Business Matters
McCabe Ford Williams Newsletter | Summer 2015
WWW.MFW.CO.UK
Welcome to the summer 2015 edition of Business Matters Since our spring edition the General Election has, of course, taken place resulting in a clear Conservative majority. The March Budget had a great deal of content on what the coalition government had achieved in the past five years accompanied by commitments and promises of measures that could be introduced in the new Parliament. It was a Budget with something for every part of the UK with the northern powerhouse and other regions featuring. There was, however, a very noticeable lack of reforms and changes – and indeed little reference to further public service cuts. That came as no surprise given that the election was only 50 days away.
continued on page 01...
AUTO ENROLMENT
Our guide to understanding Auto Enrolment What you need to do to prepare for Auto Enrolment. Page 07
TAX MATTERS
New returns coming for intermediaries and other agencies How does this affect you? Page 09
CLIENT PROFILE
Building a successful business We meet Chris & Sara Ditton of Hurstway Construction the building and restoration specialists. Page 03 Chris and Sara Ditton of Hurstway Construction Limited
MFW NEWS
...continued from cover
Unfettered by the Liberal Democrats, what will George Osborne announce in his 8 July Budget? It is almost certain that there will be no let up in austerity measures whilst the UK economy gets ‘back on track’ and, if anything, now we are on the other side of polling day it seems fairly likely more will be added. I don’t think that there will be any pleasant surprises (but I have been known to be wrong!), as there is simply not enough money available to fund tax benefits. That said it would be good to see proposals for extra support for small business and in particular an extension to the increased Annual Investment Allowance (relief for expenditure on capital equipment) or at the very least, a revised rate which will not fall right back to an annual sum of £25,000 at the end of the year. What is expected are changes to the pension rules. The March Budget contained announcements of two further changes from April 2016, although these have not yet been made law and we may hear updates to these in July. The two changes are the further reduction in the lifetime allowance (the effective maximum tax-efficient pension fund value) from £1.25m to £1m and an option for existing pension annuity holders to sell their rights to income in exchange for a lump sum or other pension benefits.
01
Business Matters Summer 2015
It has been mooted that there will be changes to the tax relief available on pension contributions. If changes are made then they may well be introduced with little or no notice. It might therefore, be prudent to make pension contributions before 8 July. Whilst other areas have benefited from additional funding to encourage growth, the Kent region of the South East has been overlooked and we would therefore welcome local initiatives to bring more investment and opportunities available closer to home for local businesses and individuals to benefit from. Whatever the Budget has in store for us, MFW will be reporting on it through our website and mobile APP. We will also follow this up with a Budget Day email. If you are not already signed up for our Budget day coverage just contact your local MFW office and we will add you to our update list.
Author Ian Pascall, FCA Senior Partner
www.mfw.co.uk
Help in securing access to justice
In recent years law firms have started to work with third party litigation funders to help clients meet the cost of bringing a claim, which they cannot afford to run, or to risk losing. The starting point is the same as for any dispute – does your case have a good chance of success, and can the opponent afford to pay the amount of your claim and costs? If the answer to both of these questions is yes, litigation funding and costs insurance could be available much more economically than ever before. The way such schemes work is relatively simple, typically: • Solicitors will work under a Partial Conditional Fee Agreement (PCFA) meaning that 60% of their fees are paid as the case progresses and 40% are paid if the case is successful. • You would have to pay half of the 60% PCFA payments as the case progresses. This usually amounts to about 18% of the overall legal costs of pursuing the case.
www.mfw.co.uk
• The other half of the 60% PCFA charges would be paid by the litigation funder, as well as, all disbursements such as court fees, counsel’s fees, and expert’s fees. • The litigation funder will put in place insurance to cover your liability to pay the opponent’s costs, should the claim fail. The insurance would also cover the majority of the costs you have paid under the PCFA. • This means your overall costs risk would be limited to about 5% of the cost of pursuing the case, as opposed to the normal risk of having to pay all of your own costs and around 70% of the opponent’s costs, if the claim is unsuccessful. • If you are successful, you will end up with approximately 70% of the value of the net award made in your favour (i.e. 70% of the total amount recovered from the opponent after the lawyer’s deferred costs and the capital invested by the litigation funder plus interest on the amount made available by the funder have been repaid). The remaining 30% is usually sufficient to cover the risk taken by the lawyer and the funder that they would be writing off if the case were lost. Using this form of litigation finance means businesses can continue to run their business while still pursuing a damages claim, knowing that there is little cashflow impact and the downside risk is reduced to as little as 5% of the total costs of bringing the case.
EMPLOYMENT MATTERS
Funding disputes can be a challenge, even where a claimant has reasonably deep pockets. For many businesses, however, it can prevent access to justice. Even where funding can be supported there is always a risk, no matter how small, of a substantial adverse costs order, which simply could not be justified.
You would need to work with a specialist law firm and expert litigation funder, both of whom will share in the risk and cost of pursuing your claim. Thomson Snell & Passmore have partnered with Augusta Ventures to provide such a litigation financing solution. Augusta Ventures is a unique litigation funder targeted at the SME market, funding costs between £10,000 and £600,000. It has retained a panel of expert lawyers, economists and financiers to ensure that in conjunction with partner firms like Thomson Snell & Passmore, they can provide you with the best possible advice and litigation funding solution.
Author Kamal Aggarwal Partner and Head of Thames Gateway Office
Business Matters Summer 2015
02
CLIENT PROFILE
Client Profile: Hurstway Construction Limited
No job too small for building and restoration specialists Hurstway Construction Limited Hurstway Construction is a family business based in Cranbrook which was initially acquired by John & Sue Ditton back in 1972 from a local builder and undertaker. When the couple took over the business not only did they take on the building yard but, as a condition of sale, John also had to agree to carry on the undertaking practice for some years to follow. Although this may seem a peculiar combination of services to offer, apparently in years gone by this was quite common place as builders had the necessary joinery skills required to fashion coffins. At that time their son Chris was just a toddler but he can still recall the days when the builder’s yard also operated as a funeral parlour and all that entailed. You can probably imagine how delighted Chris was when this side of the business
03
Business Matters Summer 2015
Chris Ditton ceased and it was probably a relief for his dad too who, having started his working life as a quantity surveyor, could, thereafter, focus just on the building side of the business. Chris’ parents worked hard to develop their business and with it the solid reputation it enjoys. This surely proved essential in their business’ survival during the property slumps of the 1980s and again with the more recent downturn in the property market which started in 2008. Chris joined his parents’ business and started to learn his trade from his father and the other tradesmen he worked with. In 2010, his parents took
the decision to retire and leave the running of the business in the capable hands of their son and his wife Sara who had both already been part of Hurstway for over 15 years. Chris naturally took over responsibility for the building side of the business whilst Sara took over the accounts department which was formerly run by Sue.
Building a successful business Chris believes that the key reasons for their continued business success lies in the quality of the workers together with their friendly and flexible approach. Whilst Hurstway Construction tackles larger scale projects, they never turn
www.mfw.co.uk
The business now employs over 40 permanent workers with most members of the team having worked for Hurstway for many years and both Chris and Sara value the loyalty their workers demonstrate to the business. Due to the early starts for building work the majority of the team come from the local area and, therefore, it is not surprising to learn that this even includes workers who are related to each other including several father and son relationships. With many of the team having been with the business for some time, this has resulted in a more mature workforce which has highlighted to the couple the need to plan for the workforce of tomorrow. As with many building companies, this is where apprentices can often be useful as they can be trained alongside the masters of their trade. However, hiring apprentices is not without some complications and one of the biggest challenges the industry often faces is the quality of apprentices they receive. Many schools believe that the construction industry and associated trades are suitable for everyone but, as Chris himself says, this is not the case. It seems that the industry is seldom promoted to the more technically minded schoolboys with
www.mfw.co.uk
these often encouraged into other careers instead. This is due to a lack of understanding, as many trades require technical ability including, for example, plumbing. The business currently employs 4 apprentices and are also keen to promote a local initiative, the John Spicer Apprenticeship Trust. The Trust was established in the 1700s with the aim of helping the poor boys of Cranbrook village and is still going strong. The Trust awards up to £250 to boys living in the Cranbrook and Sissinghurst area in order for them to further their education or to help them buy tools for their trade. Both Chris and Sara feel that not enough school boys are putting themselves forward for the award and therefore try to encourage more to do so.
that whilst there are some jobs where ladies might struggle due to lack of brute force, there are many jobs where lack of strength is no hindrance and school girls should not be put off from finding out more about his industry.
