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Tax Evasion: Could You Be Caught Red-Handed?

The Government’s commitment to combat tax avoidance and evasion, as well as other forms of economic crime, could mean you unwittingly being caught red-handed.

Why Now?

As of 30 Sep, the Criminal Finances Act 2017 includes measures that mean businesses must have procedures in place to prevent criminal facilitation of tax evasion.

Prior to this, prosecutors attributing criminal liability for tax evasion to a business needed to demonstrate members of the business were involved in and aware of the illegal activity.

Usually this was focussed at the Board of Directors level.

“The new offence alters the scope of liability and who is held to account for acts of criminal tax evasion, by covering all those who act for or on behalf of a corporation.”

This means that, as well as having ‘reasonable prevention procedures’ in place, there must also be procedures in place for anyone ‘associated with’ your business.

This includes employees, suppliers, agents and intermediaries – essentially anyone who provides services for or on behalf of the oganisation.

Although the Act aims to tackle tax evasion crimes committed by those who act for or on behalf of a company,businesses will not be held accountable for any crimes committed by their customers.

Nor will they be penalised for any customer misuse of the legitimate products and services provided good faith.

Why You?

3 Reasons To Act Without Delay:

  1. Tax evasion offences are punishable under both UK and international law, and failing to prevent tax evasion carries an unlimited financial penalty
  2. Reputational damage is inevitable
  3. Disclosure of breach may be required to professional regulators and a conviction may disqualify companies from eligibility for public contracts.
    1. The Criminal Finances Act 2017: 3 Areas

      There are three areas covered by the legislation:

      1. Criminal evasion of tax by the taxpayer
      2. Criminal facilitation of the tax evasion by an ‘associated person’ of the relevant body who is acting in that capacity
      3. Failure by the relevant body to prevent that facilitation.

      “Reasonable prevention procedures must be in place to benefit from the statutory defence.”

      What Are ‘Reasonable’ Prevention Procedures?

      The government has produced guidance on the reasonable prevention procedures and has published six guiding principles.

      These principles are similar to those identified in guidance to the Bribery Act 2010, so there may be some efficiency in developing procedures alongside those already in place.

      The six principles are:

      1. Risk assessment
      2. Proportionality
      3. Top level commitment
      4. Due diligence
      5. Communication
      6. Monitoring and review

      How Do You Best Implement These Principles?

      You’re likely to have an existing due diligence programme in place as a result of the Bribery Act 2010.

      “Ideally your response to this new offence can sit within your existing governance framework.”

      Risk Assessment

      The business must assess the nature and extent of its exposure to the risk of those who act for or on its behalf.

      To do this, you should identify areas, including:

      • Potential risks of tax evasion facilitated by an associated person
      • Areas of the business which pose the greatest risks – this is often finance and legal departments
      • What business practices could contribute to risk
      • Type of transactions that could create risk
      • The extent to which existing procedures mitigate those risks
      • Where the gaps are.

      Proportionality

      These procedures will depend on the levels of control and supervision that a business is able to exercise over a person acting on its behalf and the proximity of that person.

      The framework and procedures will need to be adapted to address specific risks, including geographic locations.

      Procedures should also evolve as the risk climate and corporate activity changes.

      Top Level Commitment

      Those at board level must commit to the principles and a policy statement affirming their commitment is good practice.

      Senior employees need to foster a culture in which facilitation of tax evasion is never acceptable.

      Due Diligence

      All procedures should take an appropriate and risk-based approach.

      There should also be proportionate checks on “associated persons” whose functions could pose potential risks and facilitate tax evasion offences.

      Communication

      The company’s policy should be communicated internally.

      Appropriate and ongoing training should be provided for all staff and “associated persons”.

      Whistleblowing channels should also be in place.

      Monitoring and Reviewing

      A monitoring programme should be put in to place, including regular checks on relevant “associated persons”.

      Your Next Best Steps to Protect Yourself

      Organisations are expected to have identified major risks and priorities.

      In addition, they should have a clear implementation plan in place, including reasonable prevention procedures, based on the six guiding principles.

      The Government recognises that some procedures, such as training programmes and IT systems, will take time to put into place.

      Therefore, prevention procedures planned (but not yet in place) at the time of an offence will be taken into consideration.

      However, this grace period will come to an end!

      An experienced finance professional can help you to identify your risks and develop a plan to ensure compliance.

      At Horus Consulting we help businesses like yours in all aspects of financial reporting, planning and analysis.

      Together we can create a framework to ensure that you are doing enough to prevent the facilitation of tax evasion.

How Hanging Onto Cash Could Be Strangling Your Growth

Brexit… a (nearly) hung government… Donald Trump’s antics…

All in all, there are a lot of factors that are understandably creating uncertainty for managing directors and business owners. One consequence of this uncertainty is that you may not be investing.

