February 2013

With the first businesses already affected by auto-enrolment, and almost every employer required to make payroll returns using Real Time Information (RTI) next year, the stage is set for a perfect storm.

Auto-enrolment requires every employer to automatically enrol all employees aged between 22 and state pension age who earn more than £8,105 into a qualifying workplace pension scheme and make minimum contributions.

These requirements will be phased between October 2012 and February 2018, with a firm’s compliance date dependent on the number of people they employ.

Businesses will also be required to provide at least one per cent of the two per cent minimum contribution level during the introductory phase. This will rise to eight per cent by October 2018, with at least three per cent contributed by the employer.

Anyone aged at least 16, but under 75, can request to be enrolled and, if they earn more

than £5,564 per year, employers will also need to make contributions for them.

However, the auto-enrolment earnings trigger is set to rise to £9,440 for the next tax year, placing a significant burden on firms already struggling with the requirements of the scheme – and just as RTI comes into force.

Under RTI, almost every employer will need to inform HMRC of the tax, national insurance contributions and other deductions on or before every payday from April 2013, instead of waiting until the end of the tax year.

While these changes are meant to make the payroll process easier, nearly half (43 per cent) of the firms surveyed by Sage UK felt RTI would increase rather than lessen their administrative burden.

Indeed, the extra employee resources that will be required to submit information to HMRC, and the frequency with which this will need to be done, could prove extremely disruptive for businesses – especially as penalties will apply for reports provided late or in the wrong format.

While the penalties for late reporting have been delayed until April 2014, charges for inaccuracies identified on in-year submissions for 2012-13 may be incurred after the tax year has ended.

Furthermore, for 2013-14, penalties for errors may apply to in-year returns, which could have a significant impact on smaller businesses.

Find out more at our free seminar

To ensure that you are fully aware of all the changes that are coming into force and what action you should be taking, we are holding an RTI and auto-enrolment seminar on Tuesday 26th February, from 7.45am.

Featuring presentations by guest speakers from Scottish Widows and Sage Software, this complimentary hour-long seminar will be followed by a chance to ask questions of our experts in the fields of RTI and auto-enrolment.

So, to find out more, please join us at The Lawn, Hall Road, Rochford, Essex, SS4 1PL.

Helping you weather the storm

Traditionally, financial and cash flow planning has been somewhat of a checklist affair. ISA, tick, pension, tick, and so on. But once all the boxes have been checked, how can you tell what these products are doing in terms of helping you achieve your financial goals?

That is where our Truth Financial Planning Software comes to the fore.

What does the software aim to achieve?

The Truth Financial Planning Software created by Prestwood Software Limited has been designed to do exactly what its name suggests – tell people the truth about their financial situation.

As a result, you can determine whether or not you have sufficient provision to guarantee the required cash flow to achieve your financial objectives.

How does it do that?

Based on your current income, outgoings, assets and liabilities, as well as the life you want to enjoy in future years, the software delivers a clear and accurate picture of your current financial circumstances and your future position if no changes are made.

It can also model a number of alternative scenarios, enabling you to see what the real impact on your finances would be if you took a certain course of action, whether for better or worse.

What are the benefits?

By understanding the truth about your finances, you can see whether you have enough money for your future plans, whether you will run out and what you need to do in order to achieve your desired lifestyle.

How would I gain from using it?

The Truth Financial Planning Software can process numerous different scenarios, enabling it to act as a financial satellite navigation system as your financial situation changes.

So whether you want to make the most of any inherited money, provide for your children’s future, plan for early retirement or just live life to the full while you are young enough to enjoy it, this software can illustrate the truth regarding each course of action, helping you decide on the best way forward.

This software is not provided by every financial advisor, so if you want to find out the truth about your financial situation, please contact us.

The moment of truth for your finances

As lower returns on traditional investments are pushing people to seek higher yield alternatives, fine wines are proving to be an increasingly popular asset.

Indeed, as HM Revenue & Customs (HMRC) considers most wine to be ‘a wasting chattel’ with a lifespan of less than 50 years, any profit made on its sale would be exempt from capital gains tax.

However, individuals need to take care when it comes to inheritance tax on fine wines. Applying the wasting asset rule, it could be assumed that any unconsumed bottles would be valued at the purchase price, but that would be incorrect.

As with all other assets, fine wine is valued for inheritance tax purposes on the date someone dies, at “the price it might reasonably be expected to fetch if sold in the open market at that time”.

Wine has proved to be a solid investment, with the Liv-ex fine wine index having risen by 225 per cent between July 2001 and June 2011. Although the index has fallen slightly since, this still means a healthy return on such investments.

As a result, the value of a fine wine collection is likely to be significantly higher than the price paid when the bottles were purchased – resulting in heavy tax bills for the relatives of unwary investors.

