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Informed financial planning advisors pass on their wisdom to clients. If a company fails they will naturally look at back at this advice. In this TV show Doug Hall discuses throwing the spotlight on professional advice.
For example auditors, we are dealing with a number of cases, where a company has failed, and if the company had not failed there wouldn’t be an issue. But in the company going into administration for example, major creditors had lost and they may say that they have relied for example on audited accounts to make decisions, to lend money or to support the company and in the cold light of day the company having failed, that’s an example where you may go back and look at what the auditor said in earlier years. So we have situations arising from insolvent companies where the spotlight is thrown onto a whole range of professional advice that they were given before the company failed. Which never would have come under that spotlight if the company hadn’t gone into administration for example. It's not an area that we get involved in but valuers have seen a big increase in the number of actions against them very simple because the banks relied on valuations of properties for example, and then when the company has gone into administration and the bank has lost out, they then go back and look again at the professional opinions that they relied upon, in making their original lending decisions.
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Business assets that are being bought or sold should only be valuated by a professional. Ignoring this may lead to huge losses or even liability. In this TV show John Rugman discusses getting the right valuation advice.
It’s important to get some professional help. The area is quite technical, there’s a lot of judgement involved and it’s important that the end number is sound, it can be cross checked against experience of valuations and other assets and companies. There’s something around the expertise in this area, because it’s an area where quite often people have a go. So there’s quite a lot of unprofessionalism if you like, people have a go at doing a valuation, anyone can calculate a number, yeah that’s the easy bit. So I think there is something around specialists who do evaluation work all day every day, I think there’s something around the fact that I’ve seen people get it really badly wrong and get sued, so. So there are a variety of different sources from where you can see a valuation. I think the key thing to note is there is usually a lot of money at stake and the discipline itself is quite subjective. So it’s important to go to specialists who are familiar with the circumstance, used to doing valuations, understand the methodologies, so they can reach a conclusion which is right.
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The legal sector now has less resources to pursue action for business disputes, as Doug Hall discusses in this TV show.
So basically this whole arena that the commercial world changed overnight caused tension and caused a whole range of drivers for more commercial disputes. However in more difficult times, parties or potential parties to commercial disputes were wary about committing funds to pursuing them. So that’s the irony, that there were more disputes but less resources to pursue them and what we saw for a number of years is that cases would start and be settled very early, they’d be front end loaded and it required a different sort of input from forensic accountants for example and for the lawyers, that they would do a much more high level exercise to establish damages for example early on and then go for an early settlement. I had a few years where I went to more mediations than I went to trials and we had to produce a different sort of report for a mediation to what we produce for a trail, a different purpose. One really gives a less balanced view, a report, a WP report for a mediation, an experts repot for a trial needs to be very balanced and because an expert has a duty to the court. So the symptom we saw was there was definitely an increase in those sort of disputes for those sorts of reasons, but less of them actually went through towards the trial, which is really to do with cash flow and to do with companies under pressure and litigation was not a priority. And this is the sort of picture that we had from all the lawyers we know, because we spend quite a lot of time talking to litigators, they’re the people we work with.
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Informed financial planning can help people maximise residence tax reliefs, as Chris Springett discusses in this TV show.
As you would expect most of our clients own and have one if not numerous properties. As such we get involved very regularly in dealing with property issues that can arise for them, tax on property, given the property market, is obviously a key figure for a lot of clients, and property prices rise and so the tax charge on them also arises. So it’s again making sure that reliefs are available and claimed as appropriate. I’ve also co-written a book on the main relief that’s available on capital gains tax, this main residence relief. So again I get involved quite a lot, even if the client isn’t directly mine, in assisting other members of the team and making sure the claims are maximised.
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Transaction services at Smith & Williamson is headed up by Philip Quigley who explains his role in this TV show.
I head up transaction services, that covers financial due diligence, reporting accountant and valuation services, which is not my particular area. We have a team based in London and in Bristol and Southampton. And we generally cover the marketplace in terms of those services.
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Smith & Williamson has a private client tax services sector. In this TV show, Associate Director, Chris Springett discusses this work.
Private client focus means that we see a lot of cases in this area. Main residence relief is always dependent on the specific facts, specific circumstances and the availability of the claim is then, flows through from that. Because we’ve got such a large private client practice, we see a lot of different circumstances, looking at one at the minute involving a garage and how that might impact when the garage has been let out. Again, just different fact patterns and the experience that that gives us, puts us in a very strong position to review and to consider how the relief might
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Pensions are a complex part of personal finance planning. Paul Garwood discusses different ways to receive pension payments in this TV show.
When you reach retirement if you’ve got a pension plan and that pension plan is one that you’ve contributed to and has now grown into a fund, you don’t just have to buy an annuity with that fund.
