Cars for Employees

The current regime for taxing employer provided cars (commonly referred to as company cars) is intended:

• to encourage manufacturers to produce cars which are more environmentally friendly and
• to give employee drivers and their employers a tax incentive to choose more fuel-efficient and environmentally friendly vehicles.

We set out below the main areas of importance. Please do not hesitate to contact us if you require further information.

The rules

Employer provided cars are taxed by reference to the list price of the car but graduated according to the level of its carbon dioxide (CO₂) emissions.

Percentage charges

The percentage charge for the majority of cars is between 11% and 35%. The emissions table for 2014/15 is set out below.

2014/15

CO2 emissions in (gm/km) (round down to nearest 5gm/km for values above 95)	% of car’s price taxed
0	0
1 – 75	5
76 – 94	11
95	12
100	13
105	14
110	15
115	16
120	17
For every additional 5g thereafter add 1%	–
210 and above	35 (max)

2015/16

CO2 emissions (gm/km)(round down to nearest 5gm/km for values above 95)	% of car’s price taxed
0 – 50	5
51 – 75	9
76 – 94	13
95	14
100	15
105	16
110	17
115	18
For every additional 5g thereafter add 1%	–
210 and above	37 (max)

 

Examples Jane was provided with a new company car, a Mercedes CLK 430, on 6 April 2015. The list price is £50,000. The CO2 emissions are 240 gm/km. Jane’s benefit in 2014/15 will be £50,000 x 35% = £17,500. For 2015/16 the benefit will increase to 37%, being £18,500. Phil has a company car, a BMW 318i, which had a list price of £21,000 when it was provided new on 6 April 2015. The CO2 emissions are 117 grams per kilometre. Note: The CO2 emissions are rounded down to the nearest 5 grams per kilometre – in this case 115. Phil’s benefit for 2014/15 is: £21,000 x 16% = £3,360. For 2015/16 the benefit will increase to 18%, being £3,780.

Diesels

Diesel cars emit less CO₂ than petrol cars and so would be taxed on a lower percentage of the list price than an equivalent petrol car. However, diesel cars emit greater quantities of air pollutants than petrol cars and therefore a supplement of 3% of the list price generally applies to diesel cars. For example, a diesel car that would give rise to a 22% charge on the basis of its CO₂ emissions will instead be charged at 25%. The maximum charge for diesel is capped at 35%.

Obtaining emissions data

The Vehicle Certification Agency produces a free guide to the fuel consumption and emissions figures of all new cars. It is available on the internet at http://carfueldata.direct.gov.uk. These figures are not however necessarily the definitive figures for a particular car. The definitive CO₂ emissions figure for a particular vehicle is recorded on the Vehicle Registration Document (V5).

The list price

• The list price of a car is the price when it was first registered including delivery, VAT and any accessories provided with the car. Accessories subsequently made available are also included (unless they have a list price of less than £100).
• Employee capital contributions up to £5,000 reduce the list price.

Employer’s Class 1A national insurance contributions

The benefit chargeable to tax on the employee is also used to compute the employer’s liability to Class 1A (the rate is currently 13.8%).

The exceptions

Imports

Some cars registered after 1 January 1998 may have no approved CO₂ emissions figure, perhaps if they were imported from outside the EC. They too are taxed according to engine size.

Engine size (cc)	% of list price charged to tax
0 – 1400	15%
1401 – 2000	25%
Over 2000	35%

Private fuel

There is a further tax charge where a company car user is supplied with or allowed to claim reimbursement for fuel for private journeys.

The fuel scale charge is based on the same percentage used to calculate the car benefit. This is applied to a set figure which is £22,100 for 2015/16 (£21,700 for 2014/15). As with the car benefit, the fuel benefit chargeable to tax on the employee is used to compute the employer’s liability to Class 1A. The combined effect of the charges makes the provision of free fuel a tax inefficient means of remuneration unless there is high private mileage.

The benefit is proportionately reduced if private fuel is not provided for part of the year. So taking action now to stop providing free fuel will have an immediate impact on the fuel benefit chargeable to tax and NIC.

Please note that if free fuel is provided later in the same tax year there will be a full year’s charge.

Business fuel

No charge applies where the employee is solely reimbursed for fuel for business travel.

HMRC have published guidelines on fuel only mileage rates for employer provided cars. The advisory rates are not binding and an employer may be able to agree higher rates with HMRC via a dispensation, perhaps where employees need to use particular types of car such as 4x4s to cover rough terrain. Employers can adopt the rates in the following table but may pay lower rates if they choose.

Rates from 1 March 2015

Engine size	Petrol
1400cc or less	11p
1401cc – 2000cc	13p
Over 2000cc	20p

 

Engine size	Diesel
1600cc or less	9p
1601cc – 2000cc	11p
Over 2000cc	14p

 

Engine size	LPG
1400cc or less	8p
1401cc – 2000cc	10p
Over 2000cc	14p

These rates can be found at https://www.gov.uk/government/publications/advisory-fuel-rates/current-rates

Employees’ use of own car

There is also a statutory system of tax and NIC free mileage rates for business journeys in employees’ own vehicles.

The statutory rates are:

	Rate per mile
Up to 10,000 miles	45p
Over 10,000 miles	25p

Employers can pay up to the statutory amount without generating a tax or NIC charge. Payments made by employers are referred to as ‘mileage allowance payments’. Where employers pay less than the statutory rate (or make no payment at all) employees can claim tax relief on the difference between any payment received and the statutory rate.

How we can help

We can provide advice on such matters as:

• whether a car should be provided to an employee or a private car used for business mileage
• whether employee contributions are tax efficient
• whether private fuel should be supplied with the car.

Please contact us for more detailed advice.

Payroll Real Time Information

We set out below details of how payroll information has to be submitted to HMRC under Real Time Information (RTI).

RTI – an introduction

Under RTI, employers or their agents, are required to make regular payroll submissions for each pay period during the year detailing payments and deductions made from employees each time they are paid. There are two main returns which and employer needs to make which are detailed below.

Full Payment Submission

The Full Payment Submission (FPS) must be sent to HMRC on or before the date employees are paid. This submission details pay and deductions made from an employee. The FPS must reach HMRC on or before the date of payment of the wages to employees.

Employer Payment Summary

Employers may also have to make a further return to HMRC each month (EPS) to cover the following situations:

• where no employees were paid in the tax month
• where the employer has received advance funding to cover statutory payments
• where statutory payments are recoverable (such as SMP, OSPP and ShPP) together with the SMP NIC compensation payment or
• where CIS deductions are suffered which could be offset (companies only).

HMRC will offset the amounts recoverable against the amount due from the FPS to calculate what should be payable. The EPS needs to be with HMRC by the 19th of the month to be offset against the payment due for the previous tax month.

Payments to HMRC

Please bear in mind that under RTI HMRC are aware of the amount due on a monthly/quarterly basis. This will be part of the information reported to HMRC through the FPS and EPS.

HMRC will expect to receive the PAYE and NIC deductions less the payments each month or quarter (small employers only).

Year end procedures

At the end of the tax year a final FPS or EPS return must be made to advise HMRC that all payments and deductions have been reported to HMRC. This final return includes details whether for example, forms P11D reporting employment benefits or expenses are due. This additional information is no longer mandatory however many software packages currently require these fields to be completed.  

Some further complications

Wages

Under RTI it is and not possible to put through wages at the year end of the business and assume this has been paid throughout the year, for example to utilise a family member’s national insurance lower earnings limit which gives them a credit for state pension and statutory payment purposes.

