The Due Diligence Process

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The Due Diligence Process?
Ian Nunn
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Is it worth it?!

• Affordable?
• Better returns?
• Could you do better yourself?
• Friends and family
• Tax efficiency

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Risk Assessment

• New or existing business
• Track record of main players
• Business plan

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Cash Requirements

• Adequacy of funding
• Headroom
• Whose cash is at risk
• Security

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Upside / Downside

• What is on offer to investors is it enough?
• What rights if it doesnt go to plan?
• Comparison with alternative investments

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Ongoing Review

• Management accounts and reporting
• KPIs
• Forecasts (cash flow and profit)
• Board participation and meetings
• Audit
• Break clauses!!

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Exit Strategy

• Is there a plan?

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Review Checklist
Ian Nunn
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Tax Breaks of Success and Failure
Stephen CookTax Partner
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Enterprise Investment Scheme (EIS)

• Standard 2006/7 invest 400,000 (max)
• Income Tax refund 80,000 (max)
• If Qualifying Trade non quoted
• Qualifying Individual (lt30 and not
  working)
• Others
• But can you do better
  than 20?

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EIS CGT Reinvestment Relief

• Standard Allow relief at marginal CGT rate
  - 40 (unlimited)
• Note Can work and own greater than 30
• Can you beat 40?

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EIS Best Outcome

• Income Tax on 400,000 _at_ 20 80,000
• CGT Reinvestment on 400,000_at_40 160,000
• Total Tax Saving (60) 240,000

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EIS Disaster?

• Company goes bust lt 3 yrs claw-back covered by
  loss
• Company goes bust 3 yrs No claw back
• Full loss
• Income or Capital Gains Tax?

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Venture Capital Trusts (VCTs)

• Tax Relief 30 on 200,000 ie 60,000
• For 2 years only (was 200,000 and 40)
• Must meet qualifying conditions for 5 years (was
  3)
• From 6/4/04 no CGT Deferral Relief
• Invest in Quoted Companies

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CGT Taper Relief

• Two rates - 60 after 10 years non business
• - 75 after 2 years business
• How do I get 10 ?
• Any business (i.e. no excluded trades) and
• If shares - unlisted (including AIM) no limits
• - listed if either
• - hold 5 of voting rights, or
• - officer or employee

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CGT Taper Relief cont/d

• How to protect it!

• - Ensure do not start non-trading activity
• Property investment
• Surplus cash
• Holding Shares in other companies

- Ensure any cessation of trade carefully timed
to reduce non business period opening up prior to
distribution of funds
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Inheritance Tax (IHT)

• Business Property Relief 100 or 50 relief
• Soletraders/Partners business assets 100
• Watch excluded assets (non-trading)
• Limited Companies
• Shares (unquoted) 100
• Assets used by your company 50
• Care Buy sell agreements 0 BPR
• Use put call 100 BPR

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Failure

• How did you finance the company?
• Loan capital loss no income tax relief
• Share subscription capital /or income tax loss
• If you have a loan weigh up
• Commercial advantage in liquidation
• vs.
• Tax breaks on investing and failure

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Thank you
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