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Broadly speaking, Intellectual Property (IP) can be applied to something unique that has actually been created by a person or people. An idea in itself does not qualify as IP.
Once you have IP, there are various methods of protecting it against theft or plagiarism depending on whether the IP is an invention, a product, a brand name, a design or a document. Copyright, patents, designs and trade marks are all types of intellectual property protection.
Copyright protection is applied automatically on writing and literary works, art, photography, films, television, music, web content and sound recordings.
Patents, design registration and trade marks have to be applied for and your IP may need more than one of these protections. For instance, you may wish to register the name and logo with a trade mark and apply for a patent on the invention itself.
It is important to bear in mind that registering a trade mark on a product name or logo or registering a design are relatively quick processes that take a few months whereas to patent an invention or product is a lengthy procedure that takes around five years.
In addition, it is not usually possible to obtain a patent for software. Patents can only be granted for inventions which achieve a new ‘technical effect’ and computer programs on their own are not considered to do that.
The key here is the hardware. In a scenario where the software is run on a computer to process inputted data and return a result, that is not considered new or technical in nature. Therefore, although the software itself is new, it is not patentable.
The only situation where it would be possible to patent software would be where it could be demonstrated that this software allows the hardware to achieve a technically new result.
At the base level, it is strongly recommended to register a trade mark to protect your brand, the name of your product or service. Not only does it enable the use of the ® symbol to convey ownership and take legal action against any infringements but also it makes it easier to sell or licence in the future.
In the United Kingdom, a trade mark registration takes around four months, if there are no objections. A registered trade mark lasts ten years and is renewable.
A key point, is that registering a trade mark in the UK only protects your brand in the UK. If you want to use your trade mark other countries, applications need to be made to the trade mark office in each country.
Alternatively, there are European Union and International trade mark application systems. An International application must be based on an existing trade mark application, so the UK registration would be a pre-requisite.
To qualify for a trade mark, the brand must be unique and can be made up of a combination of words, logos, sounds and colours.
However, a trade mark cannot:
In addition, a trade mark cannot be granted if someone else has already registered an identical or similar trade mark for the same or similar goods or services.
If this is the case, you can request the holder of the existing trade mark for permission to register yours. If they agree, they would need to provide their letter of consent to be included with your application.
The UK is part of the Nice Classification, the latest version of which came into force on January 1st 2016 and consists of thirty-four classes of goods and eleven classes of services. Essentially, a trade mark is applied for under one or more of these classes.
To make the process less onerous, the Intellectual Property Office has introduced the Right Start programme whereby they will assess your application and report whether or not it meets the rules for registration. If not, there is a period of two months to resolve the issues.
If the Intellectual Property Office examiner has no objections, the application will be published in the trade marks journal for two months, during which time anyone can oppose it.
The trade mark will be registered once any objections, if any, are resolved and the Intellectual Property Office will issue a certificate to confirm the registration.
The fee for a trade mark registration in a single class under Right Start is £200.00, £100.00 of which is payable on application and the remainder if the application goes ahead after the examiner’s report. There is an addition £50.00 fee for each secondary class that is registered.
Whist the process has been designed to allow the owner of the brand to relatively simply apply for a trade mark, there are specialist trade mark lawyers and firms that can manage this.
If you have any questions or would like assistance in protecting your brand, please email us at tax@cooperfaure.co.uk for further information.
When the Chief Counting Officer announces the overall result of the United Kingdom Referendum on European Union membership at Manchester Town Hall in the early hours of the morning of Friday 24th June, many people are asking “what happens next?” if the vote is to leave.
Undoubtedly, the either/or wording of the referendum question “Should the United Kingdom remain a member of the European Union or leave the European Union?” is more favourable to those campaigning to leave rather than yes/no “Should the United Kingdom remain a member of the European Union?”. As Barack Obama showed in his initial presidential campaign, a Yes Movement can gain overwhelming momentum.
Despite the near-hysterical pronouncements in the run up to the referendum, the short answer is that the only certainty is that there will be an intense period of uncertainty.
It is akin to leaping off a ledge and not knowing whether the landing is a bouncy castle or a slurry pit. For either side to assert that they know the outcome is highly disingenuous.
The first important point is that the referendum result is a demonstration of the voters’ opinion that is not in itself legally binding. Parliament would have to pass all the necessary legislation for the UK to exit the EU and ratify the final withdrawal agreement. Technically, the House of Commons or the House of Lords could vote against any or all of this. However, the constitutional consequences of any effort to block the will of the people are unimaginable.
