30 corporate finance


Business owners warned about IHT relief


Business owners who took out borrowing secured on a personal asset, such as their home, in order to invest in a business, are seeing their well-made plans unpicked by the Treasury. As a result their families could face significantly higher Inheritance Tax (IHT) bills in the future, which might require the sale of assets to fund the additional tax.


IHT alarm bells have been ringing ever since the Budget when new rules were proposed which are due to be law from as early as this July. Accountants and business advisers James Cowper are advising family businesses to review their position now or face a significantly higher tax bill.


Stephen Barratt, private client tax director at James Cowper, explained: “Until now borrowings taken out to buy business assets, which qualify for relief from IHT, are fully deductible when calculating the amount of IHT due. If the rules are enacted as proposed, ordinary business people and their families will be


caught out. This is despite the fact that it may never have been the intention of the deceased to create a debt with the main aim of reducing IHT.


“IHT is currently charged on the total value of any assets less any debt,“ continued Barratt. “Where a loan is secured on a fully-taxable asset, the value of that asset is reduced by the loan in calculating the IHT, leaving the business asset covered by relief.


“For example, if a family borrows £500,000 secured against a house worth £800,000, the value of the house is reduced for IHT purposes by the debt down to £300,000, while the new business asset worth £500,000 is not taxable, being covered by IHT reliefs. Under the proposals, the house in this example will remain fully taxable at 40% on £800,000, with £320,000 tax payable. Clearly this is a very different and less favourable outcome from that which was anticipated. Only in circumstances where the debt is greater than the value of the


business, will any relief be given for the borrowing.


“This will come as a very unpleasant surprise to family business owners and some will unwittingly be faced with a stark choice of their heirs being obliged to sell either the family home or the business in order to settle the tax bill.“


Some businessmen are seeking to re-order their affairs now though others will prefer to wait until the Bill is enacted in July.


Barratt explained: “Individual circumstances will dictate what can be done to mitigate the effect of the major change, but it is critical that families at least understand the impact for them personally. There may also be a window of opportunity before it becomes law to explore alternative arrangements and reduce the impact of the changes.“


The new arrangements will apply to deaths that occur after the Finance Bill becomes law, which is expected in mid July.


Flexible finance grows in appeal for SMEs


Chichester-based Tandem Invoice Finance has witnessed a two-fold increase during the past 12-months, in the take-up of its Selective Invoice Finance products from businesses with a turnover up to £1.5 million illustrating the appetite that SMEs have towards accessing flexible finance options.


This mirrors recent reports from the Asset Based Finance Association (ABFA) confirming that in 2012, just under 43,000 firms used asset-based finance to support their organisations’ financial requirements, of which 83% are classed as SMEs wishing to unlock the value of their invoices.


Invoice finance products such as Tandem’s Selective Invoice Finance offer higher levels of finance with lower overall risk. The flexibility to finance one-off invoices on an ’as needed’ basis


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said: “When the recession took hold in 2008, we developed a client-focused Selective Invoice Finance product creating a niche sector in the world of asset-based finance. By listening and reacting to the genuine financial needs of cash-strapped SMEs, we are actively helping SMEs boost their working capital, and the uptake in demand is testament to its increasing popularity among business owners looking for a more flexible finance solution.


is an advantage and helps SMEs better manage cashflow without surrendering whole debtor books and removing the requirement to ’credit manage’ clients.


Established in 2009, the company specialises in selective invoice financing for SMEs across the UK.


Malcolm Piper (pictured), director of Tandem Invoice Finance,


“Following the latest industry reports from ABFA, firms that use invoice finance have enjoyed increased sales by nearly 13% in Q4 of 2012 compared to Q3 2012. This is the highest growth rate since 2009, showcasing the change in attitude regarding asset-based finance products. It is proof that this type of finance suits growing businesses and we are confident that take-up will only continue.“


Insurance claim


timescales to be reduced


Dorset and Kent insurance specialist Alan & Thomas Insurance Group has warned businesses that any insurance claims from August 1 this year will need to be notified to insurers as quickly as possible due to a reduction in timescales set out by the Ministry of Justice (MoJ).


The reforms, implemented by the MoJ following a review in 2010 on civil litigation, are intended to bring more balance to the civil litigation system by making lawyers’ costs more proportionate, combating the compensation culture and creating an environment where insurers can pass on savings to customers through lower premiums.


Stewart King (pictured), chief operations officer at Alan & Thomas, said: “The reforms will impact on businesses two-fold. They may well see a financial impact with savings being driven by fixed and reduced legal costs, but there will also be a significant operational impact as the timescales for notifying insurers of a potential claim will be reduced.


“Business owners and managers will need to ensure they have effective systems in place to expedite the notification of a claim to give the insurer as much time as possible to investigate and respond within the timescales set out by the MoJ.“


An independent broker, Alan & Thomas has offices at Poole and Gillingham and specialises in insurance and risk management for a range of businesses.


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – JUNE 2013


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