Where there’s a Will?
In the first part of our financial planning process with clients we chat through with them what legacy they’d like to leave and what they have done about it. The most basic thing they can do is have in place a properly executed, professionally prepared and up to date Will.
Despite this, the majority of clients either have no Will or at the very best one that was drawn up years ago. In the absolute worst case scenario they bought a DIY kit from somewhere like WH Smith.
A recent article from those legal eagles at Wedlake Bell highlights what can go wrong if your Will is not properly executed. If you want to read the full article please click here.
The bottom line is that a husband and wife had three sons – one of whom was adopted. They wanted to leave their estate to the adopted son and nothing to the two others. When they died it was noticed that the husband had signed the wife’s Will and vice versa. The two sons who were due nothing said the Wills were invalid while the adopted son disagreed. At the end of the day the Court of Appeal agreed with the two sons who inherited everything.
The upshot is that the son that the parents wanted to benefit from their estate walked away with – nothing.
If you haven’t got one or your Will isn’t up to date (or if you’ve done a DIY Will) then you really need to take action. Don’t assume for one minute that your money will end up where you want it to.
Steve Clark
The preparation of Wills is not regulated by the Financial Services Authority. 44 Financial Ltd work with a variety of Will writers and solicitors to provide our clients with a professional service who can help you.
Salary Sacrifice – Is yours effective? 4 Top Tips to help you make sure
A recent case involving Reed Employment and the HMRC has led to an estimated tax bill of £158 million. It all revolves around a Salary Sacrifice arrangement covering temporary workers’ travel expenses.
However, one of the main things that has come out of the ruling is that HMRC have had to be a bit clearer on what constitutes a valid arrangement. As Salary Sacrifice is used by a huge number of employers to cover anything from Childcare Vouchers to Pension Contributions and Bike to Work. We’ve therefore set out five tips to help you make sure that your Salary Sacrifice arrangement is effective.
1. Don’t let your employees opt-in or opt-out at their will
HMRC have always stated that if a “lifestyle change” occurs the employee could withdraw from the arrangement. Allowing your employees to opt in and out willy-nilly will probably mean that your arrangement is not effective.
Rather helpfully HMRC have never defined what they mean by “lifestyle change”. Generally it’s taken to mean unforeseen life events (e.g. redundancy of a partner, pregnancy of employee or partner, marriage or divorce of employee) where an employer might agree to revisit an existing contractual arrangement to take account of a change in circumstances.
2. If your employees give up salary it must be for an identified benefit
If your employee has reduced their salary it’s got to be in return for some clear benefit. A good example if pension contributions where, in return for taking less salary, the employee gets a pension contribution from the employer.
3. Your employees must be able to make an informed decision
Communication is the key here. The employee has got to be able to understand the consequences of entering into a Salary Sacrifice arrangement. It’s difficult for an employer to work out whether it’s in every employee’s interest as that’ll be down to their own financial and tax position. What the employer can do is provide a balanced view on the advantages and disadvantages of the arrangement.
4. Your scheme must be incorporated into your employee’s employment contract
Entering into a Salary Sacrifice arrangement means that the employee has accepted a change to their terms and conditions of employment. Therefore their contractual agreement with you as their employer has changed.
Although it’s not a requirement of the legislation an employer can submit the Salary Sacrifice agreement to HMRC for approval. When they get asked HMRC basically check three things.
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That an effective variation of the contractual terms and conditions has taken place
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The employee’s cash earnings have been reduced and a benefit-in-kind provided
- The benefit-in-kind has been treated correctly for tax and National Insurance – e.g. p11d
Summary
Salary Sacrifice is a great way for employers to provide benefits in a tax efficient way for employees. However, if the arrangement isn’t set up properly you and your employees could end up with a large tax bill. The watchword, as always, is to tread carefully and get some professional advice.
Steve Clark
44 Financial Ltd regularly advises on Salary Sacrifice arrangements for our clients and works with other professionals to ensure that these are effective. To find out more about what we can do for you contact us by clicking here.
Pension reforms – a five point action plan for employers
Although many employers have heard the new radio ads publicising the new pension rules they no idea what they’ll have to do to comply. The rules change (albeit for only the largest employers) from October.
Most employers will be hit by the new rules from 2014 onwards. Don’t sit back in your chair and put this in the “far too difficult” pile as, in some cases, this is less that 20 payroll dates.
The worrying thing is that The Pensions Regulator will police your compliance with these new duties. The Regulator can also issue substantial penalty notices to employers. If you fail to comply it could also amount to a criminal offence.
That’s enough of the doom and gloom. What can you do in a positive way to make sure The Pensions Regulator doesn’t come knocking on your door?
We’ve come up with a 5 point plan to help you survive the new rules. So – what do you need to do?
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Find out how your workforce will be affected – as well as your employees, you may also need to consider contractors, agency staff and non-executive directors.
