McGregors Corporate become a Career Champion

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1 McGregors Winter Newsletter 2013_Layout 1 08/11/ :34 Page 1 Business News & Tax Advice Winter 2013 McGregors Corporate become a Career Champion Mansfield Learning Partnership (MLP) has been working with local businesses for a number of years to give young people the opportunity to improve their skills and raise aspirations. In becoming a Career Champion McGregors Corporate have agreed to help provide local students with advice and mentoring which will help support their employability skills. This edition seems to be all about reminders! A reminder that the date by which all businesses must have made provision to provide all employees with a pension is getting nearer and nearer. A reminder about an alternative, tax efficient, way to arrange life cover. And a timely reminder to beware of scams and viruses! We also discuss how to manage business relationships in the event of a breakdown. Talking of relationships, we announce that McGregors Corporate have agreed to partner with Mansfield Learning Partnership to provide mentoring local students. Regards Chris Holder Director McGregors Corporate Director, Christine Dove, was presented with a Career Champions Certificate at a recent Mansfield 2020 networking breakfast by MLP Director Bernie Dickinson. Commenting Christine said, As a firm of chartered accountants, McGregors Corporate are able to offer valuable workplace advice in a number of business environments. We can also help students who may be looking at a career in accountancy to understand the various routes they can take to gain a recognised qualification. The Mansfield Learning Partnership is supported by Mansfield District Council, Mansfield 2020, Mansfield Area Strategic Partnership and other local employers. It is committed to creating high quality learning opportunities which inspire and engage young people from local schools which include; The Brunts Academy, The Manor Academy, Garibaldi College, Queen Elizabeth s Academy, All Saints RC School, Meden School and West Nottinghamshire College.

2 How Relevant Life Cover reduces cost of family protection Relevant Life Plan policies offer some very special advantages to directors and employees of small businesses, most notably tax efficiency. While the cover is personal to you and your employees, the policy counts as a business expense so it s tax deductible and does not count towards annual or lifetime pension allowances. It s also a cost-effective way to offer life cover to your employees if your business is not eligible for a group life scheme. A Relevant Life Plan can work out much cheaper than a typical life policy for you or your employees. In most cases premiums are treated as an allowable business expense by HMRC so companies qualify for Corporation Tax relief and there s no additional Income Tax or NI to pay either. What is the Relevant Life Plan? An individual Death In Service life assurance policy available for directors and employees. Your business pays regular premiums based on the level of cover. If the person covered dies or is diagnosed with a terminal illness whilst in employment during the term, the plan pays a fixed, one-off lump sum. The plan is designed to meet certain legislative requirements that mean your premiums, benefits and options are treated tax efficiently. Who can take out a Relevant Life Plan? To be eligible for a Relevant Life Plan, the person to be covered must be an employee of the business, which can include directors on PAYE. Unfortunately, Relevant Life Plans are not available for sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership. It s a Single Life Policy, which means each plan covers one person you, for example. There s no option to include joint cover, such as for you and your partner, in the same policy. PLAN What makes it cost effective? Relevant Life Plans are similar to most other types of life cover except they aim to offer a tax efficient way for an employer to arrange life cover benefits for an employee. As such, Relevant Life Plans are usually viewed as an allowable business expense by HMRC so all premiums and paid benefits qualify for full Income Tax relief, National Insurance relief and Corporation Tax relief. This means premiums could be reduced by up to 49% compared to a typical life policy if you are a higher rate taxpayer. For a basic rate taxpayer this figure could be up to 40%. The example below shows how Relevant Life Cover can save tax, national insurance and total premiums payable for your life cover as a Company Director. NON-RELEVANT LIFE PLAN POLICY Annual Premium 1,000 1,000 Employee National Insurance Income Tax (Assuming 40%) McGregors Corporate are pleased to endorse Elevation Investment Management, an independent firm of financial advisers, to provide wealth management advice to our clients None None Gross earnings needed 1, ,000 Employer National Insurance None Total Gross Cost 1, ,000 Less Corporation tax (Assuming 20%) Tax-adjusted cost 1, RELEVANT LIFE PLAN POLICY For further information please contact Nathan Stevens on nathan.stevens@elevation-group.co.uk Elevation Investment Management Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No Elevation Investment Management Ltd is a subsidiary of Elevation Financial Group Ltd 2

3 Directors loan account common errors If a director lends money to their private company, this is normally classed as a director s loan account. There is no problem with this it is perfectly legal and there are no tax implications except that if the director charges the company interest it will need to be declared on their personal tax return. It is also possible for a private company to lend money to one of its directors. In this case there are more implications: The loan should be approved by the members (shareholders) of the company. Frequently these loans do not get formal approval as the director is also the main shareholder. This normally only causes problems if either there is a dispute with another shareholder (which could be a spouse in a divorce action), or the company goes in to liquidation and the liquidators try to claim the money back. These loans can still be challenged if they have been repaid, if they were not first approved. If the company lends more than 5,000 at an interest rate below HMRC s official interest rate, then the director will be assessed for a benefit in kind on the difference between the interest charged and the HMRC official interest rate. If the loan is still outstanding 9 months after the company s year end then the company has to pay tax of 25% of the outstanding amount to HMRC. When the loan is repaid, the company can claim back this tax but not until 9 months after the end of the accounting period in which the loan is repaid. All this seems to be quite clear cut. However, in practice it can be quite complicated. Many directors do not distinguish very well between what are their own funds, and what are the company s funds. Common examples are the company paying for private expenses, the director using the company credit card for personal expenditure, or paying company expenditure on a personal credit card, the company paying motor expenses for a private vehicle etc. All these items can have an effect on the directors loan accounts and may cause the director to be overdrawn without even realising it until their accountant prepares the year end accounts which may be some time after the company should have declared a benefit in kind. Many directors also draw a monthly amount consisting of salary and dividends and will continue to draw it even though the company has not voted a dividend, and in some cases does not have enough profit to vote a dividend, and may not have declared any salary. It also makes members approving the loans very difficult as each individual amount should be approved. HMRC has decided that there has been abuse of the rules in this area and have introduced new measures to prevent them, in addition to enforcing their view on certain areas to the letter of the law. They expect to see properly voted dividends which have been entered in the books and records at the time of voting. They will only accept salary and bonuses being credited to the loan account if they have been subject to PAYE at the correct time. They will no longer allow a loan to be treated as repaid if the company then lends the money back to the director within 30 days. If different amounts are separated in the company s books and records they will not allow them to be aggregated but will treat them as separate loans so you cannot offset a credit balance on one account against a debit balance on another. Finally, most of the rules also apply to loans to family members, business partners, shareholders, trustees and partnerships. How to avoid these expensive mistakes:- Make sure your business expenses are paid by the business and private expenses are paid privately. Dividends should be voted from retained profits and properly documented and recorded. Salary and bonuses should be put through the payroll and the correct amounts drawn. Members should approve all loans made. Transactions should be recorded carefully in the company s books and records. McGregors Corporate can help by:- Advising on a remuneration plan. Preparing and submitting your payroll. Preparing dividend documentation. Completing returns of benefits and expenses. Advising you how much tax is due and when it needs to be paid. Advising on the tax implications before you undertake a transaction. 3

