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Private Business

Bringing your business the value it needs

April 2011

In this issue: Page 2 Budget 2011 – Helping businesses grow Page 8 Karren Brady – Playing at the top of your game Page 16 Shaf Rasul – Investing in success Also in this issue, we talk to two Introduction business people who are well aware of the need for an upturn in the economy: Karren Brady talks to us about her business outlook and the need for diversity in the boardroom, while Shaf Rasul tells us about his entrepreneurial roots and his management style.

Welcome to the spring issue of Supporting new businesses is at heart of Private Business. what we do at PwC, so I’m delighted that we’re involved with the Private Business Editorial, April 2011 Awards for 2011. We’re looking for With the need for economic growth at companies who really showcase the the forefront of his mind, drive and ambition of private businesses. delivered the second Budget of his time If you’d like to nominate your company in office on 23 March 2011. The Chancellor you can read more on page 19. talked of a Budget that contained the We round things off with our regular ‘hard truth’, and outlined the tough ‘Bits at the back’ section, where we reforms that were needed to bring the outline the current hot topics that your deficit under control. He went on to business needs to be aware of. announce measures specifically aimed at promoting enterprise and making As always, if you have any feedback UK plc a more attractive business option on the topics raised, we’d love to hear – for everyone from new start-ups to from you. overseas multinationals. On page 2 of this edition, we talk to Mary Monfries – Head of Private Business Kind regards at PwC – to guage her reaction to the Ruby Parmar Government’s plans. We look at how the [email protected] Budget may affect your business and also ask if the Chancellor has really done enough to promote meaningful growth. Contents

Budget 2011 – Helping businesses grow 02

EU planning – Finding the right jurisdiction 05

Playing at the top of your game: an interview with Karren Brady 08

Corporate structures – Passing your MOT 12

Investing in success: an interview with Shaf Rasul 16

Celebrating the best: the Private Business Awards 19

Bits at the back… 20

Contacts 22

April 2011 1 here without paying a non-competitive international tax rate – and that’s a Budget 2011 huge step forward. Having said that, I do think there’s more that needs to Helping businesses grow be done. So number one, it’s great that there’s a commitment to making the UK competitive. And that recognition of the need for change is something On 23 March, the Chancellor delivered a Budget we’re seeing already in practice. that he described as ‘the hard truth’ for Britain. We’re working with HM Revenue & Customs (HMRC) to agree George Osborne talked of a ‘plan for growth’ and arrangements for our clients now, outlined this plan’s four main aims: even before the new rules come in: that make commercial sense. • To create the most competitive tax system in the G20. There’s a real change of attitude.

• To make the UK the best place in Europe to start, But I think it would be unwise of the finance and grow a business. Treasury to think that they’ve fixed • To encourage investment and exports as a route to the issue entirely. It’s a fantastic step in the right direction but, actually, a more balanced economy. if you’ve got a large UK business that • To create a more educated workforce that is the is mostly UK-based, it’s not particularly most flexible in Europe. going to help you. Additionally, if there are non-domiciled investors We sat down with Mary Monfries, PwC’s Head of owning shares they may still need Private Business, to find out if she believes this really a holding company outside the UK. was a Budget for growth. On the corporation tax rate cut to 26%, you may say it’s only another 1% cut over and above what was already announced, but the fact remains that by the time it gets Creating the most competitive down to 23% in 2014, it’s a pretty tax system in the G20 competitive rate. And we do have to Has the chancellor done enough recognise this against the backdrop to lower the corporation tax rates? that the Chancellor hasn’t got a lot Will the extra 1% drop really make of money to play with, at present. the UK more competitive? So what else is there on the “Fundamentally, it’s very pleasing positive side? to hear that reiterated commitment to making the UK competitive. If you “I think it was positive that the look at corporation tax (CT) reform Chancellor reiterated yet again – there wasn’t a lot made of it in this that the 50% income tax rate is Budget because it had been pre- temporary. For privately owned announced on 9 December last year, businesses, this is just as an but it will enable easier international important factor as the headline structuring for a group headed in corporation tax rate. Of course, the UK but carrying out on the downside, there was no international business. It should timescale given on when he thinks enable a number of groups to stay he’ll be able to take that top rate away.

