fpdteam, Author at Bennetts Accountancy

Valuing an estate for IHT purposes

9th March 2023 by fpdteam

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. The rate of Inheritance Tax payable is 40% on death and 20% on lifetime gifts.

The current IHT nil rate band is £325,000 per person, below which no IHT is payable. This is the amount that can be passed on free of IHT. A reduced IHT rate of 36% (reduced from 40%) 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 order to ascertain whether or not IHT is due, the executor or personal representative of the deceased must value the deceased's estate. This is done by calculating the total value of the assets and gifts of the deceased and deducting any debts. An initial estimate of the value of the estate’s value should be undertaken to help determine if there is IHT to pay. This includes ascertaining the value of any assets owned by the deceased on the day they died, an analysis of any gifts made in the 7 years prior to death and the value of trusts where the deceased had a beneficial interest.

If the estate is likely to owe tax, then accurate valuations will be required. IHT is usually due six months after the end of the month in which the deceased died. In certain cases, it is possible to pay by instalments or to make payments later with the addition of interest.

Source:HM Revenue & Customs| 06-03-2023

NIC and company directors

9th March 2023 by fpdteam

Directors are classed as employees and pay National Insurance on annual income from salary and bonuses that exceed the Primary Threshold. The annual threshold is pro-rated to £11,908 this year following the increase to £12,570 from 6 July 2022 (£9,880 from 6 April 2022 – 5 July 2022). The primary threshold from 6 April 2023 will be £12,570.

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NICs), and in some case Income Tax. The planning strategy is to pay a salary at a level that qualifies the director for state benefits, including the State Pension, but does not involve payment of NICs.

A director’s liability to NI is worked out based on their annual (or pro-rata annual) earnings. This differs from regular employees whose liability is calculated based on their actual pay period, usually weekly or monthly. Payments on account of a director’s NICs can be made in a similar way as for other employees. However, an annual adjustment must be made at the end of the tax year.

Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed and the amount of time remaining in the tax year. Care needs to be taken in these circumstances to avoid an unexpected liability to pay NIC.

Source:HM Revenue & Customs| 06-03-2023

Adding employees to a workplace pension scheme

9th March 2023 by fpdteam

Automatic enrolment for workplace pensions has helped many employees make a start on providing for their retirement with the advantage that employers and government are also contributing to their pension pot.

The law states that employers must automatically enrol workers into a workplace pension if they are aged between 22 and State Pension Age and earn more than the minimum earnings threshold. The minimum threshold has remained fixed at £10,000 since 6 April 2014. The employee must also work in the UK and not be a member of an existing, qualifying pension scheme. Employees can opt-out of joining the pension scheme if they wish.

Under the rules, employers are also required to offer their workers access to a workplace pension when a change in their age or earnings makes them eligible. This must be done within 6-weeks of the day they meet the criteria.

Under the automatic enrolment rules the employer and the government also add money into the pension scheme. There are minimum contributions that must be made by employers and employees.

Both the employer and employee need to contribute. There is a minimum employer contribution of 3% and employee contribution of 4%. This means that contributions in total will be a minimum of 8%: 3% from the employer, 4% from the employee and an additional 1% tax relief.

The contributions are based on the qualifying earnings brackets highlighted above; this means that for many employees the 8% contribution rate will not be based on their full salary.

Source:Pensions Regulator| 06-03-2023

National Insurance if working abroad

9th March 2023 by fpdteam

If you move abroad, it can often be advantageous to continue paying your UK National Insurance Contributions (NICs) in order to preserve your entitlement to the State Pension and other benefits.

If you are working in the EU, Iceland, Liechtenstein, Norway, or Switzerland the rules depend on your situation.

The main rules are as follows:

If you work for an employer in the EU or Switzerland. You’ll normally pay social security contributions in the country you work in instead of NICs. This means you will be covered by that country’s social security laws and may be entitled to benefits there. However, your entitlement to benefits in the UK (for example State Pension) may be affected as there will be a gap in your NIC contributions record.
If you work for an employer in Iceland, Liechtenstein or Norway. You may need to pay into more than one country’s social security scheme at the same time. You need to check if you are covered by the EEA-EFTA Separation Agreement.
If your UK employer sends you to work in the in the EU or Switzerland. You might be able to continue paying NICs if you are abroad for up to 2 years. This means you won’t have to pay social security contributions abroad. There is a special form which an employee or employer must complete to notify HMRC and apply for the relevant certificate. These special rules can also apply if you are self-employed or working in the UK and one or more EU countries at the same time.

Some countries have a Reciprocal Agreement (RA) or Double Contribution Convention with the UK. You will usually pay social security in the country you are going to if you work in any of the following:

Barbados, Bermuda, Bosnia-Herzegovina, Canada, Chile, Gibraltar, Guernsey, Isle of Man, Israel, Jamaica, Japan, Jersey, Kosovo, Mauritius, Montenegro, North Macedonia, Philippines, Republic of Korea, Serbia, Turkey and USA.

For all other countries not covered by a social security agreement, you may need to pay social security contributions in the country where you are working. You must continue paying NICs for the first 52-weeks you are abroad if you meet the following qualifying conditions:

you are working abroad temporarily;
your employer has a place of business in the UK;
you are ordinarily resident in the UK; and
you were living in the UK immediately before starting work abroad.

Source:HM Revenue & Customs| 06-03-2023

Get information about a company

9th March 2023 by fpdteam

There is a significant amount of information about companies that can be obtained from Companies House. Companies House is responsible for incorporating and dissolving limited companies, examining and storing company information and making company information available to the public.

Much of this information is freely available. This is in line with the government’s commitment to free data and means that all publicly available digital data held on the UK register of companies is accessible without a charge.

This includes:

company information, for example, registered address and date of incorporation;
current and resigned officers;
document images;
mortgage charge data;
previous company names; and
insolvency information.

There is also a service called WebCHeck that allows you to view a company's filing history and purchase copies of document images and a selection of company reports for a nominal fee. You can also elect to monitor a company and receive email alerts of any new documents filed at Companies House. This can be a useful resource to check your own company records at Companies House to ensure there no unexpected filings.

Source:Companies House| 06-03-2023

Incentive to invest

6th March 2023 by fpdteam

Next week, 15 March, the Chancellor will deliver his first Spring Budget. It will provide an opportunity to cushion companies from the effects of the Corporation Tax (CT) increase to 25% and the withdrawal of the 130% Super-Deduction; both timed for the 1 April 2023.

Although any large-scale tax cuts may be off the table, the Chancellor may still be willing to provide companies with incentives to invest.

The Super-Deduction was introduced to encourage companies to invest in qualifying equipment before the 1 April 2023 increase in CT rates to 25%.

So, what incentives could we expect?

The Chancellor could extend the 130% relief, thus offering corporate businesses an effective 32.5% tax relief (25% x 1.3). This would be a useful fiscal carrot to encourage capital investment from April 2023.
He could extend the relief to cover rented, leased or second-hand goods.
He could extend the relief to include non-corporate business owners and the self-employed.

Alternatively, he could simply increase the permanent Annual Investment Allowance above the present £1m.

The business community needs incentives to invest. Otherwise, there is a danger that firms may simply defer investment, waiting for better times, which, of course, would further reduce our competitive ability to match productivity advances by countries who are less concerned with this “wait and see” approach.

Source:Other| 05-03-2023

Why credit control is vital

6th March 2023 by fpdteam

The ultimate financial objective of most trading companies is to convert their supply of goods and services into cash – deposits in their bank account.

However, when goods are sold on credit, and you give customers time to pay, there is a delay in the cash conversion process, and for a period of time your cash proceeds of sale stay in your customers bank account.

Credit control is the management of this process to ensure customers pay in accordance with your credit terms (30 days for example). Without effective credit control there would likely be a further delay, beyond your agreed credit terms, and the cumulative effect of these delays could cause you serious cash flow problems.