4 Virus s on the increase Seemingly genuine s with zip file attachments from a reputable organisations such as your bank, HMRC, Companies House and mail order and parcel delivery companies like Amazon, Fedex and DHL are being distributed at an alarming rate. Most companies have the appropriate anti-virus and network firewalls that detect such nasty s and prevent them from being delivered to the recipients in-box, however, smaller companies, sole traders and equipment used at home could still be at risk. These phishing s, as they are so called look genuine in as much as they appear to have come from reputable organisations. Just this week, a client of McGregors Corporate has received s from HMRC, Companies House, Amazon, HSBC and UPS. This is quite scary considering that one of the s from HMRC referred to an incorrect VAT return. Quite co-incidentally their return had just been filed and they were nearly tempted to open the zip file attachment. Had they opened the zip file, it would have unleashed a virus onto their computer which hackers generally use to extract personal data and track your computer activity to commit fraudulent activity as well as untold harm to the operating efficiency of your computer system! Fortunately they were cautious and remembered our previous warnings about downloading zip attachments and this immediately raised their suspicions. They followed guidelines on the HMRC website and immediately deleted the file. This practice is definitely on the increase and more and more company s are being cloned by these malicious hackers. So, please be vigilant and do not open any s with zip files without first checking they are absolutely genuine. If you have to exchange large computer files, a better option might be to use free software such as Drop Box, or WeTransfer. Auto enrolment are you prepared? New legislation introduced by the Government and monitored by The Pensions Regulator means that if you haven t already, it is now vitally important to get some independent financial advice on how Auto Enrolment will affect your business. Auto Enrolment involves Automatically Enrolling all eligible jobholders into a qualifying workplace pension scheme or the National Employer Savings Trust (NEST) Scheme by The deadline to have the appropriate measures in place vary according to how many employees you have on your payroll as of April Larger businesses such as Tesco have needed to comply with this new legislation since October 2012, and depending on the number of staff you employ you will need to comply at a staging date very soon. Obtaining independent financial advice to consider the most suitable plan of action for your business is crucial. You can find out your staging date by entering your PAYE reference into the staging date tool on the official pensions regulator website. /employers/tools/staging-date.aspx If you use more than one PAYE scheme, you ll need to enter the reference for each one you use. Your staging date will be the one that s earliest. It s important that you have the right PAYE reference and enter it correctly so you get the right staging date. You can find your PAYE reference on your P35 (employer annual return) or P30BC payslip booklet. For further information on auto enrolment please contact Nathan Stevens on nathan.stevens@elevationgroup.co.uk McGregors Corporate are pleased to endorse Elevation Investment Management, an independent firm of financial advisers, to provide wealth management advice to our clients. Elevation Investment Management Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No Elevation Investment Management Ltd is a subsidiary of Elevation Financial Group Ltd 4

5 Does out of love mean out of business? Most people who are in business are also in a personal relationship or will enter into one at some point. Statistics say that 75% of private sector businesses in the UK are classed as family businesses. They account for over 40% of private sector employment. It is also the case based on the most recent research that 42% of all marriages will end in divorce. Britain has the highest rate of divorce in the European Union. These are salutary figures so it makes sense to ensure the survival of such businesses particularly in the event of a divorce or relationship breakdown. Let s face it, this can be one of the most catastrophic events to affect a family and therefore potentially the business. The best option is to make a considered plan at the very start of a relationship as to what might happen if all goes wrong. With the right legal advice at time, a complete strategy can be put in place, not only as to how the business will be run and profits shared while the personal relationship is a happy one, but to ensure that the business has continuity and can function normally in the event that the worst happens and the relationship breaks down. But is all lost if no prior planning has taken place? The answer is no. However, it is again important to seek legal advice at the earliest stage possible. There are many and varied strategies which can be put into play to produce a fair outcome for both parties. Alongside this, it is important to ensure discussions are conducted with the aim of reducing acrimony and hostility. After all, there is often a need to maintain a good working relationship with the other party either for the benefit of the business or because there are children to consider. Principles can be agreed from the outset with regard to contentious matters like valuing the business and how it will be divided up thereby reducing the emotional and financial impact to a minimum. If you are in the early stage of a relationship or are concerned that it might be breaking down, or you have, or are thinking about starting a business, it is never too late to make provision! If you would like any more information, please do not hesitate to contact Sue Leadbeater at Andrew & Co LLP s Newark office on or visit For Business valuation advice please call Philip Cudworth at McGregors Corporate on i2 Mansfield, Office Suite 2:1, Hamilton Court, Oakham Business Park, Mansfield, Nottingham, NG18 5FB. Tel: chris.holder@mcgregorscorporate.co.uk