To get on top of the issues, it’s important to be in touch.

Why it pays for clients and their accountants to have regular meetings and reviews. I was recently phoned by a prospective client who was looking for help in preparing his accounts. He ran a small limited company with a turnover of around £300k, which had a history of losses in the early years. The business had been kept afloat by finance introduced by the proprietor.

Although there were many issues that his current accountant might have chosen to explore with him – including business pricing, development and the repayment of personal loans – it seemed that none of this was actually happening. The professional adviser confined his work to compliance and only ever contacted the client once a year.

Unfortunately, this is all too common a scenario, as many businesses don’t really know the kind of level of service they’re entitled to expect. A little investment of time with your accountant can, however, pay huge dividends.

We try to maintain at least four critical points in the year when it’s essential to make contact with clients. The first three are straightforward and should really be fairly obvious:

Before the year-end

Two or three months before the year-end, it’s time to discuss the expected results and what will happen to this year’s profits, as well as distribution and pension planning. We start the process by letter, phone or setting up a meeting.

In advance of a personal tax return

We often end up handling the personal tax affairs of our business clients. This is another opportunity for a chat about planning, ISAs, pensions and so on.

When the accounts are prepared

There should be a formal discussion when the accounts are being completed and another chance to look at distributions and dividends.

Whilst I appreciate that “time is often money” and that some clients are more receptive than others to regular communication, I would maintain that there is always room for at least one more contact point. This needn’t be at any particular time of the year. It’s a general get-together or phone call in which you simply ask the questions, ‘How are things going?’ and ‘Is there anything else we can do to help?’

If you’re a client of a larger firm, it’s fair to say that your contact at some points in the year may be with senior managers or specific experts in tax or audit. You should still expect that a partner will take enough interest that they’ll call you periodically to check on how the company is progressing and see what your plans are for the future, without an invoice following shortly afterwards.

If that’s not the kind of service you’re currently getting, perhaps it’s time to rethink your arrangements?

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

Commercial property transaction? Think of the pool before you jump in.

The start of 2014-15 tax year heralded a significant change which is set to have an impact on commercial property transactions. It’s always been the case that buildings will contain items classed as ‘fixtures’, on which it’s possible to claim capital allowances. Historically, however, owners of properties may not always have identified everything that can potentially be claimed. All in all, it didn’t matter too much. If you were buying, you’d employ a valuer to estimate the current replacement value of the fixtures and make a claim based on their report.

HMRC thought the system was open to abuse and a potential source of tax leakage, as it was possible that claims might be made for fixtures on which the owner had never paid tax as a disposal value. Under new rules, a ‘pool’ has to be established which contains all the items that can potentially be claimed.

As a purchaser of a property, you can only claim capital allowances for expenditure the seller has already pooled. And if you acquire a property where no pooling has taken place, no one will be able to claim a capital allowance. It will then become an ongoing issue.

Commercial property contracts will now include a clause that requires the seller to pool all relevant assets prior to the completion of the sale as standard. A buyer will then employ a specialist valuer to look for anything that may have been missed. It’s worth remembering that more items qualify for the list than ever before. Back in 2008, it was decided that capital allowances could be claimed on ‘integral’ fixtures, such as electrical, power and heating systems. Essentially, anything that is fixed within the building, and which can’t easily be removed, counts for these purposes.

A couple of points to bear in mind. The rules about pooling don’t apply if the seller has a specific tax exempt status, such as a charity, pension fund or local authority. And the new interpretation of integral features doesn’t apply retrospectively to items bought pre-2008, which are dealt with under a different procedure.

Whether you’re a buyer or a seller, it pays to be aware of the new rules. It’s also well worth having a discussion with your professional accountancy adviser about the best approach to the issue of allowances.

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

The new tax climate that no one can avoid

Accountancy isn’t always a discipline that gets the general public talking excitedly. But there are few people who don’t have an opinion about taxation. In the Budget of 2014, the Chancellor raised a new spectre which was guaranteed to cause controversy – the proposal that HMRC would be allowed to dip into taxpayers’ bank accounts and take the monies it believes are rightfully owed to the government.

We could see this announcement as just one part of a wider picture of the Revenue cracking down on tax avoidance, of course.

There’s been plenty of high-profile debate about large businesses organising their affairs in such a way that they can seemingly duck out of paying corporation tax in the UK. Critics may see this as a cynical attempt to avoid corporate responsibility, while others point to the fact that these companies are employing large numbers of people and paying significant amounts of national insurance.

Whatever the rights and wrongs of the issue, the climate has noticeably shifted and many accountants find that clients are reluctant to take advantage of perfectly legitimate planning opportunities to reduce their tax liability.

One long-standing option for small business people, for instance, is to pay themselves a modest salary and remunerate themselves via company dividends. When used to its full advantage – perhaps in a company where a husband and wife each have a 50% stake – this strategy reduces national insurance contributions and can take individuals out of the higher-rate personal tax bracket.