2 Private Business The other thing that may help the Making the UK the best place Encouraging investment and competitiveness of the UK as a place in Europe to start, finance and exports as a route to a more to invest is the piece around non- grow a business balanced economy domiciled individuals (non-doms). Where there enough changes in How important is private investment We’ve yet to see the details, but being this Budget to make the UK a more in getting the economy back on track? able to remit income and gains into attractive place to do business? the UK and invest them in British “I think that private investment is companies without suffering UK tax “It’s really important that the hugely important. The critical thing on the remittance should be attractive. Government, the press and any is encouraging entrepreneurship and The non-dom rules are favourable voices that can be heard are saying encouraging entrepreneurs to build here, recognising the importance of how important it is to make the businesses – and indeed students encouraging international investment, UK attractive to businesses – and coming out of universities and schools but at the same time they can seem also creating a sense of pride in to build their careers through working counter-intuitive – by acting as a entrepreneurs and entrepreneurship. for entrepreneurial businesses. If you deterrent to people bringing funds I don’t want to knock that. Having look at what was in the Budget to into the UK. What’s not yet clear is said that, if you talk to most people support that, there was of course the what is meant by ‘commercial who are at the early stages of change in the entrepreneurs’ relief investment in UK businesses’ and setting up a start-up business, (ER) limit from £5m to £10m – a big how that’s going to work. Is it going I think they’ll tell you that they’re step in the right direction. to be an investment in any UK frustrated. I don’t think many would commit to a statement that There’s a second piece which is un-quoted trading businesses or also critical. We need to make sure will it be more restrictive?” said the UK is the best place in the world to get help in starting we’re looking to individuals with The Office of Tax Simplification (OTS) a business. private money to go in and help has advised on the removal of several fund that entrepreneurial aspiration reliefs, but the tax code is still complex. It was interesting to see the – it can’t all come from the Do we need more simplification? Chancellor announce the Start-Up entrepreneur alone. For me, we have Britain campaign. Launched on 28 to recognise that there are different “I’ve had a couple of very useful March 2011, it’s part of a drive by sources of capital and different meetings with John Whiting entrepreneurs for entrepreneurs, to investment behaviour. A trick missed, (Director of the OTS) in the last few help start-up and growing businesses from my perspective, was that months and I think there’s real to access practical help. It will be although we had the increase in ER, commitment to simplify things. interesting to see how this develops.” it can only benefit people who have The difficult task that he and the a 5% or more stake and who are Government have is that, in the one Will the proposed extension of employed in the business. It would Budget, you might lose 43 obscure enterprise zones have the have been great if they had opened reliefs but you’re also creating more desired effect? that up to external individuals who are prepared to put their money complexity and/or change with the “There’s been very mixed at risk investing in unquoted new things you’re bringing in. experiences with enterprise zones trading businesses. We do call for simplicity, especially in the past. I don’t think it’s ever for small businesses, but we also a bad thing to do, but for them to Similarly, it would be good to see call for legislation to be improved. work effectively it needs not only a linkage between the 10% rate of Stability is as important, if not the Government’s impetus but also capital gains tax (CGT) achievable more important, than simplicity. belief from business that these are through ER and EMI share options. People want simplification, but, great places to start companies. It would be relatively simple to generally, only if it’s not detrimental I don’t think many entrepreneurs legislate that all shares acquired to them.” would start a business somewhere through qualifying EMI options that didn’t make sense just for the qualify for ER and it would be sake of capital allowances or lower putting many employees back where business rates. It can only be an they thought they’d be when their encouraging, rather than a completely options were first granted. behaviour-changing, move.”

April 2011 3 Hugely important sources of funds for early stage businesses are of course the enterprise investment scheme (EIS) and venture capital trusts (VCTs). EIS and VCT have both been crucial in closing the equity gap, so it’s particularly pleasing to see those reliefs being expanded, subject to EU State Aid approval. From April 2011 the proposal is that EIS income tax relief goes up from 20% to 30%, and from April 2012 more companies will be Creating a more educated A plan for growth? able to access these sources (with a workforce that is the most Finally, do you feel that this really proposed increase in the gross assets flexible in Europe was a Budget for growth? Will the increase in the number of test, number of employees test and “If you look at this Budget, there upper limit of annual investment). university technical colleges, and the emphasis on apprenticeships, was a lot of very positive comment The third piece is something that create a more skilled and more on enterprise and an important government can’t make happen: educated workforce? recognition that the Government private businesses have to work out is looking to the private sector how to access the growth that’s “With the whole cost of university for growth. But if you step back and coming from emerging markets. courses going up, I think put yourself into the shoes of some It’s hugely important that our apprenticeships are going to be of our already established, medium internationally-focused growth really important. And from another and larger-sized privately-owned businesses get their heads around angle, we do need to be attracting businesses – who are still growing that, and the more the Government good, intelligent people into and who are a growth engine for the can do to pull down any roadblocks business at an early stage – before UK economy – you have to ask if the the better.” they get enticed by the financial reality is that good yet. We’ve still world and the City. When I left got a 50% top rate of income tax, university it never even crossed an NI cost at 13.8%, a relatively my mind to go and join a start-up high CGT rate outside the confines business. We need to encourage of entrepreneurs’ relief and employee school leavers to be more open- benefit trusts and genuine deferred minded in their choice of career. compensation arrangements You can do a lot over three years potentially coming under the hammer. learning and working with a truly There are some really good practical entrepreneurial and dynamic steps being taken to get the economy company from the bottom up – back on track, but we shouldn’t make and finding out how business the mistake of thinking that we’re really works.” there just yet!

