Monthly Archives: August 2014

Property Ownership through a Limited Company

Buying property

If you already own property, you will have to transfer it to your limited company. If the property is worth more than you paid for it, you could be liable to capital gains tax (CGT) when it is transferred to the limited company. This CGT position applies whether you gift the property or sell it to the company for full market value. There is a form of ‘holdover’ relief from CGT when a business incorporates. However, if the degree of involvement in the properties is not enough for the activities to amount to a ‘business’, it seems unlikely that this relief will be available.

If you do not own any residential property yet, then subject to any commercial considerations such as loan finance, you could introduce funds to the company to enable it to purchase the property instead. This avoids the above CGT complications. Whether you are buying the property personally or through the company, there may be some Stamp Duty to pay. This also applies even if you already own the property, and decide to gift it to the company.

Renting property

Profits could be extracted from the company by salary or dividends, which will be taxable income in your hands. Dividends do not attract NICs, and the maximum tax liability on dividends for a higher rate taxpayer is 32.5%, with 10% tax deemed at being paid at source. This compares favourably with a maximum 40% tax rate on rental income from property owned personally.

Selling property

A disadvantage of company ownership can arise if a property is sold, in the form of an effective double tax charge. The company is liable to corporation tax on any capital gain if the property has increased in value. A further tax charge then arises when the net sale proceeds are distributed to the company owners, whether by salary or dividends. By contrast, if the property is owned individually, there will be a single tax charge, taxable at rates of 18% or (perhaps more likely) 28% depending on whether you are a basic or higher rate tax payer.

The calculation of a gain on property differs according to whether it is owned by the company or personally. For example:

Individuals may deduct the annual CGT exemption, this exemption is not available to companies;

Companies may deduct an allowance for the effects of inflation on the cost of the property (‘indexation allowance’), whereas individuals may only claim this allowance for periods of ownership up to April 1998.

If you hold the shares in a company that owns property, you could sell the shares in that company, instead of (for example) the company selling the property and then deciding whether to continue with the company or wind it up. There are stamp duty reasons why it may be attractive for a purchaser to buy the shares in a property company, rather than buy the property directly. However, your share disposal would still be liable to CGT, subject to any annual CGT exemption not otherwise used.

Summary

There is no ‘clear cut’ answer to the question whether residential property should be owned personally or by the company! Every case should be considered separately, based on individual circumstances. My advice would be to work through the buying, renting, and selling implications in advance using projected figures if possible, and to obtain professional assistance from us if you require more detail, please just call!

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Hidden Pension auto-enrolment responsibilities

Hidden auto enrolment responsibilities revealed (from Accounting Web)

Posted by robertlovell PM | on Mon, 07/07/2014 – 15:49  2676  6 comments

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Auto enrolment is approaching a tipping point. Where it was once the burden of the big businesses who were the first to comply, it’s now affecting business leaders up and down the country with over 10,000 businesses staging this month alone, says Creative Auto Enrolment’s David White.

As business owners try to digest more than 500 pages of guidance from The Pensions Regulator, now is the time for accountants to act.

Getting to the crux of the challenges employers are facing is key in order to take advantage of this huge business opportunity. The sheer size of the job is a challenge in itself, with AE preparation involving 33 different administrative tasks. But as businesses start making their way through the AE maze they are uncovering hidden responsibilities, especially when it comes to the crucial task of choosing a pension scheme for employees.

We have seen that this is proving to be far more complex and time consuming than many businesses initially expect, but deciding where to invest employees’ money is also a huge responsibility burden. In fact according to our recent research, two thirds of businesses say that choosing a pension provider and plan for employees is one of the AE tasks worrying them the most.

So why is the task such a challenge? We’ve identified the top four of these hidden responsibilities to help you support your clients:

  1. Capacity crunch – according to TPR, 1.2 million businesses are approaching their staging dates and most of them will be setting up their first pension scheme. This huge increase in demand is leading to unprecedented pressure on the industry. Many pension providers are already struggling to keep up, with some even closing their doors to new customers. It is vital that businesses get going as early as they can so they are ‘in the queue’ and can meet their compliance timetable
  2. Responsibility burden – selecting the pension provider that will look after the financial futures of an entire workforce is a huge responsibility. But most employers are business people – not pension experts. Many won’t know where to start when it comes to even identifying pension providers, let alone choosing the right one. Employers are worried about the responsibility that comes with that decision – especially as some will be all too aware of what can go wrong, in the wake of the Equitable Life collapse
  3. Investment strategy – once an employer has chosen a provider they must then set the default investment strategy. What does your average employer know about investment theory, asset allocation, risk management and so on? Businesses must then identify the right combination of funds to deliver that strategy and provide the best returns for the risk profile over the next 40 years. Financial advisers have to take lots of exams to advise on these issues, and employers with little or no knowledge of pensions are expected to do this themselves. While you may not feel best equipped to have those conversations either, your clients will expect you to have the right people in your network to provide support and advice
  4. Cost control – you might think that now that the government has announced a price cap, costs shouldn’t be an issue. However the price cap announced earlier this year still allowed for providers to use various different pricing strategies. Different strategies will have very different impacts on employer and employee costs and the amount of contributions ultimately making it into the employee’s pot

It’s crucial that accountants are aware of the AE pain points for employers. Our research shows that almost half of businesses staging over the next year plan to consult their accountant on the legislation. But they might not come to you. Up to 30% of employers who should have staged in April and May are yet to select a pension plan according to Aviva and the regulator has already launched at least 590 investigations into potential non-compliance. Your clients may be struggling in silence, or may not even be aware of what they need to do.

It’s also important to remember your own business. We found that almost a quarter of accountants don’t yet know how they plan to meet their own responsibilities under the new legislation.

AE is here and it’s a big challenge for businesses to overcome, with hefty fines for employers who get it wrong. Make sure you are aware of some of the ‘hidden’ tasks involved that may lead to questions coming your way. Take control of AE so that you can deliver the right guidance and add real value to your clients.

Note / Comments from web:

  1. A very good article.
    On the topic of “cost control” , remember that the price cap applies retrospectively so even if you set up your workplace pension before April 2015 ,the restrictions on high charges, commission and dual pricing (active member discounts) apply to current plans as well as those still to be set up.
    If you are worried about whether your existing plan will still qualify, you should speak to your adviser, or your provider. Remember too that Providers do not have to concert an existing workplace pension into a scheme that qualifies for auto-enrolment.
  2. Yes its probably about time all small business owners with less than  5 employees called it a Day & just made everybody redundant.
    Virtually impossible not to fall foul of the Legislation from payroll to Pensions & the cost of implementation & fines by the Tax Gestapo.
  3. Thankless exercise now employing others
    John, your response sounds so defeatist.  Surely the better approach is to get your employees to set up their own consultancies and pay them a fee rather than employing them.  Everyone wins – you no longer have employment legislation to worry about, the government has up to 5 new businesses to demonstrate economic growth and you could perhaps offer to let them use your offices as a base on a cost-sharing basis – so your overheads go down too.
  4. Nice idea about the consultancies but what about the dreaded IR35!
    The tax Gestapo wins hands down every way. New legislation right, left and centre and of course a whole new raft of Penalties and Fines to go with it and if you don’t pay they just help themselves from your bank account. So much for the promised ‘less red tape for business!’
    I can totally relate to John’s sentiment.
  5. Well I run a small business with less than five employees and a larger one with more than 180 employees and one of them has staged auto-enrolment.
    There are two ways we could go on this- we could go the scaremongering route and make it all a bit of a drag- or we could try to find a way through the treacle.
    My suggestion is the latter- it starts with looking at things with an open mind and ends with a hassle free existence!
    I’m enjoying the summer and working from my boat – sounds a  good way to get through the treacle to me
  6. I was not for a moment suggesting breaking the law. I was suggesting getting employees to genuinely set up consultancies which could not possibly fall foul of IR25.
    But I agree that the rules allowing HMRC to dip their hands into your bank account are really worrying as they will take what they think is due rather than the right figure!

 

 

 

 

 

 

 

 

 

 

 

 

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How to do a Business plan

A decent business plan can add value and focus to a small businesses looking to reach its full growth potential. Getting it right is something of an art; here are some basic pointers on putting a plan together.

A business plan should help identify long-term objectives, provide a blueprint of how you will go about achieving those goals and provide metrics to check progress.

It should join up the dots between sales, HR and finance and provide a holistic analysis of a company as well as its marketplace. A business plan is much more than forecast, cashflow and profits cooked up for the sole purpose of securing investment. It should also drive your company in the right direction and provide a benchmark for on-going evaluation.

Key content and measures

A business plan should cover objectives, strategies, sales, marketing and financial forecasts. The best business plans aren’t long or complex, but explain only the most important information – what you want to achieve, how you will get there and the things you need to do along the way.

First, consider who will be the audience for the business plan. Is the plan needed to secure finance/investment or will it just be used for internal purposes?

All the major banks have business plan templates on their websites; however every business has different requirements and will vary depending on the type of operation and the return that you hope to realise.

A business plan for a small or start-up business should cover these sections:

1.    Executive summary

2.    The business background

3.    Markets and competitors

4.    Sales and marketing

5.    Management

6.    Operations

7.    Financial forecasts

8.    Financial requirements

9.    Risk assessment

10. Appendices

Presenting the plan

Tools: Pros and cons

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