How to use property and business premises to build a healthy pension pot

How to use property and business premises to build a healthy pension pot

22.6.2022 | Tax

How to use property & business premises to build a healthy pension pot

Head of taxation at Beatons, Andrew Diver, gives his advice on two efficient ways of preparing your finances for retirement years.

Pension planning can be an overwhelming thought, and many people may take a ‘hope for the best’ attitude towards ensuring they will have adequate income in later life. Some will have ‘pension pots’, which could be standard pension accounts or might be property or similar.

But do you have a plan for your retirement years, and are you aware of how to manage your pension investments?

Property as a pension fund

Many people still remember the headlines of pension fund failures such as Equitable Life and the Mirror Group, when owner Robert Maxwell looted cash from the company’s pension fund.

As a result, not everyone trusts their money to a pension fund, preferring to invest more directly into assets such as property, where they can more directly improve its value through property improvements.

Residential Property can be a good investment but cannot be held directly within a pension fund. Whilst Beatons cannot provide investment advice, it is interesting to note that in general terms, share prices (represented by FTSE 100) and UK house prices have, since 2015, broadly kept pace with each other; however, there is more volatility in shares.

That doesn’t mean there aren’t drawbacks to investing in property, and investors should be mindful of the additional tax costs associated with doing so.

Tips for choosing the property as part of a retirement saving plan

Tip 1:  Consider who is going to be the beneficial owner of any property? Is it more tax efficient in terms of tax on rental income and capital gains, for it to be held jointly or solely by a spouse?

Rental income can also have the effect of reducing the level of personal allowances or result in the clawback of child benefits, for example.

Tip 2: If you have a high rate of income tax and high mortgage interest payments you might wish to consider transferring properties into a limited company as there are no restrictions on the extent to which mortgage interest can be set against rental income.

Tip 3: Keep a surplus of cash if you invest in property to meet any immediate needs. Properties can take time to sell and turn into cash and there are costs associated with selling (legal fees, estate agents etc).  You may also be required to pay capital gains tax. This tax would be due within sixty days if you are selling a residential property.

Tip 4: If you have surplus buy-to-let properties you might consider transferring these into a trust which can prevent capital gains tax charges and potentially prevent inheritance tax being payable on the property in the event of your death.

Beatons can advise on any matters related to property as a pension fund.

Turning business premises into pension funds

One of the most tax-efficient ways for owners of limited companies to operate is for the business premises to be held in a pension fund.

Tax-free growth
If the company was the original owner, the proceeds can be paid from a pension fund into the business to help cash flow.  As the property increases in value, it benefits from the tax-free environment that the pension offers.

Increased payments into the pension fund

The company could then make rental payments for the premises which would go into the pension fund.  This enables the company to effectively contribute more to the pension fund each year than simply the £40,000 annual pension allowance (or a lower tapered amount for higher earners).

Another element of considering business premises as a pension fund is that the fund can also borrow up to 50% of the purchase price, to purchase property (subject to lenders’ criteria and trustees’ agreement). Therefore, it may be possible to purchase the company business premises even if there are currently insufficient funds in the pension scheme.

Having the business property in a pension fund can have multiple benefits.  Removing the company premises from the company balance sheet removes it from the commercial risk of business. It also enables the company to reduce the value of its asset (through additional dividends) which can then reduce the value of shares to be offered to employees.  Additionally, it can allow a more efficient sale of the business, as separate from the premises the business will be more affordable for a potential purchaser or alternatively, it enables a substantial tax-free sum to be paid into the pension fund.

Andrew Diver says: “Planning for your pension is important, especially at the moment as the cost-of-living soars and the tendency might be to focus on immediate finances. This is understandable but could leave many people paying the price later on. Instead, it’s a good idea to seek advice as pension planning can throw up many questions, particularly if you are dealing with any of the above situations. Beatons can advise on all of these subjects as well as anything else related to pensions, tax and all accounting queries.”

For more information, please contact info@beatons.co.uk 01473 659777

Issuing employee shares – all you need to know

Issuing employee shares – all you need to know

7.6.2022 | Tax

Issuing employee shares – all you need to know

Beatons’ Taxation Director John Oakley gives an overview.

Offering employees shares in the company is becoming increasingly popular for business owners and directors.

It is often seen as a more valuable benefit than cash bonuses or other incentive schemes, and studies have shown it can lead to more motivated, productive employees.