4 Private Business EU planning Finding the right jurisdiction

Simon De Young, PwC Tax Director, talks about the opportunities be drawn up in such a way as is for international and European Union (EU) tax planning for consistent with European private businesses. There are many jurisdictions within the EU Community (EC) law, and in particular the EC Treaty boasting favourable business tax rates and Cyprus is one of the ‘fundamental freedoms’ which are places your business may want to consider to make the most there to prevent discrimination. of these opportunities. Because the extent to which UK tax law incorporates these freedoms has What is EU tax planning? been unclear, this has seen the UK’s Put simply, it’s organising the largest businesses undertake commercial structure of your structuring to take advantage of the business to maximise the use of the benefits conferred by the EC treaties principle freedoms available to you (the current treaty is commonly as a citizen of the EU and benefit known as the Lisbon Treaty, though from lower tax rates. This is not a its actual title is the Treaty on the case of the tax tail wagging the dog. Functioning of the European Union). Done well, the tax advantages are The roll call of EU cases includes driven by your commercial strategy some of the most identifiable names and objectives. in the UK – e.g. Daily Mail & General Trust, Cadbury Schweppes, The EU freedoms available to Vodafone, Marks & Spencers and individuals extend to their businesses. ICI, to name but a few. Principally, these are the freedom to establish a business anywhere in the Now, partially in response to this, EU and the freedom to move capital the UK Government is proposing the across borders (which extends to biggest changes to the UK tax jurisdictions outside the EU). By ‘EU’ landscape for 30 years. This aims to we mean the 27 member states and create a competitive, simpler and the European Economic Area (EEA) more stable tax system, and to make countries, Iceland, Norway and international planning easier for Liechtenstein. The national business of all sizes. legislation of these countries must

April 2011 5 What does this mean private businesses. The use of, for in practice? instance, simple offshore financing Businesses can restructure structures could see tax savings of themselves in a number of different as much as 16% from 2012. ways. At one end of the spectrum this may involve inserting a new The right jurisdiction non-UK resident holding company There are a number of jurisdictions and relocating your head office where international planning outside of the UK. At the other end, opportunities can work. How this it’s possible to restructure just parts is achieved and where depends on of your business. This can include the strategic objectives for your moving investments to reduce tax business, but Cyprus is one territory on capital gains, establishing which may be worth considering. treasury operations (for example, to Luxembourg, The Netherlands The birthplace of Aphrodite, or Cyprus) to reduce the cost of the ancient Greek goddess of love, borrowing, managing intellectual modern Cyprus has established property offshore or restructuring itself as an international business supply chain or procurement activities. centre. Cyprus aims to attract businesses of all shapes and sizes, If your business has already developing an impressive, relocated you’ll need to revisit your professional infrastructure with a structures and consider whether plentiful supply of highly qualified additional benefits can be and skilled human capital and incorporated from the proposed attracting investors from many changes in the UK tax rules. If you parts of the world. have yet to venture into the choppy waters of EU tax planning, you’ll be Since Cyprus became a full member of the most practical places to do able to access lower taxes within the of the EU in 2004, it has adopted a business in Europe. You can explore safe harbour of the UK’s own legal ‘best in class’ approach and has for the investment opportunities framework. The latest changes many years been on the ‘white list’ opening up in the East, including will see the UK move to a more of all relevant international Russia, the Ukraine and other territorial regime with the organisations and important Central and Eastern European relaxation of the controlled foreign countries. For example, Cyprus countries, as well as territories company rules and a new foreign was included in the Organisation further afield, such as China and branch exemption. The consequence for Economic Cooperation and India. Because of this, Cyprus is an of both these changes is that a Development (OECD) 2009 white attractive place to set up an greater amount of offshore activity list published during the 2009 G8 international holding company and will no longer be subject to UK tax. Summit, while most other it’s a particularly favourable place mainstream EU jurisdictions to hold intellectual property. The changes may not be radical were not. enough to justify a move back to the Choosing the right kind of EU planning UK for the larger businesses which Cyprus, a former British colony, has won’t be a straightforward process. have left in recent years – but the an English-based legal system, using Deciding on the right jurisdiction for international reach of HM Revenue English case law precedent, making your business and weighing up the & Customs (HMRC) is clearly set it a relatively easy place to do pros and cons for your overall to diminish, and tax-efficient business. English is also the main business strategy will require a expansion offshore will be far more business language. Its location and lot of questions to be answered. straightforward in the future for all treaty network makes Cyprus one

6 Private Business Cyprus taxation highlights

• Member of the EU • Exemptions on dividends from • Lowest corporation tax rate in foreign subsidiaries and the EU – currently 10% permanent establishments, subject to easily met conditions • Wide treaty network – over 40 countries and more pending • Tax rulings available on a wide range of issues • Wide-ranging tax exemptions • Investor-friendly approach by tax • No withholding tax on dividends, and other regulatory authorities interest payments or royalty payments • Liberal deductibility of expenses • Exemption on profits from If you’d like to find out more disposal of shares about EU planning, you can contact: Simon De Young 020 7804 5890 [email protected]

April 2011 7 Playing at the top of your game

The perception of women in business has changed radically over the past few decades. One woman who has done more than most to bring diversity and equality into the boardroom is Karren Brady. As managing director of Birmingham City Football Club from 1993 to 2009 she turned around the fortunes of the club, while also championing the cause of female executives. In her current position as vice chairman of West Ham she is continuing this trend, while also finding time to act as Lord Sugar’s right-hand woman on the TV show The Apprentice.

We caught up with Karren to ask about her views on women in business, the future of the economy and how private businesses can help support not only the recovery, but also the communities which they are part of.

