Falling out over Finances, Episode 5: Commercial Clashes

In our final episode in this series…

We discuss how lack of communication during trading can result in catastrophic financial consequences for businesses. We also look at the reasons behind an increasing number of entities now seeking alternative dispute resolution methods.

Forensic Services have dealt with multiple dispute cases where parties have irreconcilable differences. Often they have taken steps to actively prevent disclosure of relevant and timely information to the parties involved. This blocks any potential settlement purely from an emotional desire to cause the other party frustration and cost.

Consequences

The economic climate means all businesses control costs tightly. Any escalation in a dispute or threat of non-payment from a customer can have a significant effect on the continued operation of an entity. To ignore the reality and potentially serious nature of a dispute or loss may have severe financial consequences. However, many bury their head in the sand and never fully recover to their previous financial position.

Many SMEs and owner managed, family businesses do not have the resources or expertise to immediately assess the full extent of a loss. They may ultimately fail if they do not take proper advice. A delay in action may prolong the stress of the dispute and possibly introduce further complications.

We have dealt with cases where businesses have rapidly declined as a result of losses suffered. Some shareholders will personally introduce large cash sums in order to keep trading, ensuring staff wages are still paid when cash flow may be poor. Forensic Experts specialise in calculating losses to owner managed businesses. This includes indirect losses sustained as a result of trading disputes. They are not immediately obvious but may significantly impact on business growth, profitability, or opportunities lost.

Clashes between company and customer, supplier or subcontractor, are prevalent in the construction industry. Losses in contract disputes often involve sums in the hundreds of thousands. However, larger entities often have additional resources to enable them to mitigate such losses.

Resolution Methods

Forensic Services have dealt with multiple contract dispute cases in construction and manufacturing, and Tait Walker’s specialist Property and Construction Group is experienced in advising on all aspects of commercial trading affecting businesses operating in these sectors.

The construction industry favours alternative dispute resolution methods, including mediation or arbitration. This achieves a swift settlement to ease cashflow, avoid Court costs, minimise business disruption and enable contract work to continue on major projects in the public or private sector.

The Court looks unfavourably on parties who do not attempt alternative dispute resolution. It is in all interests to attempt mediation prior to incurring the significant cost of Court proceedings. The involvement of experts at an early stage is critical to achieve an equitable settlement and preserve continuity of trading. Quantifying the loss at an early stage can assist in focusing the settlement negotiations. This is ultimately the best result for all parties.

Falling out over Finances, Summary

Our Forensic blog ‘Falling out over Finances’ is a five part blog series. It is aimed at anyone who has been involved in a dispute that has impacted their financial situation.

We have looked at different types of disputes as well as the possible outcomes and methods of resolution. We have also discussed the ‘red flags’ that may prevent you and those around you from falling out over finances. In our experience, financial disagreements affect individuals through to the largest companies. If those involved take professional advice quickly, the dispute will likely not escalate.

If you have missed our five part blog series ‘Falling out over Finances’, all episodes are available on our website:

Introducing Falling out over Finances

1: Shareholder Strife

2: Partnership Problems

3: Inheritance Issues

4: Marital Matters

Contact us

If you have been affected by any of the issues discussed, or would like further information, please contact our Forensic Services Team on 0191 285 1321 for a no obligation discussion.

MHA Real Estate Matters – Issue 9

MHA Real Estate Matters, Issue 9, is available now. We have worked with MHA to provide a national outlook on the issues facing the construction and real estate sectors.

Issue 9 contains articles on the following:

  • Land Transfer Tax replacing Stamp Duty Land Tax in Wales
  • Zero Rate VAT within construction projects
  • A summary of UK construction sector corporate finance deals, alternative funding and an update on the residential house price index

Key Stats

Some key stats are outlined in the publication:

MHA Real Estate Matters – Issue 9

To view the full publication, please click on the image below:

Property Land Tax Rates – Different rules for different locations

Following the devolution of certain taxes to government of Scotland and Wales, businesses need to be aware that certain property land tax rates are different in Scotland and Wales to England, notably what used to be called Stamp Duty.

Property Land Tax in England and Northern Ireland is now known as Stamp Duty Land Tax (SDLT). In Wales it is Land Transaction Tax (LTT) and in Scotland it is Land and Buildings Transactions Tax (LBTT). Although broadly similar, the three different Land Taxes have different rates in each location (see tables below).

With all three taxes, HMRC must receive a filed return within 30 days of the ‘effective’ date of the transaction, even if no tax is due. This is usually the date the transfer is completed. The payment deadline is the same as the return filing deadline.

However, the deadline for filing a return in England (Stamp Duty Land Tax) is changing from April 2019 from 30 to 15 days.

England and Northern Ireland – SDLT

Scotland – LBTT

There are specific circumstances in which Scotland requires a submitted tax return every three years for leases signed after April 2015, including:

  • Every three years from the effective date of the lease,
  • On assignation; and
  • On termination.

Wales – LTT

In summary, businesses purchasing new property need to take into consideration the different tax rates across jurisdictions and filing requirements. This is to ensure that the tax costs and payment dates do not come as an unwelcome surprise.

Contact us

To discuss further, please contact our Tax specialists on 0191 285 0321.

MHA’s Real Estate Matters Issue 8 is now available

MHA Real Estate Matters Issue 8 is now available. It is part of MHA’s Construction & Real Estate series.

Find out how the 2018 Spring Statement announcement will affect the sector. It includes the following:

  • Financial support that will be provided to tackle supply and skills shortages
  • Affordable housebuilding plans
  • Transport announcements

Real Estate Matters Issue 8

Meet Tait Walker’s Property and Construction team.

Blue Monday for UK Construction as Carillion enters liquidation

In recent years, the term Black Friday has gathered some following. It was imported from the USA to represent the first day after thanksgiving and a day when traditionally the best deals are available from retailers. Many people are familiar with this term and it has helped UK consumers kick start the Christmas shopping.

Blue Monday is probably less well known in the public’s imagination (other than by fans of 1980s New Order) but is meant to be the glummest day of the year. The term Blue Monday has been defined as the third Monday in January when reality starts to bite for many people, when the excesses of Christmas seem like a long time ago and when the New Year’s resolutions feel too hard and the weather too depressing.

Sadly, today 15 January 2018, is a very depressing day for those in the Construction Services industry as it is the day when the Government has said “enough is enough” and stopped guaranteeing monies owed to the banks by Carillion.

This will lead to an uncertain future for the thousands of workers at Carillion and also for the many hundreds of subcontractor businesses in the construction services supply chain that may be owed money. It is uncertain how much of these debts to many SMEs will be paid and also when.

This will put immense pressure on many small businesses who may not be able to afford the working capital requirements to continue to meet their obligations to staff and suppliers.

For many it couldn’t come at a worse time as subcontractors may have been owed money for work done in November and December.

If any businesses have concerns about working capital they should contact their existing funders and accountants to identify their short term funding requirements, and how they can be satisfied.

Planning your business to be resilient for large financial shocks is often easier said than done – though it does show that all businesses should be careful about over reliance on single contracts/customer, should carefully forecast and project working capital needs and should obtain credit insurance where available.

If there is a ray of sunshine, it will be that many of Carillions contracts with the Government or the public sector will still need to be completed. Some workers somewhere will still need to fulfil these essential services and infrastructure projects. At the time of writing, other competitors of Carillion have seen their share prices rise.

There may also be some longer term benefits for the industry if the likely political fall out highlights issues within the UK construction supply chain and eventually new legislation gives greater protection to those near the bottom of the supply chain who are last to get paid.

We will no doubt learn more over the coming weeks and months but it is likely that the outcome of the liquidation, the political fall out and the real story behind the collapse of Carillion will not be fully known for a long time.

ICAEW Quarterly Confidence survey September 2017

Our Corporate Finance Partner, Steve Plaskitt, attended the latest presentation of the ICAEW Business Confidence Monitor survey for Q3 of 2017. It was at Judges, Yarm and took place on Tuesday 19th September 2017. Steve shares the findings in this blog post…

The Event

Keith Proudfoot of the ICAEW and Mauricio Armellini from the Bank of England were presenting. They were great at making sense of complicated economic data and graphs.

The idea is that the graphs of business confidence closely follow GDP. There is a useful comparison of how confident the North East community is compared to the rest of the UK. For example, how the construction and property sectors fare nationally. A negative result shows that FDs expect performance to be worse than a year ago and a positive result shows businesses are confident of growth.

Findings

In short, we are all less confident now than three months ago – though it is not nearly as bad as one year ago!

Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017
North East-13.0-0.2-2.4+5.6-9.9
UK-10.2-9.8-8.7+6.7-8.0
Construction-19.4-8.0-5.5+3.3-5.0
Property-26.5-14.4-22.5+2.6-12.6

Whilst the property sector is below the UK in confidence, the construction service sector is relatively confident. This reflects a less negative view on forecast housebuilding and infrastructure spend.

The accountants/FDs of businesses were preparing for wage costs, input costs and inflation rising faster than selling prices.

Compared to the UK, more North East FDs were confident in increasing their exports. However, they were less confident about increasing their investment in capital equipment and Research & Development.

Economic and political uncertainty was eroding business confidence. Spare capacity and uncertainties were thought to be supressing the growth of investment in equipment, products and people.

Conclusion

Whilst it seems that there is more bad news around, we should not forget the benefits that exporters are currently seeing. We can take comfort in knowing that the Brexit negotiation process will soon become clear and that the data shows we are more confident than this time last year!

For further advice or assistance, please contact Steve Plaskitt on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk