Reeves Finance Focus, November 2010

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Reeves Finance Focus, November 2010

  1. 1. Finance Focus 11 November
  2. 2. Reeves – in brief • Reeves+Neylan for the past 60 years • Kent’s leading accountants and business advisers • One of the UK’s top 30 UK accounting firm • Over 300 staff and partners • National award winners… three times! • International reach via Kreston
  3. 3. Financial Reporting Peter Manser, FCA, Corporate Partner
  4. 4. Financial Reporting • Going concern • Overdrawn directors’ current accounts • Coming to you
  5. 5. Issued by FRC in 2009 www.frc.org.uk/press/pub2141.html FRC guidance issued to directors of all UK companies Going concern Going concern & liquidity risk: guidance for directors of UK companies
  6. 6. Background • Fundamental principle - accounts prepared using going concern assumption • Directors of all companies have to assess going concern • The period to be assessed is 12 months from the approval of the financial statements Going concern
  7. 7. Three possible conclusions from directors’ assessment Going concern 1. No material uncertainties that cast doubt over going concern 2. There are material uncertainties relating to events / conditions that may cast doubt on going concern, but going concern assumption remains appropriate 3. Going concern assumption is not appropriate
  8. 8. Going concern Circumstances Impact on the disclosure in the accounts No material uncertainties regarding going concern The accounts should use the going concern principle and make the necessary disclosures, including those about liquidity risk, necessary to give a true and fair view Material uncertainties but the use of going concern is considered appropriate The accounts continue to use the going concern assumption. The accounts to disclose the material uncertainties. Disclosure should be made within accounting policies so that it is included in abbreviated accounts. Going concern is not appropriate Detailed disclosure of the accounting basis adopted
  9. 9. Going concern FRC example of expected disclosure, no material uncertainties: “There has been a significant reduction in requests for estimates for new work and the directors expect sales to reduce significantly next year. However, costs are expected to reduce accordingly and the company should be able to operate within its overdraft. The directors are not aware of any reason why the overdraft facility might be withdrawn. As a result they have adopted the going concern basis of accounting.”
  10. 10. Going concern Summary • FRC Guidance to all directors Need to be aware in fulfilling responsibilities • Different view on disclosure Disclosing even when going concern is not an issue interpreted?
  11. 11. Overdrawn directors’ current accounts • Commercially sensitive • Tax implications oIndividual oCompany • Company law implications • Disclosure required by S413 CA 2006 oApplication remains unclear
  12. 12. Overdrawn directors’ current accounts S413 - What information is to be disclosed? For all advances • Amount • Interest rate • Conditions • Repayments
  13. 13. Overdrawn directors’ current accounts For advances, credit, guarantees • Totals • Applies to anyone who was a director at any time during the year For all guarantees • Main terms • Maximum liability to company • Any amount paid by the company under the guarantee
  14. 14. Overdrawn directors’ current accounts S413 - What are the issues? Every single loan transaction with a director has to be disclosed • Directors’ overdrawn current accounts = series of transactions • Shareholder loan approvals (>£10K) o Not apply to advances for expenses (<£50K) • Tax? • Abbreviated accounts?
  15. 15. Overdrawn directors’ current accounts S413 - Reeves’ - practical solution • Analyse director’s current accounts chronologically to ascertain if overdrawn • Identify any shareholder approval issues • Disclose advances / repayments separately during that overdrawn period
  16. 16. Overdrawn directors’ current accounts Use of dividends to clear overdrawn director’s loan account Factors to consider: • Have to be paid from distributable profits • A dividend becomes a liability of the company, when o Final – approved by the members o Interim – when paid, or approved by the members
  17. 17. Overdrawn directors’ current accounts What is payment? • Cash • Overdrawn current account – when credited • Current account in credit – transfer does not count, need cash Beware timing issues
  18. 18. Overdrawn directors’ current accounts Summary • Consider need for shareholder approval • What will the new disclosures look like? • Clear by dividend? • Adequate profits? • Timing, have to create a liability • Plan before the year end
  19. 19. Coming to you soon • ISA Clarity • iXBRL • Bribery Act 2010 • IFRS
  20. 20. Coming soon – ISA Clarity ISA Clarity • What is it? 33 new auditing standards • When is it? December 2010 Year ends • What will it mean? 10% additional audit time Increased focus on accounting estimates used by directors Increased focus on related parties
  21. 21. Coming soon – iXBRL • What is it? Standard computer accounts tagging adopted by HM Revenue and Customs and Companies House • When is it? April 2011 • What will it mean? All Corporation Tax Returns, computations and accounts will need to be in iXBRL format and submitted online to HMRC
  22. 22. Coming soon – Bribery Act 2010 • What is it? New anti-bribery code • When is it? April 2011 • What will it mean? Maximum jail term raised from 7 to 10 years New corporate offence of failing to prevent bribery - unlimited fine Need anti corruption procedures Guidance due from Secretary of State January 2011
  23. 23. Coming soon – IFRS • What is it? Complete new set of international accounting standards • When is it? July 2013 • What will it mean? 3 tier financial reporting for UK Full IFRS for listed IFRS for SMEs FRSSE
  24. 24. The alarming secrets behind your businesses credit score Tim Levey, FCA
  25. 25. Did you know that… • 71% of business hit by late payments in the last 12 months? • £63bn was not paid within terms last year • UK business wait 41 days longer than payment terms (BACS) – in June 2009 the figure was 32 days • By 2018 businesses won’t be able to say “the cheque is in the post”!
  26. 26. Warning tales… • the Apple iPhone order • the new £15,000 van on HP • the wrong company name checked • a “new scoring methodology” • a “technical error within the report”
  27. 27. Do you as a matter of course… • Check the credit score of new customers? • Worry when you get a big new order? • Take up credit references regularly? • Ask for management accounts? AND… • Check your own credit reference?
  28. 28. The most important factors… 1) Demographics • The age of the company • Location • Line of Business/SIC code • Number of employees
  29. 29. The most important factors.. 2) Directors and associations • The number of them… • Links to failed businesses • Late filing of documents
  30. 30. The most important factors.. 3) Payment habits • D&B have 10,000 “payment partners” • More than 500 sales invoices monthly • Some suppliers are “non-critical”
  31. 31. Delinquency score = 10/100
  32. 32. Delinquency score = 62/100
  33. 33. The most important factors… 4) Mortgages, charges and CCJs • So get old charges cancelled • Deal with CCJs quickly
  34. 34. The most important factors… 5) Financials • Turnover • Total Assets • Tangible net worth etc • Net worth to liabilities ratio
  35. 35. What happened here?
  36. 36. Would you give credit to them?
  37. 37. What about now?
  38. 38. An offer… Contact me for free searches to the value of £25 with Reeves Credit Confidence (tim.levey@reeves.co) Thank you for listening.
  39. 39. Turnaround strategies for the small business Steve Tancock, Restructuring Partner
  40. 40. Is the Landscape Changing? • Banks and HMRC • Politicians • Business • IPs and Turnaround Professionals
  41. 41. Avoiding Problems • Terms of trade • Look out for the warning signs in your customers and suppliers • Financial management
  42. 42. The warning signs • Cash Flow • Creditors/Suppliers • Bank • Landlord • HMRC
  43. 43. Using The Warning Signs - External • Difficulty getting money out of customers • Real cash flow difficulties or an excuse • Be a pedant • Understanding the issues
  44. 44. Using the Warning Signs - Internal • Historic accounting records up to date and accurate • Are forecasts a fundamental part of financial management
  45. 45. Continuing to trade • Professional advice should be sought if the company is thought to be insolvent • Accept there is a problem • Agree strategy • Document it • Implement it
  46. 46. The Key Messages • Avoid Insolvency wherever possible • Turnaround much more desirable
  47. 47. In Summary Early identification + Difficult challenges + Appropriate advice = Successful outcome
  48. 48. Tax Update…and planning ideas Clive Relf, FCA, Tax Partner
  49. 49. Tax Update Session overview • Some key dates • Corporation tax changes • Dividends vs bonus • Capital expenditure • Cars • Employment tax issues • Selling up • Miscellany
  50. 50. Some key dates days… Corporation tax, personal allowance and pension changes days… VAT increase days… Capital allowance changes days… before higher rate tax thresholds increase again 2010 – the year of 3 finance Acts!
  51. 51. Profits 2010/11 2011/12 … 2014/15 Company Tax rates £0 - £300,000 21% 20% ... 20%? Over £1,500,000 28% 27% … 24% £300,000 - £1,500,000 29.75% 28.75% ... 25% Cf: 20% / 40% / 50% for individuals
  52. 52. Company Accounts Changes come April 2011 • Electronic filing mandatory from 1 April 2011 • Accounts and tax computations required in iXBRL format • Submitted electronically with CT 600 • All corporation tax to be paid electronically PLUS…relaxation of R+D tax relief rules
  53. 53. Dividends vs salary / bonus • Director shareholders remain able to exploit opportunities available • Salary…dividend…rent…pensions… interest…cars • New 50% tax rate changes little
  54. 54. Director Shareholder example Mr Jones On a salary of £50,000 • Takes home £35,811 • Cost to Jones Ltd £43,977
  55. 55. Director Shareholder example Mr Smith Salary 5,200 Dividend 30,811 Takes home £35,811 • Cost to Smith Ltd £34,719 Overall saving £9,258 NB: Make sure dividends are documented
  56. 56. Director Shareholder comparison Williams Ltd has £100,000 of pre-tax profits to transfer to director shareholder Mr Williams • Company pays tax at 21% • Williams is 40% taxpayer • Class 1 NIC ceiling reached 2010/11 2011/12 Dividend – effective tax rate 40.75% 40.0% Bonus – effective tax rate 47.7% 48.15%
  57. 57. • Plant and machinery writing down allowances cut Capital allowance changes • (*) Special rate applies to integral features and cars with emissions 160g/km or more Before April 2012 From April 2012 Main rate 20% 18% Special rate (*) 10% 8% Annual Investment Allowance • To 31-03-2010 £50,000 p.a. • To 31-03-2012 £100,000 p.a. • From 01-04-2012 £25,000 p.a.
  58. 58. Capital Allowance Changes – an example An example: Torrance Limited will soon need to incur £110,000 on some new vans Is there a timing issue?
  59. 59. Torrance Limited Purchase on… Assuming a 31 March accounting date 15 March 2012 30 April 2012 £100,000 AIA £25,000 AIA +10,000 @ 20% + £85,000 @ 18% £102,000 relief £40,300 relief £20,400 tax saved £8,060 tax saved
  60. 60. Tax relief on cars • Purchase Before April 2012 After April 2012 • ≤ 110g/km 100% 100% • 111 – 160g/km 20% WDA 18% WDA • Over 160g/km 10% WDA 8% WDA • Leased Cars • ≤ 160g/km no restriction • > 160g/km 15% restriction Tax relief based on CO2 emissions
  61. 61. Honda vs BMW Honda BMW List price £26,500 £26,500 CO2 emission (g/km) 173 109 mpg 43.5 68.9 Annual road tax £175 £35
  62. 62. New BMW 320d 109/km Efficient Dynamics Saloon … w/off £26,500 vs profits in Year 1 … annual tax charge for (40%) employee £1,378 pa
  63. 63. Honda CR-V Ex 173g/km … w/off £2,650 only vs profits in Year 1 … annual tax charge for (40%) employee £2,756 pa
  64. 64. Expensive cars…leasing More attractive since April 2009 • 3 year hire charge c £40,000 • Tax disallowance (15%) £6,000 only … pre April 2009 disallowance was £18,000 £100,000
  65. 65. Employment Tax – PAYE penalties • A new regime effective from 6 April 2010 • Have you noticed yet? • …probably not as HMRC won’t levy penalties until after April 2011 • Worse if you part pay liability as 5% penalty for any PAYE /NIC paid 6 months or more late Late payments in a year Penalty 1 None 2-4 1% 5-7 2% 8-10 3% 11 or more 4%
  66. 66. Employment Tax – PAYE penalties - example Scatty Ltd has a monthly PAYE/NIC liability of £50,000, and misses the payment deadline by between one and four days on eight occasions during 2010/11, for a variety of reasons. Penalties will be due as follows:- £ First late payment - 2nd – 4th late payments 1,500 (£50,000 x 1% x 3) 5th – 7th late payments 3,000 (£50,000 x 2% x 3) 8th late payment 1,500 (£50,000 x 3%) Penalty £6,000
  67. 67. Employment Tax – Mobiles, PDAs • Employee’s mobile phone…tax free? • Company contract vs personal contract • One (or two) mobiles? • PDA? • PDA plus a mobile?
  68. 68. Cycle to work scheme • Employers can loan cycles to employees as a tax free benefit under salary sacrifice • Cycles should be used primarily to get to work • Biggest benefit for higher paid employees
  69. 69. Cycle to work scheme Example Guy is provided with a bike worth £1,000 under this scheme…Guy earns £45,000 p.a. Monthly cost to hire £41.84 Total cost (12 months) £502 Saving 50% Ownership transfer cost may also be incurred
  70. 70. Employment Tax Now there’s an idea! • Encouragement award of ≤ £25 for suggestions…whether implemented or not • Financial benefit award of ≤ £5,000 for suggestions • Relating to improved efficiency • Expected to bring financial benefit • AND adopted • Can pay ≤ 50% Yr 1 expected benefit ≤ 10% Yrs 1 - 5 expected benefits • Scheme must be open to all employees or entire group and outside employee’s normal duties
  71. 71. Selling up? • Capital Gains Tax rate up from 18% to 28% for many • But Entrepreneurs’ relief gives qualifying business gains of up to £5million per person at 10% only (was £1m / £2m) • Will your business qualify?
  72. 72. Entrepreneurs’ Relief example Tax bill on sale £1,900 £1,000 Tax rate on sale (overall) 19% 10% Why the difference? The Huggetts and the Barnes both run successful care home businesses. Both sold their companies for £10 million in July 2010 Comparing notes following the sale revealed:
  73. 73. Entrepreneurs’ Relief Planning Huggett vs Barnes • Minimum 5% shareholding? • Employee or office holder? • Shares held minimum 12 months? • Associated property etc?
  74. 74. Miscellany • Time to pay arrangements…4 more years • IR35…on the way out • Pensions…large contributions still possible until April 2011 • BUDGET DAY 2011 is on 23 MARCH
  75. 75. VAT Update Greg Mayne, Director, Indirect Tax Services
  76. 76. VAT topics • VAT rate change • Penalties from HMRC • Top 10 Tips for a VAT visit • VAT News
  77. 77. VAT rate change – up we go • 20% standard rate as of 4 January 2011 • Anti-forestalling measures same as before • Reeves factsheets – Request on feedback form • How does this compare in EU? – standard-rate must be between 15% minimum and 25% maximum – European mean average = 20.56%
  78. 78. Anti-forestalling legislation • pre-invoicing or pre-payment for goods or services • supplementary charge of 2.5% where a VAT invoice is issued and/or prepayment received before 4 January 2011 (creating an actual tax point) but the basic tax point when goods or services are to be provided is on or after that date • conditions apply
  79. 79. The 2.5% charge will only apply where the customer cannot recover VAT in full on the supply and at least one of the following conditions is met: Anti-forestalling legislation (cont.) • the supplier and the customer are connected with each other; or • the supplier or a person connected to the supplier finances a prepayment by the customer; or • the supplier raises a VAT invoice where payment is not due in full within six months of the invoice date; or • the consideration for the supply and any related supply of goods or services amounts to more than £100,000 and does not represent normal commercial practice
  80. 80. Suppliers may wish to seek assurance from a customer that the VAT on the supply will be fully recoverable, to ascertain whether the supplementary charge should apply A prepayment of less than £100,000 between unconnected parties with full payment expected within 6 months of the date of the invoice would not attract the supplementary 2.5% Anti-forestalling legislation (cont.)
