Lettings relief

This useful relief can be claimed by individuals who have let out their properties, which are or have been at some point in the past their main residence.  Lettings relief currently provides up to £40,000 of relief (£80,000 for a couple).

The relief is changing from April 2020 and will only be available to those who are in shared occupancy with a tenant.  This change will not affect owner-occupiers, as they are occupying the property with their tenant or landlords who have never lived in the property they are renting out, as this relief would never have been available to them in the first place.

Final period exemption

Currently individuals do not have to pay capital gains tax on gains made in the final 18 months of ownership, even if they are not an owner-occupier during that period, as long as the property has been their main residence at some point.

However, a long exemption period means that more relief can accrue on two properties (an unsold one and a new one) at the same time.  HMRC state that this relief is ‘out of line with the intention of the exemption, which is meant to protect those who move to a new main residence but are unable to sell their original home immediately’.

Therefore, from April 2020, the exemption will be reduced to 9 months from the previous 18 months, which in turn was reduced from 36 months from April 2014.  According to HMRC 9 months is still twice the length of an average property transaction, it does make you wonder where HMRC are going with this exemption.  For those in or moving into care homes, and people with a disability, 36 months of exemption will not change.

The post Upcoming changes to principle private residence relief and lettings relief. appeared first on Assure Accountants.

Receiving a letter from the worldwide disclosure facility

So what should you do if you receive one of these letters? Firstly if you receive one do not panic, it could be that you are already correctly declaring all of your income. In these instances, simply sign HMRC’s declaration included in their letter, which states that your income is “correct and complete to the best of your knowledge and belief”. In these circumstances, it may be worth your time sending a covering letter explaining your foreign income and how you have been declaring this.

The area of tax surrounding domicile, remittance and residency status can be complicated and there are many instances of individuals receiving money from foreign sources, which are not being declared in the UK. Usually there is no deliberate intention to not inform HMRC, just a lack of understanding on what does and what does not need to be declared in the UK.

Prompted disclosures

If you are reading this blog and you have yet to receive a letter from HMRC but are suddenly very aware that there may be income you should have been declaring then you are in luck. HMRC will usually charge lower penalties than those they charge if you are ‘prompted’ by one of their letters. For ‘prompted’ disclosures, the penalties could be up to 100% of the unpaid liabilities, or up to 200% for offshore-related income.

Whether you have or have not received this letter, if you are unsure of your position I would recommend talking to a tax adviser. Assure Accountants can certainly help you understand your tax position and what, if any action needs to be taken.

If income does need to be declared a disclosure will need to be made via HMRC’s worldwide disclosure facility and Assure Accountants can do this for you on your behalf, working with HMRC to get the best penalty outcome for you.

The post What to do if you receive a letter from HMRC’s worldwide disclosure facility appeared first on Assure Accountants.

What is a Help to Buy ISA?

The Help to Buy: ISA was launched in 2015 and it is intended to help first-time buyers save money for their first home. If you’re a first-time buyer, the benefit of saving into a Help to Buy: ISA is that the government will boost your savings by an impressive 25%. This is a welcome addition for anyone who is desperate to own their first home!

If want to help your adult children or grandchildren onto the property market you can contribute to their ISA. Anyone interested in opening a Help to Buy: ISA must 16+ and 18+ for a Lifetime ISA.

Opening a Help to Buy: ISA is relatively straight forward, and they are available from a range of banks, building societies and credit unions. The ISA is available to every first-time buyer, so if you are buying your first home with a partner you can both open an ISA and potentially benefit from a combined £6000 bonus.

The ISA can be used to buy a property up to the value of £250,000 or up to £450,000 for homes in London.

How the ISA works

Basically, for every £200 you save the government will contribute £50. You are entitled to save up to £200 per month into the ISA.

You can open the ISA with just £1 and add more money as it becomes available. Or, you can deposit a maximum of £1200 into the ISA to get you started.

The minimum bonus the government will pay out is £400, meaning you have to save £1600 into the ISA. The maximum the government will pay out is £3000 on savings of £12000.

When you are getting close to buying your chosen property, instruct your solicitor or conveyancer to apply for the government bonus. Upon receiving the money, it will be added to the money you are saving for your property. The bonus money can be used for a mortgage deposit, but it can’t be used for a deposit which is due at exchange, to pay for solicitor’s fees or estate agents fees.

Act quickly as time is ticking on

The latest date you can open a Help to Buy: ISA is 30 November 2019. After this it will be replaced with a Lifetime ISA (LISA for short).

