A&M Taxand Scotland Asset Managers Briefing Note: Volume 4
Volume 4: July 2020
Summer Economic Statement highlights, incentivising management teams in uncertain times and COVID-19 update: Companies House filing extension.
Welcome to our July edition of the A&M Taxand Scotland Asset Managers Briefing Note
We are delighted to share a market update from Kathleen McLeay, CEO of NCM Fund Services, which provides an insight into the issues and challenges that fund administrators are seeing in the current environment.
If you missed our inaugural Scotland Asset Manager Breakfast Briefing on Wednesday 24 June, please click here for more information, to download the presentation or to listen to a recording of our webinar.
Market update from Kathleen McLeay, CEO of NCM Fund Services Limited
As a fund administration firm we deal with funds through their entire life cycle and so perhaps it is inevitable we see downturns over an average 10-year life fund (as well as boom periods).
We are very experienced at helping managers cope with the various challenges they might face and it is never too early to speak with your Administrator (as well as your other advisers); rarely will it be something they have not seen before.
The issues and challenges we are assisting our clients with at the moment include the following:
- How to deal with pressure on fees - both at a management and fund level - looking at how they can cut costs;
- Impact on management time - time spent dealing with a portfolio under pressure reduces time spent sourcing new deals, raising new funds or actively managing the portfolio and therefore impacts the management entity profitability as well as the fund IRR;
- Impact on IRR/carry etc. - as IRR is performance-driven a fall can reduce the future ability to raise future funds. A fall in predicted carry may also impact the financial position of the fund management entity too so we are assisting with increased forecasting and budgeting;
- Extending investment period or fund life - there will be formal processes to adhere to and an administrator can help you navigate these and ensure Limited Partnership Agreement and time scales adhered to;
- Impact on audit and valuations - keep your auditors informed particularly of any nuances in the portfolio (there might be companies that flourish rather than are negatively impacted) and be mindful of noting potential impact on future valuations; and
- Investor communication - this is at the heart of every successful manager’s navigation of a downturn. It is imperative that there are no surprises for investors and trying to “hide” bad news is never advisable. Liaise with your Administrator who can issue brief updates, documentation for any extensions required, provide investor drawdown profiles, and /or additional reporting etc.
Ultimately, use your advisers who know you, and your fund, as much as you can to share the burden if portfolio entities are in crisis. By working together and sharing the load it will hopefully allow you, as the manager, to devote as much time as is necessary to ensure your funds emerge in as good a position as they can.
Summer Economic Statement highlights
Rishi Sunak announced several new measures as part of the Summer Economic Statement on 8 July. We have summarised some key highlights below:
Plan for jobs
- Jobs Retention bonus – a bonus of £1,000 per employee to reward and incentivize employers who successfully bring back furloughed staff from the end of the Coronavirus Job Retention Scheme on 1 November 2020 through to 31 January 2021.
- Kickstart Scheme – a new programme which will directly pay employers to create additional, new jobs for young people between the age of 16-24 at risk of long-term unemployment.
- The threshold for stamp duty on property purchases in England and Northern Ireland has been increased to £500,000, effective immediately and in place until 31 March 2021.
- In response, the Scottish Government has announced a similar threshold increase for Land and Buildings Transaction Tax (“LBTT”) from £145,000 to £250,000, effective from 15 July 2020 to 31 March 2021.
VAT reduction
- VAT for the UK hospitality and tourism sectors has been cut from 20% to 5% from 15 July 2020 until 12 January 2021.
Please see our full article on the temporary VAT reduction here.
Incentivising management teams in uncertain times
Private Equity (“PE”) firms are facing a situation where multiple portfolio companies are looking for guidance and support for their employees during this crisis.
Management Incentive Plans (“MIPs”) are a common tool used by PE houses to align management’s interests with that of the Investors. After taking steps to recover and stabilise from the COVID-19 crisis, portfolio companies should prepare for growth and it is an opportune time to either re-visit an existing MIP and / or implement a new MIP.
To review our full article on incentivising management teams, please see the link here.
COVID-19 Update: Companies House filing extension
In our first newsletter back in April, we noted that from 25 March 2020 companies could apply for a three-month accounts filing extension on Companies House.
This announcement has now been modified and, from 27 June 2020, all filing deadlines will be automatically extended by three months for certain key statutory filing events, including the filing of company accounts.
For example, for private companies and Limited Liability Partnerships, the deadline for filing accounts has been extended from 9 months to 12 months following the end of the accounting period. These extended filing deadlines will be in place until 5 April 2021.
If you have any questions about the content covered in this newsletter, please contact one of our tax experts.
