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Our (hopefully) insightful ramblings…things that occupy our mind!

Property Companies – Are they back in fashion?

Property tax

There was a time when a limited company was considered the best way to hold rented properties; then the times (and the tax rates) changed and holding investment properties in a company became less attractive.

With rates of corporation tax plummeting over the last few years, and set to reach 20% for all companies in a couple of years, it may be the time to reconsider the use of a property company.

In particular, if part of your strategy involves selling properties to realise the capital gains they have made (and property prices seem at last to be rising again!), bear in mind that the company will pay only 20% on its capital gains, whereas you (if you are a higher rate taxpayer) will pay 28%.

When considering whether to use a company to hold your properties, much depends on the size of your planned portfolio, and how much cash you want to extract from it. If the plan is to reinvest the rental profits and acquire more properties, then the company will only pay 20% tax on its profits, whereas you could be paying 40% or even 45%.

If you want to draw out the profits for your own use, however, a company will not save you significant sums in tax, because when you draw out the profits as dividends (the most tax-efficient way to do this) the effective rate of tax for a 40% taxpayer is 25% on the dividend paid, and when you bear in mind that dividends are not tax deductible for the company, it works like this:

Example – The cost of drawing company profits

Derek is a 40% taxpayer. His property company makes a profit of £30,000, and he wants to pay this out as a dividend.  He can only pay a maximum of £24,000, because the other £6,000 is needed to pay corporation tax. On his £24,000, he will pay income tax of £6,000, so the total tax paid by him and the company is £12,000, or 40% of the profits – exactly the same tax he would have paid if he owned the properties directly.

If Derek leaves the profits in the company to invest in more properties, however, he will have £6,000 more to invest than he would have if he owned the properties directly.


A company can decide when to pay dividends, so to some extent this enables you to control the rate of tax you pay on your dividends. If you own properties directly, you are taxed on the profit as it arises and apart from the timing of expenses like repairs, there is little you can do to change this.

Things a company cannot do

It is also worth bearing in mind that there are certain strategies that only work in the case of properties you own personally rather than through a company:

•           Equity release – as a property owner, you can remortgage a property and use the cash for your own purposes, provided the mortgage is no greater than the market value of the property when it was first let. A company can, of course, remortgage its properties in the same way, but to extract the cash you will need to receive a (taxable) dividend.

•           Main Residence – the exemption from CGT on your “only or main residence” does not apply if the property is owned by a company – indeed, there is likely to be a tax charge on you for the benefit of being allowed to occupy the property!

Here's a Practical Tip from Cloud Accounting NI :

Whether a company will be the best way to own your property portfolio depends very much on what your business strategy is. As with most tax matters, there is no “one size fits all” answer to the question, but it is a question every property investor should be asking themselves.

The Northern Ireland Crowdfunding Landscape

Crowdfunding Northern Ireland

FROM beer to cheeses, smart - watches to video games, crowdfunding has snowballed over the last few years. But despite the buzz, crowdfunding has yet to hit the mainstream in Northern Ireland.

Certainly there is precedent for technology using crowdfunding to develop products from virtual-reality headsets to a low-cost robotic hand.

While crowdfunding clearly works for some consumer technologies, it remains to be seen whether crowdfunding is right for all electronics, software or med-tech enterprises.

By going to the crowd, entrepreneurs are forced to go to market early and get immediate feedback. It builds a loyal customer base of “early adopters” and creates noise around a launch. It is also far quicker than traditional investment routes, which can take months.

But, investment is not all about the money. Traditional investors – Angels and VCs – come with a wealth of experience, contacts, skills and business acumen. The crowd won’t necessarily get involved in a company, and pitfalls around sweat equity, dilution of shares and tax implications are as yet untested.

Crowdfunding is a unique route to verify demand and to open the door to other forms of business funding. It can be used to validate the product, service or market, and it can help to reassure funders that there is a potential demand for the product or service into which they are putting their money.

As start-up costs decrease and funders want to see start-ups commercialise early, crowdfunding fills an obvious gap. Most start-ups go to friends and family for seed funding. Effectively, the crowd acts as an extension of “friends” and “family”, offering enthusiasm, confidence and belief in the concept.

So, in conclusion, while the global crowd can help a Northern Irish company get off the ground, crucially, it does not offer business advice – and this is where solid network of connections to accountants such as Cloud Accounting NI who are familiar with the sector, specialist legal advisors, Patent Law specialists, Social & Visual Media experts, as well as business mentors who have ‘seen it all before’ are essential to the success of your Startup.

Please feel free to get in touch with Richard at Cloud Accounting NI if you would like to discuss more about this article. You can contact us at 07868 663 538

Keep Calm & Christmas Party On!

Christmas PartyHMRC’s seasonal gift allows businesses to spend an annual tax-free amount of up to £150 per member of staff.