There are many ways to incentivise employees using company shares, and it is a good idea to seek guidance.

Why offer employee shares in the company?

Employees are generally given shares, or options, to increase employee engagement and retention.

An employee with shares is more likely to stay with a business as they have a stake in it. Motivation to help the company succeed is increased, potentially leading to an increase in the value of the business. Offering employee shares is also a good way to attract the best talent.

Should a company offer shares or options?

Companies can either issue shares or options.

Options are the right to purchase shares at a specific price sometime in the future. They can be used as an opportunity for a company to utilise performance targets before the options can be turned into shares.

Share options are largely split between HMRC approved and unapproved option schemes. Approved schemes will generally offer the right for the employee to purchase shares at a later date but at the market value of the shares when the options are issued. An employee can then decide to exercise the option to convert the option into shares. When this is decided, the employee will be required to pay the specified price.

The ideal scenario for the employee is that in the period between being offered the share option and deciding to exercise it – the shares have gone up in value substantially. There is no tax charge on exercising the option.

Unapproved options increase the likelihood of higher employment taxes being levied when the share options are exercised.

Some businesses opt to move straight to issuing shares, which means that a shareholder can then be paid dividends. This is usually a more tax-efficient method of remuneration for the company, and the employee, as dividends are not liable to National Insurance.

How to structure arrangements

There are many different methods of structuring employee share incentives, and the terms of the shares must be stipulated in the company articles of association. This will usually determine:

  • Any voting rights attached to the shares
  • Entitlement to consideration on sale or winding up
  • Entitlement to dividends
  • Whether the shares should be offered to other shareholders before they can be offered for sale elsewhere

Separate shareholder agreements can also cover additional share stipulations which a company does not wish to be a matter of public record, such as performance-related targets.

Care should be taken when altering share rights or offering shares with restricted rights, as significant tax anti-avoidance measures can negate some of the tax advantages involved.

What else should we know about taxes?

If an employee receives shares in the company they are employed by, then these will fall within employment-related securities legislation.

There is largely only one situation where shares acquired in the company you are employed by will not be deemed employment-related and these are when they have been transferred between family members.

Employment-related securities can result in the employee being liable to tax on the value of the shares as employment income, so significant care is required in the arrangements made.

We would suggest in most instances, where shares are to be offered, that employers approach HMRC to agree on a valuation before proceeding with the transaction

For help and advice on offering employee share schemes, as well as further information on selling the business or buying back shares from departing employees, contact Beatons at  info@beatons.co.uk or call 01473 659777.

 

Payroll Giving and charitable donations

Payroll Giving and charitable donations

11.5.2021 | Tax

Payroll Giving and charitable donations

Andrew Diver of the Beatons Group gives an overview of payroll giving and how to manage charitable donations within your business.

Giving to charity can deliver the feel-good factor to your business and contribute to a positive working environment by giving employees the opportunity to donate to their chosen charities.

Supporting charities also helps your business develop meaningful connections and an understanding of the communities in which you operate.

And it’s good to know that charitable contributions from businesses to non-profits can qualify for tax deductions too.

Inevitably there is some admin related to recording charitable giving, so it’s a good idea to consult a tax expert if you’re not sure. Beatons are always happy to advise.

Payroll giving
Company owners and directors should be aware of their Community Social Responsibility (CSR). This is the part in which their business plays in the wider community and the responsibilities that it has to that community.

Setting up a payroll giving scheme can be part of a company’s CSR strategy, and many employers operate a matching scheme in which they match the level of employee giving.

This is great for fostering employee engagement and a collective responsibility, bringing the company and its people into the community.

How does it work?
Payroll giving is a way of giving money to charity without paying tax on the amount. It is paid through PAYE from wages or a pension.

Usually, employers agree to deduct an amount from an employee’s salary and pay this directly to the charity or any organisation which administers the payments.

Payroll giving means that the full relief is applied via your payroll and provides the full tax deduction saving the charity from having to make the claim to HMRC.

For example:
A gross salary of £1,000 would be taxed at 20% and result in £200 in tax and £800 net pay.

If an employee was to make a £100 donation as above, the £1,000 taxable salary reduces to £900.

When taxed at 20%, this results in a net pay of £720 – This is the original £800 net pay less £80 which is the cost to the employee of the donation as the £100 donation will not have been taxed.

