reeves finance focus, november 2010

Finance Focus

11 November

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

Financial Reporting

Peter Manser, FCA, Corporate Partner

Financial Reporting

• Going concern• Overdrawn directors’ current accounts• Coming to you

Issued by FRC in 2009www.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

http://www.frc.org.uk/press/pub2141.html

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

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

Going concernGoing concernCircumstances 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

Going concernGoing 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 The directors are not aware of any reason why the overdraft facility might be withdrawn.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.”

Going concernSummaryGoing concernSummary

• FRC Guidance to all directorsNeed to be aware in fulfilling responsibilities

• Different view on disclosureDisclosing even when going concern is not an issue How will this be interpreted?

Overdrawn directors’ current accountsOverdrawn directors’ current accounts

• Commercially sensitive

• Tax implications

oIndividual

oCompany

• Company law implications

• Disclosure required by S413 CA 2006

oApplication remains unclear


S413 - What information is to be disclosed?

For all advances • Amount• Interest rate• Conditions• Repayments


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

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?


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


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


What is payment?What is payment?

• Cash

• Overdrawn current account – when credited

• Current account in credit – transfer does not count, need cash

Beware timing issues

Overdrawn directors’ current accountsSummaryOverdrawn directors’ current accountsSummary• 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

Coming to you soon

• ISA Clarity• iXBRL• Bribery Act 2010• IFRS

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 timeIncreased focus on accounting estimates used by directorsIncreased focus on related parties

Coming soon – iXBRL

• What is it?Standard computer accounts tagging adopted by HMRevenue and Customs and Companies House

• When is it?April 2011

• What will it mean?All Corporation Tax Returns, computations andaccounts will need to be in iXBRL format and submittedonline to HMRC

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 yearsNew corporate offence of failing to prevent bribery- unlimited fineNeed anti corruption proceduresGuidance due from Secretary of State January 2011

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 UKFull IFRS for listedIFRS for SMEsFRSSE

The alarming secrets behind your businesses credit scoreTim Levey, FCA

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”!

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”

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?

The most important factors…

1) Demographics

• The age of the company

• Location

• Line of Business/SIC code

• Number of employees

The most important factors..

2) Directors and associations

• The number of them…

• Links to failed businesses

• Late filing of documents

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”

Delinquency score = 10/100

Delinquency score = 62/100


4) Mortgages, charges and CCJs

• So get old charges cancelled

• Deal with CCJs quickly


5) Financials

• Turnover

• Total Assets

• Tangible net worth etc

• Net worth to liabilities ratio

What happened here?

Would you give credit to them?

What about now?

An offer…

Contact me for free searches to the value of £25 with

Reeves Credit Confidence

([email protected])

Thank you for listening.

Turnaround strategies for the small businessSteve Tancock, Restructuring Partner

Is the Landscape Changing?

• Banks and HMRC

• Politicians

• Business

• IPs and Turnaround Professionals

Avoiding Problems

• Terms of trade

• Look out for the warning signs in your customers and suppliers

• Financial management

The warning signs

• Cash Flow

• Creditors/Suppliers

• Bank

• Landlord

• HMRC

Using The Warning Signs - External

• Difficulty getting money out of customers

• Real cash flow difficulties or an excuse

• Be a pedant

• Understanding the issues

Using the Warning Signs - Internal

• Historic accounting records up to date and accurate

• Are forecasts a fundamental part of financial management

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

The Key Messages

• Avoid Insolvency wherever possible

• Turnaround much more desirable

In Summary

Early identification +

Difficult challenges +

Appropriate advice =

Successful outcome

Tax Update…and planning ideas

Clive Relf, FCA, Tax Partner

Tax UpdateSession overview

• Some key dates• Corporation tax changes• Dividends vs bonus• Capital expenditure• Cars• Employment tax issues• Selling up• Miscellany

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!

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

Company AccountsChanges 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

Dividends vs salary / bonusDividends vs salary / bonus

• Director shareholders remain able to exploit opportunities available

• Salary…dividend…rent…pensions…interest…cars

• New 50% tax rate changes little

Director Shareholder exampleDirector Shareholder example

Mr Jones

On a salary of £50,000

• Takes home £35,811

• Cost to Jones Ltd £43,977

Director Shareholder exampleDirector Shareholder exampleMr 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

Director Shareholder comparisonDirector Shareholder comparisonWilliams 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 reached2010/11 2011/12

Dividend – effective tax rate 40.75% 40.0%

Bonus – effective tax rate 47.7% 48.15%

• 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.

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?

