THE DIGITAL BUSINESS AND WEALTH MANAGEMENT MAGAZINE
eSmartTax Issue 11
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
How to maximise the value of
Mind the your business on exit
Taking the necessary
action to bring the
CGT, the new rules
Your questions answered
ATC Solutions Limited, 6th Floor, 52/54 Gracechurch Street, London EC3V 0EH
Tel: 0845 683 AGREEMENT RULES FOR LEASING Web: www.atcsolutions.com
TAX SHARING 2580 Email: firstname.lastname@example.org PROTECTING YOUR WEALTH DATES FOR YOUR DIARY
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
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
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
24 British businesses still
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
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
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.
We serve a wide range of
business clients and we’re
passionate about providing
tailored advice. Is it time you
had a wealth check?
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
Phasing out the Capital Gains Tax,
compulsory the new rules
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.
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
How the new rules
could affect your
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
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
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
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.
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
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
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
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.
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
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.
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
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.
The problems caused
by the credit crunch
have continued to linger
and show no signs of
disappearing. Margins remain
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
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.
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
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
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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