The Complete Guide to Growing Your Business Internationally. Part 4: Tax

Part 4 of our Guide to Growing Your Business Internationally looks at that most joyous of business responsibilities – Paying Tax.

It’s obvious that you must pay international taxes correctly, just as you do in the UK. But did you realise that tax should be something you think about while planning your business expansion.  Why? Because tax issues determine how overseas operations should be set up, product pricing, and how you manage your cash.

Here’s some of the basics you’ll need to explore.

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The Three Questions That Determine Your Tax

Paying taxes abroad can be pretty complex. And you can double that complexity if you manufacture goods, or are providing services, from the UK to another country as you’re liable for both the local market taxes and applicable UK taxes.

Even if you don’t manufacture or run a services business locally, if the funds are ending up back in Blighty, the tax man will take his cut.

Tax is loosely determined by how you answer the following three questions:

1)      Where do you manufacture and sell to: UK, EU, or outside the EU?

For trading purposes the European Union (EU) is a single market with no frontiers between the member states. This means that goods can move freely between them, only incurring formal customs costs when goods leave the EU. Goods leaving the UK but remaining in the EU are called ‘dispatches’ while goods going outside of the EU are called ‘exports’.

But the second dimension to location is whether you produce locally in the UK and then export those goods elsewhere – making you an ‘exporter’ – or manufacture within the foreign market you are trading in. Neither are good or bad, and both options will incur taxes, but there can be a dramatic difference in costs when you explore the tax implications of either scenario. (You need to be aware of this before finalising your distribution strategy.)

2)      What are you selling?

Quite simply, do you sell goods or services? There’s a different tax for that. (You can read more about the differences between providing goods and services here.) And then of course within goods and services taxes apply dependent on the type and class of those goods as well as the quantity sold.

3)      To whom are you selling?

Your last tax differentiator is based on who you sell to – Business-to-Business (B2B) or Business-to-Consumer (B2C)? If selling to Businesses there’ll most likely be some type of Value-Added Tax (VAT) to calculate. And if selling to consumers you’ll apply a Sales Tax at Point of Sale.

How to Learn The Basics of Tax

Luckily, within in the UK at least, the Government, UKTI, and HMRC are keen that you understand tax as much as possible (to ensure you pay what you are supposed to) and have created some really good guides to the process. Have a look at:

How to Approach International Tax

Even when you have educated yourself on some of the tax basics you’ll know by now that you need specialist advice on tax while planning your move into an overseas market. We’d recommend using a combination of some, or all, of the below:

  • UKTI
  • Your local tax advisor/accountant (even if they have no knowledge of the market you are going to be trading in they need to be aware of your plans and can advise on UK tax implications and what tax relief is available)
  • A specialist tax advisor with knowledge of trading in your chosen market
  • The local market tax regulatory body (i.e. their equivalent of HMRC)

At this point in time you may even choose to revisit your Distribution Strategy – and that’s OK! It’s better to know this stuff in advance than to start trading and find out your profits just don’t stack up once taxes are applied.

 

Video: How your lending helped a British accessories manufacturer sell their goods at Heathrow Airport

Owen Barry designs and manufactures clothing and accessories from the finest ethically sourced sheepskins and leathers from Britain and Europe. The business was started in 1948 in Street, Somerset by Owen Barry the father of the current owner, Cindi Barnstable. She rescued the family business from receivership in 1990 and has been running Owen Barry ever since.

Their goods are all designed and made in their factory in Somerset and are sold across the UK and the rest of the world in countries as far away as Japan and New Zealand.

In May 2012 they took out a peer-to-peer business loan through Funding Circle for £60k so they could move to a larger premises and cope with increasing demand.

Their loan was funded by 389 people in 7 days. In this video you’ll see some of the team at work, making quintessentially British garments and accessories, as well as hearing Cindi’s own experience of Funding Circle.

If you’d like to find out more about applying for a business loan through Funding Circle, visit our business page which will give you all of the information you need.