This scheme is particularly useful for higher rate taxpayers as it gives them the extra tax relief on their donations without them having to complete a tax return.

The gift aid scheme
The easiest route to giving cash to a UK registered charity is via the gift aid scheme.

Its merits are described here in an example:
Let’s take an example of a cash donation of £80 to a charity.

If the charity is provided with the donor’s name and postcode and declaration, they are a UK taxpayer and they can contact HMRC and request a further £20 bringing the amount the charity can spend up to £100.

For a taxpayer who earns less than £50,270 a year there is no other tax relief for this.
But for taxpayers earning over £50,270 they can obtain higher rate tax relief through their tax return.

For the £80 they have spent this is increased to the £100 as detailed above. This means they have been given £20 tax relief already but because they pay tax at 40%, they can receive a further £20 reduction in their tax liability.

If your income exceeds £50,270 it is worth keeping a note of all the charitable donations you make, from any donations you may make to organisations such as Rotary, Round Table, Masonic Lodges to individuals running marathons supported through Just Giving and other charitable giving sites.

Giving shares, goods and land
Generally, charities like to receive cash, but in some instances, they will receive shares or other assets.

In these instances, there may a decision to be made on whether to sell the shares and gift the cash or to simply gift the shares directly to the charity.

If the sale of the shares gives rise to a capital gain, then it can be more beneficial for the donor to gift the shares directly to the charity. No capital gain tax will be due on the disposal of the shares, and they will be able to deduct the value of their shares from their income for tax purposes. This could be used by business owners who were selling their business and wanted to give a proportion of the net proceeds to charity.

The charity will however not be able to recover any further tax on the value donated.

Giving goods as a taxpayer – when donating goods to charity, this usually means giving items that will be sold, so it is the cash proceeds which is taxed.

Gift aid is usually claimed on this sum and so higher tax relief can be claimed if the donor’s income exceeds £50,270.

If you are giving goods as a company, for example to be added to a truck that is being sent over to Ukraine, the company would need to be officially gifting via a UK or EU registered charity. This would then mean that the value of the goods purchased could be deducted against a taxpayer’s income in the year.

This also means a company can obtain a deduction for the value of goods against its income for corporation tax purposes.

How to claim tax relief on a charitable act via your business
In recent times Beatons has received several enquiries regarding tax relief on sending trucks to support Ukraine.

One question came from a haulage client who was driving a truck to Poland which would be full of donated goods. This client wanted to know if they could obtain tax relief on this trip.

Beatons advised that they would receive corporation tax relief on the cost of the job. This is because they were providing the goods to a registered charity in an EU country. The company would list the job like any other shipment but would record no revenue for it meaning the job would make a loss and therefore the company income liable to tax reduces by the costs involved.

If the shipment had been carried out independent of a registered charity, then no relief would have been able to be claimed and the costs would have been disallowed as they would not have been wholly and exclusively for the purposes of the company.

Beatons can advise on any tax queries related to charitable giving. You can contact them on 01473 695777 or info@beatons.co.uk

Tax benefits of going EV

Tax benefits of going EV

27.4.2022 | Tax

Tax Benefits of going EV

Beatons Group explains how going electric changes the tide when it comes to company car taxation.

April heralds the beginning of a new tax year, and before July 6, employers will be putting together returns related to benefits and expenses and settling any Class 1A National Insurance owed to HMRC.

In recent years, HMRC has sought to tax company cars out of existence, however, there has been a resurgence of the company car due to the significant tax advantages which have been afforded to electric vehicles for both businesses and individuals.

Here, Andrew Diver, head of taxation at Beatons Group, gives a general overview of some of the taxation benefits of electronic vehicles to both companies and their employees.

Benefits to the company

If an electric vehicle is purchased outright or via finance and is new and fully electric, it is eligible for the 100% Annual Investment Allowance. This is provided the total capital expenditure by the company in the accounting period is within the allowable limit which is currently £1,000,000.

However, the company would not be able to claim back the VAT if there is any private use because the vehicle is a car.

If the car is leased rather than purchased and is new and fully electric, the company can claim all the lease payments back without any restriction. Additionally, 50% of the input VAT can be claimed back on leased cars which have private use.