Other arrangements are more elaborate and require what is called a Disclosure of Tax Avoidance Scheme (DOTAS) to the Revenue. There has never been a guarantee that such schemes, often promoted by specialist firms, will be accepted by HMRC. In fact, they are frequently challenged in court and the government will attempt to recover the sums of tax they claim are due. Promoters of the schemes may well arrange insurance to cover clients’ professional fees in these circumstances.

Under new regulations in the Finance Bill, however, HMRC will be able to take the tax at source before any proceedings begin. The burden of proof seems to be shifting towards the assumption that the scheme is irregular. It’s only if you manage to prove your case that you can recover the sums involved. And in the meantime, the government has being sitting on your cash.

No one likes uncertainty. So as high-net-worth individuals consider their options, it may be that more and more will choose to play safe. It’s also worth bearing in mind that the fees charged by specialists in these tax schemes can be quite off-putting. There’s always a danger that the lure of a tax saving is actually disguising arrangements which are not quite as financially beneficial as they first appear. So the message might be: don’t let the tax tail wag the commercial dog.

It’s difficult to be certain of how this area of regulation will develop in the coming years. Perhaps there’s a potential silver lining in what seems an increasingly cloudy world? If the overall tax take increases and avoidance is reduced, some might argue that tax rates are likely to fall. In the meantime, the important thing is that you consult with your accountancy firm carefully and go into any scheme with your eyes wide open. Be aware of the facts. And understand the risks.

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

The dividend that comes with sensible remuneration planning

When you’re running a small business, it’s all too easy to end up paying more tax than you actually need. One of the problems, of course, is that you’re very much focused on the day-to-day priorities of the company and ensuring its success. And if your enterprise is a family concern, with joint ownership between a husband and wife, even keeping up with your cashbook accounting and VAT can sometimes be a challenge if you’re pressured for time and worrying about securing the next sale. It’s definitely worth creating a space to talk to your accountant about remuneration planning, however. Some very straightforward steps can help to minimise your liabilities and get the most out of the business you’re trying to grow.

An example might be a company in which a husband and wife are both paying themselves significant salaries. Perhaps one partner is a director on £75,000, while the other takes home a pay cheque of, say, £26k. In this scenario, two problems arise straight away. The first is the high level of PAYE and National Insurance within the company and the second is an unnecessary burden of extra personal tax. The spouse on the lower salary is not using up their basic rate band, while the higher earner finds themselves in the higher-rate tax bracket.

The solution here might be to reduce both salaries to the level at which no national insurance is due and for the two business owners to both take dividends up to their basic rate bands instead. Rather than a 20% levy on the £26k salary, there would be a 10% tax on dividends under the basic-rate band. The director, meanwhile, would end up paying less tax on their dividends than they did via PAYE.

This strategy would provide a significant additional joint net income of approximately £19k a year to the director and their partner, while the cost to the company would remain the same.

If you’re in any doubt about whether your own affairs are arranged in the most efficient way, then a conversation with your professional adviser is the first starting point. A small amount of planning can potentially reap a big reward.

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

When you’re thinking about school fees, it pays to do the maths.

  Parents understandably want to give their kids the best possible start in life and, for some, that means digging deep into their pockets for private education. At the moment, around one in every fifteen children attends a fee-paying institution, according to the Independent Schools Council (ISC), but the percentage climbs quite rapidly once you reach the post-16 age group. In fact, 18% of young people are privately educated after they’ve completed their GCSEs.

If you’re thinking of sending your own son or daughter to an independent school, it’s probably a good idea to have a chat with your accountant first, as you’re actually making a significant financial decision. Although some schools may offer discounts if you’re able to pay up front or have more than one child to educate, average fees for day pupils in the UK are over £3,300 a term, so unless you’re incredibly wealthy, you need to be doing some forward planning to cover the costs.

Of course, your capacity to shoulder the financial burden is closely inter-related with your other household outgoings. Perhaps you need to look again at your mortgage, for instance, and think about the way of getting the best possible deal. With some renegotiation, you might find you can change your payments or switch to a more advantageous rate.

What about ISAs? Remember that the limit for investment was raised this tax year to £15,000 (from 1July 2014), so make sure you make the most of your tax-free allowance. Every extra saving you can make is going to make a difference if you’re taking on a new and significant expense.

Although it’s obviously always good to take professional advice about your own finances, there may be other people in the equation too. Grandparents may be able to assist with fees and can possibly reduce their inheritance liability. They should also consider using a trust to make any contribution if they’re looking to maximise the tax advantage.

The overriding message is to plan ahead. Even if you might not intend to invest in private education for some years yet, it pays to start the discussion now.

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

Some big news on ‘small pot’ pensions: up to £1,500 is up for grabs

This year’s budget included a few eye-catching announcements, including the decision to increase the ‘small pot’ pension fund from £2,000 to £10,000. Part of the government’s drive to make pensions more flexible, the new rule also had the effect of creating an interesting opportunity for shrewd investors. Although we’re talking about a loophole that has actually been acknowledged by HMRC, it won’t be formally addressed until April 2015. And that means you have a perfectly legitimate window in which to act, if you’re currently employed and aged between 60 and 75. Let’s take a scenario in which you open a personal cash stakeholder pension and pay £8,000 into it. HMRC will top this up to £10,000, accounting for the automatic base tax relief of 20%. It’s possible – after a cooling-off period – to take the balance as cash under the small-pot rules. Previously, you were allowed to draw it as a lump sum on two occasions, but under the new rules, you’re able to do it three times.

