spring tax update 2017 - plymouth
TRANSCRIPT
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SpeakerSpring tax updatePlymouth March 2017
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SpeakerChairman’s welcomeGiles Hutchings, Partner
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Housekeeping
@pkfFrancisClark#FCSpringTax17 #Plymouth
A copy of the slides will be sent to you by email shortly
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Staff update – newly appointed Partners
Holly Bedford became Tax Partner on 1 December 2016
• Corporate and personal taxation expert• Leads the tax team in the Plymouth office • Previously with Arthur Anderson in Chicago
and EY in London and Edinburgh
Lucinda Coleman will become Business Recovery Partner on 1 April 2017
• Licenced insolvency practitioner and Company Voluntary Arrangements expert
• Joined PKF Francis Clark as a graduate trainee in 2003.
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Staff update – newly appointed Partners
Jason Mitchell will become Partner on 1 August 2017
• Specialises in providing accountancy and advisory services to the legal sector
• SRA Accounts Rules expert• Provides a wide range of accountancy
services to SMEs across the region
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Staff update – newly promoted Directors, 1 April 2017
Liam Dushynsky, VAT Director, Exeter
Adam Kefford Corporate Tax Director, Exeter
Katie Skea, Director, Plymouth
Ian Pring, Tax Director, Plymouth
Chris Watts, Tax Director, Torquay (FCTC)
Jemima Fox, Tax Director, Plymouth
Justin Gliddon, Director, Plymouth (1/10/16)
Frances Kingsnorth, Director, Salisbury
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James Barratt, Director, Plymouth
Daniel Sladen, Tax Director, Truro
Lisa Macpherson, Tax Director & Head of Tax Technical, Poole
Martin Brown, Tax Director, Taunton (FCTC) – joined 6/3
Staff update – newly promoted Directors, 1 April 2017
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• Budget day changing to autumn from 2017
• This update will be in March again next year
More convenient timing for attendees
We have better information to share
Access to consultations and draft legislation
Spring tax update
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Programme
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Budget overview Holly Bedford, Tax PartnerMaking tax digital James Barratt, DirectorBusiness tax update Holly Bedford, Tax PartnerPersonal tax update Ian Pring, Tax ConsultantFinancial planning update Richard Wright, Chartered
Financial Planner
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SpeakerBudget overviewHolly Bedford, Tax Partner
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Measured & boring
Hammond’s speech
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Overview
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PSNB as % of GDP (per OBR)
Estimate Forecast
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Public sector net borrowing 3.8% 2.6% 2.9% 1.9% 1.0% 0.9% 0.7%
Cyclically-adjusted public sector net borrowing 3.6% 2.6% 2.9% 1.9% 0.9% 0.9% 0.7%
Treaty deficit 4.0% 2.7% 2.8% 1.9% 1.1% 0.9% 0.9%
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Crisis over?
Spring tax update
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• Worries over the economy – Brexit
• Digitisation and automation Making tax digital (MTD)
Fourth industrial revolution
Productivity (or lack of it)
• Changing employment patterns Attacks on self employment
Concern over incorporations
• Pressure on property owners – business rates
• Crackdown on evasion and ‘bad’ avoidance
Spring tax update - themes
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SpeakerMaking tax digital
James Barratt, Director
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Making tax digitalNew HMRC initiative revolutionising the way businesses file online
• Landlords and unincorporated businesses with turnover over the VAT registration limit start to file from 5 April 2018
• VAT will be filed via MTD from 5 April 2019, and businesses with turnover below the VAT registration limit will start to file quarterly
• Corporates and large (> £10m) partnerships 5 April 2020
• Run-off of existing returns, plus any other income where HMRC doesn’t receive details through third parties
• First years will have multiple deadlines to meet
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Making tax digital
• Deadline for submitting quarterly returns one month after the quarter end
• Deadline for submitting final adjustments for year will be the sooner of ten months after the year end, or 31 January following the year of assessment (the existing tax return deadline)
• Applies to the first accounting period that begins after 5 April 2018, so 5 April year ends’ first quarterly reporting date is 5 July 2018, and first MTD deadline on 5 August 2018
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Making tax digital
Government has given some assurances regarding small businesses, and the digitally excluded:
• Businesses can use spreadsheets for record keeping, but must file via MTD-compliant software
• Businesses eligible for three line accounts can submit quarterly updates with only three lines of data (income, expenses and profit)
• Free software will be available to businesses with “the most straightforward affairs” – in practice, this will mean those under the VAT registration limit and with no employees
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Making tax digital• No need to scan in invoices
• Where more than one property is owned, only one update for the entire property business required – originally appeared to be per property
• Accounting adjustments not needed at quarterly updates – can be made in final adjustment for year
• Declaration of partnership splits now optional for quarterly updates –must be notified in year end adjustment
• Partnerships must return all income and gains i.e. investment income as well as trading income
• Will not include CIS returns for the time being – current quarterly return system will continue
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Making tax digital
• Government has yet to decide on de minimis limit below which MTD will not apply
• £10,000 is too low (below the personal allowance) but unlikely that a limit as high as the VAT registration threshold will be considered acceptable
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Cloud accounting?
