Hornbeam Highlights 32

Further thoughts on coping with Recession

Since we published Hornbeam Highlights 31, Coping with Recession, financial conditions in the UK have deteriorated rapidly. That issue was mainly about actions to guide small business successfully though hard times.

Since July many almost unthinkable things have happened: major UK banks have failed or been driven into rescue deals, Local Authority funds held by Icelandic banks have been lost, a Spanish based internet bank has been closed down for a number of days. This has set us thinking about generic advice to our clients about protecting themselves from financial risk.

• If you use internet banking, print statements out regularly, if an internet bank goes bust you will need documentary proof to claim from the government guarantee scheme or elsewhere.
• If you have more than £50,000 (£100,000 for husband and wife) in one institution, consider spreading this around a number of unrelated institutions (check that the new institution is not part of the same regulatory group as any in which you already have money, before making the new deposit). Whilst spreading your money around increases the chances of becoming involved with some problem or other, the old adage about keeping all of your eggs in one basket holds sway never mind maximising the protection of the government guarantees.
• If you have substantial funds held in foreign currencies offshore, such as the Euro (perhaps in order to take advantage of more generous foreign governments deposit guarantees) the value of these will probably have risen substantially in the last few days. Consider tying in this gain by asking your bank to quote for hedging (insuring) against the possibility of the currency falling against the pound.
• With falling Share Prices, falling House Prices and bank deposits in jeopody, people are asking the question “where is my money safe?”. There are no magic bullet answers, those people who buy shares and houses at the bottom of the market will do well, those that hang on to shares in companies which fail or houses which are blighted for a decade will be impoverished – those who can tell the difference should give me a ring – for everyone else, the fundamental advice which has been on our website for over a decade holds good. (1) Pay your most expensive debt off first, until you have no debt left. (2) As far as possible maintain a diversity of investments, picked for quality and spread across sectors (ie residential property, commercial property, business assets including shares, financial assets including bank and building society deposits and others such as fine wines, artwork and antiques). And finally, if investing abroad don’t forget to consider political and legal system risk as well as more conventional financial risk.

Whilst Hornbeam are not themselves registered financial advisors, we are happy to recommend you to a fully independent IFA in whom we have complete confidence.

Hornbeam Clients Expand

In spite of the worsening economic climate a number of Hornbeam clients, both old and new, have started new ventures or expanded their existing businesses over the summer. Many thanks to over twenty clients who have recommended Hornbeam to new clients so far during 2008. We seem to have expanded particularly rapidly in Pubs, Restaurants and Bed and Breakfast establishments this year. Accordingly, I am particularly, pleased to enclose:

• 2 extracts from the EDP’s Norfolk magazine about The Gamekeeper in Old Buckenham, and Adlards in the Country. The two Davids have been clients for many years, but these are both new ventures, and we hope you will support them.
• A copy of Jan Bennett’s brochure for what is probably the most up market B and B in Norwich city centre. Like the Davids Jan has been a client for many years but 38 St Giles is a new venture.
• Martin Wormwell has moved to the Woods End pub at Bramerton, and whilst we are unable to enclose a brochure, Martin has agreed with us that any client presenting their original copy of this Highlights will be entitled to £2 off the published price of the second meal purchased.

Also enclosed are leaflets for two clients outside of the hospitality sector.

• Sara Hurn’s “fine wines of the times” provide really top class, personalised gifts, ideal for family members, employees, or business contacts.
• Lastly, Scott Poulson has recently moved his Graphic Design studios to King Street in Central Norwich, and is offering a first class service to local businesses.

We are proud to have been able to help a number of these clients, by preparing business plans and giving business advice, help with raising finance, help with setting up record keeping, maintaining VAT records, and strategies for tax minimisation.

We are, of course, happy to enclose publicity for any hornbeam client.

Tax Matters

We have tried hard to explain and promote our fee insurance scheme (that covers our fees in defending an investigation) over the last 6 months. For us this is an option that we offer to clients, we do not mind whether clients take it up or not. Several clients have asked us “Surely if we have nothing to hide we can just hand over our records to HMRC and let them get on with it”. If only this were true. However HMRC in investigation mode are looking for underpaid tax....

• One client decided that they would handle the investigation themselves. The inspector had the computer records. He found that most sales invoices had carriage charged on them but could not see carriage on the accounts. He therefore estimated understated carriage sales, multiplied by 6 years, calculated the tax, added interest and penalties and asked the client for a cheque. At this stage they came back to Hornbeam. It was immediately obvious to us that if Quickbooks sales invoices were showing carriage that carriage must be posted somewhere. It took about 5 minutes to fire up the program and trace the carriage sales to the same P and L account that the carriage costs had been charged to. Of course there was no understatement of tax. The inspector had demonstrated knowledge of the computer program, he must have known what we knew and been able to investigate as we investigated, and yet he had raised a six figure assessment, knowing it to be wrong or choosing not to look. We believe that this was done because he believed the client were unrepresented. We were able to quash the assessment.
• Another inspector has applied an HMRC policy to charge a Restaurant owner tax on his private consumption of wine at Restaurant prices (as opposed to wholesale or cost price). This is in complete contradiction to established principle of UK tax law that an individual cannot make a profit trading with himself. Provided the wine is drawn from the cellar and drunk at home or in the kitchen, it is also a ludicrous misinterpretation of the case law upon which it is based. We were so incensed; we tried to take this case to court. However, HMRC backed down, which we consider demonstrates that they know they are wrong, but it wont stop them collecting tax from less effectively defended taxpayers.
• Another favourite technique of both Revenue inspectors and VAT inspectors is to work out from the taxpayer’s costs, what his sales must be. The underlying principle of this technique is that the taxpayer is guilty of understating tax and must prove himself innocent. We have a number of techniques for disputing these calculations.

One Item of Good News

After 10 years of getting it wrong, the new Capital Allowances regime at last gives all businesses tax relief for the first £50,000 of Capital Expenditure, in the year that the expenditure is incurred. Expenditure over £50,000 is allowed at the lower rate of 20%, and this years transitional rules are complex, but the overall effect for small businesses is a great advantage.

At Hornbeam

After a frantic year in 2007 working to integrate the late Ian Crosse’s practice, 2008 sees us more on top of things. We have 100 more tax returns submitted to HMRC than this time last year (thanks in particular to James Sharpe for helping Andy and I to achieve this), we have no substantial backlog of accountancy work (thanks in particular to Clare Beevers for helping Andy and I to achieve this), and we are progressing rapidly with our rebranding (which has all been carried out in-house and driven by our office manager Su Wagstaff). In spite of this I have been rushed off my feet as usual, in part helping several of our most successful clients to sell their businesses. This has made the inflow of new clients recommended by existing clients particularly welcome during this period. But we have also been busy helping other clients to expand, by working on acquisitions (ask for our publication the Hornbeam Guide to Successfully Expanding By Acquisition), by sorting out accounting systems, by giving tax advice and by providing business mentoring services.

Lastly, I would like to welcome Kylee Douce who is the latest UEA accountancy graduate to join Hornbeam (Andy and Clare are also proud possessors of UEA degrees in accountancy). Kylee has joined the Institute of Chartered Accountants training scheme.

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