Under the Lisbon Treaty, the UK would have two years during which to negotiate its withdrawal from the EU and put in place new arrangements, and it is these new arrangements that will ultimately determine whether the UK as a country and people individually are better or worse off.
In the intervening period, existing agreements such as those for the Financial Services Compensation Scheme, the European Health Insurance Card and the cap on mobile data roaming charges are broadly likely to continue.
The only precedent of a country voting to leave the EU was Greenland in 1982 and their exit was driven specifically by EU fisheries policy. Whilst their economy has prospered and grown since leaving the EU, it would be misleading to claim be any natural correlation to the UK.
The two most likely immediate impacts of the UK voting to leave, that almost all economic forecasters agree on, are that the pound and the UK stock market would fall dramatically as soon as the markets open and would continue on a downward trend in the following months.
The effect on employment in the UK is less clear in the short-term. Global financial institutions such as JPMorgan Chase and Citigroup have warned that a leave vote would result in a shift in jobs from London to other European centres.
On the other hand, the UK would remain an attractive option for the international entrepreneur to set up a business with the comparatively low rates of Corporation Tax, the flexible labour laws and there being no requirement for a resident Director.
On the pound, forecasters are predicting an overall fall of up to 20%. How much of this has already been factored into the current value is unclear but the concern here is that this would trigger an inflationary cycle.
As the pound falls, imports become more expensive pushing up the rate of inflation and, thereby, reducing the average standard of living. Moreover, higher inflation could prompt the Bank of England to increase interest rates that, in turn, could lead to an increase in mortgage rates.
It is astonishing to think that the Bank of England base interest rate has been stable at 0.5% since March 2009.
As ever in economics, the impact of a fall in the value of the pound would be toned. For exporters not reliant on imported raw materials and for the UK tourism industry, this would be potentially good news.
A fall in the value of the UK stock markets can be seen to have little impact on day-to-day life but the consequences for pensioners and savers could be dire with so much of pension funds’ investments held in UK bonds and shares.
For expat pensioners living in other EU countries, their future becomes even less sure. The current arrangements allow them access to the medical facilities with the cost of the care covered by the NHS until the pensioner becomes permanently resident in that country. The continuation of these arrangements, together with the ability to receive their UK pension, could eventually come down to a bilateral agreement with that country.
The greatest danger of a vote to leave falls under the ‘law of unforeseen consequences’, that it triggers a domino effect that causes a global recession. Again, no one knows whether this will be the case.
Given that there is so much at stake when the UK votes on Thursday, it is, frankly, deplorable that both campaigns have relied so heavily on scaremongering and hyperbole rather than proper debate.
At the end of the day, the EU is far from perfect but, there again, so is the UK parliament. It remains to be seen, in a matter of days, whether the British people are going to take a leap into the unknown.
One of the risks that it is essential that a business owner avoids is to equate their business being busy to it being healthy.
A bulging order book and working seven days a week does not necessarily ensure to financial wellbeing.
This is where Key Performance Indicators (KPIs) play their part. KPIs in themselves can be used to measure performance in any area of a business from Sales and Marketing to Operations to HR to Finance.
Monitoring the financial performance is vital to ensure long-term success. Whilst there is almost an endless list of potential measures, these are the seven financial KPIs that we would recommend that you set and monitor to enable you answer the question ‘is my business on target?’
Gross Profit Margin
The Gross Profit has to cover the operating costs of the business, building funds for the future and leaving a distribution to reward the investors.
The Gross Profit Margin illustrates whether you are pricing your products or services correctly as a whole to cover these and can be measured against an industry or sector benchmark. In addition, it can give an indication of the viability of a specific product or service within your range.
The calculation for Gross Profit Margin is (Revenue – Cost of Goods Sold) / Revenue
Net Profit Margin
This will show the percentage of your revenue that was profit and, again, can be measured against industry standards as well as for budgeting and forecasting.
Net Profit Margin is (Revenue – Cost of Goods Sold – Operating Costs – Interest – Taxes) / Revenue.
One key point is that the Net Profit Margin does not a measure of the level of the cash generated in the period. This is as a result of the inclusion of a number of non-cash expenses in the Operating Costs, principally depreciation and amortization.
Current Ratio and the Quick Ratio aka the Acid Test
The Current Ratio highlights the ability of your business to pay its way by calculating the Current Assets (Cash, Accounts Receivable, Stock and Inventory) / Current Liabilities (Accounts Payable and Other Short-Term Creditors).