  81. 81. Reasons for error Penalties No Penalty Reasonable Care No Penalty No Penalty Reasonable Care No Penalty Max 30% Careless Unprompted Min 0% Max 30% Careless Unprompted Min 0% Max 30% Careless Prompted Min 15% Max 30% Careless Prompted Min 15% Max 70% Deliberate Prompted Min 35% Max 70% Deliberate Prompted Min 35% Max 70% Deliberate Unprompted Min 20% Max 70% Deliberate Unprompted Min 20% Max 100% Deliberate and Concealed Prompted Min 50% Max 100% Deliberate and Concealed Prompted Min 50% Max 100% Deliberate and Concealed Unprompted Min 30% Max 100% Deliberate and Concealed Unprompted Min 30%
  82. 82. 1. Prior to the visit the VAT office should advise which records are required for the inspection and who will be attending – make a note of the officer’s name and details and where and when they will be visiting 2. Make sure that the right people are available at the time of the visit 3. Prepare any questions or disclosures that you may have beforehand, plus any useful information for the officer 4. Offer normal hospitality and accommodation – don’t go overboard but equally don’t neglect to provide refreshments and the usual ‘comforts’ 10 Ways to Handle a VAT Visit
  83. 83. 5. Make sure that you allow plenty of time for the visit to take place – as well as yourself and any relevant colleagues, ensure that books and records and work space are available 6. Allow the officer to work unhampered by noise, interruption or discomfort – additionally make sure that all health and safety requirements are observed 7. Check with the officer whether he or she has finished with specific books and records before removing them and if they no longer need to speak to members of staff before they leave How to Handle a VAT Visit
  84. 84. 8. Carefully record any directions or helpful comments given by the officer – get their contact details 9. On completion of the visit take time to discuss with the officer any anomalies or points of contention that may have come up 10. Above all, don’t panic! The visit may result in a more efficient way of dealing with your VAT How to Handle a VAT Visit
  85. 85. • Further ‘Place of Supply’ changes coming 01-01-11, including cultural, artistic, sporting, scientific, educational, entertainment & similar services – zero-rated where supplied to business customers • Postal charges – standard-rated from 31-01-11 where ‘competitive’, i.e. Royal Mail don’t get unfair advantage over other providers • HMRC will be allocated £900 million over the four years to April 2015 to ‘raise additional revenues from those who undermine the tax system and seek to avoid paying their fair share’ • EU VAT refund deadline extended to 31 March 2011 for claims relating to 2009 (the portal mechanisms were not all up and running) • 5% VAT rate derogation VAT News
  86. 86. Important changes in employment legislation Neil Emery, Senior Solicitor, Whitehead Monckton
  87. 87. Important changes to employment legislation • Equality Act 2010 • Default Retirement Age www.uniquetokent.co.uk
  88. 88. “All animals are equal, but some animals are more equal than others.” Animal Farm, George Orwell - 1945 United States Declaration of Independence written by Thomas Jefferson in 1776 www.uniquetokent.co.uk Equality Act 2010
  89. 89. www.uniquetokent.co.uk Equality Act 2010
  90. 90. • Came into force on 1 October 2010 • Replaces: • the Equal Pay Act 1970 • the Sex Discrimination Act 1975 • the Race Relations Act 1976 • the Disability Discrimination Act 1995 • much of the Equality Act 2006 • the Employment Equality (Religion or Belief) Regulations 2003 • the Employment Equality (Sexual Orientation) Regulations 2003 • the Employment Equality (Age) Regulations 2006 • the Equality Act (Sexual Orientation) Regulations 2007 • plus other ancillary pieces of legislation. www.uniquetokent.co.uk Equality Act 2010
  91. 91. Protected characteristics: • Age • Disability • Gender re-assignment • Marriage and civil partnership • Pregnancy and maternity • Race (now including colour, nationality, and ethnic or national origins) • Religion or belief (including lack of religion or belief) • Sex • Sexual orientation Section 4, Equality Act 2010 www.uniquetokent.co.uk Equality Act 2010
  92. 92. Types of discrimination and other unlawful conduct that apply to most of the protected characteristics: • Direct discrimination • Combined discrimination: dual characteristics • Indirect discrimination • Harassment • Victimisation • Instructing, causing, inducing and aiding discrimination www.uniquetokent.co.uk Equality Act 2010
  93. 93. No Changes AGE DISABILITY GENDER REASSIGNMENT RACE RELIGIONORBELIEF SEX SEXUALORIENTATION MARRIAGE&CIVILPARTNERSHIP PREGNANCY&MATERNITY Change New Not covered DIRECT DISCRIMINATION DISCRIMINATION BY ASSOCIATION NEW NEW NEW NEW DISCRIMINATION BY PERCEPTION NEW NEW NEW INDIRECT DISCRIMINATION NEW NEW HARASSMENT CHANGES CHANGES CHANGES CHANGES CHANGES CHANGES HARASSMENT BY www.uniquetokent.co.uk Equality Act 2010
  94. 94. • Direct Discrimination Someone is treated lass favourably than another person because of a Protected Characteristic. • Discrimination by Association Direct discrimination against someone because they associate with another person who possesses a Protected Characteristic. • Discrimination by Perception Direct discrimination against someone because those discriminating think that person possesses a Protected Characteristic. • Indirect Discrimination Where there is a rule or policy that applies to everyone but that has the effect of disadvantaging a particular Protected Characteristic www.uniquetokent.co.uk Equality Act 2010
  95. 95. • Harassment Unwanted conduct related to a Protected Characteristic, which has the purpose or effect of violating an individual’s dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for that individual. • Harassment by a Third Party Employers will be potentially liable for harassment of employees by people (third parties) who are not employees, such as customers or clients. • Victimisation Victimisation occurs when an employee is treated badly because he or she has made or supported a complaint, or raised a grievance under the Equality Act, or because they are suspected of doing so. www.uniquetokent.co.uk Equality Act 2010
  96. 96. Pre-employment health questions • Prohibited. Unless necessary … • to establish if there is a duty to make reasonable adjustments. • to check whether an applicant can carry out a function that is intrinsic to the job. www.uniquetokent.co.uk Equality Act 2010
  97. 97. “Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.” - George Burns www.uniquetokent.co.uk Default retirement age
  98. 98. The Employment Equality (Age) Regulations 2006 Prohibits discrimination in employment on the grounds of age. Introduced national Default Retirement Age (DRA) of 65. Prohibited compulsory retirement below 65 unless objectively justified. www.uniquetokent.co.uk Default retirement age
  99. 99. Proposed changes: 6 April 2011: Transitional arrangements to phase out the default retirement age and all associated statutory retirement procedures (including the "duty to consider" and "right to request" procedures) will begin. No new notifications of retirement under the default retirement age may be issued by employers after 31 March 2011. 1 October 2011: The default retirement age and the statutory retirement procedures will be abolished. www.uniquetokent.co.uk Default retirement age
  100. 100. Transitional arrangements from 6 April 2011 to 1 October 2011. • Intended date of retirement before 1 October 2011. The DRA will continue to apply so long as the employer continues to follow the statutory retirement procedures. • Intended date of retirement after 1 October 2011. The DRA will no longer apply. The employer will need to be able to objectively justify any retirement taking effect after 1 October 2011. • If an employer gives notice of retirement after 31 March 2011, they will no longer be able to rely on the DRA because the minimum 6 months' notice would expire after 1 October 2011. The short notice provisions allowing less than 6 months notice will have been repealed. www.uniquetokent.co.uk Default retirement age
  101. 101. Objective justification From April 2011, employers wishing to have a compulsory retirement age will only be able to do so if they can objectively justify it. Must be a proportionate means of achieving a legitimate aim. An objective justification allows employers to discriminate both directly and indirectly on the basis of age. www.uniquetokent.co.uk Default retirement age
  102. 102. “Proportionate”: • what the employer is doing is actually achieving its aim • discriminatory effect should be significantly outweighed by the importance and benefits of the legitimate aim • no reasonable alternative to the action. “Legitimate”: • economic factors such as the needs of and the efficiency of running a business • health, welfare and safety of the individual (including protection of young people or older workers) • the particular training requirements of the job. www.uniquetokent.co.uk Default retirement age
  103. 103. Legitimate aims which might justify age discrimination, depending on the circumstances: • Health, welfare and safety. • Facilitation of employment planning. • Particular training requirements. • Encouraging and rewarding loyalty. • The need for a reasonable period of employment before retirement. • Recruiting or retaining older people. www.uniquetokent.co.uk Default retirement age
  104. 104. Aims that tribunals have found to be legitimate: • Reforming a retirement benefits scheme to make a firm's profit-share fairer. • Achieving a supportive culture by avoiding the need to confront older under-performing partners, and encouraging staff to remain with the firm with a view to advancement. • Ensuring a "reasonable flow" of new judicial appointments. • Ensuring a spread of skills and experience in workers of all ages. • Ensuring the availability of career progression opportunities. www.uniquetokent.co.uk Default retirement age
  105. 105. • It is not easy to prove objective justification • Employers will have to provide valid evidence if they are challenged. www.uniquetokent.co.uk Default retirement age
  106. 106. Neil Emery Senior Solicitor neilemery@whitehead-monckton.co.uk 01622 698047 www.uniquetokent.co.uk
  107. 107. Corporate Financial Planning David Hurst, Managing Director Reeves Financial Planning
  108. 108. Summary • High Level Pension Planning for Directors • Employer Pension Proposals - Pensions Act 2008 • Deposit Accounts
  109. 109. High Level Pension Planning • Three tax regimes in three years • Significant opportunity to make large funding before greater restrictions are introduced
  110. 110. High Level Pension Planning April 2006 “A Day” • Everyone can pay up to 100% of earnings • Maximum £255,000 (2010/11) • Created flexibility over amount and timing of contributions
  111. 111. High Level Pension Planning Budget April 2009 • Complex anti-forestalling provisions announced • Those earning more than £130,000 pa face restrictions • Limited to ‘protected’ contributions or for most, between £20k - £30k pa
  112. 112. High Level Pension Planning Opportunity • Those with relevant income of less than £130,000 in current or previous two tax years can contribute up to £255,000 attracting Corporation Tax relief and no NI or P11D charge • Attractive where effective rate of tax on dividend and salary between 41% and 48%, higher for top rate taxpayers • Permissible to contribute commercial property instead of cash
  113. 113. High Level Pension Planning Post 6 April 2011 • Annual allowance will be reduced to £50,000 pa for everyone, regardless of earnings • More restrictive for some although much better than proposals due to be introduced for 50% tax payers
  114. 114. High Level Pension Planning Opportunity • Those with relevant income greater than £130,000 who have been restricted by anti-forestalling measurers have an opportunity in April 2011 to contribute up to £200,000 and gain tax relief at highest marginal rate! • Planning with your adviser is essential. • If you are not sure of your options, speak to us!
  115. 115. Employer Pension Proposals
  116. 116. Biggest change to employer based pension schemes • What is NEST ? • What does it mean for your company ? • What are your options ?
  117. 117. What is NEST ? • Introduced in Pensions Act 2008 with the aim to provide work based pensions to a further 7 million people • Enrolment will begin from April 2012 • Employer and employee contributions are compulsory • The Pensions Regulator will contact all employers a year before the start date
  118. 118. What does it mean for your Company? • Qualifying workers must be enrolled into a qualifying work based pension • Qualifying workers: – Are aged at least 22 but less than State Pension age – Work in the UK – Earn more than £5,715 pa
  119. 119. What does it mean for your Company? • A qualifying work based pension scheme must be designated • Minimum level of contributions based on qualifying earnings above £5,715 • No reference to charges or scheme design
  120. 120. What does it mean for your Company? TOTAL Employer 10/2012 – 09/2016 2% 1% 10/2016 – 09/2017 5% 2% 10/2017 - onwards 8% 3% Minimum contribution requirements:
  121. 121. What are your options? • Designed for low / moderate earners • Maximum £3,600 pa contribution • No transfer in / out • Very restrictive and cautious fund choice 1) NEST
  122. 122. What are your options? • Choose provider (existing scheme?) • No restriction on contributions / transfers • Much wider fund choice • Better employee perception • Provision of ongoing advice to members 2) Employer Sponsored Group Pension
  123. 123. Example ABC Ltd currently offers no scheme, employs 30 eligible workers with average salary of £35,000 pa Under the proposals, the cost of the scheme will be: • 3% Employer Contribution £31,500 pa • 4% net Employee Contribution £42,000 pa
  124. 124. Example As an alternative, ABC Ltd could establish a qualifying work based pension scheme using salary sacrifice, for example: • 8% employer contribution (3% Employer + 5% Salary Sacrificed) • Scheme contributions + member take home pay unchanged • Which means £7,245 Employer NI Saving on Salary Sacrificed.
  125. 125. Example £7,245 saving could be: • Used to provide alternative employee benefits (e.g. fund the cost of a Death in Service Scheme) • Recycled to increase Pension Contributions • Used partially or in full to offset the cost of running the scheme to the employer
  126. 126. Example • Cost neutral with (1) above but a more attractive overall benefit package can be created Result
  127. 127. Deposit Accounts for Companies Interest rates are very low for companies :- 6 months 12 months 3 year Lloyds £100k 0.54% 0.83% 2.0% £500k 0.57% 0.98% 2.0% Barclays £100k 0.35% 0.73% - £500k 0.54% 0.97% - RBS £100k 0.32% 0.70% - £500k 0.50% 0.94% - Open Market: £100k 1.85% 2.75% 3.5%

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