• Multi-user & multi-location
• Immense server processing power
• Machine learning
• Application programming interface (API).
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Why?
• Can help with making tax digital
• Automated bank feeds
• Invoice recognition
• Make business decisions based on real time data
• Dashboards
• Management accounts
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Who to contact?
Thomas Roberts ACCACloudSourcing Technologist – [email protected]
Darren Jasper ACA CTAHead of [email protected]
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SpeakerBusiness tax updateHolly Bedford, Tax Partner
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• New funding designed to help the UK compete in science and innovation includes:
£300m for research talent, including 1,000 PhD places for STEM subjects
£270m for robots, driverless cars and biotech
£16m for a 5G mobile technology hub
£200m for fibre broadband
Science, 5G and robots
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Research and development
• SMEs – tax relief on allowable R&D is 230%
• £4,600 tax saved for £10,000 of spend
• Can also obtain a repayable tax credit of 14.5% on R&D losses - net saving of 33.5% on qualifying R&D spend
• Large companies now must use ‘research and development expenditure credit’ scheme – RDEC
• Taxable credit of 11%
• Net saving of 8.8% on qualifying expenditure
• Receive a tax credit – ‘above the line’
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• UK likely to remain in support of the OECD’s base erosion and profit shifting (BEPS) project
• EU parent-subsidiary directive, EU interest and royalties directive, EU merger directive
may be the case that full relief for all withholding taxes, whether on dividends, interest and royalties is not available in some cases
sections of the EU merger directive relating to EU member shares would no longer apply to the UK and this could give rise to increased tax costs in the UK for businesses undertaking mergers
Brexit
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Corporation tax – interest deduction• New rules will restrict each group’s net deductions for interest to
30% of EBITDA taxable in the UK or, if higher
An amount based on the net-interest to EBITDA ratio for the worldwide group
If the group’s net interest deduction is below £2m then a full deduction will be given regardless of the fixed ratio or group ratio limits
• Existing debt cap legislation repealed and replaced with a modified debt cap
• Ensures that the net UK interest deduction does not exceed the total net interest expense of the worldwide group
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• Parent company is funded by equity share capital of £50m
• It onward lends to trading subsidiaries and charges interest at 10% i.e. £5m net interest expense
• EBITDA is £8m, so 30% of EBITDA = £2.4m • In this case, the interest deduction in the year would be
restricted by £2.6m • This demonstrates that, even where all companies are
UK, the restriction rules could still apply
Interest deduction - example
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Corporation tax - losses
• New rules will increase flexibility for relieving corporate tax losses
• Losses arising from 1 April 2017 can be carried forward and offset against other income streams
• Losses can also be carried forward and group relieved
• Companies with profits > £5m – only 50% of profits in excess of £5m can be relieved by losses brought forward
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Substantial shareholdings exemption
• SSE can apply to exempt gains on companies selling shares (10%)
• Changes to SSE following consultation:
Removing investing company trading condition
Making it easier to sell shareholdings in multiple tranches
Removing post disposal investee trading condition
Broader exemption for companies owned by qualifying institutional investors
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Liquidations and entrepreneurs’ relief
• 10% tax rate possible on liquidating trading company
• Members’ voluntary liquidation (MVL)
• Now have targeted anti-avoidance rules to catch: Money boxing Phoenixism
• Are you carrying out a similar trade or activity within two years?
• Those caught treated as receiving a dividend
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Transactions in land• Tightening of rules aimed at taxing gains on
development of land as trading income, not capital
• Previous rule – ‘sole or main object’ was to realise a gain on disposal of land
• New rule – ‘main or one of main purposes’ is to realise a gain
• Applies where other property (e.g. shares) derives 50+% of its value from land
• Impact on solar SPVs?
