Pension Reform – your obligations

In October 2012, the Government introduced workplace pension reforms, known as Auto Enrolment. Over the course of a phasing-in period, all employers were required to auto-enrol all eligible employees into a Qualifying Workplace Pension Scheme.

As a company director or business owner, it is your obligation to understand which schemes qualify, the process involved, how they are structured and the duties or obligations you must comply with.

Since April 2019, employer contributions have been a minimum of 3%, and member contributions are at least 5% (this includes 1% rate tax relief). This gives a total pension contribution of 8%.

We will take the time to understand not only the finer details of your business, but also your own personal plans and ambitions for the future. We will carefully explain the issues, requirements and obligations around workplace pensions and offer guidance to help ensure your business is fully compliant and working within these rules.

The value of a pension will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you initially invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Corporate planning

The death or serious illness of a key director or employee can have far-reaching or even disastrous consequences for a business. While, the well-being of the individual concerned will likely be of paramount importance to you, at the same time you cannot afford to lose sight of the effect this event may have on your business.

When something beyond your control happens within your business, the negative impacts will often include:

• Loss of profits
• The recall of loans
• Reduced capacity
• Loss of key clients/contacts
• Reduced practical know-how

When these events do occur — and from time to time it’s almost an inevitable fact of life that they will — insurance is always the key.

Having the correct insurances in place and making sure that they are regularly reviewed and updated as your business changes, can be a particularly onerous task. Most businesses find they need some level of constructive help and advice to make sure that everything is planned out and organised in the correct manner.

As part of my corporate service, we will undertake an in-depth review of your business and work with you to implement a tailored insurance programme to help protect your business from a wide range of risks.

Shareholders

As a shareholder your focus is on working with your fellow shareholders to make your business successful.

However, what if the worst were to happen and you were to die?

Would your beneficiaries share the same goals for the business?

Your fellow shareholders may have to work with partners who have little or no interest in the business and your beneficiaries could find themselves in the unfortunate position of owning shares which nobody is prepared to buy.

As always, effective planning is key to ensure situations like this don’t arise.

We will identify your requirements and discuss potential solutions that will provide your fellow shareholders with the means to purchase your shares and allow your beneficiaries to realise the market value of your shareholding.

Share purchase assurance represents one element of succession planning and deals with the purchase and sale of shares following the death of a shareholder.

It will be an arrangement that ensures that the surviving directors can receive the deceased's shares in order to continue the business without involvement from external or inexperienced shareholders. Additionally, the deceased's estate receives a cash sum for the value of those shares.

Deciding whether share purchase is actually required — including why and how it should be structured — is fundamental to the process. We will help you make that decision.

Employee benefits

A clearly communicated, highly effective benefit and renumeration strategy can play a key role in your ability to recruit and retain high-calibre team members.

We spend time fully understanding your business to determine how a cost-effective strategy can fit with your plans before making a recommendation.

We will provide you with advice from a range of product providers, carefully selected and monitored by St. James's Place.

This advice can include:

• Online total reward statements - helping your employees to understand and appreciate the cost of the benefits you provide.
• Flexible benefits - allowing employees to create a benefits package that meets their own individual needs.
• Salary sacrifice arrangements - facilitating employee access to tax efficient benefits while at the same time reducing employers' National Insurance costs.
• Private medical insurance - for your employees' health and well-being, reducing their absence from work while waiting for medical treatment.

Group Life, Income Protection and Critical Illness

These are important benefits that not only form a key part of a comprehensive employee benefits package but also enable you to manage your business more effectively by:

• Providing you with the means to financially support your employees and their families at a particularly difficult time.
• Allowing you to recruit temporary employees.
• Providing access to a range of rehabilitation services, employee assistance programmes and absence management services.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Corporate pensions

How can you use your business to generate financial security in retirement?

We have a range of potential solutions that will provide both you and your employees with tax efficient retirement benefits.

Some of the areas we can discuss with you are:

• Group pension plans for your colleagues and employees - these are both an attractive recruitment tool as well as a justifiable business expense.
• Salary sacrifice arrangements that will provide cost effective pension planning opportunities for employees, while reducing employer National Insurance costs.
• Executive pension arrangements, enabling you and your family to reap the rewards from the success of your business.
• Trustee-based arrangements that offer a cost-effective solution for trustees to transfer the scheme liability to a new pension arrangement, thereby securing employee pension rights.
• We will take the time to understand your needs and recommend a solution that will enable you to benefit from the success of your business.

The value of a pension will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount initially invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Tax mitigation

Nobody wants to pay any more tax than they need to.

There are simple steps a company owner can take to reduce their Corporation Tax liability. These are acceptable tax mitigation steps and not illegal tax evasion. Some of the main points to consider are:

Company pension contributions

Making pension contributions is one of the most effective pieces of tax-efficient planning a company can undertake. The contributions by a company to a pension scheme are usually fully allowable in calculating the profits chargeable to corporation tax.

Remuneration strategy

It is important that you regularly review how you draw income out of your company. It is worth considering reducing salary to a level where you can still claim state benefits and then maximise the use of dividends. The attraction of paying a dividend is that it does not attract national insurance contributions and the payment of a dividend has no tax consequences for your company.

Claiming Allowances

It is essential that a company claims all available allowances to reduce Corporation Tax. The most common allowances that are either not claimed or only partially claimed are Research and Development Relief and Capital Allowances. It is worth obtaining expert advice on these areas to ensure you receive all the allowances you are entitled to.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Exit strategy

Business owners put in a lifetime of hard work building their business, only to throw away some of the rewards by failing to fully consider how they will exit from the business – both financially and as a manager.

Sound management over several years will add value to your business and allow you to start an exit relatively quickly when the time is right.

You will need to concentrate on the following key areas of your business to ensure a smooth exit.

• Aim for a year-on-year increase in profits – reducing profits to cut Corporation Tax liabilities may make short-term sense, but it could harm your business’ perceived value.
• Ensure your accounts are in order and up to date, giving a true picture of the business. It pays to be ready for any due diligence you may have to go through later.
• Look to expand your range of customers and suppliers – over-reliance on a few key customers will undermine your business’ value.
• Aim to tie key customers, suppliers, staff and managers to long-term contracts.
• Maximise your relief for capital gains tax (CGT) – you may be able to claim entrepreneurs’ relief which reduces the effective rate of CGT.
• Consider avoiding substantial holdings in property, shares or leaving money in the bank which may disqualify you from this relief.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Please note that advice with regard to exit strategy planning may involve the referral to a service that is separate and distinct to those offered by St. James's Place.