Wages should be paid regularly and details provided to HMRC through the RTI system on a timely basis.

Payments which are impractical to report on or before

HMRC have issued guidance covering issues such as payments made on the day of work (which vary depending on the work done) where it is impractical to report in real time. The regulations allow up to an additional seven days for reporting the payment in specified circumstances.

HMRC have also made available some guidance on exceptions to reporting PAYE information ‘on or before’ paying an employee which can be found at https://www.gov.uk/running-payroll/fps-after-payday 

A relaxation of the rules for micro employers

A relaxation applies to some micro employers to the RTI reporting requirement that payments to employees should be reported on or before the amount is paid to the employee. The relaxation applies to micro employers (those with fewer than 10 employees) who pay employees weekly, or more frequently, but only process their payroll monthly and who made use of the small employer relaxation in 2013/14.

The relaxation means that micro employers, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month.

Please do contact us if you would like any further help or advice on payroll procedures.

Penalties

HMRC are introducing automatic in-year penalties for RTI to encourage compliance with the information and payment obligations.

In essence late filing penalties will apply to each PAYE scheme, with the size of the penalty based on the number of employees in the scheme. Monthly penalties of between £100 and £400 will apply to micro, small, medium and large employers as shown below:

• 1-9 employees – £100
• 10-49 employees – £200
• 50-249 employees – £300 and
• 250 or more employees – £400.

Each scheme will be subject to only one late filing penalty each month regardless of the number of returns submitted late in the month. There will be one unpenalised default each year with all subsequent defaults attracting a penalty. This regime commenced on 6 October 2014 for employers with 50 or more employees with smaller employers being liable for the penalty from 6 March 2015.

HMRC charge daily interest on all unpaid amounts from the due and payable date to the date of payment, and will raise the charge when payment in full has been made. They may also charge penalties to employers who fail to pay their PAYE liabilities on time. These penalties are ‘risk assessed’ and range between 1% and 4% of the amounts paid late. The first late payment will not attract a penalty.

How we can help

The operation of PAYE under RTI can be a difficult and time consuming procedure for those in business. We will be happy to show you how to operate PAYE correctly, offer ongoing advice on particular issues, or to carry out your payroll for you so please do contact us.

Starting Up In Business

It is the ambition of many people to run their own business. Some may have been made redundant and find themselves with free time and financial resources. Others make the decision to start up in business to be more independent and obtain the full financial reward for their efforts.

Whatever the reason, a number of dangers exist. Probably the greatest concern is the possibility of business failure.

Read on for guidance on some of the factors which need to be considered before trading begins.

This factsheet cannot cater for every possibility and any decisions should be supported by professional advice.

Initial considerations

In order to make your business a success there are a number of key factors which should be considered:

• commitment – starting a business is demanding. Determination and enthusiasm are essential
• skills – you will need managerial, financial, technical and marketing skills. If you do not have these skills personally, they can be found in a partner or employee, or acquired through training
• your product or service should have a proven or tested market, but must not conflict with the patent or rights of an existing business.

In addition to these general considerations there are a number of more specific matters.

The business plan

The business plan is the key to success. If you need finance, no bank manager will lend money without a sensible plan.

Your plan should provide a thorough examination of the way in which the business will commence and develop. It should describe the business, product or service, market, mode of operation, capital requirements and projected financial results.

Business structure

There are three common types of business structure:

• Sole trader
  This is the simplest form of business since it can be established without legal formality. However, the business of a sole trader is not distinguished from the proprietor’s personal affairs.

• Partnership
  A partnership is similar in nature to a sole trader but because more people are involved it is advisable to draw up a written agreement and for all partners to be aware of the terms of the partnership. Again the business and personal affairs of the partners are not legally separate. A further possibility is to use what is known as a Limited Liability Partnership (LLP).

• Company
  The business affairs are separate from the personal affairs of the owners, but there are legal regulations to comply with.

The appropriate structure will depend on a number of factors, including consideration of taxation implications, the legal entity, ownership and liability.

Business stationery

There are minimum requirements for the contents of business stationery, both paper and electronic, which will depend on the type of business structure.

Books and records

All businesses need to keep records. They can be maintained by hand or may be computerised but should contain details of payments, receipts, credit purchases and sales, assets and liabilities. If you are considering purchasing computer software to maintain your records, obtain professional advice.

Accounts

The books and records are used to produce the accounts. If the records are well kept it will be easier to put together the accounts. Accounts must be prepared for HMRC and if a company is formed there are strict legal requirements as to their layout. The accounts and company tax return must be submitted electronically to HMRC in a specific format (iXBRL). Presently Companies House do not require annual accounts to be submitted electronically in iXBRL format, however there is software available to cater for electronic filing if preferred.

A company and a LLP may need to have an audit and will need to make the accounts publicly available by filing them at Companies House within a strict time limit.

Taxation

When starting in business, taxation aspects must be considered.

• Taxation on profits
  The type and rate of taxation will depend on the form of business structure. However, the taxable profit will normally differ from the profit shown in the accounts due to certain expenses which are not allowed for tax purposes and the timing of some tax allowances. Payment of corporation tax must be made online.

• National Insurance (NI)
  The rates of NI contributions are generally lower for a sole trader or partnership than for a director of a company but the entitlements can also differ. In a company, it may be possible to avoid NI by paying dividends rather than salary.

• Value Added Tax (VAT)
  Correctly accounting for VAT is an essential part of any business and neglect may result in a significant loss.

When starting a business you should consider the need to register for VAT. If the value of your taxable sales or services exceeds the registration limit you will be obliged to register.

Employing others

For the business to get off the ground or to enable expansion, it may be necessary to employ staff.

It is the employer’s responsibility to advise HMRC of the wages due to employees and to deduct income tax and national insurance and to account for student loan deductions under PAYE. The deductions must then be paid over to HMRC. Payroll records should be carefully maintained.

Under Real Time Information an employer must advise HMRC of wages and deductions ‘on or before’ the time they are paid over to the employee.

You will also need to be familiar with employment law.

Premises

There are many pitfalls to be avoided in choosing a property. Consideration should be given to the following:

• suitability for the purpose
• compliance with legal regulations
• local by-laws
• physical restrictions such as access.

Insurance

Comprehensive insurance for business motor vehicles and employer’s liability insurance are a legal requirement. Other types of insurance such as public liability, consequential loss, business assets, Keyman and bad debts should be considered.

Pensions

Putting money into a pension scheme can be a way of saving for retirement because of the favourable tax rules.

The latest reforms, under Pensions Act 2008, have brought about a requirement on UK employers to automatically enrol all employees in a pension scheme and to make contributions to that scheme on their behalf. Enrolment may be either in to an occupational pension scheme or the National Employment Savings Trust (NEST).

Compliance with the new regulations started from 2012 for the largest employers. The deadline for being compliant (an employer’s ‘staging date’) is determined by the number of people in their PAYE scheme and for smaller employers is between 2012 and 2018.

How we can help

Whilst some generalisation can be made about starting up a business, it is always necessary to tailor the strategy to fit your situation. Any plan must take account of your circumstances and aspirations.

Whilst business success can never be guaranteed, professional advice can help to avoid some of the problems which befall new businesses.

We would welcome the opportunity to assist you in formulating a strategy suitable for your own requirements. We can also provide key services such as bookkeeping, management accounts, VAT return and payroll preparation at an early stage. Please contact us to find out more.