Projects
More details on the John Spicer Trust can be found here:
Hurstway regularly undertakes restoration projects as well as new builds. Some of their more exciting projects included the rebuilding of a Victorian Icehouse at Benenden Girls School and the conversion of Bedgebury School back to a private residence near Goudhurst. The team and their work also featured on George Clarke’s Restoration Man programme on Channel 4 where filming took place on the Finchcocks Oast House conversion near Finchcocks Musical Museum in Goudhurst.
http://www.hurstwayconstruction. co.uk/builder/file/documents/John_ Spicers_Apprenticing_Trust.pdf
http://www.channel4.com/ programmes/the-restoration-man/ondemand/50459-006
Chris and Sara also belong to the Weald Training Group as part of their membership of CITB (the Construction Industry Training Board) and occasionally visit schools to promote a career in building or other associated trades. Whilst the construction industry is still very much male dominated, both Chris and Sara feel it is a shame that schools do not do more to encourage girls into this sector. Chris acknowledges
On being able to restore such wonderful buildings Chris says, “Living and working locally has given us a tremendous opportunity to be involved with and in many cases bring back to modern life, many important local buildings.” A legacy, he says, “that not many professions can share.”
...continued on page 05
Business Matters Summer 2015
04
CLIENT PROFILE
away a customer, adopting ‘a no job is too small’ attitude. As Chris says, “you never know what other business that small job can lead to”.
PENSIONS
CLIENT PROFILE
Working with MFW Hurstway Construction has been a client of MFW Cranbrook from the time when John and Sue first acquired the business and it is a relationship that is now over 40 years strong. Partner David Boobbyer looks after the business providing services including an annual audit, corporation and personal tax returns and business support and advice. He also assists with other personal areas including the self administered pension scheme and trusts which have been set up by the family. Chris says of the relationship with MFW, “Working with David and the Cranbrook office has always been a pleasure and the advice we have received has been invaluable.”
A more unusual request From time to time Chris and the team have had to contend with some unusual projects. In the light of the company’s beginnings, it is perhaps ironic that one commission was to build a mausoleum for a well known resident of Oxted. For Chris, who as a boy must have dreaded exactly what at times he would find in his dad’s storeroom, it seems he has not totally escaped that other side of the businesses’s early history.
For more information about Hurstway Construction visit their website at www.hurstwayconstruction.co.uk or call a member of their friendly team on 01580 712266.
Taking your pension benefits The new pension rules allow clients to have much more choice on how they receive benefits from their pensions. It is one of the most important decisions of your life, so any decision should not be taken lightly; there may be unforeseen consequences.
Lifetime annuity This option should not be dismissed despite the new rules. It provides you with a guaranteed income for the rest of your life, in exchange for all or some of your pension fund. Many people underestimate their life expectancy, and you may need to cover essential outgoings for your whole life. There are many options, including spouse/dependant benefits and enhanced rates due to health issues.
Uncrystallised Funds Pension Lump Sum (UFPLS) Simply, this involves taking a lump sum directly from the existing pension provider. However: • The contract you have may not allow it. • Each withdrawal is treated as 25% tax free cash and 75% “income”. So you’ll be liable to income tax at your marginal rate on the “income” portion. Furthermore, the pension company probably won’t have your tax code, so month 1 coding (emergency tax) will be applied at source. • You will trigger the new Money Purchase Annual Allowance (“MPAA”) which means this withdrawal will severely restrict any future contribution limits. • You could run out of money.
05
Business Matters Summer 2015
www.mfw.co.uk
Flexible Access Drawdown (FAD)
PENSIONS
This allows you to take your money much more flexibly. You can take capital on a regular or adhoc basis as you wish. There certainly are advantages, as the money is more in your control. • The majority of contracts do not allow this; you may have to move your pension to obtain this facility. • You can take up to 25% of the fund tax free, without taking any further income at that time if you wish. This means you can take some cash without incurring tax or triggering the MPAA. Any further funds above this level are treated as income, will be taxed, and will trigger the MPAA. • You may run out of money. • The remaining invested money may grow, but may also present a risk of capital loss.
Other considerations • Death. If structured correctly, pension funds can pass to nominated beneficiaries outside of your estate. So bear in mind that if you take money out of your pension, it will become part of your estate and could ultimately be subject to inheritance tax. • Don’t underestimate life expectancy; people are living longer. • Your existing pension may not give all of the new flexibility, but conversely may have valuable guarantees. • Seek advice before acting; you could inadvertently trigger an unexpected, and significant, tax bill.
Author Lee Giles DipPFS Senior Financial Planner, Argentis Financial Management Limited
www.mfw.co.uk
The value of your Pension Plan can fall as well as rise and you may not get back the full amount invested. Past performance is not a reliable indicator of future performance. The benefits you receive are dependent upon future contribution levels, the age at which you take benefits and external influences such as investment returns, inflation, interest rate, annuity rates and charges. The benefits can therefore be lower than those illustrated. Any assumptions about the tax position of the plans and recommendations made in this report are based on current law and HMRC (Her Majesty’s Revenue & Customs) practice, which may be subject to alterations, including retrospective changes in the future. The tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Not all individuals are eligible for a pension. Argentis Financial Management Limited is regulated and authorised by the Financial Conduct Authority.
Business Matters Summer 2015
06
AUTO ENROLMENT
Auto Enrolment Update We have previously covered the subject of Auto Enrolment (AE) as it is a fundamental change to workplace pensions which every employer must get to grips with. As we are now entering the period where the majority of our clients are facing their staging dates we are therefore providing a timely reminder about AE and sharing some useful tools to help you through the process. Employers with more than 50 employees will have already had to get to grips with AE but from 1 August employers with less than 50 employees will start to see their AE phase in dates as follows: Number of Employees
Staging Date
30 - 49
1 Aug 2015 – 1 Oct 2015
Fewer than 30
1 Jan 2016 - 1 April 2017 (inclusive)
What is AE? Auto Enrolment legislation was introduced to ensure that more people start saving for their retirement and do not rely solely on the state pension which in years to come, will most certainly be unable to cope with the increasing number of pensioners.
07
Business Matters Summer 2015
If you are an employer with UK staff then you will need to comply with this legislation or face serious fines. AE was first rolled out to major corporations and large employers in staging phases and because of this many smaller employers have decided they can wait before they start taking action. However, we strongly advise that whatever your staging date is that you familiarise yourself with the legislation and pre-plan your roll-out. Warnings have been issued by some pension providers that when the majority of smaller employers start approaching their staging date that the system could break down, so even if you still have some time to wait, it pays to plan ahead and know what you are doing as employers who leave AE to the last minute will most likely face some challenges in implementing it and risk incurring penalties too. For more details about Auto Enrolment and how this affects you we recommend reading the guide produced by the Pensions Regulator. http://www.thepensionsregulator.gov.uk/docs/theessential-guide-for-automatic-enrolment.pdf
www.mfw.co.uk
Know your staging date
http://www.thepensionsregulator.gov.uk/employers/ know-your-staging-date.aspx
Planning ahead
http://www.thepensionsregulator.gov.uk/employers/ planning-for-automatic-enrolment.aspx
Every year HMRC investigates hundreds of thousands of individuals and businesses in the UK. It has the powers to do this at random, at any time, and everyone is at risk. Even if you have done nothing wrong, you are still at risk of an investigation which can take many months and could cost thousands of pounds. To provide peace of mind we offer all of our clients a Tax Investigation Service to help protect against the professional costs involved in a tax investigation or enquiry. Our Service is backed by an insurance policy we have taken out under which we claim the costs of defending
In addition, there is also a helpful checklist which you may prefer to use instead of or alongside your planner.
clients in tax enquiries. The policy is effected
http://www.thepensionsregulator.gov.uk/docs/ automatic-enrolment-checklist.pdf
Fee Protection, and is underwritten by a group
More information can be found at http://www. thepensionsregulator.gov.uk/automatic-enrolment.aspx or by contacting your local MFW office.
If you have missed our mailshots and would like
Help is at Hand
please contact your local MFW office.
Don’t forget that we also offer a flexible payroll service designed to meet your needs should you require additional support. Further details on this service can be found on our website http://www.mfw.co.uk/ services/audit-and-accounting/payroll or again by talking to your local MFW office.
www.mfw.co.uk
through one of the market leaders, Professional company of the worldwide AXA Group. more details about our service and how this could protect you from the costs of a tax investigation
Alternatively, find more details on our MFW Tax Investigation Service microsite http://mfw.pfpaccountants.co.uk/
Business Matters Summer 2015
08
TAX INVESTIGATION
Once you have identified your staging date then it makes sense to start planning ahead. There are a couple of useful tools which can be found on the Pension Regulator’s website. The first is a helpful planner which you can tailor for your business and which will help you to break down your actions into easy steps
Introducing the MFW Tax Investigation Service
AUTO ENROLMENT
Every employer will have their own unique staging date by which they will need to comply with Auto Enrolment legislation. Letters will be sent out to every business from the Pensions Regulator detailing staging dates but you can also check your staging date on the Pension Regulator’s website by simply entering your PAYE reference.