You can view our other case studies here.

Update to minimum bid rates and nearly 100 new loans. Weekly Lending Review: week 46

Week 46: 11 – 17 November 2013

It was the best week ever for the number and value of lending opportunities available to you: 98 business loans totalling £5.5 million were listed on the marketplace. The majority of loan applications came from London and the South East, and the most common loan purpose was for expansion and growth capital.

New loans

There were 98 new business loans listed last week and there are currently 60 auctions on the marketplace.

The total value of the new listed loans was £5,492,500; that’s an average of £56,046 per loan. The largest loan value was £160,000 and the smallest loan value was £5,000.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average. Number of loans, value of loans and secondary market are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 11-Nov represents the week of 11th- 17th November.

Weekly average gross yield (2 weeks rolling)

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Number of listed loans per week

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Listed loan value per week

value

Update to minimum bid rates

We review the minimum bid rates in the middle of every month to decide whether they should be changed or kept the same. This month, the decision has been made to increase rates by 0.1% on the A, B and C risk bands. The new rates will come into effect for loan requests listed after 9am on Monday 2nd December. The new rates are as follows:

A+: 6% (no change)

A: 7.6% (+0.1%)

B: 8.6% (+ 0.1%)

C: 9.6% (+ 0.1%)

C-: 11.5% (no change)

News you should know

We updated our terms and conditions last week, to give us more flexibility when dealing with loans that are behind with their repayments.

Lakeland Picnic borrowed through the marketplace in September and we visited them in the Lake District where they make their delicious homemade burgers. We put together a picture story of their business story including a special message to the people who lent them money.

Community Discussions

This week we’re talking about tax on interest earned. You can join the discussion on our community forum.

Loans defaulted last week

Software development company. Loan 127

This Loughborough business has been trading since 2008 but failed to keep up with repayments and is now in liquidation. The original loan amount was £35,000 and all 319 investors have been notified.

Enjoy lending, The Funding Circle Team

 

Welcoming Luke Jooste to Funding Circle

As we’ve alluded to recently, it’s going to be a big twelve months at Funding Circle.

You may have read recently that Funding Circle raised $37million in October to invest partly in launching our US operation, but also to invest in expanding our UK offering into key opportunity areas, focussing mainly on expanding the types of loans we offer to our UK investors.

One such area is property finance and to help us define our offering, we are very pleased to welcome Luke Jooste to the team. Luke is a property finance specialist, bringing fifteen years of experience with him, and we’re really excited to have someone of his stature onboard with us.

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Before joining Funding Circle, Luke oversaw the commercial performance of Barclays Business as their Commercial Director, of which property is a major asset component.

We spent a few minutes with Luke to hear what drew him to Funding Circle.

What’s your background?

I’m always reluctant to say (only because it shows my age), but I’ve been in financial services for 18 years, 15 of which have been in property finance. I began my banking career in 1995 after being recruited from University by one of the large South African retail banks.

I moved over to the UK as an Associate Credit Director (Real Estate) with Barclays Corporate Bank in 2008, just as the credit crunch really took hold. It was an incredible learning experience for me as I got a huge amount of insight into the heart of credit risk in the UK real estate sector. After two years in that role I moved to Barclays Business Bank as UK Head of Real Estate Finance, and for the past 12 months I’ve been the Commercial Director of Barclays Business.

It’s been a difficult time for the UK banking sector but very valuable experience for me to have.  I’m now looking to bring that experience across to Funding Circle, so that we maximise opportunities while avoiding the mistakes of the past, and add real value for our borrowers and investors.

Why did Funding Circle appeal to you?

The emergence of peer-to-peer lending is probably the most exciting development in the UK financial sector at the moment. So being given the opportunity to develop a real estate finance proposition for the company that is pioneering the peer-to-peer lending movement is both an honour and a compliment for me.

It’s also incredibly exciting to move from a global corporate like Barclays to a smaller tech start-up company. I’m still struggling with not wearing a suit everyday and getting used to having table tennis in the office however! But most importantly it’s about the people. The team at Funding Circle are exceptionally talented and that was the most appealing aspect.

Why do you think it’s a good idea for Funding Circle to develop it’s property offer?

If Funding Circle is going to achieve its ambition of being a global peer-to-peer lending company, then it needs a full suite of funding product offerings. Property finance is at the core of any funding market. There is general consensus across the board that the UK real estate market is improving, and we must be able to service borrowers who need finance as well as investors that are looking to get into this popular asset class.

But we won’t be naive about how we do that and are very aware of the risks that this carries, particularly given the learnings from the 2008 property downturn. Just because it will be difficult however, doesn’t mean we shouldn’t do it.  In fact it means we should do it a lot better. As a peer-to-peer lender, Funding Circle doesn’t have the legacy in real estate finance that the banks do. I think this gives us a real advantage and look forward to enhancing lending opportunities for all of our investors.

Why now?

The timing is a combination of the natural growth path of Funding Circle, a recovering property market (based on a number of metrics, not just house prices), the continued shortage of credit in the market (especially to small and medium sized property professionals) and ultimately our sheer determination to be able to offer the right suite of products and opportunities to our borrowers and investors.

Thanks Luke.  That’s it for now, but we’ll be in touch with more exciting property news in the next few weeks.

News

Picture story: tasty homemade burgers brought to you straight from the Lake District

Michelle Partington has been running Lakeland Picnic since 2007, making homemade burgers and sausages from their base in the Lake District. The business was looking to raise finance so they could revamp the look of their street stalls.

In September, Lakeland Picnic took out a business loan through Funding Circle which was funded by 221 people across the UK, alongside the UK Government.

We went up to visit Michelle in the Lake District to see how her and the team create their magical meat and then followed her to their stall in Manchester’s Piccadilly Gardens, where she had some lovely words to say about everyone who had lent them money.

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Picnic - Michelle slide 2

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Final Slide

If you’d like to find out more about applying for a business loan through Funding Circle, visit our business page which will give you all of the information you need.

You can view our other case studies here.

Updates to the Terms & Conditions

Today we will be making some changes to the Terms & Conditions which will affect all of our community.

As you may already know, we will be launching new borrowing products in the near future, such as asset and property finance, as well as opening more channels through which you can lend your money – the iOS mobile app for example. Through the introduction of these new products, there will be many more lending opportunities and specifically more lending opportunities on larger loans, so we have made some changes to the terms and conditions to reflect these new types of loans.

In addition, we want to ensure that we are in a more flexible position to deal with borrowers who are unable to keep up with their monthly repayments. These changes should help us reach a better outcome for both investors and businesses.

Here are the key changes you should know about:

1. Information from borrowers: We have added requirements for borrowers to provide information to us if we request it, during the life of the loan.

2. Restructuring loans: In certain circumstances we’ll be able to agree an extension of the loan term with borrowers (provided there is an increase in the interest rate), which may help borrowers stay in business whilst making regular repayments back to investors, rather than placing the loan into default.

3. Flexibility of default date: If there is one late payment for a loan, we may place the loan into default (after 10 working days) if we believe this will maximise recovery.

4. Restrictions on loan participation: A single investor (either retail or institutional) can fund up to a maximum of 20% of each loan through the API.

5. Our ‘website’ is now our ‘platform’: To better describe our service due to the apps we will release in the future.

These changes will be reflected in the updated Loan Conditions, as well as the Terms & Conditions for investors, borrowers and intermediaries. It’s important to have a look, as by continuing to use the Funding Circle marketplace you agree to be bound by these revised terms. From later today, before making a bid you’ll also be asked to reaccept the Loan Conditions.