© WOMAN&HOME Liz McAulay

8 Private Business You’ve famously pioneered the Do you feel that a female I think there’s an understanding cause of female-led business in approach to business, and to that business can help government. the UK. When you first started management in particular, is That has never been more apparent, your career at LBC and Saatchi different to a male approach? insofar as the coalition asking and Saatchi, did you think Are female business leaders less someone like Sir you’d be so successful in happy with unnecessary risk- [owner of the ] making women’s voices taking, or are women just more to assist them in the recent heard in the boardroom? ‘risk aware’ in general? savings review.” “I always had a very firm view of “I think women on the whole, in women’s place in both the workplace my experience, are less political. How would you encourage private and in society. It’s something that’s So they tend to serve the company investment and entrepreneurial always been at the core of my beliefs rather than personal friendships. activity in the UK? Will private and I’ve been fortunate enough to They tend to have a much more investment help us maintain reach a position where I can promote focused view as opposed to the recovery? that message. I do practice what I worrying when the next job might “Yes, I think private investment and preach: when I left Birmingham City be coming along – they’ll focus on people setting up their own businesses 75% of the senior management team the job in hand. will help. There seems to be, from a were women and at West Ham I’ve female point of view, a view that all brought in three senior people who The problem of risk comes down to women want to run corporate banks are also women. It’s something diversity – having too many people – well that’s certainly not the case. that’s dear to my heart.” following the same aims, with nobody there as a health check to What a lot of women want is a ask ‘Why are we doing this?’, rewarding, well-paid job that allows Sport was clearly a very male- ‘What is the reason for doing this?’ them to have high-quality, affordable dominated industry when you and assessing the risks. If you cut childcare. And if they can’t get that, first began working with everybody in your own mould in the then they don’t want to work. Birmingham City. Do you feel same business, then you don’t have So what a lot of women are doing that women in the sports industry enough pressure on the questions – more so than men – is setting up face a more level playing field in of ‘Why?’, ‘What are the benefits?’ their own businesses from their the 21st century? and ‘What are the risks?’” kitchen tables. And I think that can “I think there probably is a more only be a good thing. You can be level playing field. In ’93 it wasn’t Based on your many years of well rewarded because you’re really known that women were experience in business, do you rewarding yourself with the work involved particularly in football. feel that the coalition Government you’re doing. Some women do want We were quite a rare breed in those is doing the right things to to run big investment banks, but a days. But, fortunately, lots of women support economic growth? lot of women don’t. There shouldn’t are taking proactive steps and are “I think this government, in be any obstacles in the way doing great work in the industry – particular, understands that it’s whichever path you choose.” which can only be good for the business that will dig the way out of industry. Organisations generally the recession. It’s business that pays benefit from having a very diverse the taxes and creates employment. workforce, including the board. Actually, there seems to have been If you have too many like-minded far too much of a gap between the people from the same backgrounds politicians and business under the with the same beliefs then you’re previous government which is too busy patting each other on something that is certainly being the back as you fall off the cliff. bridged by the coalition Government. You need that diversity.”

April 2011 9 With the senior candidates, some of them come in with a lot of bravado. Then they have to adapt, change and learn and I think all of those things are important. They learn that part of the process of The Apprentice is the ability to put people under “We have a unique ability to enormous pressure: pressure to run teams, pressure to make deals and connect with young people. pressure to make decisions. And these That’s something that a lot are all things we have to do on a daily basis when running a business. of other businesses don’t It’s a good test of character.” have, so it’s very important Football clubs obviously have that we do it.” a huge social impact on the communities which they are part of. Do you think that You’ve worked closely with businesses need to think Lord Sugar on this season’s series more about supporting the of The Apprentice. Did you feel communities that they’re in? the contestants were a positive “I do and it’s at the heart of example of the up-and-coming everything that West Ham do. generation of business people? Whether it’s our bid to take over “Certainly the Junior Apprentice the Olympic stadium – where the was a great, positive example. community benefits are pivotal to Lord Sugar had the view that our bid – or whether it’s just generally teenagers get a bad press in this using your good influence within the country and he wanted to show community to help others. So, for the world that there are ambitious, example, at West Ham there’s a hard-working teenagers out there. classroom for people with learning And in particular to show other difficulties, people with language young people that being an difficulties and for local schools to entrepreneur is not about the come in and learn about team spirit, qualifications or the academic motivation, education and the ability achievements that you have. to work as a team. Those things are It’s more about spirit and really important. determination and showing that hard work can conquer all. We have a unique ability to connect with young people. That’s something that a lot of other businesses don’t have, so it’s very important that we do it.”