“Whilst not investing might make you cash rich, if you’re not putting money back in, you’re strangling your growth.”

Do you have the cash to invest?

Although this article is about the benefits of investing, remember that you need to have the cash available. A good business plan will contain key metrics to help you determine the fund available. This should include a forecast of your costs and you will need to consider how much money needs to be available to fund future purchases.  It may be that other options such as an overdraft facility, hire purchase, or a mortgage are appropriate in some circumstances.

Remember, ‘cash is king’ and that VAT, PAYE and Corporation Tax will be due, so cash in the bank doesn’t necessarily equate to the amount you have available to invest.

But, if you DO have cash to invest, what next? What are the options for surplus cash in your business? Once you’ve established how much cash is available, you can review your choices.

The six main options for surplus cash are:

1. Do nothing

You can of course simply leave the money in the company bank account where is it easily accessible and ‘safe’. However, extremely low interest rates’ inability to keep pace with inflation, means your money’s purchasing power is dwindling. External shareholders may not be happy with this scenario as they don’t believe that the company’s assets are being used effectively.”

2. Utilise High Interest Accounts/Bonds

This is another ‘safe’ option. Although interest rates on these types of accounts are also currently low and often tie your cash up for a considerable period of time.

3. Director’s Loan

Although this is an option, it is not normally advisable due to the potential tax liabilities involved.

4. Distribute as Dividends

Rather than retaining the profits in the company, you may decide to declare them as dividends. Do consider the tax implications of this.

5. Company Pension Contributions

It may be that retirement is on your horizon, in which case you may decide to make contributions directly into your pension fund. This is often a tax efficient method of extracting funds, although one that ties the money up until retirement.

6. Invest in Stocks and Shares

If you want to use your surplus cash to grow your company then investing has historically provided a way to outpace inflation and grow wealth.

Why Invest in Stocks & Shares?

At minimum, a company needs to invest their cash in something that keeps pace with inflation. If they don’t do this then their purchasing power, and consequently their true wealth, will decrease over time. For a small business, investment in other companies can help to create partnerships and form relationships, leading to benefits such as:

1) New Markets

Companies sometimes invest in other companies in order secure future earnings from a company that may one day require your products and/or services.

2) Access to Resources

Through investment, you may be able to gain access to elements you need for production, such as land, labour, capital and natural resources at a lower cost.

3) Developing Strategic Assets

Investing in other companies may assist you in the development of strategic assets, such as distribution networks or new technologies.

Your Next Steps

An investment strategy is an important aspect of growing your business and it’s essential to devote time and effort to research and management in order to make this worthwhile. If you’re looking at stocks and shares, great care needs to be taken before committing yourself to an investment strategy. All investment areas carry an element of risk and it’s advisable to only invest with ‘spare’ cash.

An experienced finance professional can evaluate your investment needs and priorities. At Horus Consulting we help businesses like yours in all aspects of financial reporting, planning and analysis. Together we can create an investment strategy that will help to grow your business.

For an initial chat, call 07947 810 036 or email michael.ware@horusconsulting.co.uk.

Feel Like Your Business May Have Lost Its Way?

Imagine leaving your house tomorrow without having a destination in mind.

Or perhaps you do have a destination in mind, but you’ve no way of getting there. No mode of transport. No map. Would you ever do this in real life? Probably not.

But many business owners effectively are doing this by not having a business plan and strategy in place.  If this sounds familiar, there is no better time to change!

What is a Business Plan?

Simply put, your business plan is the formal statement of your business goals and your plans for attaining these. Your plan may also contain background information about the business.

Done properly, your business plan clearly maps out the future of your company and informs you how to get there. Think of it as the sat nav for your business.

Many business owners neglect their business plan, seeing it perhaps as a difficult task, or something that is unnecessary unless they’re seeking funding.

It’s true that potential investors and lenders will expect to see a business plan, but there are many reasons for having one in place.

The Benefits of a Business Plan

1) It’s Easier to Keep to your Long-Term Strategy

As business owners, we sometimes get lost in the daily routine and distracted by interruptions. Having a business plan to refer to helps us to keep our long term goals and priorities in mind.

2) Your Short-Term Business Objectives will be Clear

A good plan will include smaller specific and achievable goals that are relevant to your long-term strategy. These could be things such as launching a new product, or gaining a certain number of followers on social media. Measurable tasks will help you to define your success objectively, and meeting these smaller milestones will ultimately contribute to your long-term strategy for success.

3) You Will Have Time to Make Changes

A business plan is a living document and, although it maps out expectations, it can’t predict the future with complete accuracy.  It’s important to monitor your progress and proactively correct the course of your business as needed. If you’re tracking your results, and measuring these against your expectations, you’ll have plenty of warning if things aren’t going to plan. You have the chance to make any changes needed and avoid potential problems.

4) Financial Benefits

Your business plan will help you to plan and manage your finances. Taking the time to set realistic financial goals and to monitor these, will help to ensure that your business meets its potential. You will also have the financial information that you need when making decisions such as hiring staff, changing prices or moving premises. This knowledge will help you to make better, more-informed choices that contribute to the long-term strategy. The business plan is a vital piece of information when seeking loans and investments.

5) HR Benefits

A business plan will help to clarify individual responsibilities within the business. Results can be measured against expectations, and this information is invaluable for conducting staff reviews.  A business plan will also help you to decide when it’s necessary to hire staff, and how their role will help your company to grow and prosper.

How Do I Create a Business Plan and Strategy?

A business plan isn’t necessarily a weighty formal document. In fact, it should be readily accessible and easily understood.  There are plenty of free templates available on the Internet.

For some smaller businesses, the business plan could be as simple as a mixture of lists and tables to record the information.

However, there is value in taking the time to carefully review your strategy and to develop a refreshable document to propel your business forward.  An outside perspective, particularly an impartial financial one, can also be beneficial.

I work with clients to systematically assess the performance of their business, helping them to understand key issues, how they interconnect and identify practical steps to solve them. I also help to develop the cash flow projections and business models which will help take your business forward.

A review can include the complete business, individual functions and /or specific projects. They are tailored to your specific requirements and usually takes between just 2-7 days, dependent on the scope of the review. In challenging economic times it’s critical to have a grip on the finances of the business. Managing cash-flow, looking for cost reductions, understanding the performance of the different parts of the organisation or planning ahead are all vital.

At Horus Consulting we help businesses like yours in all aspects of financial reporting, planning and analysis.   Most significantly Horus will link these different aspects together to show how to drive the performance of your business and your teams. Once the actions and priorities have been agreed Horus can also fully support the team to deliver any agreed projects and deliver the benefits. 

Together we can programme the sat nav and you can drive your business forward.

4% of Your Global Turnover… Ripped From You Due to GDPR

Whilst this may appear to be a sensationalist headline, the reality is that it might happen to you early next year.  Let me explain.

On 25 May 2018, the EU General Data Protection Regulation (GDPR) will come in to force, replacing the Data Protection Directive.

Its objective is to improve the control EU citizens have over their personal data, and to harmonise the existing EU regulations.

What If You Don’t Comply with GDPR?

The maximum penalties for data breaches increase dramatically under the new regulations.
 
The current maximum fine is £500,000 (and to date, no fine higher that £400,000 has been issued). 

The GDPR will see the introduction of a two-tiered penalty system. 

Businesses deemed to play an important role in data-handling will face fines of up to €20 million, or 4% of the global annual turnover for the proceeding financial year, whichever is greater. 

Other businesses will face potential fines of up to €10 million, or 2% of the global annual turnover, whichever is greater.  

For your business, the threat of insolvency due to GDPR penalties, could become very real.

Could you survive 4% of your global turnover being ripped from you?

Even if you could survive, would you want to unnecessarily surrender this?!

What Do You Need To Know?

The new, statutory obligations will force data processors to observe data protection measures above and beyond the existing requirements.

Current EU data protection rules mean that service providers processing personal data on behalf of other businesses cannot be held directly liable to individuals for a breach of data security.

This is the responsibility of the data controller who contracted with them. 

However, the new rules will require data processors to observe security measures above and beyond the contractual duties agreed with data controller customers.

The Data Controller and the Data Processor

The data controller is the person who is responsible for the storage and use of personal information within a company.
 
They make the final decision on what personal information will be kept and what this data will be used for. 

In many organisations this will become part of the IT director’s remit, although bigger companies may well employ their own data controller.

The data processor can hold or process personal data. They do not exercise responsibility for, or control over, the personal data.

Examples of data processors include payroll companies and market research companies, which often process personal information on behalf of another party. 

9 Key Areas

1. Responsibility and Accountability

The requirements remain and have been expanded.

The retention time for personal data has to be provided, together with contact information for data controller and data protection office.

Automated individual decision-making, including profiling, will be contestable.

Data subjects will be given the right to question and challenge decisions made on an algorithmic basis.

Data Protection Impact Assessments must be conducted when specific risks occur to the rights and freedoms of data subjects. Risk assessment and mitigation is required.
 

2. Consent

Valid consent must be explicitly given for the data collected and its purposes (i.e. people must ‘opt-in’ rather than be presented with an option to ‘opt-out’).

Data controllers must be able to provide proof that consent has been given. Consent for children  must be given by the appropriate adult party and this must be verifiable. 

Finally, a data subject may withdraw consent at any time.

3. Data Protection Officers

In certain circumstances, an expert in data protection law should be engaged as Data Protection Officers in order to ensure compliance within organizations.

4. Pseudonymisation

The GDPR strongly encourages the use of pseudonymisation to reduce risks to the data subjects.

Pseudonymisation is the process that transforms personal data so that an individual data subject cannot be identified without further information. 

This identifying information must be stored separately.

5. Data Breaches

The Data Controller will have a legal obligation to notify the Supervisory Authority without undue delay, and within 72 hours of a data breach.

Data subjects must also be notified, unless their data has been anonymised or pseudonymised.

6. Right to Erasure

A data subject has the right to request erasure of personal data related to them on any one of a number of grounds.

The rights of even legitimate data processors and controllers are secondary to the rights of the data subject.

7. Data Portability

A person shall be able to transfer their personal data from one electronic processing system to and into another, without being prevented from doing so by the data controller.

8. Data Protection By Design and Default

Data protection will be required to be designed into the development of business processes for products and services, with high level privacy settings as the default.

Mechanisms must be in place to ensure that personal data is only processed when necessary for each specific purpose.

Measures must also be taken to ensure that the entire data processing procedure is compliant with regulations.

9. Records of Processing Activities

Records of processing activities must be maintained and made available to the supervisory authority on request.

What Can You Do To Minimise The Risks?

It’s essential to begin preparing for this legislation as soon as possible.

With less than a year until it is introduced, companies don’t have long to bring themselves in to a state of compliance. 

Briefly, there are five steps to take to protect your organisation:

Understand what GDPR is and how it will affect your business. The full regulation can be found here

Identify areas where you are not conforming to the new standards and take steps to achieve compliance

Update and document your policies and procedures. Establish a culture of monitoring, reviewing and assessing these policies and procedures regularly

Train your staff to comply with the new standards and ensure they understand their obligations. Establish a clear framework for accountability within your organisation

Always be prepared for a breach and have a plan for reporting this within 72 hours.

Won’t Brexit Change The Rules Again?

In short, no, at least not in the immediate future. 

The UK will still be a full EU member state in May 2018. 

Even after Brexit, the general consensus is that the data protection obligations for UK companies are unlikely to change.

It may seem odd for a finance professional to advise on GDPR, but I see my role as being one that accelerates and protects your company’s growth.  To further discuss how to protect your business from regulatory changes, you may wish to schedule an introductory chat with me. For an exploratory conversation, call 07947 810 036 or email michael.ware@horusconsulting.co.uk or of course message me via LinkedIn.

The A-Z of Interim Management

The world of recruitment consultancy often tries to pigeon hole interim managers. After all, it makes you easier to recall in their eyes. The recruitment consultant might ask…

“Are you a retail accountant?”
“Do you have PE-backed experience?”
“Have you bought and sold companies?”

The list is endless! In some cases, this makes perfect sense, especially if some niche skill is needed. You may well be saying, “I sense a ‘but’ coming.” And you’d be right. You see my interim career has covered the A- Z of accounting. It’s been sufficiently varied to cover everything from providing support for an aviation company through to a zoo! This variety has in fact helped clients. After all, it’s often how you react to a problem and the experiences you draw on to help you solve it that is key.

“These are vastly different,” the agencies say.
“No!” us accountants shout. The reality is that there are 5 key variables even in businesses as diverse as these.

The 5 Variables that REALLY Matter:

1.  Knowing the Key Costs

These are the ones vital to the performance of your organisation.
So, in the world of aviation they will typically fall around – security, rent (especially if you’re ‘on airport’) or licences.
Whether you are transporting firearms or tropical fish are you licenced to do so, or do you have to use an industry approved subcontractor.
In the world of zoo’s – again licencing, animal feed, veterinary services…

2.  Cash Forecasting

Cash is king, are you fighting for survival or do you have breathing space?
The definition of breathing space depends – it’s like when you want to go to the bathroom, a minute depends which side of the bathroom door you are.

3.  The consequence of Your Actions

If you have to cut costs and you cut the wrong ones first, the bad news is you may not recover.
In a zoo, no animal feed leads to no animals, which leads to no visitors which in turn leads to no business.
Moving ‘off airport’ will save you rental costs, but you can no longer use red diesel.
Security may also have to change; and you can no longer go straight from your handling warehouse to the aeroplane.

4.  Managerial Courage

Do you have the guts to put a key customer on stop because they’ve not paid when the causes of this action may impact the whole supply chain?

5.  Accurate v Speedy Information

How accurate are the KPIs which you run your business?
Can they deal with ‘what if’ scenarios?
Can your management accounts be published within 5 days of the month end or do they take weeks?
The finance function was suffering from a lack of leadership as many key staff had exited the business. In addition, the accounts needed to be completed quickly against a further background of EU realignment.