TAX MATTERS
NEW intermediary quarterly returns may need to be made by many businesses
It is not necessary to include details of workers who are an agency’s own employees since these will be on the real time information (RTI) submission for PAYE.
New legislation aimed at intermediaries, such as employment agencies, has a far wider catchment than just employment agencies. This requires ‘agencies’ to make quarterly returns of payments made to workers who have NOT been treated as employees. The first return due is for the quarter to 5 July 2015, which is due by 5 August 2015.
Example 1... A contractor has a contract with a house builder and the contractor supplies two workers to do this. One of the workers is the contractor’s employee and the other worker is a self-employed sub-contractor. Is the contractor caught by the new legislation? Yes, as more than one worker has been supplied to effect the contract, a return is required. The employee does not need to be in the return because he will already feature in the PAYE RTI return for the contractor’s employees. However, a return will be needed for the self-employed worker even though that worker is subject to CIS regulations.
Section 44 of ITEPA 2003 defines an ‘agency’ as someone who holds a contract with a client to provide a worker’s services because of the contract with that client. This could potentially affect ALL businesses. A return has to be made by an ‘agency ‘where it has provided more than one worker’s services to a client as a result of that contract. The return includes details of all individuals that have been paid but who have not been treated as employees by the agency, with a reason code being stated.
09
Business Matters Summer 2015
So how might this affect you?
Example 2... An IT company gains a contract to provide programming to a client and as a result of that contract supplies the company’s director as the sole worker on the contract. Is this caught by the new rules? Since only one worker has been supplied the new rules do not apply.
www.mfw.co.uk
It is hoped that the emergency budget in July might include amendments, but this seems unlikely. This is based on our current understanding of the law and HMRC’s guidance. Please contact your local MFW office to discuss this matter if you think your business may be affected by this legislation.
Author Philip Cragg, CTA Tax Manager, Dover
www.mfw.co.uk
A recent survey conducted on behalf of R3, the insolvency trade body, has revealed that the UK’s insolvency profession helped rescue approximately two-in-five insolvent businesses in 2013-14. The research found that R3 members helped around 6,700 businesses continue trading in some way after entering insolvency, helping to save around 230,000 jobs. In total, around 10,400 businesses continued operating after working with the insolvency profession, either benefitting from support in a formal insolvency or working with the profession to avoid insolvency. These businesses employed approximately 540,000 workers after receiving support. Partner and Insolvency Practitioner Amanda Ireland comments, ‘It has long been an issue that struggling businesses leave it too late before seeking expert professional help. However, the sooner a business seeks advice the more options are likely to be available to it and the chances of survival are greater’.
Author Amanda Ireland MIPA, FABRP Partner and Insolvency Practitioner Sittingbourne
Business Matters Summer 2015
10
INSOLVENCY
The legislation is widely drawn and will affect a large number of businesses, perhaps a larger number than was originally envisaged. Penalties will be charged for not making returns, late returns or making incorrect returns. Automatic penalties apply to late or missing returns and increase according to the number of offences in a 12 month period. It appears that HMRC will be charging these from the outset with no ‘light touch’ approach in the early years.
Insolvency profession helps rescue 2 in 5 insolvent businesses and 230,000 jobs
TAX MATTERS
Example 3... Carrying on from example 2... The work increases and the programming company bring in an additional worker to assist the director. Is a return needed now? The answer is...it depends! If the additional worker is self-employed then yes that worker will need to go on the IT company’s return. If the additional worker is another employee of the IT company a return is technically required because there is now more than one worker on the contract, however, because they will both be on the PAYE RTI return, no agency return will need to be made. If the additional worker comes through another agency, a return will be needed, but if the IT company can confirm that the worker is on the other agency’s RTI return, it will not need to include payments to the worker. This situation may occur if the additional worker works through his/her own limited company.
This publication is intended for general guidance only. Every case is dependent on its particular facts and circumstances, and whilst it is believed that the content is accurate, the material should not be taken or relied upon as giving specific advice on any particular matter. Neither McCabe Ford Williams (the firm), its partners or employees accept any responsibility for any loss or damage (including but not limited to loss of profit or anticipated profit, damage to reputation or goodwill, loss of business, damages, costs, expenses or tax liabilities) caused or occasioned to any person acting or omitting to act in reliance upon the information contained in this publication. Any person wishing to obtain specific advice on any particular matter should contact a partner of the firm directly, and advice can be provided on a case by case basis.