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Corporation tax – transactions in securities
The Government has confirmed that it will make no further amendments to the legislation on company distributions at this time, beyond the changes to the Transactions in Securities anti-avoidance included in Finance Act 2016
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• ‘Nudge’ letters• Increased HMRC data-collection powers• Tougher sanctions for those in the hidden economy• New fixed 30% VAT penalty for claiming input VAT which
the trader ‘knew or should have known’ was connected with VAT fraud
No reductions for cooperation Company officers may be personally liable Liability engaged irrespective of the type of knowledge obtained
Anti-avoidance - onshore
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• Recent Press articles about ‘unfairness’ of self employed paying ‘lower’ tax
• No recognition that they do not have any of the employment protections enjoyed by employed workers
Maternity / paternity leave and pay Holidays and holiday pay Requirement for public liability / professional indemnity
insurances
• Government also considering incorporations – will there eventually be a ‘look through’ to tax undistributed profits of close companies at rates effectively equivalent to income tax rates?
Employment vs self employment
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• IR35 aims to stop incorporation as way of achieving PAYE/NIC advantage over directly employed individual
• From April 2017 – changes for those engaged by public sector bodies apply when:
Worker personally performs services for end client
End client is public authority
If the contract had been directly with the end client the worker would have been regarded as an employee
• Workers engaged in public sector via their own ‘personal service company’ will have their employment status reviewed by public sector end client
IR35 public sector bodies
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• Increase in business rates from April 2017 - revaluation of the rating list
• “Increase in rural rate relief to 100%, giving small businesses in rural areas a tax break worth up to £2,900 a year” Chancellor of the Exchequer, November 2016
• Transitional provisions failing to ease burden, too narrowly focused
• Rural businesses unfairly treated because insufficient thought given to the impact on them. Need to review rateable values, and dispute them with the VAO
Business rates
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• Survey of PKF Francis Clark clients
• Business rates concerns are not uppermost BUT…
• Wider review of business rates likely – is the tax fit for purpose?
Business rates
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• £435m for firms affected by increases in business rates
• £300m hardship fund for small businesses worst affected will be allocated to local authorities for discretionary use in ‘hard
cases’
• Pubs with rateable value of less than £100,000 to get a £1,000 a year discount on rates they pay
• Any business losing existing small business rates relief will not pay more than £50 a month extra
Business rates announcements
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Personal tax updateIan Pring, Tax Consultant
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• With the introduction of the state second pension, the old distinction between what was ‘purchased’ by contributory benefits has disappeared
• NIC for the self-employed will rise by 1% (to 10%) from 6 April 2018, and
• By a further 1% (to 11%) on 6 April 2019
National insurance for the self-employed
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• The Chancellor’s response to the ‘small company’ problem has been to announce a decrease in the annual dividend allowance
• From 6 April 2018, this will reduce from £5,000 a year to £2,000 a year
• This will largely impact company directors/shareholders and investors with portfolios worth over £50,000
Reduction in the dividend allowance
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Residential property
• Various ownership structures
• New tax rules where residential property owned personally
• Restriction to mortgage interest relief on residential lettings
• Increase in SDLT
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Wear and tear allowance
• 10% allowance scrapped from April 2016
• Replacement furniture relief
• Initial furnishings
• FHLs retain capital allowances
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Financing costs – residential
• 100% financing cost deduction being phased out over a number of years
• Replaced with a 20 % tax reducer
• Basic rate taxpayers, child benefit and personal allowance impact
Tax Year Finance cost relief2017/18 75% of finance costs deductible against rental income, 25% tax
reducer
2018/19 50% of finance costs deductible against rental income, 50% tax reducer
2019/20 25% of finance costs deductible against rental income, 75% tax reducer
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Financing costs – an example
2016/17 2020/21Rental income £50,000 £50,000General expenses -£10,000 -£10,000Allowable interest -£20,000 -Rental profit £20,000 £40,000
Tax at 40% £8,000 £16,000Tax reducer at 20% - -£4,000
Tax payable on rental income
£8,000 £12,000
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Residence nil rate band
• When a residence is passed on death to a direct descendant:
• Property must have been occupied by the deceased as their main residence at some point during the period of ownership
Tax year Rate of RNRB2017/18 £100,0002018/19 £125,0002019/20 £150,0002020/21 £175,000
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• Downsizing provisions
• Unused band is transferable between spouses – potential for £1 million IHT free
• Tapered withdrawal of the nil rate band for estates with a net value of more than £2 million
• Planning opportunities?
Residence nil rate band (continued)
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• Full finance cost relief
• Corporation tax rate 19% from 1 April, reducing to 17%
• Tax costs of setup – capital gains tax and stamp duty land tax
• Reliefs may be available to mitigate tax costs
• Profit extraction
• Director’s loan account
Incorporation of rental business
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• 3% surcharge for additional residential property purchase
• Also applies to any acquisition of residential property by a company
• Commercial and mixed use properties are unaffected – missed opportunities?
• Furnished holiday lets included
• Multiple dwellings relief
Stamp duty land tax
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SDLT - residential rates
Main residence
Second home
or buy to let
Up to £40,000 Zero Zero* Up to £125,000 Zero 3% The next £125,000 (the portion from £125,001 to £250,000) 2% 5% The next £675,000 (the portion from £250,001 to £925,000) 5% 8% The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%
The remaining amount (the portion above £1.5 million) 12% 15%
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SpeakerFinancial planning updateRichard Wright, Chartered Financial Planner
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ISA update
There are now six types of ISA!• Cash
• Stocks and shares
• Lifetime from 6 April 2017 (new)
• Help to buy (being withdrawn 30/11/2019)
• Junior
• Innovative finance
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ISA limits from 6 April 2017Reduction to tax free dividend allowance from April 2018 – increases benefit of ISA
• Cash and stocks & shares - £20,000 (2016/17 £15,240)
• Lifetime - £4,000 plus Government bonus 25%
• Help to buy - £1,200 in first month + £200pm thereafter plus Government bonus of 25%
• Junior - £4,128 (2016/17 £4,080)
• Innovative finance - £20,000 (2016/17 £15,240)
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Focus on lifetime ISA
Alternative to pension?
• Dual purpose – save for first home and/or retirement
• 25% Government top up
• Open to 18-40 year olds (can continue to age 50)
• Access before age 60 results in loss of Government top up and investment growth unless
Using funds to buy first property up to £450,000
Terminal illness
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Focus on junior ISAWealth transfer idea?
• Available from 0 to age 18 (becomes adult ISA at 18)
• Parents, grandparents, friends etc can contribute
• Using a calculator from Fidelity we can see that saving £340 per month from birth to age 18 could produce a fund of £101,322 assuming 5% annual growth
• An excellent way of transferring wealth down through the generations with no tax consequences
• Could fund university fees or a property deposit
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NS & I bond
Interest rate confirmed at 2.2%
• Available to everyone over age 16
• £3,000 investment limit
• Three year term
• Available from April 2017 for 12 months
• Said to be ‘market leading rate’
• Open market shows Atom Bank offering 2.2% three year fixed rate with FSCS protection up to £85,000!
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Pension update
Key changes/considerations
Budget confirmed reduction of annual allowance to £4,000 from 6 April 2017 if money purchase annual allowance triggered
What triggers it?
• Uncrystallised pension fund lump sum (UFPLS)
• Flexible access drawdown (income taken), but not if just tax free lump sum
• Exceeding the income cap in capped drawdown
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Pension update
• From 6 April 2016 tapered annual allowance applies if ‘adjusted income’ exceeds £150,000
• Lifetime allowance reduced to £1m
• Individual protection 2014 deadline is 5 April 2017 for those who had pension funds valued at more than £1.25m at 5 April 2014
• Pension scams – consultation closed in February, feedback due later this spring
• Aiming to tackle cold calling
• Giving powers to schemes to refuse pension transfers
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Pension carry forward
• Carry forward still available from previous three tax years
• Useful for those caught by tapered annual allowance
• Be aware that 2013/14 carry forward (£50,000) drops away on 6 April 2017
• Can only carry forward if you had a registered pension plan in place for the tax years used in carry forward
• No pension plan but may want to save in future? Start one now to ensure full scope of carry forward is open to you when you need it
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Non earners’ pension contributions• Can contribute up to £3,600 per annum gross
• Net cost £2,880 per annum
• Tax relief each year of £720
• Can contribute for children
• Pension funds generally free of inheritance tax
• In a low interest rate environment, 25% instant uplift in value is significant
• Wealth transfer opportunity, grandparents contributing for grandchildren?
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Pension allowances restricted?• Venture capital trusts• High risk but with significant tax advantages• HMRC approved• £200,000 annual investment limit• 30% up front tax rebate• Tax free growth and dividends• Must be held for five years to retain tax benefits
Alternative tax efficient investing
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No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.
PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF. Registered in England No. 05413603.Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro
Disclaimer & copyright
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SpeakerChairman’s closing remarksGiles Hutchings, Partner
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(c) copyright PKF Francis Clark, 2017
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PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC349116. The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at www.pkf-francisclark.co.uk. The term ‘Partner’ is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
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