Your shares are worthless? Things may not be as bad as you thought...

It’s a nightmare scenario. You’ve invested in a company and then discover that it has collapsed and that its shares have become worthless. 

Imagine, for example, owning a slice of Carillion – which went from being one of the UK’s largest construction businesses to a company revealed to have £1.5bn in debt and whose shares were suspended.

If HMRC declares shares to have ‘negligible value’ (as they have in the Carillion case), you’re entitled to capital gains relief, which will help you to reduce your tax liability. 

Here are some commonly asked questions:

How does it work in practice?

In effect, you can set the original cost of the asset against other capital gains in the current tax year or even carry it forward against gains in future years. 

Can I backdate a claim?

Yes. You can treat it as a loss arising in either of the two preceding tax years.

Can I claim loss from unlisted, negligible-value shares against income?

In theory, yes, but you’ll need to consult your accountant as you’ll need to meet a significant number of conditions.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Businesses prepare for tightening of data rules writes Jono Wilson of Barnett & Turner Chartered Accountants.

Next year’s General Data Protection Regulation (GDPR), which comes into effect on 25^th May 2018, is causing quite a lot of angst among IT professionals, marketers and other business people. And the UK’s exit from the EU isn’t necessarily going to change things. Whatever your personal view on Brexit, you might be forgiven for thinking that British businesses are no longer going to have to worry too much about EU regulations.

The reality, however, is that directives from Brussels are still going to be a fact of life until the point of formal departure.

There is a further reason, however, to take note of the GDPR.  According to the trade magazine and website Computer Weekly, the rules will affect any UK business which offers any type of service to the EU market, ‘regardless of whether your business stores or processes data on EU soil, and whether the UK stays in the EU or not’.

The UK Information Commissioner’s Office describes GDPR as operating on similar principles as the Data Protection Act, but with an added layer of detail and an additional concept of accountability. So what are the key issues you’re likely to confront?

Lawful processing

If you are processing personal data, you need to have a legal basis for doing so and must be able to document it. Relying on someone’s consent? Well, you may be find that they have greater rights in future – particularly to have their data deleted.

Consent

People need to take affirmative action to give consent to their data being used. If they are silent or you have pre-ticked boxes for them, that won’t count.  You need to record when and how the consent was given. What’s more, it can be withdrawn at any time.

The rights of individuals

The GDPR gives a number of protections to individuals that your organisation must observe:

The right to be informed – you need to provide ‘fair processing information’, which will usually involve a privacy notice. It’s important to be transparent over how you use data.

The right of access – individuals will have similar rights to those under the Data Protection Act. They can ask you to confirm you hold data and request access to that data.

The right to rectification – if information you hold is incorrect or incomplete, an individual has the right to demand that you correct it.

The right to erasure – also known as ‘the right to be forgotten’. Someone is entitled to request that you delete or remove personal data if there is no compelling reason for your continuing to process it.

The right to restrict processing – if an individual asks for the processing of their data to be blocked, you must respect their request. You are only allowed to store the data and retain enough information to ensure their wish is respected.

The right to data portability – this allows people to obtain and then reuse their data – transferring it from one IT environment to another.

The right to object – an individual can object to profiling conducted in the public interest or for direct marketing purposes. They can also object to the use of data for scientific or historical research and statistics.

The detail of the regulations is understandably complex, so if you feel that you are likely to be impacted, it’s important that you read more online or take professional advice on how to prepare.

https://ico.org.uk/media/1624219/preparing-for-the-gdpr-12-steps.pdf

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

HOW TO AVOID A POST-PARTY HANGOVER

Jono Wilson of Barnett & Turner looks at the tax implications of the Summer or Christmas bash you hold at your workplace. If you’re looking to the summer and planning a party for your employees, it’s worth bearing in mind the potential tax implications. The good news is that, unlike entertaining customers, the costs of entertaining employees are generally allowable against the profits of the business.

But what about the consequences for the employees themselves? Will they have to pay tax on the benefit?

The general rule is that as long as the total costs of all employee annual functions in a tax year are less than £150 per head (VAT inclusive), there will be no tax implications for the employees themselves. In considering this limit, it is necessary to include all the costs of an event including any food, drinks, entertainment, transport and accommodation that you provide.

