A Declaration of Trust is an arrangement setting out those who will have the ownership of an asset and be able to benefit from it. This is important if your assets include land or business interests.
A declaration of trust is a binding statement by the legal owner of an asset declaring that he/she holds the asset for the benefit of the people described within the declaration.
Where two or more people own an asset, they can also declare the trusts on which they hold the property for themselves or for others.
The reason this is often a sensible course of action is that it avoids future uncertainty or disputes over ownership and what was intended by the arrangement. It reduces the risk of challenges to a Will if the arrangements were set up during the lifetime, because it demonstrates that the person understood the consequences of their decision.
Although declarations of trust are normally associated with land, they can be used in respect of other items such as a life policy or pension benefits.
One pitfall to be wary of is whether you would trigger a capital gains tax charge on creation if you give away an asset to a trust.
Written by Leanne Hathaway, head of tax at Edward Hands & Lewis.
Small businesses often run close to the bottom line so feel the pain of employer pension contributions, health and safety implementation and staff absences for ill health, caring responsibilities or pregnancy. Even the recently announced National Insurance break for SMEs, though welcome, is a small ray of sunshine in an overall gloomy outlook. But, despite what the press would have us believe, big businesses aren't getting away scot free either.
The stuck record of outrage at the amount of tax paid or not paid by businesses operating in the UK rumbles on (usually on “slow news” days) only to be followed up days later with the “accused” company explaining why this is the case.
Not every big company is a Starbucks or an Amazon, using transfer-pricing to reduce their UK tax liability.
If I was paid a huge salary as the CEO of one of these companies I’d produce a Corporate Responsibility Tax Statement showing exactly how much tax the business as a whole had paid in the UK, explained in language that everyone could understand including the Press and Margaret Hodge.
As tax headlines the Statement should show ...
Also known as the “Jobs Tax” this is the amount of tax that an employer has to pay over to the Government, on top of any wages, salary, bonuses and (some) benefits paid to workers and employees.
Currently the rate of employer’s national insurance is 13.8% of all wages / salary above £148 a week.
The figure is likely to be a big number for large UK employers.
VAT is a tax paid by consumers or non VAT registered businesses, but collected by VAT registered businesses on behalf of HMRC.
VAT is charged on most goods and services sold by VAT registered businesses. However VAT registered businesses can claim back the VAT that they have to pay on the goods and services that they buy; meaning that ultimately the bearer of the VAT tax is the end consumer.
VAT registered businesses pay over to HMRC the balance of VAT charged on sales less VAT paid on purchases. VAT is probably one of the most complicated UK taxes explained in an agglomeration of guides and rules. But the bottom line is the more sold to consumers and non VAT registered businesses, the more VAT is collected for HMRC.
The rate of VAT is 20% on most vatable items with a reduced rate of 5% applying to some items such as fuel, energy, sanitary hygiene products and children's car seats.
The VAT collected and paid over to HMRC is likely to be a large figure for those selling vatable products or services to the consumers.
Despite many headlines to the contrary, Corporation Tax is paid on the profit of incorporated businesses; known as Limited Companies.
In its simplest terms, profit = income less costs
Taxable profit = income less tax allowable costs
Allowable costs include, for example, the investment in assets which may bring benefit to the business in the future including creating or securing employment.
If a company doesn’t make a taxable profit then it will not pay corporation tax.
Of course there may be other taxes paid or collected by a corporation but these are the “headline” ones.
Tax is complicated and many systems of taxation apply to a corporate. Surely it is in the interests of the corporation to educate the public on their total corporate tax liability or maybe this is a challenge too far for their PR gurus!
Response by Adam Harper, director of professional development at the Association of Accounting Technicians, following comments made by Margaret Hodge, Chair of the PAC committee, about the Big Four accountancy firms having ‘cozy’ relationships with the Treasury
The findings of the PAC will add fuel to the fire at a time when many already question the transparency and fairness of the UK tax system.
While there are measures being put in place to tackle tax avoidance (such as GAAR), it is clear that improvements in tax legislation are essential to address this ongoing issue. Questions over the integrity of the tax system will only continue to exasperate smaller businesses that feel a disadvantage to larger organisations that can access greater consultancy resources.
We cannot shut out these big multinationals altogether. The UK must remain ‘open for business’, but action has to be taken to restore faith in our tax system. We want and need small business growth. We want a country of innovators and entrepreneurs so we must create a more level playing field for all businesses.
Research we conducted earlier in the year with 1,000 SME business-owners revealed that 44% believe that HMRC has to take responsibility and be tougher in confronting larger organisations suspected of tax avoidance. A further 55% said that the tax system is more costly to SMEs than bigger businesses. Now more than ever the tax system must be simplified.
David Cameron has indicated that tax avoidance and evasion should and will be at the heart of the G8 Summit. Surely the government has to take this opportunity to create a global system of cooperation and transparency, with which everyone agrees, including accountants.
Although a somewhat tired cliché, in today’s economy it is vital that companies, even small to medium sized ones, think globally and act locally – particularly with regard to the way they manage and report on their accounts. In practical terms this means companies with any US affiliation or presence must adhere to the Foreign Corrupt Practices Act (FCPA) as well as any local accounting laws and corporate compliance statutes (for example, the UK's Bribery Act and Companies Act).
FCPA adherence is important from an accounting perspective, as it’s not just an anti-bribery law. There are also penalties for US and foreign issuers that fail to maintain adequate records and implement appropriate internal controls. These infractions can form an entirely independent source of liability.
In contrast, the UK’s Bribery Act does not mandate that companies maintain accurate books, records and control systems: this duty is set out instead in both the Companies Act and UK tax legislation. These tests set a lower standard than the FCPA, stating that ‘adequate’ accounting records means records that are sufficient to show and explain the company’s transactions, and to disclose with reasonable accuracy, at any time, its financial position.
Keep in mind that companies do not need to produce more extensive documentation than is typical in the ordinary course of business. However, they must record more than the bare financial facts (such as the invoice number and the amount). There must be full transparency regarding date, recipients and purpose of payment. A bribe accounted for as a ‘sales cost’, for example, would be considered misleading – although literally true (in that the bribe was paid to increase sales), it would be inaccurate, as it does not sufficiently specify the nature of the payment.
The Bribery Act, unlike the FCPA or OECD Anti-Bribery Convention, has no facilitation payments exception. It criminalises the making of all bribes, in the UK and worldwide, no matter how small – and the Serious Fraud Office has indicated that it considers all such payments to be illegal.
So what is our recommendation to businesses – especially SMEs or start-ups? Three simple rules:
A Partner in Forensic Risk Alliance, David Lawler covers these issues further in his book 'Frequently Asked Questions in Anti Bribery and Corruption' (Wiley 2012)
Introducing a new pension scheme of any sort will affect both the payroll and HR department of any business. However, introducing an automatic enrolment pension scheme will mean that these departments will need to have their functions reviewed. This needn’t be as daunting as it sounds, because to effectively tackle auto enrolment they will need to:
The first thing that needs to be determined is the enrolment date for a business of your size which can be found on the Pension Regulator’s website. Once you have this information, you know how much time you have to make any necessary changes to your departments, and can put the procedures in place for HR to liaise closely with payroll.
After an initial assessment of your workforce and the number of workers you will need to enrol, you will need to decide on a pension provider. There are two main categories – government-backed and private providers. Both have their individual benefits; more in-depth information can be found on individual provider’s websites. Once a provider has been chosen it is advisable to align your payroll and HR systems with those offered by your pension provider to ensure the smoothest possible transition.
Once this has been arranged, any data preparation will need to start before your enrolment date. Understanding the specific joining process of your provider is essential, as well as deciding whether you are going to enforce contractual enrolment, whereby you automatically enrol eligible workers into the scheme as soon as they start working for you.
Because workers have the option to opt out within a month of being enrolled it is imperative that, as a business, you familiarise your HR and payroll departments with the process. This may require new procedures to be put in place or old ones to be amended. The same goes for any business software used within these departments. As an employer you will need to pay in your contributions and your employees’, as well as calculating these contributions.
If employees choose to opt out, any contributions made within the first month will need to be refunded to them, and details put in place to re-enrol them within three years as the law requires. A record-keeping system should be put into place – if not already done – to ensure keeping track of contributions and enrolments is as simple as possible.
The last thing left is to inform your employees of the procedures in place and their options regarding them in writing. It may be advisable to hold a meeting where questions can be asked and answered, although workers will require a written confirmation of the pension scheme. Examples and templates can be found on the NEST Pensions website.
By Matthew Selby, who writes about pensions and employee benefits for Now Pensions and others.
As we start this new tax year, now is the ideal time to review your tax affairs and take advantage of simple planning opportunities which could reduce your tax liability in the coming years.
1. Tax efficient investments – ISAs are an extremely efficient way of sheltering your savings and investments from tax. Always use your full allowance, which this year is £11,280, of which £5,640 can be invested as cash.
2. Time your income and know your tax brackets – make sure that you and your spouse are making maximum use of personal allowances and lower rate tax bands. If you are an entrepreneur, then it’s likely you’ll have some influence over the timing of your income, and so working out the timing of bonuses and dividends can make a big difference. Where married couples or civil partners own a company, there is the possibility that commercial salaries could be paid to both parties to make use of their allowances.
3. Form of income – Capital gains tax rates are substantially lower than the highest rate of income tax. Entrepreneurs may have the ability to extract the wealth out of their business in the form of capital (i.e. shares) rather than income, especially if the income is surplus to current requirements.
4. Wealth planning – Don’t put this off just because it is a difficult subject. With only a small increase in the Inheritance Tax (IHT) nil rate band on the horizon, there are many planning ideas and IHT efficient structures and products in the market place which can mitigate the burden.
5. Review your pension planning strategy – Currently tax relief is available on pension contributions of £50,000 per tax year but this is reducing to £40,000 from April 2014. The lifetime allowance will reduce from £1.5m to £1.25m at the same time. Taxpayers should consider maximising pension contributions each tax year but particular 2012/13 and 2013/14 before the allowance reduces.
I encourage taxpayers to do some research into the numerous incentives that are available, and possibly save some money. We all work hard to create our income, and we need to work equally hard to protect it.”