Changes to the petition level on bankruptcies – will this help or hinder?

TURNAROUND AND INSOLVENCY

Discussions have been taking place regarding the level of debt required before petitioning for bankruptcy. It has now been confirmed that the proposed level will be increased from £750 to £5,000 – this is the first rise in limits since 1986.

It is expected that this rise will take place in October 2015 however this still has to undergo parliamentary scrutiny.

The industry as a whole has been in agreement for some time that £750 is no longer appropriate so a rise was inevitable. However the jump to £5,000 is in my opinion too high and leaves creditors with limited options.

Is it really appropriate that creditors may have to look at the small claims court to try to obtain payment if the debt is less than £5,000?

Creditors have sometimes used the threat of bankruptcy to force the issue of payment with the debtor, and in some cases the debtor has the ability to pay but has failed to do so –  if creditors no longer have the threat of bankruptcy, does this reduce the sanctions that they have to encourage payment?

My experience with the Courts is that they are highly unlikely to allow a bankruptcy order on such a small debt, unless other avenues have been explored first and it can be demonstrated that the debtor has either failed to engage with the creditor or tried to find a solution.

On the other hand, it is agreed that the limit of £750 is too low and when the limit was set in 1986, all other amounts were equally proportionate to the debt limit. The possibility of losing your house for the £750 amount is clearly disproportionate.

The question I would ask is, in practise, how often does a creditor actually petition based on a petition debt of £750? My experience is that this does not happen often, whether that is because the creditor does not want to incur the costs associated with petitioning based on that level of debt or whether by virtue of the Courts being unwilling to allow proceedings to go ahead I cannot say, but in all my years dealing with insolvency I have not seen a petition debt listed totalling £750.

My experience of creditors’ petitioning for a debt of a few thousand pounds does occur and the reality is that this level of debt is enough to impact on a small business and can in turn result in the failure of that business or that individual. Therefore I think the Insolvency Service and the Parliamentary Committee needs to consider the impact of not having the bankruptcy option available to creditors for debts lower than £5,000.

I would hope that while the level of the petition debt is increased from its current level, that the amount expected in October 2015 is reviewed and decreased accordingly, but clearly we will need to await the scrutiny and see whether others feel the same as I do.

For further advice, please contact Lynn Marshall on 0191 285 0321 or email lynn.marshall@taitwalker.co.uk.

10 good reasons to pay into a pension before April

Mark Parkinson, Tait Walker’s Wealth Management Partner: “We have had many clients talking about the upcoming pension changes coming into effect in April 2015 – here’s some great advice from Standard Life ahead of the changes.”

There are less than three months to go before the new pension freedom becomes reality. With the legislation now in place, the run up to April is time to start planning in earnest to ensure your clients make the most of their pension savings.

To help, we’ve put together 10 reasons why your clients may wish to boost their pension pots before the tax year end.

1. Immediate access to savings for the over 55s

  • The new flexibility from April will mean that clients over 55 will have the same access to their pension savings as they do to any other investments. And with the combination of tax relief and tax free cash, pensions will outperform ISAs on a like for like basis for the vast majority of savers. So clients at or over this age should consider maximising their pension contributions ahead of saving through other investments.

2. Boost SIPP funds now before accessing the new flexibility

  • Anyone looking to take advantage of the new income flexibility may want to consider boosting their fund before April. Anyone accessing the new flexibility from the 6 April will find their annual allowance slashed to £10,000.
  • But remember that the reduced £10,000 annual allowance only applies for those who have accessed the new flexibility. Anyone in capped drawdown before April, or who only takes their tax free cash after April, will retain a £40,000 annual allowance.

3. IHT sheltering

  • The new death benefit rules will make pensions an extremely tax efficient way of passing on wealth to family members – there’s typically no IHT payable and the possibility of passing on funds to any family members free of tax for deaths before age 75.
  • Clients may want to consider moving savings which would otherwise be subject to IHT into their pension to shelter funds from IHT and benefit from tax free investment returns. And provided they’re not in serious ill-health at the time, any savings will be immediately outside the estate, with no need to wait 7 years to be free of IHT.

4. Get personal tax relief at top rates

  • For clients who are higher or additional rate tax payers this year, but are uncertain of their income levels next year, a pension contribution now will secure tax relief at their higher marginal rates.

    Typically, this may affect employees whose remuneration fluctuates with profit related bonuses, or self-employed individuals who have perhaps had a good year this year, but aren’t confident of repeating it in the next. Flexing the carry forward and PIP rules gives scope for some to pay up to £230,000 tax efficiently in 2014/15.

  • For example, an additional rate taxpayer this year, who feared their income may dip to below £150,000 next year, could potentially save up to an extra £5,000 on their tax bill if they had scope to pay £100,000 now.

5. Pay employer contributions before corporation tax relief drops further

  • Corporation tax rates are set to fall to 20% in 2015. Companies may want to consider bringing forward pension funding plans to benefit from tax relief at the higher rate. Payments should be made before the end of the current business year, while rates are at their highest.
  • For the current financial year, the main rate is 21%. This drops to 20% for the financial year starting 1st April 2015.

6. Don’t miss out on £50,000 allowances from 2011/12 & 2012/13

  • Carry forward for 2011/12 & 2012/13 will still be based on a £50,000 allowance. But as each year passes, the £40,000 allowance dilutes what can be paid. Up to £190,000 can be paid to pensions for this tax year without triggering an annual allowance tax charge. By 2017/18, this will drop to £160,000 – if the allowance stays at £40,000. And don’t ignore the risk of further cuts.

7. Use next year’s allowance now

  • Some clients may be willing and able to pay more than their 2014/15 allowance in the current tax year – even after using up all their unused allowance from the three carry forward years. To achieve this, they can maximise payments against their 2014/15 annual allowance, close their 14/15 PIP early, and pay an extra £40,000 in this tax year (in respect of the 2015/16 PIP).
  • This might be good advice for a client with particularly high income for 2014/15 who wants to make the biggest contribution they can with 45% tax relief. Or perhaps the payment could come from a company who has had a particularly good year and wants to reward directors and senior employees, reducing their corporation tax bill.

8. Recover personal allowances

  • Pension contributions reduce an individual’s taxable income. So they’re a great way to reinstate the personal allowance.
  • For a higher rate taxpayer with taxable income of between £100,000 and £120,000, an individual contribution that reduces taxable income to £100,000 would achieve an effective rate of tax relief at 60%. For higher incomes, or larger contributions, the effective rate will fall somewhere between 40% and 60%.

9. Avoid the child benefit tax charge

  • An individual pension contribution can ensure that the value of child benefit is saved for the family, rather than being lost to the child benefit tax charge. And it might be as simple as redirecting existing pension saving from the lower earning partner to the other.
  • The child benefit, worth £2,475 to a family with three kids, is cancelled out by the tax charge if the taxable income of the highest earner exceeds £60,000. There’s no tax charge if the highest earner has income of £50,000 or less. As a pension contribution reduces income for this purpose, the tax charge can be avoided. The combination of higher rate tax relief on the contribution plus the child benefit tax charge saved can lead to effective rates of tax relief as high as 64% for a family with three children.

10. Sacrifice bonus for employer pension contribution

  • March and April is typically the time of year when many companies pay annual bonuses. Sacrificing a bonus for an employer pension contribution before the tax year end can bring several positive outcomes.
  • The employer and employee NI savings made could be used to boost pension funding, giving more in the pension pot for every £1 lost from take-home pay. And the client’s taxable income is reduced, potentially recovering personal allowance or avoiding the child benefit tax charge.

Source – Standard Life

For further advice regarding the pension changes, please contact a member of our team. You can also view our summary of the changes here.

