Saving for Retirement

With major changes being made to Britain’s pension system, we all should be encouraged to save in a tax efficient pension.

20s Once you begin work, retirement is a distant thought. Other priorities tend to take precedence, like saving a deposit for a first home, paying down debts from student days or simply enjoying life.

The biggest influence on a comfortable retirement is the capacity to generate earnings. By starting a regular savings plan early, even if you can only spare small amounts, the returns will be much bigger.

Your earnings are generally low during this period but diverting the small amount left at the end of each month into a pension is likely to yield less than saving into an ISA, where the £15,000 tax-free annual allowance (from July 1 2014) will be more than sufficient.

The exception is your company’s pension scheme. Employers will pay on your behalf, for example, you might pay 5 per cent and the company 5 per cent.

30s During this period your earnings should start to increase, but you could have higher costs to possibly meet like getting married, starting a family or buying a first home.

You may need to create an ‘emergency fund’ to cover unexpected issues such as redundancy; a fund worth six months’ expenditure is generally the rule of thumb.

New parents may want to consider life assurance, which will protect family finances if anything happens to the main income.

Repaying mortgage debt will also take a large chunk of income. If you can afford to, invest as close to the £15,000 ISA limit as possible. You should also consider joining your company pension and consider increasing contributions if possible.

Pensions can help tax planning. Families where one parent earns more than £50,000 will start to lose their entitlement to child benefit.

Contributing to a pension can reduce your taxable earnings below £50,000 and preserve this benefit for your family.

40s If you haven’t started a pension type savings plan yet, it’s not too late. With up to 27 years before you collect your state pension and potentially more afterwards. Don’t be fooled into thinking your investment time-horizon is short; investments can still continue into retirement, for good returns.

During this period you may have school fees or other commitments to consider. Try to maximise the £15,000 ISA allowance, but don’t ignore the tax relief on pensions, though, which applies at your highest marginal rate. It costs a higher-rate taxpayer only £60 to put £100 into their pension.

Consolidate pensions sitting idle with former employers into a Self-Invested Personal Pension, or “SIPP”. These plans, which give access to thousands of investments in one place, are offered at low cost by different financial companies.

50s Saving for retirement should now become serious. From age 55 you will be able to access your pension. In theory you could retire then.

In reality, most people will continue working and plan carefully, saving as much as possible for the future as other expenses cease. Plan by working out how much income you’ll need when you eventually stop work. Pensions do work as tax-planning tools after your ISA allowance is used. Consider for every £2 you earn above £100,000,
you lose £1 of your tax-free personal allowance (currently £10,000). Contributing to a pension can reduce your taxable income so you retain this tax break.

Focus though on the £1.25m lifetime cap on saving. Someone aged 50 with £525,000 in a pension would push past the lifetime allowance by age 65 if the fund grew at 7 per cent a year even without additional contributions, according to pension provider Standard Life.

There is a currently a £40,000 limit on annual contributions to pensions.

60s Many people will continue working, into their sixties. With the new rules from next April, you have instant access to your entire pension fund, how and when you withdraw becomes a major decision. An annuity will guarantee a stream of income payments for life, but the cost of purchase is high.

For example, current rates pay just £6,000 a year for each £100,000 of savings. Shop around for the best rates, as they do vary between insurers and declare all health conditions to obtain the highest income.

The main alternative to an annuity is to keep your pension invested in the stock market and take income as you need it. This runs the risk of the ups and downs of the stock market.
The capital should be protected, a well-diversified set of dividend-paying funds and shares can provide a decent income, so long as you can put up with the fluctuating value of the underlying capital.

With the introduction of the new flat-rate state pension, probably in 2016, you will need 35 qualifying years of National Insurance contributions to benefit from the full £155 a week (it is possible to “buy” extra qualifying years). Check with the Pension Service on 0800 731 7898 to ensure you have the full amount.

Need more help?

This feature aims to give some informal hints and tips. Mcphersons are offering businesses free advice so get in touch now to arrange your meeting. Simply email Peter Watters p.watters@mcphersons.co.uk or call our Head Office on 01424 730000 for a free consultation at mcphersons’ London, Bexhill or Hastings offices. www.mcphersons.co.uk

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Please contact us for further information or if you are in any doubt as to the suitability of an investment.

McPhersons Financial Solutions LLP. Woodside, Junction Road, Staplecross, East Sussex, TN32 5SG Tel: 0844 804 0025 Fax: 0844 804 0390. McPhersons Financial Solutions LLP is the independent financial advice arm of McPhersons Chartered Accountants. McPhersons Financial Solutions LLP is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: 23 St Leonards Road, Bexhill-on-Sea, East Sussex, TN40 1HH. Registration Number OC353077 (England and Wales). UK Residents only

Self Assessment

All Self Assessment taxpayers have to meet several important deadlines throughout the tax year or they could incur penalty charges. Here is our useful guide to this year’s Self Assessment deadlines.

Filing Your Tax Return

There are generally three deadlines for filing your Self Assessment Tax return. Which of the three you should use depends on the filing type of tax collection you choose.
You must ensure HM Revenue & Customs (HMRC) receives your completed return by midnight on 31 October 2014, if you choose a paper return. However, if you decide to file your tax return online, you gain more time than paper filing, it must reach HMRC by midnight on 31 January 2015. Remember that you will need a Government Gateway username and password in order to file online, and this could take around a week to arrive in the mail. So be sure to leave yourself enough time before the deadline.
If you owe less than £2,000, and you want HMRC to collect your tax through your Tax Code, you will need to submit your tax return online by 30 December 2014. If however, HMRC is unable to alter your tax code, you may still be required to file again by 31 January 2015.

Making a Payment

As with filing there are several payment deadlines throughout the year. The most common is 31 January 2015, on which you may need to make several different payments. The first being the balancing payment, this is the tax you owe for the previous tax year. If you made payments on account in the previous year, it is likely you have paid some of this tax. You may also have to make the first payment on account. This will normally be 50 per cent of your previous tax bill; excluding student loan repayments and Capital Gains Tax. The second payment deadline is 31 July 2015. On this date you will be required to make your second payment on account, which is normally the second 50 per cent of your previous tax bill.

Financial Penalties

Legally you have to meet the Self Assessment deadlines. If you fail, you will receive the following financial penalties:
1 day late – A £100 penalty charge.
3 months late – A £10 charge for each following day, up to a 90 days (maximum of £900).
6 months late – A charge of £300 or 5 per cent of the tax due, whichever
is the higher.
12 months late – A charge of £300 or 5 per cent of the tax due, whichever is the
higher. In serious cases, you may have to pay up to 100 per cent of the tax due instead.
However, you may not have to pay a penalty if you have a supportive reason for missing the deadline. These could be:
• You have a life-threatening illness that has prevented you from completing your Self Assessment Tax return.
• You have experienced technical problems with the online service.
• Your documents have been lost in a fire, flood or theft.
• Your partner has died shortly before the deadline.
Should HMRC accept your reasoning for late filing, they may reduce or decide not
to pursue the fine.

Need more help?

This feature aims to give some informal hints and tips. Mcphersons are offering businesses free advice so get in touch now to arrange your meeting. Simply email Peter Watters p.watters@mcphersons.co.uk or call our Head Office on 01424 730000 for a free consultation at mcphersons’ London, Bexhill or Hastings offices. www.mcphersons.co.uk

Is there nowhere to hide from the Taxman?

Every month, Peter Watters, FCA, shares some useful financial tips. This month, the focus is on HMRC Tax Investigations. HMRC’s determination is to get its pound of flesh from the middle class. How can you stay on the right side of the law but still keep your tax bills to a minimum?
The taxman is now going after the middle classes, no longer targeting just the super-rich, but everyday professionals are now feeling the pressure of this greater scrutiny with an increased likelihood that their tax returns will be challenged.

HM Revenue & Customs (HMRC) has doubled the number of inquiries into taxpayers it feels are not paying enough tax over the past two years. When such inquiries become in depth investigations they can take years to conclude.

New powers have been proposed to allow HMRC to take money directly from taxpayers’ bank accounts, including joint accounts, without first obtaining a court order. If the proposals, which are subject to a consultation, are approved, there are concerns that HMRC will withdraw
incorrect sums from accounts before giving taxpayers a chance to argue their case.

