IHT only applies if the pension company has to pay the value of your scheme to your estate, in which case it becomes like any other asset, but generally the pension pot is held in a discretionary trust, which means it isn’t taxed on death.
You can now nominate anyone not just dependents to be the beneficiary.
Since 6th April 2015 anyone who inherits a pension fund from a person who dies before the age of 75 is entitled to receive it tax free and the you can take the money as a lump sum or income. Once over 75 a special tax of 45% applies (previously 55%), you could reduce this by taking a regular income.
From 6th April 2016 the 45% tax is likely to be scrapped and income tax rates will be applied.
The BBC website has a useful post which explains the changes in 10 questions, click here to read it
What happens in the event of serious illness or death of a controlling shareholder?
Every business should have a plan in place. Normally illness and capacity will not change the voting rights but death will.
Usually the companies articles of association will contain rules which authorise the executors of a deceased shareholder to register as the share owners until they transfer them to the beneficiaries. This is often not the best solution.
A better way is to prepare a shareholders agreement which sets out what will happen.
Its worth considering:
pre-emption rights – these arrange automatic transfer to named shareholders
purchase rights – these will allow the company to buy back the shares from the beneficiaries
If you haven’t got a plan, make one before its too late
reimburse employees for business travel in their company cars
require employees to repay the cost of fuel used for private travel
If you pay a rate per mile for business travel no higher than the AFR, for the particular engine size and fuel type, HM Revenue and Customs (HMRC) will accept there is no taxable profit and no Class 1A National Insurance to pay.
You can use your own rates which better reflect your circumstances if, for example, your cars are more fuel efficient, or if the cost of business travel is higher than the guideline rates.
Advisory Fuel Rates from 1 March 2015
These rates applied from 1 March 2015. You can use the previous rates for up to 1 month from the date the new rates apply.
Engine size
Petrol – amount per mile
LPG – amount per mile
1400cc or less
11p
8p
1401cc to 2000cc
13p
10p
Over 2000cc
20p
14p
Engine size
Diesel – amount per mile
1600cc or less
9p
1601cc to 2000cc
11p
Over 2000cc
14p
COMPANY car mileage rates have been slashed by up to 18% as HMRC cut the tax allowance across all six of the petrol and diesel categories in response to continuing fuel price falls.
Hardest hit by the rates, known as advisory fuel rates (AFR), are drivers of company cars with petrol engines greater than 1,401cc which have suffered a 3p cut in rates applicable from 1 March.
Acquisition costs need to split into capital and revenue expenses.
“Several tests have been developed through case law to ascertain whether expenditure is revenue or capital in nature. The ‘enduring benefit’ test, which originated from Atherton v British Insulated & Helsby Cables Ltd [1925] 10 TC 155, is one such test.
“In this case, that expenditure incurred with a view to providing the business with an ‘enduring benefit’ was not allowable as a trading expense. ‘Enduring benefit’ means that the expense will benefit the business not just in the year in which it is incurred, but also in the years that follow. [Taxation]
Capital Expenses
Legal costs for the property purchase
Property Acquisition Cost
Capital expenses are only recovered as part of the capital gains calculation when they are added to the purchase cost to reduce the overall gain.
Revenue Expenses
Mortgage arrangement fees
Legal fees on arranging loans
Lenders normally include valuation fees in their charges
Revenue expenses are charged to the P&L and are deductible against income tax/corporation tax.
When loan costs are material they would normally be amortised over the period of the loan in order to apply the matching principle of accounting.
You cannot deduct:
Expenses incurred in connection with the first letting or subletting of a property for more than a year. These include legal expenses such as the cost of drawing up a lease, agents’ and surveyors’ fees and commission.
Any costs of agreeing and paying a premium on renewal of a lease.
Fees for planning permission or registration of title on property purchase.
Directors (participators in a closed company) often borrow money from their companies with the intention of paying a dividend to repay the loan.
If the loan is outstanding more than 9 months after the company year end, then an extra 25% corporation tax charge is due, this is the s455 tax which is refunded when the loan is repaid as explained in this blog
HMRC were concerned that some participators were avoiding this tax by raising funds short term to repay an outstanding loan. They would then draw a new loan very shortly afterwards – HMRC refer to this as “bed and breakfasting”. New anti-avoidance rules were therefore introduced in 2013.
These new rules incorporate two provisions – the “30-day rule” and the “intentions and arrangements” rule.
30-day rule
This applies where within a 30-day period:
a shareholder makes repayments of their s455 loan; and
in a subsequent accounting period, new loans or advances are made to the same shareholder or their associate.
So basically prevents the use of ‘Bed & Breakfasting’
‘intentions and arrangements’ Rule
Relief is denied regardless of the 30 day rule, if prior to repayment there is an outstanding amount of at least £15,000 and at the time the amount is repaid to the company, any person intended to redraw any of that amount or had made arrangements to make a new withdrawal; and a new withdrawal is made.
The relief denied is the lower of the amount repaid and the amount redrawn.
For years, accountants and bureaus have been offering payroll services, taking a massive burden off the hands of their clients. However, the payroll profession has changed dramatically over recent years with the introduction of Auto Enrolment. A significant 1.2 million small and micro businesses are set to start staging between June 2015 and the beginning of 2018. The Pensions Regulator defines small businesses as employers with 5 to 40 workers and micro businesses as having one to four workers.