10 Private Business Are the issues of sustainability In addition to that, I have the and carbon usage high on the opportunity to work on The agenda within the sports industry? Apprentice, which happens to be Does West Ham Football Club have my favourite show on TV. So I don’t any commitment to improve or think anything can be as good as that! review their sustainability And then, of course, my other thing credentials? is my writing. I write a column for so, all in all, I’m doing all “We have a number of schemes in the things I want. I guess, if I’d ever place. Not only to adopt the policies written down a list when I was ourselves but also to educate other young, I’m doing all those things now. people. More so than ever before, we care about those things. Actually, A lot of people think you wake up it will be the entrepreneurs who are aged 41 and you’re the managing in school today that will be the director of a business, but actually people that save the planet tomorrow. it doesn’t work like that. It takes They’ll be developing new ideas and years and years – decades even – new technologies which we can’t of pivotal hard work to move up the even possibly think of.” ladder and get to be in a position where you’re running a business. On a daily basis, you’ve got to show You’ve already achieved so strategy, leadership, dedication, much in business. Where do determination and enthusiasm. you see yourself in 10 years time? And to be able to sustain that on What plans do you have for a daily basis, you’ve got to enjoy the future? what you do.” “To be honest, I’ve never been someone who has a plan; I’ve never had a tick list of ‘achieve this’ and ‘achieve that’. I’ve believed that nothing’s work unless you’d rather be doing something else. Until I get to the point where I’d rather be doing something else, I’m very “I’m very lucky that I work in happy doing what I’m doing. I can assure you, with the hours that I an industry which I like, that work, if I wasn’t enjoying it or finding it rewarding it wouldn’t be I’m respected in and which I physically possible to do it. I’m very can make a contribution to.” lucky that I work in an industry which I like, that I’m respected in and which I can make a contribution to. So I’m very happy where I am at the moment.

April 2011 11 Corporate structures Passing your MOT

Do you have the most efficient short and long term. Typically, we Once the objectives are understood, structure for your business and are finding such objectives include you can give some thought to the individual needs? Following thinking about: kinds of structures that should significant changes in the tax, legal help you achieve your objectives and commercial world, many private • risk and asset protection most efficiently. business structures are no longer • a future exit or succession Given that no private business is the providing the best performance. • simplicity and minimising same and that objectives change There may be significant benefits compliance costs if you think about restructuring. over the years, no single structure • management and employee fits all. Taking this into account, When considering the optimum incentivisation we’ve set out below the top five business structure it’s important to • efficient cash extraction. areas we are seeing that can bring consider your objectives for both the significant benefits to private businesses and their owners. We’ve also included a real life case study of a business we met with recently as an example of how these methods can really add value for Why review your structure now? your business.

• Does your structure give you the protection you need to protect the value you have created from trading 1 and wider economic risk? Should assets be moved away from riskier ventures and placed in separate Mitigating structures with limited liability? • One very simple option to achieve this aim is the increased insertion of a new holding company and the transfer of cash or assets to this new entity (as shown in the business case study on pages 14/15). risk

• The difficult economic conditions of the last few years have seen an increased level of scrutiny of 2 businesses from their customers, suppliers and finance providers. The first (and often only) Making sources of information are the published accounts and many private businesses are not presenting the right these as favourably as possible. • Undertaking relatively simple actions such as impression capitalising inter-company balances or consolidating entities can dramatically strengthen a company’s balance sheet, making it a more attractive proposition for any potential business partners.

12 Private Business • With the highest rate of income tax remaining at 50%, private business owners need to think about 3 how they can manage their after-tax returns to maximise re-investment in their business. Managing • The increased differential between corporation tax rates (set to be 23% by 2014) and income tax rates increased and increased national insurance contributions, can lead to significant difference in the tax cost of tax different structures. This is relevant when thinking about how to structure your assets – i.e. held personally or in a company and how to extract value from a business, for example, bonus, dividend or as a partnership profit.

• In the recent Budget, the limit of capital gains which are taxed at 10% rather than 28% under 4 entrepreneurs’ relief (ER) was raised to £10m. This could mean a possible saving of £1.8m in Maximising tax per shareholder on the sale of a business. • There are a number of simple actions that entrepreneurs’ private business owners can take to ensure this relief is maximised for them and their family relief (one simple example is set out in the case study). • Even if an exit is not planned in the near future, the relief may still be available for commercially-driven restructuring and it’s therefore important to consider whether any changes need to be made.

• Pension legislation is going through a period of sweeping change and thought needs to be 5 given to providing for the future and how this is structured. Providing • The increased flexibility regarding drawdowns, and the removal of the requirement to acquire for the an annuity at 75, means that personal pensions have an important role in wealth management future for private business owners.

April 2011 13 Diagram 1: original structure Case study The original structure Mrs Smith Mr Smith

4%

Background Mr Smith Sons 6% Let’s take a look at diagram 1. 90% A businessman, let’s call him ‘Mr Smith’, founded his furniture trading company in 1980. He is married with two adult sons who Furniture Ltd Property both work in the business. His wife is a director. He also owns property personally which he rents to Furniture Ltd. Proposed structure

