With a lot of focus being on the negative and survival aspects of Covid-19, we thought we would share some brief positive thoughts on potential opportunities from a financial point of view. All won’t be relevant to you but hopefully some are worth consideration.
Consolidation and modernisation of business activities
Across the business sector we have seen organisations take a step back and challenge their operating models. Thoughts regarding investing in processes that create future cost savings through being a leaner and more modern organisation should be high up the agenda.
There have been some sports companies, even prior to the current situation, who have invested in collaboration with other teams or even different sports: Manchester City is an obvious example with teams around the globe and the ability to cost share amongst clubs. Bristol Sport is also an example of multi-sport teams within a larger group with Bristol City and Bristol Bears. With the likelihood of more sustainability rules emerging because of the crisis is this a strategic option? It is common in Europe to have multiple sports under the same brand.
Can you get more from your assets? In May, Lancashire County Cricket Club announced record results. These were significantly boosted by international fixtures in 2019 but they have invested significantly in the last few years in rounded use of Old Trafford with greater hospitality, hotel income and events helping their financial position. On a smaller scale, Badminton England also use the room facilities at the national badminton centre to rent hotel rooms to the public.
Outsourcing of back office functions comes in many forms from IT to HR and finance, and it is a great option for many teams with limited staff resource. Generally, outsourcing finance is more relevant in smaller businesses who are less transaction heavy, however it can be an option that could save money, provide access to rounded higher-level financial advice at lower costs and provide access to more automated processes and systems. We have written a more detailed article in this area here.
Some sports organisations have invested in research and development and creating unique IT processes and apps or novel equipment. If this is the case it is possible you may be able to benefit from R & D legislation where you could qualify for a rebate from HMRC of up to 14.5%. This is particularly relevant for sports technology companies.
If you have completed major capital spends in the recent past, such as an office, stadium or training facility refurbishment or build, or are likely to in the future, it may be beneficial to consider a detailed capital allowance review. This could help maximise tax reliefs on capital spends against your tax liabilities in the recent past or future. Obviously, this wouldn’t be relevant if you are not fully taxable or likely to generate losses for the foreseeable future but may maximise reliefs against future profits.
It may be a good time to review business structures both from a protection of assets point of view but also from a crystallisation of tax liability point of view due to potentially depressed values like property.
This piece is most relevant to those sports organisations who are partially exempt from a VAT perspective but the recent change to publications being zero related could be a potential cost saving opportunity if you produce member magazines in hard copy for VAT reasons.
There are also potential opportunities from a cashflow perspective if, because of COVID-19, your ’VATable’ income is likely to decrease as a proportion of total income, affecting VAT recovery rates with the standard partial exemption method. You should speak to a VAT advisor before making any changes.
Some of our clients have asked if there are any ways in which they can support their employees whilst working from home. Some of the areas which we have been asked about include:
Mobile phones – you can provide one handset per employee tax free
Laptops – these are not taxable where mainly used for business purposes
Broadband – contributions to private contracts are taxable, no benefit in kind on company provided broadband but private use must be minimal.
Hardship loans – no benefit in kind if the loan is less than £10k but become taxable if written off.
Use of home as office – the allowance has increased to £6 per week, no need to keep receipts if this figure is given or below. This can now also be claimed as a tax relief also.
With the Government pushing back the proposed IR35 changes for off payroll workers in the private sector to April 2021, organisations have some breathing space to adapt to potential changes. This is a quickly moving and complex area as has been seen by recent loss by HMRC regarding the Professional Game Match Officials Limited case. We are likely to see more of these challenges and now is a good opportunity to assess your position going forward.
Our private client team have been talking with clients regarding the current time being a great time to spring clean their finances. We have seen several clients review their providers and take a fresh review of their future incentives, reliefs and plans.
We recently have seen several sports individuals wanting to provide funds for charities like the players together fund, or to provide in kind donations like Harry Kane donating to provide shirt advertising to charities with Leyton Orient. For larger philanthropic activity, it is worth obtaining advice to ensure maximum benefit is derived by recipient and donor.
Relevance is likely based on age but due to current depressions in asset values, there are potential planning opportunities with regards inheritance tax and capital gains tax. Effective tax rates are likely only to increase in future. Furthermore, with significant changes in legislation planned in this area for some time, it may be a good time to ensure you arrange your own estate for the benefit of beneficiaries.
For more information and insights about finance for sports organisations and haysmacintyre’s services for the sport sector, click here.
Author: Tom Wilson, Partner at haysmacintyre