviser is all it takes to avoid a costly mistake. For example, your company is successfully trading and you have an idea for a business in a completely different line. You may be tempted to go off and form a separate company to operate the new enterprise. This could be a costly course of action as HMRC would consider both companies to be associated meaning that the corporate tax band would be split between the two companies. If the two companies were simply traded under one corporate entity this would not happen.

Another mistake start-ups typically make is trying to fund the company using credit cards. Besides the high interest charges spending can quickly get out of control and many companies find themselves saddled with a large debt. Negotiating a loan with the bank for proper funding of the business is a wiser move.

VAT is another thorny area for new businesses. For the first few returns it is sensible to get your adviser to check over them. A slight clerical error could lead to overpayment or worse still, underpayment of VAT.

Going back to my first question, could you do without accountancy firms? Yes you could in theory. However, doing everything yourself distracts from the core activity of running a profitable business and the chances are you are not an expert in finance, tax or VAT. The reluctance to seek advice from an accountant sometimes arises from a fear of additional costs which could be incurred. However, fixed fee arrangements are now very common and can remove this fear factor. The main thing to consider is whether action before advice is likely to cost you more in the long run. If you can leave your accountant to deal with the finance and tax aspects of your business you can get on with doing what you are good at ... actually running the business!

Are you the bank manager’s best friend?
Edinburgh Evening News - 11/5/06

It used to be said that banks would only lend you an umbrella if it wasn’t raining. There is a grain of truth in this . If your company is doing well and has positive cash flow it is generally a good time to borrow money from the banks. However, if you are not in this fortunate position what should you do?

If you have a particular project in mind for funding then creating the right proposal for the bank is key. You may want to buy equipment, make an acquisition or launch a new product or service. Whatever the purpose you need to ensure you have done enough background research. Have you done detailed market research, are your financial projections accurate, what is your cash position, how much is needed up front, how long until it is repaid, is security available? Unless you can answer these questions your funding proposal is likely to fail.

Banks, by and large, tend to prefer lending against some form of security rather than on the basis of future cash flows but cash flow must never be overlooked as it is a vital component in any future debt servicing requirement.

They will require the directors to show that they will accept some of the risk by personal guarantees or pledging assets as security against the loan. If you expect your company to have rapid sales growth it may be worth considering cash flow finance or debtor factoring to reduce your reliance on borrowing.

If your company is a start-up or a young company it is worth considering the Small Firms Loan Guarantee. This Government-backed scheme is open to most businesses which have been trading for under five years (subject to certain conditions). It is designed to help small and medium enterprises who might not qualify for a loan due to lack of assets for security. The loan amount can be up to £250,000 repayable up to ten years. The DTI guarantee to cover 75% of the loan should the borrower default (under certain circumstances).

Should you approach your existing bank for funding or shop around? For a new project it is generally best to check out your existing bank first as they should at least know something about your company. It is essential to get your professional adviser to do a reality check on your projections. If your projections look too good they generally are! Also your professional adviser will know the format a proposal should take to convince the bank you have a viable proposition. If you are raising funds to acquire another company make sure your investigation into the target organisation has been as thorough as possible and spell out the benefits of the combined enterprise in detail. Again, your professional advisers should be able to help with the research and presentation of this information.

Lastly, if you do need an umbrella when it’s raining, good luck!

For further information please contact George Primrose or visit the Small Business Service website.