Individual

When considering the individual, we are taking into account the rules of ‘Benefit in Kind’. If the car is fully electric and has no CO2 emissions figure, then the Benefit in Kind will be 2% of the list price for this tax year (2022/23) and the next two tax years. As electricity is not a fuel then there is no fuel scale charge.

For example, the Benefit in Kind on a fully electric car with a list price of £35,000 would only be £700 which would result in tax for a basic rate taxpayer of £140 or £280 for a higher rate taxpayer.

Electric charging point

The company would be eligible for 100% Annual Investment Allowance on the equipment for the charging point provided it is unused and not second hand. The total must also be within the capital expenditure of the company and the accounting period within the allowable limit which is currently £1,000,000.

This currently applies for expenditure on electric charging points before March 31, 2023, but it may be extended again as it has been previously.

Charging others to charge

Supplies of electricity to third parties would be vatable at standard rate. VAT input claims would be restricted for private use by employees.
All employees should keep records of business and private use of the electric cars, which have been charged at work.

Any income from the charging point would be treated as other income.
Some care is needed when offering vehicle charging commercially as regulations regarding the provision of electric vehicle charging points are due to be introduced from June 2022.

This requires that the systems have some element of smart charging, for example, optimal charging during off-peak times.

Beatons is happy to give tailored advice to help ensure businesses understand the tax implications of company cars and employee benefits. Please contact Beatons via email at info@beatons.co.uk or by calling 01473 659777.

Beatons provide a recap of the Chancellor’s Spring Statement

Beatons provide a recap of the Chancellor’s Spring Statement

5.4.2022 | Tax

Beatons provide a recap of the Chancellor’s Spring Statement

A few surprises, and as expected, an emphasis on seeming to ease the cost of living. 

Chancellor Rishi Sunak delivered his Spring Statement in March with a focus on attempting to ease the cost of living and cutting taxes in a bid to keep the UK economy on a firm footing.

Here, Andrew Diver, head of taxation at Beatons Group, summarises the main points from The Chancellor’s statement and offers his thoughts on the measures in real terms.

The Spring Statement brought few surprises, and as expected, an emphasis on seeming to ease the cost of living.

Fuel duty
The fuel duty cut of 5p per litre was very welcome. Prices are still spiralling outside of the wholesale price of fuel, which decreased a few weeks ago, and there isn’t anything that will force petrol companies to pass this reduction in duty onto customers. Petrol companies pay the duty when acquiring fuel so will have paid the duty on the fuel in their pumps already at the higher rate so they may still wait until they need to restock their supplies and they have paid the lower rate of duty before passing it onto customers. The cost of fuel will continue to be a challenge for many businesses, with the consensus appearing to be that this is somewhat of a ‘drop in the ocean’ measure, particularly for industries which rely heavily on the use of fuel.

Inflation
The Chancellor confirmed that inflation had hit 6.2% last month and it is predicted to be as high as 7.4% over the course of the rest of the year. This is a prediction by the Office for Budget Responsibility (OBR) and could yet turn out to be higher.

National Insurance
The National Insurance threshold is set to increase from £9,500 to £12,570. This means the typical employee will save £330 a year and this will benefit even those employees on high incomes.

This will also apply to the self-employed who are subject to Class 4 National Insurance Contributions (NICs) who will see that threshold rise also.

This will not come into effect until July to allow employers to update their software, therefore people won’t notice the boost it offers straightaway.

One point that is useful to note is that while the NICs limit has increased for employees, the employer rate remains the same. This means they will see increased costs from the Health & Social care levy from April 2022. It appears that the employment allowance, highlighted below, may have been an attempt to try to counter that.

Help for businesses with increase in employment allowance
There was a little extra help for employers with the announcement of an increase in employment allowance to £5,000. There were also further extensions to what is classed as Research & Development and annual investment allowance was again set at £1million, with the transitional relief for business rates being extended for 2022/23.

Basic rate of tax cut
The Chancellor also revealed plans for a cut in the basic rate of tax from 20% to 19% across the board and said this amounts to a £5billion tax cut for more than 30 million people including workers, pensioners and savers. However, while this is a welcome announcement, it isn’t due to come in until April 2024 and as we all already know, a year is a long time in politics so two years is a very long time indeed!

In summary
The overall sentiment is that there are a lot of nice increases in thresholds, though some are far from immediate. Since taking on the role of Chancellor, Rishi Sunak has been increasing the HMRC coffers through fiscal drag by generally freezing rates and allowing inflation to lead to more tax revenues being collected, so we can take a small positive from the fact that he has given something back. However, many will no doubt feel that the Chancellor has not gone far enough in his measures to help ease the cost of living.

