ENSURE PROFITS ARE TAX EFFICIENT
Phil Verity, business and advisory partner at Mazars:
Moneypenny has a number of issues to address and the overriding aim for the company should be one of balance. The key to maintaining its impressive rate of growth, while creating systems that are appropriate for a larger company, is recruiting and retaining talent.
Moneypenny might consider outsourcing its HR function in order to bring a fresh impetus and resolve to the existing workforce. The firm should also consider offering a share of the business to key staff to promote a feeling of inclusion, rather than just throwing money at the problem of recruitment. The speed at which the right people join will be the right determinant for growth rather than the setting of year on year targets measured only in top-line terms.
It is often the upgrading of back-office systems that gets left behind in the drive for growth. Real cash should be spent now, improving the systems and bolstering the back office function in anticipation of increased business.
Moneypenny might also consider outsourcing other functions, such as the processing side of the accounting function, on top of HR. Such a strategy would free up management time, and allow core rather than peripheral competencies to be the focus of the management.
One issue not yet considered is that of tax efficiency, as profits are growing rapidly and capital value is building in the business. Mr Reeves and Mrs Clacher can pay tax on company profits at 19 per cent until the profit reaches £300,000, but the rate shoots up to an effective 32.75 per cent for profits over that.
Moeneypenny need to consider how best to manage taxable profits below the level of £300,000 if they can, and how best to extract income for themselves from the company - whether by salary or dividend for example.
One of the most flexible ways for them to achieve this is by using a Small Self Administered Pension Scheme (SSAS). Contributions can be made into the scheme, tax deductible to the company, and the fund built up for Mr Reeves and Mrs Clacher when they retire. The pension fund is itself a tax-free vehicle and Mr Reeves and Mrs Clacher can have a large degree of control of how it is invested.
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Karen Weech, a director at the Big Small Business Initiative (BSBI):