An adequate Current Ratio is sector specific but, largely, a ratio between 1.5 and 2 indicates a healthy business.
A low Current Ratio tends to flag that there is either inadequate credit control, an issue with stock management or an unsustainable cash burn rate.
The Quick Ratio is a more conservative measure of financial wellbeing than the Current Ratio because it excludes Stock and Inventory from the Current Assets. As a result, this gives a more realistic view of the ability of your business to meet it’s short-term obligations. A Quick Ratio higher than 1 implies that this would be the case.
Accounts Receivable Turnover
The Accounts Receivable Turnover shows the number of times per year that the business collects its average accounts receivable and will aid in determining the efficiency of the credit terms and collections. To extract the maximum value, this needs to be measured on a monthly or quarterly basis.
The simple calculation for Accounts Receivable Turnover is Net Annual Credit Sales / ((Opening Accounts Receivable + Closing Accounts Receivable) / 2)
For example, a business with annual credit sales of £450,000, and opening Accounts Receivable balance of £55,000 and a closing Accounts Receivable balance of £70,000 would have a turnover of 7.20. In other words, the average account receivable was collected in 50.7 days.
Return on Equity
Measuring the level of profit generated in relation to the monies your shareholders have invested provides a gauge on both profitability and efficiency.
The calculation for Return on Equity is Net Profit / Total Equity and a high or improving ratio validates to backers that their monies are being employed wisely.
Customer Satisfaction
All these mathematical ratios count for nothing unless your customers are satisfied with the products or services that you are providing and it is key to engage with them on a regular basis for their feedback.
Finally, Have a Damn Fine Accountant that will work with you not only in crunching the numbers but also in putting the measures in place to support your business grow and prosper.
In the UK, we are in the fortunate position where most people earning a PAYE salary or wage or receiving a pension do not need to complete a tax return.
However, each year, as working and lifestyle patterns change, the number of tax returns increases. More than 11,000,000 were filed for the 2014-15 tax year.
For the 2015-16 tax year, if any of the following apply to you, a tax return is required:
In some circumstances, you would need to submit a tax return to claim a tax rebate from HMRC. For instance, on:
If you have not completed a tax return before, for all except sole traders and partnerships, you can register online with HMRC here.
For a new sole trader, you can register with HMRC here.
For a new partner, you can register with HMRC here.
Finally, if you are the ‘nominated partner’, you need to register both yourself and the business partnership here.
HMRC target to post your Unique Taxpayer Reference that enables you submit a tax return within two weeks of registration.
With this you can either prepare and file a paper tax return before the deadline of 31st October 2016, enrol for the HMRC online service that grants a longer deadline of 31st January 2017 or appoint a tax advisor to act as your Agent.
To appoint CooperFaure, we would need is your Unique Tax Reference, National Insurance Number and Post Code to act on your behalf. Alternatively, we can administer the complete process for you.
For this or to arrange an initial free consultation to discuss your tax affairs, please email us at tax@cooperfaure.co.uk.
In the 2015 Autumn Statement, the Chancellor announced that the Government was going to invest £1.3 billion into HM Revenue and Customs to transform the UK into one of the most digitally advanced tax administrations in the world.
By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and to update HMRC at least a quarterly basis through their digital tax account.
This is pitched as a trailblazing reform towards a new target to reduce the costs to business of tax administration by £400 million by the end of the 2019-20 tax year.
Setting aside the natural scepticism of the HMRC being able to deliver such an ambitious IT project to time, indeed HMRC have confirmed that the initial technical consultation that was to set to start this month has been deferred until after the EU referendum on 23rd June, the course is set.
Despite all the concerns and misgivings and the unanswered questions, this tax revolution will happen as it is ultimately part of a process to accelerate the collection of business and personal taxes.
As such, it represents both one of the biggest challenges and opportunities to the accountancy profession.
Gone will be days of the traditional historical approach of preparing the books on an annual basis. Instead firms will need to offer real-time resources that are compatible with the digital age.
Whilst the HMRC publications and the pronouncements of the Financial Secretary to the Treasury, David Gauke MP, seem to suggest a fundamental misconception of the role an accountant performs, they raise a valid point that reporting on events that, at the extreme, happened twenty-one months previously is not compatible with the times that we live in.
However, Making Tax Digital faces some serious challenges the most fundamental being what constitutes ‘digital’.
Rt Hon Andrew Tyrie MP, Chairman of the Treasury Committee, has taken David Gauke MP to task on this matter in a letter sent on 26th April 2016 in which he wrote:
“Until last month there was a general understanding among most tax professionals that businesses could use their own choice of package for their record keeping, as long as it was digital.
Digital had not been clearly prescribed and was understood to include, for example, Excel. It was only recently that HMRC’ s apparent intended meaning – that businesses will be required to use particular software, and systems that are compatible with HMRC’s – has become clear.”
Given that an independent survey by ICAEW found that 75% of all businesses and 82% of sole traders would need to change their record keeping systems to be compliant, he goes on:
“If this sample is representative, and if their fears are borne out, then it seems implausible that MTD could generate large savings to business – as the Government is forecasting.
On the contrary, the vast majority of businesses may face increased compliance costs. This would be a cause for serious concern”.
As yet, any reply has not been placed in the public domain. However, it appears counter-intuitive that changing the current system annual reporting to one that requires quarterly reporting is going to reduce the administrative burden and cost to small businesses and sole traders.
For instance, in order to submit accurate information, a retailer would need to complete a stock count and valuation or a manufacturer would need to assess the cost of Work in Progress four times a year.
In addition, asset purchases, capital allowances, depreciation, accruals, prepayments, deferrals and bad debt provisioning would need to calculated through.
This is where the Treasury is displaying a naivety on the role that an accountant performs. There is much more to it that just ‘bean counting’.
There also appears to be an underlying assumption that businesses work on a linear basis whereas the reality is that, to a greater or lesser extent, there is some seasonality in most companies.
For instance, a marquee company could generate 75% of its revenue in the summer months which covers the costs in the winter where there is little or no revenue. Reporting on an annual basis smooths this out but quarterly reporting will provide a distorted picture, the more so if it is used as the basis for tax payments.
As Mr Tyrie rightly says in the conclusion of his letter “A thorough impact assessment is the minimum required before proceeding with the Government’s proposals to make digital record keeping compulsory.”
Nonetheless, neither the Treasury nor HMRC have shown any inclination to be deflected from their Making Tax Digital programme.
At CooperFaure, we are developing forward-looking accountancy solutions to enable our clients to prosper in the digital age. If you would have any questions or would like information, please let email us at tax@cooperfaure.co.uk.
Are you aware that the Employment Allowance has been revoked from sole Director limited companies?
Following the 2015 Summer Budget where the Chancellor of the Exchequer indicated that the Employment Allowance would no longer be available to companies where the Director is the sole employee from April 2016. HMRC subsequently set up a consultation on the matter.
As of today, HMRC is stating “We are analysing your feedback” on this consultation. Nonetheless, from 6th April 2016, a limited company where the Director is the only employee paid above the Secondary Threshold for Class 1 National Insurance contributions of £156.00 a week is now excluded from the Employment Allowance.
This is set to impact the estimated 150,000 sole Director limited companies where the Director is paid a salary subject to PAYE and NI.
Notwithstanding the appalling lack of communication of this change from HMRC, it has been made apparent that any company that erroneously claims the Employment Allowance will be subject to a penalty.
However, to re-qualify for the Employment Allowance, the company would simply need to pass the ‘additional employee test’ which explicitly includes companies where:
Moreover, if the company circumstances change at any point during 2016-17 tax year and there is an additional employee earning above the Secondary Threshold, the company would be eligible for Employment Allowance for the whole tax year.
The decisive factor is that an additional employee must be paid at least £156.00 a week or an additional Director must be paid a minimum annual salary of £8,112.00, subject to pro-rata if the Directorship began after the start of the tax year.
Given that the Employment Allowance is up to £3,000.00 this year whilst the Chancellor’s stated aim is “to ensure that the NICs Employment Allowance is focussed on businesses and charities that support employment…”, this seems totally ill-conceived.
Extraordinarily, there is no connected person test to prevent the Director either appointing their spouse or civil partner, a relative or a friend as a Director. There would be no need even to pay this person, as the original Director could resign and, thereby, become the qualifying ‘additional employee’.
To make the legislation more ludicrous, it is permissible for the original Director to be reappointed as a Director after one pay cycle as an employee. The HMRC states that if “….circumstances change during the tax year and the Director becomes the only employee paid above the Secondary Threshold, you can still claim the Employment Allowance for the tax year.”
Alternatively, a friend or relative could be employed on a temporary or zero-hour contract basis. As long as that person earns over £156.00 for just one week in the tax year, again the company would be eligible for the Employment Allowance.
Given the current crackdown on tax avoidance and evasion, it is astonishing that the Treasury has implemented a change that can be so easily circumvented. Indeed, the guidance on HMRC website is not far short of an instruction manual.
Seemingly, the only companies that will be affected will either be those where the Director is unable to appoint another Director or employee or is unaware that this is an option.
If you are concerned over any aspect of your business or personal tax affairs, please contact us at tax@cooperfaure.co.uk for an initial free and confidential consultation.
We have prepared a free, downloadable 2016-17 UK Tax Guide that provides comprehensive details on the rates and allowances for:
If you would like any further information on any aspect of business or personal taxation, please email us at tax@cooperfaure.co.uk.
Have you ever wondered why the tax year in the United Kingdom runs from 6th April to 5th April?
The reason is steeped in history. Prior to 1752, New Year’s Day in Britain was on 25th March, the Spring Quarter day, and this was also the start of the tax year.
In 1582, Pope Gregory XIII had reformed the calendar from the Julian predecessor to the new Gregorian version to improve accuracy with one of the changes being to stop the century years from being a leap year.
Britain essentially ignored these modifications and, by 1752, their calendar was eleven days out of sync from the rest of Europe.
To correct this, parliament decreed that Wednesday 2nd September 1752 was to be followed by Thursday 14th September 1752, a change that caused riots on the streets due to the lack of compensation for the loss of income from the short working month.
The Treasury, mindful of this public fury, moved the start of the next tax year ahead by eleven days to 5th April 1753 so that the populous was not paying a full year of tax for only 354 active days.
Although, as part of the conversion to the Gregorian calendar, New Year’s Day was moved to 1st January, the quarter days still are used as the payment periods for agricultural and commercial rents.
1800 was no longer a leap year and, therefore, in effect a day shorter than it would have been. To reflect this, the Treasury moved the start of the tax year ahead by a day to 6th April 1800 and it has continued to be 6th April ever since!
If you would like any further information on any aspect of business or personal taxation, please email us at tax@cooperfaure.co.uk or for our free downloadable 2016-17 UK Tax Guide please click here.
Not the title of the next Hollywood blockbuster but a cautionary tale showing that, in the global economy, no country has complete sovereignty over it’s tax regime.
More importantly, for those with patentable inventions or Intellectual Property (IP), there is potentially a huge tax benefit for starting this process before 30th June 2016.
One short paragraph in the 2016 UK Budget read “Patent Box – Compliance with new international rules – The government will modify the operation of the Patent Box to comply with a new set of international rules created by the OECD, making the lower tax rate dependant on, and proportional to, the extent of research and development expenditure incurred by the company claiming the relief. This will come into effect on 1 July 2016.”
To appreciate the implications, it is important to understand how the Patent Box currently works.
The Patent Box has been phased in since 1st April 2013 and enables companies to apply a lower rate of Corporation Tax of 10% to profits earned from its patented inventions. The percentage of the related profits entitled to the 10% Corporation Tax rate had been phased in as follows:
To qualify, a company must either own or exclusively licence-in patents and have performed qualifying development on them. In addition, the patent must have been granted by the UK Intellectual Property Office, the European Patent Office or by certain states in the European Economic Area.
Currently, the Patent Box excludes patents registered in countries including USA, France, and Spain due to the differences in the approval process for patent applications. Products that only have copyright or trademark protection are not covered.
A company needs to be able to demonstrate performed ‘qualifying development’ on the patent by making a significant contribution to the creation or development of the patented invention or a product incorporating the patented invention.
If a company is exclusively licensing-in a patent, it can still benefit from Patent Box so long as it has the entitlement to develop, exploit and defend rights in the patented invention plus at least one aspect is to the exclusion of all other persons and there is exclusivity in at least one entire country.
There are more relaxed criteria for a group of companies where one company may own the portfolio of patents whilst others develop and mercantile them.
It is not a requirement for all of the company profits to have been derived from patented inventions. To be germane, the income must come from at least one of the following:
Meanwhile, the Organisation for Economic Cooperation and Development published the conclusion of their OECD/G20 Base Erosion and Profit Shifting Project in October 2015 and, after a consultation, the UK government determined to adapt the Patent Box to comply with the with the modified nexus approach. The Executive Summaries can be read here.
The main thrust of the modified nexus is to ensure that the benefits of the UK tax regime are only available where the research and development (R&D) expenditure required to develop that innovation also took place in the UK.
As a result, under the new rules, for income to be eligible for the Patent Box it must be linked actual R&D expenditure. Companies will need to calculate IP profits on the basis of streaming income between qualifying and non-qualifying revenues and be able to track and trace expenditure corresponding to each stream.
For each profit stream figure, the company will apply the ‘nexus fraction’ to determine the amount subject to the reduced level of Corporation Tax.
All highly complicated and time-consuming to administer. HMRC have published an overview flowchart but if you would like the full details on the nexus approach, please email us.
On the plus side, the UK government is enveloping the nexus approach into the existing Patent Box rules, so the overall framework remains the same. However, the current method will be closed to new entrants from 1st July 2016.
Most critically, the maximum allowable transitional period has been set for existing IP so that the current Patent Box rules will continue to apply through to be 30th June 2021.
It is important to note that a patent is the most difficult form of protection to get. The process is complicated, lengthy and carries a cost. Nonetheless, a company will be treated as a qualifying company for the Patent Box if it has applied for a patent that has not yet been granted and meets the other qualifying criteria.
For those with IP either already generating revenue or likely to do so in the next five years, the benefits of exploiting the current Patent Box system are likely to far outweigh the costs.
If you would like any further information on the Patent Box or any other aspect of business taxation, please email us at tax@cooperfaure.co.uk.
The Marriage Allowance lets you transfer up to 10% of your Personal Allowance to your husband, wife or civil partner. For the 2015-16 tax year, the maximum amount is £1,060.00 that would reduce their tax by £212.00.
The Personal Allowance is the amount of income that you can earn in a tax year on which there is no Income Tax to pay. For most people, the Personal Allowance is £10,600.00 this year.
However, despite HMRC remaining coy on the uptake, it is clear that only a fraction of the four million couples who could benefit have applied.
In a parliamentary written reply on 3rd March 2016 to this question, Mr David Gauke, the Financial Secretary to the Treasury, stated “400,000 couples have successfully claimed Marriage Allowance” and went on to say that “Eligible couples who haven’t already claimed for the tax year 2015/16 will not lose out as they have until 5th April 2020 to do so”.
You are eligible to claim the Marriage Allowance if all four of the following conditions apply:
Even if you live abroad, you are entitled so long as you receive a Personal Allowance.
If these conditions are met, then you can now apply online at https://www.gov.uk/marriage-allowance.
For the application, you will need your and your partner’s National Insurance numbers.
In addition, you will need a proof of identity that can be:
The £1,060 limit will increase automatically in line with any increase in the Personal Allowance in future tax years.
The Marriage Allowance will continue to transfer automatically until either you or your partner cancels it due to a change in circumstances. Depending on the reason, it will either run to the end of that tax year or can be backdated to the start of the year
If you would like to discuss the Marriage Allowance in particular or your tax affairs in general, please email us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation.
There were three standout announcements in the 2016 Budget:
This article looks at the Lifetime ISA, how it will work and whether it could be start of the road to pension reform.
Lifetime ISA accounts will be available from April 2017 for individuals aged between 18 and 40 who will be able to invest up to £4,000 each year up to the age of 50. The government will contribute an annual bonus of 25% of the amount invested.
An eighteen year-old would be able to have contributions of £128,000 matched by the government maximum bonus of £32,000.
However, the Lifetime ISA is for two specific purposes:
Whilst the funds can be accessed for other purposes before the individual’s 60th birthday, the government bonus on this amount together with any interest or growth on this will be lost. In addition, a 5% surcharge would be payable.
For example, if £20,000 of contributions had been made topped up by £5,000 from the government and the ISA had grown in value to £30,000 and the money needed to be retrieved for an unforeseen circumstance, the individual would actually receive £23,750.
On the other hand, the Lifetime ISA offers a tax-efficient method for parents or other relatives to help their heirs. Under current Inheritance Tax rules, the Annual Exemption is £3,000 per donor per year. Therefore, relatives could join together to fund the contributions without these incurring Inheritance Tax.
For those looking to save to save to buy their first home, the Lifetime ISA is extremely attractive. The Lifetime ISA per person not per home, so a couple would each receive a bonus when buying together assuming that it is the first home for them both.
Help to Buy ISAs will be either transferable into the Lifetime ISA or can to be invested in alongside but bear in mind that the bonus from only one scheme can be used in the purchase of the property.
The only concern is there is no indexation of the £450,000 ceiling on the property price and, with annual average property inflation running at 4.8% overall and more than 12.0% in London and part of the South East, this could need to be addressed.
For those looking to save for retirement, the situation is more complex.
Certainly, for the self-employed who are excluded from workplace pension schemes, the Lifetime ISA is a sensible route especially for the high proportion without a private pension.
However, those making contributions to a workplace pension are receiving an equivalent tax relief from the government plus the employer contribution.
On the current minimum contribution ratios, every £8 that the employee pays is topped up by £2 tax relief from the government and £10 from the employer. Ultimately in 2018, employer contribution will reduce to £6 but there will still be overall matched funding to the contribution.
Similarly, standard rate tax payers paying into a private pension scheme are receiving an equivalent tax relief to the Lifetime ISA government contribution. Indeed, higher rate tax payers are receiving substantially more – £2 for every £3 contributed.
This has led many in the pension industry to view the Lifetime ISA as a Trojan Horse on the road to the reform of pension tax relief.
For those with sufficient disposable income, the Lifetime ISA is an option to build a bigger retirement fund in conjunction with their existing pension arrangements.
If you would like to discuss efficient tax planning, the Lifetime ISA or any other aspect of Budget 2016, please email us at welcome@cooperfaure.co.uk.
The Chancellor of the Exchequer used the Budget in the UK to unveil some significant tax changes. Albeit, most of these are pledges for the future.
From April 2017:
Looking further ahead:
There are some measures that have come into immediate effect such as the move to a graduated rate of Stamp Duty on freehold commercial property and leasehold premium transactions.
Finally, a number of measures come into effect from April 2016, the most noteworthy being:
If you would like to discuss how the Budget 2016 or the new measures that come into effect from April 2016 affect you, please email us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation.
One of the questions that we are often asked is how much can I invest tax-free in a pension scheme each year?
As a result, we thought that it would be useful to give an overview.
Private pension contributions are tax-free up to certain limits which for the current tax year are:
It is important to recognise in this context that earnings are the total taxable income of an individual including dividends, property and investment income.
The contributions can be made into most private pension schemes such as:
The annual allowance applies across all of the schemes into which contributions are made rather than being a per scheme limit. In addition, this figure is for all the contributions made by the individual, their employer or any third party.
However, it is possible to carry back any unused annual allowance from the previous three tax years provided that the individual was a member of a registered pension scheme in those years.
The annual allowance for the 2014-15 tax year was £40,000, for the 2013-14 tax year was £50,000 and for the 2012-13 tax year was £50,000.
There is nothing to prevent contributions above the limits but any additional sums will be taxed as part of the Self-Assessment tax return.
On the other hand, as it stands, tax relief is available on private pension contributions up to 100% of your annual earnings and, therefore, on contributions above the annual allowance. The amount of tax relief is based on the tax band of the individual.
There has been much speculation that this tax relief could be reduced as part of the upcoming Budget and we will include the details of any such change in our Budget Briefing.
If the tax due is more than £2,000, which equates to an additional payment of £5,000 by a tax payer in the Higher Rate tax band, this tax can be paid directly by the pension provider to HMRC from the pension pot.
Similarly, with the lifetime allowance, tax becomes payable once the threshold of £1.25 million is exceeded. For this, it is important to understand the difference between pension schemes.
Personal, stakeholder and most workplace schemes are designated as ‘Defined Contribution’ where the total monies paid in equate to the lifetime allowance.
However, there are still some workplace schemes that operate on a ‘Defined Benefit’ basis. Here, the initial lump sum plus twenty times the first year pension equates to the lifetime allowance.
If you have any questions or would like any further information, please email us at welcome@cooperfaure.co.uk.
CooperFaure Accountants is looking for a full-time Accounts Administration Assistant to join our friendly team in our London office based in Teddington.
The role will suit a confident, friendly and bright individual, with an excellent telephone manner and presentation looking for their first full-time placement in the sector.
We are looking for someone who is reliable and conscientious, with the ability to tackle all aspects of the role with enthusiasm and professionalism. A real eye for detail, a desire to achieve the highest standards and an ability to manage conflicting priorities are highly desirable qualities.
A knowledge of Microsoft Office and an ability to work under your own initiative together with an interest in the field of accountancy are necessary. Experience using accounting software is desirable, though not a requirement, as full training will be given.
The successful candidate must be able to work in the UK and there will be a three-month probationary period. The role reports to the Accountancy Manager.
Job Description:
Administration Tasks, including but not limited to:
Accounting Tasks, including but not limited to:
We are a growing, independent firm of chartered accountants, based in Teddington, South-West London. The Company was established in 2006 by the two founder Directors to provide a fully comprehensive accounting services platform for any business big or small. From our formation, our key principle is to work with the best. This has involved investing in market-leading technology, suitable premises and information resources. Our team share an enthusiasm to support our clients and bring a range of diverse skills not confined to accountancy.
If this role is of interest, please email your CV to meg.macgill@cooperfaure.co.uk in the first instance.
If you would like to know more about us, please visit our website www.cooperfaure.co.uk
From 6th April 2016, one of the most far-reaching reforms to personal taxation comes into effect. The Dividend Tax Credit system is being replaced by an annual tax-free Dividend Allowance of £5,000. Dividends above this allowance will be taxed at a graduated rate.
Two key questions arise from this change:
Looking at the first question, take a scenario where a Limited Company has made an operating profit of £80,000.00 for the year before the business owner has received any payment and there is no other personal income stream.
At the extremes, a salary at the Lower Earnings National Insurance threshold could be paid with the remainder withdrawn as a Dividend or it could be paid entirely as PAYE salary. We have summarised below the tax impact for both options in the 2016-17 tax year:
| Salary | Dividend | ||||
| Profit Before Tax | £80,000.00 | ||||
| Employers NI | £8,717.53 | ||||
| Corporation Tax | £14,388.00 | ||||
| Gross Salary | £71,282.47 | ||||
| Income Tax at 20% | £6,400.00 | ||||
| Income Tax at 40% | £11,312.99 | ||||
| Employees NI | £4,758.45 | ||||
| Salary | £8,060.00 | ||||
| Total Dividends | £57,552.00 | ||||
| Dividend Allowance | (£5,000.00) | ||||
| Taxable Dividends | £52,552.00 | ||||
| Tax on Dividends at 7.5% | £2,025.00 | ||||
| Tax on Dividends at 32.5% | £7,348.90 | ||||
| Total Tax | £31,188.96 | £23,761.90 | |||
| Net Amount | £48,811.04 | £56,238.10 |
Overall, even though the tax on dividends will be £9,373.90 compared to £6,232.50 had the system not changed, the dividend route will still offer the more tax-efficient option.
The reasons for this are the tax rates on dividends will continue to be lower than those on income and there will continue to be no Employers nor Employees National Insurance contributions applicable to dividends.
Looking at the second question, for the entrepreneur there are many considerations as to the best functional structure for their business.
However, take the same scenario where there is an operating profit of £80,000.00 for the year to be extracted completely and there is no other personal income stream. It would be more tax-efficient for the entrepreneur to trade through a Limited Company than as a sole trader:
| Limited | |||
| Company | Income Tax | ||
| Profit | £80,000.00 | ||
| Salary | £8,060.00 | £0.00 | |
| Taxable Profit | £71,940.00 | ||
| Corporation Tax | £14,388.00 | ||
| Dividend | £57,552.00 | ||
| Dividend at 0% | £7,940.00 | £0.00 | |
| Dividend at 7.5% | £27,000.00 | £2,025.00 | |
| Dividend at 32.5% | £22,612.00 | £7,348.90 | |
| Corporation Tax | £14,388.00 | ||
| Income Tax | £9,373.90 | ||
| Total Tax | £23,761.90 | ||
| Net Amount | £56,238.10 |
| Sole Trader or | Income Tax | ||
| Partnership | and NI | ||
| Profit | £80,000.00 | ||
| Income Tax at 0% | £11,000.00 | £0.00 | |
| Income Tax at 20% | £32,000.00 | £6,400.00 | |
| Income Tax at 40% | £37,000.00 | £14,800.00 | |
| Class 2 National Insurance | £145.60 | ||
| Class 4 NI at 0% | £8,060.00 | £0.00 | |
| Class 4 NI at 9% | £34,940.00 | £3,144.60 | |
| Class 4 NI at 2% | £37,000.00 | £740.00 | |
| Income Tax | £21,200.00 | ||
| National Insurance | £4,030.20 | ||
| Total Tax and NI | £25,230.20 | ||
| Net Amount | £54,769.80 |
In this illustration, there would be a £1,468.30 tax benefit from arranging the remuneration through a Limited Company but the new tax regime has narrowed the gap. Applying the same figures in the 2015-16 tax year, the tax benefit would be roughly £4,500.00.
There are two important riders to this:
We are also running a free Q & A forum on this topic. If you email your question to us at welcome@cooperfaure.co.uk by Thursday 18th February, we will include it and our response in a Q & A newsletter we will be publishing on Sunday 21st February.