Please get in touch with Beatons if you need advice on what any of the new measures might mean for you or your business.  Email info@beatons.co.uk or call 01473 659777.

Supplied content.

Tax planning before the year end

Tax planning before the year end

22.3.2022 | Tax

Tax planning before the year end

Andrew Diver, Head of Taxation at Beatons, gives an overview of the changes and advice on how to stay one step ahead.

Many will be anticipating the Chancellor’s Spring Statement today, to hear in full about tax changes as the country and its businesses attempt to recover following the pandemic.

Now is a good time to take stock of any tax issues and analyse what actions can be taken ahead of the new tax year on 5th April which would make best use of any lower rates.

Andrew Diver, says:

“As we near the end of the 2021/22 tax year, there are several areas where you may want to consider taking advantage of the current tax rules and annual exemptions before they are lost after 5th April, 2022.

“The highlight change will be the introduction of the health and social care levy which increases National Insurance by 1.25% for employees and employers as well as the same increase in the dividends tax rates at all levels.

“Tax savings can be achieved in various areas before the new tax year and below, I have given an overview of these and the actions that might be taken now. However, the complexities of these may depend on individual circumstances and we would recommend you contact your accountant if you need more clarity.”

Health and Social Care Levy
There will be an increase to National Insurance for employees and employers at 1.25% from April 6, 2022. Class 4 National Insurance paid by the self-employed will also increase by 1.25% to 10.25%. The dividend rate is also set to increase at all levels. Owner managed companies may wish to pay dividends before April 5 to take advantage of lower rates.

Dividend Allowance
The dividend allowance for 2021/22 is £2,000. This means that the first £2,000 of dividends received by an individual are taxed at a special rate of 0%. Dividends paid up to the basic rate tax threshold (£37,700 in 2021/22) are only taxed at 7.5%. Owner managed family companies can make use of the dividend allowance by paying dividends to a spouse or adult children.

Interest on directors’ loan accounts
Where a director has a loan account in credit, it may be appropriate for the company to consider interest being paid to the director on the balance in order to benefit from any personal savings allowance. The company will also reduce its profits liable corporation tax.

Child benefit and personal allowance claw backs
It’s important to remember that child benefit gets effectively withdrawn by 1% for every £100 of income earned over £50,000. Additionally, the personal allowance is reduced by £1 for every £2 of income above £100,000. Because of the nature of the claw-back of these sums, the marginal tax rates at £50,000 to £60,000 and £100,000 to £125,140 are much higher than the additional rate of tax. Advice should be sought on legitimate ways to adjust your income in these bands.

Pension annual amount
An individual can currently contribute up to £40,000 a year into a pension. While there are provisions which enable the carry forward of any relief unused from the previous three tax years, if you do have any unused relief and you are considering making a substantial pension payment, some availability could fall out of time after 5 April 2022. Higher earners can be subject to restriction on the annual contribution limit. If you are considering making substantial contributions, please let Beatons or your own accountant know in advance.

Inheritance tax annual exemption
Each year, you are able to make gifts of up to £3,000 without any inheritance tax being potentially due. There are also other exemptions available and expert accountants can assist you with a strategy for ensuring that your estate is not substantially eroded by taxes upon death.

Capital gains tax annual exemption
Buying or selling shares is an investment decision and we are not authorised to advise on this matter. However, even if you were not considering selling your investments in their entirety you may wish to consider a part disposal and repurchase of the shares to make use of the £12,300 capital gains tax annual exempt amount and effectively spread any increase in value of the shares over the course of their ownership, thereby significantly reducing the capital gains tax payable. Anti-avoidance rules prevent repurchases within 30 days being effective.

You could consider repurchasing the shares through an ISA to put the shares outside the scope of future capital gains.

Stay up to date with changes that affect you
The Chancellor may introduce further changes on 23rd March in his much-anticipated Spring Statement, please sign up to our e-newsletter on our website to stay in touch with any changes as soon as they are announced. Sign up here to register.

You can also follow Beatons social media accounts for up-to-date news as the budget is announced Twitter @BeatonsGroup Facebook @BeatonsGroup LinkedIn @BeatonsGroup