The 7 most important times to consider seeking financial advice…

WEALTH_MANAGE

There are certain milestones that people reach in their lives whereby seeking financial advice can really pay off. Some may consider help from the experts as an unnecessary cost, however such assistance can settle your finances and ultimately secure your future.

If you do not wish to employ a financial adviser on an ongoing basis, simply talking to an expert during one of the major milestones can be very beneficial.

We have highlighted some of the most important stages requiring financial advice and how expert financial advice can help you.

  1. Getting your first job

    After securing your first job, financial planning can make a huge difference to how you spend and save your cash. Being financially sensible is very important and, by avoiding unnecessary use of credit cards, overdrafts and loans, you can prepare for major goals such as buying your own home. We recommend saving 10-20% of your monthly wage.

    Additionally, thanks to auto-enrolment which will be fully implemented by 2018, you will be placed into a workplace pension scheme. Financial experts, as well as workplace advisors, can inform you of the best way to invest your pension.

  2. Buying your first home

    Acquiring your first home is one of the most significant milestones in a person’s life. By employing an independent adviser, it is likely you will receive the most suitable mortgage rate on the market and you will have the correct protections in place to cover you and your new home.

    Life assurance, critical illness cover, income protection cover and possibly redundancy cover are topics that can be discussed with your financial adviser. The professional guidance that you receive may drastically improve your financial prospects.

  3. Getting married

    It is important when getting married to make sure that your protection policies (life insurance, critical illness cover and income protection) are up-to-date and able to cover expenses for you and your spouse in the event of your death.

    You will also need to make sure your will is up to date – an old will becomes invalid unless written specifically in light of marriage.

  4. Having children

    Again, reviewing your protections to ensure your family can cope in the event of your death, redundancy or ill health is of utmost importance. A financial expert can ensure that you are obtaining sufficient life cover and organising your will in the best way.

    As school fees, clothing, food and presents can be very costly, it is essential to have basic life insurance in place.

  5. Getting a divorce

    It is highly likely that you will need financial advice in the event of a divorce. There are usually key financial impacts at this time, including:

    – considerable drop in income for one or both parties
    – receipt of a large sum from a settlement or the loss of capital due to paying the settlement
    – change in expenditure
    – possibly needing to move home

    Rebuilding your finances requires professional advice – you need to protect any maintenance income by way of life insurance or critical illness. You may also need mortgage advice or to touch on the merits of pension sharing in your divorce.

  6. Retiring

    This is a time when financial support is vital as your choices may determine your lifestyle for the next 2-3 decades. It is a time when, in the event of any financial mistakes, recovery may be impossible.

    Taking independent advice when you retire can give you a realistic outlook regarding how long your money will last. This will ensure that you spend wisely and budget appropriately when needed.

  7. Receiving a windfall

    Claiming inheritance or a having lottery win can significantly change your life. An adviser can help you to understand the importance of being sensible with your money and can assist you in the implementation of a sound investment plan. Squandering your windfall will only end in misery!

    A full financial review may be in order in this case, dependent upon how much money you have acquired. An independent financial adviser will look at your windfall in its entirety and will help set out your objectives. They will advise you on all aspects of saving and investing, as well as helping you to navigate the tax implications.

Are you coming up to, or currently in the midst of, any of the milestones discussed above? For financial advice regarding any of the stages listed, or for any others that you may be going through, please contact us on 0191 385 0321 or email advice@taitwalker.co.uk

 

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.  Company Number 5674020. Incorporated in England.

Pension Changes, fairness and succession planning for family businesses

WEALTH_MANAGE

Our Corporate Finance Partner, Steve Plaskitt shares his thoughts on our recent Pensions Update seminar…

Growing up in a family business, I am well aware that it is difficult to pass business/wealth to the next generation without diluting it or distributing it unfairly.  I am very lucky as a second son of a second son as, under traditional methods where all the inheritance would pass to the oldest child, I may have had a very different upbringing.  Thankfully, my Grandfather didn’t follow these rules and wanted to treat his offspring fairly.

These thoughts came to me after I attended the pension seminar run by Tait Walker Wealth Management last week hosted by Phil Griffin and Chris Hodgson.  The seminar aimed to easily explain the new pension changes that are due out in December 2014, their taxation implications and how that also impacts retirement planning.  And it did!  For those who follow the right advice, private pension pots can now be regarded as a tax efficient savings account which may be passed from one generation to the next.

For a fleeting moment I was able to understand everything and, in particular, the impact that this change could have on planning succession in a family business.  It may even be a way to address two difficult topics:

  • How to pass the family business to the next generation without diluting the quality of its management
  • How to try and treat offspring in a fair way when planning your will

For a simplistic example, consider the owner of a family business looking to plan for his retirement with a daughter involved in the business and a son who is not. Let’s also assume that the family business is worth £1m and the pension pot also worth £1m.

  • Dividing the shares in the family company between the two is likely to create future problems for the business as the shareholders may have different goals and ambitions; for a start, the daughter is building up value for her brother who is not involved.  And how would the family company be passed to the third generation?  It is no wonder that many third generation family business owners decide to sell.
  • The new rules allow the simpler and fairer way: give £1m of shares to the daughter and £1m of pension pot to the son.

Now of course, no family business is exactly the same and I have not yet come across the above situation, but I can clearly see that by allowing the value of pensions to be handed down to the next generation, the number of options available to the owner of a family business increase.

For those contemplating their retirement, a combination of corporate finance (pre-sale planning), wealth management and taxation advice could offer a fair solution that would be great for family harmony and for business.

To discuss the new pension changes, please contact a member of our Wealth Management team.

Make grants your New Year resolution…

CORPORATE FINANCE

Companies can benefit from grants in the North East, especially those thinking about their investment plans and those aiming to create or safeguard jobs.

The main regional funds are the Tees Valley Business Compass and the Let’s Grow Fund. Let’s Grow is a quarterly competition and the next expression of interest closes on 23rd January 2015.

Why should you apply for a grant?

186 of 270 expressions from the first fund were considered and 102 awards were made, so with careful thought, you could have a good chance of securing a grant.

We should be able to help you win a grant if:

  • You are planning on minimal levels of capital expenditure in three years, e.g. £100,000 or more in Tees Valley or £200,000 or more elsewhere
  • You are creating jobs and/or safeguarding them
  • You have, for example, 3-5 months before you want to start and are not already committed to projects

If you have any queries or would like to discuss any of these details further, please contact a member of our specialist grants team at steve.plaskitt@taitwalker.co.uk or lee.jefferson@taitwalker.co.uk

Engineering skills fund launches

MANUFACTURING ENGINEERING

A £10m pot to allow small and medium-sized engineering companies to develop the skills of their workforce has been opened to applications.

Engineering businesses in England with fewer than 250 employees can apply for a share of the first £2.5m of the £10m fund to develop innovative company-specific training.

The match-funded cash pot forms part of a £30m initiative for investment in skills. Two previous tranches of funding have been provided under the project to improve engineering careers and develop female engineers.

This final round has been designed with smaller businesses in mind, with the minimum funding threshold reduced.

Skills minister Nick Boles said: “A company’s greatest asset is its people and making sure they have the right skills is vital in supporting the long-term economic plan.

“This funding gives employers the power to unlock the full potential of their workforce by designing and developing training catered to their specific needs. I encourage all small and medium sized engineering firms to consider how they could use this funding to take their business to the next level.”

Tim Thomas, head of skills and employment policy at EEF, added: “We are delighted that this scheme has now been opened to SME employers and that the minimum grant, which a company would need to match with their own money, has been dropped to £10,000.

“This makes the scheme far more accessible and reflects more realistically the amount many smaller companies may be able to invest in skills and training. It recognises the fact that many SMEs want to do more and provides solid support to help them achieve this.”

Applications will remain open until 27 February and the remaining £7.5m is to be opened up in the new year, if existing funds are taken up.

https://www.gov.uk/government/publications/employer-ownership-improving-engineering-careers-smaller-companies

How long can the average UK household survive after a sudden shock to their income?

TURNAROUND AND INSOLVENCY
The latest Deadline to the Breadline report shows that the average UK household could be on the breadline in 29 days and, for working age families (18-64 year olds), this is reduced to just 14 days.

In comparison to last years’ report, it is an improvement – but it is still worrying to know that our UK households have just under a month before relying solely on state benefits and family and friends for financial support.

It is so important that families consider improving their financial security in order to protect their future – especially as people estimate that their savings will last 77 days. This is over 2 ½ times the actual deadline.

Wales has the shortest deadline in the UK (7 days) followed by the North East at 16 days, and over a third of UK households have no financial back up plan that they can use in the event of an unforeseen shock to their income. With the average weekly cost of living at £381, these figures are a cause for concern.

The report also found that only 36% of UK households are protected by life insurance and critical illness cover.

It is vital that you understand the importance of financial planning in order to protect yourself and your family. If you’d like to discuss managing your finances with one of our specialists, please contact us on 0191 385 0321 or email advice@taitwalker.co.uk  

 

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.  Company Number 5674020. Incorporated in England.

What the 2014 Autumn Statement means for the North East’s manufacturing sector…

MANUFACTURING ENGINEERING

The news for the manufacturing sector in the Autumn Statement would be considered as a mix of some positive, and some negative outcomes.

The chancellor announced today that UK “manufacturing is growing faster than any other sector” but at a regional level when we look at figures published by the Office of National Statistics there is considerable regional variation in manufacturing employment.

1

The measures announced by the Chancellor in the Autumn Statement may be considered as variable in their likely impact on the North East’s manufacturing sector.

For example, the Chancellor announced that the government is “committing to the industry of the North with investment in new high value manufacturing research” and announced  headline investment in the North East is for a £20m Centre for Ageing Science and Innovation and an additional investment in the existing High Value Manufacturing Centre at Sedgefield and Wilton.

However, at the same time, a greater part of the investment was focussed on the  North West. Research Centres specialising in commercialisation and systems around product development based primarily in Manchester and Cheshire will receive investment of £348m with additional centres in Warrington, Leeds, Cambridge and London.

At a more general level, no announcement was made in the Autumn Statement to extend the timeframe of the £500k Annual Investment Allowance which enables companies to obtain a full first year tax deduction for investment in plant and machinery up to £500k.  Currently the allowance is only available until 31 December 2015 at this level and so there remains a risk that this allowance may expire on that date.

On a more positive note, with the manufacturing sector dominating UK R&D spending (in 2012 it accounted for 72% of the total), North East manufacturers will be pleased to hear that R&D tax relief for SME’s is increasing to 230% of qualifying expenditure from 225%. For profit making SME’s this amount to an overall 1% increase in the value of tax saved through the scheme. Large companies will also benefit from an increase in the R&D expenditure credit from 10% to 11%.

A further positive piece of news is that the government will be abolishing employer National Insurance contributions for apprentices aged under 25.

In summary, the measures announced today do provide additional support to manufacturing businesses across the UK and in the North East, but we do believe it is a missed opportunity to make a stronger commitment to the growth of the sector.

New ICAEW guidance on donations by a company to its parent charity

NOT FOR PROFIT

It is common practice for companies that are 100% owned trading subsidiaries of charities to donate all of their taxable profits to the charitable parent company. By doing so, as long as the donation is paid within 9 months of the year end, the subsidiary company can claim Gift Aid tax relief and reduce their Corporation Tax liability to nil.

Gift Aid payments out of company reserves

In some cases, taxable profit can exceed the accounting profit of a company (e.g. due to depreciation exceeding capital allowances, or disallowable items such as client entertaining being added back). Where a subsidiary of a charity makes a Gift Aid donation in this situation, part of the Gift Aid payment is effectively coming out of the company reserves.

The problem

Under Companies Act 2006, a company is not permitted to make a distribution of an amount greater than its profits. Previously the Charities Commission endorsed the opinion that Gift Aid payments were not akin to a distribution, therefore Gift Aid payments made exceeding profits available for distribution were still lawful.

The ICAEW has questioned this position and, after seeking counsel’s opinion, have issued new guidance in this area. In short, it is their view that:

  • A payment from a subsidiary to a charity is a distribution; and
  • It is unlawful for a distribution to be made in excess of the profits available.

Impact of the new guidance

In our opinion, most subsidiaries of charities will not be affected by this change in guidance. This is because the majority of subsidiary companies make Gift Aid payments within distributable reserve amounts.

Subsidiary companies that are most likely to be affected are those with low or negative reserves which generate a taxable profit and would normally make a Gift Aid payment. These companies must consider the impact of the guidance on both past and future distributions and decide upon what action to take. For example:

  • It may be prudent to contact HMRC to ask for assurance that they won’t seek to recover tax where historic Gift Aid claims have been made under the previously accepted guidance.
  • It may be necessary to take steps to increase the distributable reserves of the subsidiary company.

If you would like any further information on the new guidance, please do not hesitate to contact Louise Barker at louise.barker@taitwalker.co.uk or another member of Tait Walker’s Not for Profit team at advice@taitwalker.co.uk

What you need to know if your employer becomes insolvent

TURNAROUND AND INSOLVENCY

When an employer becomes insolvent employees are often owed money. Employers and employees should be aware of the following:

  • An Insolvency Practitioner (“IP”) or the Official Receiver (“OR”) is usually appointed to deal with the employer’s affairs.
  • If an IP is appointed they will provide all employees with an RP1 form to enable a claim to be made. Generally this form needs to be returned to the IP and NOT the Redundancy Payments office.
  • Claims made are subject to a statutory limit – any claim exceeding the statutory limit can be made against the company itself. However, this amount will be a claim within the insolvency procedure and may be paid only if there have been sufficient funds received into the insolvency to enable payments to be made to the creditors.
  • The IP will pass on the claim forms received to the Redundancy Payments office allocated to deal with that case file, but this cannot take place until such time as the company is formally insolvent. For example if the company is going into liquidation, the RP1 forms cannot be forwarded until after the meeting of members and creditors have been held – as a result there may be a delay in an employee’s forms being issued to the Redundancy Payment Office (dependent on when they were submitted and the date of appointment).
  • The Redundancy Payments Office is responsible for calculating the money due to an employee based on the information provided. This is based on a combination of information provided by both the employer and the employee provided via the IP.
  • The current statutory limit is £464 per week.
  • The Redundancy Payments office state they aim to pay 80% of claims within 3 weeks and 93% of claims within 6 weeks of receipt; employees should note the date of receipt will be after the date of the formal insolvency procedure being put in place.
  • Funds due back to the employee may be paid in respect of the following:-

Redundancy

This is only payable if you have had 2 years continuous service with your employer.

The number of weeks used to calculate your redundancy depends on both your age and length of service.

Notice Pay

This is payable if you do not work your full notice or you fail to get notice from your employer of your employment coming to an end.

You will get one week’s notice for each completed year – the statutory maximum is 12 weeks.

Holidays

You can be paid outstanding holiday pay for a maximum of 6 weeks up to the statutory limit.

Holiday is calculated in respect of your current leave year and is payable in respect of any holiday to which you are entitled that hasn’t yet been taken.

Arrears of Wages

Up to 8 weeks unpaid wages can be paid.

 

For any further insolvency advice, please contact Lynn Marshall on 0191 285 0321 or email lynn.marshall@taitwalker.co.uk  

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