The thought of choosing the right payroll provider has exasperated with the new AE employer duties that need to be completed. Some software providers are avoiding auto enrolment completely, while others are offering AE features with limited functionality or at a high extra cost. If you have payroll clients they may have an expectation that you will handle the AE setup and ongoing duties for them. For bureaus, it will be important to discuss the options with your clients as early as possible.
Auto Enrolment Functionality
Payroll software will play a vital role in ensuring the success of Automatic Enrolment. Many of the functions necessary to comply with Automatic Enrolment duties are process-driven and can be handled by technology. Your payroll clients will need to access their employees to ascertain who they have to automatically enrol and who will have the right to request to join.
The Pensions Regulator recommends that payroll software should automate the majority of these processes, such as assessing employees’ eligibility, producing employee communications, monitoring employees’ ages, and earnings on ongoing basis, producing the required reports and much more. It will be important to check with your software provider to see if it can handle the requirements of Automatic Enrolment. From that point on, it is all about efficiency and there are several questions that need to be answered first in order to start making a profit from these jobs.
So what should you be looking for in potential payroll software to process AE more efficiently? These 10 questions outline key factors to ease the decision making process.
1. Does it support your chosen AE pension schemes?
2. Will employee assessment be automated?
3. Is enrolling employees problematic or effortless?
4. Can it produce employee communications based on individual’s work status?
5. Does it allow for Postponement?
6. Are employees being continuously monitored by the software?
7. What are the limitations regarding the number of employees or employers that can be set up?
8. Will it make contributions and deductions?
9. Does it allow you to produce the required reports?
10. Are auto enrolment features and support charged at an extra cost?
Discover how the right payroll solution will empower you to improve profit margins and increase the turnaround of clients. This step by step guide details how the correct systems in place with fully optimise their payroll operations for efficiency. Check your have full AE functionality.
Principle Private Residence Relief (PPR) is useful relief that saves you capital gains tax (18% for basic rate tax payers and 28% for higher rates tax payers) on your main residence, but how does it work, lets take a basic example
Property Purchase Date 30/04/2001
Property Purchase Price £100,000
Date Moved Out 30/10/2010
Letting Start Date 01/11/2012
Date Sold 31/10/2014
Sale Price £200,000
Capital Gains tax calculation
Sale proceeds 31/10/2014 £200,000
Cost (assuming no improvements) -£100,000
Gross capital gain £100,000
Reliefs available
Principle Private Residence Relief
Actual Occupation 9.5 Years
Started 30/04/2001
Ended 30/10/2010
Plus last 18 Months of Ownership 1.5 Years
The Property was empty prior to letting
Up to 18 months could be by ‘absence for any reason’
Total period where private residence relief is
available 11.0 Years
Total Period of ownership 13.5 Years
Principle private residence relief
£100,000 x (132 mths/162 mths) £81,481
Gain after principle private residence relief £18,519
Letting Relief
01/11/2012 to 31/10/2014 2.0 Years
Lettings relief is to lower of
£40,000 statutory maximum
£81,481 the principle private residence relief in this example
The gain for the letting period
Gain attributable to letting 2/13.5 x £100,000 £14,815
This is the lowest figure
For gains on sales prior to 6 April 2014, PPR is available for the last three years of ownership of a property that has been a main residence at any time. This is the case regardless of whether or not it has been occupied during the last three years of ownership.
But as a result of the 2014 Budget, from 6 April 2014 the automatic exemption from tax on gains in relation to the final years of ownership is now restricted to cover the last 18 months rather than three years.
You may need to submit form P11D(b) to report the amount of Class 1A National Insurance due on all the expenses and benefits you’ve provided. You should do this if:
you’ve submitted any P11D forms
you’ve been sent a P11D(b) form by HMRC
If you don’t submit any P11D forms, you can tell HMRC that you don’t owe Class 1A National Insurance by completing a declaration.
Due by 6th July 2015.
As an employer, you can apply for a dispensation on some expenses and benefits you provide for your employees. This means you won’t need to report them to HM Revenue and Customs or pay tax or National Insurance on them. Here is a link to apply for Dispensations.
There are also Benchmark Scale Rates which can be paid tax free, alternative you can claim the actual costs
Many small business owners ask this question, typically they are a sole director and share holder and want to decide from a tax and NI perspective what the optimum salary is (the rest of their income coming from dividends).
The new lower earning threshold for National Insurance is £5,824 per year (£112 per week) for 2015-16, there is an advantage to paying above this level so that you will earn credits towards a state pension. Its expected in current terms that a years credit is worth £225 pension per year for life. Employees start paying NI when earnings are above £155 per week)
The Employment Allowance of £2,000 has been continued into 2015-16 which means you won’t have to pay any employer National Insurance contributions at all if you usually pay less than £2,000 a year.
The personal tax free allowance for 2015-16 is £10,600.
So assuming you aren’t a higher rate tax payer and you haven’t used up the employment allowance on other staff, £10,600 would be the optimum salary because:
Saved Corporation Tax at 20% = £2,120
Employee NI 12% on (£10,600 – £155 x52) = (£304.80)