If the total costs are above the limit of £150, the employee will have to pay tax on the full cost of the benefit. In that scenario, it should be reported on each employee’s P11D or, alternatively, you may choose to enter into a PAYE Settlement Agreement with HMRC to cover the tax.

It is also worth noting that a new exemption in relation to employee entertainment was introduced on 6th April 2016.  From this date, a benefit provided by an employer to an employee was made exempt from tax and need not be reported to HMRC on a P11D if all of the following conditions are satisfied:

• The cost of providing the benefit does not exceed £50;
• The benefit is not cash or cash vouchers;
• The employee is not entitled to the benefit as part of any contractual obligation; and

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family), the exemption is capped at a total of £300 in the tax year.

 Example

A company holds two annual functions open to all its employees in the tax year – a summer party and a Christmas party.

The total costs of the summer party, including transport and accommodation, are £10,000 including VAT. The total number of attendees was 100, so the cost per head was therefore £100.

The Christmas party cost £8,000 including VAT, and 100 people attended this. The cost per head is therefore £80.

The total cost per head for both functions is £180, so they cannot both qualify for an exemption. As the cost per head of each party is not more than £150, either event can qualify on its own, however it is more beneficial overall for the costlier summer party to be exempted.

If an employee attends both events, they will be taxed only on the benefit of £80 for the Christmas party. If they only attend the summer party, there will be no taxable benefit because that event is exempt. If they only attend the Christmas party, they will be taxed on the benefit of £80.

Both functions would be taxable if the average cost per head of each of the events exceeded £150. This limit is not an allowance to be set against an amount that exceeds that figure.

It’s worth talking to your accountant if you have any concerns about the tax implications of the summer party season ahead. That way, everyone can enjoy the event without a financial hangover.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Build up your funds for future generations

Barnett & Turner partner Jonathan Wilson considers how life insurance can become an investment. For a number of years, we have had the option of using what are called “Whole of Life” insurance policies to help to fund potential inheritance tax (IHT) liabilities.

Put simply, these policies are a form of insurance where annual premiums are paid in return for a guaranteed payment on death. They are structured in such a way that the proceeds do not form part of the deceased’s estate and therefore escape IHT.

In reality, this means the IHT liability is potentially reduced to the total cost of the premiums.

Traditionally, clients have taken out life insurance for peace of mind, so they know their beneficiaries’ inheritance tax bill will be met. They haven’t necessarily considered whether the policy proceeds represent a good return on the premiums paid. With interest rates falling to record lows, it is now more appropriate than ever to view life policies as investments.

At the time of writing, the post-tax return for a 45% taxpayer, on a very long-dated UK government gilt (49 years to redemption), is only 0.8% per annum.

A couple aged 60 can obtain £1m of second-death, last-survivor, whole-of-life cover for an annual premium of £11,700, assuming standard health terms apply.  If we were to assume that one of the policyholders lives to age 109 (a very cautious assumption to match a 49 year old gilt), the return on the total annual premiums of £573,300 is just under 2.2% per annum net of tax.

To continue with this example, we could assume, more realistically, that the life expectancy of the last survivor is 95.  In our scenario above, the effective return on the total annual premiums is £409,500 – a relatively attractive 4.73% per annum net.

However, these figures also ignore the fact that the proceeds will generally fall outside of the estate, due to the policies being held in trust.  The actual return on the policy payer is effectively enhanced further by 40% (representing the IHT that would have had to be paid had the proceeds remained within the estate) in most cases.

Therefore, life policies not only provide a lump sum for your beneficiaries, but they also provide a comparatively excellent return over the period until the beneficiaries receive the money.  Life policies can be a good-value option for building up funds for the next generation. You may benefit from advice from your IFA or Accountant tailored around your own personal circumstances.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Could your generosity end up costing you? - Make sure you don’t lose out writes Jono Wilson of Barnett & Turner.

If you’ve given some money or household items to a charity recently, the chances are you’ve been asked whether you’d like to ‘Gift Aid’ your donation. The representative of the charity will have told you that this claim increases your gift by 25%.  So, for every £80 donated, the charity receives £100 – made up of your own donation of £80 and £20 of tax reclaimed from HMRC.

