With the Christmas holidays approaching, for those who have the opportunity, it is a good time during the holiday season to “take a step back” and have look at your business. Review how the business is working (review how you work in the business!), what are your goals/ambitions for 2020 and take a look at some common problems/issues we flag to our business clients on a regular basis which all too often are put on the backburner using the excuse that “I am too busy!”
What happened to the business plan that you drafted many years ago! When did you last look at it and see what you planned? What has happened since? Does it need re-writing now the business has grown, developed or changed direction?
Outside of the business plan, we have a few suggested areas you may wish to review, if relevant to you:
Using self-employed contractors (including non-executive directors) to avoid the legal burdens of taking on employees can leave you open to theft of your intellectual property, data and customers if the correct contractual terms are not in place.
If the contractor is not operating through their own personal service company, it could also result in HMRC charging you PAYE and employer’s NIC. Incorrect classification of an employee can result in the employer being held accountable for tax not accounted for through the PAYE system. This could include interest and penalties of up to 100% of the outstanding liabilities.
A Harbour Key client recently had a HMRC employment status enquiry which, although the tax liability was small, involved significant time and effort in dealing with the enquiry.
In view of the risks, a change in practice may be required. In April 2020 new rules will be introduced (which are already in the public sector) regarding the use of contract workers, known as the Off Payroll Working Regulations, which will have a drastic impact for large businesses using contractors some of whom, for example HSBC, have now put a blanket ban on using contractors. The regulations apply whether the contractor is working as self-employed or via their own personal service company. Although there is an exemption for small and medium sized enterprises in using contractors, as defined in the legislation, there is still a risk of HMRC launching a “disguised employment” challenge. Alternatively, there is a risk that someone you engaged who has historically wanted to be self-employed, subsequently challenging you for holiday pay following the decisions in recent cases like Uber.
Action – Review your contractors regarding how they trade and the terms of engagement.
Business Names Act
If you are like us at Harbour Key, you conduct the majority of your correspondence by email. However, we pick up a number of clients who don’t have a proper email “signature” that replicates the legal requirements shown on their business letterhead, (the company’s name, company number and registered office). As it is common to remotely reach agreements with customers and suppliers without them ever seeing a letterhead, i.e. knowing that you are limited company, should the contract go “sour” you could, as the director agreeing the contract, find yourself personally liable. This is regardless of the fact that you are a shareholder and director with limited liability because the customer may successfully argue that they believed they were contracting with a sole trader.
Action – Tidy up your email signature, website etc. to display the legally required information.
Shareholders’ Agreement/Partnership Agreement
Forming a limited company with other shareholders (and in particular where the individuals are all equal shareholders) is often effected without thought as to the merits of having a shareholders’ agreement in place, mainly due to cost. Thereafter, as everyone is busy it continues to be forgotten. But what would happen if you cannot agree how to run the business or there is a dispute or a director/shareholder walks out? Without a properly constructed shareholders’ agreement (and particularly if there is deadlock), this can easily lead to the company failing or you being caught in a situation that you cannot get out of – a situation that is likely to be made worse if there are bank or other borrowings backed by personal guarantees. The same problems can occur with a partnership if there is no partnership agreement in place.
Again, Harbour Key have recently assisted clients who have had these issues with a shareholder/director who had left the business but there was no agreement in place to enable their shares to be bought either by existing shareholders or the company.
Action – Dig out the shareholders’/partnership agreement for a review and refresh. If you have no agreement start planning one and book a meeting with a solicitor. Take advice in relation to Inheritance Tax as it is easy to fall into a trap and lose entitlement to 100% relief when drawing up shareholders’/partnership agreements.
Terms & Conditions
Have you reviewed your terms and conditions of business recently or are you still working from a set ‘borrowed’ from another business? It is highly likely that these terms and conditions will be out of date and unfit for purpose. If you have a customer dispute or a non-payer, badly drafted terms and conditions will seriously undermine your legal position and undoubtedly either lead to expensive litigation or an equally costly “walking away”.
For example, have your terms been updated to reflect The General Data Protection Regulation (GDPR) requirements, which required businesses to protect customer and employee personal data and how it is used?
Advice – Have a solicitor review your business terms and conditions.
Review of Business Protection & Your Will
Have you reviewed your business protection insurance (shareholder protection & keyman) recently or do you have any?
If your business has grown, do you have sufficient cover or, indeed, do you have any cover in place? Is it an expense you have avoided? Have you considered what would happen to the business should anything happen to you and what about your family? Keyman protects the business. Shareholder protection protects the business and your family by providing the business with funds to buy your shares from your executors so that your family receive some funds relatively quickly.
When was the last time you reviewed your Will? Do you even have one?
Advice – Spend some time googling some quotes for cover, arrange to speak with an IFA and solicitor.
Intellectual Property Audit
Brands and trademarks are at the heart of many businesses and are amongst a company’s most valuable assets. IP generally (including registered patents, trademarks, design rights, software, etc.) is valuable and the ramifications of not protecting these assets can be serious – theft, loss of reputation, loss of income and reduction in company value. Identifying and recognising your IP and having the right type of protection is essential.
Action: Review your IP – is there anything you can readily protect, for example a trademark can be registered online for a fee of £175.
Review your Bank/Overdraft/Loan
When was the last time you looked at your Bank and the support they provide? Are the borrowing facilities the best value or are there other options? With a potential economic downturn looming due to the US/China trade war, Brexit and other factors, we are seeing banks starting to review lending provisions and security, although the lending market is still competitive with a number of new challenger banks on the market looking for trade. Alternatively, why not consider helping your retirement fund with a loan from your pension fund to your company.
Action – Do some internet research re business banking and best lending deals.
REVISIT YOUR PRICING
When was the last time you looked at your pricing?
Many small business owners make the mistake of undercharging their clients: Is your pricing adequately compensating you for your time, experience and costs (which include taxes, retirement plans, health insurance and more)?
The start of the New Year is a natural time to increase your rates.
We are sure there are a number of other matters that can be looked at in any business, but the above are common ones we come across regularly and are quick easy fixes if you spend the time to pick them up.
Should you wish to discuss any of the above, please do not hesitate to contact us.