Wednesday, 28 December 2011

How to write a winning Funding Business Plan

Part 1:  10 common Mistakes

Writing a winning funding business plan is not that difficult as long as you understand what an investor or is expecting to see. There are 10 common mistakes that management teams make when writing a funding business plan.
Mistake No 1: Not understanding that  milestone business plans that you have great experience in writing is a different document to a funding business plan. The funding plan is an external sales document with different content. (See Part 2 next month)
Mistake No 2: Not understanding that the investor is only interested in what he/she wants to know and not what you want to say. So understanding what they are expecting to read is the most important element of writing a success plan.
Mistake No 3: Not understand how a business plan is read. It is not read all the way through from page 1 to 30. The first part that will be read is the executive summary and if they like that they will then turn to the section of the plan that they have most knowledge about. If their experience is in sales they will read the sales plan in great detail and they will judge the opportunity on that basis. This means that every part of a plan must be first class as you can never tell what experience the investor might have. You must also make it easy for the reader to find the sections that he/she wants to read, so a detailed table of contents is essential.
Mistake No 4: Not understanding the importance of the first page and a half, the executive summary. After reading the executive summary approximately 90% of all investors will through the plan away. The executive summary is the most important part of the plan and must have the mandatory 8 points that an investor wants to understand. (See part 2 next month)
Mistake No 5: Most management teams understand their product and marketplace and often these two sections make up the majority of their plan. These two sections are very important, but not as important as detailed sales, marketing and operations plans as well as a thorough explanation of all the assumptions made. These are the sections that explain how the business works and that is what the investor is interested in.
Mistake No 6: Many plans only provide a short summary of the financial model. It is imperative that full three year, monthly profit and loss and cash flow forecasts are included and a balance sheet.  Make certain that the financial model is formatted well so that it prints out correctly. It is also important that a written section explaining the financial model is provided for those who will not read the spreadsheets.
Mistake No 7: A very important part of an investment decision is how  the investor is going to get his/her money back and how quickly, so a well explained exit strategy is important but so often left out.
Mistake No 8: This is a serious mistake; there must be a legal disclaimer at the beginning of the plan explaining the workings of the Financial Services and Markets Act 2000. Without it you could be in trouble. Likewise you must make certain that each eventual investor has signed a form stating that they are either a High Net Worth Individual or a Sophisticated Investor.
Mistake No 9: Another serious mistake is not understanding the implications of the EIS scheme and how important the scheme is to an investor. The scheme helps protect the investors from losing all their money.
Mistake No 10: Believe it or not some plans that I read have no contact details on the front page so I have to search for a phone number if I want to make contact.
If you understand these 10 points then writing a funding business plan is not difficult. For more ideas about writing a winning funding business plan see my blog next month.
Peter Kelly: 01932 244810

Friday, 16 December 2011

Invoice Finance versus a Bank Overdraft

Regardless of this however, logistics faces major problems and will continue to do so for the foreseeable future. With the price of fuel now reaching record levels, and debtors taking longer and longer to pay, it is no wonder that ambitious hauliers can suffer from major cashflow problems.
Meeting weekly payroll obligations, paying creditors and the repair bills of various forms of vehicles are also additional factors which can result in very unpredictable and inconsistent cashflow cycles.

Banks don’t help either

Over the last few years there has been a marked change in the stance of banks and their lending criteria, particularly for overdrafts, and this has been driven by both the economic climate but also changes in legislation which has eroded elements of the security value of the traditional mortgage debenture.
This has allowed the invoice finance market to step in and fill some of the vacuum.
In order to compare the two we need to understand how an overdraft is viewed these days from both the banks perspective as well as the clients.