An effective way to manage credit control is to automate the issue of statements and follow up letters using your bookkeeping software. It should be possible to manage the process by setting up delivery of reminders to pay by email.

Please let us know if we can help with the set-up process.

Finally, manage the process. As well as meeting your sales and profits targets each month, be sure to include a review of your current days credit being taken by customers. If the days credit taken is higher than the days credit you have set, then action may be required to intervene and chase payment by more direct means.

Source:Other| 05-03-2023

National Living Wage rates from April 2023

2nd March 2023 by fpdteam

New National Minimum Wage (NMW) and National Living Wage (NLW) rates come into effect on 1 April 2023.

The new rate for the NLW will be £10.42 which will represent a 92p increase over the current rate. The NLW is the minimum hourly rate that must be paid to those aged 23 or over. The hourly rate of the NMW (for 21-22 year olds) will increase to £10.18 (a rise of £1). The rates for 18-20-year-olds will increase to £7.49 (a rise of 66p) and the rate for workers above the school leaving age but under 18 will increase to £5.28 (a rise of 47p). The NMW rate for apprentices will increase by 47p to £5.28. The accommodation offset will rise to £9.10 per hour (an increase of 40p).

It is important that employers update their systems, by 1 April 2023, to reflect the new rates as there are significant penalties for employers who are found to have paid workers less than the above rates.

If you have underpaid an employee, you must pay any arrears immediately. There are penalties for non-payment of up to 200% of the amount owed unless the arrears are paid within 14-days. The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face a possible 15-year ban from being a company director as well as being publicly named and shamed.

Source:Other| 27-02-2023

What is a Share Incentive Plan?

2nd March 2023 by fpdteam

Share Incentive Plans (SIPs) were first introduced in July 2000 to give employees tax and NICs savings when they buy or are given shares in the company they work for.

Provided all the qualifying conditions are met, shares which are obtained under a SIP are not liable to Income Tax or NICs at the time they are acquired and there is no CGT for accrued gains whilst the shares are held in a SIP. This includes holding the shares in a SIP for 5-years.

There are four different ways that shares can be obtained in a SIP:

An employer can give employees awards of free shares (which can be performance related e.g., based on the performance of individuals, teams, divisions or work units) up to a maximum of £3,600 p.a. tax-free.
Employees can buy shares valued at up to £1,800 per year out of their pre-tax salary. This is subject to this being no more than 10% of an employee’s annual salary.
Employers can give up to two free shares for each share an employee buys.
Dividends from any of the free, partnership or matching shares can be reinvested tax free in the purchase of further shares (if allowed by the employer).

Source:HM Treasury| 27-02-2023

Tax when you sell shares

2nd March 2023 by fpdteam

Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% when you sell shares unless they are in a CGT free investment such as an ISA or qualifying pension.

If you only pay basic rate tax and make a small capital gain, you may only be subject to a reduced CGT rate of 10%. Once the total of your taxable income and gains exceeds the higher rate threshold, the excess will be subject to 20% CGT. There is also an annual CGT exemption. This means that in the current tax year you can make £12,300 of gains before paying any tax. The allowance applies to each member of a married couple or civil partnership.

The usual due date for paying any CGT you owe to HMRC when you sell shares is the 31 January following the end of the tax year in which a capital gain was made. This means that CGT for any gains crystalised before 6 April 2023 will be due for payment on or before 31 January 2024.

It is also important to note that the annual exempt amount applicable to CGT is to be more than halved from April 2023. The exempt amount will be reduced from £12,300 to £6,000 from April 2023, before a further reduction to £3,000 from April 2024. This means that taxpayers with small gains should consider the benefits of crystalising these gains before 6 April 2023 in order to fully utilise the £12,300 allowance for 2022-23.

The normal way to report a gain on the sale of shares is to complete the relevant sections of your Self-Assessment tax return in the tax year after the gain was made. When calculating your gain, you can deduct certain costs of buying or selling shares such as stockbrokers’ fees or Stamp Duty Reserve Tax when you bought the shares.

Source:HM Revenue & Customs| 27-02-2023