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.

You may be doing this already, which is fantastic, but it’s important you regularly review your tax planning strategies to see if they are still tax-efficient. Plus, changes which were announced in the 2018 Budget means some of these strategies may have changed. As an owner – manager of a business, here are some things that our team think you need to be aware of:

Capital allowances

The Chancellor announced in the 2018 Budget there will be a temporary increase to the Annual Investment Allowance (AIA) from £200,000 to £1 million. This is available for capital expenditure, such as plant and machinery which is purchased from 1^st January 2019 to 31^st December 2020.

While most welcome this increase. It may cause problems for some businesses whose chargeable period spans 1^st January 2019. If this is the case the business’ transitional chargeable period comprises of:

1. the AIA entitlement, based on the £200,000 cap for the portion of the period falling before 1 January 2019
2. the AIA entitlement, based on the temporary £1,000,000 annual cap for the portion of the period falling on or after 1 January 2019

Source: HMRC

The business’ maximum Annual Investment Allowance for their transitional period would be the total of i. + ii.

For example, a business who has a chargeable period of 1 June 2018 to 31st May 2019, their maximum AIA would be:

1. Proportion for the period 1 June to 31^st December 2018 is 7/12 x £200,000 = £116,666
2. Proportion for the period 1 January to 31st May 2019 is 5/12 x £1,000,000 = £416,666

Total of £116,666 + £416,666 = £533,332.

In some cases, it may be appropriate to revise the chargeable period to align it with the calendar year.

Employer pension contributions

Employers can make a lump sum contribution into an employee’s pension scheme. And, as it’s classed as an allowable business expense, it can be deducted off the business’ profits, therefore reducing the amount of Corporation Tax that is due.

However, at your year-end, you can’t account for future pension contributions as they must be paid by the year-end for it to be a deductible expense. Also, if you plan on making a large contribution, this may have to be spread across the year.  To understand more about the deductibility and amounts that can be claimed, our directors can assist on +44 330 174 4922.

Claim for everything you can

Every business has 12 months after its accounting period ends to file a Company Tax Return, and a further 12 months to make amendments to this return.

It’s important that you use this period to check to see if there is anything else you can claim for. Such as losses against the previous year’s profit. Or, tax reliefs such as the ‘creative industry relief’ which is available to companies who work in TV and film industry.

Something else worth considering, is if the business has acquired commercial property with fixtures that may be eligible for capital allowances, then the business has two years from the purchase date to raise a query in conjunction with the vendor, to agree on how much of the purchase price is eligible for capital allowances and maybe AIA.

If you’re looking to get your year-end planning back on track, there is no better time to do it. Speak to one of our Directors on +44 330 174 4922 to discuss these points further in detail, or send us a brief message through our website and we’ll call you back.

The post Year-end planning 2018/19 – get your strategy on track appeared first on Assure Accountants.