The problem with bank overdrafts…

The main problem with a bank overdraft is that your provider can write to you demanding the immediate repayment of your overdrawn balance along with accrued interest, fees and any charges.
The limit is also fixed and should more be required you generally have to go through the whole application process again resulting in more time and cost. Arrangement fees will be charged each time you renegotiate your overdraft meaning that it’s inflexible and rigid. More charges will also occur every time you exceed your business overdraft limit, even if this is only by one pound. Some banks may consider that you have exceeded your overdraft limit even if you have transferred in funds that have not yet cleared.
From the bank’s point of view, the recent changes in legislation also mean that the banks are increasingly looking for higher levels of personal security. The granting of an overdraft is primarily dictated by the historic financial performance of the client. With the current economic crisis most businesses have seen some weakening of their balance sheet and losses which makes it more difficult for the bank to agree to an overdraft

Exactly what is invoice finance…

Invoice finance is an umbrella term for types of finance that allows businesses the opportunity to release the cash tied up in unpaid invoices. An invoice finance company can advance you up to 100% of the value of unpaid invoices, typically within 24 hours of the invoice being issued.
Where invoice finance wins hands down in comparison to a traditional banking overdraft is that:
  • It generates more cash than an overdraft – usually twice as much
  • Less personal security is required so there’s no need to give a charge over the family home!
  • It is based on the sales you create, therefore grows with the business, meaning you don’t have to keep going back to the bank with cap in hand
  • You can have access to capital almost instantly
  • It’s not based on historic balance sheet performance and is therefore suitable for businesses in turnaround or highly geared.
Having access to working capital based on the sales you have already made means that you no longer have to wait 30, 60 or even 90 days until your customer pays your invoice. That means you can pay your drivers up front, fuel bills, HP on trucks and the VAT on top of that!
It is therefore apparent that, in the current climate, invoice finance provides a much safer and more flexible funding solution for many businesses in the logistics and transport sector by providing certainty of contract (i.e. not repayable on demand) and increased funding linked to sales.
Whilst there is an argument that invoice finance can be more expensive than a traditional overdraft, most business owners appreciate it is worth paying that little bit extra for greater flexibility and peace of mind. Some even use it to obtain supplier discounts by paying them earlier with the increased cashflow, thus covering the cost of the facility.

What more could you ask for?

  • Invoice Finance will typically provide you with a twice as much cash as an overdraft
  • The facility is linked to your sales (not your historic balance sheet) and will therefore grow with your business
  • Financial stability is more certain, as agreements are for a fixed period and are not repayable on demand
  • There is no need to put up your home as security
  • With Factoring, you can outsource management of your entire sales ledger (should you so wish) saving you both time and costs

Friday, 9 December 2011

Increased funding to British and Irish businesses using invoice finance - but firms remain cautious

The Asset Based Finance Association (ABFA) has today announced new quarterly (Q3) figures showing this important form of business finance has grown more than all other forms of lending, with total advances up 9% compared to this time last year. Total funding by the ABFA's members to businesses this quarter has now reached £16bn. Notably, this increase in advances is taking place whilst client numbers remain relatively static, suggesting good growth amongst existing clients and a trend towards larger businesses using invoice finance. The average industry client size has increased by 15% over the past year.
However, in the face of the current economic difficulties, the new figures also indicate that British SMEs and larger companies are continuing to be cautious. Not all of the available finance which is open to firms is being accessed, with £7.2bn of available funds not being utilised by clients. Turnover from British and Irish companies using invoice finance has risen though, exceeding £60bn for first time, standing at £62.3bn for this quarter suggesting that firms which use invoice finance are growing their sales and continuing to trade successfully.
The uncertain outlook also appears to be making SMEs more prudent, with non recourse business (where the funder takes on the risk of a potential bad debt) growing ahead of trend at 18%. Credit protection payments have also shot up 43% this quarter, rising from £4.9m last quarter to £7.0m. giving credence to the views expressed of an imminent further period of recession.
In Ireland, the market also grew by 9% in advances, with an increase of 2% in the number of businesses using invoice finance.

Tuesday, 6 December 2011

Internet financing sites – are they taking over?