As the festive season approaches, ICAEW reminds employers that staff Christmas parties can be tax-free. Every year HMRC’s seasonal gift allows businesses to spend an annual tax-free amount of up to £150 per member of staff.

Done well, a Christmas party can serve as a great way for businesses to show appreciation for their employees' contributions and hard work, and encourages their commitment and ongoing efforts.

The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location. The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees. This generosity from the taxman is available to businesses of all sizes.

The range of items that can be claimed under the £150 limit goes beyond food and drink, it could also include accommodation and transport home if the employer pays for these. Furthermore, employees can even bring along their spouse or partner as long as the cost per head stays under the limit. On top of this, the employer will also get tax relief on the total costs.

However businesses should be aware that one penny over this limit and the full amount spent will become liable to income tax and National Insurance for both staff and employer alike, the amount being taxed as a benefit.

However, those bosses who are truly entering the festive spirit should remember that gifts to employees are taxable. Cash presents, such as Christmas bonuses or vouchers redeemable for cash, also have to have tax and National Insurance contributions paid through the PAYE system.

That said, those bosses who prefer to give staff a present, such as a high street gift voucher, can pick up the tax bill on behalf of their employees by setting up a PAYE Settlement Agreement with their tax office.

So enjoy the festive season and don’t let it be taxing!

If you need any further advice on company and personal tax issues please contact us at Cloud Accounting on 07868 663538.

Are you looking to raise finance? You need a good idea – and an excellent Business Plan.

Business planning and raising finance go hand-in-hand. A business plan is required for attracting venture capital. And the desire to raise capital (whether from an individual “angel” investor or a venture capital firm) is often the key motivator in the business planning process.

But how exactly will your business plan persuade investors to sign a cheque?

This article provides advice on how to position each section of the business plan for an investor audience. These tips draw our experience at Cloud Accounting NI of consulting with start-ups in the business planning and capital raising process.

There is also very useful grant support from Invest NI in the form of an Access To Finance Voucher which will cover half of any professional consultancy fees incurred on writing your Business Plan. For more information visit@ http://www.investni.com/access_to_finance_overview.pdf

Business Planning

Your Business Plan Executive Summary

Goal of the executive summary: Stimulate and motivate the investor to learn more.

Hook them on the first page. Most investors are inundated with business plans. Your first page must make them want to keep reading.

Keep it simple. After reading the first page, investors often do not understand the business. If your business is truly complex, you can dive into the details later on.

Be brief. The executive summary should be 2 to 4 pages in length.

Company Analysis

Goal of the company analysis section: Educate the investor about your company’s history and explain why your team is perfect to execute on the business opportunity.

Give some history. Provide the background on the company, including date of formation, office location, legal structure, and stage of development.

Show off your track record. Detail prior accomplishments, including funding rounds, product launches, milestones reached, and partnerships secured, among others.

Why you? Demonstrate your team’s unique unfair competitive advantage, whether it is technology, stellar management team, or key partnerships.

Industry Analysis

Goal of the industry analysis section: Prove that there is a real market for your product or service.

Demonstrate the need – rather than the desire – for your product. Ideally, people are willing to pay money to satisfy this need.

Cite credible sources when describing the size and growth of your market.

Use independent research. If possible, source research through an independent research firm to enhance your credibility. For general market sizes and trends, we suggest citing at least two independent research firms.

Focus on the “relevant” market size. For example, if you sell a portable biofeedback stress relief device, your relevant market is not the entire health care market. In determining the relevant market size, focus on the products or services that you will directly compete against.

It’s not just a research report – each fact, figure, and projection should support your company’s prospects for success.

Don’t ignore negative trends. Be sure to explain how your company would overcome potential negative trends. Such analysis will relieve investor concern and enhance the plan’s credibility.

Be prepared for due diligence. It’s critical that the data you present is verifiable, since any serious investor will conduct extensive due diligence.

Customer Analysis

Goal of customer analysis section: Convey the needs of your customers and show how your company’s products/services satisfy those needs.

Define your customers precisely. For example, it’s not adequate to say your company is targeting small businesses, since there are several million of these.

Detail their demographics. How many customers fit the definition? Where are these customers located? What is their average income?

Identify the needs of these customers. Use data to demonstrate past actions (X% have purchased a similar product), future projections (X% said they would purchase the product), and/or implications (X% use a product/service which your product enhances).

Explain what drives their decisions. For example, is price more important than quality?

Detail the decision-making process. For example, will the customer seek multiple bids? Will the customer consult others in their organization before making a decision?

Competitive Analysis

Goal of the competitive analysis section: Define the competition and demonstrate your competitive advantage.

List competitors. Many companies make the mistake of conveying that they have few or no real competitors. From an investor’s standpoint, a competitor is something that fulfills the same need as your product. If you claim you have no competitors, you are seriously undermining the credibility of your plan.

Include direct and indirect competitors. Direct competitors serve the same target market with similar products. Indirect competitors serve the same target market with different products, or different target markets with similar products.

