The recent cyberattack on Ashley Madison further proves that organisations need to use the latest security measures to stay one step ahead of hackers…

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Litigation partner at Watson Burton law firm, Chris Graham, examines the way in which hackers are increasingly using the latest technology to carry out good old fashioned blackmail, and why a lawyer should be your first port of call if your business suffers a cyberattack.  

In recent weeks a hacker, or hackers, calling themselves The Impact Team completely compromised databases, financial records and other information relating to users held by Ashley Madison and AdultFriendFinder.  Online user data of millions of accounts have been leaked along with maps of internal company servers, employee network account information, bank account data and salary information.  This followed a demand by The Impact Team that the owners of these services close them down permanently, describing subscribers as cheating dirt bags.

Leaving aside expressions of moral outrage, at the end of last week the position worsened for both Avid Life Media, which runs these websites and some of its subscribers.  When all of this personal data was made available the demands began. Enclosing a link to a site where bit coins can be purchased, using a credit card, numerous individuals or organisations began demanding around £300 if subscribers did not want their personal details published more widely on the internet, using social media such as Facebook to inform the subscribers, partner or employer.  Unlike the hackers, these demands were motivated by financial reward.

The size and scale of this cyberattack is quite staggering.  Equally, this type of activity is not uncommon.  Recent events are simply more newsworthy than most cyber-attacks. Increasingly, hackers use an insight and expert knowledge of online business circumvents security systems.  This is an emerging but common scenario involving either the theft of data or diversion of internet traffic, with casinos and online gambling platforms just as vulnerable as dating websites.  Hackers use the latest technology but what they do involves simply good old fashioned blackmail.

In December 2013, two polish hackers who unleashed a cyberattack to blackmail an online casino business out of millions of pounds were jailed for five years and four months each.  To avoid a mass attack on computer servers designed to overwhelm the system, the Defendants demanded a 50% stake in the company.  When compared with the blackmailers using leaked details from Ashley Madison, their ambition appears to have brought about their downfall.  Most blackmailers make more modest demands, with a view to avoiding investigation by the authorities as well as making a quick buck.

Whilst this type of attack involves more than one criminal offence, in the context of the internet, this does not appear to involve much of a deterrent.  It is likely that the solution to this type of serious problem lies partly in the technology.  Organisations need to use the latest security measures to stay one step ahead of hackers.  Victims also have civil remedies. In common with Ashley Madison, most cyber-attacks are based on the platform of some inside knowledge of systems.  The perpetrator is often a former contractor or even an employee. Our law has developed along with online technology and the High Court is now quite accustomed to granting injunctions to prevent unauthorised disclosure and misuse together with consequential orders to police this type of restraint, we have recently obtained Orders for imaging as well as inspection.  Civil proceedings enable a victim to retain control over the proceedings and the potential damage will usually justify the cost.  The sanction for breach of an Order is contempt and this can include imprisonment as well as a fine.  Once the victim’s position has been protected, complaint can then be made to the prosecuting authorities.

Doing business online is necessary for most commercial organisations and the growing threat of cyber-attacks runs the risk of the internet appearing to operate outside the boundaries of the law.

Online businesses will grow more accustomed to implementing increased measures to ensure external security but also imposing controls internally upon those who have access to systems and know their operations. Advances in technology also mean that evidence of wrongdoing is easier to uncover and there are sanctions.  Wrongful interference, theft and blackmail have been around for much longer than the internet.  The Courts have adapted existing remedies such as injunctive relief to the new age of the internet.  Until the risk of prosecution becomes an effective deterrent, victims of a cyberattack should consider civil remedies in the High Court.

Major changes to the taxation of dividends – how will it affect you?

In the 2015 Summer Budget the Chancellor announced a major overhaul to the way dividends will be taxed. The reforms will come into effect from 6 April 2016 and for the owner managers of most small to medium size businesses these changes are likely to increase tax .

TAXATION OF DIVIDENDS – THE BASICS

Current position

At the moment a 10% dividend tax credit is applied to the net dividend paid.  This tax credit currently makes dividends tax efficient for most company owners.

  • Where a shareholder is a basic rate tax payer when taking into account all their income no additional tax is payable.
  • Higher rate taxpayers pay additional tax of 25% of the net dividend taken.
  • Additional rate taxpayers pay 30.56%.

New rules

Whilst the Government have stated income tax rates remain static and ‘locked’ until 2020, the taxation of dividend income is set to change significantly from April 2016. How?

  1. Abolition of the 10% dividend tax credit – dividends will no longer be grossed up in the personal tax computation.
  2. The introduction of a new £5,000 dividend allowance (regardless of income level). This means that the first £5,000 of dividend income will be taxed at 0%.The personal allowance can also be used against dividend income, although it is tapered for income over £100,000.
  3. The new savings allowance of £5,000 introduced from 6 April 2015 is not available against dividend income.

Increased rates of taxation on dividends

The rate at which taxpayers will pay tax on dividends are being increased. These increased rates are as follows:


  2015/16 – CURRENT RATE 2016/17 – NEW RATE
Basic Rate 0% 7.5%
Higher Rate 25% 32.5%
Additional Rate 30.56% 38.1%

The new dividend rates and allowance will represent a significant tax increase for owners of small companies who have previously extracted profits from their business with a tax efficient mix of dividends and salary up to the level of the basic rate band.  Company owners who extracted dividends up to their basic rate band will previously have paid no tax on those dividends but from 2016/17 tax will be payable on any dividends over £5,000.

For company owners who extract dividends over £5,000 the change is likely to see those owners pay some additional tax.    By comparison, company owners who receive a small amount of dividend income will be better off as a result of the changes.

EXAMPLE 1

In 2015/16 Alan takes a dividend of £27,000 net (£30,000 gross) from his personal company. His only other income is a salary equivalent to his personal allowance. He pays no income tax on this combination of salary and dividend, because it is all covered by his personal allowance and basic rate band. In 2016/17 the tax payable by Alan would be £1,650 on the same income.

Result: Alan will be £1,650 worse off as a result of these changes.

EXAMPLE 2

In 2015/16 John takes a dividend of £27,000 net (£30,000 gross) from his personal company. He has other taxable income which uses up both his personal allowance and basic rate band. He would pay tax of £6,750 on the dividend income. In 2016/17 the tax payable by John would be £7,150 on the same income.

Result: John will be £400 worse off as a result of these changes.

EXAMPLE 3

In 2015/16 James has dividend income of £6,000 net (£6,667 gross). He has other taxable income of £45,000 which means that he is a higher rate taxpayer. He would pay tax of £1,500 on the dividend income. In 2016/17 the tax payable by James would be £75 on the same income as a result of £5,000 of his dividend income being taxed at 0%.

Result: James will be £1,425 better off as a result of these changes.

WHAT SHOULD YOU DO?

Salary or dividend

Initial reaction from some commentators is that people would switch back to paying salary instead of taking dividends. However our calculations show that for different levels of Income Tax and NIC it is still beneficial to take a dividend rather than salary, although the saving has been reduced. The saving is still particularly pronounced for a dividend if employee’s NIC would be payable on any salary at 12%, rather than at the 2% rate.

Timing of dividends

Depending upon your own particular circumstances and future income needs, you may decide to accelerate dividend income into  this current tax year ending 5 April 2016 (in advance of the increase in the effective rate of tax payable on dividends).

Other options

In addition there are a number of other tax planning opportunities which may be beneficial to you and we would be happy to discuss your options with you.

If you would like to speak to us about the changes please contact Chris Hodgson on 0191 2850321 or e-mail chris.hodgson@taitwalker.co.uk or your usual Tait Walker contact.

Charities – there is funding available from the Virgin Money Foundation…

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The Virgin Money Foundation will be offering a number of funding programmes that help communities in the UK. Their first programme will help transform communities in the North East. Funding is available for the following:

  • Enabling homeless people or those at risk of homelessness to find a home. The Virgin Money Foundation are interested in supporting applications from organisations working to increase the supply of affordable rented properties.
  • Providing opportunities for youth education, training and enterprise. Applications will be judged on the number of young people helped to find employment.
  • Creating and supporting community and social enterprise. Proposals will be assessed for their innovation, enterprising behaviour and job creation.
  • Funding feasibility studies into larger capital projects that will bring people and money into a deprived community. Proposals will be judged on overall impact, enterprising behaviour, jobs created and any additional investment likely to come into an area.

Applications can now be made from organisations working in the North East of England in the local authority areas of Darlington, Durham, Gateshead, Hartlepool, Middlesbrough, Newcastle upon Tyne, North Tyneside, Northumberland, Redcar and Cleveland, South Tyneside, Stockton on Tees and Sunderland.

The closing date for applications is 28th September 2015, with successful applicants announced in November. A second round of funding will open later in the year.

Further information and FAQs can be found here: https://virginmoneyfoundation.org.uk/funding-faq/

Have you registered for Tait Walker’s Charity SORP Update seminar on Thursday 24thSeptember? The event will focus on the latest key issues, including an update on the SORP, Social Investment Tax Relief and the tax issues to consider when fundraising.

Click here for further information. To register your place, please contact claire.blake@taitwalker.co.uk

20% discount on your Sage stationery order…

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From laser invoices to payslips, Sage provides stationery for all your business needs. The simple layouts are designed with security and increased business productivity in mind.

For 20% off your next stationery order, just order through us (your Sage Business Partner) and quote the code: STATIONERY20

For further information or to order your stationery, please contact Claire Richardson on 0191 285 0321 or email claire.richardson@taitwalker.co.uk.

Calling all manufacturers, join BBC’s Steph McGovern and the AMF to talk ‘skills’ in Manufacturing…

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Join AMF at their STEM Skills in Manufacturing event on Wed 19th August, 2015 from 12:00 – 2:00pm.

Steph McGovern, BBC Breakfast’s face of business, has been announced as guest speaker for the August event, which will be taking place at South Tyneside College.

The event will also feature pupils and engineering apprentices from Career College North East and Zenith People’s Rising Star programme.

The meeting will end with the Manufacturers’ Round-up – an opportunity to benchmark and network with other manufacturers.

To find out more, or to book your place, please email jack.rae@advancedmanufacturingforum.co.uk

Northern Society of Chartered Accountants has welcomed a new President and team for 2015-16…

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Rob Tindle is the new President of The Northern Society of Chartered Accountants (NorSCA) for the 2015-16 year. NorSCA is the membership body that represents 4,000 ICAEW Chartered Accountants and ACA students across the North East and Cumbria.

Having previously served as Deputy President, Vice President and Honorary Treasurer, Rob assumed the voluntary role of President at the recent AGM and will serve in office for the next 12 months. He takes over from Andrew Jackson.

Rob is a Partner at Tindle’s Chartered Accountants, specialising in Business Advice to SME clients. He is a member of the ICAEW Review Committee and is Charmain of the Teesside General Practitioner Group (GPG).

He will be supported during 2015/16 by his fellow Northern Society Office Holders who were also elected at the AGM. They are:

  • Deputy President – David Arthur (Tait Walker, Chartered Accountants)
  • Vice President – Karen Muir (Homes and Communities Agency)
  • Honorary Treasurer – Peter Longmore (Kaplan Financial)
  • Honorary Secretary – Chris Soan (Newcastle University Business School)
  • Immediate Past President – Andrew Jackson (National Audit Office)

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The office holders are part of the General Committee of Northern Society which is the volunteer team who arrange events and support the work of local chartered accountants.

Summer Budget 2015 – New tax regime for dividends

One of the major changes from the Summer Budget is that the taxation of dividends will be reformed from 6 April 2016.

The 10% dividend tax credit is abolished and, in its place, individuals will have a £5,000 dividend tax allowance. An individual will pay no income tax on dividend income received up to that amount. However, dividend receipts in excess of £5,000 will be taxed at:

  • 7.5% for basic rate taxpayers (previously 0%)
  • 32.5% for higher rate taxpayers (previously 25%)
  • 38.1% for additional rate taxpayers (previous 30.56%)

The new dividend allowance will represent a significant tax increase for owners of small companies who have been able to extract profits from their business with a tax-efficient mixture of salary and dividends.

Example

In 2015/16, Alan takes a dividend of £27,000 net (£30,000 gross) from his personal company. His only other income is salary equivalent to his personal allowance. He pays no income tax on this combination of salary and dividend because it’s all covered by his personal allowance and basic rate band.

In 2016/17, Alan takes a dividend of £27,000 (gross, no tax credit) from his company and a salary equal to his personal allowance. He pays tax at 7.5% on £22,000 of that dividend after deducting the dividend tax allowance of £5,000. In 2016/17 he will pay income tax of £1,650 on the dividend.

The ‘tax lock’ prevents the Chancellor from raising the rate of income tax. The tax rise illustrated above is achieved by reducing the rate of tax on dividends from 10% to 7.5% while simultaneously removing the tax credit that balanced the 10% tax charge.

Some initial reactions from commentators were that people would switch back to paying salary instead of taking dividends. However, we ran calculations for different levels of Income Tax and NIC and it is still beneficial to take a dividend rather than salary, although the saving has been reduced. The saving is still particularly pronounced for a dividend if employee’s NIC would be payable on any salary at 12%, rather than at the 2% rate.

We are also exploring other options for profit extraction such as charging interest on credit balances on directors’ loan accounts and employer pension contributions. There can be a requirement to deduct 20% tax at source on interest payments by the company. Tax relief on pension contributions in respect of higher income individuals is to be restricted, but with the new pension freedom rules, pension contributions are more popular than they have been for some time.

When we prepare tax returns for clients for the year ended 5 April 2015, we will discuss the additional tax that they would have had to pay if the level of any dividends received had been taxed at the rates applicable from 6 April 2016. This will give them a good guide based on their own income profile in regards to how the increase in income tax payable on dividends is likely to affect our clients from 2016-17, if they decide to keep the same income profile going forward.

The effect of this tax hike is likely to be felt at 31 January 2018 when the self-assessment balancing payment for 2016/17 will be due for payment.

Depending on individual circumstances and future income needs, some clients may decide to stockpile a certain level of dividend income before the end of this current tax year ending 5 April 2016, in advance of the increase in the effective rate of tax payable on dividends. This will typically only be beneficial if a certain level of dividend income is already taxed at the current effective higher and additional rates of 25% and 30.56% respectively.

In summary, taking a higher salary is still not likely to be beneficial in tax terms under the proposed tax regime. The low salary with the balance of income requires being taken by dividend is still the cheapest option, however the overall Income Tax and National Insurance contributions savings will not be as great as they have been once the new rules are introduced.

Please feel free to discuss the effect of these changes with your usual contact at Tait Walker.

Summer Budget 2015 – tax changes

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Our Tax Associate, Chris Hodgson shares his thoughts on the tax changes announced in yesterday’s Budget…

In the first majority Conservative Budget since November 1996, George Osborne set out his stall on the direction of travel for taxation and welfare over this Parliament. There are a large number of changes, many of which are inter-related.

The Tax Lock will mean that in addition to VAT, rates of Income Tax and National Insurance will not change during this Parliament. However, the amount of income that you have to earn before paying 40% tax is to increase by about £600 for 2016/17. On the other hand, the amount of NIC payable will increase and so the net effect is a saving of about £5 per month.

The introduction of the National Living Wage and the increase in personal allowance will increase the net pay for a low income family, but the reduction in tax credits will offset against that extra income.

This places a greater financial burden on employers who will be paying the National Living Wage. To try to help those companies the Employment Allowance, which subsidies the cost of employer’s NIC, is to increase by £1,000 per annum. In addition, the rate of corporation tax is to fall from 20% to 18% by the end of this Parliament.

The Chancellor mentioned several times that this is to be a One Nation government and there was further evidence of those with the broadest shoulders being asked to bear a large proportion of the financial pain. Pension tax relief for 45% of taxpayers is to be restricted, loan interest relief for buy to let landlords is to be limited and the additional nil rate band for Inheritance Tax will not benefit those with estates worth more than £2.7 million.

Families receiving tax credits who are already paid more than the proposed National Living Wage will also suffer from this Budget, as the loss of tax credits is likely to exceed any benefit from the increase in personal allowance.

Overall, this is a more balanced Budget than might have been expected and it gives an indication that the government may be trying to benefit the whole nation.

For further advice regarding the tax announcements in yesterday’s Budget, please contact Chris Hodgson on 0191 285 0321 or email chris.hodgson@taitwalker.co.uk

July Budget – what does it mean for employees?

Today’s Budget saw some good news for employees with an increase in the tax-free personal allowance, as well as an increase in the higher rate income tax threshold.

In a change from predictions, the Chancellor did not mention salary sacrifice. However, it has been stated that those earning £150,000 will have their annual tax-free pension allowance tapered from the current limit of £40,000 per year to a minimum of £10,000. This impacts significantly on retirement and tax planning and further highlights the need for comprehensive financial planning.

In addition, dividend tax credits have been replaced with a tax-free allowance of £5,000 for all taxpayers. This is good news for Pension & ISA savers as their funds remain exempt from the changes and will remain tax-free.

From 2017 there will be an additional £175,000 inheritance tax allowance for properties on top of the current £325,000 standard allowance, supporting those who wish to leave their homes to their children and grandchildren. This relief will taper for those with estates of more than £2m, so now is the perfect time to consider Inheritance Tax Planning.

 

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Limited which is authorised & regulated by the Financial Conduct Authority.

Summer Budget – A reaction from the North East

Andrew-Moorby

Andrew Moorby, managing partner at Tait Walker

The scope of the changes planned for the coming years is so wide reaching that at this stage it’s difficult to assess who the winners and losers are.

That said, the Budget was distinctly lacklustre when it came to the issues pressing to the North East. Any discussion of the Chancellor’s “Northern Powerhouse” was short of mentions for our region, whilst Yorkshire and Lancashire featured heavily. I have real concerns that our influence as a key player in the UK’s economy is being overlooked and that we are being left behind.

With the interaction of Corporation Tax changes, wage increases, income tax, dividend taxation and welfare cuts, it will be difficult for SMEs and other businesses to assess the impact on them and their employees until everything is in force.

Most changes are set for next year and beyond, therefore giving the region and businesses time to assess and plan for what will undoubtedly mean increased business costs and issues for employees at the lower end of the pay scale.

As a region we have high numbers of workers on benefits, so the cuts will be more keenly felt across the North East. If the government is able to pass welfare costs on to the employer with wage rises etc. then businesses need to plan for increased cost.

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