It has been difficult to avoid the impression recently that the internet is becoming a major player in the funding of businesses. So firstly, what do I mean by internet financing sites? I am not referring to existing funders who are making more use of the internet to provide information on their products or with online applications. Rather, I am referring to those that are getting access to a new set of online investors, typically based on crowd funding. Crowd funding (as the name suggests) relies on a co-operating group of investors pooling together smaller amounts to produce the larger amount required for funding.
Crowd funding originated in the charity sector, but the model has now been adopted for both debt and equity solutions. Typically hundreds or even thousands of small investors can make investments ranging from £10 up to £1000s. The loan or equity agreement is carefully constructed so that these investors are not required to self-certificate as high net worth or sophisticated investors which would be the case for more traditional business angel investments.
So what is the practical impact on companies like yours? The first point to make is that crowd funding currently makes up only a tiny fraction of both the debt finance and the equity finance solutions available. However they do have their place in the market and can be an invaluable option in the right situation.
Pegasus work with a number of these crowd funders, but this discussion only considers two such companies, one is a company that only provides debt and the other that provides equity, who have both been successful in gaining recent exposure. The debt one appear at the top of most internet searches and the equity one has been making headlines following their recently financed £1,000,000 deal.
The debt crowd funder’s applications require a business proposal that describes the business, the purpose of the loan and an explanation of why the business is safe to make a loan to. The proposal also requires latest management accounts and at least two years filed accounts. They will undertake a credit check and rate the companies risk profile.
Pegasus has had a number of successes in raising debt through this means. A recent example is an internet retail company who raised £40,000 for development capital. They have an excellent relationship with their bank that provide a £10,000 overdraft and a £245,000 trade finance line but were not prepared to fund development capital. The terms are 36 months at 9.5% annual interest. Note the 9.5% was an aggregated rate from over 500 smaller loans which ranged from 8% to 9.9%, although this is transparent to the applicant. Interestingly there are no penalties on early repayment and there is a setup fee of 3%.
In our view Crowd Funding Equity company can also be a useful resource, but it may not be suitable for all companies. One issue relates to the amount of exposure that your business plan will receive, with applications accessible to 1,000s of potential investors. Whilst they will have signed confidentiality agreements, it is not possible to place practical controls over so many people. These investors may be competitors, or people who like your idea and want to replicate it. Inexperienced investors are also unlikely to know “the rules of the game”.

Another issue might be where companies are looking to go on to raise future rounds of funding. In this instance, some future funders and especially VCs might well be put off by a large number of perceived investors. The large number of small investors can however also be an advantage, particularly if you are seeking public exposure. One of the more notable Dragon’s Den successes such as Reggae Reggae sauce would have been an obvious contender for this approach. Also the recent £1M fund raising success by  a Group who are planning to build a new venue in Soho is an ideal candidate. It’s “bricks and mortar”, it’s not massively innovative and it can only gain from a set of enthusiastic advocates who are also stakeholders.
Like any other equity opportunity, a comprehensive business plan needs to be in place. At Pegasus we have a strong understanding of what Investors  investors will find attractive. We also know how to help a company become investment ready and the level of due diligence material that they will need to have prepared. Furthermore, we understand the nature of the shareholder agreement and can discuss implications with companies upfront.
In summary, we believe that crowd funding resources such as these two will become more significant over time, but will only be alternatives to be considered in the overall funding mix.
We are confident that we can continue to add value to the process and increase your chances of obtaining funding through these routes.
Bruce Colley: 07730 029594

Thursday, 1 December 2011

Bank Funding, the Real Situation!

“SMEs find banks ready to lend, the majority of businesses seeking loans or overdrafts had their applications approved” source SME Finance Monitor
Apparently all is well in the SME lending arena, according to SME Finance Monitor. This is not the message that Pegasus Funding Resources are hearing from the funding community. A recent Bank advert says they accept 80% of applications (4 out of 5) for lending to SME’s. However the fact appears that of the 4 successful applications 3 are renewals of existing facilities! 

Also a member of the NACFB (National Association of Corporate Finance Brokers) has discovered that perhaps 14 out of 15 cases don't get to the stage where they have the opportunity of being formally accepted or rejected, because if an application isn't likely to be approved, it just isn't put into the system. So some simple maths indicate that the true result of 75 “new” applications received by banks is that only one ever gets approved. 

Apparently another high street bank had a delicious term known as “constructive decline”, in that they issued offer letters that are so onerous that the borrower would never agree the terms. Still a notch on the lending bedpost as far as Project Merlin, the Government’s SME funding initiative is concerned!