As well having a deadline for applying a Help to Buy: ISA, you’ve only got until 30 November 2029 to apply for the bonus. So, if you want to receive the maximum £3000 bonus you’ve got 10 years to save £12,000.

If you’re a contractor who is planning to purchase your first home or if you’re looking to help a child or grandchild get onto the housing market, speak to our expert team for further information on the Help to Buy: ISA. Speak to one of our Directors on +44 330 174 4922 or send us a message via our website and we’ll be in touch shortly.

The post Could you cash in with a Help to Buy: ISA? appeared first on Assure Accountants.

It is important to remember throughout that valuing a business is something of an art, albeit an art backed by science!

Why Value Your Business?

One of the most common reasons for valuing a business is for sale purposes. Initially a valuation may be performed simply for information purposes, perhaps when planning an exit route from the business. When the time for sale arrives, owners need a starting point for negotiations with a prospective buyer and a valuation will be needed.

Valuations are also commonly required for specific share valuation reasons. For example, share valuations for tax purposes may be required:

• on gifts or sales of shares
• on the death of a shareholder
• on events in respect of trusts which give rise to a tax charge
• for capital gains tax purposes
• when certain transactions in companies take place, for example, purchase of own shares by the company.

Share valuations may also be required:

• under provisions in a company’s Articles of Association
• under shareholders’ or other agreements
• in disputes between shareholders
• for financial settlements in divorce
• in insolvency and/or bankruptcy matters.

When a business needs to raise equity capital a valuation will help establish a price for a new share issue.

Valuing a business can also help motivate staff. Regular valuations provide measurement criteria for management in order to help them evaluate how the business is performing. This may also extend to share valuations for entry into an employee share option scheme for example, again used to motivate and incentivise staff.

Valuation Methods

While there is a ready made market and market price for the owners of listed public limited company shares, those needing a valuation for a private company need to be more creative.

Various valuation methods have developed over the years. These can be used as a starting point and basis for negotiation when it comes to selling a business.

Earnings multiples

Earnings multiples are commonly used to value businesses with an established, profitable history.

Often, a price earnings ratio (P/E ratio) is used, which represents the value of a business divided by its profits after tax. To obtain a valuation, this ratio is then multiplied by current profits. Here the calculation of the profit figure itself does depend on circumstances and will be adjusted for relevant factors.

A difficulty with this method for private companies is in establishing an appropriate P/E ratio to use – these vary widely. P/E ratios for quoted companies can be found in the financial press and one for a business in the same sector can be used as a general starting point. However, this needs to be discounted heavily as shares in quoted companies are much easier to buy and sell, making them more attractive to investors.

As a rule of thumb, typically the P/E ratio of a small unquoted company is 50% lower than a comparable quoted company. Generally, small unquoted businesses are valued at somewhere between five and ten times their annual post tax profit. Of course, particular market conditions can affect this, with boom industries seeing their P/E ratios increase.

A similar method uses EBITDA (earnings before interest, tax, depreciation and amortisation), a term which essentially defines the cash profits of a business. Again an appropriate multiple is applied.

Discounted cashflow

Generally appropriate for cash-generating, mature, stable businesses and those with good long-term prospects, this more technical method depends heavily on the assumptions made about long-term business conditions.

Essentially, the valuation is based on a cash flow forecast for a number of years forward plus a residual business value. The current value is then calculated using a discount rate, so that the value of the business can be established in today’s terms.

Entry cost

This method of valuation reflects the costs involved in setting up a business from scratch. Here the costs of purchasing assets, recruiting and training staff, developing products, building up a customer base, etc are the starting point for the valuation. A prospective buyer may look to reduce this for any cost savings they believe they could make.

Asset based

This type of valuation method is most suited to businesses with a significant amount of tangible assets, for example, a stable, asset rich property or manufacturing business. The method does not however take account of future earnings and is based on the sum of assets less liabilities. The starting point for the valuation is the assets per the accounts, which will then be adjusted to reflect current market rates.

Industry rules of thumb

Where buying and selling a business is common, certain industry-wide rules of thumb may develop. For example, the number of outlets for an estate agency business or recurring fees for an accountancy practice.

What else should be considered during the valuation process?

There are a number of other factors to be considered during the valuation process. These may help to greatly enhance, or unfortunately reduce, the value of a business depending upon their significance.

Growth potential

Good growth potential is a key attribute of a valuable business and as such this is very attractive to potential buyers. Market conditions and how a business is adapting to these are important – buyers will see their initial investment realised more quickly in a growing business.

External factors

External factors such as the state of the economy in general, as well as the particular market in which the business operates can affect valuations. Of course, the number of potential, interested buyers is also an influencing factor. Conversely, external factors such as a forced sale, perhaps due to ill health or death may mean that a quick sale is needed and as such lower offers may have to be considered.

Intangible assets

Business valuations may need to consider the effect of intangible assets as they can be a significant factor. These in many cases will not appear on a balance sheet but are nevertheless fundamental to the value of the business.

Consider the strength of a brand or goodwill that may have developed, a licence held, the key people involved or the strength of customer relationships for example, and how these affect the value of the company.

Circumstances

The circumstances surrounding the valuation are important factors and may affect the choice of valuation method to use. For example, a business being wound up will be valued on a break up basis. Here value must be expressed in terms of what the sum of realisable assets is, less liabilities. However, an on-going business (a ‘going concern’) has a range of valuation methods available.

How We Can Help

With any of the valuation methods discussed above, it is important to remember that valuing a business is not a precise science. In the end, any price established by the methods described above will be a matter for negotiation and more than one of the methods above will be used in the process. Ultimately, when the time for sale comes, a business is worth what someone is prepared to pay for it at that point in time.

We would be pleased to discuss how we can help value your business as well as help you develop an exit strategy to maximise the value of your business.

The post How to value your business appeared first on Assure Accountants.

Our team of experts has come together to list their top Xero apps and plugins:

1. Receipt Bank

https://www.receipt-bank.com/

With Receipt Bank you’ll never have to worry about misplacing or losing a receipt or invoice again. Snap a picture of your receipt using their mobile app and the system gets to work extracting the important information like the date, the amount and the supplier’s details. This information is then fed into Xero. A copy of the receipt or invoice is stored in the cloud for 10 years. Using Receipt Bank saves you from having to manually enter the information and it makes it easier to claim for all your expenses, even the smallest.

2. Expensify

https://use.expensify.com/

Expensify takes expense tracking to a whole new level! Its mobile app – SmartScan, enables you to capture an image of the invoice or receipt, and the data is then automatically inputted into Xero. You can specify if you want this expense to be reviewed prior to approval, which can be useful if you’re in charge of tracking a team’s expense spending. Expensify can integrate with travel apps like Uber and HotelTonight to automatically record and store travel expenses. And, by enabling notifications, you can be kept informed of changes to your itinerary, like flight delays.

3. Harvest

https://www.getharvest.com/

Harvest is a fully integrated time tracking and invoice app plugin. It works across different devices, including PC, Mac and mobile. It’s used to track your time and turn your billable hours into professional looking invoices which can be sent to clients. Harvest has the ability to turn this data into a timesheet, so you can see where your time is being spent. The draw of this is that it can highlight inefficiencies in workflows and notify you if you a project is expected to overrun. Harvest can also be used to upload expense claims like travel expenses.

4. Hubdoc

https://www.hubdoc.com/ 

Say goodbye to bulky and unsightly filing cabinets and move all your important documents to the cloud. Use Hubdoc’s app to snap and to store copies of your receipts, bills and invoices. Or, if you’re not keen on apps, don’t worry, you can email a copy of your files to Hubdoc and they’ll put them into organised files for you. If you have multiple recurring expenses each month, connect your suppliers to Hubdoc and they’ll download all your bills so you and your accountant can access them all in one place, instead of having to log-in to multiple accounts.

5. Shopify

https://www.shopify.co.uk/ 

If you’re looking to build an online business, there’s no easier way to get going than with Shopify. Shopify is an eCommerce platform, which enables you to build a website through which to sell your products. By using the Shopify – Xero integration you can easily and quickly import the details of all your orders into your accounting system, which reduces the chance of mistakes being made. Use this imported data to create invoices or powerful reports to track how your business is going.

6. Stripe

https://stripe.com/gb

Speed up the process of getting paid with Stripe. Add a Stripe ‘Pay Now’ button to your invoices, to enable your clients to pay your invoice quickly and securely using a debit or credit card. It’s good for them as they can action payment immediately and it’s great for you as you don’t have to worry about late payments. It’s incredibly easy to set up the integration and once the payment has been made, it will be marked down as paid in Xero.

We’re Xero cloud accounting specialists.

If you’d like to find out how Xero can transform your small business accounting, speak to one of our Directors on +44 330 174 4922, or send us a message via our website and one of our team will call you back.

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