 

Meet the Funding Circle team. Weekly Lending Review: week 45

Week 45: 4 – 10 November 2013

We had our biggest week for fully submitted applications from businesses which will result in many more lending opportunities in the weeks to come. £3.5 million was lent to businesses last week and a further 71 business in the UK were looking for funding. The majority of businesses were located in the South East; 36 were looking for expansion funds and 31 needed working capital.

New loans

There were 71 new business loans listed last week and there are currently 46 auctions on the marketplace.

The total value of the new listed loans was £3,654,020; that’s an average of £51,465 per loan. The largest loan value was £150,000 and the smallest loan value was £10,000.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average. Number of loans, value of loans and secondary market are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 4-Nov represents the week of 4th- 10th November.

Weekly average gross yield (2 weeks rolling)

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Number of listed loans per week

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Listed loan value per week

value

News you should know

Following from our first team interview where we met the customer relations team, we have also spent 5 minutes with the insolvency team, headed up by Andrew. You can read about their backgrounds, what they do outside of Funding Circle and what they consider to be the highs and lows of their job.

Community Discussions

This week we’re talking about how your account statements could be improved. You can join the discussion on our community forum.

Loans defaulted last week

No loans were defaulted.

Enjoy lending, The Funding Circle Team

 

Weekly Lending Review: Week 44

Your 5 minutes with… the Insolvency Team

Following our first team interview where we spoke to Jenah and the rest of the Customer Relations team, we thought we’d spend 5 minutes with Andrew and Susie, who work on the insolvencies and recoveries of Funding Circle businesses.

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A small proportion of businesses will be unable to maintain repayments on their loans and become insolvent so we thought it was important for you to meet some of the people who are dealing with these cases on your behalf.

Andrew is Head of Insolvency and Susie is our Insolvency Administrator. We are growing this team and expect a further two members to join them by the end of the year. Andrew started in the summer and Susie has been with us since November last year.

Day to day activities include:

Checking in on businesses that have fallen behind with repayments, working with borrowers and guarantors to establish a fair payment plan (if required) that protects the interests of investors, notifying investors of the status of late payments, ensuring that agreements with borrowers are in line with our internal policies (which may change from time to time), developing policies and using technology to optimise our activities.

What is your background?

Andrew: I’ve been a qualified solicitor for 9 years now. Initially I studied biology at Oxford, and then took conversion exams to become a solicitor. In my early legal career I worked for a charity, the Government, and the NHS and then in corporate restructuring. As the recession hit, I moved from solvent reorganisations to insolvent reorganisations, Blockbusters and Halliwells to name two.

Susie: I have a completely different background to Andrew, I actually came from a travel agency in London, where I was in customer relations and also worked as their internal auditor.

So why did Funding Circle appeal to you?

Susie: When I joined, there were half the number of people and probably half the number of businesses, but I could see Funding Circle was expanding rapidly so the opportunity for development was there. The company has also been very accommodating to flexible working, so that’s helped a lot.

Andrew: Funding Circle is an incredibly exciting and innovative business. My role at Funding Circle is also quite different to what I have done in the past. Previously, I was a solicitor with clients and now I am business manager with legal knowledge, which can be very helpful. When I instruct lawyers and insolvency practitioners, I know what they’re doing and I also know what to expect.

Why is what you do important for our customers?

Andrew: It’s important for investors to know that we work very hard to maximise recoveries for them, whilst also trying to be fair to businesses and to give them a chance to get back on their feet. We look at the same factors in every case and have the same requirements from businesses, the main requirements being transparency and regular communication. However, every case is unique. From a borrower’s perspective, it’s important for them to know that they are dealing with fair and reasonable individuals who want to work with them to get the best result for all.

Susie: Yes exactly, and each case is different. You’re working for the benefit of both investors and businesses. Whilst we want to secure the maximum recovery for investors, we also want to show empathy towards the borrowers and make the right decision for all parties involved.

There is risk with lending and inevitably a small proportion of businesses will struggle to keep up with their repayments, but what do you consider to be the best outcome if this happens?