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

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

Honda vs BMWHonda 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

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

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

Expensive cars…leasingMore attractive since April 2009Expensive cars…leasingMore 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

Employment Tax – PAYE penaltiesEmployment 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

• 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%

Employment Tax – PAYE penalties - exampleEmployment Tax – PAYE penalties - exampleScatty 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:-

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

Employment Tax – Mobiles, PDAsEmployment Tax – Mobiles, PDAs

• Employee’s mobile phone…tax free?

• Company contract vs personal contract

• One (or two) mobiles?

• PDA?

• PDA plus a mobile?

• Employee’s mobile phone…tax free?

• Company contract vs personal contract

• One (or two) mobiles?

• PDA?

• PDA plus a mobile?

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

Cycle to work schemeExampleGuy 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

Employment TaxNow there’s an idea!Employment TaxNow 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

• 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

Selling up?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?

• 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?

Entrepreneurs’ Relief exampleEntrepreneurs’ 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:

Entrepreneurs’ Relief PlanningHuggett vs Barnes

Entrepreneurs’ Relief PlanningHuggett vs Barnes

• Minimum 5% shareholding?

• Employee or office holder?

• Shares held minimum 12 months?

• Associated property etc?

MiscellanyMiscellany

• 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

VAT UpdateGreg Mayne, Director, Indirect Tax Services

VAT topics

• VAT rate change

• Penalties from HMRC

• Top 10 Tips for a VAT visit

• VAT News

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%

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

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

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.)

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%

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

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

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

• 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

Important changes in employment legislationNeil Emery, Senior Solicitor, Whitehead Monckton

Important changes to employment legislation• Equality Act 2010

• Default Retirement Age

www.uniquetokent.co.uk

“All animals are equal, but some animals are more equal than others.”

Animal Farm, George Orwell - 1945

United States Declaration of Independencewritten by Thomas Jefferson in 1776


Equality Act 2010


Equality Act 2010

• 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.


Equality Act 2010

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 orientationSection 4,

Equality Act 2010


Equality Act 2010

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


Equality Act 2010

No Changes

AG

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RE

LIG

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OR

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LIE

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OR

IEN

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RR

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CIV

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EG

NA

NC

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MA

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Change

New

Not covered

DIRECT DISCRIMINATION

DISCRIMINATION BY ASSOCIATION NEW NEW NEW

NEW

DISCRIMINATION BY PERCEPTION

NEW NEW

NEW

INDIRECT DISCRIMINATION

NEW NEW

HARASSMENTCHANGES CHANGES CHANGES CHANGES CHANGES

CHANGES

HARASSMENT BY A THIRD PARTY NEW NEW NEW NEW NEW

NEW

VICTIMISATIONCHANGES CHANGES CHANGES CHANGES CHANGES CHANGES CHANGES CHANGES CHANGES


Equality Act 2010

• 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


Equality Act 2010

• 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.


Equality Act 2010

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.


Equality Act 2010

“Retirement at sixty-five is ridiculous.

When I was sixty-five I still had pimples.”

- George Burns


Default retirement age

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.



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.



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.



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.



“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.



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.



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.



• It is not easy to prove objective justification

• Employers will have to provide valid evidence if they are challenged.



Neil Emery

Senior Solicitor

[email protected]

01622 698047


mailto:[email protected]

Corporate Financial PlanningDavid Hurst, Managing Director Reeves Financial Planning

Summary• High Level Pension Planning for Directors

• Employer Pension Proposals - Pensions Act 2008

• Deposit Accounts

High Level Pension Planning

• Three tax regimes in three years

• Significant opportunity to make large funding before greater restrictions are introduced


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


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


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


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


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!

Employer Pension Proposals

http://images.google.co.uk/imgres?imgurl=http://www.padeliveryauthority.org.uk/images/nest-logo-holding.jpg&imgrefurl=http://www.padeliveryauthority.org.uk/&usg=__jv7IZCnsi9Zy-9PXUZb64UzZl-8=&h=166&w=223&sz=12&hl=en&start=5&zoom=1&itbs=1&tbnid=LISxIxY5dZf_CM:&tbnh=80&tbnw=107&prev=/images%3Fq%3Dnational%2Bemployment%2Bsavings%2Btrust%26hl%3Den%26gbv%3D2%26tbs%3Disch:1



http://www.nestpensions.org.uk/

Biggest change to employer based pension schemes

• What is NEST ?

• What does it mean for your company ?

• What are your options ?

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

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


• 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


TOTAL Employer

10/2012 – 09/2016 2% 1%

10/2016 – 09/2017 5% 2%

10/2017 - onwards 8% 3%

Minimum contribution requirements:

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

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

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

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.

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

Example

• Cost neutral with (1) above but a more attractive overall benefit package can be created

Result

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%