He is a 50% income taxpayer. 1. Transfer of shares to –– Splitting the income and The shareholdings in Furniture Ltd wife and children capital rights between New are set out in the diagram shown. –– Currently only Mr Smith would Holdco and Mr Smith means qualify for entrepreneurs’ that rental income is subject to (lower) corporate rates Objectives relief on a sale of shares. of tax. On a future sale of • Mr Smith is concerned that a –– To qualify for the relief, a property the position would downturn in trading or other shareholder needs to hold be as it is currently; i.e. 28% unforeseen liability of the trading 5% shares in a trading capital gains tax and post tax business could put surplus cash company and be an employee cash in Mr Smith’s hands. that has been historically retained – for a continuous 12 months in the company at risk. up to a sale of the shares. 3. Insert new holding company • He would like to extract some –– Increasing his wife and son’s above Furniture Ltd surplus cash but does not shareholdings to 5% could –– A new holding company can want to suffer higher rate save the family up to £5.4m be inserted with no tax cost taxes on extraction. in tax on a future sale. above Furniture Ltd via a share-for-share exchange. • Mr Smith is also thinking 2. Move the personally held about exit planning and how property to a LLP –– Surplus cash can then be his current structure could moved from Furniture Ltd by –– Placing the property into affect his post sale proceeds. means of tax-free dividends a LLP provides liability to New Holdco. The gross protection in respect of cash can be invested until it’s the rental business. required either within the –– An LLP also provides a flexible corporate structure or by ownership structure which Mr Smith personally. can meet Mr Smith’s future –– Moving cash to New Holdco needs; e.g. introduction of will allow Mr Smith to de-risk family members as partners. his personal wealth as it will be –– By selling the property to the less at risk to potential liabilities partnership in return for funds of the trading activities. introduced by New Holdco, Mr Smith can extract cash from the corporate structure at capital rates (N.B. stamp duty land tax would require consideration).

14 Private Business Is it time to review your structure? As you can see, Mr Smith went away from our meeting with plenty of food for thought. As set out in our example, now is a good opportunity for you to review your current structures and question whether they support your short term and long term goals. If you’d like to discuss your current situation and need help identifying a structure that would pass its MOT, please don’t hesitate to contact your local PwC contact or Chris Romans.

Diagram 2: proposed structure Chris Romans 0121 265 5432 Mrs Smith Mr Smith [email protected] 5%

Mr Smith Sons 10 % Capital 85% rights

Income New Holdco rights LLP

Furniture Ltd Property

April 2011 15 Investing in success

Shaf Rasul is the founder of E-Net Computers and one of the UK’s most prominent entrepreneurs. We met up with Shaf at his offices in Edinburgh to find out more about his success story, his views on starting out in business and his plans for the future.

16 Private Business You built up an investment And they were made in portfolio at a young age. when money was very, very easy to What inspired you to start get. In the current climate I wouldn’t investing so early on? invest in any e-commerce businesses, but in those days you could go and “I still do have an investment borrow £10m from a bank on a portfolio, actually, but originally it phone call. Using £1m to invest in was an accident more than anything an e-commerce business was a else. One of my customers was about no-brainer.” to go into administration and the Like you, your father was a company’s secretary, Cheryl Hardwick, businessman. He ran a turned round to me and said that What would you attribute your newsagents in Scotland. she could run the company better investment success to? Do you Do you think your father’s than the directors. She said to me, have a particular business entrepreneurial spirit rubbed ‘If you allow me to have a payment approach or management style off on you at a young age? plan with your company and you that you think has helped you can receive the other suppliers, the “Being involved in the family achieve such positive results? fact that you’re there will give it the business, I’ve always thought that I “I try to surround myself with a gravitas for all the other suppliers wanted to work for myself. My father really good group of people. So I to change our short-term debt into bought his first business when I was genuinely discuss it as a vote and long-term debt’. seven or eight years old and I did a if the board feels it’s a good idea, paper round before I went to school. So I agreed to do that and to fund then we move forward with it. I had a work ethic drummed into me the management buyout – that was Our finance director will look at from when I was little boy. I was my first investment. Cheryl then the financials, our sales director will doing a paper round before school came back to me about a year later look at what the benefits are for my and helping my parents with the and said to me ‘I’ve got a great idea company and whether we can grow business after school while still for a business. I was wondering, sales. Every person who’s involved being expected to get very, very could you introduce me to a few in the business will have a look at it.” high grades.” people?’ and she managed to reduce her debt far quicker than we’d You founded E-Net Computers expected her to. It was a no brainer, Was there an expectation that back in 1999. You’d already I thought, so I agreed to fund the you’d work for the family amassed a considerable investment business. After that I kind of became business? What made you portfolio at this point, so what a ‘bank of last resort’ for a number strike out on your own? provided the spur to start your of businesses. Where they’d not own company? “None whatsoever; my dad was been able to get funding from a adamant that I wouldn’t get bank, I agreed to fund the business, “I actually stumbled into the involved in the family business. subject to X, Y and Z. That’s how I opportunity – I suppose I was in That’s why he sent me to university. got involved in the online version the right place at the right time. He said to me ‘You’re going to get a of Dragons’ Den and that’s produced Before E-Net, I never used to employ proper job. You’re not going to work a portfolio of investments that are people who were cleverer than me. in the family business’.” here, there and everywhere.” But after my first group of businesses, I had some advice from a third party who said to me ‘Shaf, you’re You trained as a lawyer at university, What made you invest so a great entrepreneur, you have but only lasted a day in your first heavily in e-commerce? some great ideas, but you need law job. What was it that lured you “To be honest with you, what we people to help you execute them. away from law and into business? found was that all our clients that You need to surround yourself “My first job that I had was working showed the biggest growth were with the right management team’. in a law firm. I worked there for e-commerce-related businesses, And he recommended a number about an hour and a half and it was hence the reason why I invested in of people to me. just absolutely horrendous, so I just e-commerce. It’s not a short-term walked out. I’d actually already investment; it’s a very, very long- So we got all these people together decided that I was going to set up term investment. We don’t expect and I said ‘Right guys, we’re going a business. I literally just thought to see any dividends for a number to start a new business, it’s called ‘I want to be the person in charge. of years from these e-commerce E-Net and we’re going to make I want to be the boss’. I wanted to businesses. But when we do, we’re phenomenal amounts of money’. control how things happened.” hoping they’ll be quite extraordinary.