But it is not all bad news! Although raising funding from a High Street Bank is difficult Pegasus Funding Resources have many more finance sources in our tool bag! As specialists we can access finance from Business Angels and VCs, Invoice Finance, Asset Finance, Trade Finance, Credit/Debit Card Future Sales Finance, Turnaround Finance, Non High Street Banks and many other sources. So please get in touch if you or your clients need funds.

Alan Cottle 
Pegasus Funding Resources 

Station Road
BA14 6RD
01225 782934
07791 349429
Pegasus Funding Resources is a Member of the National Association of Commercial Finance Brokers

Wednesday, 30 November 2011

Autumn Statement 2011: Small firms to miss out on credit easing benefits, say entrepreneurs

Two thirds of business owners believe that the new National Loan Guarantee Scheme will not benefit the UK’s smallest companies, research by and shows.
In a snap poll of the 150 people who took part in a live blog of George Osborne's Autumn Statement on the two online communities, 64% predicted that the 'S' part of 'SME' will not be able to access funding through the government’s new credit easing efforts.

The remaining 36% believed they will benefit.

Confirmed in the Autumn Statement, the new scheme will see up to £40bn in loans underwrited by the government meaning that banks can offer them to business customers at a lower interest rates.

Commenting on the findings, Dan Martin, editor of, said: "As the National Loan Guarantee Scheme applies to companies with a turnover of up to £50m, it’s perhaps not surprising that most entrepreneurs are sceptical about the benefits.

"Given the state of the economy and the fact that small businesses are crucial to its recovery, it’s vital that the measures that the government says are for the benefit of start-ups and small businesses really are for the benefit of start-ups and small businesses.

"Saying that you're going to open up £40bn of bank loans to companies makes for a good headline but it will mean nothing if the companies that need it most don’t get access." 

Tuesday, 29 November 2011

Good News for Angels and Small Businesses

The chancellor will announce today a £370m package aimed at encouraging small start-ups to grow while also helping small businesses.
A new seed enterprise scheme will aim to reward entrepreneurs and investors willing to take a risk on high-tech and innovative small businesses.
Those that can invest £100,000 in a company with fewe4r than 25 employees and assets less than £200,000 will receive 50% income tax relief on the value of their investment and a 1 year capital gains tax holiday the next year.
This Seed Enterprise Investment Scheme will cost the government £120m over the next 4 years.

Thursday, 24 November 2011

With Banks not lending what alternative sources of funding are there?

This is the question that many SME’s are asking in ever increasing numbers. If the Banks will not lend to them who will? The answer is that there are many alternative sources of funding that many people are totally unaware of. There are even some products from main stream lenders that seem to be forgotten. Here are just a few examples, but remember these are ‘alternative’ sources and as such are more expensive than High Street lenders.

Single Invoice Discounting or Factoring: Many Managing Directors do not have the need for a full ledger, long term invoice discounting or factoring agreement from a main stream provider but from time to time they may have the need to use the services of a single or selective invoice discounter. They may need some extra funding to pay a VAT bill or corporation tax or to purchase stock for a big order. So if you are in that situation then the single invoice discounters are the answer. Use them only when you need them.
Enterprise Finance Guarantee Loans (EFG) These government backed loans are terribly difficult to get from a Bank, but they are not the only people that offer them. Some invoice discounters are also able to offer their clients this type of loan. They are much more enthusiastic about these loans than the Banks are. This is another reason why it is so important to take advice when choosing your invoice discounting or factoring provider. So many people chose the first one that approaches them without exploring what additional services some of them can offer such as EFG loans, Trade Finance and Stock Finance. Chose the wrong one and you may miss out further down the line.
Trade and Stock Finance: In the past if you required this type of funding they always had to come from your Bank or from an invoice discounter or factor. You had to take all services from the same provider. There are now Trade and Stock funders that only do Trade and Stock funding. You still have to use Invoice Discounting or Factoring but now you have a wide choice of providers that you can choose from.
Angel Funding: In the past Angels parted with their money for equity stakes in your company. Now there is an Angel Network that specialises in giving loans to companies so that you do not have to give up any of your hard earned equity.
Crowd Funding:  A new Angel Network has emerged where small individual investors can take small stakes in your company. This is an interesting concept for those start-ups companies with mass appeal, who cannot get funding from normal angel networks.
Credit/Debit Card Finance: Do your customers pay you by credit or debit card? Do you need to raise some funding to buy a new piece of equipment or to re-furbish your restaurant or salon? If so you may be able to borrow money on the strength of your future credit/debit card transactions.
The banks are not the only sources of funding out there. Look around for these alternative sources and contact an experienced adviser.