To ensure your family are not put in this position, the team at Rickard Keen Financial Services offers advice on all aspects of estate planning and inheritance tax mitigation, regardless of the types of investments you have chosen.

Please contact us to find out more.

Inheritance tax and fine wine

The government has announced a rule change that will make it easier for individuals to cash in small pension pots.

Individuals can take a pension pot as cash after they reach age 60 if the total value of all their pension savings is less than £18,000, a process known as trivial commutation.

Furthermore, as a result of changes made last April, people aged 60 or above can also take cash in a maximum of two personal pension pots, each with a value of £2,000 or less, during their lifetime.

For these small lump sums, HM Revenue & Customs (HMRC) uses an emergency tax code, meaning that people taking advantage

of these changes are taxed at 40 per cent, despite mostly being basic-rate taxpayers.

However, this is all set to change from 6th April, when HMRC will tax individuals who cash in small pension pots at the basic 20 per cent rate – removing the need to claim back overpayments through the completion of a tax return.

Small pension pots to be taxed at basic rate

More than a million families are now required to pay a new tax charge unless they have chosen not to receive child benefit payments.

However, while 1.1 million families are affected, only 784,000 of these have received a letter from HM Revenue & Customs (HMRC) informing them of the changes, leaving another 316,000 unaware that they need to complete self-assessment returns for this tax year.

Consequently, we will now consider the new regime and what it could mean for your family in more detail.

From 7th January, any household where one or more of the partners earns more than £50,000 has been subject to tax charged at one per cent of any child benefit received.

Those earning over £60,000 are taxed the equivalent amount of the child benefit received by themselves, or their partner, unless it is no longer claimed.

For this tax charge, a partner is defined as:

• married couples or civil partners living together

• a man and a woman who are not married to each other but are living together

• a man living with a man or a woman living with a woman as if they were civil partners

If both partners earn over £50,000, the one with the highest income is liable for the tax charge, regardless of who actually receives the child benefit.

In addition to earnings from employment or self-employment, the income from pensions, property, savings and dividends also counts towards the £50,000 threshold, although gross pension contributions, trading losses and gross Gift Aid can be deducted.

Individuals liable for the new high income child benefit charge need to complete a self-assessment tax return for the year ending this April, and could face fines if they do not register for this process by October 2013.

Furthermore, a tough penalty regime means that if the return is submitted only a day late, there is an immediate £100 penalty. A penalty of £10 then applies to each following day – up to a 90-day maximum of £900 – for returns that are up to three months late, with further stiff penalties after six months and 12 months.

While it might seem easier to choose not to receive child benefit rather than complete the self-assessment tax return, it is important you claim the benefit and then opt not to receive it, as this continues to provide automatic credits for national insurance and does not jeopardise future state pension entitlement.

As Rickard Keen Financial Services has the wide-ranging knowledge and expertise to look after all aspects of your financial life, we can advise on how your family will be affected by the new regime and the impact on your investments and future plans.

Please contact us for more information.

New rules for child benefit

Research has shown that more than a third of the UK’s small or medium enterprises (SMEs) could be putting their business at risk by failing to insure their key staff.

According to the RSM Tenon Business Barometer, a quarterly survey carried out by YouGov amongst senior management in SMEs, 42 per cent had failed to insure key staff.

Just under one in three SMEs said they had insured senior personnel and 22 per cent had some of their senior people insured.

Nick Courtney from RSM Tenon said: “Most business owners will insure their company against flood and fire, but many do not think about the huge impact of losing highly skilled staff.

“Coping with the death or long-term illness of a key member of staff is difficult, but businesses need to take steps to minimise the detrimental effect such losses could have on their productivity.

“We have also seen cases where a business partner dies and their interest in the

company passes to their spouse. Companies need to consider that where that happens, they may not be in a financial position to buy back the interest in their business. Insuring against this could help to give business owners peace of mind about the long-term future of their company.”

SMEs are more likely to feel the impact of the loss of a key employee as they will have fewer people and resources to draw on.

Key man insurance provides a safety net should a major shareholder, loan guarantor or employee with specialist skills and knowledge be lost, ensuring the business survives the transition period.

It also proves to investors and business partners that the company can afford to and has taken the time to insure its valuable assets, which is especially important for smaller businesses looking to grow through partnerships.

Both the company and the named individual benefit from this insurance, and should the business receive a death benefit from the policy, it is likely to be tax-free. However, this depends on how the plan is arranged, and the tax treatment requires input from the local HM Inspector of Taxes.

Furthermore, it is worth considering partnership/director share purchase cover, which protects both families and co-owners in the event of the death of a director or partner. This provides the remaining co-owners with the money to buy out the deceased’s interest at a fair price.

It is vital to consider in advance how a business would continue to function should disaster strike. Having detailed plans in place now could save a lot of worry in the future, so please contact us for more information.

Firms at risk on insurance cover