April 2011 17 And they all obviously thought Where do you see the smart ‘Wow, this guy’s really weird!’. But money being invested over the in the end we decided to do it and it next few years as we try to get was very successful – I think in the the economy back on track? first year we turned over £17m and we had a net profit of £1.7m. I think “To be honest with you, in about five it’s overcoming that bias that years time I’ll be investing back in entrepreneurs have of not wanting property again. But the smart to employ anyone cleverer than money, I think a lot of it’s being them. They don’t want to think that invested in the internet and the this guy might show them up! But if really smart money has got to be I’m not good at something, I’ll go investing in retail. and find an expert.” As one of the dragons on the BBC’s Are people with entrepreneurial online version of Dragon’s Den, skills born that way, or do they E-Net is the largest distributor you’ve obviously sat through a lot learn to be entrepreneurial, of optical media in Europe. of presentation showcasing new do you think? When you started out, did business ideas. Did your time on you have complete confidence “I definitely think it’s something you the show give you confidence in that you could achieve this can learn. I did an apprentice the creativity and business savvy kind of success? scheme last year which I promoted of the British public? through the business column I write “Right from day one, I knew it was “The thing I found disturbing about in The Sun newspaper and we taught going to be a success. We did our doing Dragons’ Den was that a lot of people the basics. market research, we did a couple the people didn’t do any research. of transactions and we saw the That was just extraordinary. You go We do try to help the people on the opportunity and the market size. up to pitch to somebody and they Dragons’ Den. That’s what I like It was a real growth market that hadn’t even researched the basics. about the online version – they’re all was growing by 80% to 90% a year. That’s just something I drill into start-up businesses. Start-ups are We just thought we can adopt a people again and again. You go infinitely more risky than other better business model and we do your research before you even businesses. That’s what I like about can do this – so literally, that’s approach us. it. You’ve got to decide whether it’s what we did.” going to work, or whether it’s not If I’m honest, there were some really going to work. You’ve got to use all good ideas in the Dragons’ Den. your experience.” Computing and IT are fast moving It’s like panning for gold – you’re industries – how do you keep going to go through a lot of dross, If you’ve been inspired by Shaf’s ahead of the game and make sure but then eventually you’re going to story, and see parallels with your you’re distributing the right find a little nugget of gold. Dragons’ own activities then you should products to the right markets? Den has educated people. It’s become nominate yourself for the Private “A successful entrepreneur stays cool to be an entrepreneur and it’s Business Awards. You can find out ahead of the competition by actually not that hard. There used more on the next page. responding to the demands of the to be this mystique to it, but it’s market place and implementing dead easy.” their idea before anyone else does. If someone else is already doing it, you have to think of a way of doing it better whether it be through enhancing the service, quality or cost.

Retail is a very fast-moving sector. A lot of bricks-and-mortar retailers got into the internet side, but are now moving back again. Even some of the internet players are getting into retail – opening stores where you can order online, but pick up your purchase in-store. So effectively it’s ‘clicks-and-mortar’ rather than bricks-and-mortar.

18 Private Business • Social Enterprise of the Year The Social Enterprise of the Year will have demonstrated good solid progress in achieving its aims and reinvesting profits to ensure a sustainable model. • Employer of the Year The winning company will have introduced innovative policies and initiatives to help staff attraction and retention. • High Growth Business of the Year The winner will have demonstrated growth in their revenue and profitability through strong organic development. • Private Business Woman of the Year The judges are looking for a woman who has been instrumental in Celebrating building a business. Shortlisted businesses will be profiled in the next issue of Private Business. The winners will be chosen by an the best independent judging panel and announced at a gala dinner at The Savoy Hotel, London.

All privately owned businesses The Private are encouraged to enter, and self-nomination is encouraged. The process is very simple, just give Business Awards us the name and contact details of the company you’re nominating and the reasons you think they deserve to be considered. Companies may then be asked to give further details as part of a nomination interview. As well as working behind Nominations are open now for: To enter and for further details go to the scenes with many of the • Private Business of the Year www.privatebusinessawards.co.uk UK’s growing and successful • CEO of the Year businesses, we want to celebrate • Family Business of the Year Nominations are open until the end of April. For the purpose of how amazing private business • Technology Innovation these awards, private businesses owners and their families are of the Year are defined as UK organisations The winner of this award will in their drive to grow their which are majority (51%+) owned have developed potentially businesses, be great employers by individuals or families, which world-leading technology. and contribute to their local have no publicly traded shares. • International Team of the Year Entry is free. communities. The winner will demonstrate strong revenue growth outside its The awards are run by Ford Sinclair That’s why we’re launching domestic market and a strategy to who created and run some of the the Private Business Awards build on this international success. biggest and best-attended awards on 8 September 2011 at the events in the publicly-quoted sector Savoy Hotel, London. including the plc awards and the AIM Awards.

April 2011 19 Bits at the back…

Changes to UK Private businesses corporation tax Three new challenges for 2011 and corporate The Bribery Act 2011 – Disguised remuneration tax reform ignorance is no defence The draft disguised remuneration The Bribery Act represents a legislation released in December The recently announced significant change to UK law and 2010 aims to prevent many artificial corporate tax reform changes introduces a new corporate offence arrangements but may also have could have a major impact on of ‘failing to prevent bribery’. affected some standard commercial private businesses. The only defence is to demonstrate arrangements which have no tax that there are ‘adequate procedures’ avoidance motive. These are the headlines you in place to prevent such acts from should be aware of: occurring. These acts are not Concerns were raised in the restricted to management but subsequent consultation process • The headline rate of that the legislation would apply to corporation tax to fall to include all of a company’s employees, agents or subsidiaries. innocent situations (such as where a 26% from April 2011 and group company that is not the direct reductions to continue by This change will affect your employer lends money or simply sets 1% per annum until 23% business, whether it’s a large or a aside funds for an employee). As a in 2014. small concern, and especially if result, the Government has • Simplification of capital you’re trading overseas. You’ll need amended the proposals to limit gains tax rules for groups, to be able to demonstrate that you the impact on employers and including extension of have adequate risk and anti-bribery individuals where it’s possible to reliefs for the sale of procedures working in practice identify arrangements that can’t businesses. when the Act comes into force in be used for avoidance purposes. • Major changes to the rules April 2011. This may be a challenge that tax profits of certain if your business doesn’t have a large While the amendments and foreign companies internal compliance function, as clarification are welcomed, the controlled by the UK, you’ll need to ensure that the right potential scope of the legislation is including relaxations to controls, processes, values and still very wide. As such, you need enable tax-efficient funding behaviours are in place. to consider the impact for your of overseas businesses. business. In particular, you should Given the potential for unlimited think about the consequences of • The ability for UK fines, you should review your making any new loans (if the loan companies to choose for existing risk and anti-bribery is not extended by the employing their foreign branches to be procedures and decide whether company or a group company of exempt from UK tax. change is required. the employing company), deferred • Changes to the taxation of bonus or share plan awards or innovation and intellectual making any payments to an property, including the employee benefit trust. introduction of a patent box 10% tax regime in 2013. With some of the changes coming into effect in April 2011, now is the time to assess your businesses’ tax strategy.

20 Private Business National minimum wage– HMRC focuses in How to get your copy of Private Business: HMRC is focusing on practises which it believes breach the it’s your choice national minimum wage (NMW) We can deliver Private Business directly into your email inbox. If you’d legislation. One example of this like to receive the electronic version, please contact Laura Baldock at kind of breach would be where [email protected]. employees arrive 15 minutes (or more) before the start of their shift If you choose the electronic version, please let us know the address we or working day and, in some cases, currently mail your copy to so we can change our lists. stay behind for a period after their shift has ended, without payment Don’t worry, Private Business will still be available in a paper version for the additional time for those who want it and we’ll continue to post it to you unless you tell us otherwise. If one of your employees is paid an hourly rate in accordance with, Private Client spring edition available now or close to, NMW, the practice Our sister magazine, Private Client, provides news and our opinion on of asking them to work extended relevant tax and investment issues for private individuals. If you’d like hours unpaid can, when averaged to receive this publication, please email your details to: out, take the employee’s wages [email protected]. below the statutory NMW rates. As a result, your employee is entitled to additional pay representing their actual working hours, as well as there being an outstanding liability for your employer’s national insurance.

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April 2011 21 Contacts

London Midlands North East Ruby Parmar Paul Norbury Jonathan Greenaway 020 7804 7152 01908 353051 0191 269 3319 [email protected] [email protected] [email protected]

Mary Monfries Barry Smith 020 7212 7927 01509 604203 Yorkshire and [email protected] [email protected] Humberside Julian Jenkins Steve Snook 020 7804 6399 0121 265 6851 Arif Ahmad [email protected] [email protected] 0113 289 4716 [email protected] Alison Lees Chris Romans 020 7804 4964 0121 265 5432 [email protected] [email protected] Scotland David Clarkson South East West & Wales 0141 355 4051 [email protected] David Gibbs Tracey Bentham 01223 552242 0117 928 1194 Isabel Mcgarvie [email protected] [email protected] 0141 355 4060 [email protected] Lynn Piercy 01895 522249 North West [email protected] Northern Ireland Alison Lever Ray Thomas 0161 247 4079 Paul Rooney 0118 938 3278 [email protected] 028 9041 5412 [email protected] [email protected]

Andy Latham Lindsay Todd 01727 892295 028 9041 5540 [email protected] [email protected]

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Brand & Design 20606 (04/11)

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