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Find out your “staging date” and put a big red ring round this date on the calendar. This is when the new rules will apply to you.
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Work out what it’s all going to cost. This means not only the extra pension contributions you’ll have to make but also the internal costs of staff time, systems upgrades etc. Don’t worry there may be ways to reduce costs. We have a few tricks up our sleeve!
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Make sure someone “owns” the project– it won’t go away. You’ll need someone internally or externally to co-ordinate across several areas including HR, Benefits and Payroll.
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Decide whether to use an existing pension plan, a new one, or the government scheme which is called NEST.
That’s probably enough to be getting on with. Please don’t wait to the last minute to look at this as you may run out of time. If it’s going to cost you money you will need to factor this into your business plan over the next three to five years. You may also need to take this into account when looking at annual pay reviews for your employees this year and next.
We’re working with all our clients to make sure that they know what they have to do, the options and ways to reduce costs. If you’d like us to help you with your Pension Survival Plan please contact us here.
Steve Clark
Related articles
- New guidance on workplace pension reform (44financial.co.uk)
- Charities – the ticking pension time bomb (44financial.co.uk)
Employment Law–What happens when?
If you are involved in the HR function for your organisation – whether directly or indirectly, you’ll know that the pace of legislation and regulation is relentless.
We are therefore indebted to Innes Cark (no relation!) of Morton Fraser for the following information that was published in their February Employment E-bulletin. You can click through to the publication by clicking this link. So in terms of employment law this is how 2012 and beyond is shaping up.
6 April 2012
- Increase to Qualifying Period for Unfair Dismissal (but only for employees commencing employment on or after 6 April 2012)
- Subject to parliamentary approval, various Employment Tribunal reforms come into effect. These are:
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Witness statements being taken as read unless Employment Judge directs otherwise (this will not apply in Scotland where witness statements are not normally used);
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Removal of witness expenses;
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Judges sitting alone in unfair dismissal cases unless Employment Judge directs otherwise; and
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Changes to limits for cost awards that a Tribunal can make (increase from £10,000 to £20,000) and deposit orders (increase from £500 to £1,000).
Other Employment Tribunal reforms, which are to be implemented by way of primary legislation, will come into effect at a later date. These will include reforms relating to early conciliation, financial penalties for employers who lose Tribunal claims, judges sitting alone in the Employment Appeal Tribunal and the formula for up-rating Tribunal awards.
1 & 6 April 2012
- Flat rate for statutory maternity, paternity, additional paternity and adoption pay increases to £135.45 (applicable for complete pay weeks commencing on or after 1 April for employees earning £107 or more per week).
- Statutory sick pay increases to £85.85 (6 April 2012).
1 October 2012
- Pension auto-enrolment to be implemented (note that the duties upon employers come into effect in stages and initially only very large organisations will have to auto-enrol their eligible jobholders).
- Likely increase to National Minimum Wage rate. There has been no formal announcement to this effect as yet, however this would be in keeping with the position in previous years.
March 2013
Charities – the ticking pension time bomb
Much has been written about the ticking time bomb faced by charities that participate in multi-employer pension schemes. These multi-employer schemes are a minefield for the uninitiated.
If you’re a member of one of these and you:
· Find yourself with no active or eligible members; or,
· Become insolvent; or’,
· Undertake a merger or other restructure
you could find that your Trustees are on the hook for liabilities way in excess of the reserves and funds that you have.
Take the recent example of The Wedgwood Museum that faces having to literally sell off the family silver to pay a pension debt much of which was nothing to do with it. It’s “crime” was to find itself as the “last man standing” when the Wedgwood group of companies got into financial trouble.
Following this high profile case (which you can read more about by clicking here) the Third Sector and pension industry have been lobbying government. Their case was that the legislation that caused this was meant to stop limited companies from walking away from their pension liabilities following a group restructure. It was, therefore, unfair to impose this fully on charities that were not seeking to walk away from their liabilities.
Conservative peer Lord Flight raised the issue in the House of Lords yesterday, calling for the legislation to be amended to avoid museums and charities being forced to sell their assets.
On behalf of the government, Baroness Rawlings said it had reviewed the Wedgwood case carefully and believed that it would be inappropriate not to apply this rule to charities.
So there seems to be no real will to exclude the Third Sector from the unintended consequence of the legislation. This is potentially bad news. With the drive to outsource public sector services to the Third Sector more and more charities are being asked to consider taking on employer membership of multi-employer schemes such as those within the Local Government Pension Scheme.
If you are a Trustee of a charity that is tendering for this type of contract, or if you’re already in one of these scheme, be very very careful. Take professional advice and enter into any agreement with your eyes wide open.
Steve Clark
Steve Clark has provided front line advice to a number of high profile charities on their pension strategy. Currently, 44 Financial Ltd advise a number of not for profit clients on the business risks associated with outsourcing and pension and benefit liabilities. You can email Steve by clicking here.