Wednesday, 16 November 2011

This Christmas help the Fredericks Foundation to fund unsupported loans to start-ups

The Fredericks Foundation, a registered charity, gives unsupported loans to disadvantaged entrepreneurs, who have been turned down by their banks for small loans. Loans range from £5000 to £10,000.
You can help raise money for the Fredericks Foundation by signing up for ‘Give As You Live’ By using this method of shopping thousands of shops will donate to Fredericks Foundation when you shop with them on line. An easy way to give at no cost to yourself.

Tuesday, 15 November 2011

Businesslink launches two new services

Business Minister Mark Prisk has just launched Business Link’s two new online services as he marked the start of Global Entrepreneurship Week. He said:-

"The Business Link services unveiled today will give businesses new, easy to use, and tailored online services.
This represents the most effective and efficient way to provide the information and advice businesspeople tell us they need and will help businesses grow.
Interactive tools and services provide real benefits and support to start-ups and SMEs and I am looking forward to seeing these new services put to good use."

My New Business offers comprehensive information and guidance to those looking to start a business, including personalised checklists, video tutorials and step by step guides.

The Growth and Improvement Service offers access to informative videos, case studies, events and business support finders, for those who wish to develop their business.
Visit NOW at:

Friday, 11 November 2011

Government Announces New Funding for SME's

Monday, 7 November 2011

Was Venturefest Bristol a success?

The answer is a resounding YES

Alan Cottle was invited to represent Pegasus Funding Resources as one of the specialists on the panel for “The Pitch” which was part of Venturefest Bristol held on 3 November.
Venturefest Bristol was held at the recently opened Bristol and Bath Science Park and the event was a huge success. Over 40 businesses exhibited in the innovation showcase and a sell out 700 delegates attended.

During “The Pitch” ideas were pitched to the specialist panel of investors, businesses advisors and an open audience of Venturefest participants. There were 25 “pitches” to the expert panel which ranged from a group of students with a good idea through start up companies to businesses already trading and looking for growth. The specialists panel members gave their feedback to the presenters of a fascinating array of business ideas, including alleviating bed sores, dental equipment, 3d 360 degree photography etc.

There was a great buzz in the exhibition hall where 68 stands accommodated the innovation showcase and the Business Support exhibition and there was plenty of networking going on between old contacts and delegates making new ones. The workshop sessions were well attended as entrepreneurs and experts shared their experience and knowledge

Pegasus Funding Resources look forward to being involved in Venturefest Bristol again next year and if you want to attend the event you will need to register early to avoid being turned away as happened to some this year!

For more details contact:

Wednesday, 2 November 2011

Why do so many British Companies ignore R & D Tax Credits?

The Government wants to give money back to British Companies that undertake research and development. Unfortunately many Managing Directors and Finance Directors and even their Accountants concentrate on the word ‘research’ and not on the word ‘development’ and so believe that this means that they will not qualify. In many cases this will not be true and so they are missing out on this very useful source of funding. If you are developing a new product or service, or making improvements to existing products and services you may very likely be eligible. Even software companies have been successful.