HMRC says that they do not plan to empty bank accounts completely as rules are in place to ensure that, after the tax owed is taken, a sum of £5,000 must remain in the individual’s bank accounts. The money can only be taken after four requests for the tax owed have been ignored.

Other existing measures, such as the creation of special “task forces” to target certain job sectors such as freelancers and buy-to-let landlords, have also helped
boost the Revenue’s total tax take.
HMRC has beefed itself up by doubling its use of bailiffs and debt collection agencies over the last two years. Its focus on evasion and non-payment looks set to gather force.

One of the most controversial snooping powers the taxman uses to spy on individuals is obtaining information from third parties, including banks, credit card providers, employers and other government agencies such as the Land Registry.

The Revenue will also snoop on the websites that taxpayers use and check up on an individual’s mobile phone usage. They can use bugging or telephone
tapping, but in practice they are rarely used.

This policy is seen as hitting the ‘easy’ target, using all its powers to crack down on individuals, rather than companies or other better resourced institutions. The
sums involved may not be huge when compared to going after a major corporate, but individuals are a much easier target to squeeze and collectively they are now paying out a huge amount of extra tax. They are more likely to have made tax return mistakes but they are also more likely to capitulate without arguing, making HMRC confident of success.

Another aggressive tool used by HMRC is by threatening taxpayers with higher penalties as part of its tougher stance, which has helped increase tax returns for the Revenue because individuals are paying automatically to avoid receiving higher fines rather than looking at the
amount owed and challenging the taxman if they think it is incorrect.

Need more help?
This feature aims to give some informal hints and tips. Mcphersons are offering businesses free advice so get in touch now to arrange your meeting – we can help you protect your money! Simply email Peter Watters p.watters@mcphersons.co.uk or call our Head Office on 01424 730000 for a free consultation at mcphersons’ London, Bexhill or Hastings offices. www.mcphersons.co.uk

Post Budget Winners and Losers

This month, Ainsley Gill looks at the winners and losers from the 2014 Budget.
A wide range of measures were announced in the 2014 Budget, with savers very much ‘at the centre’. Here we cut though all the detail to highlight the measures that will affect individuals. To download our full budget book, please visit our website www.mcphersons.co.uk.

Winners

ISA savers. An ISA rise from £11,520 to £15,000 from July 1 this year. They can also save the full amount in cash, rather than only half, as previously. It means savers with hundreds of thousands in ISA investments can move the money into savings accounts.
Pension savers. More flexibility over taking an income from a pension and pledge that no one would be forced to buy an annuity. There was also an increase in the amount that can be taken as a cash lump sum from a small pension pot.
Pensioners. Anyone aged 65 or over will be offered a new type of savings account named ‘pensioner bonds’, available from NS & I from January 2015. This is expected to pay up to 4% on a three year fixed rate bond.
Everyone earning less than £100,000 will pay less income tax because of a further rise in the tax-free personal allowance for each taxpayer. This will rise from £9,220 to £10,000 from April 2014 and to £10,500 in 2015.
Premium Bond savers can buy £40,000 of bonds from August and there will be an additional monthly prize for £1 million.
Around 1.9 million parents will benefit from a new childcare system to replace the current childcare vouchers.
Socially-aware investors will be able to take advantage of a new social investment tax relief with a 30% tax break.
Drivers will be relived to hear that the ‘fuel escalator’ on petrol has once again been abandoned.
Beer and Whisky drinkers. Duty on Scotch whisky and ordinary cider was frozen and beer duty cut by 1%.
Long haul travellers. From April 2015 the tax on long-haul flights will be reduced.
Bingo Players should benefit from a reduction in bingo duty to 10%.

Losers

Families where one parent stays at home to take care of children will not qualify for the new child care subsidy.
Investors of VCTs and EISs. Tighter regulation of venture capital trusts and enterprise investment schemes could lead to investors losing the tax breaks they expected
Those earning around £40,000 with the 40% tax rate starting at £41,450
Those planning to retire at 55 with the age people can access their pensions rising to 57 in 2028 affecting anyone under 40
Tax avoidance. The government will adopt a ‘guilty until proved innocent’ approach for tax avoidance schemes. Tax will be payable in advance and refunded only if the scheme complies with the rules.

Need more Help?
This feature aims to give some informal hints and mcphersons are offering businesses free advice so get in touch now info@mcphersons.co.uk or call 01424 730000 to arrange your free meeting.

Preparing for Year End

This month, Peter Watters ACA focuses on being prepared for year end.

What springs to mind when you think of year end? Tax of course and how to minimise the amount HMRC will take from your business! However, it is not just about the previous year, it is an ideal time to start planning for the next year. Here are some simple steps to assist you.

Get your books in order
Whether you manage your own books or use an accountant or bookkeeper, this is the first step in the preparation. Accurate bookkeeping will help you identify:
Your cashflow position in order to help you plan ahead and meet your obligations;
Whether your expenses are in proportion to your income;
Which products/clients are most/least profitable;
Whether your business is growing or shrinking.
What can you do to cut down the work your accountant does for year end?
The less time it takes to decipher your books, the less your accountancy fees will be. General tips are:
1. Keep your receipts in date order.
2. Reconcile the bank balance to the bank statements – If you can ensure your recorded bank balance ties up with what is actually in the bank after adjustments, this saves significant time.
3. If you hold stock, have a professional stock-taker record the value of stock at year end.
4. Make sure your accountant has everything including paying in books, cheque books, bank statements, credit card statements, PAYE/Payroll records, VAT records and copy returns if VAT registered, stock records.
Determine your Position
You are finally ready to determine the position of your business. Your accountant will prepare the following documents that will assist you in making decisions:
Profit and Loss Account – in simple terms, this lists all your income and expenses and tells you at year end whether your business is making a profit or a loss. This is a useful tool to analyse your expenses compared to last year. Are your wages higher? Have your utility bills increased? Both things have an impact on your bottom line. Is your gross margin less than last year? If so, you need to evaluate your cost of sales and review your suppliers.
Balance Sheet – this shows what your business is worth at year end. It shows your business’s assets, liabilities and equity/capital of your business.
Cash Flow Statement – for medium sized businesses, determines the short term viability of the company.
So, how will you use these documents to improve your business next year?
1. Compare your results against your business plan. If you set goals, compare these to what was actually achieved and determine what worked and what didn’t. This will assist with planning for the following year.
2. Consider ways to increase your revenue AND profitability. This could be reviewing your suppliers and buying better or investing in marketing.
3. Evaluate your tax strategies – could you have maximised your capital allowance claim? Would you benefit from changing the structure of your business? Your accountant/tax advisor can help you minimise your tax liabilities.
For more information, contact Peter Watters on 01424 730000 or email p.watters@mcphersons.co.uk

Use of Home as an Office

If you are self-employed and use part of your home as an office, some of your expenses are tax-deductible. However, you need to be aware that:
1. You should keep evidence of the costs (bills etc.)
2. Every claim is different and involves an element of common sense and understanding of how the tax relief works
3. There may be tax penalties for incorrect claims
4. For the purpose of this article, we have used the number of rooms and hours. However, this is not the only way to calculate expenses

How to calculate the claim
1. How many hours is your home used for your business daily?
To answer this question, you need to consider where else you work, whether you employ anyone else who works at your home and the type of work you do. Total up the number of hours your home is used each day.
2. Rooms used for work
To calculate this, you need the total number of rooms in your house, how many are used exclusively for work, and whether they a used partly for private use. Also, do you store anything at home for work?
3. Work out your annual costs. E.g.

Mortgage Interest or rent £4,800
Council Tax £1,320
Water Rates (if metered) £720
Building Insurance (not contents) £500
Broadband £240
Electricity £600
Gas £600
Repairs/Maintenance £2000
Cleaning £250
Total £11,030

The Calculation

Full Time Workers
If you work more than 7 hours per day, you need to take the total costs (£11,030) and divide by the number of rooms in the house. Let’s say there are seven rooms.
£11,030 / 7 = £1,575
Multiply by the number of rooms you use for your business. In this example, we are assuming there is one room used 90% and one room used 50% for business.
£1,575 x 1.4 = £2,205

Part Time Workers

If your daily use is less than 7 hours, you may need to restrict your claim if you are using the rooms privately as well. You can calculate this more accurately over 24 hours as follows:
Assuming the same rooms as above:
£2,205 multiplied by your total hours each day (assume you work 3 hours per day at home)
£2,205 x 3 = £6,615
Divide by 24 hours
£6,615/ 24 = £276

Fixed Rate Claims
From April 2013, you can claim a fixed rate rather than go into all the details above. This is based on the number of hours you work from home as follows:
25-50 hours/month = £10 per month
51 to 100 hours per month – £18 per month
101 hours+ per month = £26 per month

Minor use of home
HMRC will not challenge claims where there is a minor use of home. Therefore, if you use your home at all as an office, whether employed or self employed, you can claim £4 per week as an alternative to working out the above calculations.