List public companies (when relevant, of course). A public company implies that the market size is big. This gives the assurance that if management executes well, the company has substantial profit and liquidity potential.

Don’t just list competitors. Carefully describe their strengths and weaknesses, as well as the key drivers of competitive differentiation in the marketplace. And when describing competitors’ weaknesses, be sure to use objective information (e.g. market research).

Demonstrate barriers to entry. In describing the competitive landscape, show how your business model creates competitive advantages, and – more importantly – defensible barriers to entry.

Marketing Plan

Goal of the marketing plan: Describe how your company will penetrate the market, deliver products/services, and retain customers.

Focus on the 4 P’s. They are: Products, Promotions, Price, and Place.

Products. Detail all current and future products and services – but focus primarily on the short-to-intermediate time horizon.

Promotions. Explain exactly which marketing/advertising strategies will be used and why.

Price. Be sure to provide a clear rationale for your pricing strategy.

Place. Explain exactly how your products/services will be delivered to your customers.

Detail your customer retention plan. Explain how you will retain your customers, whether through customer relationship management (CRM) applications, building your business network, introducing ongoing value-added services, or other means.

Define your partnerships. From an investor’s perspective, what partnership you have with whom is not nearly as important as the specific terms of the partnership. Be sure to document the specifics of the partnerships (e.g. how it will work, the financial terms, the types of customer leads expected from each partner, etc.).

Operations Plan

Goal of the operations plan: Present the action plan for executing on your company’s vision.

Concept vs. reality. The operations plan transforms the business plan from concept into reality. Investors do not invest in concepts; they invest in reality. And the operations plan proves that the management team can execute on your concept better than anybody else.

Everyday processes. Detail the short term processes and systems that provide your customers with your products and services.

Business milestones. Lay out the significant long-term business milestones for the company, and prove that the team will execute on the long-term vision. A great way to present the milestones is to organize them into a chart with key milestones on the left side and target dates on the right side.

Be consistent. Make sure that the milestone projections are consistent with the rest of the business plan – particularly the financial plan.

Be aggressive but credible. Presenting a plan in which the company grows too quickly will show the naivete of the management team, while presenting too conservative a growth plan will often fail to excite an early stage investor (who typically looks for a 10X return on her investment).

Financial Plan

Goal of the financial plan: Explain how your business will generate returns for your investors.

Detail all revenue streams. Be sure to include all revenue streams. Depending on the type of business, these may include sales of products/services, referral revenues, advertising sales, licensing/royalty fees, and/or data sales.

Be consistent with your pro-forma statements. Pro-forma statements are projected financial statements. It is critical that these projections reflect the other sections of your business plan.

Validate your assumptions and projections. The financial plan must detail your key assumptions, and it is critical that these assumptions are feasible. Be sure to use competitive research to validate your projections and assumptions versus the reality in your market place. Assessing and basing financial projections on those of similar firms will greatly validate the realism and maturity of the financial projections.

Detail the uses of funds. Understandably, investors want to know what, specifically, you plan to do with their money. Uses of funds could include expenses involved with marketing, staffing, technology development, office space, among other uses.

Provide a clear exit strategy. All investors are motivated by a clear picture of your exit strategy, or the timing and method through which they can “cash in” on their investment. Be sure to provide comparable examples of firms who have successfully exited. The most common exits are IPOs or acquisitions. And while the exact method is not always crucial, the investor wants to see this planning in order to better understand the management team’s motivation and commitment to building long-term value.

Above all, the business plan is a marketing document that helps to sell the investor on the business opportunity, the management team, the strategy, and the potential for significant return on investment.

If you are considering a robust business plan that will improve your chances of raising finance, please call Richard at Cloud Accounting NI on 07868 663 538

Has Crowdfunding Finally hit the Big Time?

How do we know that equity Crowdfunding has finally arrived on the scene?….well Crowdcube have just raised £1.5m, through their own Crowdfunding platform, in just three days from just over 250 investors. The investment, which sets a new world record for funds raised via an equity crowdfunding platform, will be used to fuel Crowdcube’s next phase of growth.This comes on the back of FSA approval meaning investors using Crowdcube will now be able to claim compensation from the Financial Services Compensation Scheme and access the Financial Ombudsman Service if they have a complaint, giving people have that confidence of the additional protection they’ll get as a result.

Crowdcube has helped 36 small businesses raise a combined £5m since it was founded two years ago. Consumers can back small businesses by buying stakes with as little as £10.

For small businesses, selling shares through crowdfunding remains a very niche activity, but it is an option that is growing in popularity.

Seedrs, another UK crowdfunding website, is already authorised by the FSA, but it does not facilitate direct investment in small businesses. Instead, it holds shares in a company as a nominee and manages them on investors’ behalf.

It is obvious the UK’s financial services industry and its regulators are reacting dynamically to new models of business finance, such as equity crowdfunding, so that the UK can maintain its position as world leaders in this space.




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