Cash Basis for the Self-Employed

We consider the optional rules which allow small unincorporated businesses to calculate their profits for tax purposes on a cash basis rather than the normal accruals basis.

Accruals basis and cash basis

One example which illustrates the difference between the accruals basis and cash basis is that credit sales are included in the accruals basis accounts income despite the fact that the customer may not have paid for the goods or services by the end of the accounting period. Under the optional cash basis the business is taxed on its cash receipts less allowable cash payments made during the accounting period. So under the optional cash basis credit sales are accounted for and taxed in the year in which they are paid for by the customer.

Cash basis eligibility

The main entry criteria are that your business is unincorporated (sole trader or a partnership consisting only of individuals) and that your receipts in the accounting period are less than the VAT registration threshold in force at the end of the relevant tax year. The current registration threshold is £82,000. For those individuals who intend to make a Universal Credit claim the threshold is set at twice the VAT registration threshold.

There are some individual exclusions from cash basis, for example, Limited Liability Partnerships, Lloyd’s underwriters and those eligible individuals who wish to continue to claim averaging of profits like farmers.

Once the cash basis election is made an individual will generally have to remain in the scheme unless the business either grows too large or there is another acceptable ‘change of circumstances.’ These matters are not considered further here.

Key tax points

Cash receipts

Cash receipts literally mean all cash receipts that the business receives during the accounting period. As well as trading income this will also include the proceeds from the sale of any plant and machinery. If a customer does not pay what is owed by the accounting year end then it will not be taxable until the next year when it is actually received by the business.

What deductions are allowable?

In terms of what deductions can be claimed the main rules are that the expenses must have been actually paid in the accounting period as well as being incurred wholly and exclusively for the purposes of the trade.

As is the case with calculating taxable profits generally for a business no deductions are allowed for items which are of a capital nature such as the purchase of property. However, under the cash basis the costs of most plant and machinery can be included as a deduction. One key exception is the purchase of cars.

Relief for interest payments

If you have a business loan or overdraft only interest, payments up to a maximum limit of £500 can be claimed. If, in the future, you have a larger loan and wish to claim more interest as a deduction then this could be treated as a change of circumstances and result in you then having your accounts prepared on the accruals basis.

Restrictions on the use of losses

If your business incurs a loss then under the cash basis this can only be carried forward and set against profits of the same business in future years. This is not as advantageous as the normal rules which will allow the loss to be carried back or set off ‘sideways’ against other income.

In order to ensure that income is taxed and expenses are relieved ‘once and once only’ special calculations are needed on entering or leaving the cash basis.

How we can help

So, in summary, as you can see there is more to the cash basis than might be expected and we would be happy to review your circumstances to see if this would be suitable for you and your business. Please contact us if you would like any further information.

Money Laundering – High Value Dealers

The Money Laundering Regulations 2007 (the Regulations) apply to a number of different businesses which include (amongst others) accountants and auditors, tax advisers and dealers in high value goods. The Regulations contain detailed procedural anti-money laundering requirements for those affected.

HMRC have been given the responsibility for supervising High Value Dealers. We outline below the main requirements of the Regulations and the registration process.

Which businesses are affected?

Businesses that meet the definition of a High Value Dealer (HVD) are affected by the Regulations.

A business is defined as a HVD where it deals in goods and accepts cash equivalent to €15,000 or more in any currency. This applies whether the transaction is executed as a single transaction or in several instalments which are linked.

Businesses that only occasionally accept such transactions are included. Businesses that do not accept large amounts of cash or deal in services are not affected.

It is anticipated that the businesses most affected will be those that deal in high value or luxury goods, works of art, cars, jewellery and yachts.

However, the regime applies to everyone who accepts sufficiently large amounts of cash for goods and any business could potentially be registerable.

If a HVD does not intend to accept high value payments it should have a written policy to this effect and ensure that employees and customers are aware of this policy.

How will my business be affected?

If your business does deal in goods and does accept large cash payments then you are required to:

• put anti money laundering systems in place so that you can identify and prevent money laundering and report any suspicious transactions (see below)
• register with HMRC
• pay an annual registration fee based on the number of premises through which you trade
• report any changes through the registration year

If you are unsure whether you will sell goods for this amount and do not register, you will be obliged to refuse any payments in cash equivalent to €15,000 (or more) or insist upon payment by another means.

Background to the requirements

Why was this regime introduced?

The aim of the regime is to help protect society and to combat money laundering and the criminal activity which underlies it, including terrorism.

As money launderers have resorted to more sophisticated ways of disguising the source of their funds, new legislation and regulation aimed at catching those involved became necessary.

The primary legislation is predominantly contained within the Proceeds of Crime Act 2002 and the Terrorism Act 2000.

What is money laundering?

Money laundering is the process by which criminally obtained money or other assets (criminal property) are exchanged for ‘clean’ money or other assets with no obvious link to their criminal origins.

Criminal property

Criminal property represents the proceeds of criminal conduct. This includes any conduct wherever it takes place, which would constitute a criminal offence if committed in the UK. It not only includes, for example, drug trafficking, tax evasion, fraud, forgery and theft but also any other criminal offence committed for profit.

It is important therefore to remember that money laundering now includes the proceeds of any crime and not simply the more traditionally associated crimes such as drug trafficking and prostitution.

Under the legislation there are three principal money laundering offences covering criminal activity and two related money laundering offences:

• concealing, disguising, converting, transferring or removing (from the United Kingdom) criminal property
• making arrangements which facilitate the acquisition, retention, use or control of criminal property by or on behalf of another person
• acquiring, using or possessing criminal property
• failure to disclose knowing or suspecting or having reasonable grounds for knowing or suspecting that another person is engaged in money laundering or terrorist funding
• revealing that a disclosure of suspicion of money laundering has been made or that an investigation into money laundering offences is being carried out, or considered, where this is likely to prejudice an investigation. This is known as ‘tipping off’.

HVDs must be aware of how these actions could affect their business, for example, as the proceeds of crime are spent (or laundered) within their business.

The importance of the regime

The law imposes very severe penalties on anyone involved in money laundering. The Regulations require HVDs to adopt anti money laundering procedures to protect themselves against abuse by money launderers and the risk of prosecution.

The registration process

HMRC form MLR100 must be completed. HMRC will then send a certificate showing an MLR number.

Registration is required where a business:

• accepts the equivalent of €15,000 or more in cash for a single transaction or in instalments which are linked or
• takes a policy decision to carry out such transactions.

Every legal entity through which a HVD business is run must be registered. An initial fee of £110 is payable for each HVD trading premises that is required to be registered. Annual renewal fees are also payable.

Businesses that fail to register could be liable to a civil penalty if they carry out a HVD transaction.

What anti money laundering policies and procedures are required?

Your business should establish and maintain policies and procedures relating to:

• customer due diligence
• reporting
• record keeping
• internal control
• risk assessment and management
• the monitoring and management of compliance
• the internal communication of these policies and procedures

Customer due diligence (CDD)

HVDs must establish the identity of any customer who makes a total cash payment equivalent to €15,000 or more for a single transaction or linked transactions.

Establishing identity requires you to be satisfied that your customer is who they claim to be by obtaining evidence of their name, address and date of birth. For further information on CDD procedures please refer to the Money Laundering and Proceeds of Crime factsheet.

Appoint a Money Laundering Nominated Officer (MLNO)

This is a very important role within a HVD business and should be performed by a suitably senior person. The main roles of the MLNO should be to:

• establish the necessary procedures to implement the requirements of the Regulations
• receive and review reports of possible money laundering from others involved in the business
• decide whether to report to the National Crime Agency (NCA).

NCA

The NCA is the government body to which all suspicions of money laundering should be reported via the NCA website (www.nationalcrimeagency.gov.uk)

There will be times when an internal report of suspected money laundering is received by the MLNO, where the transaction is not yet complete. Under these circumstances there are specific NCA procedures to follow and you must wait until NCA gives consent for the transaction to go ahead.

Training your staff

All customer facing staff in the business must be trained to be aware of:

• the law regarding money laundering offences and terrorist financing
• how to recognise and deal with suspicious transactions
• Staff should be trained regularly on this subject and training should be repeated to ensure that staff knowledge is maintained and they are competent to apply CDD procedures. The ongoing training should ensure that staff are aware of changing money laundering practices.

Managing the risk

HVDs should:

• have a system in place to record all transactions of €15,000 or more on their accounting system and make them identifiable
• have policies and procedures in place concerning the acceptance of these large transactions.

Record keeping

The records that must be kept are:

• a copy of, or the references to, the evidence of the customer’s identity obtained under the CDD procedures
• the supporting evidence and records in respect of the business relationships and occasional transactions which are the subject of CDD measures or ongoing monitoring.

In relation to the evidence of a customer’s identity, businesses must keep the following records:

• a copy of the identification documents accepted and verification evidence obtained, or
• references to the evidence of a customer’s identity.

How long must the records be retained for?

• Evidence of customer’s identity must be kept for 5 years beginning on the date on which the occasional transaction is completed or the business relationship ends.
• Records of transactions must be kept for 5 years beginning on the date on which the transaction is completed.
• All other records must be kept for 5 years beginning on the date on which the business relationship ends.

Failure to comply

Businesses may be liable to a civil penalty for failing to comply with a registration requirement. There is no upper limit on the amount of penalty. Penalties will be for an amount that is considered appropriate for the purposes of being effective, proportionate and dissuasive.

Failing to comply with responsibilities under the Regulations could lead to either prosecution or a civil penalty. Conviction under the Regulations can incur up to two years imprisonment and / or an unlimited fine.

How we can help

The new regime brought about significant change for those businesses that deal in goods and are prepared to accept large cash payments.

If you would like to discuss any of the issues raised above please do contact us. We are able to provide comprehensive assistance with regulation and HMRC matters such as:

• HVD registration
• design and implementation of anti money laundering policies and procedures
• VAT registration and deregistration
• completion of VAT returns.

Health and Safety

It is very likely that owners and managers of many smaller businesses are not aware of just how demanding health and safety regulations can be.

We provide an overview of these below and highlight some practical tips and processes on how your business can remain (or become!) compliant.

Legislation governing health and safety

The main statutes are:

• The Health and Safety at Work 1974 (HSWA)
• The Management of Health and Safety at Work Regulations 1999 (Risk Assessment)
• Regulatory Reform (Fire Safety) Order 2005
• The Health and Safety (Consultation with Employees) Regulations 1996
• Safety Representatives and Safety Committee Regulations 1977
• Corporate Manslaughter and Corporate Homicide Act 2007

There are many other regulations relating to specific areas of health and safety, for example, manual handling, safety signs, employment of children, display screen equipment, control of substances hazardous to health, reporting of incidents, control of noise and first aid. There are also approved codes of practice (ACOPS) which provide practical advice on compliance and have special legal status.

Minimum requirements

A business with at least five employees must have all of the following in place to avoid problems with a health and safety inspector:

• a written health and safety policy, which should be specifically tailored for the employer
• assessments of risks from workplace activities
• records of any significant findings from such assessments
• consultations with employees or their representatives on health and safety matters
• health and safety training programmes
• employer’s liability insurance, evidence of which is on display
• health and safety posters on display
• a competent person appointed to assist with health and safety responsibilities.

Sanctions for Non-Compliance

If inspectors arrive from either the Health and Safety Executive (the HSE is responsible for factories, farms and building sites) or the local authority (responsible for offices, shops, hotels and catering) and find a business in breach of health and safety regulations there are a number of types of enforcement action they can take, in increasing order of severity, as follows:

• offer advice, either face to face or in writing
• issue a warning, highlighting a failure to comply with the law
• serve an improvement notice
• withdraw approvals to undertake certain activities
• vary licensing conditions or exemptions
• issue formal cautions (a formal statement of an offence having been committed, acknowledged by the recipient)
• serve a prohibition notice (to stop activities in order to prevent serious personal injury)
• prosecute at the magistrates or Crown Court. This may lead to fines from £5,000 up to a maximum of £20,000 in the lower courts and unlimited fines in the Crown Court and/or up to 2 years imprisonment.

At the same time employees may take civil actions against their employer if they suffer injury or illness and the employer has breached the Management of Health and Safety at Work Regulations 1999.

Why managing health and safety makes sense

In addition to avoiding legal sanction, statistics in 2011/12 show:

• 1.1 million working people were suffering from a work-related illness.
• 173 workers killed at work.
• 111,000 injuries were reported under RIDDOR.
• 212,000 reportable injuries (over 3 day absence) occurred (LFS).
• 27 million working days were lost due to work-related illness and workplace injury.
• Workplace injuries and ill health (excluding cancer) cost society an estimated £13.4 billion (in 2010/11)

Accidents and ill health can be very damaging to business because, in addition to personal injury claims and the direct costs, productivity can be severely compromised. The less visible costs are many and varied and include increased overtime working and temporary labour, stress and more staff absence, production delays, repairs to equipment, costs of management time, customer dissatisfaction and loss.

These are compelling reasons why it makes sense to manage health and safety proactively.

Five-step process to managing health and safety

The HSE has produced ‘Successful health and safety management’ (HSG65) which is an excellent guide on how to plan for and audit health and safety.

It suggests a five-step process as set out below.

Step 1
Set your policy. This demonstrates to staff that you take health and safety issues seriously, have identified the risks associated within your business, have assessed those risks and will continue to eliminate or control them.

Step 2
Organise your staff. The effectiveness of your policy depends upon the involvement and commitment of your staff.

Step 3
Plan and set standards. This involves setting health and safety objectives, identifying hazards, assessing risks and implementing standards of performance.

Step 4
Measure your performance. This is about looking at whether your assessments are showing an improvement or the same issues are repeating themselves. Regular inspections and checks should be made to ensure your standards are being met.

Step 5
Learn from experience. If things have gone wrong, this is about reviewing how effective your procedures are and then making changes to improve the effectiveness of these policies and procedures.

Practical tips

The following are some practical actions you could and should be taking today:

• removing items from the work area such as cables and other loose items, which can cause tripping and slipping accidents
• repairing torn carpets and broken edges on staircases to avoid the risk of serious falls
• making sure that workstations are stable, don’t give off a reflective glare and ensuring there is suitable seating and hand and foot-rests so that staff maintain good posture whilst working
• insisting that staff take regular breaks, particularly if working for long stretches at a VDU screen
• undertaking regular fire drills and ensuring first aid training is updated regularly
• keeping the first aid box(es) fully stocked and readily available
• ensuring that health and safety signs are kept relevant and up to date, including the display of non-smoking signs at each staff entrance
• setting up a system to regularly check all electrical appliances and fire extinguishers
• ensuring that staff are aware of the potential risks of performing certain tasks and checking that they are fit to undertake those tasks or know how to do them safely.

How we can help

Health and safety is an important, if sometimes neglected, area. To help you meet your responsibilities we have provided a simple checklist that you may wish to complete to identify areas within your business that need attention.

Please contact us if you would like any additional information.

Grants

Ensuring adequate finance is a fact of life if you run a business. Whether you are looking to expand, undertake a specific project or simply fund your day to day purchases, finance is essential.

Obtaining finance is not always easy, especially if yours is a small business and particularly if it is a recent start-up. Borrowing may be difficult due to lack of security.

A grant may be the answer.

What is a grant?

A grant is a sum of money awarded, by the government or other organisation, for a specific project or purpose. Normally it will cover only some of the costs (typically between 15% and 50%); the business will need to fund the balance. Their availability is limited and competition for the funds can be quite intense. One of the main features of a grant is that the money generally becomes repayable if the terms and conditions of the grant are not met.

This sounds quite simple in principle. However, in practice, it can be somewhat daunting because of the huge number of different schemes in operation and the fact that schemes are constantly changing. Government grants are distributed through a variety of ministries, departments and agencies both on a national and local basis. They are usually for proposed projects only, so ensure you have not already started the project otherwise you may not be entitled to the grant.

The following websites may help with initial research into grant availability:

https://www.gov.uk/business-finance-explained/grants

https://www.gov.uk/business-finance-support-finder

The European Union is also a provider of funds, mainly through the European Commission which administers a large number of schemes.

http://ec.europa.eu/contracts_grants/grants_en.htm

Grants can also be received through Local Enterprise Partnerships (LEPs), local authorities and charitable organisations.

Is my business eligible?

Many of the available schemes are open to all without restriction. Eligibility for others will generally depend upon a number of factors:

• geographical location of the business – for example some schemes are targeted in areas of social deprivation or high unemployment
• size of business – for example some schemes are restricted to small or medium sized businesses – such as those businesses with fewer than 250 employees
• industry or sector in which the business operates – for example some schemes aim to tackle particular problems or issues affecting an industry sector – these are generally defined by the European Commission
• purpose of the grant – grants are often awarded for specific purposes – for example purchasing a new machine or increasing employment. Grant bodies often seek specific targets which are often in line with their own objectives.

Applying for a grant

Before applying

Initial research is essential so that you know what’s on offer.

It is also necessary to ensure that you:

• have funds available to ‘match’ any grant that may be awarded (where this is a condition of the grant)
• need the money for a specific ‘project’ or purpose
• have a business plan
• do not start work on the project before the award is confirmed.

Making the application

It is a good idea, if possible, to make personal contact with an individual involved in administering your chosen scheme. This will give you a feel for whether it is worthwhile proceeding before you spend too much time on a detailed application. You may also be able to get some help and advice on making the application.

It is also a good idea where you can to apply as soon as possible after launch of the scheme. Many grant schemes run for a limited period of time; there will be more money available at an early stage and the administrators will be keen to receive applications and make awards.

The application itself should focus on the project for which you are claiming a grant. It should include an explanation of the potential benefits of the project as well as a detailed plan with costings. You should ensure that your application matches the objectives of the scheme. You will almost certainly need to submit a business plan as part of the application. It is important to show that the project is dependent on grant funds to proceed and that you have matching funds available.

Hearing back

This can take anything from a few weeks to a year or more. Your application will generally be assessed by looking at a variety of factors including your approach, your expertise, your innovation and your need for the grant.

Why you might be turned down

There are various reasons why your application may be turned down. The common ones include:

• your industry sector or field is not relevant to the body making the award
• your plan of action was not detailed enough or was unfocused and lacking in clarity
• you have not made it clear that the grant is vital to the success of the project
• matched funds are not available.

Finally, if your application is unsuccessful, ask for feedback. This will help you to be more effective when applying for funds in the future.

How we can help

We can help you to find an appropriate source of grant funds and also assist with your business plan and detailed application. Contact us to find out more.

Share Ownership for Employees – EMI

EMI and SIPs

Retaining and motivating staff are key issues for many employers. Research in the UK and USA has shown a clear link between employee share ownership and increases in productivity. The government has therefore introduced two ways in which an employer can provide mechanisms for employees to obtain shares in the employer company without necessarily suffering a large tax bill.

The two routes are:

• Enterprise Management Incentives (EMI) and
• Share Incentive Plans (SIPs).
• EMI allows selected employees (often key to the employer) to be given the opportunity to acquire a significant number of shares in their employer through the issue of options.

A SIP is designed to allow all employees to participate in their business and to encourage long-term shareholding by them.

This factsheet outlines the rules for EMI.

Tax problems under normal rules

If shares are simply given to an employee the market value of the shares will be taxed as earnings from the employment. This is expensive for the employee as he may not have any cash to pay the tax arising.

In order to avoid this immediate charge, options could be granted to an employee. An option gives the employee the right to obtain shares at a later date. Provided that the terms of the option are that it must be exercised within ten years, any tax liabilities will be deferred until the time the options are exercised.

This may still be expensive for the employee if he is not then in a position to sell some of the shares in order to pay the tax arising.

What does EMI offer?

EMI allows options to be granted to employees which may allow the shares to be received without any tax bill arising until the shares are sold.

How does it work?

Selected employees are granted options over shares of the company. The options should be capable of being exercised within ten years of the date of grant.

In order to qualify for the income tax and national insurance contribution (NIC) reliefs, the options awarded need to be actually exercised within ten years of the date of the grant. There is also a statutory limit of £250,000 in respect of options granted on or after 16 June 2012, which maximises the value of the options which may be granted to any one employee. No employee may hold unexercised qualifying EMI options with a market value of more than £250,000. The market value is taken at the date of grant.

What are the tax benefits to employees?

The grant of the option is tax-free.

There will be no tax or NICs for the employee to pay when the option is exercised so long as the amount payable for the shares under the option is the market value of the shares when the option is granted.

The EMI rules allow the grant of nil cost and discounted options. However, in these circumstances, there is both an income tax and an NIC charge at the time of exercise on the difference between what the employee pays on exercise and the market value of the shares at the date of grant.

Following the acquisition of the shares, when the option is exercised, an employee may immediately dispose of, or may retain the shares for a period before selling them. At such time there will be a chargeable gain on any further increase in value. The CGT liability will depend on the availability of any reliefs and annual exemption.

For chargeable gains:

• CGT at the rate of 18% applies to gains where net total taxable gains and income are below the income tax basic rate band
• CGT on any part of gains above this limit will be charged at 28%.

In certain circumstances, in respect of shares acquired through exercising EMI options, Entrepreneurs’ Relief may be available to reduce the CGT liability to 10%. The law has been amended to extend the relief to EMI shares by removing the 5% minimum shareholding requirement and allowing the 12 month minimum holding requirement to commence on the date the option is granted. This measure applies to shares acquired on or after 6 April 2012 that are disposed of on or after 6 April 2013. The other Entrepreneurs’ Relief requirements apply.

What are the benefits to employers?

• Employees have a potential stake in their company and therefore retention and motivation of these employees will be enhanced.
• Options will not directly cost the employer any money in comparison to paying extra salary.
• There will normally be no NICs charge for the employer when the options are granted or exercised or when the employee sells the shares.
• A corporation tax deduction for the employer company broadly equal to employees’ gains.

EMI: Points to consider

There are a number of issues to consider in deciding whether EMI is suitable for your company.

• Does the company qualify?
• Which employees are eligible and who should be issued options?
• What type of shares will be issued?
• When will the rights to exercise options arise?
• The costs of setting up the option plans are not tax deductible.

Does the company qualify?

EMI was introduced by the government to help small higher risk companies recruit and retain employees with the skills that will help them grow and succeed. The company must therefore:

• exist wholly for the purpose of carrying on one or more ‘qualifying trades’
• have gross assets of no more than £30 million
• not be under the control of another company (so if there is a group of companies, the employee must be given an option over shares in the holding company).

The main trades excluded from being qualifying trades are asset backed trades such as:

• property development
• operating or managing hotels
• farming or market gardening.

Which employees are eligible and who should be issued options?

An employee cannot be granted options if they control more than 30% of the ordinary share capital of the company. They must spend at least 25 hours a week working for the company or the group, or if the working hours are shorter, at least 75% of their total working time must be spent as an employee of the company or group.

Subject to the above restrictions, an employer is free to decide which employees should be offered options. The sole test is that options are offered for commercial reasons in order to recruit or retain an employee.

What type of shares will be issued?

EMI provides some flexibility for employers. For example, it is possible to limit voting rights, provide for pre-emption or set other conditions in respect of shares which will be acquired on exercise of an EMI option. The shares must, however, be fully paid ordinary shares so that employees have a right to share in the profits of the company.

When will the rights to exercise options arise?

The options must be capable of being exercised within ten years of the date of grant but there does not have to be a fixed date.

Examples of circumstances in which the options could be exercised include:

• fixed period
• profitability target or performance conditions are met
• takeover of company
• sale of company
• flotation of company on a stock market.

Options can be made to lapse if certain events arise, for example the employee leaves the employment.

How we can help

We can help you decide whether EMI is appropriate for your business and whether the business will qualify.

We are also able to help you with the necessary documentation required to establish and operate EMI and advise on the costs so please do contact us.

Data Security – Backup

Many companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices and on data stored in the cloud. Some of this data is likely to contain either personal information and/or confidential company information.

Here we look at some of the issues to consider when reviewing the security of your computer systems and data.

Data backup is an essential security procedure and needs to be undertaken on a regular basis. A business should view the undertaking regular backups as a form of insurance policy.  There are a number of points to consider.

Systems and Applications Software Installation media

Ideally, once software has been installed, the original media (unless the software was downloaded) should be stored securely off-site. Any activation keys/codes should be similarly stored securely.

Data file locations

In a network environment some data files might be stored on the server and other data files stored on local drives. In which case separate backups may be required for both the server and one or more PCs.

Ideally, a network solution should be provided which ensures that all data is re-copied back to the server from local drives.

Backup strategy and frequency

There is likely to be a need for two parallel backup procedures; one to cover a complete systems backup of the server(s) and another to incrementally (or differentially) backup data files which have been updated since the previous backup.

The most common backup cycle is the grandfather, father, son method. With this, there is a cycle of 4 daily backups, 4/5 weekly backups and 12 monthly backups.

Remember that some data has to be preserved for many years – for example accounting records for need to be kept for a minimum of 6 years.

Backup media can be re-used many times, but they do not have a finite life and will need replacing after 2-10 years depending on quality and number of times used. Some additional points are made on this issue in the section on backup media degradation.

Backup responsibilities

Someone should be given responsibility for the backup procedures. This person needs to be able to:

• regularly ensure that all data files (server and local) are incorporated in the backup cycle(s)
• adapt the backup criteria as new applications and data files are added
• modify the backup schedule as required
• interpret backup logs and react to any errors notified
• restore data if files are accidentally deleted or become corrupt
• regularly test that data can be restored from backup media
• maintain a regular log of backups and log where the backup media are stored.

Applications backup routines

Many accounting and payroll applications have their own backup routines. It is a good idea to use these on a regular basis (as well as conventional server backups) and always just before critical update routines. These backup data files should be stored on the server drive so that they are backed up.

Local PCs

Certain users will have applications data files exclusively on their local drives (such as payroll data for example) and these will require their own regular backup regime which as mentioned in the previous paragraph may consist of a combination of backing up to media and backing up to the server.

Backup media

Selecting the right media to use for backups depends on budget, how much data there is and the networking operating software. External hard disks or a NAS box with cloud backup may provide a good solution . If an external service provider is used, or perhaps a cloud option, they should have their own backup regime – but don’t totally rely on this.

Optical storage such as CD/DVD, or Blu-Ray may also be considered as a cheaper alternative, but capacity and life may be limited.

Backup location

Backups should be stored in a variety of both on-site and off-site locations. On-site backups are easily accessible when data has to be restored quickly, but are at risk from either fire or other disaster.

A large number of businesses use an on-site safe, however, this will be useless if it’s buried under tons of rubble, or the premises otherwise become inaccessible.

Off-site backups have the advantage that they can be recovered in an emergency, but

a) they still need to be stored securely; and

b) need to be reasonably accessible.

Backup retention

Finally, certain type of records, such as accounting records for example, need to be kept for a minimum period of time and this must be considered when developing the data backup strategy (also see below regarding degradation).

Backup media degradation/decomposition

Backup media degrades and the data stored on them decomposes over a period of time.

Optical media such as CD/DVD and Blu-Ray are particularly sensitive to light (photosensitive), so ensure that they are stored in a dark environment. They are also prone to physical damage when being handled. Finally, this type of media is not designed for long-term storage – lasting possibly as little as 2 years.

Backups should be checked on a regular basis for signs of digital decomposition, and tested to check that data can be successfully restored.

In-house or cloud?

Many internet service providers and third-party IT service organisations, now offer, either as standard or as a chargeable extra, off-site data repositories and also complete online application solutions. The immediate appeal is that there is no need to internally support a server and its operating and applications software. However, there are a significant number of key security issues which should be covered as part of the contract/service level agreement (SLA). These should include level of encryption , the countries in which the data is processed and stored (as this has potential issues with Data Protection laws), data deletion and retention periods, the availability of audit trails of who is accessing the data and finally, who has ownership of the data if the provider goes into administration/receivership.

We would always recommend therefore that if a third-party is used, that the business uses a combination of both traditional in-house backup solutions, and cloud backup services. Where data is stored in the cloud, try to ensure that as little personal data as possible is processed and stored in this way.

How we can help

We can provide help in the following areas:

• performing a security/information audit
• drawing up a suitable backup regime
• training staff in security principles and procedures.

Please do contact us if we can be of further help.

Statutory Sick, Statutory Maternity and Statutory Paternity Pay

Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP) Statutory Paternity Pay (SPP) and Shared Parental Pay (ShPP) are important regulations to understand as they enforce minimum legal requirements on employers. Each operates in a different way.

This factsheet sets out the main principles of the regulations and what an employer needs to consider.

Statutory Sick Pay (SSP)

SSP applies to all employers regardless of size and represents the minimum payments which should be paid by law.

It is possible to opt out of the scheme but only if an employer’s occupational sick pay scheme is equal to or more than SSP. There would still be a requirement to keep appropriate records etc.

We have outlined the general principles below but first we need to explain some of the special terms used.

Glossary of terms

Period of incapacity for work (PIW)

A PIW consists of four or more calendar days of sickness in a row. These do not have to be normal working days.

Linking

Where one PIW starts within eight weeks of the end of a previous PIW the periods can be linked.

Qualifying days (QDs)

These are usually the employee’s normal working days unless other days have been agreed.

SSP is paid for each qualifying day once the waiting days have passed.

Waiting days (WDs)

The first three QDs in a PIW are called WDs. SSP is not payable for WDs.

Where PIWs are linked it is only the first three days of the first PIW which are WDs.

Who qualifies for SSP?

All employees who, at the beginning of a PIW or linked PIWs, have had average weekly earnings above the Lower Earnings Limit £112 for 2015/16 (£111 in 2014/15).

Employees must have notified you about their sickness – either within your own time limit or within seven days.

They must give evidence of their incapacity. Employees can self-certify their absence for the first consecutive seven days, thereafter form Med3 (Fit Note) is required from their general practitioner.

How much SSP is payable?

The weekly rate of SSP for the 2015/16 tax year is £88.45 (£87.55 for 2014/15) but it is computed at a daily rate.

The daily rate

The daily rate may vary for different employees. It is calculated by dividing the weekly rate by the number of qualifying days in a week. For example an employee with a five day working week would normally have a daily rate of £17. 69 for 2015/16.

Only QDs qualify for SSP and remember the first three days (WDs) do not qualify.

Maximum SSP

The maximum entitlement is 28 weeks in each period of sickness or linked PIW.

Recovery of SSP

With effect from 6 April 2014 the Percentage Threshold Scheme (PTS) which enabled employers falling within certain limits of the scheme to recover some of their SSP has been abolished.

The PTS enabled employers to recover some of the SSP paid to their employees if the total SSP paid in a tax month is greater than 13% of their gross Class 1 NICs (employers’ and employees’) liability for that month.

Employers will have until the end of 2015/16 to recover SSP paid for sickness absences occurring before the end of 2013/14.

PAYE and records

SSP is included in gross pay and PAYE operated as normal.

In line with the abolition of the Percentage Threshold Scheme and the introduction of the Statutory Sick Pay (Maintenance of Records) (Revocation) Regulations, with effect from 6 April 2014, employers are no longer required to maintain minimum statutory SSP records to demonstrate compliance with SSP obligations.  However, it is best practice to continue to monitor sickness absence and maintain detailed records as these will be required for PAYE purposes.

Statutory Maternity Pay (SMP)

SMP is paid to female employees or former employees who have had or are about to have a baby.

The payment of SMP is compulsory where the employee fulfils certain requirements.

The requirements

SMP is payable provided the employee has:

• started her maternity leave
• given 28 days notice of her maternity leave (unless with good reason)
• provided medical evidence with a form (MATB1)
• been employed continuously for 26 weeks up to and including her qualifying week
• had average weekly earnings (AWE) above the Lower Earnings Limit in the relevant period.

It is important to note that mothers have a legal entitlement to take up to 52 weeks off around the time of the birth of their baby whether or not they qualify for SMP. This means that mothers can choose to take up to one year off in total.

The amount payable

SMP is payable for a maximum of 39 weeks. The date the baby is due, as shown on the MATB1 certificate, determines the maternity pay period entitlement and not the date the baby is born. The rates of SMP are as follows:

• first six weeks at 90% AWE (see below)
• up to a further 33 weeks at the lower of:

• 90% of AWE
• £139.58 per week for 2015/16 (£138.18 for 2014/15)

SMP is treated as normal pay.

Average weekly earnings (AWE)

AWE need to be calculated for two purposes:

• to determine if the employee is entitled to SMP (earnings must be above the Lower Earnings Limit)
• to establish the rate of SMP.

The average is calculated by reference to the employee’s relevant period. This is based on an eight week period up to the end of the qualifying week, which is 15 weeks before the baby is due. In some instances subsequent pay rises have to be taken into account when calculating SMP. Earnings for this purpose are the same as for Class 1 NIC and include SSP.

Recovery of SMP

92% of SMP paid can be recovered by deduction from the monthly PAYE payments.

Employers may qualify for Small Employers’ Relief (SER). SER is 100% of SMP plus 3% compensation.

To qualify for SER, the current limits are:

• total gross Class 1 NIC for the employee’s qualifying tax year must be less than £45,000
• the employee’s qualifying tax year is the last complete tax year that ends before the start of her qualifying week.

Glossary of terms

Week baby due

The week in which the baby is expected to be born. This starts on a Sunday.

Qualifying week (QW)

The 15th week before the week baby due.

The week baby due and QW are easy to establish using software or online calculators which are available through GOV.UK Basic PAYE tools.

Maternity Pay Period (MPP)

The period of up to 39 weeks during which SMP can be paid.

MATB1

Maternity certificate provided by a midwife or doctor. This is available up to 20 weeks before the baby is due. SMP cannot be paid without this.

Ordinary Statutory Paternity Pay (OSPP)

OSPP is paid to partners who take time off to care for the baby or support the mother in the first few weeks after the birth. OSPP was previously known as Statutory Paternity Pay.

It is available to:

• a biological father
• a partner/husband or civil partner who is not the baby’s biological father
• a mother’s female partner in a same sex couple

The partner must have:

• given 28 days notice of their paternity leave (unless with good reason)
• provided a declaration of family commitment on form SC3
• been employed continuously for 26 weeks up to and including their qualifying week
• had average weekly earnings above the Lower Earnings Limit in the relevant period.

The amount payable

OSPP is payable for a maximum of 2 weeks, it must be taken as a block either 1 week or a complete fortnight but not 2 single weeks at the following rates:

• the lower of:

• 90% of AWE
• £139.58 for 2015/16 (£138.18 for 2014/15)

OSPP is treated as normal pay.

The calculation of average weekly earnings and the recovery of OSPP are subject to the same rules as for SMP.

With effect from 1st October 2014, fathers will have the right to take unpaid leave to attend up to two antenatal appointments.

Adoptive parents

To qualify for Statutory Adoption Pay (SAP) an employee must meet the same earnings and service criteria as an employee seeking to qualify for SMP. An employee must provide his or her employer with evidence of the adoption and a declaration that he or she has elected to receive SAP. HMRC form SC4 provides a declaration form that can be used. A matching certificate from the adoption agency must be produced to the employer. SAP is paid at the same rates as SMP and follows the same rules with regard to recovery.

Shared parental leave (SPL)

New rights to Shared Parental Leave are available to parents whose babies are due on or after 5 April 2015. In the case of adoptions SPL will apply in relation to children matched with a person or placed for adoption on or after 5 April 2015.

Employed mothers are  still entitled to 52 weeks of maternity leave. The mother can curtail her right to SMP and leave and opt to take ShPL and Shared Parental Pay (ShPP). SPL and ShPP will be available provided the parents satisfy the eligibility requirements. The main elements of the scheme are:

• In the 52 week period there will be two weeks’ compulsory SML (four weeks if they are manual workers) which the mother must take.
• Eligible parents will then be able to share the remaining leave and pay in the form of ShPP and ShPL between themselves as they choose.
• Fathers will still be entitled to two weeks OSPP basic paternity leave.
• Mothers with partners (who must also meet the qualifying conditions) will be able to end the mother’s  leave and pay and share the untaken balance as ShPL and ShPP.
• Employees who take ShPL are protected from less favourable treatment as they will have the right to return to the same job if the total leave taken is 26 weeks or less in aggregate, even if the leave is taken in discontinuous blocks.
• Any subsequent leave will attract the right to return to the same job, or if that is not reasonably practicable, a similar job.
• It will be up to the parents how they share ShPL – they could take it in turns or take time off together, provided they take no more than 52 weeks of this leave, combined in total.
• Additional paternity leave and pay is abolished for babies due from 5 April 2015 .
• ShPP is calculated in the same way as SMP.

How we can help

As the scheme payments are statutory it is important that rules are adhered to and we will be more than happy to provide you with assistance or any additional information required. Please do not hesitate to contact us.

Venture Capital Trusts

Venture Capital Trusts (VCTs) are complementary to the Enterprise Investment Scheme (EIS), in that both are designed to encourage private individuals to invest in smaller high-risk unquoted trading companies affected by the equity gap. While the EIS requires an investment to be made directly into the shares of the company, VCTs operate by indirect investment through a mediated fund. In effect they are very like the investment trusts that are obtainable on the stock exchange, albeit in a high-risk environment.

What is a VCT?

VCTs themselves are quoted companies which are required to hold at least 70% of their investments in shares or securities that they have subscribed for in qualifying unquoted companies. VCTs have a certain time period in which to meet the percentage test. If a VCT sells a holding and breaches the test, the VCT is allowed a six month period to reinvest cash received into another qualifying investment.

Other conditions are:

• they must distribute 85% of their income
• they must have a spread of investments with no single holding accounting for more than 15% of the value of total.

From 22 April 2009 the time limits concerning the employment of money invested are relaxed.

VCTs are exempt from tax on their capital gains and there is no relief for capital losses.

Reliefs available to investors

Income tax relief of 30% is currently available on subscriptions for VCT shares up to a limit per tax year of £200,000.

To qualify for income tax relief the shares must be held for a minimum of five years.

Investors are exempt from tax on any dividends received from a VCT although the credits are not repayable.

Capital gains arising on disposal of the shares are also exempt and for this relief, there is no minimum period of ownership. There is no relief for any capital losses.

Qualifying companies

The definition of a qualifying company for VCT purposes is very similar to that applying for EIS. The company:

• must be unquoted, although shares on the Authorised Investment Market (AIM) are deemed unquoted for this purpose. They may become quoted later.
• must not deal in land, leased assets or financial, legal or accountancy services. In addition it must not be a trade that has a large capital aspect to it, such as property development, farming, hotels or nursing homes.

Certain changes to the qualifying conditions for VCTs have been made to ensure that the scheme continues to meet European State Aid requirements.

In summary the changes are:

• VCT shares must be traded on an EU regulated market rather than being restricted to an official UK list
• the rules governing the amount of a VCT investments which must be held as equity, and the types of shares qualifying will change
• companies will be excluded from qualifying for VCT purposes where it would be regarded as an ‘enterprise in difficulty’ under the European Commission’s guidelines.

It was announced in Budget 2015 that the government will make amendments to the scheme, subject to EU state aid approval:

• Require that companies must be less than 12 years old when receiving their first VCT investment, except where the investment will lead to a substantial change in the company’s activity
• Introduce a cap on total investment received under tax-advantaged venture capital schemes of £15 million, increasing to £20 million for knowledge-intensive companies
• Increase the employee limit for knowledge-intensive companies to 499 employees, from the current limit of 249 employees.

How we can help

It is not possible to cover all the detailed rules in a factsheet of this nature. If you are interested in investing in a VCT please contact us for further information.

Community Amateur Sports Clubs

Since April 2002, many local amateur sports clubs have been able to register with HMRC as Community Amateur Sports Clubs (CASCs) and benefit from a range of tax reliefs including Gift Aid. In 2014, the tax benefits were increased to encourage more clubs to register and some of the registration requirements are being amended in order to clarify the conditions that clubs have to satisfy.

What kind of club can register?

Broadly a club seeking to register must:

• be open to the whole community
• be organised on an amateur basis
• have as its main purpose providing facilities for, and promoting participation in, one or more eligible sports.

Legislation was introduced in FA 2013 to allow HMRC to amend some of the conditions. The only changes which are law at the moment relate to the income conditions, but it appears that the rest will take effect in the near future.  

Open to the whole community

A club is open to the whole community if:

• membership of the club is open without discrimination
• the club’s facilities are open to members without discrimination, and
• any fees are set at a level that does not pose a significant obstacle to membership or use of the club’s facilities.

Discrimination

Discrimination includes:

• discrimination on grounds of ethnicity, nationality, sexual orientation, religion or beliefs
• discrimination on grounds of sex, age or disability, except as a necessary consequence of the requirements of a particular sport.

Costs associated with membership and participation

It is anticipated that new regulations will specify:

• clubs where membership and participation costs total £520 or less a year will be considered to be open to the whole community
• clubs where membership costs (excluding participation costs) are above £1,612 a year will not be eligible
• clubs where membership and participation costs total more than £520 a year must make special provisions for members on a low or modest income to participate for £520 or less.

Organised on an amateur basis

A club is organised on an amateur basis if:

• it is non-profit making
• it provides for members and their guests only the ‘ordinary benefits’ of an amateur sports club
• it does not exceed the limit on paid players
• its governing document requires any net assets on the dissolution of the club to be applied for approved sporting or charitable purposes.

Non-profit making

A club is non-profit making if its governing document requires any surplus income or gains to be reinvested in the club. Surpluses or assets cannot be distributed to members or third parties. This does not prevent donations to other clubs that are registered as Community Amateur Sports Clubs.

‘Ordinary benefits’ of an amateur sports club

Some of the rules as to what constitutes an ‘ordinary benefit’ are expected to be amended in 2015.

The ordinary benefits of an amateur sports club include:

• provision of sporting facilities
• reasonable provision and maintenance of club-owned sports equipment
• provision of suitably qualified coaches
• provision, or reimbursement of the costs, of coaching courses
• reimbursement of certain travel expenses incurred by players and officials travelling to away matches
• sale or supply of food or drink as a social adjunct to the sporting purposes of the club.

Payments to members

A club is allowed to:

• enter into agreements with members for the supply to the club of goods or services or
• employ and pay remuneration to staff who are club members.

So a CASC could pay members for services such as coaching or grounds maintenance but would not, for example, normally pay members to play. However under new regulations clubs will be allowed to pay a maximum of £10,000 a year in total to players to play for the club.

Eligible sports

Eligible sports are defined in the legislation by reference to the Sports Council’s list of recognised activities. This can accessed using the following link: http://www.sportengland.org/our-work/national-work/national-governing-bodies/sports-that-we-recognise/

A new income condition

All CASCs must meet a new income condition which aims to ensure that CASCs are mainly sports clubs rather than mainly commercial clubs with sports activities. The income condition applies to the turnover received from broadly commercial transactions with non-members, where the club is offering a commercial service or supply, for example sales of food and drink. The maximum amount of turnover that a club may receive under the income condition is £100,000 a year, excluding VAT.

Clubs are able to generate unlimited income from transactions with their members. Investment income and donations received is also excluded from the income condition.

This condition is treated as having effect from 1 April 2010.

Tax reliefs for registered CASCs

CASCs can reclaim basic rate tax on Gift Aid donations made to them by individuals but CASC subscriptions are not eligible as Gift Aid payments.

CASCs are treated as companies for tax purposes. Therefore their profits may be chargeable to corporation tax.

CASCs can claim the following tax reliefs:

• exemption from Corporation Tax on profits from trading where the turnover of the trade is less than £50,000 (was £30,000)
• exemption from Corporation Tax under Schedule A on income from property where the gross income is less than £30,000 (was £20,000)
• exemption from Corporation Tax on interest received
• exemption from Corporation Tax on chargeable gains.

It should be noted that if trading turnover exceeds £50,000 (£30,000), all the trading profit is assessable to corporation tax.

The revised income figures apply in relation to accounting periods beginning on or after 1 April 2015. Where an accounting period straddles this date, the receipts are pro-rated accordingly.

Example A CASC runs a trade with turnover of £60,000 and profit of £6,000. Because the turnover exceeds the £50,000 limit the profit is taxable. The CASC also has gross rental income of £12,000. The gross rental income is below the exemption limit and is not taxable.

Claiming the tax reliefs

Where a CASC receives a tax return, relief can be claimed in the return. However most clubs do not receive a tax return each year. If the club has had tax deducted from its income or if it has received Gift Aid payments, it can claim a repayment from HMRC.

Corporate Gift Aid to the rescue?

The FA 2014 extended corporate Gift Aid to donations of money made by companies to CASCs. This allows companies to claim tax relief on qualifying donations they make on or after 1 April 2014.

It is expected that the corporate Gift Aid provisions will not only encourage companies to make donations to clubs which are registered as CASCs but will also encourage clubs with high levels of commercial trading to potentially benefit from CASC status. A club with significant trading receipts may well not qualify for CASC status because of the trading receipts. It could however set up a trading subsidiary and donate the profits to the club. The donation received by the club will not be treated as trading receipts and thus the club could apply for CASC status. The new Gift Aid relief will eliminate the corporation tax charge on the profits of the company.

