Avoidance _ Evasion - Tackling tax avoidance and evasion

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                                                       eSmartTax                  Issue 11

Tackling tax
and evasion
Some people believe not
paying is a lifestyle choice                         Wealth
                                                  protection     10 tax saving tips to make
                                                                      more of your money

                                                                Improving the bottom line
                                                                         of your business

                                                            Wealth check
                                                            How to maximise the value of
 Mind the                                                          your business on exit

 ‘tax’ gap
 Taking the necessary
 action to bring the
                                                        CGT, the new rules
                                                                Your questions answered
 shortfall down

 ATC Solutions Limited, 6th Floor, 52/54 Gracechurch Street, London EC3V 0EH
issue 15
     inside this
                                                                                                                                                                 Inside this issue
Welcome to the latest issue of our
business and wealth management
magazine. On page 13 we look at the                                                                                                                              05   Tackling tax avoidance
                                                                                                                                                                      and evasion                               16   Offshore tax evasion
                                                                                                                                                                                                                     An imaginative way to persuade
Treasury’s announcement that urgent                                                                                                                                   Some people believe not paying is              people with hidden assets to
action is needed to close the ‘tax gap’,                                                                                                                              a lifestyle choice                             come forward
the difference between the tax collected
and what should be collected, at a time
of impending tax cuts. The cost rose                                                                                                                             06   Financial management
                                                                                                                                                                      Improving the bottom line of              18   Attracting
                                                                                                                                                                                                                     development capital
by £4bn to £42bn in the year to April                                                                                                                                 your business                                  Presenting your business to

2009 as businesses fell behind paying                                                                                                                                                                                potential investors
VAT. With a long period of austerity
ahead, we consider why HM Revenue                                                                                                                                08   Investment companies
                                                                                                                                                                      under the spotlight
                                                                                                                                                                                                                20   Taxing times
& Customs (HMRC) will be even more                                                                                                                                    Transforming the UK’s                          Using your pension top-ups to
proactive in tackling the issue of tax                                                                                                                                insolvency process                             mitigate the effects of CGT
avoidance and underpayments.
   Implementing cost cutting measures is
the quickest and most obvious solution to                                                                                                                        08   Phasing out the
                                                                                                                                                                      compulsory retirement age                 21   Business matters
                                                                                                                                                                                                                     Did you know?
improve the bottom line of any business.                                                                                                                              A ‘one size fits all’ retirement policy
Introducing a cost control system can
bring immediate savings and ensure that
                                                                                                                                                                      is no longer acceptable
                                                                                                                                                                                                                21   Annuity law relaxed
                                                                                                                                                                                                                     Revolutionising investor attitudes
you remain competitive in the longer term.
But cost control needs to be carefully                                                                                                                           09   Capital Gains Tax, the
                                                                                                                                                                      new rules
                                                                                                                                                                                                                     towards pensions

managed. While eliminating wasteful
activities is clearly beneficial, indiscriminate
                                                                                                                                                                      Your questions answered
                                                                                                                                                                                                                22   Wealth check
                                                                                                                                                                                                                     How to maximise the value of your

                                                                                                                                                                 10   Wealth protection

cost cutting can lead to falling quality and                                                                                                                                                                         business when you exit

poor morale. Read more on page 06.                                                                                                                                    10 tax saving tips to make more of
   Many wealthy people have taken the
risk of holding assets offshore in the hope
                                                                                                                                                                      your money
                                                                                                                                                                                                                24   British businesses still
                                                                                                                                                                                                                     remain cautious
of keeping them away from HMRC. In the
past, banking secrecy was a barrier to                                                                                                                           11   Business strategy
                                                                                                                                                                      Protecting your business
                                                                                                                                                                                                                     Problems caused by the credit
                                                                                                                                                                                                                     crunch have continued to linger
HMRC finding out about overseas wealth.
However, things have changed now and it
will only be a matter of time before HMRC                                                                                                                        12   Pension planning
                                                                                                                                                                      What are the options available both       26   Company cars
                                                                                                                                                                                                                     Encouraging drivers to choose
catches up with people who have salted                                                                                                                                to you and to your employees?                  cleaner and more efficient vehicles
away money offshore. On page 16 we look
at how the authorities have approached this
with an imaginative way to persuade people                                                                                                                       13   Mind the ‘tax gap’
                                                                                                                                                                      Taking the necessary action to            27   Culture shift
                                                                                                                                                                                                                     Two year salary freeze for
with hidden assets to come forward.                                                                                                                                   bring the shortfall down                       many executives
   Also inside this issue, how to deliver
even more cost-effective employee
                                                                                                                                                                 13   Final salary pension
                                                                                                                                                                                                                28   Wealth structures

solutions and what is required to take the                                                                                                                            changes                                        Careful planning is required to
necessary action to bring the countries                                                                                                                               How the new rules could affect                 protect your wealth
tax shortfall down.                                                                                                                                                   your retirement provision
   For a full listing of the articles featured
                                                                                                                                                                                                                29   Rigorous credit control is
inside this issue please turn to page 03,
or discuss your specific requirements -
please contact us.
                                                                                                                                                                 14   Employee benefits
                                                                                                                                                                      Delivering even more cost-effective
                                                                                                                                                                                                                     essential for survival
                                                                                                                                                                                                                     Safeguard your business from the
                                                                                                                                                                                                                     risk of bad debt
                                                                                                                                                                      employee solutions

 If you would like us to email a
 copy of our digital magazine
                                                   Content of the articles featured in this publication is for your general information and use only
                                                   and is not intended to address your particular requirements or constitute a full and authoritative
                                                   statement of the law. They should not be relied upon in their entirety and shall not be deemed to             15   Self-Invested Personal
                                                                                                                                                                                                                30   Income drawdown
                                                                                                                                                                                                                     Keeping control of
                                                                                                                                                                                                                     your investments
 to someone you know, please                       be, or constitute advice. Although endeavours have been made to provide accurate and timely
                                                   information, there can be no guarantee that such information is accurate as of the date it is received
                                                                                                                                                                      Investing in commercial property
 email us with their details and                   or that it will continue to be accurate in the future. No individual or company should act upon such               brings investors significant
 we’ll send them a copy.                           information without receiving appropriate professional advice after a thorough examination of their                tax benefits
                                                   particular situation. We cannot accept responsibility for any loss as a result of acts or omissions
                                                   taken in respect of any articles.

02                                                                                                                                                                                                                                                     03
We serve a wide range of
business clients and we’re
passionate about providing
tailored advice. Is it time you
had a wealth check?
                                                          Tackling tax
                                                          avoidance and evasion
Our range of corporate services is extensive, including
financial guidance and assistance for organisations.
                                                          Some people believe not paying is a lifestyle choice
Contact us to discuss how we could take away your tax
headache, or visit our website for further information.   The coalition government is planning to spend
                                                          £900m over the next four years in a high-
                                                                                                                treat paying tax as an optional extra.
                                                                                                                   Funding for HM Revenue & Customs
                                                          profile campaign to tackle tax avoidance and          (HMRC) to increase criminal prosecutions
                                                          evasion, according to Danny Alexander, the            for tax evasion will go up five-fold, with a
                                                          chief secretary to the Treasury.                      dedicated team of investigators investigating
                                                             In a speech to the Liberal Democrat                those hiding money offshore.
                                                          conference, Alexander said the government                Private debt collection agencies will be
                                                          anticipated raising an extra £7bn each year           tasked with recouping up to £1bn of tax
                                                          by 2014/15.                                           debt, while smugglers and organised crime
                                                             Alexander said: “Tax avoidance and                 will also be targeted. The government is also
                                                          evasion are unacceptable in the best of times         planning to increase investment in freight
                                                          but in today’s circumstances it is morally            and detection technology to prevent alcohol
                                                          indefensible. There are some people who               and tobacco smuggling, which deprives the
                                                          seem to believe that not paying their fair            Treasury of tax revenue.
                                                          share of tax is a lifestyle choice that is socially      However, it is unclear whether the initiative
                                                                                                                                                                   If you would like us to
                                                          acceptable. It is not”.                               will actually increase the government’s
                                                                                                                                                                   email a copy of our
                                                             Alexander compared tax evaders to ‘benefit         current £1.2bn expenditure on tax avoidance,
                                                                                                                evasion and crime. Officials indicated HMRC
                                                                                                                                                                   digital magazine to
                                                          cheats’ by taking resources from those
                                                                                                                will be forced to find up to 25 per cent in
                                                                                                                                                                   someone you know,
                                                          who need them most, and said decisions
                                                                                                                efficiencies from its budgets as part of the
                                                                                                                                                                   please email us with
                                                          in the forthcoming spending review would
                                                                                                                comprehensive spending review before the
                                                                                                                                                                   their details and we’ll
                                                          ensure the government had the means to be
                                                                                                                £900m is injected. n
                                                                                                                                                                   send them a copy.
                                                          ‘ruthless’ with the wealthy ‘who think they can

                                                                                                                                                                                                                                      I know just how tough
                                                                                                                                                                                                                                      running a business can
                                                                                                                                                                                                                             be. It is all too easy to get the

                                                                                                                                                                                                                             basics wrong, or simply to
                                                                                                                                                                                                                             fail to get the basics done.
                                                                                                                                                                                                                             - Lord Sugar

Improving the bottom line of your business
Implementing cost cutting measures is          resources you need - standard costs            Employees are more likely to co-operate
the quickest and most obvious solution         assume optimum performance (e.g. no            with cost control initiatives if changes
to improve the bottom line of any              unnecessary wastage of raw materials or        are explained to them.
business. Introducing a cost control           staff time); and what the resources cost.         Some costs can be reduced with little
system can bring immediate savings and           Establish realistic ‘budgeted costs’         risk of an adverse impact on quality and
ensure that you remain competitive in          based on your actual experience.               performance. Checking supplier invoices
the longer term.                               Budgeted costs will usually be higher than     may reveal overcharging. Common
   But cost control needs to be                standard costs. For example, you might         examples are double billing, incorrect
carefully managed. While eliminating           expect two per cent of all production to       charges and missing discounts.
wasteful activities is clearly beneficial,     be wastage, raising unit costs. Budgeted          Eliminate unnecessary costs. Get rid
indiscriminate cost cutting can lead to        costs may sometimes be lower than              of obvious overcapacity (e.g. unused
falling quality and poor morale.               standard costs. For example, if you have       telephone lines). Cut out blatant waste
   Cost control works best as part of          staff vacancies to fill.                       (e.g. heating premises at night, or           redesigning your processes to eliminate            Review your finances. Finance fixed     both electricity and gas from them, or
your routine financial management. The           Record your ‘actual costs’ and               with windows open). Scrap useless             duplication of effort and to cut out time       requirements using loans, instead          paying by direct debit.
first step is to look at your existing costs   compare them with the standard and             processes (e.g. paperwork that is             wasting. More businesses today are              of overdrafts. Reduce unnecessary             Choose a supplier that offers the right
and identify your major cost centres.          budgeted costs.                                completed, filed and forgotten).              also making more use of technology              overdraft and loan facilities. Cut back    quality of service. Look for a flexible
Typically these might be purchasing,             It may be appropriate to compare                Reduce excessive costs (e.g. use           and automation and don’t overpay when           on working capital through just-in-time    contract which suits you (e.g. guaranteed
production, sales and marketing,               unit costs (cost per unit produced) or         second class postage, email or fax,           recruiting new employees.                       purchasing, better credit control and      prices). Opt for a supplier with a good
financing, administration, premises,           total costs (including overheads such          unless only first class post will do). Find      Improve your purchasing, consider            agreeing longer payment terms with         track record and one that provides added
facilities management, and research and        as premises). Costs that are higher            alternatives to high priced suppliers,        switch to cheaper suppliers, or                 your suppliers. Apply for grants and       value services such as technical support
development (R&D).                             than your budgeted costs may indicate          or negotiate discounts. Avoid over-           negotiate price reductions or higher            subsidised loans.                          and energy efficiency advice.
   In a small business, a cost centre          opportunities to reduce costs in the           specifying (e.g. high-quality components      discounts for early payment. It may                Get the most out of your premises.         Reducing costs can be damaging.
is usually the area one manager is             short-term. In general, the larger the cost    for a low-quality product). Ban wasteful      also be appropriate to consolidate your         Introduce homeworking or hot desking       Before making changes, check that your
responsible for, so it is important to         overrun, the more scope there should be        luxuries (e.g. full-fare business             purchases with fewer suppliers to secure        to cut space requirements (and travel      standards will not be compromised and
identify the major types of cost within        for savings.                                   class flights). Cutting back on items         improved discounts.                             costs). Reconfigure existing premises      that your ability to meet objectives will
each cost centre. These might include            Costs that are higher than your              employees see as ‘benefits’ or ‘perks of         You could negotiate long-term supply         and work flows to minimise wasted time     not be harmed. Reducing costs which
staff costs, raw materials and supplies,       standard costs usually indicate                the job’ needs careful handling.              contracts or guarantee minimum annual           and space. Sub-let spare space. Control    directly impact on employees is fraught
utility bills for energy and water, capital    opportunities to reduce costs in the              Identify inefficieies (e.g. identify       purchase volumes in return for lower            utility costs.                             with difficulty.
expenditure, other purchases (e.g.             longer term. Lower costs may indicate          manual, paper-based systems that could        prices. Simplify purchasing procedures             Cut the cost of communications.            Reducing costs such as training
consultancy services and advertising           good management, but might also reflect        be computerised). Avoid frequent small        to reduce your costs, and those of              Use email whenever possible. Use the       can often be counter productive
space), premises, communication, travel,       quality failings or impending problems.        orders. They waste time and may mean          your suppliers. Form strategic buying           corporate intranet to reduce duplication   in the longer term. Introducing
transport and financing costs.                   Periodically review what you are doing       you lose discounts. Consider switching        alliances (e.g. purchasing consortia)           of information and unnecessary meetings.   improved procedures can be difficult
   Once identified, you need to focus on;      and how you are doing it. Benchmarking         to single monthly invoicing to cut            with businesses in your area or trade           Use cheaper telecoms facilities (e.g.      and expensive. Employees may be
costs that may offer easy savings; large       yourself against other organisations may       processing and costs.                         to buy larger volumes. Give individual          alternative suppliers, leased lines).      resistant to change, and may need
costs that you may be able to change           show that your performance is sub-                A systematic approach will highlight       employees purchasing limits to reduce              Prices of gas and electricity have      extra training. Poor conditions, pay
in the short term and; fixed costs (e.g.       standard. For example, if your wastage         opportunities to control costs with little    administration and ask your bank about          increased significantly in recent          and benefits will not attract and retain
long-term fixed rate loans or fixed price      levels are higher than the industry average.   risk. In some cases, there will be easy       purchasing cards.                               months. Businesses are no longer           good employees.
contracts for raw materials) are hard to         Some costs can be easier to control if       savings such as cutting the cost of              Find ways to make production more            restricted to buying from their local         Changing an existing employee’s
control in the short term.                     one manager is responsible for that cost       supplies. In others, cost reduction will      efficient. Trim back your product range and     supplier so it is worth shopping around    terms and conditions, to the
   Start by establishing what your             throughout the organisation.                   require changing the way you do things.       increase production runs. Use standard          for the best deals. Suppliers can offer    employee’s detriment, can be a
‘standard costs’ are to enable you to            Consider involving employees in cost            Reduce your payroll costs. This may        components to lower design, purchasing          tailored pricing packages, based on        breach of contract. Making employees
achieve your objectives. Standard costs        control. Employees can suggest cost-           mean outsourcing non-core activities          and manufacturing costs. Change                 your requirements. Remember to             redundant brings short-term costs
are the costs you would have in an             saving ideas, especially if there is an        and using consultants, freelancers or         processes to minimise wastage of raw            compare like with like when looking        and the risk of possible employment
ideal world; you need to consider; what        incentive to do so. Ask what causes            part-time employees, instead of full-time     materials and energy. Improve quality control   at competing quotes. Suppliers may         tribunal proceedings. It may also
resources you need; how much of the            them problems or wastes their time.            employees. You may wish to consider           to cut rejection rates and reworking costs.     offer additional discounts for buying      damage long-term morale. n

06                                                                                                                                                                                                                                                                            07
                                        Phasing out the                                                                                        Capital Gains Tax,
                                        compulsory                                                                                             the new rules
                                        retirement age
                                                                                                                                               Your questions answered
InveSTmenT                                                                                                                                     Q: Exactly what are the new                 limit on gains that can qualify for          Q: How can I increase the value of
companIeS                                                                                                                                      CGT rules?                                  Entrepreneurs’ Relief and, with effect       the lower CGT band?

under The  A ‘one size fits all’ retirement policy is no
                                                                                                                                               A: The capital gains tax (CGT) rate
                                                                                                                                               for individuals with income and
                                                                                                                                                                                           from 23 June 2010, this limit was
                                                                                                                                                                                           increased to £5m.
                                                                                                                                                                                                                                        A: Because pension contributions are
                                                                                                                                                                                                                                        deducted from your income before
SpoTlIghT  longer acceptable                                                                                                                   chargeable gains – after allowable             In order to be a qualifying disposal      tax is assessed, making additional
                                                                                                                                               losses, reliefs, personal allowances        for the purposes of Entrepreneurs’           contributions into pensions can extend
Transforming                            With an ageing population, increasing weight             Employment relations minister, Ed Davey,      and annual exemptions – below the           Relief, assets must have been held for       the limits of the lower tax rate band.
the UK’s insolvency                     has been given to the argument that a ‘one size        said: ‘With more and more people wanting        upper limit of the income tax basic-        at least 12 months and involve the sale      Then, any gains realised from other
process                                 fits all’ retirement policy is no longer acceptable    to extend their working lives, we should not    rate band of £37,400 remains at the         of all or part of a trading business or      assets are taxed in accordance with
                                        and that people aged 65 or over should not be          stop them just because they have reached a      Pre-Budget rate of 18 per cent. The         the sale of shares representing more         this extended band after allowances
The government plans to transform       considered incapable of carrying out their jobs        particular age.                                 new 28 per cent CGT rate applies to         than 5 per cent of the company’s             have been taken into account.
the way in which investment             to the standards expected.                               ‘We want to give individuals greater choice   chargeable gains above this limit.          market capitalisation.
companies in the UK go through             In July, the government announced that it           and are moving swiftly to end discrimination       The rate of CGT for capital gains                                                     Q: What about CGT-exempt assets?
the insolvency process.                 would launch a consultation process to look            of this kind.                                   which qualify for Entrepreneurs’ Relief     Q: Should I time when I dispose of           A: Many assets can grow in value free
   The proposals include plans for a    at plans to end the default fixed retirement             ‘Older workers bring with them a wealth       is 10 per cent and the lifetime limit       assets to reduce CGT on the gain?            of CGT. For example, any asset held in
new special administration regime       age for the UK’s workforce. Subject to                 of talent and experience as employees and       is £5m. All taxpayers benefit from          A: Some people paying higher-rate            an Individual Savings Account (ISA) is
to take over the management of          the consultation paper, from October                   entrepreneurs. They have a vital contribution   the CGT annual exempt amount of             tax may be able to fluctuate their           CGT-free. n
insolvent investment companies.         2011 employers will not be able to force               to make to our economic recovery and long-      £10,100 for 2010/11.                        income in one tax year to bring it and
Administrators will be expected to      employees to retire at 65 without offering             term prosperity.                                                                            the gain they want to realise below
                                                                                                                                                                                                                                         With the government’s
focus on the return of client assets,   them financial compensation.                             ‘We are committed to ensuring employers       Q: How do I know if I am a                  the threshold for higher-rate tax. This
                                                                                                                                                                                                                                         announcement to align CGT
maximising returns to creditors            The change in the rules would mean that             are given help and support in adapting to       ‘basic-rate’ taxpayer?                      could be a good solution if you’re            rates for non-business assets
and engaging better with market         the employer’s only obligation would be to             the change in regulations’.                     A: Taxpayers who have total taxable         drawing your pensions, or for self-           with income tax rates for
regulators and the authorities.         hold a meeting with each older member                    Employers that wish to retire older           income and chargeable gains, after          employed people who have more                 higher-rate taxpayers, you may
   The proposed new special             of staff to discuss their options at least six         members of staff will be able to do so only     taking into account any allowable           control over their incomes.                   have a number of concerns if
administration regime is not            months before they reach 65.                           on the same grounds that would apply for        losses, reliefs, personal allowances                                                      you hold capital-appreciating
expected to impose any                     As an employer must give six months’                someone much younger – for instance,            and annual exemptions, of up to             Q: Can I give assets to my wife               assets. To discuss your individual
additional regulatory costs on          notice before someone is made to retire                because of their conduct or performance.        £37,400 are subject to CGT on their         to take advantage of a lower tax              requirements, please contact us
the private sector.                     on age grounds, the change in the rules could            Before 2006, the compulsory retirement        chargeable gains at the rate of 18 per      threshold?                                    for further information.
   Lord Sassoon, commercial             become effective from 6 April next year.               age was set at 65, or earlier for some jobs.    cent. The interaction of reliefs and        A: Assets can be transferred to a
secretary to the Treasury,                 Removing the default retirement age (DRA)           But the previous government changed the         losses may in some cases mean that it       spouse or civil partner or held in joint
said: ‘It is crucial to reduce          of 65 will mean that employers may have to             law so that workers could request to stay       can be difficult to establish at the time   names to minimise CGT liabilities.                The Financial Services Authority does
the impact of an investment             change how they manage their workforce.                on. However, companies are not compelled        of a chargeable disposal if gains will      Holding an asset in joint names means             not regulate tax planning. Thresholds,
firm failure on the stability           Employees will not be forced to work beyond            to let them. n                                  be subject to CGT at 18 per cent or         the annual exempt amount (currently             percentage rates and tax legislation may
of the UK financial systems.            65, but will have the option to do so and                                                              28 per cent.                                £10,100) of each individual is deducted      change in subsequent finance acts. Levels
The proposed new special                could even stay on into their 70s or 80s.                                                                                                          from the gain before tax is due.               and bases of and reliefs from taxation are
                                                                                                The proposed changes provide you               Q: What is Entrepreneurs’ Relief?              Also, it may be appropriate to transfer   subject to change and their value depends
administration regime will                 A handful of individual employers will still
                                                                                                with an opportunity to save more               A: Entrepreneurs’ Relief was                full ownership to a spouse or civil               on the individual circumstances of the
provide administrators with             be able to operate their own compulsory
                                                                                                for your retirement to ensure that             introduced in April 2008 and enables        partner where their income places them        investor. The value of your investment can
clarity and direction to manage         retirement age but only if they can justify it
                                                                                                it is a comfortable one. To discuss            qualifying gains to benefit from            in the lower-rate tax band, thus leading        go down as well as up and you may not
a firm’s winding up in a way            objectively on the basis that older staff are
                                                                                                the options available to you, please           a reduced rate of CGT of 10 per             to a lower CGT liability after allowances              get back the full amount invested.
that is both less expensive and         unable to do a job properly. Examples could
                                                                                                contact us for more information.               cent. Each taxpayer has a lifetime          have been taken into account.
less disruptive.’ n                     include air traffic controllers and police officers.

08                                                                                                                                                                                                                                                                              09
Wealth protection                                                                                                                                                         strategy
                                                                                                                                                                          Protecting your business
10 tax saving tips to make more of your money                                                                                                       Transfer non-
                                                                                                                                                    tax sheltered         Many businesses recognise the need to insure
1. TAx-SHELTERED                                consider transferring assets to spouse/                                                       income-producing            their company property, equipment and fixed
ISA WRAPPERS                                    civil partner as necessary.                   9. TICK FOR GIFT AID                            assets to lower-rate        assets. However, they continually overlook their
Hold higher yielding investments in tax-                                                      Whether you are sponsoring somebody                                         most important assets – the people who drive
sheltered ISA wrappers. On 6 April 2010,        5. SHELTER INCOME-                            raising money for charity or donating           taxed spouses/civil         the business.
the annual Individual Savings Account (ISA)     PRODUCING ASSETS                              through the payroll, make sure the Gift         partners. By transferring       Many fail to realise the impact on the financial
subscription limit rose to £10,200. The whole   Transfer non-tax sheltered income-            Aid box is selected so that the cause gets      assets from one spouse      security of a business that could result from the
sum can be placed in a stocks and shares        producing assets to lower-rate taxed          the full, tax-free amount. Charities take                                   death or diagnosis of a critical illness of a key
ISA or, alternatively, up to half can be put    spouses/civil partners. By transferring       your donation - which is money you’ve
                                                                                                                                              to another, couples         employee, director or shareholder.
into a cash ISA and the remainder into a        assets from one spouse to another,            already paid tax on - and reclaim the           could pay less tax.             Keyman insurance is designed to compensate
stocks and shares ISA. So for a couple, this    couples could pay less tax. Many              basic rate tax from HMRC on its ‘gross’                                     a business for the financial loss brought about
represents £20,400 savings protected from       partners hold joint savings. But if your      equivalent - the amount before basic rate                                   by the death or critical illness of a key employee,
capital gains or income tax. Make sure you      income differs, it may be more sensible       tax was deducted.                                                           such as a company director. It can provide a
use your entire allowance, as it can’t be       from a tax perspective to move assets                                                                                     valuable cash injection to the business to aid a
carried over into the next tax year.            into the sole name of the individual on       10. TRADING LOSSES                                                          potential loss of turnover and to provide funds to
                                                the lower tax band.                           Freelancers and other self-employed                                         replace the key person.
2. CLAIM TAx RELIEF ON                                                                        individuals who make a loss can set the                                         Share or partnership protection provides an
yOUR PENSION                                    6. ENTERPRISE                                 loss against income in the year of the loss                                 agreement between shareholding directors or
Utilise remaining pension contribution          INvESTMENT SCHEMES                            or carry it back to the previous year. In                                   partners in a business, supported by life assurance.
allowances in 2010/11 where higher-rate         If you subscribe for new shares in an         addition, losses that arise in the first four                               It is designed to ensure that the control of the
income tax relief is available. Currently,      enterprise investment scheme, you             years of the business can be carried back                                   business is retained by the remaining partners or
if you pay higher-rate tax but earn less        receive 20 per cent income tax relief on      up to three years. Claims to carry back                                     directors, but the value of the deceased’s interest in
than £130,000, HM Revenue & Customs             the amount subscribed up to a limit of        losses in 2008/09 must be made                                              the business is passed to their chosen beneficiaries
(HMRC) will give you £40 tax relief on          £500,000 (2010/11) a year, as long as you     by 31 January 2011. n                                                       in the most tax-efficient manner possible.
every £100 saved. People with earnings          hold onto the shares for three years and                                                                                      The above are essential areas for partnerships
can invest up to 100 per cent in their          have paid enough income tax.                                                                                              or directors of private limited companies to
pension each year up to a current annual                                                       The UK tax system is                                                       explore. We can help you to determine the level
limit of £255,000. The lifetime investment      7. DON’T LOSE OUT                              complicated enough and                                                     of cover you may need, any necessary trust
allowance is £1,800,000.                        ON INTEREST                                    further changes are inevitable                                             arrangements that could be required and provide
                                                Savings interest usually has 20 per cent       under the new government. To                                               agreements for you to use.
3. MAKE A WILL TO                               tax deducted before the saver receives it.     discuss how we can help you                                                    If a shareholding director or partner were to
MINIMISE AN INHERITANCE                         But anyone over 16 whose income is less                                                                                   die, the implications for your business could be
                                                                                               navigate through the tax rules,
TAx BILL                                        than their tax allowance does not have                                                                                    very serious indeed. Not only would you lose their
If you pass away without making a will,         to pay income tax on their savings. If you     please contact us for further                                              experience and expertise, but consider too what
HMRC rules dictate how your estate is           have children who are not working and          information.                                                               might happen to their shares.
divided up. Yet if you do make a will, not      have a savings account, then they should                                                                                      The shares might pass to someone who has
only can you have a say over who gets           complete HMRC form R85 to ensure                                                                                          no knowledge or interest in your business. Or
what, but you can also minimise the             that they are paid gross interest, that is,       The Financial Services Authority does                                   you may discover that you can’t afford to buy the
inheritance tax (IHT) payable. Any amount       without tax being deducted.                       not regulate tax planning. The value of                                 shareholding. It’s even possible that the person
you leave above £325,000 (2010/11) will                                                         investments and the income from them                                      to whom the shares are passed then becomes
be taxed at 40 per cent. However, some          8. CHECK yOUR TAx CODE                         can go down as well as up and you may                                      a majority shareholder and so is in a position to
gifts, such as money left to charities or       Your personal tax code is critical                not get back your original investment.                                  sell the company.
paid into trust funds for children and          to working out how much tax you                    Past performance is not an indication                                      A written legal agreement should be in place
grandchildren, are not taxable. A little        should pay. Yet HMRC’s shift to a new          of future performance. Tax benefits may                                    which would give the other directors or partners
planning goes long way in reducing this         computer system earlier this year saw           vary as a result of statutory change and                                  the right to buy the shares and gives the person to
tax liability.                                  thousands of erroneous codes sent out.              their value will depend on individual                                 whom the shares have been passed the right to sell
                                                Now more than ever, it’s vital to check        circumstances. Thresholds, percentage                                      those shares to the remaining directors or partners.
4. CAPITAL GAINS TAx                            your payslip to make sure your salary is         rates and tax legislation may change in                                      To protect against these eventualities, each
Utilise capital gains tax allowances,           stated correctly and that you are being                         subsequent finance acts.                                  director or partner should take out a life insurance
worth £10,100 (2010/11) per person, and         taxed at the appropriate rate.                                                                                            policy to cover a specified amount. n

10                                                                                                                                                                                                                           11
                                                                                                                                                                                                                                           Final salary
                                                                                                                                                                                                                                           How the new rules
                                                                                                                                                                                                                                           could affect your
                                                                                                                                                                                                                                           retirement provision
                                                                                                                                                                                                                                           From 2011, private sector final salary
                                                                                                                                                                                                                                           pensions need only be uprated in line
                                                                                                                                                                                                                                           with the Consumer Prices Index (CPI)
                                                                                                                                                                                                                                           rather than the Retail Prices Index (RPI),
                                                                                                                                                                                                                                           the government announced recently.
                                                                                                                                                                                                                                           Typically, CPI runs below RPI and,

                                                                                                                                              Mind the ‘tax gap’
                                                                                                                                                                                                                                           consequently, over time this could mean
                                                                                                                                                                                                                                           some final salary members experience a
                                                                                                                                                                                                                                           reduction in their retirement income.
                                                                                                                                                                                                                                              This may not apply to all schemes.

                                                                                                                                              Taking the necessary action to                                                               Some schemes may specifically state in
                                                                                                                                                                                                                                           their rules that they will uprate benefits
                                                                                                                                              bring the shortfall down                                                                     in line with RPI. It’s also worth bearing
                                                                                                                                                                                                                                           in mind that although the government
                                                                                                                                              The Treasury says urgent action is              Figures from HMRC suggest that the tax       sets what the minimum inflation-linking
                                                                                                                                              needed to close the ‘tax gap’, the              gap has been created by:                     schemes must provide, it’s perfectly

Pension planning
                                                                                                                                              difference between the tax collected                                                         possible for a scheme to provide
                                                                                                                                              and what should be collected, at a time         n Tax evasion, which accounts for around     increases in excess of this level.
                                                                                                                                              of impending tax cuts. The cost rose by           17.5 per cent of the tax gap                  If your scheme does intend to adopt
                                                                                                                                              £4bn to £42bn in the year to April 2009         n £3m alone is owed in offshore interest     CPI uprating, this could have a negative

benefits packages
                                                                                                                                              as businesses fell behind paying VAT.           n Failures to pay direct taxes, (such        impact on the income you can expect
                                                                                                                                                 The fact that HM Revenue &                     as income tax, corporation tax,            to receive from the scheme. Ultimately,
                                                                                                                                              Customs (HMRC) is actively measuring              capital gains tax, National Insurance      this depends on the RPI and CPI levels
 If you want to organise your financial affairs, particularly where it                                                                        and publicly acknowledging the size               contributions and other), accounting for   and how they differ, but historically

 involves taxation – don’t leave it to chance.
What are the options available both to you
                                                                                                                                              of the tax gap shows just how serious
                                                                                                                                              the situation is. With a long period of
                                                                                                                                                                                                55 per cent of the tax gap £1.4bn which
                                                                                                                                                                                                is still owed in VAT
                                                                                                                                                                                                                                           CPI has trailed behind RPI. The impact
                                                                                                                                                                                                                                           on your income will also depend on
                                                                                                                                              austerity ahead, HMRC will be even              n Only half of self-employed individuals     when you built up benefits, because
and to your employees?                                                                                                                        more proactive in tackling the issue of           and partnerships stating their income,     the inflation protection afforded to final
    Contact us to discuss your requirements, and we’ll help you                                                                               tax avoidance and underpayments.                  and 14-20 per cent of those that did so    salary scheme members has changed

    navigate this complicated area.
If you’re a business owner there are many different pension
options available both to you and to your employees. We can
                                                            alternative qualifying workplace pension.
                                                             The previous government created the scheme to make it
                                                                                                                                                 Exchequer secretary David Gauke
                                                                                                                                              said: “The tax gap is staggering and
                                                                                                                                                                                                understating the tax they owed by more
                                                                                                                                                                                                than £1,000
                                                                                                                                                                                                                                           over the years.
                                                                                                                                                                                                                                              Tax is not applicable on the money
help you navigate this complex area and advise you on how to            easier for mainly low to middle income workers to access an           this government is committed to taking          n An outstanding £142m generated by          you are paid out on retirement. But
make sure that you choose the most suitable pension schemes             employer sponsored pension scheme or workplace pension.               the necessary action to bring it down –           lettings                                   from April next year, if you earn
available for your particular requirements.                               If you are the owner of a business, pensions can be a very          taking steps to reduce tax avoidance and                                                     more than £150,000 you will have
  Offering employee benefits such as pensions is a very                 tax-efficient way of drawing money from the business. Pensions        evasion, including by the richest people in       There is also a real focus on money        to pay a tax bill based on your age,
effective solution to attract and retain good staff. If you currently   shouldn’t be dismissed without careful consideration. However,        our society, so that everyone pays their fair   being held offshore, and in the last         length of service and salary. n
employ five or more staff, you need to offer them access to             if you don’t like the idea of investing in a pension, talk to us      share and we reduce the tax gap over the        couple of years HMRC have issued a
a Stakeholder pension, unless you are exempt, for example,              about other possible alternatives.                                    coming years”.                                  number of third-party notices against         To find out more about
if you have an existing qualifying scheme. You don’t have to              If you are currently in the early days of building your business,      However, according to the Treasury, the      banks which offer overseas accounts           how we can help you plan
actually contribute yourself, but you must facilitate employee          you should be mindful of the dangers of relying on this entirely      UK tax gap, at almost 9 per cent of total       to UK customers. The recent New               for a successful retirement,
contributions.                                                          to support your retirement years. One advantage of having             revenues, compares favourably with other        Disclosure Opportunity secured HMRC           please contact us for further
  In 2012 the UK government will introduce a new pension                your own pension provision is that you can build up wealth            countries such as the US and Sweden.            around £85m. n                                information.
scheme to the UK. Previously known as Personal Accounts,                independently of your business, essential if your business isn’t         The overall tax gap fell slightly between
the new name will be The National Employment Savings Trust              as successful as you had planned.                                     2004/5 and 2007/8 before rising from                                                            Levels and bases of and reliefs from
(NEST). The initiative is part of an overall general pensions             Pension funds do not just invest in stocks and shares. Most         7.8 per cent to 8.6 per cent in 2008/9. The                                                      taxation are subject to change and
                                                                                                                                                                                               If you would like us to email a
reform strategy and will create a significant change in the way         plans allow you to invest in all the main asset classes, including    VAT gap rose by 3.5 per cent to 16 per                                                         their value depends on the individual
                                                                                                                                                                                               copy of our digital magazine
people save for their pensions and retirement in the UK.                cash, fixed interest, property and shares, allowing you to            cent in 2008/9 but the gap for income tax,                                                        circumstances of the investor. The
                                                                                                                                                                                               to someone you know, please
  For the first time employees and employers will be forced to          tailor your plan to meet your own preferences. Self-Invested          National Insurance and capital gains tax                                                           value of your investments can go
                                                                                                                                                                                               email us with their details and
contribute to a NEST pension on behalf of the employee, unless          Personal Pensions can offer even greater choice for the more          was relatively stable at 5 per cent.                                                           down as well as up and you may get
                                                                                                                                                                                               we’ll send them a copy.
they choose to opt out or unless they already contribute to an          sophisticated investor. n                                                                                                                                                      back less than you invested.

12                                                                                                                                                                                                                                                                               13
                                                                                                                                       Personal Pensions
                                                                                                                                       Investing in commercial property brings
                                                                                                                                       investors significant tax benefits
                                                                                     Implementing a                                    Lower prices and lower borrowing              Any growth in the property value is           Estate planning - if you should die,
                                                                                                                                       rates have led to an increased interest       tax-free - when you come to sell the          the property doesn’t usually form part
                                                                                     successful employee                                                                                                                           of your estate, so potentially there’s no
                                                                                                                                       in putting commercial property into           property, there’s no capital gains tax to
                                                                               benefits package should not                             a Self-Invested Personal Pension              be paid on any profit.                        inheritance tax to pay on it.
                                                                               only enable your business to                            (SIPP). The general fall in the price of
                                                                               meet its legal obligations in                           commercial property has made it a             Rental income is free of income tax              The pension and tax rules are subject
                                                                                                                                       more affordable investment and has            - there’s no income tax payable on any              to change by the government. If the
                                                                               respect of making pension                                                                                                                               investments perform poorly, the level
                                                                                                                                       made it possible for SIPPs to acquire         rental income you receive. However, if
                                                                               schemes available.                                      property interests that may have              VAT is included in the rental income this             of income may not be sustainable.
                                                                                                                                       previously been unobtainable.                 may be payable to HMRC.                         The value of your SIPP when you draw
                                                                                                                                         It is possible for the trustees of                                                          benefits cannot be guaranteed as it will
                                                                                                                                       a SIPP to borrow money from a                 In addition to these valuable tax benefits,        depend on investment performance.

                                                                                                                                       commercial lender in order to assist          investing your SIPP funds in commercial            The value of fund units can go down
                                                                                                                                       with the purchase of suitable property.       property has other advantages as well:          as well as up and investment growth is
                                                                                                                                       HM Revenue & Customs (HMRC)                                                                     not guaranteed. The tax benefits and
                                                                                                                                       guidelines state that the Trustees can        Protection against market volatility             governing rules of SIPPs may change
                                                                                                                                       borrow up to 50 per cent of the net           - the commercial property market is                    in the future. The level of pension

benefits packages
                                                                                                                                       asset value of the SIPP, as calculated        generally considered less risky than            benefits payable cannot be guaranteed
                                                                                                                                       immediately before the borrowing              investing in company shares, but you               as they will depend on interest rates
                                                                                                                                       takes place. This limit includes all          should be aware that investing in a single          when you start taking your benefits.
                                                                                                                                       existing borrowing.                           property could increase the investment               The value of your SIPP may be less
                                                                                                                                         Investing in property can be particularly   risk and property can take longer to sell.     than you expected if you stop or reduce
                                                                                                                                       beneficial when it is used to buy the                                                       contributions, or if you take your pension
Delivering even more cost-effective employee solutions                                                                                 business premises of the SIPP plan            Tax relief for your business - if                           earlier than you had planned.
                                                                                                                                       holder. You can invest in commercial          you use the premises for your own
Implementing a successful employee benefits package should          unexpected death or serious illness of your key employees,         property that you already own or plan         business, any rent you pay is an
not only enable your business to meet its legal obligations in      shareholders or partners. Many businesses recognise the need       to buy. The property becomes an asset         allowable business expense.
respect of making pension schemes available, it could also          to insure their company property, equipment and fixed assets.      of your pension fund, bringing you
help to increase your successes when looking to recruit the         However, they continually overlook their most important assets,    significant tax benefits:
best people.                                                        the people who drive the business, and the impact their death
  In today’s business environment, with budgets under               or illness could have on the financial security of the business.
constant pressure, it is even more vital to. Employee benefits
should be regularly reviewed to take advantage of new                Receiving the appropriate professional advice can help to
developments and improved terms offered by providers keen           ensure that premiums paid are competitive and set up in a tax-
to compete for business.                                            efficient manner. Services offered to corporate clients include:
  Many employees today expect to have access to death-in-
service cover or income protection as part of their financial       n Corporate investments
package. Some also look to employers who give them the              n Individual pension plans
option of being part of a flexible benefit scheme that enables      n Key person insurance
them to select their own benefits from a menu, using an agreed      n Partnership insurance
allowance that provides a more tailored employee choice.            n Employee benefit plans
  A business that wants to retain or recruit directors or senior    n Business succession planning                                      Investing in commercial property isn’t for everyone. Property can
executives may find it much easier to achieve this if they          n Group retirement planning                                         take time to sell, so you may not be able to access your money
provide them with a suitably tax-effective remuneration strategy.                                                                       when you need it. Tax rules and legislation may change. The
This may also go a long way towards promoting loyalty and            Whatever the size of your business, if you require objective       value of tax relief may change and will depend on your financial
protecting them from the potential threat of the competition.       professional advice on corporate financial planning and             circumstances. To discuss your options, please contact us.
  It’s also important to protect your business against the          employee benefits, please contact us for further information. n

14                                                                                                                                                                                                                                                                             15
tax evasion
An imaginative way to persuade people with
hidden assets to come forward
The National Tax Policy Director,            n you believe you have unpaid tax              The second phase of the LDF is now
Andrew Hubbard, at the Chartered               liabilities arising from assets held in   about to start. New legislation was
Institute of Tax Conference on offshore        Liechtenstein                             introduced on 1 September 2010 which
tax evasion, said:                                                                       will ultimately impose penalties upon
  “Many wealthy people have taken            You will be required to prove to your       Financial Intermediaries in Liechtenstein
the risk of holding assets offshore in       financial intermediary that;                who fail to comply with Liechtenstein’s
the hope of keeping them away from                                                       part of the historic agreement. Further
HM Revenue & Customs (HMRC). In              n you do not have to pay tax in the         announcements are expected to be
the past, banking secrecy was a barrier        UK, or                                    made imminently by way of the second
to HMRC finding out about overseas           n your UK tax affairs are in order, or      joint UK/Liechtenstein declaration. The
wealth. However, things have changed         n you have made a disclosure under          “voluntary” phase of the LDF, where
now and it will only be a matter of time       the LDF                                   people have come forward voluntarily
before HMRC catches up with people                                                       to disclose hidden untaxed assets to
who have salted away money offshore.            When notifying your intention to         HMRC is now over. People are using
  The Liechtenstein disclosure facility      disclose you will be provided with a        the LDF to address all sorts of tax
(LDF) is an imaginative way to persuade      registration certificate by HMRC.           issues and disputes with HMRC, not
people with hidden assets to come               Disclosures will normally carry a        just those with historical assets in
forward. The message is clear. Anybody       fixed 10 per cent penalty (or no penalty    Liechtenstein.
who is sitting on a potential tax            where an innocent error has been               The agreement between the UK
bombshell should come forward now            made). The disclosure may have to           and Liechtenstein is the first of its
and take advantage of the generous           cover several years, up to a maximum        kind in the UK, with Liechtenstein
provisions offered under the LDF”.           of 10 years.                                breaking down the secrecy barriers
                                                                                         over offshore bank accounts in return
Liechtenstein disclosure                        Your disclosure must be made within      for the opportunity to gain new funds
facility (LDF) – Did you know?               seven months (if using the single           from UK taxpayers. Other countries
This is an agreement signed between          composite rate of tax) or 10 months         are closely monitoring developments
the UK and Liechtenstein governments         (if you are calculating your liability on   and it is widely expected that many
and requires ‘financial intermediaries’ in   an actual basis) of the registration        of them will follow suit over the next            The Liechtenstein disclosure
Liechtenstein to be satisfied that their     certificate date. HMRC will review every    couple of years.                                  facility (LDF) is an imaginative way
UK customers have been declaring their       disclosure made under the LDF.                 Personal data is proving all but
Liechtenstein investments to HMRC.              People found to have tax liabilities     impossible for offshore banks to
                                                                                                                                     to persuade people with hidden assets
  Disclosures under the LDF can be           relating to Liechtenstein assets/accounts   keep secure and so the relevant             to come forward. The message is clear.
made between 1 September 2009 and            and who don’t come forward can expect       jurisdictions are moving more towards       Anybody who is sitting on a potential tax
31 March 2015.                               penalties of up to 100 per cent and run     transparency as in the case of the          bombshell should come forward now and
                                             the risk of criminal prosecution.           agreement between the UK and
A disclosure under the LDF                      If you have accounts or assets outside   Liechtenstein. The result of this has
                                                                                                                                     take advantage of the generous
may be required if;                          of Liechtenstein you may, in certain        been that Liechtenstein is gaining lots     provisions offered under the LDF.
                                             circumstances, be able to transfer          of new funds as people move money
n you are contacted by your financial        these assets to Liechtenstein and take      there to take advantage of the terms
  intermediary in Liechtenstein, or          advantage of the terms of the LDF.          of the LDF. n

16                                                                                                                                                                                17
                                                                                                                                       Insolvency issues designed to
                                                                                                                                       guide you through the maze of
                                                                                                                                       options. Is your business facing
Attracting                                                                                                                             serious financial difficulties?
development capital                                                                                                                    Professional advice for directors considering the options
                                                                                                                                       for restructuring and turning around their business.
Presenting your business to potential investors
                                                                                                                                       Contact us to discuss the best way to deal with your
In such a tough business and economic environment it
is entirely understandable that many small and medium-
                                                                        Private equity investors will look at such factors as the
                                                                     robustness of your business model and how critical your
                                                                                                                                       responsibilities, don’t leave it until it’s too late.
sized businesses, which are finding bank lending                     product/service is to your customer’s existence and whether
increasingly difficult to source or renew, should consider           the area you are in is cyclical and what factors drive sales
turning to private equity and development capital                    up or down.
providers. But how can SMEs best present themselves to                  Once these questions have been addressed private equity
such potential investors?                                            firms will then want to look more closely at the detail of a
   Private equity firms assess a number of key factors in            firm’s business strategy, in particular; the level of pricing
deciding whether to invest in a business. So a starting point        power the company operates; the affects of working
would be to assess your own management strength, consider            capital and seasonality; the status of sales including the
whether there are any weaknesses and review whether the              underlying run rate and potential for sustainable margins;
firm has the right management to actually deliver on its             and management accounts and key performance indicator
business strategy.                                                   results compared to the previous year.
   Companies also need be able to communicate effectively               Private equity investors will then want to see evidence of
their products or services unique selling proposition or             past success and the company’s five year plan. In particular,
differential advantage and where the company sits in its             the focus will be on assessing what the size of the business
market versus its competitors. Private equity firms are always       is likely to be in say five years and if the company’s business
looking for companies that have built a strong defensible niche      plan shows enough evidence that management understands
and have a valuable proposition. It is even more valuable if it is   the challenges this places on them and whether they have
scalable, if management has identified a clear path for growth       adequately planned for them. n
and can demonstrate that there is a clear market opportunity.

              Following the

              emergency Budget, the
       Chancellor, George Osborne,
       has confirmed that the 28 per
       cent capital gains tax (CGT)
       rate introduced for higher-
       rate tax payers would remain
       in place for at least the
                                                                                                                                                                                                                     law relaxed
       length of this parliament.                                                                                                                                                                                    Revolutionising investor
                                                                                                                                                                                                                     attitudes towards pensions
                                                                                                                                     Did you know?
                                                                                                                                                                                                                     The Treasury has announced that it is looking
                                                                                                                                     Capital Gains Tax (CGT) is a tax on        In some cases you are treated        to relax the law requiring everyone to buy an
                                                                                                                                     the gain or profit you make when        as if you have disposed of an           annuity by age 75. This follows the coalition
                                                                                                                                     you sell, give away or otherwise        asset. For example, a business          government’s decision in the emergency
                                                                                                                                     dispose of something that you           asset has been destroyed and you        Budget to end compulsory annuitisation by
                                                                                                                                     own, such as shares or property,        have received a capital sum, such       April 2011.

Taxing times
                                                                                                                                     including your business assets.         as an insurance payout, by way             The aim is to revolutionise investor attitudes
                                                                                                                                        There’s a tax-free allowance and     of compensation. It’s the gain you      towards pensions and encourage greater
                                                                                                                                     some additional reliefs that may        make, not the amount of money           retirement saving so that we take greater
                                                                                                                                     reduce your CGT bill. A business        you receive for the asset, that         responsibility for our financial futures. It will also
                                                                                                                                     asset could be shares, land and         is taxed.                               mean that everyone who invests in a pension
                                                                                                                                     buildings, a business franchise,           Business assets are assets that      can retain control of their pension assets right
                                                                                                                                     fixtures and fittings or even the       are related to trading or to your       through until the day they die.
Using your pension top-ups to mitigate the effects of CGT                                                                            goodwill of the business, i.e. its      business in some way. The assets           The proposed law change is aimed at giving
                                                                                                                                     good name or reputation.                may be owned by yourself or by          individuals greater flexibility over how they use
Following the emergency Budget,               added to your income, push you into            An alternative option if you’re            If you own your own business, or     the business partnership.               the savings they have accumulated. This would
the Chancellor, George Osborne, has           paying the higher-rate of CGT.              a higher earner could be to sell           you’re a member of a partnership, you                                           see the replacement of some pension tax rules
confirmed that the 28 per cent capital           Selling an asset with gains over the     your portfolio into the SIPP. In this      usually have to report CGT and losses   They include all forms of:              with a new system that gives people greater
gains tax (CGT) rate introduced for higher-   CGT threshold would generate sale           instance, CGT would be payable on          on your Self Assessment tax return.                                             freedom and choice.
rate tax payers would remain in place for     proceeds that could be used to fund a       the sale and there is no tax relief as        It’s different if your business is   n land and buildings used as               This consultation is a revolutionary change
at least the length of this parliament.       pension contribution that would attract     it is not a contribution. But it could     carried on by a limited company,          business premises, e.g. a shop,       and also includes tax breaks available on
   From a financial planning perspective      tax relief of 20 per cent plus a further    be a useful way of releasing cash          in which you may be a director or         factory or workshop                   pensions. It is expected that investors will have
we now have some certainty about the          20 per cent for higher-rate taxpayers to    held by the SIPP back to you while         shareholder, any profits on assets      n fixtures and fittings, e.g. shelves   the choice of buying an annuity, as at present,
rules, which enables us to make positive      claim back through self-assessment.         sheltering the assets from any future      disposed of form part of the total        or a counter in a shop                and in addition they will have a choice of two
decisions for our clients about how best      The tax relief could enable you to          CGT liability.                             profits of the company on which it      n plant and machinery, e.g. a           drawdown options to select from.
to reduce the impact of CGT until at least    reduce the effect of any CGT that is           If you’re a high earner there may be    pays Corporation Tax.                     computer or digger                       Investors who can demonstrate that they have
May 2015. This also gives you more            paid and contribute to recovering any       other advantages to using pension             Capital Gains Tax is a tax on the    n goodwill, e.g. the good name          secured a minimum level of income will have the
stability and certainty when it comes to      investment losses from falling markets.     arrangements. An example of this is        profit or gain you make when you          or reputation of a business that      choice of taking money from a flexible drawdown
your tax and investment planning.                It may be important that you             if you find dividend income or rent        sell or ‘dispose of’ an asset. The        it’s built up over the years it’s     plan at will. This means receiving it all back in one
   The threshold for gains before             maintain exactly the same portfolio         from property push your earnings over      asset may be in the UK or overseas        been operating (this can have a       go as a cash sum if required. Income withdrawals
CGT becomes payable is £10,100                of assets and the same investment           £100,000 so that your tax-free personal    and may have been bought (or              financial value)                      will be subject to income tax.
(2010/11) for all. Most basic-rate            strategy. This is possible through an in    allowance is reduced. In this instance,    otherwise acquired) for yourself or     n shares, e.g. in a personal               For those investors with insufficient income
taxpayers could face 18 per cent tax          specie (the distribution of an asset in     shifting the assets into a pension would   to be used in your business.              company                               to satisfy the ‘minimum income requirement’,
on gains above this, while higher-rate        its present form, rather than selling it    protect against both an effective rate                                             n registered trade marks                there will be the option of a capped drawdown.
taxpayers may be subject to a 28 per          and distributing the cash) contribution     of income tax of up to 60 per cent and     You usually dispose of an asset                                                 This capped drawdown will have fairly
cent CGT rate.                                of assets (or part of the asset, such       CGT going forward. n                       when you cease to own it - for                                                  conservative income limits, designed to ensure
   A pension can be used as a highly          as a property) which is viewed as a                                                    example if you:                                                                 that investors never run out of money.
effective tax shield, so the higher the       disposal for CGT purposes but also                                                                                                                                        Those investors who do not want to take
rate of CGT, the more incentive there         attracts tax relief.                                                                     n   sell it                                                                   the high risk involved with drawdown will still
is to place funds under the protection           Some Self-Invested Personal                                                           n   give it away as a gift             If you would like us to                be able to convert their pension fund into an
of a pension. If you are now facing a         Pension (SIPP) providers may not allow                                                   n   transfer it to someone else        email a copy of our digital            annuity, which will pay a secure taxable income
28 per cent CGT rate, we would like           in specie contributions in this way but     If you would like us to email a              n   exchange it for something else     magazine to someone you                for life.
to have the opportunity to discuss the        those with experience can manage            copy of our digital magazine                 n   receive compensation for it –      know, please email us with                The death benefit rules are changing and
options available to you. Even as a           the process to ensure investors work        to someone you know, please                      e.g. you receive an insurance      their details and we’ll send           becoming simpler and the government has
basic-rate taxpayer you may for the           within the overall contribution limits to   email us with their details and                  payout when an asset has           them a copy.                           confirmed that it will be ending the Alternatively
first time find that your gains, when         maximise the benefits.                      we’ll send them a copy.                          been destroyed                                                            Secured Pension. n

20                                                                                                                                                                                                                                                                     21
Wealth check
How to maximise the value of your business on exit
Very few buyers purchase a company              The culture of a company                  strategy needs both thought                   You may have started your business,
for its historic profitability. Acquirers     increasingly plays a significant role for   and direction when you exit.               but to make it attractive to an
buy the company’s future and more             buyers. They need to know that the             Positioning is what the customer        acquirer it must be able to do without
importantly, it’s potential for future        staff are not going to up and leave as      believes about your product’s              you. Succession planning involves
growth. So you should focus on what           soon as they acquire the company            value, features, and benefits;             transferring ownership and control of
your company will look like when a            and they realise that there is far less     it is a comparison to the other            your business to new management.
buyer injects investment, energy, new         chance of this if there is a strong         available alternatives offered by the      Formalising your succession plans
thinking and their clients into your          culture prevalent within your company.      competition. These beliefs tend to         enables you to know exactly what course
existing products and services in order       Company structure, communication            based on customer experiences and          of action you intend to take, when and
to create a truly scalable business.          and methods of measuring and                evidence, rather than awareness            how. Setting it out in black and white
   Your client list is one of the main        rewarding achievement are all key           created by advertising or promotion.       often means shortcomings are exposed,
reasons a buyer will be attracted             here. Consider entering one of the          Pricing, promotion, channels of            which means more effective strategies
to your company. However, it’s not            plethora of business awards that focus      distribution and advertising all are       need to be employed. Do you have a
quantity that matters, its quality. Your      on employees: not only do they set you      geared to maximise the chosen              timetable of necessary actions?
acquirer will be interested in how            apart from the competition but they         positioning strategy. If there are            In order to maximise your business
many active clients you have and the          often provide a focal point for your        simply too many things to remember,        value it is necessary to understand the
quality and regularity of your income         cultural strategy.                          it is unlikely that you will spring to     most important drivers of your brand
from those clients. Have you prepared           The effectiveness of many                 mind as the company to turn to.            value. The terms ‘brand’ and ‘branding’
testimonials and case studies from            companies is determined by their               A scalable business model is another    can be integral to a business’ success.
your existing customers?                      systems and processes. Demonstrating        element which can attract a very high      Does your business have a brand, and
   Getting your sales and marketing           to a potential buyer that you know          valuation multiple. To be an attractive    does it need one? Branding gets right to
right is crucial to the success of            what they are and how they aid the          investment, a business must be capable     the core of your business’ values. It is
your business. Creating a marketing           company will give them confidence           of growing into a larger enterprise. For   about discovering and communicating
strategy will help you identify potential     in the efficiency of your organisation.     a business to become scalable, that        the essence of your business and what
customers and target them with                Pay particular attention to whether         requires multiple employees or locations   it delivers to your customers. In effect,
appropriate products or services.             your systems allow for changing             and captures an ever-larger market         your brand creates your business’
Using the correct sales techniques will       market or client needs. Are they a help     share the most critical component are      reputation and its ‘personality’. A strong
help you turn interest in your product        or a hindrance, just being adhered          your customers.                            brand can make your business stand
or service into customer orders.              to because that’s the way you have             The more potential customers, the       out from the crowd, particularly in
   When a strategic approach is applied       always done things?                         more they spend on average and the         competitive markets.
to sales and marketing, it is not               Your product is a key area when           faster your customer demographic              Finally, you also need to be mindful
unusual to find between three and five        seeking to increase the value of your       increases, the better. Can you             of those areas which can severely
untapped sales channels. For instance,        business for sale. Ask yourself this        demonstrate that there will be more        undermine the value of your business.
look at companies with complementary          question. Do you have a process             customers in the future than there are     These include management of costs and
but non-competing products. Selling           or framework which determines the           today and show that as your company        revenue, your risk profile and the quality
your services through them could              products you develop or the process         grows, in real terms, the costs will       of your management team. n
provide added value to your own               by which they are developed? Most           decrease? Ensure you streamline your
clients as well as to theirs. Identify your   companies just let their products           business. Make the complex as simple        If you would like us to email a
trading cycles and ensure you make            evolve; trying to meet a potential client   as possible and look for areas where        copy of our digital magazine to
provision for the leaner months. Would        need that is never realised or a whim       you can gain recurring revenues and         someone you know, please email
selling to other sectors offset cashflow      of a team member who thinks this new        don’t become reliant on only a handful      us with their details and we’ll
issues during these periods?                  product is a good idea. Your product        of customers.                               send them a copy.

22                                                                                                                                                                                23
                                                                                                                                          The problems caused
                                                                                                                                          by the credit crunch
                                                                                                                                   have continued to linger
                                                                                                                                   and show no signs of
                                                                                                                                   disappearing. Margins remain

British businesses
                                                                                                                                   tight for businesses, with
                                                                                                                                   many owners still unable to
                                                                                                                                   secure the additional
                                                                                                                                   funding they need.

still remain cautious
Problems caused by the credit crunch
have continued to linger
British businesses have failed to           43 per cent of entrepreneurs to review    the UK is likely to avoid slipping into a
return to pre-credit crunch levels          their business.                           double dip recession.
according to new research from                Entrepreneurs are still suffering          Richard Lambert, CBI director-
RSM Tenon, raising new questions            despite the recession officially          general, said: “The degree of
over the UK’s economic recovery             coming to an end – 22 per cent            uncertainty around the outlook remains
and concerns over the prospect of a         see a lack of cashflow as a serious       high, but our view is that the UK’s
new insolvency epidemic. There has          threat to their business over the next    tentative recovery will be sustained,
been little progress down the road          12 months.                                albeit with weaker levels of growth.
to recovery and many entrepreneurs            The Confederation of British               “The fragile nature of the recovery
remain skeptical that they will see any     Industry’s (CBI) recently warned that     is why, in the forthcoming spending
meaningful revival in the near future.      the government cuts will mean the         review, the government must focus
  The problems caused by the credit         pace of economic recovery in the          its scarce resources on those areas
crunch have continued to linger             UK will be slower next year than          which most galvanise growth, namely
and show no signs of disappearing.          previously forecast. The business         infrastructure and capital investment”.
Margins remain tight for businesses,        group downgraded its gross domestic          The CBI forecast consumer spending
with many owners still unable to            product (GDP) forecast for 2011 to        growth of 0.9 per cent in 2010,
secure the additional funding they          2.0 per cent, from 2.5 per cent.          followed by 1 per cent in 2011. But
need. According to RSM Tenon’s                It said the revision took into          with VAT increasing to 20 per cent from
Business Barometer, 76 per cent of          account a weaker outlook for              January, inflation is expected to remain
entrepreneurs are still waiting for their   consumer spending next year as            above the Bank of England’s 2 per cent
business to return to the levels seen       households will have less disposable      target through to the end of next year.
before the credit-crunch hit in 2007.       income due to ongoing high inflation,        But the CBI said the Bank was likely
  Three years on and one in ten             resulting from January’s VAT rise, and    to start increasing interest rates later
entrepreneurs believe it will take          modest wage increases.                    than previously expected, forecasting a
another three years for their businesses      The CBI’s previous estimates were       rise to 1.25 per cent by the end of 2011.
to return to ‘normal’ levels. 27 per cent   made before Chancellor George                UK exports are expected to grow by
predict it will take one to two years and   Osborne announced his deficit-busting     3.5 per cent in 2010 and 6.4 per cent in
20 per cent think two to three years is     cuts in the June emergency Budget.        2011, with net trade predicted to make
a more realistic timeframe for business     But the group’s latest forecast showed    a positive contribution to GDP growth
levels to be restored.                      some positive signs, with growth          rates throughout the forecast period,
  The slower recovery is likely to          forecasts for this year revised upwards   the CBI added.
threaten entrepreneurs’ plans as a          to 1.6 per cent in 2010, from 1.3 per        Unemployment will rise from an
double dip recession could re-infect        cent in June.                             expected 2.49 million at the end of this
businesses causing another epidemic           The slight upward revision reflects     year to 2.62 million at the end of 2011
of insolvencies. The research, which        better than expected growth in            and public sector net borrowing is
questioned more than 300 entrepreneurs      the second quarter of this year as        forecast to reach £141 billion in 2010/11,
throughout the UK, also found the risk of   companies began rebuilding their          before falling to £116 billion in 2011/12,
a double dip recession has sparked          stocks, the CBI said. It also believes    according to its report. n

24                                                                                                                                                                25
Company cars
Encouraging drivers to choose cleaner and more efficient vehicles
From April 2011, company car tax is         subject to tax will continue to increase    purchase and lease of the lowest
to be reformed to encourage drivers to      by one percentage point with every 5g/      emitting cars.
choose cleaner and more efficient cars.     km of CO2 up to 35 per cent. The cap          The cap on car list prices of £80,000
The threshold for the 15 per cent rate of   on car list prices used to work out the     used to calculate the benefit will also be
tax will be reduced by 5g/km of CO2 -       taxable benefit from company cars will      removed in April 2011.

                                                                                                                                     Culture shift
so it will apply to cleaner cars emitting   also be abolished, as will discounts for      From April 2012 the 10 per cent band
between 121g/km and 129g/km of CO2.         early uptake Euro 4-standard diesel         for cars emitting 120g CO2 per km or
  The changes were announced in the         cars, higher-emitting hybrid cars and       less will be removed and the system
emergency Budget announced by the           alternative fuel company cars.              of bands will be extended so that they
Chancellor George Osborne on June             The June 2010 emergency                   increase by one percentage point
22 2010. It comes after the BVRLA called    Budget from the new Con/Lib Dem             with each 5g CO2 per km increase in          Two year salary freeze for many executives
for the government to scrap the 3 per       government confirmed many of the            emissions from 10 per cent. The 10 per
cent surcharge on diesel cars for good.     previously announced changes to             cent band will apply to cars that emit       Over half of FTSE 350 companies will           lower. The median bonus payment was           for a significant amount of the bonus,
  The percentage of the cars price          company car tax to encouraging the          99g CO2 per km or less. n                    not increase the salaries of executive         around 100 per cent of salary and in the      typically between a third and one half,
                                                                                                                                     directors in 2010, according to a new          top 30 companies was 140 per cent of          to be deferred, usually into shares and
                                                                                                                                     report by Deloitte, the business advisory      salary, almost 20 per cent higher than        for up to three years. Furthermore, there
The changes to the band:                                                                                                             firm. This will mean a two year salary         last year.                                    is a growing trend for the deferral to be
                                                                                                                                     freeze for many executives, after over two       Remuneration committees set targets         subject to forfeiture in circumstances of a
                  2009/10                                     2010/11                                2011/12                         thirds were awarded no pay increase in         in the expectation that conditions in         material misstatement of the company’s
                                                                                                                                     2009. Increases, where given, are likely       2009 would be extremely difficult.            accounts or gross misconduct on the
  Emissions g/km %          P11d value      *Emissions g/km %       P11d value*        Emissions g/km %        P11d value*           to be around 3 per cent, which is much         However, in some cases recovery               behalf of an individual. In a few cases,
                                                                                                                                     lower than the level of increase seen in       was swifter than anticipated. These           the clawback may be applied if the bonus
         120                   10                99-120                  10                99-120                  10
                                                                                                                                     prior years.                                   results perhaps highlight the very real       awarded was later deemed unjustified, or
      121 – 139                15               121- 134                 15                121-129                 15                  Last year a large number of companies        challenges faced by committees, in            if performance over the deferred period
                                                                                                                                     froze executive salaries but at the time it    both FTSE 100 and 250 companies, in           was not satisfactory.
      140 – 144                16               135 – 139                16                130-134                 16                was difficult to predict whether this was      determining the appropriate degree of            Whilst companies are introducing
* +3% for diesel cars                                                                                                                a one-off. Now it appears that the years       stretch in the targets.                       clawback provisions, in many cases
                                                                                                                                     of executive salaries increasing at rates        Commenting Deloitte said; it may be         these are actually no more than might be
                                                                                                                                     far in excess of inflation and the increase    time for a debate on a fresh approach         considered ‘good housekeeping’. The rise
                                                                                                                                     in average earnings are, at least for the      to the way bonuses are paid by taking         of bonus deferral and clawbacks along with
                                                                                                                                     moment, well and truly over. Companies         a less formulaic approach and using           the significant shareholding requirements
                                                                                                                                     are now recognising that increases for         more discretion in the determination          now in place in the majority of FTSE 350
                                                                                                                                     executives must be considered fair and         of the final payout. This would allow         companies suggests that remuneration
                                                                                                                                     reasonable in the context of current           committees to take into account changes       arrangements for many executives are
                                                                                                                                     business circumstances and the pay and         in circumstances over the course of the       becoming longer term in nature.
                                                                                                                                     conditions for employees more generally.       year and to look at performance in a             The typical executive holds shares in
                                                                                                                                       There is more volatility in bonus payouts,   more holistic way. This culture shift would   the company with a current value of
                                                                                                                                     which are higher than last year in FTSE        require committees to be comfortable          150 per cent of salary, with the CEO
                                                                                                                                     100 companies and lower in FTSE 250            in making difficult decisions and all         typically owning twice this amount.
                                                                                                                                     companies. One in seven FTSE 250               interested parties to have confidence in      Based on the share price three years
                                                                                                                                     companies paid no bonus to executive           those decisions. But this might be a way      ago, these shareholdings have lost
                                                                                                                                     directors for the 2008/09 period and the       of developing stronger links between pay      almost a third in value. Whilst these
                                                                                                                                     median bonus was around                        and performance.                              represent paper losses, this does
                                                                                                                                     60 per cent of salary, almost 10 per cent        Although actual bonuses earned in           illustrate that although remuneration
                                                                                                                                     lower than the previous year. In contrast,     the larger companies have increased,          for executives remains high, many
                                                                                                                                     bonuses were paid in almost all FTSE           this does not necessarily result in more      will have seen their overall wealth
                                                                                                                                     100 companies and payments have                cash in the hands of the executives. In       decrease significantly in recent years.
                                                                                                                                     returned to more ‘normal’ levels, following    two thirds of FTSE 100 and half of FTSE       This is consistent with a greater focus
                                                                                                                                     a year in which they were generally slightly   250 companies there is a requirement          on long term stewardship. n

26                                                                                                                                                                                                                                                                        27
Wealth structures
Careful planning is required to protect your wealth
One of the great things about wealth             Inheritance Tax is the tax that is paid       previous seven years’ chargeable gifts
is knowing that it can be passed on to        on your ‘estate’, chargeable at a current        and transfers).                              n trusts created on death for a disabled person
others. Your wealth might encompass           2010/11 rate of 40 per cent. Broadly                In addition, transfers of money or        n trusts created on death for a minor child of the
businesses, property and investments in
the UK and abroad that require specialist
                                              speaking, this is a tax on everything
                                              you own at the time of your death, less
                                                                                               property into most trusts are also subject
                                                                                               to an immediate Inheritance Tax charge
                                                                                                                                              deceased in which the child will become fully
                                                                                                                                              entitled to the assets at age 18
                                                                                                                                                                                                      Rigorous credit control
considerations. We work closely with
our clients in order to plan to minimise
                                              what you owe. It’s also sometimes
                                              payable on assets you may have given
                                                                                               on values that exceed the Inheritance Tax
                                                                                               nil rate band. Tax is also payable ten-
                                                                                                                                            n trusts set up under a will for someone who is not
                                                                                                                                              a disabled person or minor child of the deceased
                                                                                                                                                                                                      is essential for survival
Inheritance Tax liabilities, which is often   away during your lifetime. One thing             yearly on the value of trust assets above      who becomes entitled to their benefit on the
linked to the making of wills and setting     is certain, careful planning is required         the nil rate band; however certain trusts      death of the person who wrote the will                  Safeguard your business from the risk of bad debt
up trusts.                                    to protect your wealth from a potential          are exempt from these rules.
   There are a number of different wealth     Inheritance Tax liability.                                                                      Existing accumulation and maintenance trusts            In the current turbulent economic         The ICAEW offers the following
structures that could help reduce your           Not everyone pays Inheritance Tax on          Gifts and transfers made in                  had until 6 April 2008 to change (where appropriate)      conditions, it is crucial that         tips on how to monitor the
family’s Inheritance Tax bill but unless      their death. It only applies if the taxable      the previous seven years                     the trust’s rules to enable them to fall outside the      businesses police new customers        creditworthiness or otherwise of
you plan carefully, all your assets or your   value of your estate (including your share       In order to work out whether the current     new rules.                                                and monitor the performance of         new or potential customers:
beneficiaries, could eventually become        of any jointly owned assets and assets           Inheritance Tax nil rate band of £325,000      Interest in possession (IIP) trusts that existed        existing ones to guard against the     n Get regular up-to-date
liable to Inheritance Tax. Once only the      held in some types of trusts) when you           (2010/11) has been exceeded on a             before 22 March 2006, or which replaced a pre-            risk of bad debt.                          credit information on major
domain of the very wealthy, the wide-         die is above the £325,000 nil rate band or       transfer, you need to take into account      March 2006 IIP up to 5 October 2008, continue to             Small businesses must be                customers and periodic
scale increase in home ownership and          threshold (2010/11). It is only payable on       all ‘chargeable’ (non-exempt, including      benefit from the old rules until they come to an end.     vigilant against the risk of clients       updates on smaller accounts
rising property values over the past          the excess above this amount.                    potentially exempt) gifts and transfers      All other newly created IIP trusts will come under        defaulting on payment and              n Make sure the credit limit
decade have pushed many estates over                                                           made in the previous seven years. If a       the new rules.                                            should perform regular credit              (which shows how much money
the Inheritance Tax threshold. However, in    Passing on amounts without                       transfer takes you over the nil rate band,                                                             checks in the current conditions,          is owed by your customer at
recent years we have also seen property       any Inheritance Tax                              Inheritance Tax is payable at 20 per cent    Recalculating Inheritance Tax                             the Institute of Chartered                 any one time) is in line with how
price reductions.                             There are also a number of exemptions            on the excess.                               If you die within seven years of making a transfer into   Accountants in England and                 much you sell to the customer
   Inheritance Tax applies to your entire     which allow you to pass on amounts                  Where the transfer was made after         a trust on which you have already paid 20 per cent        Wales (ICAEW) warns.                       and ensure you have in place
worldwide estate, including your property,    (during your lifetime or in your will)           5 April and before 1 October in any year,    Inheritance Tax, the tax due is recalculated using the       According to Clive Lewis, head          robust internal procedures for
savings, car, furniture and personal          without any Inheritance Tax being due,           the tax is payable on 30 April in the        Inheritance Tax rate applicable on death (currently       of SME issues, small firms should          dealing with customers who
effects. You also need to consider your       for example:                                     following year. Where the transfer was       40 per cent). Tax will be payable by your estate to HM    invest in new credit checks for            exceed their limit
investments, pensions and life insurance      n if your estate passes to your husband,         made after 30 September and before           Revenue & Customs on the difference.                      all customers to ensure they are       n Assess your payment terms.
policies and ensure that life polices are         wife or civil partner and you are            6 April in any year, it is payable six          If you made a transfer on which no Inheritance         aware of any potential problems.           Make sure you have agreed
held in an appropriate trust.                     both domiciled in the UK there is no         months after the end of the month in         Tax was due at the time, its value is added to your          “Nobody can hide from the               when you will receive payments
   Since October 2007, married couples            Inheritance Tax to pay, even if the estate   which the transfer was made.                 estate when working out any Inheritance Tax that          difficult credit situation any             and remind your customers
and registered civil partners can now             is above the £325,000 nil rate band                                                       might be due.                                             longer”, he said. “Critical to             about the payment deadline
effectively increase the threshold on their   n most gifts made more than seven                Rule changes regarding trusts                                                                          coping with it is rigorous credit      n Don’t be afraid to chase
estate when the second partner dies to            years before your death are exempt           On 22 March 2006, the government             Trusts that count as ‘relevant property trusts’           control, and that means having             your customer for payment,
as much as £650,000 in 2010/11.               n certain other gifts, such as wedding           changed some of the rules regarding          must also pay:                                            up-to-date credit references.              waiting politely will not help
   Planning ahead for when you die allows         gifts and gifts in anticipation of a civil   trusts and introduced some transitional                                                                   “While many small businesses            protect your business or your
you to set out clearly who should get             partnership up to £5,000 (depending          rules for trusts set up before this date.    n a ‘periodic’ tax charge of up to 6 per cent on the      are diligent in carrying out credit        shareholders
what from your estate. In order to protect        on the relationship between the giver        Trusts not affected by the new rules           value of trust assets over the Inheritance Tax nil      checks on new clients, the             n Remember, a sale is not a
your family and loved ones, it is essential       and the recipient), gifts to charity         (and so where no Inheritance Tax is            rate band once every ten years                          information obtained is only of any        sale until you have received
to have the correct wealth structures             and £3,000 given away each year are          immediately payable on any transfers,        n an ‘exit’ charge proportionate to the periodic          use if it is up-to-date”, he added.        payments
in place after you’re gone. This is a             also exempt                                  but with regard to transfers made during       charge when funds valued above the Inheritance             “In the current credit                 “Credit information is available
complex area of financial planning, so to        Transfers of assets into most trusts          someone’s lifetime may be payable if the       Tax nil rate band are taken out of a trust between      crunch climate, customers’             online at the touch of a button,
prevent unnecessary future Inheritance        and companies will become subject to             individual dies within seven years) are:       ten year anniversaries                                  creditworthiness can change            so there is no excuse for not
Tax payments you should always obtain         an immediate Inheritance Tax charge                                                                                                                     rapidly, so it has never been          being bang up-to-date”, added
professional financial advice based on        if they exceed the Inheritance Tax nil           n lifetime transfers into a trust for a      These rules don’t apply to trusts which are exempt        more important to ensure data on       Lewis. “Avoiding a bad debt can
your individual circumstances and needs.      rate band (taking into account the                 disabled person                            from the new rules. n                                     your customers is valid”.              more than justify the cost”. n

28                                                                                                                                                                                                                                                                             29
Income drawdown
Keeping control of your investments
 Income Drawdown (or Unsecured                                if you take money out to buy an annuity.                           take it. You always need to be aware of
Pension) is the name given to the facility                    Each year you may request that a review                            the risk that your income withdrawal can
that enables you to continue to keep                          takes place on the plan anniversary. This                          deplete your capital. This reduces the
your retirement savings invested and                          will restart the five-year period. In some                         capacity for income in the future.
take an income each year rather than                          cases, funds may also have to be moved                                If you smoke, or suffer from ill health,
buying an annuity. This facility can only                     out as a result of a divorce court order                           an annuity income could be higher than
be continued to age 75, with transitional                     and this will also trigger a review.                               the GAD limit allowed under Income
rules in place from 22 April 2010 to 5 April                     You decide how much of your pension                             Drawdown, as the GAD calculation does
2011 increasing the age to 77, at which                       you want to move into drawdown. You                                not take health or lifestyle into account.
time an annuity has to be bought or the                       can normally take up to 25 per cent of                                You can use your Income Drawdown
money transferred into an Alternatively                       this as a tax-free lump sum and draw a                             fund to buy a lifetime annuity. If you want
Secured Pension (ASP). From 6 April                           regular income from the rest. There is                             to continue drawing an income directly
2011, the rules will change again. The                        no minimum withdrawal amount, so you                               from the fund when you reach your 75th
government is currently running a                             could choose zero income if you wish.                              birthday it can continue into an ASP,
consultation on the new rules to apply                        Any income is subject to tax at source,                            although income is restricted and death
from this date.                                               on a Pay As You Earn (PAYE) basis. You                             benefits are severely limited. The fund
   Income Drawdown is an alternative                          decide where the remainder of the fund                             is automatically moved to an ASP if you
to an annuity. It allows you to draw                          is invested and you should review and                              have not set up an annuity by age 75.
an income directly from your pension                          monitor the situation regularly.                                      You also need to consider when using
while the fund remains invested. One of                          The maximum income you can                                      Income Drawdown that your capital
the most attractive features of Income                        draw can be more than the income                                   is not only being eroded by income
Drawdown is that you keep control of                          from a level, single life annuity bought                           withdrawals but is also exposed to
your investments and choose the level of                      using the same fund. The maximum                                   market movements. In the worst case
income you draw (within limits).                              is calculated at the start of your                                 scenario your pension fund could be
   You continue to manage and control                         drawdown plan, using GAD tables that                               eroded, meaning you have little or no
your pension fund and make all the                            use your age and 15-year gilt yields                               private money to live on in retirement. n
investment decisions. Providing the                           to calculate the income available from
fund is not depleted by excessive                             your fund. The income limits calculated                                  Levels and bases of and reliefs from
income withdrawals or poor investment                         at this point are fixed until the next                                    taxation are subject to change and
performance, it may be possible to                            review, although you should review any                                  their value depends on the individual
increase your income later in life.                           income you take more frequently.                                   circumstances of the investor. Thresholds,
   The income that can be taken from a                           As long as you stay within the                                    percentage rates and tax legislation may
drawdown arrangement can be varied each                       maximum limit, you can control how                                       change in subsequent finance acts.
year between a minimum and a maximum.                         much income you take and when you
The minimum is £0 and the maximum
is 120 per cent of a pension, calculated
according to tables produced by the
Government Actuaries Department (GAD).
   These tables are based on the amount
your fund would buy as an annuity based
on your life only and with no allowance
for any future increase. The maximum
amount needs to be recalculated every
five years. After each review you will be
advised of the new annual GAD limit,
which could be lower or higher than the                           If you are at all uncertain about the suitability of Income Drawdown,
limit from the previous five years.                               you should always seek professional financial advice. For further
   A review will also be triggered if you                         information on this subject or if you would like to review your
add more money into your drawdown                                 current situation, please contact us.
account from your main pension fund or

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