Bribery Act 2010

The Bribery Act 2010 (the Act) applies across the UK and all businesses need to be aware of its requirements which came into effect on 1 July 2011.

The Act introduced a new ‘corporate’ offence of ‘failure of commercial organisations to prevent bribery’. The defence against this offence is to ensure that your business has adequate procedures in place to prevent bribery. To help ensure this we recommend that, once you are familiar with the requirements of the new Act, you undertake a risk assessment for your own business and establish appropriate compliance procedures.

What action should you take?

• familiarise yourself with the guidance issued by the Ministry of Justice
• review the current activities of your business and assess the risk of bribery occurring
• assess the strength of the measures that you currently have in place to prevent bribery
• make any necessary updates to your staff handbooks, for example, your human resources manual
• consider whether specific anti-bribery staff training is required
• consider if changes are needed to other policies and procedures, for example, expenditure approval and monitoring processes
• communicate the changes that you have made to your policies and procedures
• consider if you need to undertake any due diligence procedures.

The Bribery Act 2010

The Act replaces, updates and extends the existing UK law against bribery and corruption. It applies across the UK and all UK businesses and overseas businesses carrying on activities in the UK are affected.

The offences established by the Act are defined very broadly and the Act has significant extra-territorial reach in that it extends to acts or omissions which occur outside of the United Kingdom. Specific details about its jurisdiction can be found in the detailed guidance referred to under ‘Ministry of Justice guidance’ below, as well as in the Act itself.

What is bribery?

Bribery is a broad concept. In supplementary guidance published alongside the Act, it is very generally defined as ‘giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for having already done so. So this could cover seeking to influence a decision-maker by giving some kind of extra benefit to that decision-maker rather than by what can legitimately be offered as part of a tender process.’

The key offences

Under the new Act there are two general offences:

Active Bribery – Section 1 of the Act prohibits offering, promising or giving a financial or other advantage (a bribe) to a person with the intention of influencing a person to perform their duty improperly.

Passive Bribery – Section 2 of the Act prohibits a person from requesting, agreeing to receive or accepting a bribe for a function or activity to be performed improperly.

In addition, there are two further offences that specifically address commercial bribery:

Bribery of foreign public officials (FPO) – Section 6 of the Act prohibits bribery of an FPO with the intention of influencing them in their official capacity and obtaining or retaining business or an advantage in the conduct of business.

Failure of commercial organisations to prevent bribery – Section 7 of the Act introduces a new strict liability offence that will be committed if:

• bribery is committed by a person associated with a relevant commercial organisation
• the person intends to secure a business advantage for the organisation
• the bribery is either an active offence (section 1 of the Act) or bribery of an FPO (section 6 of the Act).

This means that a commercial organisation commits an offence if a person associated with it bribes another person for that organisation’s benefit. This new ‘corporate’ offence is the most significant and controversial change to existing law and it is primarily this new offence that you must now consider and prepare your business for as necessary.

It is important to note however, that the Act also states that there is a defence available for commercial organisations against failing to prevent bribery if they have put in place ‘adequate procedures’ designed to prevent persons associated with them from bribing others on their behalf. The Secretary of State is required by the Act to publish guidance about such procedures.

Senior officers of an organisation can also be held personally liable under the Act for other bribery offences committed by the organisation, ie the active and passive bribery offences as well as the bribery of an FPO, where the offence is proved to have been committed with their ‘consent or connivance’.

‘Senior officer’ is widely defined in the Act to include directors, managers, company secretaries and other similar officers, as well as those purporting to act in such a capacity.

Key definitions and terminology

Inevitably, in order to fully understand the requirements of the new Act it is necessary to be familiar with a number of key definitions.

Relevant commercial organisation

The new corporate offence can be committed by a ‘relevant commercial organisation’, which broadly includes:

• any body which carries on a business and is incorporated under, or is a partnership which is formed under, any UK law, regardless of where it carries on business
• any body corporate or partnership, wherever it is incorporated or formed, which carries on business in the UK.

We will refer to those affected by this corporate offence as ‘businesses’.

Persons associated

The new corporate offence also refers to a person ‘associated’ with a commercial organisation. While there is a not an absolute list of all who could be included, we are told that this is a person who performs services for, or on behalf of, the organisation, regardless of the capacity in which they do so.

Accordingly, this term will be construed broadly and while examples are given of an employee, agent or subsidiary, it could also cover intermediaries, joint venture partners, distributors, contractors and suppliers.

Guidance issued by the Ministry of Justice (see below) acknowledges that the scope of ‘persons associated’ is broad and states that this is so as to ‘embrace the whole range of persons connected to an organisation who might be capable of committing bribery’ on its behalf.

Improper performance

The passive and active bribery offences both refer to the ‘improper performance’ of a function or activity. ‘Improper performance’ covers any act or omission that breaches an expectation that a person will act in good faith, impartially, or in accordance with a position of trust. This is an objective test based on what a reasonable person in the UK would expect in relation to the performance of the relevant activity.

Ministry of Justice guidance

The Act requires the Secretary of State to publish guidance for commercial organisations about procedures that they can put in place to prevent persons associated with them from bribing. This is important guidance in respect of providing a defence against the new ‘corporate offence’.

The Ministry of Justice (MoJ) has issued the following formal, statutory guidance:

• The Bribery Act 2010 – Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010).
• It has also produced non-statutory guidance for small businesses, providing a concise introduction to how they can meet the requirements of the new Act:
• The Bribery Act 2010 – Quick start guide.
• Whilst the guidance is not prescriptive and does not set out an absolute checklist of requirements for businesses to follow, it does aim to clarify the practical requirements of the new legislation. Illustrative case studies, which do not form part of the guidance issued under section 9 of the Act, are also included.

The guidance was published on 30 March 2011. Copies can be located at http://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf.

Defending your business against failing to prevent bribery

As you can see from the new legislation, all businesses will need to pay some attention to the new corporate offence of failing to prevent bribery. How much you will have to do will depend on the bribery risks facing your business.

If a business can show that it had ‘adequate procedures’ in place to prevent bribery then it will have a full defence against the corporate offence. The meaning of ‘adequate procedures’ is not defined in the Act and it is here that the MoJ guidance should be considered.

The guidance requires procedures to be tailored to the individual circumstances of a business, based on an assessment of where the risks lie. Therefore, what counts as ‘adequate’ will depend on the bribery risks faced by a business and its nature, size and complexity.

The MoJ guidance does recognise that the Act is not there to impose the ‘full force’ of criminal law upon well run businesses for an isolated incident of bribery. It also recognises that no business is capable of preventing bribery at all times. The ‘quick start’ guidance for smaller businesses comments that ‘a small or medium-sized business which faces minimal bribery risks will require relatively minimal procedures to mitigate those risks’.

How should you begin to determine the approach needed in your business? The MoJ guidance identifies six guiding principles for businesses wishing to prevent bribery from being committed on their behalf (see the panel below). These principles are not, however, prescriptive.

The six principles that should guide anti-bribery procedures

1. Proportionate procedures: A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.
2. Top-level commitment: The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.
3. Risk assessment: The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.
4. Due diligence: The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.
5. Communication (including training): The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.
6. Monitoring and review: The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.

Other important matters

Corporate hospitality

A potential area of concern under the new Act is the provision and receipt of corporate hospitality, promotional and other such business expenditure and how this might be perceived. While this may not be a significant issue for your business, especially when you consider your own level of such expenditure, it may be an important consideration for others.

The MoJ guidance states ‘Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour. The Government does not intend for the Act to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes.’

The guidance goes on to say ‘It is, however, clear that hospitality and promotional or other similar business expenditure can be employed as bribes.’

Facilitation payments

Facilitation payments, which are payments to induce officials to perform routine functions they are otherwise obligated to perform, are bribes and are therefore illegal under the new Act.

Penalties

The penalties associated with the Act are significant. On conviction for one of the main bribery offences, an individual may face up to ten years’ imprisonment and/or an unlimited fine. A business faces an unlimited fine.

The senior officers of a business could also be liable to a prison sentence if bribery was perpetrated with their ‘consent or connivance’. Disqualification from acting as a director for a substantial period of time could also arise.

Conclusion

The steps to be taken to prevent bribery will clearly vary from business to business and not all businesses will need to put in place complex procedures to deal with the requirements of the new legislation. The supporting guidance issued by the MoJ emphasises the need for a common sense approach.

A key point noted in ‘quick start’ guidance is that ‘there is a full defence if you can show you had adequate procedures in place to prevent bribery. But you do not need to put bribery prevention procedures in place if there is no risk of bribery on your behalf.’

How can we help

We believe the above summary above will help you understand the implications of the Bribery Act 2010. If you would like to discuss the implications of the new Act for you and your business in more detail please contact us.

Property Investment – Buy to Let

In recent years, the stock market has had its ups and downs. Add to this the serious loss of public confidence in pension funds as a means of saving for the future and it is not surprising that investors have looked elsewhere.

The UK property market, whilst cyclical, has proved over the long-term to be a very successful investment. This has resulted in a massive expansion in the buy to let sector.

Buy to let involves investing in property with the expectation of capital growth with the rental income from tenants covering the mortgage costs and any outgoings.

However, the gross return from buy to let properties – ie the rent received less costs such as letting fees, maintenance, service charges and insurance – is no longer as attractive as it once was. Investors need to take a view on the likelihood of capital appreciation exceeding inflation.

Factors to consider

Do

• think of your investment as medium to long-term
• research the local market
• do your sums carefully
• consider decorating to a high standard to attract tenants quickly.

Don’t

• purchase anything with serious maintenance problems
• think that friends and relatives can look after the letting for you – you’re probably better off with a full management service
• cut corners with tenancy agreements and other legal documentation.

Which property?

Investing in a buy to let property is not the same as buying your own home. You may wish to get an agent to advise you of the local market for rented property. Is there a demand for say, two bedroom flats or four bedroom houses or properties close to schools or transport links? An agent will also be able to advise you of the standard of decoration and furnishings which are expected to get a quick let.

Agents

Letting property can be very time consuming and inconvenient. Tenants will expect a quick solution if the central heating breaks down over the bank holiday weekend! Also do you want to advertise the property yourself and show around prospective tenants? An agent will be able to deal with all of this for you.

Tenancy agreements

This important document will ensure that the legal position is clear.

Taxation

When buying to let, taxation aspects must be considered.

Tax on rental income

Income tax will be payable on the rents received after deducting allowable expenses. Allowable expenses include mortgage interest, repairs, agent’s letting fees and an allowance for furnishings.

Tax on sale

Capital gains tax (CGT) will be payable on the eventual sale of the property. The tax will be charged on the disposal proceeds less the original cost of the property, certain legal costs and any capital improvements made to the property. This gain may be further reduced by any annual exemption available and is then taxed at either 18% or 28% or a combination of the two rates. CGT is payable on 31 January after the end of the tax year in which the gain is made.

Student lettings

Buy to let may make sense if you have children at college or university. It is important that the arrangement is structured correctly. The student should purchase the property (with the parent acting as guarantor on the mortgage). There are several advantages to this arrangement.

Advantages

This is a cost effective way of providing your child with somewhere decent to live.

Rental income on letting spare rooms to other students should be sufficient to cover the mortgage repayments from a cash flow perspective.

As long as the property is the child’s only property it should be exempt from CGT on its eventual sale as it will be regarded as their main residence.

The amount of rental income chargeable to income tax is reduced by a deduction known as ‘rent a room relief’. This is £4,250 each year. In this situation no expenses are tax deductible. Alternatively expenses can be deducted from income under normal letting rules where this is more beneficial.

Furnished holiday lettings

Furnished holiday letting (FHL) is another type of investment that could be considered. This form of letting is short holiday lets as opposed to letting for the residential market.

The favourable tax regime for furnished holiday letting accommodation includes qualifying property located anywhere in the European Economic Area (EEA). In order to qualify for FHL treatment certain conditions have to be met. These include the property being available for letting for at least 210 days in each tax year and being actually be let for 105 days. Provided that there is a genuine intention to meet the actual letting requirement it will be possible to make an election to keep the property as qualifying for up to two years even though the condition may not be satisfied in those years. This will be particularly important to preserve the special CGT treatment of any gain as qualifying for the lower CGT rate of 10% where the conditions for Entrepreneurs’ Relief are satisfied.

Losses arising in an FHL business cannot be set against other income of the taxpayer.  Separate claims would need to be made for UK losses and EEA losses. Each can only be offset against profits of the same or future years in each relevant sector.

FHL property has some advantages but it has other disadvantages which should also be considered.

Advantages

You will be able to take a holiday in your own property, or make it available some of the time to your family or friends. However, care would need to be taken to adjust the level of expenses claimed to reflect this private use.

Generally however the rules for allowable expenditure are more generous.

Disadvantages

Holiday letting will have higher agent’s fees, advertising costs, and maintenance fees (for example more regular cleaning).

Owning a holiday property may be more time consuming than you think and you may find yourself spending your precious holiday sorting out problems.

If you would like any further advice in this area please get in touch.

How we can help

Whilst some generalisations can be made about buy to let properties it is always necessary to tailor any advice to your personal situation. Any plan must take into account your circumstances and aspirations.

Whilst a successful buy to let cannot be guaranteed, professional advice can help to sort out some of the potential problems and structure the investment correctly.

We would be happy to discuss buy to let further with you. Please contact us for more detailed advice.

Pensions – Automatic Enrolment

The role of the employer

To encourage more people to save in pension schemes, the government has placed greater responsibility on employers to provide access to pension provision.

Up until 1 October 2012 there was no requirement for an employer to pay employer contributions into a scheme. There was also no requirement for the employee to enter an employer provided scheme.

Most employers were however obliged to designate a registered stakeholder scheme that employees could join. This obligation has been removed due to the advent of automatic enrolment (or auto enrolment).

What is automatic enrolment?

Automatic enrolment places new duties on employers to automatically enrol ‘workers’ into a work based pension scheme. The main duties are:

• assess the types of workers in the business
• provide a qualifying automatic enrolment pension scheme for the relevant workers
• write to most of their workers explaining what automatic enrolment into a workplace pension means for them
• automatically enrol all ‘eligible jobholders’ into the scheme and pay employer contributions
• complete the declaration of compliance and keep records.

Assessing the types of workers in the business

Whether this is an easy or difficult task depends on the type of business. A business which uses the services of casual workers, very young or very old workers will need to spend some time in analysing its workforce. A business which only employs salaried staff will have an easier task.

A ‘worker’ is:

• an employee or
• a person who has a contract to provide work or services personally and is not undertaking the work as part of their own business.

The second category is defined in the same way as a ‘worker’ in employment law. Such people, although not employees, are entitled to core employment rights such as the National Minimum Wage. Individuals in this category include some agency workers and some short-term casual workers.

There are three categories of workers: eligible jobholders; non-eligible jobholders; and entitled workers.

An ‘eligible jobholder’ is a worker who is:

• aged between 22 years and the State Pension Age
• earning over the minimum earnings threshold (£10,000 2014/15 and 2015/16). It is expected that the minimum earnings threshold will be changed in line with the income tax single person’s allowance in future years
• working or ordinarily working in the UK
• not already in a qualifying pension scheme.

Most workers will be eligible jobholders unless the employer already has a qualifying pension scheme. These are the workers for which automatic enrolment will be required.

Other workers (non-eligible jobholders) may have the right to either ‘opt in’ (i.e. join a scheme) and therefore to be treated as eligible jobholders. ‘Entitled workers’ are entitled to join the scheme but there is no requirement on the employer to make employer contributions in respect of these workers.

The categorisation of workers can be difficult in some circumstances. Please contact us if you are unsure of how to assess the types of workers you have.

What is a qualifying automatic enrolment pension scheme?

Employers are able to comply with their new obligations by using an existing qualifying pension scheme, setting up a new scheme or using the government low cost scheme – the National Employment Savings Trust (NEST).

It is important that the pension scheme chosen will deliver good outcomes for the employee’s retirement savings. This may mean that an existing employer’s scheme may not be appropriate as it may have been designed for the needs of higher paid and more senior employees. This may mean that NEST for example may be an appropriate scheme for employees who are not currently entitled to be a member of an existing employer scheme.

To be a qualifying automatic enrolment scheme, a scheme must meet the qualifying criteria and the automatic enrolment criteria.

The main part of the qualifying criteria requires the pension scheme to meet certain minimum standards, which differ according to the type of pension scheme. Most employers will want to offer a defined contribution pension scheme. The minimum requirements for such schemes are a minimum total contribution based on qualifying earnings, of which a specified amount must come from the employer.

To be an automatic enrolment scheme, the scheme must not contain any provisions that:

• prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a ‘jobholder’
• require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the pension scheme.

The second point above means, for example, that the pension scheme has a default fund into which the pension contributions attributable to the jobholder will be invested. The jobholder should however have a choice of other funds if they want.

We may be able to advise you on an appropriate route to take. Please contact us.

When does automatic enrolment apply to an employer?

The law came into force for very large employers on 1 October 2012 but fortunately, the automatic enrolment rules have a staggered implementation by reference to the number of employees.

An employer can precisely work out when the automatic enrolment rules will have to be applied as the implementation date (known as the ‘staging date’) is set by reference to the number of persons in an employer’s PAYE scheme on 1 April 2012. The more employees an employer has on that date, the earlier the staging date.

Examples of staging dates

No. of employees	Staging date
250	1 February 2014
62	1 July 2014
50	1 April 2015

For those with less than 50 employees the earliest start date is 1 June 2015 but the precise date will depend not only on the actual number of employees on 1 April 2012 but also an employer’s PAYE reference number. The earliest date for an employer with up to 30 employees on 1 April 2012 is 1 June 2015 and the latest date is 1 April 2017.

Importantly it doesn’t matter how many employees an employer has on the staging date – there may be considerably more (or less) than on the 1 April. So if you are an employer, look at the number of employees you had on the 1 April to know where you stand.

Employers with less than 50 employees but are part of a larger PAYE scheme

You may be an employer of a company which has less than 50 employees but the company is part of a group of companies and the company has a shared scheme with other employers.

There are special rules for such employers.

An employer can find out the detailed staging date rules from www.thepensionsregulator.gov.uk.

Communicating with your workers

Employers are required to write to all workers (except those aged under 16, or 75 and over) explaining what automatic enrolment into a workplace pension means for them.

There are different information requirements for each category of worker. For an eligible jobholder, the letter must include details of how the employee can opt out of the scheme if they wish. The letter must not, however, encourage the employee to opt out.

The Pensions Regulator has developed a set of letter templates to help you when writing to your workers.

Automatic enrolment of eligible jobholders and payment of contributions

As part of the automatic enrolment process, employers will need to make contributions to the pension scheme for eligible jobholders. In principle, contributions will be due from the staging date but it is possible to postpone automatic enrolment for some or all employees for a period of up to three months. This may, for example, be used to avoid calculation of contributions on part-period earnings.

All businesses will need to contribute at least 3% on the ‘qualifying pensionable earnings’ for eligible jobholders. However, to help employers adjust, compulsory contributions will be phased in, starting at 1% before eventually rising to 3%.

There will also be a total minimum contribution which will need to be paid by employees if the employer does not meet the total minimum contributions. If the employer only pays the employer’s minimum contribution, employees’ contributions will start at 1% of their salary, before eventually rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate.

Period	Duration	Employer minimum	Total minimum contribution
1	Employer’s staging date to 30 September 2017	1%	2%
2	1 October 2017 to 30 September 2018	2%	5%
1 October 2018 onward		3%	8%

What are qualifying pensionable earnings

Earnings cover cash elements of pay including overtime and bonuses (gross) but minimum contributions are not calculated on all the earnings. Contributions will be payable on earnings between the lower threshold of £5,882 (£5,772 for 2014/15) and the higher threshold of £42,385 (£41,865 for 2014/15). The earnings between these amounts are called qualifying earnings. The thresholds are reviewed by the government each tax year.

If we do your payroll, we can help you make these calculations and tell you the deductions from pay and the payments required to the pension scheme.

Declaration of Compliance and keeping records

The Pensions Regulator was established to regulate work-based pensions.

An employer must complete the declaration of compliance within five months of the staging date. In essence the declaration of compliance process requires the employer to:

• confirm the correct auto enrolment procedures have been followed and
• provide various pieces of information such as the number of eligible jobholders enrolled.

Finally, an employer must keep records which will enable them to prove that they have complied with their duties. Keeping accurate records also makes good business sense because it can help an employer to:

• avoid or resolve potential disputes with employees
• help check or reconcile contributions made to the pension scheme.

Pensions Regulator guidance for small businesses

TPR guidance is available for small businesses preparing for automatic enrolment  on their website. http://www.thepensionsregulator.gov.uk/employers/your-step-by-step-guide-to-automatic-enrolment.aspx

Using the guidance employers can follow an 11 step process, each step advising when each task should be completed and and how long it should take. The guidance also includes links to tools and resources to help employers meet their duties.

How we can help

As you can see Pensions automatic enrolment is not a straightforward business. Please do contact us for help and advice. We can help you to manage the road to automatic enrolment and help you to comply with the requirements when you are in automatic enrolment.

Corporation Tax Self Assessment

Key features

The key features are:

• a company is required to pay the tax due in advance of filing a tax return
• a ‘process now, check later’ enquiry regime when the tax return is submitted
• the inclusion in the tax return, and in a single self assessment, of the liabilities of close companies on loans and advances to shareholders and others, and of liabilities under Controlled Foreign Companies legislation
• the requirement for companies to self assess by reference to transfer pricing legislation.

Practical effect of CTSA for companies

Notice to file

Every year, HMRC issue a notice to file to companies. In most cases, the return must be submitted to HMRC within 12 months of the end of the accounting period.

Filing your company tax return online

Companies must file their corporate return online. Their accounts and computations must also be filed in the correct format – inline eXtensible Business Reporting Language (iXBRL).

Unincorporated organisations and charities that don’t need to prepare accounts under the Companies Act can choose to send their accounts in iXBRL or PDF format. However any computations must be sent in iXBRL format.

Penalties

Penalties apply for late submission of the return of £100 if it is up to three months late and £200 if the return is over three months late. Additional tax geared penalties apply when the return is either six or twelve months late. These penalties are 10% of the outstanding tax due on those dates.

Submission of the return

The return required by a Notice to file contains the company’s self assessment, which is final subject to:

• taxpayer amendment
• HMRC correction, or
• HMRC enquiry.

The company has a right to amend a return (for example changing a claim to capital allowances). The company has 12 months from the statutory filing date to amend the return.

HMRC have nine months from the date the return is filed to correct any ‘obvious’ errors in the return (for example an incorrect calculation). This process should be a fairly rare occurrence. In particular the correction of errors does not involve any judgement as to the accuracy of the figures in the return. This is dealt with under the enquiry regime.

Enquiries

Under CTSA, HMRC check returns and has an explicit right to enquire into the completeness and accuracy of any tax return. This right covers all enquiries, from straightforward requests for further information on individual items through to full reviews of a company’s business including examination of the company’s records.

The main features of the rules for enquiries under CTSA are:

• HMRC generally have a fixed period, of 12 months from the date the return is filed, in which to commence an enquiry
• if no enquiry is started within this time limit, the company’s return becomes final – subject to the possibility of an HMRC ‘discovery’
• HMRC will give the company formal notice when an enquiry commences
• HMRC are also required to give formal notice of the completion of an enquiry, and to state their conclusions
• a company may ask the Commissioners to direct HMRC to close an enquiry if there are no reasonable grounds for continuing it.

Discovery assessments

HMRC have the power to make an assessment (a ‘discovery assessment’) if information comes to light after the end of the enquiry period indicating that the self assessment was inadequate as a result of fraudulent or negligent conduct, or of incomplete disclosure.

Summary of self assessment process

Example A company prepares accounts for the 12 months ended 31 May 2014 and submits the return by 31 December 2014. Key dates under CTSA are: 01.03.15 Payment of corporation tax 31.05.15 Deadline for filing the return 31.12.15 End of period for HMRC to open enquiry (being 12 months from the date the return was actually filed) On 31 December 2015 the company tax position is finalised subject to HMRC’s right to make a discovery assessment in some circumstances.

Payment of tax

There is a single, fixed due date for payment of corporation tax, nine months and one day after the end of the accounting period (subject to the Quarterly Instalment Payment regime for large companies).

If the payment is late or is not correct, there will be late payment interest on tax paid late and repayment interest on overpayments of tax. These interest payments are tax deductible/taxable.

Credit interest

If a company pays tax before the due date, it receives credit interest on amounts paid early. Any interest received is chargeable to corporation tax.

Loans to shareholders

If a close company makes a loan to a participator (for example most shareholders in unquoted companies), the company must make a payment to HMRC if the loan is not repaid within nine months of the end of the accounting period. The amount of the tax is 25% of the loan. This tax is included within the CTSA system and the company must report loans outstanding to participators in the tax return.

How we can help

Do not hesitate to contact us if you require any further information.

Occupational Pension Schemes: Trustees’ Responsibilities

Many employers offer their staff an opportunity to save for their retirement through an occupational (or company) pension scheme.

Those employees who join the scheme need to have confidence that the scheme is being well run.

The role of pension scheme trustees is very important in ensuring that the scheme is run honestly and efficiently and in the best interests of the members.

We outline in this factsheet the main responsibilities of occupational pension scheme trustees.

Background

The Pensions Act 1995 (the Act) brought about a number of major changes to the way occupational pension schemes are run. The 2004 Pensions Act brought about further change and introduced, in April 2005, The Pensions Regulator (TPR) as the UK regulator of work-based pension schemes.

TPR has an important role in the pension sector. Its objectives, as set out in legislation, are to:

• protect the benefits of members of work-based pension schemes
• protect the benefits of members of personal pension schemes (where there is a direct payment arrangement)
• promote, and to improve understanding of the good administration of work-based pension schemes
• reduce the risk of situations arising which may lead to claims for compensation being payable from the Pension Protection Fund
• maximise employer compliance with employer duties and the employment safeguards introduced by the Pensions Act 2008
• minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pension Act 2014).  This new objective on sustainable growth came into force on 14 July 2014.

TPR has three core powers that underpin its regulatory approach:

• investigating schemes by gathering information that helps them identify and monitor risks
• putting things right where problems have been identified
• acting against avoidance to ensure that employers do not sidestep their pension obligations.

In fulfilling its role, TPR produces important guidance for those involved with pension schemes including trustees as well as auditors and actuaries. This guidance is available from TPR’s website www.thepensionsregulator.gov.uk.

The latest reforms, introduced under Pensions Act 2008, have brought about a new requirement on UK employers to automatically enrol all employees in a ‘qualifying auto-enrolment pension scheme’ and to make contributions to that scheme on their behalf. Enrolment may be either in to an occupational pension scheme or a contract based scheme.

Many contract based schemes are group personal pensions where an employer appoints a pension provider, often an insurance company, to run the scheme. The National Employment Savings Trust (NEST) is a government backed pension scheme that employers can use for auto enrolling employees.

Compliance with the new regulations started from 2012 for the largest employers. The deadline for being compliant (an employer’s ‘staging date’) is determined by the number of people in their PAYE scheme and for smaller employers is between 2012 and 2018.

Further information is available at www.tpr.gov.uk/autoenrolment.

Pension scheme classification

Employers can help promote retirement benefits for their employees in a number of ways including:

• occupational schemes
• group personal pension schemes
• stakeholder schemes.

Group personal pension schemes and stakeholder schemes are personal plans in individual member’s names, where the employer simply acts as an administrator. There are no accounting or audit requirements for these types of schemes.

An occupational pension is an arrangement an employer can use to provide benefits for their employees when they leave or retire.

There are two main types of occupational pension scheme in the UK:

• salary-related schemes
• money purchase schemes.

Whatever the type of scheme, it will usually have trustees.

The role of trustees

Most company pension schemes in the UK are set up as trusts. There are two main reasons for this:

• it is necessary in order to gain most of the tax advantages
• it makes sure that the assets of the pension scheme are kept separate from those of the employer.

A trustee is a person or company, acting separately from an employer, who holds assets for the beneficiaries of the pension scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members’ benefits are secure.

In fulfilling their role, trustees must be aware of their legal duties and responsibilities. From April 2006 the law requires trustees to have knowledge and understanding of, amongst other things, the law relating to pensions and trusts, the funding of pension schemes and the investment of scheme assets.

The law also requires trustees to be familiar with:

• certain pension scheme documents including the trust deed and rules
• the statements of investment principles and funding principles.

A code of practice has been issued by TPR explaining what trustees need to do in order to comply with the law in this area. Trustees should arrange appropriate training as soon as they are appointed and should then continue with their learning to keep their knowledge up to date. New trustees have six months from their appointment date to comply with this requirement.

Trustees’ duties and responsibilities

Trustees have a number of very important duties and responsibilities, which include:

• acting impartially, prudently, responsibly and honestly and in the best interests of scheme beneficiaries
• acting in line with the trust deed, scheme rules and the legal framework surrounding pensions.

In addition to these general duties, trustees also have a number of specific duties and tasks that they must carry out. The main tasks are to ensure the following happen.

Contributions

• The employer accurately pays over contributions on time. There are strict rules covering this area.

Financial records and requirements

• The right benefits are paid out on time.
• An annual report is prepared (see annual report below).
• An auditor’s statement is obtained confirming details of the payment of contributions to the scheme and, if required, an audit of the scheme accounts is arranged.

Investment

• The pension fund is properly invested in line with the scheme’s investment principles and relevant law.

Professional advisers

• Suitable professional advisers are appointed as running a pension scheme is complicated and often specialist advice will be needed.

Pension scheme records

• Full and accurate accounting records are kept, which include records of past and present members, transactions into, and out of, the scheme and written records of trustees’ meetings.

Members

• Members and others are provided with information about the scheme and their personal benefits.

Registration, the scheme return and collecting the levy

• TPR is provided with information required by law for the register, that the scheme’s annual return is completed and the annual levy for the scheme is paid.

Related matters

Reporting to TPR

Where a breach of law takes place and it is likely to be materially significant to TPR, trustees and indeed others involved in running the scheme have a legal duty to report the breach to the regulator. Code of practice 01, ‘Reporting breaches of the law’ provides guidance on the factors that should be considered when deciding to make a report.

In addition, trustees also have to notify TPR when particular scheme-related events happen. These are known as ‘notifiable events’, also the subject of a code of practice.

The annual report

The trustees of most schemes must make an annual report available within seven months of the scheme year end. The report usually includes:

• a trustees report, containing legal and administrative information about the scheme
• an investment report
• actuarial information, if applicable
• the audited accounts and audit report.

Trustees’ liability

If something does go wrong with the pension scheme, trustees may be held personally liable for any loss caused as a result of a breach of trust. This could happen when, for example:

• a trustee carried out an act which is not authorised under the trust deed and scheme rules
• a trustee fails to do something that should have been done under the trust deed and scheme rules
• a trustee does not perform one or more of their duties under trust law or pension legislation or does not perform them with sufficient care.

The rules of the pension scheme might protect trustees from personal liability for a loss caused by breach of trust, except where it is due to their own actual fraud. In some cases, the employer may provide indemnity insurance for the trustees.

How we can help

We would be pleased to discuss your role as a company pension scheme trustee in more detail. We are also able to advise on the accounting and audit requirements of your scheme. Please contact us for further information.

Directors’ Responsibilities

The position of director brings both rewards and responsibilities upon an individual.

Whether you are appointed to the Board of the company you work for or you are involved in establishing a new business and take on the role of director you will feel a sense of achievement.

However the office of director should not be accepted lightly. It carries with it a number of duties and responsibilities. We summarise these complex provisions below.

Companies

You can undertake business in the UK as either:

• an unincorporated entity, ie a sole trader or a partnership or
• an incorporated body.

An incorporated business is normally referred to as a company. Although there are limited liability partnerships and unlimited companies the vast majority of companies are limited by shares. This means the liability of shareholders is limited to the value of their share capital (including any unpaid).

A limited company can be a private or public company. A public company must include ‘public’ or ‘plc’ in its name and can offer shares to the public.

The responsibilities and penalties for non compliance of duties are more onerous if you are a director of a public company.

Directors

When you are appointed a director of a company you become an officer with extensive legal responsibilities. For a director of an incorporated body, the Companies Act 2006 sets out a statement of your general duties. This statement codifies the existing ‘common law’ rules and equitable principles relating to the obligations of company directors that have developed over time. Common law had focused on the interests of shareholders. The Companies Act 2006 highlights the connection between what constitutes the good of your company and a consideration of its wider corporate social responsibilities.

The legislation requires that directors act in the interests of their company and not in the interests of any other parties (including shareholders). Even sole director/shareholder companies must consider the implications by not putting their own interests above those of the company.

The aim of the codification of directors’ duties in the Companies Act 2006 is to make the law more consistent and accessible.

The Act outlines seven statutory directors’ duties, which also need to be considered for shadow directors. These are detailed below.

Duty to act within their powers

As a company director, you must act only in accordance with the company’s constitution, and must only exercise your powers for the purposes for which they were conferred.

Duty to promote the success of the company

You must act in such a way that you feel would be most likely to promote the success of the company (ie. its long-term increase in value), for the benefit of its members as a whole. This is often called the ‘enlightened shareholder value’ duty. However, you must also consider a number of other factors, including:

• the likely long-term consequences of any decision
• the interests of company employees
• fostering the company’s business relationships with suppliers, customers and others
• the impact of operations on the community and environment
• maintaining a reputation for high standards of business conduct
• the need to act fairly as between members of the company.

Duty to exercise independent judgment

You have an obligation to exercise independent judgment. This duty is not infringed by acting in accordance with an agreement entered into by the company which restricts the future exercise of discretion by its directors, or by acting in a way which is authorised by the company’s constitution.

Duty to exercise reasonable care, skill and diligence

This duty codifies the common law rule of duty of care and skill, and imposes both ‘subjective’ and ‘objective’ standards. You must exercise reasonable care, skill and diligence using your own general knowledge, skill and experience (subjective), together with the care, skill and diligence which may reasonably be expected of a person who is carrying out the functions of a director (objective). So a director with significant experience must exercise the appropriate level of diligence in executing their duties, in line with their higher level of expertise.

Duty to avoid conflicts of interest

This dictates that, as a director, you must avoid a situation in which you have, or may have, a direct or indirect interest which conflicts, or could conflict, with the interests of the company.

This duty applies in particular to a transaction entered into between you and a third party, in relation to the exploitation of any property, information or opportunity. It does not apply to a conflict of interest which arises in relation to a transaction or arrangement with the company itself.

This clarifies the previous conflict of interest provisions, and makes it easier for directors to enter into transactions with third parties by allowing directors not subject to any conflict on the board to authorise them, as long as certain requirements are met.

Duty not to accept benefits from third parties

Building on the established principle that you must not make a secret profit as a result of being a director, this duty states that you must not accept any benefit from a third party (whether monetary or otherwise) which has been conferred because of the fact that you are a director, or as a consequence of taking, or not taking, a particular action as a director.

This duty applies unless the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

Duty to declare interest in a proposed transaction or arrangement

Any company director who has either a direct or an indirect interest in a proposed transaction or arrangement with the company must declare the ‘nature and extent’ of that interest to the other directors, before the company enters into the transaction or arrangement. A further declaration is required if this information later proves to be, or becomes either incomplete or inaccurate.

The requirement to make a disclosure also applies where directors ‘ought reasonably to be aware’ of any such conflicting interest.

However, the requirement does not apply where the interest cannot reasonably be regarded as likely to give rise to a conflict of interest, or where other directors are already aware (or ‘ought reasonably to be aware’) of the interest.

Enforcement and penalties

The Companies Act states that they will be enforced in the same way as the Common Law, although under Company Law. As a result there are no penalties in the Companies Act 2006 for failing to undertake the above duties correctly.

Enforcement is via an action against the director for breach of duty. Currently such an action can only be brought by:

• the company itself (ie the Board or the members in general meeting) deciding to commence proceedings; or
• a liquidator when the company is in liquidation
• an individual shareholder can take action against a director for breach of duty. This is known as a derivative action and can be taken for any act of omission (involving negligence), default or breach of duty or trust.

Where the company is controlled by the directors these actions are unlikely.

How we can help

You will now be aware that the position of director must not be accepted lightly.

• the law is designed to penalise those who act irresponsibly or incompetently.
• a director who acts honestly and conscientiously should have nothing to fear.

We can provide the professional advice you need to ensure you are in the latter category. Please contact us if you would like more information.

Charitable Giving

If you are thinking of making a gift to charity, this factsheet summarises how to make tax-effective gifts. You can get tax relief on gifts to UK charities if you give:

• under Gift Aid
• through a Payroll Giving scheme, run by your employer, or
• by making a gift of certain shares or land.

Location of the charity

UK charitable tax reliefs are available to certain organisations which are the equivalent of UK charities and Community Amateur Sports Clubs (CASCs) in the EU, Norway and Iceland.

UK donors are able to receive the same tax reliefs in respect of these donations and legacies that enjoy for donations to UK charities.

The qualifying overseas charities benefit from the same UK tax exemptions and reliefs as UK charities.

Gift Aid

If you pay tax, Gift Aid is a scheme by which you can give a sum of money to charity and the charity can normally reclaim basic rate tax on your gift from HMRC. That increases the value of the gift you make to the charity. So for example, if you give £10 using Gift Aid in 2014/15 that gift is worth £12.50 to the charity.

You can give any amount, large or small, regular or one-off.

If you do not pay tax, you should not use Gift Aid.

How does a gift qualify for Gift Aid?

There are three main conditions. You must:

• make a declaration to the charity that you want your gift to be treated as a Gift Aid donation
• pay at least as much tax as the charities will reclaim on your gifts in the tax year in which you make them (tax credits on dividend income will count towards the tax paid)
• not receive excessive benefits in return for your gift.

Making a declaration

The declaration is the charity’s authority to reclaim tax from HMRC on your gift.

The declaration can be in writing or orally but, usually, the charity will provide a written declaration form.

You do not have to make a declaration with every gift. In order to make a Gift Aid donation you’ll need to make a Gift Aid declaration. The charity will normally ask you to complete a simple form – one form can cover every gift made to the same charity or CASC for whatever period you choose, and can cover gifts you have already made (backdating your claim for up to four years) and/or gifts you may make in the future.

Membership subscriptions through Gift Aid

You can pay membership subscriptions to a charity through Gift Aid, provided any membership benefits you receive do not exceed certain limits. The current limits on the value of benefits received relative to donations are:

• 25% of the value of the donation, where the donation is less than £100
• £25, where the value of the donation is between £100 and £1,000
• 5% of the value of the donation, where the donation exceeds £1,000

There is an overriding limit on the value of benefits received by a donor in a tax year as a consequence of donations to a charity, which is £2,500.

However, you can disregard free or reduced entry to view any property preserved, maintained, kept or created by a charity in relation to their charitable work.

Fund-raising events

Where you have raised money which has simply been collected from other people, such as on a flag day, and the other people have not made a declaration to the charity that they are taxpayers, the payment is not made under Gift Aid and generally no tax relief is due but see below regarding the introduction of the Gift Aid Small Donations Scheme.

However, if you have been sponsored for an event, and each sponsor has signed a Gift Aid declaration, then the charity can recover the tax on the amounts covered by declarations. Charities may produce sponsorship forms for this.

Higher rate and additional rate taxpayers

If you are a higher/additional rate taxpayer, you can claim tax relief on the difference between the basic rate and higher/additional rate of tax (through your tax return). Relief is given either for the tax year of payment or in some cases it is now possible to elect to receive the benefit of the higher/additional rate tax relief one year earlier than previously.

You should therefore keep a record of payments made under Gift Aid for each tax year.

The time limit for claiming tax relief on Gift Aid donations is four years. This time limit applies to the charity and the individual making the gift.

Tainted donations to charity

Tax relief is denied on donations where one of the main purposes of the donation is to receive a tax advantage for the donor or connected person directly or indirectly from the charity. There is no monetary limit on the amount of the donation which may be caught by these rules.

Gift Aid Small Donations Scheme (GASDS)

Charities can use Charities Online for repayment of tax on other income and claims for top-up payments under the new Gift Aid Small Donations Scheme (GASDS).

Charities and Community Amateur Sports Clubs (CASC) can claim a top-up payment on cash donations of £20 or less without the need to collect Gift Aid declarations. Charities will generally be able to claim on small donations of up to £5,000 per year. Claiming for £5,000 of small donations will result in a repayment of £1,250 for the charity or CASC.

The GASDS is ideal for small cash donations received in collection boxes, bucket collections and during religious services. Charities and CASCs wishing to claim under GASDS will still need to make Gift Aid claims in respect of other donations for which they have a Gift Aid declaration in the same tax year, for example, on regular donations received from supporters. This is called the ‘matching rule’: every £10 of donations claimed under GASDS must be matched with £1 of donations claimed under Gift Aid in the same tax year.

It is proposed to increase the annual donation amount which can be claimed through the Gift Aid Small Donations Scheme to £8,000 which will allow charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments of up to £2,000 a year, with effect from April 2016.

Payroll Giving

A Payroll Giving scheme allows you to give regularly to charity from your pay and get tax relief on your gifts. The scheme requires your employer to set up and run a scheme. You authorise your employer to deduct your gift from your pay. Every month your employer pays it over to a Payroll Giving agency approved by HMRC. The agency then distributes the money to the charity or charities of your choice.

Because your employer deducts your gift from your pay or pension before PAYE is worked out, you pay tax only on the balance. This means that you get your tax relief immediately at your highest rate of tax. (The amount you pay in national insurance contributions is not affected).

Gifts of shares or land

Capital gains tax (CGT)

You are not liable to CGT when you make a gift of assets, such as land or shares, to charity, even if the asset is worth more when you donate it than when you acquired it.

Income tax

You may also get income tax relief for these gifts to charity if they are ‘qualifying investments’. There are two main types of qualifying investments:

• quoted shares and securities
• land and buildings.

Example Alma owns quoted shares with a market value of £10,000 and an original cost to her of £3,000. Alma is a higher rate taxpayer. Alma gives the shares to the charity. The charity will then sell the shares for £10,000 and keep the full sale proceeds. Alma will not have a capital gain arising under CGT. She will be entitled to 40% income tax relief on the value of her gift ie £4,000. Although this sounds a very attractive relief, a comparison should be made of the alternative route of gifting to a charity by selling the investment and giving the net proceeds to charity under Gift Aid. So, if Alma sold the shares, she would make a capital gain of £7,000 before considering any unused annual exemption. If, say, the CGT bill is nil, she could gift the proceeds of £10,000 under Gift Aid. The charity can reclaim tax of £10,000 x 20/80 = £2,500. Alma is entitled to higher rate relief on the gross gift of £2,500 (£10,000 x 100/80 x 40 – 20%). Although Alma has received less tax relief (£4,000 compared to £2,500), the charity will have received £12,500 (£10,000 from Alma and £2,500 from HMRC).

If you would like further advice on this matter, please contact us.

Qualifying investments

In more detail, the following investments qualify for the tax relief:

• shares and securities listed or dealt in on the UK Stock Exchange, including the Alternative Investment Market
• shares or securities listed or dealt in on any overseas recognised stock exchange
• units in an authorised unit trust (AUT)
• shares in a UK open-ended investment company (OEIC)
• holdings in certain foreign collective investment schemes (foreign equivalents of AUTs and OEICs)
• freehold interests in land
• leasehold interests in land where the lease period is for a term of years absolute.

You should always contact the charity to ensure that it can accept the shares or the land. Indeed for land, the charity needs to give you a certificate stating that it has acquired the land.

The charity may be able to help you with the transfer procedure.

How we can help

If you would like to help a charity financially, it makes sense to do this in a tax efficient way. We can provide assistance in determining this for you. Please contact us for more detailed advice.