On the face of it, the Gift Aid option may seem like an obvious choice, but there is a potential downside.  If you have not paid sufficient income tax or capital gains tax during the year to cover the reclaimed tax, HMRC will require you to make up the difference, which may result in an unexpected tax bill due to your generosity!

It’s an issue which is likely to take on a greater prominence, as recent changes to the way in which investment income is taxed will result in many individuals ceasing to be taxpayers:

• Prior to 6 April 2016, dividends were received with a notional credit which was included when calculating tax paid for Gift Aid purposes, but the notional credit has now been abolished and the first £5,000 of dividend income (decreasing to the first £2,000 from 6 April 2018) is taxed at a rate of 0%; and

• The savings rate of income tax offers another 0% tax band available to individuals with interest income falling within the first £5,000 in excess of their personal allowance.

These changes will disproportionately affect pensioners with modest incomes and owners of companies who remunerate themselves in the most tax-efficient way.

Many of the individuals that will be impacted by this change are not required prepare tax returns each year. It does seem likely, however, that because of HMRC’s digital and information gathering powers, they will soon be able to identify non-taxpayers who have made Gift Aid donations and pass on an unexpected bill to the donor.

It’s therefore worth considering your own position, as well as that of those close to you. You may have some options to ensure that neither you nor the charity lose out.

If you feel that you might be caught out, but your spouse would not, it’s worth considering getting them to make the donation instead.

If you are the owner of a small company, it may be possible to make the charitable donations through the business, rather than on an individual level.  Although a company cannot make donations through the Gift Aid scheme, it should receive corporation tax relief on the donations and there may be scope to increase the amount you give to reflect this.

If you believe that you may be adversely affected by these changes, it’s worth having a chat with your accountant.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

TEN TIPS TO SAVE YOU TAX

Whatever the level of your tax liability, there are some simple ways you can minimise the pain. Here are 10 suggestions from Jonathan Wilson of Barnett & Turner, Chartered Accountants & Chartered Tax Advisers, for making your next bill slightly more manageable.

1. Check your tax code each year. Your tax code is used by your employer or pension provider to work out how much income tax to deduct from your pay.  If your code is wrong, you may be paying too much (or too little) tax.  Your tax code can be found on your payslip and a breakdown of how it has been calculated will have been sent to you by HMRC.

2. Claim the marriage allowance. The marriage allowance lets you transfer 10% of your tax- free personal allowance, or £1,150 in 2017/18, to your spouse, if they earn more than you.  To benefit as a couple, the lower earner must have income of £11,000 or less in the tax year.

3. Make the most of each personal allowance and basic rate band. The personal allowance is £11,500 and the basic rate tax limit is £33,500 in 2017/18. If you are married, it may be possible to transfer income-generating assets (e.g. rental properties) to a spouse to take advantage of their lower tax brackets.

4. Take advantage of the CGT annual exemption. Capital gains under the annual exemption (£11,300 in 2017/18) are tax-free.  Where you have already used up your annual exemption, you may wish to consider deferring any further disposals until the following tax year if practically possible.  If you are married, owning assets jointly also ensures that each spouse’s annual exemption is used (assets can be transferred tax free between spouses).

5. Claim tax-deductible expenses. If you are self-employed, you can claim a tax deduction for expenses which are incurred “wholly and exclusively” for the purposes of your business.  This includes office running costs and the salaries of any employees, including your spouse.

6. Use the annual investment allowance. If you are self-employed, the annual investment allowance currently provides a 100% tax deduction on the first £200,000 spent on eligible plant and machinery.

7. Consider incorporation. The corporation tax rate, of 19% from 1 April 2017, (previously 20%), is significantly lower than income tax rates, which are currently up to 45%.  You will of course need to pay income tax when you take money out of the company, in the form of salary and/or dividends.  However, if you don’t require the income, you have the opportunity to accumulate profits within the lower corporate tax environment.

8. Take advantage of the dividend allowance. The recent changes to the taxation of dividends saw the introduction of a £5,000 tax-free dividend allowance, which reduces to £2,000 in April 2018.  Whilst there will be winners and losers from the new dividend regime, this allowance should not be overlooked.