 The scheme is designed to encourage and reward innovation. It allows innovative companies to either recover Corporation Tax paid and or receive a rebate of the NIC/PAYE generated by the business. Most first time claimants are able to also submit a claim for the last two completed year ends.
The average claim in the first year is £40k
Britain has the lowest uptake of this scheme across Europe less than 8,000 SMEs claimed last year. But it is estimated by HMRC that there should be 150,000 companies applying in the UK.
 The reason why most companies do not apply is that they do not believe they do” R&D”.
Many see R&D as something done by men in white coats in a laboratory rather than the development of a product.
They also often look at the scheme on the HMRC site and are intimidated by the terms used and often their external accountants advise them not to claim.
80% of clients either looked at this scheme at some point and thought they did not have a claim.
Typically claimants should have the following characteristics:
·         The company must be a UK Limited company
·         The company must have paid either Corporation tax , NI & PAYE
·         For any project to be valid the company must have taken a financial risk.
·         Projects that have failed can also be included
·         Innovative projects
·         Projects undertaken that seek to be greener more efficient
·         The work of sub-contractors can be included.
What type of companies would meet the criteria?
·         Software companies
·         Technology companies
·         Broad based manufacturing
·         Anyone who is “innovative” and produces a product of some kind
So if you are developing a new product or service and can identify the costs involved, then you may be throwing money away by not investigating the likelihood of making a successful claim. This should not be based on the Financial Directors or your accountant’s opinion, but on the opinion of specialists in this field. You have nothing to lose and a lot to gain as most specialists work on a success fee only basis. So contact a specialist today and see you can get the Government to send you a cheque.

Friday, 28 October 2011

Bruce Colley of Pegasus Funding Resources Hosts the Social Impact Co-Investment Fund Launch South West in Bristol.

At the Radisson Blu Hotel, Broad Quay, Bristol BS1 4BY on the 9th November the Social Impact Co-investment Fund, managed by the FSE Group will be launched.
Guest registration starts at 15.45 followed by a welcome from Bruce Colley of Pegasus Funding Resources at 16.15. The fund launch is at 16.25, followed by open discussion and networking. Close of play is at 19.00.
To register for the event please send an email to:
Pegasus SW Contacts:

Alan Cottle of Pegasus Funding Resources on the Pitching Panel at Venturefest Bristol.

Alan Cottle has been invited to represent Pegasus Funding Resources as one of the specialists on the panel for “The Pitch” which is part of Venturefest Bristol to be held on 3 November.
Venturefest Bristol is building on successful Venturefest events held in Oxford and York and is taking place at the recently opened Bristol and Bath Science Park. The event has attracted sponsorship from Bristol University, Bath Spa University, HP Labs, several investment funds and leading West Country professional firms.
Over 40 businesses will exhibit in the innovation showcase and over 500 delegates are expected to attend.

During “The Pitch” ideas will pitched to the specialist panel of investors, businesses advisors and an open audience of Venturefest participants.   There will be three separate sessions, each aimed at a particular type of new business idea.
  • Emerging or established technology businesses with developed ideas for new products or services;
  • Academics with emerging ideas based upon applications of their research;
  • Student entrepreneurs with technology based business ideas.
Each pitch will take 4/5 minutes and the panellists will ask a few key questions and will be asked to complete a short feedback form on each pitch.  As an additional incentive, the pitch judged to be the best in each section, by the panel, will win a bottle of champagne.
The objectives for “The Pitch” at Venturefest Bristol 2011are:-
  • To practice the business pitch; and get expert feedback from the panel
  • Get feedback on the business idea from professionals and fellow entrepreneurs
  • Meet investors or potential funders
  • Make new contacts, meet potential collaborators, suppliers and customers.
Pegasus Funding Resources are very pleased to be involved in “The Pitch” as part of our efforts to help businesses to access the funding they need to survive and grow.

Pegasus South West contacts are:

Wednesday, 19 October 2011

Pegasus Funding Resources Expands in the Midlands

Pegasus Funding Resources are pleased to announce that we have expanded in the Midlands. Richard Olsen has joined the team and will be covering Lincolnshire, Leicestershire, Cambridge, Northamptonshire, Norfolk.

Richard has worked with Pegasus Funding Resources in the past and has great experience in the funding World.
Richard can be contacted on: 0797 664 2432
Richard will be offering the full suite of Pegasus products, including:
Trade Finance,
EFGS loans
Invoice Discounting & Factoring
Leasing & HP
Commercial Loans
Commercial Mortgages
Distressed Funding
Equity Funding
For further details please visit our website:

Monday, 17 October 2011

£250m Boost for SMEs from new Bank

A new Bank , Shawbrook Bank, was launched today that has raised £250m with the aim of kick-starting lending to SMEs. The Bank is the amalgamation of 3 existing savings and lending businesses, one of which is Whiteaway Laidlaw based in Manchester, RBS has invested in this new Bank and is providing a large proportion of the funding through its equity funding division.
Shawbrook is aiming to plug the financing gap for SMEs that are struggling to secure funds from traditional lenders. They aim to lend £250m over the next 12 months. Instead of a loan taking anything up to 3 months to come through they aim to complete the process in 12 days.
For more information go to:

Tuesday, 11 October 2011

How Important is the EIS Scheme in Raising Investment from Angels?

My blog in September entitled ‘Are Angels Alive and well in the UK’ resulted in me being asked questions about the EIS Scheme and how important that was.
The answer is simple, it is very important indeed.
Angels want to minimise risk as much as possible and the EIS Scheme provides them with a way to achieve this and an incentive to invest.
The EIS Scheme provides 5 ways of reducing risk:  
30% Initial Income Tax Relief:  If the qualifying investment is held for at least 3 years from date of issue, to a maximum of £500,000 per tax year. The relief is usually passed to the investor in the form of a tax rebate or by an adjustment in PAYE code.  Actual cost of the investment is therefore only 70p in the £
No Capital Gains Tax is payable on disposal of the shares after 3 years as long as the initial EIS income tax relief was given and not withdrawn.
Inheritance Tax Relief In EIS qualifying companies will generally qualify for Business Property Relief for Inheritance Tax. Relief can be up to 100% after two years of holding the shares.
CGT Deferral Relief:  This means that the tax realised on a different asset can be deferred indefinitely, if disposal of that asset was less than 3 years before the EIS investment or less than one year after it. This deferred relief is unlimited.
Loss Relief:  If the shares are disposed of at any time at a loss, after taking into account the income tax relief, the loss can be set against the investor’s capital gains or his income in the year of disposal or the previous year. Losses offset against income, the net effect is to limit the investment exposure to 35p in the £ for a 50% tax payer, if the shares become totally worthless. Alternatively the losses can be offset against capital gains at the prevailing rate of 28%.
This all means that if an investor made an investment in an EIS qualifying company of £100,000, with the income tax relief of 30% this would reduce the net cash outlay to £70,000. If the shares then became worthless and the loss was then £70,000, the loss relief at 50% would equate to £35,000, so the net loss on a £100,000 investment, in these tragic circumstances, would be reduced to only £35,000, or 35p in the £.
The message is clear, if you are going to invest as an angel make certain that the company has obtained EIS approval.
Please note that I am not a qualified tax advisor so please always seek professional tax advice. The information above is only provided as basic information

Monday, 10 October 2011

Pegasus Expands in the South West

Pegasus Funding Resources are pleased to announce that we have expanded in the South West. Bruce Colley has joined the team and will be covering Cornwall, Devon, Dorset and the TA postal districts of Somerset.
Bruce joins us from SWAIN, The South West Angel Investment Network where he was an investment Director for 6 years. While there he raised equity and debt funding for over 30 companies in the region. He has developed a strong working relationship with the local professional community including corporate lawyers, accountants and bankers.
Bruce can be contacted on: 07730 029594
Bruce will be offering the full suite of Pegasus products, including:
Trade Finance,
EFGS loans
Invoice Discounting & Factoring
Leasing & HP
Commercial Loans
Commercial Mortgages
Distressed Funding
Equity Funding
For further details please visit our website:

Tuesday, 4 October 2011

Should I buy, lease or use HP to obtain that needed addition equipment.

Over the years I have often been asked what is the difference between buying, leasing or using HP to obtain that needed extra piece of equipment. The answer really is different from one company to the next, but here are the general guidelines concerning how they are treated for accounting, Tax and VAT purposes.

Outright Purchase:
From an accounting viewpoint the actual cost of the asset is capitalised in the balance sheet and an annual charge for depreciation is shown in the accounts as an expense in the profit and loss account. This therefore has the effect of showing the asset(s) in the balance sheet at cost, reduced by the cumulative charge for depreciation.
The annual depreciation charge is calculated in accordance with accounting standards, based on the useful economic life of the asset and the residual value.
The actual charge for depreciation is not allowed for tax purposes, as this is replaced by capital allowances, which is HM Revenue & Customs deduction regime for allowing capital expenditure against chargeable profits. The first £50,000 of expenditure each year on plant and equipment, excluding cars, qualifies for a 100% capital allowance deduction. Expenditure in excess of £50,000 enters either the 10% pool or the 20% pool, attracting a writing down allowance (WDA) at the appropriate rate.
A temporary first year allowance of 40% is available for expenditure on plant and machinery that exceeds the annual investment limit incurred in the year commencing on 1 April 2009 (corporation tax) or 6 April 2009 (income tax). This allowance applies to expenditure which would otherwise have been allocated to the main 20 % pool but excluding cars and assets for leasing.
Unless the asset is a car, the VAT shown on the supplier's invoice will generally be recoverable by the purchaser.  VAT on cars is recoverable only in very rare circumstances.
Hire purchase
A HP agreement usually includes an option to purchase at the end of an initial period. Payment of this nominal fee transfers title of the asset and brings the legal agreement to an end.
The asset is treated as if it had been purchased. It is, therefore, capitalised in the balance sheet and depreciation is provided on an annual basis.
The obligation to pay future instalments is recorded as a liability in the balance sheet.
The payments are apportioned between a finance charge and a reduction of the outstanding liability.
The total finance charge should be allocated to accounting periods during the HP term and is shown as an expense in the profit and loss account.
The actual charge for depreciation is not allowed for tax purposes, as this is replaced by capital allowances, which is HM Revenue & Customs deduction regime for allowing capital expenditure against chargeable profits. The first £50,000 of expenditure each year on plant and equipment, excluding cars, qualifies for a 100% capital allowance deduction. Expenditure in excess of £50,000 enters either the 10% pool or the 20% pool, attracting a writing down allowance (WDA) at the appropriate rate.
A temporary first year allowance of 40% is available for expenditure on plant and machinery that exceeds the annual investment limit incurred in the year commencing on 1 April 2009 (corporation tax) or 6 April 2009 (income tax). This allowance applies to expenditure which would otherwise have been allocated to the main 20 % pool but excluding cars and assets for leasing.
The finance charge in the accounts is normally allowed against tax.
VAT charged by the finance company will be payable with the initial installment.  In the case of a car, most businesses will be unable to recover any of the VAT.
Finance leases
A finance lease typically has a primary period for a fixed period at full cost, followed by a secondary period, usually of an indefinite length, at a very low cost.
The asset is treated as if it had been purchased. It is therefore capitalised in the balance sheet and depreciation is provided on an annual basis.
The obligation to pay future rentals is recorded as a liability in the balance sheet.
The rents payable are apportioned between a finance charge and a reduction of the outstanding liability.
The total finance charge should be allocated to accounting periods during the primary lease term and is shown as an expense in the profit and loss account.
Where accounts have been prepared in accordance with accounting standards, the accounting treatment will be acceptable for tax purposes and no adjustments to profit need be made.
Where accounts have not been prepared in accordance with accounting standards, for tax purposes the rentals are deductible in computing profits under the accrual concept. The rentals are, therefore, allocated over the period of the lease.
Capital allowances are not available.
VAT charged by the finance company will be payable with the initial installment and each subsequent rental.  In the case of a car, most businesses will be able to recover 50% of the VAT.
Operating leases
An operating lease is where an asset is rented for a period, not necessarily fixed, and returned to the owner at the end of the period. Contract hire is a typical form of operating lease.
The asset is not capitalised; the rental payments are charged on an acceptable basis over the lease term to the profit and loss account.
The accounting treatment is an acceptable treatment for tax purposes, where the accounting standard has been applied. No adjustments to profits, therefore, need be made.
Capital allowances are not available.
Each rental or installment will have VAT added so that the VAT cost is spread throughout the period of the agreement.
Where the asset is a car, only 50% of the VAT on the leasing charges can be reclaimed. If identified separately, the VAT on any maintenance element of the contract can be reclaimed in full.
The disposal proceeds of leased cars will be VAT inclusive.
Please be aware that these allowances change from time to time so please check with your accountant before entering any agreement.
Make certain you that you enter into the right agreement for your company. If in doubt contact your trusted broker, otherwise you may not be maximizing your resources and wasting your hard earned cash.
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