There are however other issues for the club to consider in the establishment of a trading subsidiary.

Non-domestic rates relief

CASCs in England and Wales get the same relief that would be available to a charity (80% mandatory relief) where the CASC property is wholly or mainly used for the purposes of that club. For CASCs in Scotland, the Scottish Executive has agreed voluntary relief with local authorities for the same amount.

Relief for donors

• Individuals can make gifts to CASCs using the Gift Aid scheme. We have a separate factsheet giving further details of the Gift Aid scheme.
• Businesses giving goods or equipment that they make, sell or use get relief for their gifts.
• Corporate Gift Aid.
• Gifts of chargeable assets to CASCs are treated as giving rise to neither a gain nor a loss for capital gains purposes.

How we can help

Please contact us if you have any queries relating to the rules on CASCs. We would be delighted to help.

Inheritance Tax – a Summary

Inheritance tax (IHT) is levied on a person’s estate when they die, and certain gifts made during an individual’s lifetime.

Most gifts made more than seven years before death will escape tax. Therefore, if you plan in advance, gifts can be made tax-free: the result can be a substantial tax saving.

We give guidance below on some of the main opportunities for minimising the impact of the tax.

It is however important for you to seek specific professional advice appropriate to your personal circumstances.

Summary of IHT

Scope of the tax

When a person dies IHT becomes due on their estate. Some lifetime gifts are treated as chargeable transfers but most are ignored providing the donor survives for seven years after the gift.

The rate of tax on death is 40% and 20% on lifetime chargeable transfers. For 2015/16 the first £325,000 is chargeable at 0% and this is known as the nil rate band.

Charitable giving

A reduced rate of IHT applies where 10% or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. In those cases the 40% rate will be reduced to 36%.

IHT on lifetime gifts

Lifetime gifts fall into one of three categories:

• a transfer to a company or a trust is immediately chargeable
• exempt gifts which will be ignored both when they are made and also on the subsequent death of the donor, eg gifts to charity
• any other transfers will be potentially exempt transfers (PETs) and IHT is only due if the donor dies within seven years of making the gift. It might therefore be more advisable to regard them as potentially chargeable transfers.

IHT on death

The main IHT charge is likely to arise on death. IHT is charged on the value of the estate. This includes any interests in trust property where the deceased had a right to income from, or use of, the property. Furthermore:

• PETs made within seven years become chargeable
• there may be an additional liability because of chargeable transfers made within the previous seven years.

Estate planning

Much estate planning involves making lifetime transfers to utilise exemptions and reliefs or to benefit from a lower rate of tax on lifetime transfers.

However careful consideration needs to be given to other factors. For example a gift that saves IHT may unnecessarily create a capital gains tax (CGT) liability. Furthermore the prospect of saving IHT should not be allowed to jeopardise the financial security of those involved.

Use of PETs

Wherever possible gifts should be made as PETs rather than as chargeable transfers. This is because the gift will be exempt from IHT if the donor survives for seven years.

Nil rate band and seven year cumulation

Chargeable transfers covered by the nil rate band can be made without incurring any IHT liability. Once seven years have elapsed a gift is no longer taken into account in determining IHT on subsequent transfers. Therefore every seven years a full nil rate band will be available to pass assets out of the estate.

Transferable nil rate band

It is possible for spouses and civil partners to transfer the nil rate band unused on the first death to the surviving spouse for use on the death of the surviving spouse/partner. On that second death, their estate will be able to use their own nil rate band and in addition the same proportion of a second nil rate band that corresponds to the proportion unused on the first death. This allows the possibility of doubling the nil rate band available on the second death. This arrangement can apply where the second death happens after 9 October 2007 irrespective of the date of the first death.

Annual exemption

£3,000 per annum may be given by an individual without an IHT charge. An unused annual exemption may be carried forward to the next year but not thereafter.

Gifts between husband and wife

Gifts between husband and wife are generally exempt, if both are UK domiciled. It may be desirable to use the spouse exemption to transfer assets to ensure that both spouses can make full use of lifetime exemptions, the nil rate band and PETs.

Small gifts

Gifts to individuals not exceeding £250 in total per tax year per recipient are exempt. The exemption cannot be used to cover part of a larger gift.

Normal expenditure out of income

Gifts which are made out of income which are typical and habitual and do not result in a fall in the standard of living of the donor are exempt. Payments under deed of covenant and the payment of annual premiums on life insurance policies would usually fall within this exemption.

Family maintenance

A gift for family maintenance does not give rise to an IHT charge. This would include the transfer of property made on divorce under a court order, gifts for the education of children or maintenance of a dependent relative.

Wedding presents

Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.

Gifts to charities

Gifts to registered charities are exempt provided that the gift becomes the property of the charity or is held for charitable purposes.

Business property relief (BPR)

When ‘business property’ is transferred there is a percentage reduction in the value of the transfer. Often this provides full relief. In cases where full relief is available there is little incentive, from a tax point of view, to transfer such assets in lifetime. Additionally no CGT will be payable where the asset is included in the estate on death. However the reliefs may not be so generous in the future and therefore gifts now may be advisable.

Agricultural property relief (APR)

APR is similar to BPR and available on the transfer of agricultural property so long as various conditions are met.

Use of trusts

Trusts can provide an effective means of transferring assets out of an estate whilst still allowing flexibility in the ultimate destination and/or permitting the donor to retain some control over the assets. Provided that the donor does not obtain any benefit or enjoyment from the trust, the property is removed from the estate.

We can advise you on the type of trust which may be suitable for your circumstances.

Life assurance

Life assurance arrangements can be used as a means of removing value from an estate and also as a method of funding IHT liabilities.

A policy can also be arranged to cover IHT due on death. It is particularly useful in providing funds to meet an IHT liability where the assets are not easily realised, eg family company shares.

Wills

As the main IHT liability is likely to arise on death, an up to date Will is important.

How we can help

Whilst some generalisations can be made about IHT planning it is always necessary to tailor the strategy to fit your situation.

Any plan must take account of your circumstances and aspirations. The need to ensure your financial security (and your family’s) cannot be ignored. If you propose to make gifts the interaction of IHT with other taxes needs to be considered carefully.

However there can be scope for substantial savings which may be missed unless professional advice is sought as to the appropriate course of action. We would welcome the opportunity to assist you in formulating a strategy suitable for your own requirements. Please do not hesitate to contact us.