Now for the maths. Because only 75% of the £10,000 is taxable, £2,500 remains tax free. And after you’ve paid £1,500 on the remaining £7,500 (at the 20% basic rate), you’re entitled to the £6,000 that’s left.

Your total pot is therefore worth £8,500, giving you a profit of £500. So if you go through the process on two further occasions, you’ll be £1,500 wealthier before provider charges. (If you pay tax at the highest rate, you would actually have a potential gain of £3,375, although there’s a delay in tax relief as it would be processed via your next return.)

The truth is that this loophole always existed, but with the £2k cap on the small pot, pension investors were unlikely to see any significant benefit. Now the figure is five times as high, people are paying attention for the first time.

One word of caution. If you approach a pensions adviser about this arrangement, it’s likely their fees would eat substantially into any potential profit. A more sensible course of action might therefore beto speak to your accountant. Although we’re not authorised to advise on specific products, we’re always happy to give you general advice and talk you through the tax implications.

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

£30k in tax-free income for married pensioners? It’s not a pipedream.

When we think about tax planning, it’s tempting to see it as the preserve of the wealthy. The reality, however, is that the process can be just as important – if not more so, in fact – for people on lower incomes. After all, a relatively small saving in tax can make a big difference to someone on a budget. £1,000 might be a well-deserved holiday, for instance. And there are perfectly legitimate ways of minimising your tax burden if you take some good advice at an early stage. Recent government announcements on the Personal Allowance and Starting Rate Band spell good news for many people, particularly pensioners. In tax year 2014/15, the personal allowance has finally reached the magical £10k threshold and is set to increase in April 2015 by another £500. To put the figures in context, this represents more than a 100% increase over the amount allowed just a decade ago. Of course, the amount we can all save in tax-free ISAs has increased to £15k per annum as well.

The current basic state pension is approximately £5,800 pa, which potentially leaves a married couple with £5,000 each of unused Personal Allowance to set against other income. It’s important to ensure that you divide your income where possible to make the best use of each spouse’s allowance and rate band.

Imagine a scenario, for instance, in which there’s a modest amount of bank interest each year and a gross annuity payment of, say, £400 each month. The two pensions wouldn’t attract tax, as they would broadly fall within the level of the Personal Allowance. The interest is usually paid net of 20% tax and with a 10% Starting Rate Band of £2,880 to set against investment income, tax on £3,000 worth of interest would work out at approx £300 rather than £600.

From April 2015, the news gets even better. At that point, the Starting Rate Band will increase to £5,000 and the tax reduces from 10% to zero. By managing tax affairs sensibly, each partner in the marriage could receive pensions to the value of around £10,500 and another £5,000 in gross bank interest without paying tax.

If you’ve saved throughout your working life and have a modest income now, you might not necessarily see the need to retain an accountant on an ongoing basis. But it’s certainly worth having an initial consultation to look at your particular circumstances and discuss the options. That small investment could produce a considerable return, allowing you to get even more enjoyment out of your retirement years.

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

Are you sure your financial adviser is thinking long term?

If you’re looking to maximise the value of your investments, a financial adviser is an obvious port of call. It’s important to be aware, however, that once a stockbroker or IFA is helping you to manage your portfolio, you’re going to be incurring charges. And when you take these fees into account, you may end up achieving a below average financial performance. Research shows, in fact, that over time, you might be as much as 2% below the average. Some canny financial advisers are, of course, able to buck this trend by picking investments that perform well enough to outweigh the costs. But they’ll tend to be the exception rather than the rule. And while there will always be investors who relish the ups and downs of the market and thrive on the sense of excitement that volatility brings, how often do they stop to consider the price of the advice they’re receiving? Not to mention the stamp duty and transaction charges that may well apply.

Before you engage an IFA, it’s important to ensure they have a clear investment strategy. Can they demonstrate that they’ve actually out-performed the market consistently over a number of years? And are they declaring their ‘turnover’ – the costs incurred in the process of buying and selling?

Remember, you can sometimes achieve the best results by simply holding your nerve. Spending time in the market – investing for the long-term and seeing a steady return – is a good approach for many. Astute financial advisers will recognise this and use the strategy to help bridge the ‘performance gap’ that often emerges when people try to predict market peaks and troughs.

Naturally, there can be great returns available if you’re able to buy when investments are cheap and sell when they’re at a high. But a 2010 study by Clare & Motson at Cass Business School’s Centre for Asset Management Research showed that the average UK equity fund investor lost 1.2% a year between 1992 and 2009 by trying to ‘time’ the market in this way.

So look for an adviser who won’t be swayed by the lure of short-term profit, but one who’s capable of seeing the bigger picture. They should also be able to help you rebalance your portfolio, identify appropriate tax ‘wrappers’ and advise on the best way of making withdrawals for your portfolio. Patience can potentially bring significant rewards.

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