Please
don't squeeze me!
Despite
the introduction of legislation in the form of the Late
Payment of Commercial Debts (Interest) Act 1998 to
combat late payment, the practice remains prevalent and
many businesses, particularly in the small to medium sized
sector, are still suffering from poor cash flow as a result
of this malaise. Larger companies tend to be well aware
of the extent to which smaller entities rely on their custom
and continued support, and take advantage of this situation
by withholding payment for long periods. This places pressure
on cash flow which can ultimately lead to an increase in
the overdraft, creditor levels and potential financial disaster.
It
is perhaps surprising that many small to medium sized businesses
do not confirm credit terms in writing with their customers
at the outset thereby putting their cash flow at risk of
abuse from late payers. It is easy to be too busy to deal
with the matter but if there is a system in place to deal
with every new customer, the appropriate steps will be eased.
Also, it creates a sense of credibility with the customer
who will appreciate a professional and consistent approach.
It
is essential that businesses confirm, in writing, their
credit terms to customers before trading with them in order
to help avoid collection problems at a later stage. The
system will serve to inform the customer of any legal redress
available against them in the event of late payment and
explain the expected timetable for payment.
What
action should be taken now?
-
Ensure
all existing customers are reminded, in writing, of
your terms of credit.
-
Ensure
credit terms are communicated, in writing, to all new
customers at the outset.
-
Undertake
credit checks for each customer and record the results.
-
Set
a specified credit limit for each customer and ensure
this is not exceeded.
-
Regularly
review your aged debtor listing and implement a system
whereby late payers are pursued for payment in a clear
and manageable manner. More often than not this will
include a telephone approach and/or a personal visit
to the customer.
Typically,
a business that is reliant on a bigger company for custom
will be reluctant to charge interest, or force collection
of it when applied - under no circumstances should you allow
your customers to take advantage and use you as a provider
of free finance - that is what their bank is for!
Employment
Law – be up to date, or be sued!
As
employers are well aware, employment law changes rapidly
and regularly which presents challenges for all businesses,
regardless of size and industry. New legislation is introduced
on a frequent basis and it is vital to keep abreast of such
changes in an effort to avoid having to attend an industrial
tribunal or an employment tribunal: they can be very costly
and time consuming, and the employer often finds himself
on the losing side.
The
statutory cap for an unfair dismissal award has been increased
to £58,400. More and more information is available
to employees through the internet and other media sources,
and the UK is becoming a litigious society, with more lawyers
than ever accepting cases on the basis of “no win,
no fee”. It is imperative that employers keep up to date
on employment issues, or risk being subject to an expensive
tribunal experience.
Age
discrimination regulations will be introduced in October
2006 by the Employment Equality (Age) Regulations 2006.
These regulations will affect all stages of an employment
relationship from recruitment to retirement and are of such
overwhelming significance to every employer that it is worth
seeking advice well before 1 October 2006
, when they come into effect.
Meston
Reid & Co were pleased to co-host an employment law
seminar in conjunction with Croner Consulting in May. The
seminar was well attended and an excellent presentation
was provided by Helen O'Brien of Croner Consulting.
Should
any reader wish to receive a copy of the handout provided
at the seminar, please contact Michelle Byrne at Meston
Reid & Co who will be delighted to assist with your
enquiries. Michelle's e-mail address is byrnem@mestonreid.com
Change:
beware the pitfalls from within
Saving
a business can be a daunting challenge and those leading
the process are at the forefront of change. Without change,
saving a business is unlikely and if one can manage change
skilfully, it can become a driving force that creates success
and growth. Regrettably, change fails because the entity
does not meet the challenges presented. Causes of failure
are wide and varied and include:
• Misunderstanding of what change is. Change
is a journey rather than a destination which influences
thinking and action in a positive way.
•
Lack of planning and preparation. Tunnel vision is to
be avoided and everyone must be prepared to be receptive,
flexible and embrace creativity.
•
Any change programme needs clear vision which is communicated
effectively. If this doesn't happen, how will everyone
know in which direction to move?
•
Goals should not be set too far in the future. Enthusiasm
for change is likely to be muted if it is a long term
plan rather than a short term one. The longer the term,
the more recognition is required for short term successes.
•
Discount the quick fix option. Although they have their
place, change means more than a poster, t-shirt, coffee
mug or witty slogan.
•
Poor communication. The company grapevine tends to work
far more quickly than management and drip-feeding information
can be risky. Trust those involved in the change process
and work with them.
•
The legacy of previous change. Previous attempts at change
may have created negative feeling/impact. An innovative
spirit is central to ensuring that the current proposals
are accepted, even if it is shown that ignoring change
may lead to closure and redundancy.
•
Tradition. Organisations tend to have a set way of doing
things and people often believe that there is no reason
to change what they perceive as a successful model.
•
Fear of failure. Nobody likes change if they think it
will fail, or more importantly, if they think they will
be blamed. Successful change leadership recognises where
the buck stops, so tell everyone and be brave enough to
lead from the front.
The change challenge
requires to be met by all businesses who wish to respond
to customer, supplier, and employee forces. Be clear on
what kind of change is required and plan carefully. Be specific
about what you want, where you want to be and how everyone
will be involved in getting there.
Good
luck, and bear in mind that if you wish assistance, we are
only a telephone call away.
Crackdown
on Tax Avoidance Schemes
Tax
advisers have a reputation for being able to find the tiniest
loophole in tax legislation and exploiting this to full
advantage on behalf of clients by implementing schemes specifically
designed to avoid paying tax. The Government allege that
tax avoidance schemes are costing the UK billions of pounds
in lost taxes and consider it to be the preserve of wealthy
individuals/companies who are the only ones to be able to
afford top-class tax advice. The tax man has had enough
and is considering ways in which HM Revenue & Customs
can use existing powers in order to implement changes such
that tax avoidance “is not worthwhile by 2008”. A new anti-avoidance
unit has been set up by HM Revenue & Customs which has
already been successful in closing down a number of schemes.
A
major change is the recent requirement for advisers to disclose
tax avoidance schemes to the tax authorities at the outset
and HM Revenue & Customs has issued a warning saying
that where an adviser chooses not to disclose a new scheme
before it is used, such action may be viewed as one of dishonesty
and tax evasion which could be subject to criminal action.
Stringent
penalties will also be imposed on tax payers who adopt tax
avoidance schemes which are subsequently challenged by the
tax man and found to be flawed.
Take
heart, the news is not all bad. The tax man has suggested
that those advisers who steer clear of anti-avoidance schemes
will be rewarded, although specific details as to how this
will be achieved have yet to be announced. It is difficult
to see how advisers can be rewarded for towing the tax man's
line and adhering to his view of the spirit of the law.
After all, if a tax payer did not need advice, he would
not engage the services of a tax adviser but rely on assistance
from HM Revenue & Customs. Yeah…………right!
Further
announcements will be made over the coming months – watch
this space.
Questions
and Answers – A New Feature
Q.
I have some cottages on my farm occupied by farm
workers. A farmer friend who rents out farm property
to outside tenants tells me he has had to register with
the local authority. As I charge no rent to the workers
surely this will not apply to me?
A.
Whether or not rent is charged is not relevant.
Other than renting to family members, the registration regime
applies to almost all landlords of private rented housing
in Scotland . To let property whilst not registered
is now a criminal offence, so I suggest you go to your local
authority website and register as a landlord, provide details
of each property and pay the fee while they are still processing
a backlog of applications.
Q.
I have just acquired shares in the company I work
for under a share option scheme approved by H M Revenue
and Customs. A friend suggested I give some to my
wife to save capital gains tax when we eventually come to
sell. Is this a good idea?
A.
If your wife is not a higher rate taxpayer but you
are, this could be a good idea as not only would she pay
tax at 22% instead of 40% but she would also have her annual
CGT exemption (currently £8,800) to offset against
the eventual gain. However, it could also be a very
bad idea if the company you work for is listed on the Stock
Exchange. Assuming your wife does not work for the
company, she would not qualify for a relief known as ‘business
asset taper relief' (BATR) which can reduce the gain by
as much as 75%. As an employee, you do qualify for
relief, so gifting shares to her could actually increase
the tax payable. On the other hand if the company
is an unlisted trading company your wife would qualify for
BATR so gifting shares to her could be a good idea, but
I would not recommend doing this without professional advice
as there are some pitfalls to watch out for.
Q.
My son has just started at university and needs a
car. I thought I would buy him one through my limited
company but am worried I shall be ‘hit' for a big tax bill
on it. Is there a way around this?
A.
You may be pleasantly surprised though you would
need to be careful about the choice of car. Employees
are now taxed on company cars on a sliding scale based upon
their C0 2 emissions. The scale starts at 140 (grams
per kilometre) and for cars at or below that level the taxable
benefit is 15% of the list price of the car. For
example a VW Polo 1.4 SE FSI (3dr) has a C0 2 emissions
figure of 142 which is rounded down to 140. On a
list price of around £11,500 the taxable benefit is
£1,725. Assuming that you are a higher rate
taxpayer the total tax and national insurance cost is just
over £900 (including the company's NICs). All
the running costs except fuel could be put through the company
and therefore this would be much cheaper than you paying
for the car personally out of taxed income. If the
company also pays for fuel there would be an additional
tax charge, but this could still be cost effective if your
son does a high mileage.
Q.
A company of which I am a director has lost its major
contract and will probably go bust, owing me quite a lot
of money. A business acquaintance mentioned that
he had converted his director's loan into shares and was
subsequently able to claim a loss on the shares for income
tax purposes. As I pay income tax at 40% that would
at least soften the blow.
A.
It is true that there is a special income tax relief
for losses on shares in private trading companies.
However, the idea is unlikely to work because the ‘base'
cost of the shares for tax purposes is not the face value
of the loan but what it is currently worth and if the loan
already looks irrecoverable that may be nil or very little.
Also by doing that you would be denied the capital
gains tax relief which would otherwise be available where
money is lent to a trader and subsequently becomes irrecoverable.
So, in other words, you would get the worst of both
worlds. The reason is that on paper the loan would
have been repaid when it was converted into share capital.
A
capital loss cannot be used unless and until you make a
capital gain against which you can offset the loss, but
while that is not as attractive as an immediate income tax
reduction it is probably the only relief you can obtain
for your loan.
How
to be a successful leader
The
role of leadership in business can be very demanding and
is coming under ever more scrutiny and criticism, especially
when it all goes wrong. A successful leader will be able
to effectively utilise at least some of the following skills:
•
Encourage self esteem – don't be afraid to ask for advice
from staff even though you think you already know the
answer. After all if you can't see the “wood for the trees”
there's a chance that your staff may be able to see a
little further. Discuss issues, but do not dictate and
do not argue. Compliment staff where appropriate.
•
Be a good listener – stay alert and listen to what the
speaker is saying. Look interested in what is being said
and do not become distracted or let boredom creep in.
•
Plan ahead – do not gain a reputation as a crisis manager.
Think and plan ahead wherever possible. A good leader
will be aware of his objectives, both on a business and
personal level, and these objectives, along with the company's
procedures will be reviewed as part of the planning process.
Ensure everyone within the organisation is aware of your
plans for the future. It is easier to accept and adapt
to change when the plan has been communicated to staff
and colleagues in advance, and ideally has been subject
to full and frank discussion.
•
Motivation – take time to learn what people's expectations
are and gauge if staff are happy in their roles. Don't
allow staff to become bored, ensure they are kept sufficiently
challenged and are able to grow along with the organisation.
Praise them when they perform well and make them feel
proud.
•
Communication – have regular meetings with your staff
and keep them informed of developments within the company.
Let staff know what is expected of them and how their
contributions will assist in the success of the organisation.
•
Discipline – where disciplinary action is required ensure
the person is spoken with in private as soon after the
incident as possible. Once discussed and appropriate action
is taken do not bring the subject up over and over again.
•
Personal problems – do not allow yourself to become involved
in other people's personal problems. Encourage them to
seek professional help if considered necessary, but leave
it at that.
•
Delegation – as leader you should delegate as much as
possible. Do not be afraid to delegate, even though you
know no-one else can possibly perform the task as well
as you. Let go of the reigns, encourage staff to take
on more responsibility. This will help their development
and ultimately benefit the organisation.
Remember
you still have overall responsibility for your team's performance
which will be measured by results. A strong team is a reflection
of your strong leadership qualities and you will ultimately
reap the rewards of your team's success.
A Fond
Farewell to Delyth
Meston
Reid & Co bade a fond farewell to Delyth Parkinson who
retired from the partnership on 31 March 2006 . Delyth,
along with Michael Reid , was a founding partner of the
firm and worked hard to establish the firm. The partners
and staff at Meston Reid & Co wish her a long and happy
retirement.
Delyth
is hoping to spend more time with her husband, her grandchildren,
on her boat and in her garden……………but not necessarily in
that order!
Meston
Reid & Co Appoints New Partner 
Meston
Reid & Co is delighted to announce the appointment of
Alan Stewart as a partner from 1 April 2006.
Alan
qualified as a chartered accountant in 1991 and worked for
both national and international firms prior to his move
to Aberdeen in 2002. Throughout his career Alan has worked
with clients operating within a variety of industry sectors
and has accumulated a great deal of experience in dealing
with commercial issues faced by clients.
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