The basics of Time to Pay for businesses struggling to pay their taxes

negotiating Time to PayTime to Pay (TTP) is a scheme run by HM Revenue and Customs (HMRC) to help businesses struggling to pay their VAT, PAYE, corporation or other tax bills.

It was first introduced in 2008 after the global financial crisis as a measure to help businesses experiencing cash flow issues as a result of customers extending their invoice payment times.

Not every business is eligible for the scheme and the first step is for a business advisor to thoroughly review the business and to help prepare a realistic forecast that allows for the TTP payments.

This is because HMRC will want evidence that the business can keep to an agreed payment schedule as well as pay all future tax liabilities on time.

Once a business is aware that it cannot pay a tax liability, it ought to contact HMRC early, if only to ask for time to prepare a forecast.

When speaking with HMRC you should be a director and know your VAT or PAYE or 10-digit UTR reference number so they can identify you and your business.

Be prepared to answer questions when applying, including:

* the amount of all HMRC liabilities due and how much you want to reschedule;

* the reasons why you are unable to pay;

* what you’ve done to try to get the money to pay the bill;

* how much you can pay immediately and how long you may need to pay the rest;

* your bank account details.

You are also likely to be asked to give details of income and expenditure, assets, such as savings and investments and what actions you are taking to ensure you will pay future tax liabilities on time.

The level of detail a business will have to provide is dependent on the level of the debt – below £100,000, from £100,000 to £1 million and for more than £1 million.

HMRC will also consider whether the business is one that cannot pay, or one that will not pay. They do this by looking at your history of payments, both in the applying business, personally and other businesses you are involved with.

This guidance is largely based on that given to HMRC officers and is a useful insight into how they assess TTP proposals.

TTP arrangements, once agreed, usually involve making monthly payments by direct debit over a period of less than one year. While payments from a personal credit card have been demanded and taken in the past, they should no longer be demanded from 13 January 2018.

Essentially a TTP should be regarded as a last chance where any late payment of the agreed amounts or of future taxes is a default of the agreement and most likely will result in immediate enforcement by HMRC or a winding-up petition.

The emphasis in turnaround should be on saving a struggling SME

turnaround advisors are like rescue dogsIt is surely preferable to try to turn around and restructure a business than allow it to fail, with the consequent financial and human cost to the business, to employees and to creditors.

This has been acknowledged by both the European Commission (EC) and the UK Government, both of which produced proposals last year that included a 90-day moratorium staying creditors’ action and extending the duty of essential suppliers to continue supplying the troubled business.

In both cases, the aim was to re-balance insolvency proceedings towards turnaround and rescue, while acknowledging the interests of creditors.

Yet, according to the findings of an independent review commissioned by the Financial Conduct Authority (FCA) into the behaviour of the Global Restructuring Group (GRG), the treatment of SME clients referred to GRG by its owner, Royal Bank of Scotland (RBS) hardly followed best turnaround practice.

The FCA’s interim report published at the end of October this year highlighted a number of GRG failures.

Turnaround should be a clear and detailed process for achieving a viable business

The review found that in its training material GRG had clearly recognised the need for careful assessment of a business’ viability based on a wide-ranging investigation, followed by immediate recovery action where it was deemed unviable.

If it had been judged potentially viable, GRG should support a turnaround plan, that was considered, documented and as far as practicable addressed the SME’s underlying issues.

However, in practice, the review found “frequent failures to pay appropriate attention to turnaround considerations.”

These included not carrying out adequate viability assessments and failing to implement and document viable and sustainable turnaround options for the medium and longer term, instead focusing on short term measures such as rescheduling the credit facilities on revised terms.

Nor, said the report, did GRG make adequate use of the broad range of turnaround tools or consider the impact of RBS’ actions in pressing for payment and withdrawing working capital facilities.

In short, GRG’s commercial objectives were prioritised at the expense of turnaround objectives, placing a disproportionate weight on pricing and debt reduction rather than the SME’s longer-term viability.

Some RBS SME transfers to GRG were too late for turnaround assistance, more than one in ten of those sampled were transferred directly to the GRG recoveries unit.

The inescapable conclusion was that RBS’ and GRG’s commercial considerations took priority over any serious efforts at turnaround.

The report, however did not address who should help everyone, the bank as well as the struggling SME it was dealing with. Most banks’ or their insolvency advisers’ review of a struggling SME owner’s ‘turnaround’ plans are likely to include that they are not viable. The underlying causal factors are rarely addressed with proposals for fundamental change in the SME’s plans. And forecasting such plans is something very few have done. Specialist turnaround help is needed as very few bankers, insolvency practitioners and SME managers have ever actually managed a business with the objective of turning it round.

The primary objective of the turnaround advisor and the turnaround process must be, and generally is, to help a struggling business to survive. This normally means initiating fundamental change to achieve a viable business model that can survive in the future, not just get through its immediate crisis.

This is achieved by a careful, detailed and systematic review of every aspect of the business to identify those aspects that are viable, and those that are not and to then come up with a workable plan that will not only save the business but will encourage creditor support, increasing the chances that, if patient, they will in time get their money back.

How often should SMEs review business contracts?

review business contractsIn times of economic uncertainty, a careful business will regularly scrutinise its cash flow to ensure there are no hidden surprises.

When, as currently, costs rise profits decline unless sales prices, purchase costs and other expenditure are adjusted, and most businesses do this regularly by referring to their profit and loss figures in the accounts.

However, monitoring the management accounts does not keep an eye on the underlying obligations such as those for asset finance, service agreements or outsourced processes with both suppliers and customers where a review of these can identify scope for saving money.

Examples of cost savings following a review of contractual obligations include a recent client that was paying for computers on lease finance many years after the computers had been scrapped. The agreement provided for a three month notice that could have been terminated four years earlier. Another is the standard BT charge of £16.99 per month applied to business numbers to cover listing in their directory. It’s in the small print and very few clients seem to have spotted it.

Another good reason for a review of business contracts is that so many are old and out of date. An example is the agreement with suppliers. This is likely to have been struck as part of a credit application some years ago. An example is another client who had supply agreements with the major building materials suppliers including one with Travis Perkins that was fifteen years old. It was part of a credit application for as £10,000 facility and included personal guarantees given by the directors at the time. It was still in place despite all the directors having left and the facility being increased to £150,000.

So it makes sense to regularly review its business contracts.

Obstacles to changing business contracts

Having conducted a review of the contracts and identified any that are no longer fit for purpose, it may be necessary to seek expert advice and certainly to check the fine print as many contracts contain fees for early termination in the detail. Terminating leases is a particular area that needs advice.

While many agreements can simply be terminated against the contractual notice terms, others may require negotiation.

Even if terms for termination are reached it may be that help with drawing up a watertight and acceptable settlement agreement may be necessary. On the other hand, if agreement cannot be reached, this is where a specialist is needed.

Given the lack of legal experience and constraints on time in most businesses, reviewing contracts tends to be a low priority such that this should be done either as part of a formal annual review or it should be outsourced to advisers. As part of any review a company diary should be updated to flag any notice dates, termination dates and any specific agreements that might need a more frequent review.

What is not in doubt is that contracts should be reviewed regularly.

What is the purpose of a staff appraisal?

appraisal?For many businesses the usually-annual staff appraisal is seen as an opportunity for managers to review an employee’s performance, provide feedback on areas for improvement, agree trading needs, set targets for the coming year and address any problems that may have arisen in their behaviour.

As a result, too often employees view the annual appraisal with dread.  It depends heavily on their relationship with their manager and his or her ability to be objective.

Yet the appraisal can be of benefit to both employee and business if structured and handled in the right way.

Ideally, it will be seen as a constructive opportunity for an exchange their views, not simply as a tool for management to assess and, if necessary, improve the employee’s performance.

The constituents of a constructive appraisal

There needs to be a culture of trust and openness in the business and ideally, managers who are appropriately skilled, for example in asking good questions and active listening.

Ideally employees should be receptive, prepared to align with business objectives, learn and take responsibility for their performance.

The appraisal is an opportunity to recognise achievements and find out about an individual’s career objectives. It should recognise their achievements and be a genuine two-way conversation.

It should cover the whole period under review not just recent or isolated events and the result should be an agreed set of actions.

By the same token, it should also offer the employee an opportunity to feed back suggestions for improvement in company processes, ideas for the future development of the business and to highlight any processes that are clearly not working.

Set out and document clear appraisal objectives and purpose

The appraisal purpose, structure and process should be clearly defined and written down so that all parties are clear about what to expect. The aims, frequency and process should be clearly and simply outlined in the staff handbook.

It is helpful for both parties to have done some preparation for the meeting, ideally both should attend having completed the same questionnaire but from their own perspective. The completed documents can be compared and provide a framework for the meeting and its outcomes.

An appraisal is hardly likely to be seen as a constructive opportunity to all involved unless it is seen as a fair process. This could include appraisals always being carried out in the presence of a neutral third party, usually someone from the HR department or from the company to which HR is outsourced, whichever is applicable.

It should be clear that the business has made every effort to eliminate the danger of bias in an appraisal, perhaps because there is a clash of personalities between a manager and an employee.

Far too often the structure of an appraisal is seen as an occasion to be dreaded when properly defined and constructed it can be an opportunity for both individuals and the business to move forward.

I believe that appraisals should always be carried out by the employee’s line manager since their role is normally one of pastoral leadership. While there are many types of leadership, managers should consciously develop their own skills and style with the aim of getting the best out of their team. The appraisal is an opportunity to reinforce the relationship and improve everyone’s performance.

Buy or rent? How can SMEs avoid some hidden pitfalls?

The words: “If it appreciates, buy it, if it depreciates, lease it” are generally attributed to John Paul Getty, the oil billionaire who died in 1975.

While on the face of it the maxim makes eminent sense, the economic world in which 21st Century SMEs live is infinitely more uncertain and complex, thanks to such influences as globalisation, the 2008 financial crash and, more recently, UK’s decision to leave the EU.

buy or rent contractsNot only that, most service suppliers want to lock in clients for long-term contracts similar to traditional property rental agreements.

Furthermore, long-term agreements, like financial contracts have become increasingly complex.

Modern businesses that provide lease or rental agreements often have terms and conditions that mean the lessee cannot just hand back whatever it has leased, not to mention the payment of financial penalties if they wish to terminate a lease early. These contracts mean that a business is left with a liability rather than an asset to realise.

If an asset is depreciating, it does beg the question as to whether a lessee shouldn’t wait for it to devalue to a point that justifies buying it second-hand. However, whether you are leasing or renting you will always be funding the depreciation, as well as profit for the vendor and lender.

Where a business is considering investing in new plant or equipment to facilitate growth the cashflow argument is that leasing allows it to upgrade or improve without making a substantial, upfront investment. This may not benefit profits when compared with alternative ways of funding the asset.

It can also make sense where a business depends on equipment such as office computers that can become obsolete in a relatively short time.

However, my perspective on this is that there is an assumption that everyone makes that there is, or can be, continuous growth and that therefore it is worth waiting to return an asset.  But if circumstances change you end up with the liability of having to continue paying when you no longer need it. An example of this is most cars are now sold under a PCP deal. Personal Purchase Contracts are not purchases but leases with horrendous terms that are applied to make the monthly payment look reasonable, however the cars cannot be returned early without incurring a huge penalty.

We would argue that the better strategy is to own or lease assets on short term agreements. Owned assets can be bought using hire purchase finance providing the asset can be sold with the funds clearing the HP settlement value. Shopping around for HP deals is likely to find a better one than that offered by the vendor. Short term agreements are more tricky and the small print needs checking but essentially you are looking to avoid being locked in to a long-term contract or one that is expensive to terminate.

You should be wary of long-term agreements with break clauses like those used in property lease agreements. They normally include conditional clauses which often mean the break clause cannot be triggered. One example is that all payments must have been paid o time, another is the notice period for triggering the break clause can be unduly long, and there can be many others.

While you might be familiar with agreements for office or factory premises and for company cars, plant and machinery, the above advice also applies to services including telephone hardware, telephone, mobile and broadband services, computer software, website hosting, email and IT services, office plants, hand driers, sanitary and other washroom services, alarm, security camera and guarding contracts, furniture, I have even come across concrete laid in the com car park provided under a long-term finance agreement.

When circumstances change businesses can find that being locked into a long-term agreement can turn an asset into a liability. Many long-term leasing agreements may look cheap but can become a straightjacket.

On the other hand, the asset can simply be returned if rented on a short-term basis or sold if the asset is owned. You will certainly improve your cash flow by saving the ongoing cost of rental or HP obligations and might even realise some cash.

SMEs, as well as bigger companies, should pay attention to reputation management

Reputation management the damage a prawn sandwich can doIn the last few months at least two high profile, large companies have been having a torrid time thanks to issues that have made the headlines.

Uber, the app-based taxi hailing company first of all was refused its operating licence renewal by Transport for London (TfL) over passenger safety concerns. It then lost an appeal against an employment tribunal ruling that it must treat its drivers as employees and give them basic worker rights such as holiday pay and the minimum wage.

Uber’s chosen path in both cases was to lodge immediate appeals against the original rulings.

At around the same time, the budget airline Ryanair announced a huge reduction of flights, not once, but twice, due to its “messed up” planning of pilots’ holidays. Initially Ryanair compounded the problem by a lack of clarity about what it would do to compensate affected an estimated 400,000 customers.

The CE of the Civil Aviation Authority expressed fury at this lack of clarity and argued that the airline would be breaking the law if passengers were not re-routed via another airline or otherwise compensated, something Ryanair’s chief executive had initially refused to do.

Time will tell what effect the fall-out from these incidents will have on their respective businesses’ profits, although neither is likely to be wiped out completely, but they should remember what happened to Ratners the high street jewellery chain. It went bust after Gerald Ratner’s reference to his earnings being cheaper than a prawn sandwich. His customers didn’t like being treated with contempt and voted with their feet.

Another example of mismanaging reputation was Bell Pottinger, a PR firm that thought it specialised in reputation management. It caused its own destruction through an ill-advised PR campaign on behalf of clients that stoked racial division in South Africa such that once its activities became known, no one would do business with them and they went bust within a couple of weeks of the story hitting the press.

While one might question the original crisis, more pertinent is the reaction and handling of the situation and its effect on their reputations. Reacting swiftly to a crisis in the digital age is imperative especially as consumers are prone to expressing their displeasure on social media by which messages can spread like wild fire.

SMEs need to pay more attention to reputation management

A survey two years ago by Zurich found that only a small proportion of SMEs monitored their customer reviews and social media sites closely.

How many of us check online reviews of a restaurant or hotel before booking or of a product such as a television before buying one. Checking reviews, and not just those for service or product quality is now becoming more common as we can check up on people as well as businesses before even meeting them

Notwithstanding what happened to Ratners, larger companies can deploy resources to deal with a problem but for smaller, local businesses, favourable customer reviews are vital for survival.

It may be difficult for a SME to monitor its facebook, twitter and other pages and posts as often as advisable and it would be easy for a bad review to be missed.

However, there is plenty of evidence that prompt action and positive responses by a company can make a significant difference in avoiding longer-term damage.

This is one area where it is worth paying to outsource such monitoring to an outside expert, but at the same time the SME should give them very clear and detailed guidelines on what is and is not acceptable in handling complaints and negative reviews.

It is unrealistic for any business to expect to satisfy all its customers all of the time and to never make a mistake, but it should at least have robust reputation management systems in place to handle things promptly if something does go wrong.

Why should SMEs have a staff handbook?

taff handbookIt is important for employees, and management, to know exactly what is expected of them by way of appropriate behaviour, legally-imposed regulations and any specific company policies.

Businesses are required to oversee compliance by staff of all manner of regulations such as Health and Safety, manual handling, smoking, noise, abuse and discrimination to name just a few.

However, new laws and regulations are constantly being imposed on businesses and others are subject to change. While in the past such policies might have been incorporated into each employee’s contract of employment, the constant changes make updating them almost impossible. Instead contracts of employment can be quite short by referring to a staff handbook that can be kept up to date.

Businesses vary greatly in what they include in the employee handbook, but some can run to some 60 pages.

The essentials that should be in a staff handbook

Essentially, the handbook is combination of quality, management and reference manual. They are particularly useful when inducting new employees or as a reference manual when dealing with grievances and disciplinary matters, or sickness and absence.

Therefore, it makes sense for every business to have a well-structured staff manual, no matter whether it is an SME or a larger company.

Ideally, a staff handbook should be clear with an easy to search index so that it can be used for training purposes and referred to when dealing with problems that may arise.

It should contain company policies on dress codes and behaviour, information about claiming expenses, health & safety, security, personal safety, use of vehicles and driving while on company time, and lots of statutory policies.  It might include instructions for using technology and telephones, while most companies now forbid staff from using phones while driving and some forbid their staff from taking calls on business phones outside working hours.

Others have instructions for operating specific equipment or machinery as might relate to departments, while these can be incorporated into the staff handbook they might instead be appended in working instructions that apply to the relevant department. Either way such instructions should be referred to in contracts of employment and the staff handbook as observing them will be a condition of employment.

Staff handbooks should include reference to policies on equal opportunities, Disciplinary Rules and Procedures, Grievance Procedure and Health and Safety Policy.

While there is no need to include the details of the legislation they should point to where both staff and management can find more information.

There are many other policies, these days, that businesses may also have, such as on drug and alcohol consumption, especially where they expect employees to drive motor vehicles. Email security is also a major area where employee compliance is key including internet security, protecting company systems from unauthorised access and viruses, accessing inappropriate or non-work-related websites, personal use of company computers and telephones or social media. Sickness and absence, parental leave, data protection and whistleblowing are also normally covered.

Again, staff and management need to be familiar with the policies and procedures and know that they exist, and where to go for detailed information.

An up to date staff handbook should be available on staff noticeboards with notice of any changes that might be relevant. These should also be covered during a periodic staff review and every now and then an updated staff handbook should be issued to all staff.

It might need to be longer than 60 pages but, however long, every company that employs staff needs a staff handbook.

Could there be a retail “bricks and mortar” fightback?

Happy "bricks and mortar" shopperThe inexorable growth in shopping online continues to put pressure on “bricks and mortar” retailers as is illustrated by the clothing and homeware retailer Next, which last week reported its third quarter full price sales up by 1.3% on the same time last year.

But Its High Street sales for the quarter were down by 7.7% compared with the same time last year while Next Directory sales rose by 13.2% compared with 2016 and 9.4% in the year to date.

Multi-channel competition from the likes of Amazon is forcing retailers to revisit their business models and the cost of retaining a High Street presence is causing them to struggle to keep prices competitive. Another problem is the time and cost of delivery, again under pressure from Amazon and its Prime next day delivery service.

Nevertheless, many people still like to go to physical shops for the social interaction and the opportunity to touch and see the products.

One solution retailers have chosen is to reduce the size of their estates but retain a presence on the High Street with smaller stores, marrying the display of a smaller selection of products with the Argos Style online ordering and delivery system, or moving into concessions in department stores.

Marrying “bricks and mortar” space with innovative technology

As the BBC programme The Disrupters, suggests, there may be more innovative shopping models to come.

One it describes is the Moby Mart, tested in Shanghai, where a marriage of self-drive technology and a mobile “store” can be summoned to the customer’s neighbourhood.  They then enter the “shop” by swiping their mobile phone at the door, select products then swipe their way out again.  The idea is still at beta stage so there is some way to go before it becomes a reality.

That the physical retail space still has its attractions is illustrated by the fact that the likes of Amazon have ventured into real-world bookstores as well as buying a US grocery chain, Wholefoods, with more than 400 High Street outlets.

Alibaba, too, has been experimenting with ways to keep a physical presence while keeping costs to a minimum.

One idea is their pop-up café, under the Taobao brand, using facial recognition software to identify customers who are than able to enter to pick the food they eat and pay using their mobile phone rather than to cashiers.

Finally, the rise of discounters, like Aldi and Lidl, has been inexorable.  They continue to flourish and grow in physical retail spaces by offering own-brand, cheap but quality basic foods to undercut their rivals.

While ‘bricks and mortar’ retailers need to have a distinct proposition and provide a great service, convenience is a factor, but the battleground remains price vs perceived value. Getting it right will be a challenge and is one that Mary ‘Queen of Shops’ Portas still advocates despite recent claims that her “Save the High Street” campaign has failed following new figures showing that a thousand shops have closed over the past five years.