Need more help?
Call Ainsley Gill on 01424 730000 or email info@mcphersons.co.uk

Liability Insurance

In business you are responsible for the safety of the public and employees. If someone feels they have lost out financially because of your actions. You could be liable. Liability cover aims to protect you against such claims. There are four main areas to consider for a business:
Public Liability – if someone is injured on your premises
Whether you are a business owner or tradesman, public liability insurance will cover your legal costs if you are sued by a member of the public if injured as a result of your negligence. It also covers any compensation costs following a legal claim against you – potentially keeping your business running.
Product Liability
This would cover you if any of your products inflicts harm to a member of the public and they take you to court for damages incurred. For example, if you sell a ladder to a customer and it breaks through no fault of their own, causing injury, this insurance will cover you for damages claimed.
Cover for Libel and Slander Claims
This type of insurance will cover you should someone believe that you have written or said something about them that is inappropriate – i.e. possibly untrue. These cases can often prove very expensive and the insurance covers you for legal fees, the cost of defending the case as well as damages claimed.
Directors and Officers Liability – covering senior managers against legal action even after they retire
A directors and officers insurance policy offers protection needed whilst acting on behalf of a company and will cover your directors against any claims brought against them.
Employers Liability
Whether you’re a one man band looking to hire in some help for your growing business or you’re simply looking to expand your workforce, it very important to consider what employers’ liability insurance cover you require should the unthinkable happen. An employers’ liability insurance policy can cover the cost of compensation should an employee incur an injury or illness as a result of the work they are carrying out on behalf of the business. It is common sense to have this cover, no matter how big or small the company is.
Professional Liability
This is available for a wide range of UK based professionals using their skills and expertise as a service. Whether you are a designer, marketing/PR consultant or therapist, it is important to consider what cover you need should anything happen whilst at work. An example where this policy would cover you is if your advice turns out to be incorrect, leading to losses for your customer.

Need more help?
This feature aims to give some informal hints and tips. Mcphersons are offering businesses free advice so get in touch now to arrange your meeting. Mcphersons have partnered with a leading insurance provider, Towergate, to offer the best insurance solutions for our clients. www.mcphersons.co.uk
info@mcphersons.co.uk

Corporation Tax Planning

Tax is a significant cost to profitable businesses. It is therefore worthwhile considering how to minimise the ‘hit’ of tax in all its forms.

Every transaction has an impact on your tax bill so should be considered routinely. At mcphersons, we recommend that businesses undertake a review prior to year end in order to identify any tax-saving opportunities. A set of reliable management accounts will greatly assist with this process.
Depending on the specifics of your business, this review will investigate some or all of the following:

DEFERRING INCOME OR PROFITS

If you delay a profitable transaction from the last month of one accounts period to the first month of the next, the corporation tax will be payable one year later. This is often useful when you are crossing the threshold between small and large company tax rates. It is also relevant if the tax rates in the following year are due to fall.

You may wish to consider selling your goods on consignment. In short, this means you can place your product into a retailer at no financial risk to them – they only pay for what they sell, and no tax is payable by you until they sell the goods (and pay you).

For seasonal businesses, e.g. tourism, changing your year end may be appropriate. E.g. for a hotel that makes most of its profit in the summer months, it may be worth changing the year end from April to July. This would split the most profitable months between two accounting years.

BRINGING FORWARD EXPENSES

The more expenses you have, the less profit you have to pay tax on. Therefore, if you bring forward some expenses into the current tax year, that will help. For example, you could:
Make provisions against slow moving stock or bad debts;
Make additional pension fund payments;
Start a new business that will make a loss in its first year;
Increase ‘discretionary’ expenditure (advertising, building maintenance, donations to charities);
Make bonus payments early.

INVESTIGATE CAPITAL ALLOWANCES

If you are planning to purchase fixed assets that will generate an allowance, it may be beneficial to do this in the current tax year. Alternatively, if you have a property to sell that will generate a loss, this will also reduce your tax liability.
The area of Capital Allowances is complex and you should seek advice before taking this route.

OTHER AREAS TO CONSIDER

Mcphersons can also advise whether there are any other areas you should investigate such as:

Capital Gains;
VAT Planning;
Research & Development Relief;
Green Investment;
Income from Property;
Use of Trading Losses;
Taking advantage of small companies tax rate.

NEED MORE HELP?

This feature aims to give some informal hints and mcphersons are offering small businesses free advice so get in touch now to arrange your meeting.

01424 730000 | info@mcperhsons.co.uk | www.mcphersons.co.uk

Staff Suggestion Awards

A lot of our clients ask if they can give tax free bonus’s to their clients, and of course generally the answer is no.
However, there is this scheme ‘Staff suggestion Award’. Please see an extract from HMRC below: If you have any questions, please call Steve Cooper on 01424 422038.
EIM06610 – Employment income: exemption for suggestion scheme awards: conditions for exemption
Section 321 ITEPA 2003
The conditions that must be satisfied for a suggestion scheme award to qualify for exemption under Section 321 ITEPA 2003 are as follows:
• the employer’s scheme must be open on the same terms to
• all the employees of the employer, or
• a particular description of them. For example, a scheme which is open to all the employees in a particular building, or in a particular geographical area, will satisfy this condition.
• the suggestion must relate to the activities carried on by the employer
• the suggestion was made by an employee who could not reasonably have been expected to make it in the course of the duties of their employment, having regard to the employee’s experience
• the suggestion was not made at a meeting held for the purpose of proposing suggestions
• the award is an encouragement award (see EIM06620) or a financial benefit award (seeEIM06630).
If all the above conditions are satisfied, the award will be exempt from tax if, or to the extent that, it does not exceed the permitted maximum for the award. If an award that satisfies the conditions exceeds the permitted maximum, only the excess will be taxed.

The amount of the permitted maximum depends on whether the award is
• an encouragement award (see EIM06620), or
• a financial benefit award (see EIM06630).

Posted in Tax

Auto-Enrolment

WHAT IS AUTO-ENROLMENT?

As you will be aware, all employers will have to provide workers with a workplace pension scheme by law over the next few years. This is called ‘automatic enrolment’.

WHEN DO I HAVE TO TAKE ACTION?

This depends on how many people you employ and is called your staging date. You can check your staging date by visiting the Pensions Regulator website. (http://www.thepensionsregulator.gov.uk/automatic-enrolment.aspx?campaign=063ecrDWPemployers2013)

I ALREADY HAVE A COMPANY PENSION SCHEME IN PLACE – DO I HAVE TO ACT?

If you already have a company pension scheme, we can review this for free to see if it meets the requirements.

WHO WILL BE AUTO-ENROLLED?

All workers who:
• are aged between 22 and the State Pension age
• earn at least £9,440 a year
• work in the UK

WHY WOULD I ENROL EARLY?

Besides avoiding the last minute rush and motivating employees, several of our clients enrolled ahead of schedule once they realised that the costs were lower than expected. For example, one client with 25 employees was surprised to learn that enrolling would only cost an additional £250 per month.

HOW CAN MCPHERSONS FINANCIAL SOLUTIONS HELP ME?

We are able to conduct the initial workforce assessments as required by the pensions regulator and then guide you through the entire process. The advantage to you is that we have been through the process many times before and can save you the costs of re-inventing the wheel!

Contact us now on info@mcphersonsfs.co.uk for more information or call 0844 804 0025.

www.mcphersonsfs.co.uk
McPhersons Financial Solutions LLP. Woodside, Junction Road, Staplecross, East Sussex, TN32 5SG Tel: 0844 804 0025 Fax: 0844 804 0390. McPhersons Financial Solutions LLP is the independent financial advice arm of McPhersons Chartered Accountants.
McPhersons Financial Solutions LLP is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: 23 St Leonards Road, Bexhill-on-Sea, East Sussex, TN40 1HH. Registration Number OC353077 (England and Wales) This article is for UK Residents only