9. Maximise pension contributions. If you contribute to a workplace pension scheme, any pension contributions you make will be deducted from your salary before income tax is calculated.  If you contribute to a personal pension scheme, your pension provider will claim tax relief at 20% on your behalf and add it to your pension pot.  If you are a higher or additional rate taxpayer, you can then claim tax relief on the extra 20% or 25% in your self-assessment tax return.

You currently pay tax if savings in your pension pot go above the annual allowance of £40,000 a year.  However, this limit has recently been reduced for those with income (excluding any pension contributions) over £110,000, and there is doubt over the future of pension tax reliefs, so they should not be taken for granted.

10. Use your tax-free ISA allowance. From 1 April 2017 you can save up to £20,000 (previously £15,240) a year tax-free in an Individual Savings Account (“ISA”).  This can be saved as cash, shares, or a combination of the two. 

If you’re interested in investigating any of these suggestions and how they could fit in with your own personal circumstances, make sure to speak to your accountant.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Prepare to go public: the gender pay gap under scrutiny

From April 2017, the Government expected companies to be open about the pay gap that exists between male and female workers says Jonathan Wilson of Barnett & Turner. The move is a response to a large body of evidence, collected over many years, which shows men tend to get the better deal when it comes to salary. And that’s despite the fact that the Equal Pay Act (now largely superseded by the Equality Act) was introduced as far back as 1970.

According to the Office for National Statistics, the gender pay gap for full-time employees in 2016 was 9.4%. The gap for all employees, both full and part-time, was 18.1%. Although both figures are down since the 1990s, they are falling fairly slowly.

In the hope that public scrutiny will force private-sector employers to act, large businesses are now required to publish data on the pay gap every year. The rules apply to any company employing at least 250 employees as of 5^th April each year. By 4^th April 2018, businesses are expected to publish their data on their websites.

The Equality Act 2010 (Gender Pay Gap Information) Regulations of 2017 says they will have to let the public know:

▪ the organisation’s overall gender pay gap (expressed as a percentage), using both the mean and median hourly rate of pay for female and male employees;

▪ the proportion of male and female employees in each of the organisation’s four pay quartiles;

▪ the organisation’s overall bonus gender pay gap (expressed as a percentage), using both the mean and median bonus payments received by female and male employees over the preceding 12-month period;

▪ the proportion of female and male employees who received a bonus in that period.

For the purposes of this exercise, a ‘relevant employee’ is defined as being anyone working ‘under a contract personally to do work’. This means that casual staff and self-employed contractors need to be considered – both in terms of headcount and also the financial rewards they receive.  There is, however, a recognition that if you don’t have the relevant data about an individual – or it’s not reasonably practicable to obtain it – you don’t have to include it in your calculations.

So, what should your business be doing to ensure you’re complying with the law? First of all, establish if you are a ‘relevant employer’ under the terms of the regulations. If you believe you are, then start the process of analysing your employees’ remuneration packages and assembling the necessary information to make your calculations.

Remember, if there is a significant pay gap within your organisation, it may have PR implications for you. So now is the time to start thinking of the narrative you may choose to publish alongside the figures – explaining why there’s a discrepancy and informing the wider world of what you’re doing to address it.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Connecting the farmhouse: the challenges of technology in rural areas

When you live in a rural community, it’s not always possible to access the services city-dwellers take for granted, writes Jonathan Wilson of Barnett & Turner, Chartered Accountants. If you’re based in a big town or city, you tend to take access to the internet for granted. It’s one of those services that you expect to find alongside water, gas, electricity and other utilities.

Travel out into the rural heartlands and you’ll see a rather different picture though.

In farming country, some of the properties are just too remote for BT (which has a near monopoly on the installation of fibre connections around the UK) to view as financially viable. Taking a cable to a farmhouse a mile or more from the nearest road seems to be a step too far. In fact, communications regulator OFCOM noted in December 2016 that nearly a million rural properties didn’t have decent broadband connections.

There are a number of proposed solutions to this problem, including opening up the market to small providers and offering vouchers to residents, who may ‘club together’ to select the service which is most cost effective.