Short term thinking in business amid Brexit uncertainty

in the midst of uncertainty don't panicIt seems that hardly a day goes by without a new and negative headline about the UK’s decision to leave the EU and the prospect of an adverse outcome from the negotiations.

Here’s a selection from the Independent at the time of writing: “David Davis has conceded that Britain’s Brexit withdrawal agreement will probably favour the EU”, “UK financial watchdog warns bank moves likely to be irreversible”, and “20% of UK restaurants at risk of going bust due to Brexit”.

It is hardly scientific, but gives some flavour of the atmosphere currently dominating the headlines on the issue.

Whether business owners follow the news or not, it is hardly possible to be completely immune to the climate of uncertainty that is surrounding the process, not least because reportedly some 58 studies have been carried out on the likely impact of leaving the EU on various sectors of the UK economy, details of which the Government has so far declined to publish, allegedly for fear of jeopardising negotiations, but may now be forced to after a vote in the House of Commons.

What further pressure last week’s interest rate rise to 0.5% will put on businesses remains to be seen, but the prospect of further rate rises is unlikely to help any business struggling with debt repayments.

No wonder, then, that many businesses are putting growth and investment plans on hold and concentrating on short term survival.

But ultimately this is not a sustainable position to be in since the business that fails to innovate is unlikely to thrive or grow and stasis is generally seen as a forerunner to failure.

What can a business do in the face of continuing uncertainty?

The obvious is to say, “keep calm and carry on”.

But also, acknowledge that fear of the future can become a self-fulfilling prophecy that encourages short term thinking, caution and at worst frozen panic.  It is often the case that where some see only looming disaster others see opportunities.

So, we would urge businesses to do their best to look on the bright side, think and plan for at least medium term and do everything they can to keep their businesses in the best possible shape, from carefully managing cash flow and monitoring cost but at the same time actively looking for opportunities.

This may mean getting help from a restructuring advisor to thoroughly review all its operations and identify the strengths and weaknesses and suggest ways to transform, pivot, slim down or otherwise revise the business model and update processes in preparation for embracing the opportunities as they emerge.

How not to do email marketing

avoid email marketing being seen as spamTrying to catch people’s attention is not easy when their email inbox is flooded with emails they feel they have not asked for and have no time to read.

So, any business planning an email marketing campaign that wants to attract readers’ attention, whether it is passive to stay ‘top of mind’, or active and get them to sign up to offers, make further inquiries or buy an item, needs its communications to be engaging, relevant to the recipient and succinct.

Of course, an accurate profile of the ideal recipient, whether influencer or customer should have been researched and the goal of the piece of marketing clearly defined. So, writing the e-mail’s content should be relatively straightforward, shouldn’t it?

Indeed, irrespective of how great the content is, getting recipients to open emails to read great content is a challenge.

There are plenty of pitfalls to avoid if you don’t want your communication to be marked as spam or be listed as ‘unsubscribe’.

What to avoid when writing content for an email marketing campaign

A business’ credibility can be easily wrecked by an email containing spelling errors, typographical errors or broken links. The advice is to proof read thoroughly and preferably using someone who has not been involved in the writing.

Do not use deceptive subject lines that imply the sender and recipient have been in an ongoing conversation when they clearly have not been. Equally, do not send emails with no-reply to sender addresses. It is a disincentive to those who might be willing to engage further.

Whatever the purpose of the email, make sure it offers something of value in a way that interests the reader – hence the importance of a detailed customer profile.

This should be the first message before explaining how the sender business can satisfy that requirement, and even then, keep any information about the company as short as possible.

The subject header is key to getting the recipient to open the email. Once opened the recipient shouldn’t feel they have been duped into opening it, instead they should feel pleased they did.

Too many calls to action can feel like bullying or badgering and can be off-putting.

If the email is to contain images they should not take too long to load onscreen.  At the same time, do not rely solely on an image for the email.  Image-only emails are often seen as spam.

And finally, you have just eight seconds at most to get the reader engaged and interested so KISS (Keep it Simple and Short) is the way to go.