Improving working capital - KPMG

1 Improving working capital Generating cash savings through better fi nancial housekeepingMay 2017 How tax can help the business improve working capital efficiency and generate cashWorking capital is a key priority for business leaders. Realising efficiencies reduces funding costs, releases cash for investment and can have a tangible impact on the bottom line. Yet the role of indirect taxes, and claiming tax reliefs and incentives from investment in the business is often rarely take full advantage of the opportunity in the UK let alone their international businesses. Is VAT your biggest drag on cashflow?With VAT often representing the third largest throughput after sales and cost of sales, the daily inflows and outflows of VAT can have a significant impact on cash available to the business and financing needs. Likewise, finance processes can be inefficient which lead to a hard cost where VAT is expensed.

2 Simple changes, designed to ensure your business keeps pace with current best practice can have a dramatic impact. Better management of VAT cash flows, for example, can typically increase working capital by 5%-20% of VAT throughput. Could tax help you reduce the cost of innovation and capital investments?Businesses are dealing with an unprecedented period of disruption and change. From investments in technology, new products or finding new markets for growth, often overlooked is the support available from tax reliefs and reliefs and capital allowances were introduced by Government to help incentivise innovation and investment by reducing the cost of a wide range of expenditure, from staff costs to new capital allowances regime specifically provides a number of opportunities to obtain enhanced tax relief ( enhanced capital allowances, research and development allowances and short life assets) on historic, current and future capital expenditure plans.

3 Careful upfront planning and consideration is required to make sure you are getting the full benefit of any reliefs you are entitled a typical example, businesses can obtain an 11% credit to offset the cost of investing in research and a 100% immediate relief on supporting capital expenditure. Many of the reliefs may have a direct cash impact on your EBIT. Can you prepare for the uncertainty of Brexit?The clock is ticking, but how can you prepare for Brexit while so much uncertainty hangs in the air? From a trade perspective, it s clear that businesses need to prepare for significant changes to the customs arrangements. Clearance costs alone could increase by up to 10% of the value of the goods and that s before any new tariffs are applied, which can further increase the cost of goods by 5% to 15%. However, there are ways businesses could mitigate these risks.

4 A good example is the EU s Authorised Economic Operator Scheme, this allows trading businesses to seek a trusted status, reducing the burden of clearance checks at the checklist for tax and financeAction Have you assessed your VAT cash flow alongside your purchase to pay or order to cash cycle? Is your business expensing VAT on AP spend or inter-company cross-border transactions? Are your global contracts set up efficiently to minimise irrecoverable VAT? Are you developing new or enhancing existing products, processes, systems or services? Are you capturing all qualifying costs being incurred on R&D projects? Have you made an investment in new facilities, equipment or fixed assets for your business? Could your spend on innovation qualify for patent box relief? Have you assessed the impact of trade tariffs in your supply chain? Is your business eligible for trusted trader status with the EU?

5 Three quick winsOptimise your VAT paymentIf your business has average debtor days in excess of 45 days and is in a VAT payment position, then it is highly likely you are financing VAT paid to the tax authority. Quick win process based changes can minimise VAT funding costs so that VAT becomes a positive cash flow generator for a business. Identify all qualifying expenditure for all tax reliefsIt is not unusual for businesses to underestimate the scope of investment activities that qualify for tax. Have you captured all qualifying R&D expenditure? Have you considered what other tax reliefs are available to optimise investment on all fixed assets? It s possible you are missing out on available tax relief and credits that could provide you a timely and permanent tax ahead of your competitors and secure trusted trader statusWhatever the outcome of Brexit, the Authorised Economic Operator scheme is likely to give your business more certainty and confidence to trade with the working capitalWhy KPMG?

6 We ve worked with thousands of clients from SMEs to large corporates to help them improve the management of tax in their discussing the principles of tax relief claims pro-actively with HMRC to get upfront agreement and bring early certainty to your would be happy to have an initial discussion with you on a no fee basis, and if a potential benefit is identified, we can discuss with you a range of fee ve managed over 11bn of qualifying R&D investment for our clients since have helped our clients generate working capital benefits of over 1bn since usInternational Markets and GovernmentGary HarleyPartner, Head of Indirect Tax KPMG in the UKT: +44 20 73112783E: WoodwardPartner, Innovation Reliefs and Incentives GroupKPMG in the UKT: +44 20 76944171E: MarketsSimon ShawPartner, Head of Indirect TaxKPMG in the UKT: +44 121 2323016E: BlackerPartner, Innovation Reliefs and Incentives GroupKPMG in the UKT: +44 113 2313673E: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

7 Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights KPMG name and logo are registered trademarks or trademarks of KPMG