Susie: It’s a good result when we have achieved a recovery that works for both parties; the investors get their money back and it is affordable for the borrower.

Andrew: The best outcome is 100% recovery and a surviving business! But other than that, a good outcome will only come from great communication with the borrower. When there’s two-way communication, you can really understand their position which gives us flexibility to find an affordable solution that meets everyone’s needs. Ideally this will also help the individuals carry on running their business, having come out of the financial difficulty they previously saw themselves in.

And what is your favourite thing about working at Funding Circle?

Susie: The buzz in the office; everybody is busy and it’s a great environment to work in. It gets you out of bed in the morning!

Andrew: The way that everyone is committed to not only making their own teams the leaders in their field, but that everyone shares the vision of where this business is going. It is very impressive and not something I’ve come across before in my working life.

And what is the most difficult part of your job?

Andrew: Leaving in the evening!  Seriously though, sometimes we have to make very difficult decisions and it’s not easy when you think about the impact those decisions might have on people. Leaving those decisions in the office when I go home is the most difficult part of my job, but fortunately my wife is a good listener.

Susie: Speaking to business owners who have tried everything to turn their business around but are still unable to find the money to meet their repayments.

Yes, that definitely must be tough. On a lighter note, can you tell us an interesting fact about yourself?

Andrew: I was bitten by a seal in the Galapagos Islands. I’d been snorkelling and as I got back into the boat, a seal bit my knee. It didn’t hurt at all, it was a friendly nip!

Susie: As we’re talking about animals, I was stung by a hornet when I was younger and remains as one of my most vivid memories. The hornet was huge!

Ouch! That sounds nasty. And aside from run-ins with various mammals and insects, what other interests do you have?

Susie: I enjoy socialising with my friends, without my kids! I also enjoy running as it gives me time to process my thoughts.

Andrew: Illegal raves in Vauxhall… I wish.  I’m quite boring really – I like cooking, reading and hanging out with my wife and two daughters.

From the Galapagos to Vauxhall, very interesting! We’ll finish on this one, do you have a favourite city?

Susie: London, without a doubt. You’re going to say something abstract aren’t you Andrew?

Andrew: St Petersburg! The Hermitage in St Petersburg is awesome, and they have a mini version of St Basil’s Cathedral down a little alleyway, which is very atmospheric.

 

£12.5 million lent to businesses in October. Weekly Lending Review: week 44

Week 44: 28 October – 3 November 2013

Over £3 million was lent to businesses across the UK last week, contributing to a total of £12.5 million for the whole of October. New businesses looking for funding included a retailer of prescription glasses and Coventry-based fruit & vegetable retailer. The majority of businesses were in the retail sector and the most common reason for needing finance was to help them expand.

New loans

There were 62 new business loans listed last week and there are currently 44 auctions on the marketplace.

The total value of the new listed loans was £3,184,500; that’s an average of £51,363 per loan. The largest loan value was £150,000 and the smallest loan value was £6,500.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average. Number of loans, value of loans and secondary market are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 28-Oct represents the week of 28th October – 3rd November.

Weekly average gross yield (2 weeks rolling)

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Number of listed loans per week

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Listed loan value per week

value

News you should know

Our roundup of October’s peer-to-peer lending industry news is up on our blog; including details of regulation and the launch of Funding Circle in the USA.

Community Discussions

This week we’re talking about the size of loan parts selling on the secondary market. You can join the discussion on our community forum.

Loans defaulted last week

Decoration specialists from Grimsby. Loan 468

The business has been trading since 1995 and has failed to keep up with repayments. The original loan amount was £50,000 and all 330 investors have been notified.

Diamond jewellers. Loan 2100

This business is based in Gateshead and the director has not been able to make repayments. The original loan amount was £21,000 and all 267 investors have been notified.

Enjoy lending, The Funding Circle Team

 

A big month for peer-to-peer lending: October industry news

October has been a bumper month for media coverage of the peer-to-peer lending industry. What with the Financial Conduct Authority announcing plans to regulate the industry from April 2014, and our move into the US, peer-to-peer lending has been across the papers, radio and even TV. Martin Lewis has also been blowing the industry’s trumpet after revealing the great returns he has made by investing in three of the UK’s biggest peer-to-peer lenders.

Let’s regulate

Peer-to-peers are good for banking competition

It’s great to see the Daily Telegraph welcoming news of peer-to-peer regulation.  We certainly agree that “it’s unusual to hear senior executives pining for increased regulatory control”, but that really is how we and the Peer-to-Peer Finance Association feel.  Proportionate regulation will ensure the industry is cemented in the wider financial services industry.

Peer-to-peer lending has a role to play but investing matchmakers need tough controls

Jeff Prestridge at the Mail on Sunday highlights how the regulatory emphasis will be on ensuring those prepared to lend via peer-to-peer platforms are not misled in any way, shape or form.  He says all of the risks will have to be spelt out in black and white, and any interest rate calculations will have to be fair and clear.  Quite right too, and you’ll be pleased to know transparency has always been the name of our game.

FCA wrong to lump P2P lending and crowdfunding together

Christine Farnish, chair of the Peer-to-Peer Finance Association, wrote an interesting piece for Money Marketing encouraging the FCA to better distinguish between peer-to-peer lending and crowdfunding.  She argues that businesses taking a peer-to-peer loan go through a full credit check, similar to a traditional bank loan, therefore making it lower risk than crowdfunding, where some investors might see total capital loss.

Funding Circle raises $37M and heads across the pond

Funding Circle US will ‘cut out banks’

On 24 October we announced that we had raised $37 million and were joining forces with San Francisco-based business lender Endurance Lending Network (now known as Funding Circle) to help millions of businesses across America sidestep the broken banking system and access finance.  Our very own Samir Desai kicked the day off in style on the BBC Radio 4’s Today programme – take a listen. Other highlights include Reuters, Daily Telegraph, New York Times and Forbes.

Funding Circle Raises $37 Million and Launches in The U.S.

The go-to site for peer-to-peer lending news in the US, Lend Academy, also covered the news.  Peter Renton wrote he first met with Samir back in November 2012 when they discussed the US market generally.  At the time he said the peer-to-business market in the US was wide open with no established player, but in Peter’s own words: “that officially ends today with the launch of Funding Circle USA.” Thanks Peter! We’ll certainly be working very hard to help make sure that’s the case.

Martin Lewis reveals all

What I earned from peer-to-peer savings

Having invested money in three of the biggest peer-to-peer lenders in the UK, Martin revealed the various returns on his money and personal highlights of investing in each platform.  He also reminds potential investors how important it is to diversify something we believe in at Funding Circle as well.

Martin was also on BBC Radio 2 earlier this week explaining to presenter Vanessa Feltz how it all works, and how investors can make a much better return on their money.

Lending to small businesses: banks vs. peer-to-peer

Non-bank lending to small businesses at highest level since 2008

The Financial Times reported that non-bank lending to small businesses has hit a five-year high.  The UK’s commercial finance brokers have arranged £10.5bn of credit for small and medium-sized enterprises in the last year. This marks the highest figure since 2008 and an annual rise of 17 per cent.  Andrew Bounds argues that the data highlights the shift away from traditional bank lending to small business, which has shrunk by a quarter since 2011.

Net lending to businesses continues to contract

Mortgage Introducer picks up on similar news that high street banking figures from the British Bankers’ Association show that net lending to businesses has fallen in 8 of the last 12 months, despite growth of £2.5bn between August and September.  Adam Tyler, CEO of the National Association of Commercial Finance Brokers commented: “High-street lenders remain very selective in granting finance which is stifling small businesses and slamming the brakes on economic growth, particularly jobs and wages”.