And you tend to find that those with larger funds wouldn’t necessarily want to buy an annuity because it’s quite inflexible.
Once you’ve purchased an annuity, if you were to pass away very quickly thereafter, the annuity fund or your pension savings go to the annuity provider.
Furthermore when you purchase an annuity you may have to make a one-off decision regarding spouses’ pensions.
And if your spouse predeceases you, then again you’ve bought something you don’t need.
Also with annuities you may have to consider inflation at outset. And that’s quite a difficult call to make.
So what a lot of people do who have reasonably sizeable pots is they enter into income drawdown.Now, income drawdown enables them to dip into their pension plan and take out an income as and when they require it. And depending upon their circumstances, their income within that drawdown plan is capped at a specific maximum or sometimes it’s open-ended, you can actually take out as much or as little as you want from that plan, as and when you want. And the other thing to consider perhaps with less successful people or with people who I think less successful is not the right expression, but people who have got a more tighter budget when they get to retirement, they might want to phase in their tax free cash. Pension plans allow you to release 25% of the fund on retirement and historically a lot of people have used that, perhaps to pay off debt or to buy assets, notably overseas property perhaps. But I think we’re finding now that a lot more people are perhaps using that tax free cash to supplement their income. So they will phase it in over a period of years rather than taking it all in one go. __________________________________________________ Inside Finance TV are following discussions around personal planning and finance, and are releasing more videos daily.
Life expectancy is rising. Mike Fosberry of Smith & Williamson discusses successfully advising a growing number of retirees.
I think the successes are people obviously living much longer nowadays.
Longevity I think it one of the biggest issues we face economically from a family life perspective. It's a huge impact in terms of well an economic perspective in terms of things like care costs, etc.
And how do you deal with longevity?
People are, let me say, they're retiring at 65, they may have a spouse who's three years younger than them on average, that's normally the case. One of them is likely to be alive in 30 years’ time, actuarially speaking.
So that's a huge issue because their retirement life may in some cases be longer than their working life. So do you have enough money when you retire to sustain yourself through what could be a very long retirement?
And bear in mind that the latter stages of the retirement are probably going to be in pretty poor health as well. So how do you cope with that? How much money do you need to cope with that? And so we've got to get people focusing on those issues now.
Government is looking at it.
Obviously we've seen extension of state retirement age. For most people it's going to be 67 or 68, perhaps longer in the future.
That's only part of the solution the government will put to it. They can't afford to increase the amount of money set aside for things like care bills, we haven't got the money to do it.
So there's going to be a huge incentive or a huge requirement for people to fund for themselves.
And that's part of my job, making sure that they focus on those issues.
In terms of success, well we have a lot of clients who are well into retirement, in their late 80s, who seem to be surviving on the income and capital that we're able to provide them with in their retirement.
So I'm touching wood when I say this because ultimately peoples’ expenditure patterns, etc differ.
But in the main I think we've done a pretty good job. And I think one of the issues there is being in a situation where you're able to provide that long term advice and have the capability of being able to do that as an organisation.
______________________________________________________________________________________Life expectancy is just one issue that is changing the ways businesses are thinking and operating. Inside Finance will bring you more perspectives on the big issues in 2014.
Record keeping should be done thoroughly from the start. In this TV show Smith & Willamson's Chris Springett discusses property ownership and case law.
Recent case law in the area it really does highlight just the importance of record keeping.
I mean for us in the profession it’s something that obviously we discuss with clients quite carefully to make sure that all the documents are there.
But recent case law where people haven’t been able to prove that they’re using the property as a residence, that alone, it’s their main residence and so entitled to the relief.
Yeah, the case law has been very much based on the fact that these individuals couldn’t produce the evidence.
So even things such as making sure that you’re retaining gas bills and electricity bills to more useful or even more interesting uses of maximising the relief such as making sure your post from the tax authority goes to that address.
So then they can’t claim that you weren’t living there if that’s where they’re writing to you at.
And it’s these sort of matters that, you know, if we can get talking to clients early when they perhaps get their second property or where they’re perhaps looking to expand their property ownership, that we can start from day one, rather than trying to prove something after the fact.
Record keeping is just one of the varied subjects broached during Inside Finance TV's interviews.
Under the Companies Act itself probably not, because we’ve already had the, you know, the big overhaul of company legislation for this generation I hope.
There is as always more law and regulation emanating out of Europe.
At the end of last year the European Commission put out their company law and corporate governance action plan listing areas they wish to review so to the extent which Europe has more to say on all of this, things like the Listing Prospectus Disclosure and Transparency Rules, you know, may have to be changed to comply with the various European directives.
Cranfield is quite unique in the landscape in the UK. We only have postgraduate students, we don't have undergraduates so they all have experience who come to the campus. But more importantly, in terms of revenue, if I talk of Cranfield like a business school, more than 60% is done through teaching executives.
Whether it's corporates, large corporation or it's companies that we predominantly work with which are ambitious owner managers. The business growth programme which is our flagship programme, and that's been running for 25 years.
So we have now 1200 and more businesses coming through the door and wanting to grow, being challenged and sort of having come out at the other end hopefully improved.
There are some nice examples we had on the programme looking at... if we look at consumer goods such as Go Ape you might have seen climbing in the trees.
Or Hotel Chocolat who came at this point where it was really important to take the business to the next level and the programme has helped them.
Typically it will be what is the business' current financial condition, so that's primarily looking at assets and liabilities.
What is the business' market, where does it stand in that marketplace, is it a leader, is it a pawn in a big game?
Looking at the business' forecast and we often find that businesses that have financial difficulty have inadequate forecasting.
They either don't do forecasting at all or they make a very poor job of it and so if they don't know what the financial position is going to be in the future, they don't know what the pinch points are in terms of their cash, then it's very difficult for them to plan ahead.
So that's one key thing that where we add value is identifying what the future holds for the business in the short and medium and longer term by helping management to come up with some proper forecasts.
So those are the key things, what's the current financial position, what's the future financial position likely to be and if that's a position that's not viable or sustainable, then what recommendations can we make to either steer the business away from the insolvency process or to plan for a process that will maximise the outcome for stakeholders.
Often, as I said earlier, directors leave it too late, come to us when they have to pay the wages at the end of the week and don't have any money to do so and in those circumstances it's often very difficult for us to do anything other than advise them to commence an insolvency process.
If they come to us earlier, there are ways in which their working capital facilities can be restructured or the business can be restructured so that they can avoid an insolvency process. But the key thing is for management to spot the problems early, come and seek advice and we can help them.
I think there’s a combination of things. The first thing you’ve got to do unfortunately is invest some time in getting to understand what FRS 102 is all about.
And it may be the easiest route is to talk to us and we’ll give you the overview.
You then need to do a more forensic examination to go into individual accounts account codes and understand precisely what the repercussions will be.
Then you’ve got to map out in quite some detail, exactly how you’re going to move from where you are at the moment to where you need to be in the future and then finally you’ll need a process that gives you assurance that you’ve picked everything up and that what you’ve done works.
The implementation of FRS 102 is probably the largest single change to an accounting framework for the majority of companies in a generation. Not only that, it will also impact on profitability of businesses, the way their accounts looks and because of the impacts on tax, it means that there will be proper real money effects as well.
The way that tax is accounted for in the UK, is that the tax payments often, under many situations follow the accounting rules. When the accounting rules change, therefore the amount of tax you have to pay also changes. This means that when you dot the new FRS 102, you will be paying more or possibly less tax, depending on the effect that it has on your profit and loss.
I think people have heard about it. They heard it’s coming, lots of people haven’t really understood the impact it’s going to have on their accounts. And lots of people don’t realise that it’s going to have that real money effect that we were talking about. It is a huge change and the devil is in the detail.
When you throw out all the current accounting standards and replace them with one, that is going to have a huge effect.
The transition date for a December year end is effectively 31st of December 2013.
So to the extent that there are these options that you can deal with earlier, you really need to give now a clear picture before that date.
And that will be quite challenging if you’re starting now.
Sometimes it can take a while to work out what somebody has but I think one of the first meetings that you have with the client is really important because you understand just them talking through what they think they have.
It gives you an idea of where they want to go and it gives them an opportunity to work out where they want to go, what's important.
The lovely thing about financial planning, you can't walk up to a cash point and press a button and it tells you what you should do, it's all very personal.
We all have different hopes and aspirations and dates that we think we're going to retire or what we want to do with our money.
So it's wonderful, you get to know your client very well.
I think at the young age, I’ve certainly got some young footballers who perhaps think that they can take on the world, shut the lights out, all that sort of stuff, which perhaps we’re all guilty of at, you know, in our late teens, early twenties.
However, once perhaps they’ve had one investigation from HM Revenue & Customs and it hasn’t quite gone as they thought they would because of the arrangements they’ve got into without seeking proper advice upfront, then it’s a bit of a reality check and it’s, “Okay, I do need to talk to you.
I do recognise the value that you bring to the relationship we have.
And I’ve learnt my lesson, I won’t do it again.”For further information on the impact of UK tax laws for sports stars, watch more of Peter's videos. The key it to get proper advice as to which arrangements are appropriate and not to wait until potential difficulties with HM Revenue & Customs arise. There have been plenty of examples, in football in particular, where footballers as well as clubs have entered into tax arrangements that have been found to be inappropriate by HM Revenue & Customs. In the case of famous footballers, this can result in unnecessary embarrassment and expense later in their careers when an investigation has an unfavorable outcome.