In the meantime though, there is a real issue for farmers, in that HMRC assumes that everyone will be filing returns online as part of the government’s imminent Making Tax Digital strategy.

The days of an old-style paper-and-pen VAT return and a paper cashbook are now numbered. We live in a world of cloud-based accounting, but it presupposes access to the web. A flaky 3G signal on a mobile isn’t really a practical or reliable option and dongle-based access is highly expensive.

As farms pass between the generations, more and more of our clients are committed to the idea of online accounting, but are frustrated by the broadband service available to them.

In the short term, the best option may be a quarterly meeting with your accountant. Inevitably, there would be a cost implication, but your professional adviser is likely to be based in a town and have high-speed web access. There may, of course, be an advantage to these more regular get-togethers. You can use them as an opportunity to ask questions and seek advice, while your accountant can keep a closer eye on the state of your finances in real time.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

How an Association can work for you

Jono Wilson of Barnett & Turner in Mansfield, Notts, explains the benefits of choosing an accountancy partner that is well connected. If you’re a business owner, selecting the right accountancy firm can often be a daunting prospect. Is there any real way of distinguishing one from another? What criteria can you use to make an informed choice?

And if you’re running an SME, your instincts might well be to go with a small, independent partner. They will, after all, have an intuitive understanding of some of the issues you face, while also offering a level of personal service you might assume a bigger firm can’t provide.

But at the back of your mind, there’s an understandable question mark. Will they have the depth of knowledge, resources or training of the ‘big boys’?

That’s where a Associated firm can be the perfect compromise.

Ask if the practice is a member of HCWA. If the answer is yes, that should give you a lot of reassurance. It’s an association that has grown steadily in recent years and provides individual member firms with a wide range of resources.

First of all, the association helps to organise audits, which are conducted by peers and specialists. These ensure that each member firm is performing to the correct standard and embracing the latest thinking on best practice.

It helps develop the partners, accountants and support staff within a business – ensuring they have the training to keep right up to date with changes in regulation and the provision of professional services.

Members of the association will have access to survey information, technical support and online tools. They’ll get to meet regularly with their peers in forums and conferences to discuss the latest issues impacting clients.

One further advantage is that different firms will, of course, have expertise in particular areas of accountancy or operate in specific jurisdictions. So if your own professional adviser doesn’t have the necessary expertise to help you with a particular issue, they are likely to be able to refer you to someone who does.

The message is that you can still think small in terms of personal service, while drawing on a support network that is many times bigger.  So that HCWA question really can be all-important.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Making sure a break-up doesn’t break the bank

Divorce can be very painful at many levels. That’s why you don’t want the additional burden of being unnecessarily penalised by Capital Gains Tax (CGT), writes Jonathan Wilson of accountancy firm Barnett & Turner.  During the emotional upheaval of a divorce, tax considerations are generally the last thing on your mind.  By taking advice early in the process though, you may be able to avoid unnecessary tax liabilities.

The general rule is that a married couple (or civil partners), who are living together, can transfer assets between each other without paying capital gains tax, until the end of the tax year following the date of separation.

After the 5^th April following your separation, these inter-spouse “no gain/no loss” transfers no longer apply.  At that point, even if you are still married, the transfer of an asset between you and your partner will be treated for tax purposes as if the spouse who is giving up their interest in the asset has received market value for that interest.  This may give rise to a capital gains tax bill if the asset has increased in value since it was acquired.

Of course, if you have limited cash resources, the CGT can be particularly unwelcome.  It’s therefore a sensible idea to consider transferring assets before the end of the tax year of separation, even if an overall financial settlement is still some way off.

But what if the separation takes place in March?

You would have less than a month to decide whether or not to transfer an asset before the end of the tax year in order to avoid a capital gain.  Unfortunately, this is just an anomaly of the regulations and does indeed create a lot of pressure.

By contrast, a couple who separate in May have eleven months to make these decisions, which might well be enough time to negotiate and implement an overall settlement.

In summary, if you are considering separation – or are in the process of separating – you should take advice on potential capital gains tax liabilities which might be triggered on a division of your assets. You should also start to think, as early as possible in the process, about how these might be mitigated.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk