How to survive a PAYE and NIC Inspection

However confident you are that your records are complete and well maintained, a PAYE/NIC inspection might still catch you unawares. Here are some pointers to help you:

General

You are required to retain all records and information relating to payroll, benefits, etc. for three years after the tax year end - but keep them for six years, the period for which the HM Revenue & Customs has powers to investigate your business accounts.
You are now more likely than ever to be subject to a full review of your compliance systems and procedures, so don't leave anything to chance.
Make sure you are not vulnerable to the risk of PAYE/NIC liabilities, penalties, and problems - sort them out now.
HM Revenue & Customs visit will be to your business premises and is likely to check:

• PAYE deduction working sheets for completeness and accuracy
• Correct use of employee codes
• Reconciliation of the records with the P35 (Employer's annual statement)
• Correct treatment of new employees and leavers
• Cash payments where PAYE has not been operated
• Expense payments, employee benefits, and their correct disclosure on forms P11D or P9D
• Compliance with terms of any dispensation
• Compliance with sub-contractors' rules
• Compliance with NIC regulations

Problem areas

The following are the main areas where problems may arise:

• Gross payments to casual employees
• Payments to alleged 'self employed' persons
• Lump sum expenses
• Private petrol
• Spouse's travel and subsistence
• Travel to work from home and vice versa
• Trips for purposes other than purely business, e.g. trade fairs, golf, social outings
• Home telephone
• Entertaining
• Expenses for use of home as office
• Club subscriptions
• Goods and services provided free or below market value
• Luncheon expenses
• Clothing
• Accommodation
• Work undertaken at an employee's home
• Medical expenses

Casual labour

Any employer paying £1 a week or more to any employee without a form P45 must request a form P46 to be completed. If the employee signs that it is his or her only or main employment, then PAYE and national insurance need not be deducted unless the payment is in excess of the national insurance primary threshold, currently £110 per week. HM Revenue & Customs is applying this procedure strictly and, where forms P46 have not been completed, charging employers for tax and NI contributions on the grossed-up amount of these payments, often regardless of whether or not any tax has actually been lost to HM Revenue & Customs.
Whether or not tax or NI is payable, you must keep proper records of payments and persons paid.

P11Ds

Your records must provide details of all relevant benefits for the tax year to 5 April.
Even if you are registered for VAT, your P11D records have to be VAT inclusive.
You must include travel, subsistence, and entertaining in the information you enter on annual forms P11D, even if incurred for business purposes (unless you have an official HM Revenue & Customs dispensation).
HM Revenue & Customs are likely to challenge all doubtful claims in regard to business mileage limit. This is relevant where you have a company car but have made arrangements to exclude a benefit in kind arising on fuel. Keep full mileage logs for every vehicle, whether owned privately or by the company - an inspection team would ask for evidence of business mileage.
The fuel scale charge is an 'all or nothing' benefit, so if the business pays for any private fuel and is not fully reimbursed by the employee, the employee must accept the corresponding private fuel benefit and you must report it on a P11D.
For all categories of expense/benefit, pay careful attention to anything incurred in the name of an individual director/employee, but paid or reimbursed by the business. NIC problems will arise if you do not treat this properly.
Because HM Revenue & Customs seeks to concentrate its resources in areas where it considers tax is being lost, it has in recent years increased the nature and scope of compliance visits.

Settlement

The majority of compliance visits result in some discrepancies being uncovered, and HM Revenue & Customs will usually calculate the 'lost' tax and NI over a period of six years plus the current year. This period may be extended if they suspect that deductions have been withheld deliberately. HM Revenue & Customs may also seek penalties, although these will normally depend on the gravity of the discrepancy and the degree of co-operation and disclosure from the employer. Often the audit investigator will be looking only for tax and possibly national insurance on the 'income' not taxed, instead of effecting a gross position. Amounts treated as benefits would not be grossed up or included in the assessment of NI underdeduction.

How can we help?

We can assist in reviewing your wage and salary records with a view to identifying possible areas of non-compliance with PAYE & NI regulations. If a visit is made we can advise on, and assist in, negotiating a settlement with HM Revenue & Customs.

Do contact us if you would like further help or advice on this subject at 01708 854943 or http://www.truemanbrown.co.uk/

National Insurance Planning

Class 1

A two-part payment by both the employee and employer, the contributions are based on a percentage of earnings including most benefits. The employees' contributions are deducted from wages and salaries together with PAYE deductions, but are not allowable against income tax. The employer's contribution is eligible for tax relief.

The principal difference between 'earnings' for national insurance contribution purposes and 'pay' for income tax purposes is that for NI there is no deduction in respect of contributions to a registered pension scheme. Earnings include:

• Commissions
• Salaries
• Bonuses
• Certain benefits in kind

The following items are specifically excluded:

• Reimbursed business expenses actually incurred by the employee, and for which a proper receipt is available
• Redundancy payments
• Use of employer-owned or leased assets, e.g. houses
• Medical insurance (e.g. BUPA) arranged by the employer

Class 1 national insurance contributions are payable for 2010/11 as follows (not contracted out rates):

Payment period	Weekly £	Monthly £	Yearly £
Employees
Nil on first	97	421	5,044
0% on next	13	55	671
11% on next	734	3,180	38,160
1% over	844	3,656	43,875
Employers
Nil on first	110	476	5,715
12.8% on balance		(no upper limit)

Earnings between the lower earnings limit and the earnings threshold protect and entitlement to basic state pension and other contributory benefits without incurring any actual national insurance liability. Details of such earnings must be kept on Form P11 and reported at the end of the year on Form P14.

Class 1A

Special rules, and a special class of NICs, apply to benefits in kind. Class 1A contributions are payable by employers only. These contributions apply to those taxable benefits which do not attract Class 1 contributions in respect of 'P11D employees' (employees earning £8,500 or more per annum, (including benefits), and directors).

The charge is worked out on an annual basis using the cash equivalent of the benefit (as for income tax). The amount of Class 1A contributions is calculated by using information on recorded of Forms P11D and applying the Class 1 employers' contribution rate for the relevant year (12.8% for 2010/11).

Once the amount of Class 1A contributions has been calculated it must be declared using form P11D(b). This form, and the related payment, must be received by HM Revenue & Customs by 19 July following the end of the tax year to which it relates. In most cases a special Class 1A payslip will be sent to relevant employers in the first week of April.

Dividends instead of salary

You should consider paying dividends rather than salary. Where directors are in receipt of a salary from a company, the NIC cost may be such that part of the payment could be more cost effectively made as a dividend. There are special rules for some companies providing personal services.
The decision on whether to pay a dividend or not is complex because the payment of a dividend may influence the value of the company's shares and therefore increase the liability to capital gains tax and inheritance tax There is also a maximum amount that may be paid, based on the company's results.

Further strategies for minimising national insurance

Clearly there is more need than ever to mitigate NICs. Strategies are limited, but we can help you with ideas for saving employer and / or employee NICs including;

To save NICs:

• Increasing the amount the employer contracts to contribute to company pension schemes
• Share incentive plans (shares bought out of pre-tax and pre-NIC income)
• For small companies, disincorporation and instead operating as a sole trader or partnership
• Paying less by the way of salary, more as a bonus to reduce employee (not director) contributions
• Paying dividends instead of bonuses to owner-directors (This strategy requires careful consideration in view of the possibility of challenge by HM Revenue & Customs).
• Provision of childcare

Actions unlikely to save NICs:

• Giving employees benefits in kind, except for 'non-P11D' employees
• Round sum allowances - any profit element will attract NIC
• Employees contributions to pension scheme.

Contact us if you would like further help or information on this subject at 01708 854943 or http://www.truemanbrown.co.uk/

Employee Share Schemes

These plans provide three core elements which can be combined by companies in a number of ways depending on what best suits their business (limits are per employee):

◦Free shares up to a limit of £3,000 in any tax year
◦Partnership shares (purchased out of pre-tax and NIC salary) up to £1,500 in any tax year (or 10% of overall salary, whichever is less). There may be a minimum limit of up to £10 on any occasion. Shares may be purchased annually rather than monthly.
◦Matching shares provided by the company to match employees' purchase of partnership shares, up to a limit of two for each partnership share purchased.
There is an overall limit of £3,000 of free/matching shares in any tax year.

The plan must be made available to all employees, but the company may set a qualifying period of up to 18 months. The only ways that an award of free shares can be varied from employee to employee are on the basis of remuneration, length of service, hours worked or performance.

Participants must not have a material interest in (ie owning or controlling more than 25% of the ordinary share capital of) the company.

There has to be a holding period of between three and five years for free and matching shares. During this period, employees are contractually bound to keep these shares in the plan.

Shares may be dividend shares and the company may choose to make dividend re-investment compulsory or optional. Total dividend reinvestment for any participant must not exceed £1,500 in a tax year. The holding period for dividend shares must be five years, and cannot be longer than this.

Shares have to come out of the plan when employees leave their job. Companies can decide that employees lose their free shares if they leave within three years.

Tax benefits
Employees who keep their shares in the plan for five years will pay no income tax or National Insurance in respect of those shares.

Employees who keep their shares in the plan for three years will pay income tax and National Insurance on the initial value of the shares; any increase in value of the shares will be tax free.

Employees who keep their shares in the plan until they sell will have no capital gains tax to pay. If they take them out and sell later, they will pay capital gains tax only on any increase in value after the shares come out of the plan.

Enterprise management incentives (EMI)
Under EMI, certain small higher-risk trading companies (quoted or unquoted, with gross assets of no more than £15 million) can grant options over a maximum of £3 million worth of shares at any one time. The options are normally free of income tax and National Insurance charges on grant and on exercise. When the shares are sold, capital gains tax taper relief normally starts from the date the options were granted.

Other HM Revenue & Customs approved share schemes
These will remain in place for the time being. The main features are as follows:

Savings-related share option schemes (SAYE schemes or sharesave)
Employees are granted options at a discount of up to 20% at the start of the savings contract. They can save a fixed monthly amount of between £5 and £250 for 3, 5 or 7 years. At the end of the savings contract a tax-free bonus is payable. Employees use the proceeds of the savings contract, including the bonus, if they want to exercise the option. If they do not, the proceeds are repaid in cash, tax free. There is no tax or National Insurance charged on the discount or on the gain made when the option is exercised.

Company share option plan (CSOP)
Employees are granted options to acquire shares at the market price at the time of grant. Employees may be granted options over shares worth up to £30,000 at any one time. There is no tax or National Insurance charged on the gain made when the option is exercised, provided that the options are held for at least 3 years unless participation ends through disability, redundancy or retirement.

Unapproved schemes
These are subject to the general rules that employees are chargeable to income tax under Schedule E and national insurance when, by reason of their employment:

◦they receive shares free or cheaply
◦they exercise a share option

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Tax-free gifts to staff

In an environment where most employee 'perks' are subject to tax it may be helpful for you as an employer to be aware of the few concessions that have been made by HM Revenue & Customs.

Long service awards
Long service awards are allowed within strict limits. There will be no tax charge so long as the employee has been with you for at least 20 years and the article given has a value not exceeding £50 for each year of service.

Suggestion scheme awards
Such awards must be made under a properly constituted suggestion scheme, based on a set percentage of the expected financial benefit to your business. The maximum award allowed is £5,000. There is also a concession for 'encouragement awards' of £25 or less to reflect meritorious effort on the part of the employee concerned.

Staff parties
Staff annual functions (e.g. a dinner dance or Christmas party) are tax-free where the total cost per person attending is not more than £150 per year (including VAT).

Promotional gifts
Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.

Gifts of food, drink, tobacco or vouchers are specifically excluded.

Trivial benefits
Although all gifts are strictly subject to tax trivial benefits such as a turkey or bottle of wine at Christmas, or flowers on the birth of a child are not generally assessed as a benefit. A cash benefit, however, is always taxable irrespective of the value.

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Employing your spouse

When considering the overall tax position of your family, it is worth considering if you can justify employing your spouse in your business.

This is a means of transferring income from you to your spouse. It is likely to show a tax saving if your spouse has unused personal allowances or pays tax at a lower rate than you do.

In order to justify a salary, the following points must be borne in mind:

◦The level of salary must be commercially justifiable
◦The salary must actually be paid to your spouse (and therefore affordable for you)
◦The national minimum wage regulations are likely to apply
As well as a salary, you may be able to pay premiums for a special pension arrangement for your spouse. These should not be taxable on your spouse and should save you tax as a business expense.

It may also be possible to provide your spouse with a 'company car', which should not give rise to any tax charge if the combined annual salary and notional benefit-in-kind is below £8,500, although again the need for commercial justification should be borne in mind.

All the above considerations apply equally to an unmarried partner or indeed to any other individual.

Administering a salary
If your spouse has no other employment, a form P46 should be signed with the Statement B ("This is my only or main job") ticked. You may then pay up to the primary threshold for employees national insurance (£110 per week for 2010/11) without any further formality.

If you already have a PAYE scheme for other employees, or don't mind setting up a scheme for your spouse, you should consider the following points:

◦A salary between £97 and £110 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual National Insurance liability
◦A salary between £110 and £844 per week is subject to employees' national insurance at 11% and employers' national insurance at 12.8%
◦The income tax position depends on your spouse's personal circumstances
◦The amount of salary exceeding £844 a week is subject to employees' national insurance at 1% and employers' national insurance at 12.8%, without upper limit

Please contact us if there are any points you would like to discuss.

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Tax and the company car

The system for taxing those who use company cars has remained fundamentally unchanged for some years, save for stepped changes in the emissions thresholds. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage, with a 3% surcharge on diesel powered cars.

The taxable value of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges, and is subject to an upper limit of £80,000 until 2011. From April 2011 there will be no limit. The list price of accessories must be included whether fitted when new or subsequently.

Cars emitting CO₂ at a specified level are taxed on 15% of the list price. This is the usual minimum charge and will apply to emission levels of between 121g/km and 134g/km. In 2010 Finance Bill there is no benefit where the car or van concerned cannot produce C0₂. Emissions from 1 to 75 g/km are taxed at 5% and from 76-120g/km, at 10% of list price.

Cars running solely on diesel fuel are subject to a 3% supplement. Special rules apply to cars running on electricity, electricity and petrol, gas or petrol and gas, which are generally seen as more environmentally friendly.

Cars with higher levels of CO₂ emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 35% of the car's price.

Cleaner diesels

When the current system was introduced, it included a discount of 3% for diesel powered cars compliant with the Euro IV emissions standards to encourage earlier take-up of 'cleaner diesels' and effectively cancelling the 3% surcharge on all diesel company cars.

CO₂ emission information

For all cars first registered from at least November 2000, the definitive CO₂ emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO₂ emissions enquiry service on their website at http://www.smmt.co.uk/ for cars first registered from January 1998.

Older cars

Cars first registered before January 1998, for which there are no reliable CO₂ emissions data, are taxed according to their engine size, as follows:

Engine size (cc)	Percentage of car's price charged to tax
0 - 1400	15%
1401 - 2000	22%
2001 and more	32%

Fuel scale charges

Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on the CO₂-based car benefit percentage applied to a standard value of £18,000.

Employee contributions

Where the employee is required, as a condition of the car being made available, to pay for the private use of a car, the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will continue to reduce its price for tax purposes.

By contrast it is "all or nothing" for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!

HM Revenue & Customs has published baseline rates which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.

Current mileage rates

1 June 2010

These mileage rates came into force officially on 1 June 2010.

Baseline fuel mileage rates
	Rates per mile
Engine Capacity	Petrol	Diesel	LPG
Up to 1400cc	12p	11p	8p
1401 - 2000cc	15p	11p	10p
Over 2000cc	21p	16p	14p

1 December 2009

The following mileage rates came into force officially on 1 December 2009.

Baseline fuel mileage rates
	Rates per mile
Engine Capacity	Petrol	Diesel	LPG
Up to 1400cc	11p	11p	7p
1401 - 2000cc	14p	11p	8p
Over 2000cc	20p	14p	12p

HM Revenue & Customs has announced that rates will now be reviewed bi-annually and any changes will take effect on 1 January and 1 June.  If however there are significant fuel cost fluctuations, then rates may be changed accordingly.

Tax payable

These standard charges are subject to income tax at basic or higher rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.

For the benefit to be attractive, the employee must pay less in extra tax than it would cost him to run his own car out of his taxed income. These are examples of the 2010/11 tax costs to an employee of a company car:

Basic rate liability example

List Price	CO2 emission g/km	Tax Rate 20%
		Petrol		Diesel
		Car £	Fuel £	Car £	Fuel £
£13,000	165	572	792	650	900
£18,000	200	1044	1044	1152	1152
£25,000	221	1650	1188	1750	1260

Higher rate liability example

List Price	CO2 emission g/km	Tax Rate 40%
		Petrol		Diesel
		Car £	Fuel £	Car £	Fuel £
£13,000	165	1144	1584	1300	1800
£18,000	200	2088	2088	2304	2304
£25,000	240	3500	2520	3500	2520

Additional rate liability example

List Price	CO2 emission g/km	Tax Rate 50%
		Petrol		Diesel
		Car £	Fuel £	Car £	Fuel £
£13,000	165	1430	1980	1625	2250
£18,000	200	2610	2610	2880	2880
£25,000	240	4375	3150	4375	3150

Tax free benefits

• Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

• Pool Cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others.
Please note: A pool car must not normally be kept overnight at or near an employee's home.

• "Lower Paid" Employees

The provision of a car for an employee (NOT a director) who is paid at a rate below £8,500 per year (including the value of benefits) does NOT attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.

• Special Consideration for Sole Traders

If your spouse is employed in your business (but not as a partner), it can be very tax efficient to provide them with a car, as long as they earn well below £8,500. The use of the car can be tax-free in their hands, and the business will get full tax relief on all the expenses connected with the car, provided you can demonstrate the car is necessary for business purposes.

Business use of an employee's own car

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.

A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:

Cars and vans
On the first 10,000 miles in the tax year	40p per mile
On each additional mile above this	25p per mile
Motor cycles	24p per mile
Bicycles	20p per mile

It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.

Passenger payments

When an employee travelling on business carries fellow employees as passengers he may be reimbursed a further 5p per passenger tax free provided the journey is a business journey in respect of the passengers. No claim can be made if the employer does not make passenger payments.

Company vans

The taxable benefit for the unrestricted use of company vans is £3,000 (with no reduction for older vans) plus a further £550 of taxable benefit if fuel is provided by the employer for private travel.

The tax payable on the use of a company van ranges from £600 up to £1,775 p.a., and the employer's Class1A NIC payable ranges from £384 to £454.40 p.a.

Tax saving check list

• Keep adequate records of business mileage.
• Always check your tax code to see that the correct benefit is being applied.
• Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
• If you have low private mileage, you may be better off if you pay for all your own private fuel.
• If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
• Encourage your employer to apply for a P11D dispensation.
• If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
• Tax - free parking is a must!

Company cars - beyond 2011

2011/12
From April 2011, a number of changes will be introduced to the company car tax regime.

• The maximum list price of £80,000 will be abolished, so that employees with cars costing in excess of this sum will be taxed on the full list price from 2011/12.
• The lowest emissions on the Table will once again be reduced by 5g/km to 125g.km providing a further increase for most drivers.
• The discounts for alternative fuels will be abolished, and a single alternative rate of 9% introduced for drivers of electrically propelled cars. Drivers of cars running on bi-fuel, gas, E85 or hybrid cars will no longer have a reduction in benefit and will be taxed based solely on the emissions of their car.

2010/11 taxable benefits table

CO2 in g/km*	Taxable %		CO2 in g/km*	Taxable %
	Petrol	Diesel		Petrol	Diesel
1 to 75	5%	8%	180 to 184	25%	28%
76 to 120	10%	13%	185 to 189	26%	29%
121 to 134	15%	18%	190 to 194	27%	30%
135 to 139	16%	19%	195 to 199	28%	31%
140 to 144	17%	20%	200 to 204	29%	32%
145 to 149	18%	21%	205 to 209	30%	33%
150 to 154	19%	22%	210 to 214	31%	34%
155 to 159	20%	23%	215 to 219	32%	35%
160 to 164	21%	24%	220 to 224	33%	35%
165 to 169	22%	25%	225 to 229	34%	35%
170 to 174	23%	26%	230 and over	35%	35%
175 to 179	24%	27%
* The exact CO2 figure is rounded down to the nearest 5g/km

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Benefits In Kind and expense payments

Benefits in kind are assessed on all directors and employees whose salary and benefits combined are £8,500 or more.

Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher rate of income tax, because the benefit may either be tax free or subject to less tax.

A benefit that is not taxable is not automatically exempt from national insurance contributions (NICs).

An employer is required to complete form P11D in respect of each employee earning £8,500 or more (including benefits) and all directors. Form P9D is required to record taxable benefits received by other employees. Benefits which are treated as pay for NIC purposes must be included on the deductions working sheet column 1A 'earnings on which employee's contributions payable'. (This should not include benefits liable to Class 1A NIC). Comprehensive records should be kept in relation to all benefits and expenses payments.

Non-taxable benefits
There are several benefits that are not normally taxable, even when an employee is within the P11D category. These can be substantial. The most significant are:

◦Contributions to registered pension schemes (within limits)
◦Car, motor cycle or bicycle parking facilities at or near the workplace
◦Child care facilities or vouchers worth up to £55 per week
◦Compensation/termination payments up to £30,000
◦Welfare counselling services (with restrictions)
◦Luncheon vouchers up to 15p per day
◦Staff canteen and dining facilities (provided they are available to all directors and employees)
◦Sports facilities (provided they are available to all directors and employees)
◦Removal expenses, subject to HM Revenue & Customs limits
◦Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits
◦Awards under suggestion schemes (but there are restrictions)
◦Use of a pool car
◦Use of a mobile telephone - one mobile phone only per employee where provided
◦The provision of representative accommodation (except for certain directors)
◦Approved share incentive plans
◦Use of cycles and cyclist's safety equipment used mainly for journeys between home and work
◦Certain bus services for journeys between home and work
◦Annual parties or similar functions costing up to £150 per head
◦Payments towards household expenses incurred by employees working at home (generally £3 per week)
◦Retraining expenses and courses
You could also consider establishing a company pension scheme, which allows your employees to make additional provision for their retirement by paying regular amounts and additional voluntary contributions.

Removal expenses
The tax-free limit is currently £8,000 and is available per move as opposed to per tax year. In order to qualify the expenses and/or benefits must normally be paid or provided in the tax year or subsequent year in which the job starts.

National insurance relief is available on all the tax qualifying expenditure, however where the £8,000 is exceeded the whole of the excess is chargeable to Class 1A and thus payable by the employer.

Small interest free loans
No tax is payable on 'cheap' or interest free loans to employees of up to £5,000.

Employee benefits
Tax efficient benefits can assist your company's profitability by ensuring that employees receive the maximum benefit from the money spent on their remuneration, thereby helping to retain key staff members.

Most, but not all, benefits are now caught by tax legislation. Most benefits are also caught for national insurance. Every employer operating PAYE schemes should obtain a copy of Employer's Further Guide to PAYE and NICs (CWG2) - and should read it carefully.

Cars
When company cars are used for private motoring, the taxable benefit is normally calculated as a percentage of the list price. If an employee is also provided with fuel for private use in the car he or she is taxed on the same percentage applied to a standard value regardless of the value of the fuel used. Class 1A NICs must also be paid by the employer on the car and fuel benefits. National insurance planning - and don't forget that VAT is payable based on a special scale charge for fuel provided for private use.

Vans
If a company van is made available for private use a standard taxable benefit of £3,000 applies. There is a further benefitof £550 where fuel is provided for private use.

There is no charge for employees who have to take their van home and are not allowed other private use or the extent of private use is not significant. There is also no charge for use of a commercial vehicle of more than 3.5 tonnes gross weight, so long as the employee's use is not wholly or mainly private.

Expenses payments
These also need to be disclosed on forms P11D. However, the employees then need to put in claims on their own tax returns or tax codes for expenses incurred in the performance of duties.

Where an employee is not required to complete a tax return, form P87 should be used instead.

How to save yourself work
Most employers can obtain a dispensation in respect of certain expenses payments, which could avoid the need to complete P11Ds in some cases. Application can be made at any time. Check with us for details.

Getting a P11D Dispensation

Completing and submitting forms P11D can be both costly and time consuming, especially for larger businesses. Did you know that the Revenue might on application grant a dispensation so that routine expense payments and benefits that would not give rise to a tax liability need not be reported on forms P11D?

To enable the Inspector to grant a dispensation you must be able to demonstrate that:

◦No tax would be payable by the employees on the expense payments or benefits
◦Expense claims are independently checked and authorised within your company
◦Each claim is submitted with appropriate receipts
HM Revenue & Customs will need to be certain exactly what expenses you reimburse and the method of control you use to identify expenses that might be taxable. This is to ensure, among other things, that if a dispensation were granted, and a taxable payment is made within a category of expense covered by the dispensation, it will be picked up and reported on the relevant employee's P11D. A dispensation does not mean that the accounting procedures for recording such expenses can be relaxed.

The application must be in writing, and may be by letter or, for smaller companies, by form P11DX, issued with HM Revenue & Customs leaflet IR69.

You should give as much detail as possible of the kind of expenses paid, the control procedures adopted for authorisation, approval and payment of expenses, and a copy of the expenses claim form.

If granted, the dispensation:

◦Will be effective from the date granted - so it is worthwhile applying at any point in the tax year
◦May cover all employees, a class of employee, or certain named individuals only
◦Will be reviewed from time to time, and may be withdrawn if the conditions are no longer satisfied
We can save you a lot of time and trouble by helping with the application. Please contact us if you would like us to help.

http://www.truemanbrown.co.uk/

Christmas present to your employees or to the Inland Revenue?

Christmas is a time for celebration and for businesses that means rewarding one of their main assets, their employees.
Businesses that, despite the recession, are really entering the festive spirit should remember that gifts for their employees will be taxable. Christmas bonuses or store vouchers which can be redeemed for cash will be subject to PAYE and National Insurance paid through the PAYE system.

If the business prefer to give staff a high street gift voucher, the business can pick up the tax bill on behalf of their employees by setting up a PAYE Settlement Agreement (PSA) with their tax office.

However, there are a number of ways that employers can reward their staff without paying the taxman.

‘Trivial’ Items

Gifts deemed as trivial are exempt from tax. HMRC have extended the definition of what a ‘trivial’ gift is.

A trivial gift includes such items as a turkey, a bottle of wine or a box of chocolates. However, a case of wine or a hamper will not be deemed trivial and would be deemed as a taxable benefit. As will a turkey purchased in conjunction with a bottle of wine,

If in any doubt whether the gift should be deemed trivial or not, you should seek advise from your accountant or HMRC.

Promotional Gifts

Business normally purchase promotional gifts for their customers and their suppliers. Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.

If the gift costs more than £50, HMRC will disallow the whole amount, not just the amount over £50!

Gifts of food, drink, tobacco or vouchers are specifically excluded.

Staff Parties

Staff parties are potentially tax-free. HMRC's festive gift is limited though, as companies are allowed an annual tax-free amount of up to £150 per member of staff.

This total not only covers food and drink, but also accommodation and transport home if the employer pays for these.
The number of guests can also include non-employees such as partners. On top of this, the employer will also get Corporation Tax relief on what it all costs.

Due to the recession, many firms may be  planning a frugal Christmas party this year, more staff parties could end up being tax-free.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location.

The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees. The gift from HMRC is available to businesses of all sizes.

But one penny over this limit and the full amount spent will become liable to income tax and National Insurance  for both staff and employer alike.

The business can also make a claim for Input VAT. When making your claim for input VAT however, the business should bear in mind that Customs & Excise view the expenditure on persons who are not employees to be entertainment and as such, you cannot claim the VAT on that proportion of the expenditure. In such cases, you will need to split the bill according to how many people are employees and how many are guests.

If you require any further information then please contact Trueman Brown on 01708 854943 or at www.truemanbrown.co.uk.

State Pension Deferral

wwwState pension deferral is the right to defer entitlement to the State Pension. In return for deferring a lump sum accrues with interest added to the deferred entitlement at a rate normally of 2% over bank base rate. Therefore the deferral claim cannot accurately be evaluated in advance. Examples of the potential lump sum entitlement are shown in our tax rates.

When is the state pension payable?

Currently the state pension is due at the age of 60 for a woman and 65 for a man. Women’s state pension age will rise to 65 between 2010 and 2020 so that from 6 April 2020 the state pension age for women will be the same as for men. From 2024, the state pension age for both men and women will gradually increase from 65 to reach 68 in 2046.

Deferral options

Defer to increase weekly pension

If entitlement to state pension is waived for five weeks or more extra state pension will be paid when state pension is claimed. For example: if the weekly state pension entitlement is £100 each week, this will increase as follows:

Weekly State Pension	Years claim put off	Extra state pension entitlement		Extra state pension entitlement after 5 years
		Each week	Each year
£100	1	£10.40	£541	£2,704
	2	£20.80	£1,082	£5,408
	3	£31.20	£1,622	£8,112
	4	£41.60	£2,163	£10,816
	5	£52.00	£2,704	£13,520

Defer to secure lump sum

A one off payment entitlement accrues where a claim to state pension is deferred continuously for at least one year. In this situation a one off payment becomes due which is calculated based on the amount of state pension entitlement as well as interest. The interest will always be at least 2% above base rate.

The option to defer arises both before entitlement is claimed or while payment is being made and a request is made to cease payments. This is a one time option.

What is the state pension entitlement?

A state pension forecast can be requested by visiting http://www.thepensionservice.gov.uk/, or by calling the forecasting team on 0845 3000 168 (textphone 0845 3000 169).

Deferral contact details

Call: 0845 60 60 265 (Welsh – speakers living in Wales: 0845 60 60 275)
Textphone: 0845 60 60 285 (Welsh textphone: 0845 60 60 295)

These calls are free from BT land lines. Calls from mobile phones may be charged at premium rates. A request may be made for the operator to call back.

http://www.truemanbrown.co.uk/

Pension contributions and tax relief

Scheme members

Any member of a registered pension scheme may make unlimited contributions to a registered pension scheme. However to qualify for tax relief a contribution must be a relievable pension contribution made by a relevant UK individual.

Most member contributions are relievable, unless they fall into any of the following categories:

• Contributions after age 75
• Contributions paid by employers (see below)
• Age related rebates or minimum contributions by HMRC to a contracted-out pension scheme

A relevant UK individual is an individual who

• Has relevant UK earnings chargeable to income tax for that tax year
• Is resident in the UK at some time during the tax year
• Was resident in the UK at some time during the immediately preceding five tax years and also when joining the pension scheme

The maximum amount of contributions on which a member can claim relief is the greater of:

• The basic amount (currently £3,600)
• The amount of the individual's relevant UK earnings for the tax year

This means that a member who has no relevant UK earnings may still qualify for tax relief on contributions into a registered pension scheme up to the basic amount. The relief in these circumstances can be given only if the contribution is made to a scheme that operates the relief at source (RAS) system. The relief is available even if the individual is a non-taxpayer.

A registered pension scheme must operate RAS unless the scheme rules specifically provide that it can operate net pay arrangements or accept contributions gross from members. Under RAS, premiums are paid net of basic rate tax which is claimed back by the scheme administrator. Higher rate relief can be claimed through the member's Self Assessment tax return.

From April 2011 contributions by those with income in excess of £150,000 will attract reduced tax relief. The rate of relief will be tapered as income rises until at £180,000 only basic rate relief is available. There are complex rules to prevent affected taxpayers from increasing their contributions after 22 April 2009 to benefit from the current tax regime. You should seek advice if your income is over £150,000 and you intend to make pension contributions before 5 April 2011 (or your employer will do so on your behalf).

With net pay arrangements, the employer deducts the relievable pension contribution from employment taxable income before operating PAYE (so tax relief is obtained by paying the contribution out of pre-tax income). A member making payments in full (that is, out of after-tax income) has to claim the tax relief from HMRC, generally through the Self Assessment system or PAYE code.

If the total contributions result in the annual allowance being exceeded, there might be a tax charge on the member (see below).

Employers

Any employer of a member of a registered pension scheme may make contributions to that registered pension scheme. Unlike for scheme members, there is no set limit on the amount of tax relief that an employer may receive in respect of its contributions.

Other persons

A person other than a member or employer may make a contribution to a registered pension scheme in respect of a member of that scheme. A person can be an individual, a corporate body or other legal entity. Where the contribution is paid under RAS, it is only the member who may claim higher rate relief on the contribution. Where a third party pays a RAS contribution, such contributions are treated as if made by the individual who is the member of the scheme, not the person who made the contribution. The contribution is paid net, and the basic rate tax is claimed by the scheme on behalf of the member, who can claim higher rate relief in the normal way.

Refund of contributions

There are two circumstances where contributions to a registered pension scheme may be refunded back to a member:

• Short service refund lump sum, where an employee leaves pensionable service within two years of joining an occupational pension scheme (taxable on the scheme administrator)
• Refund of excess contributions lump sum, to cover the amount of contributions that cannot receive tax relief (tax free).

Annual allowance charge

The annual allowance charge is a tax charge on the individual. It arises where the total pension input for an individual in pension input periods which end in the tax year concerned exceeds the amount of the annual allowance for that tax year.

The amount of the annual allowance charge is 40% of the amount by which the input exceeds the allowance, and this will normally be collected via the self assessment tax return.

The total pension input amount is the increase in value of the aggregate of all of the individual's pension savings. The pension input period is usually the year to the anniversary date which falls within the relevant tax year.

The annual allowance for the tax year 2010/11 is £255,000, and from 6 April 2011 it will be reduced to £50,000.

Example

Alison is a member of two different schemes. Scheme A has a pension input period ending on 31 March; Scheme B's ends on 30 November. During the tax year ending 5 April 2011, her total pension input amounts are:

Scheme A (year to 31 March 2011)	£110,000
Scheme B (year to 30 November 2010)	£150,000
Total pension input amount	£260,000

As the annual allowance for 2010/11 is £255,000, Alison will be taxed on the excess of £5,000. The annual allowance charge will therefore be £2,000 (40% of £5,000).

http://www.truemanbrown.co.uk/

Qualifying For A State Pension

The Coalition Government has changed the age rules for qualification for the state pension. Currently the state pension age is 60 for women and 65 for men. The changes announced in 2010 mean that retirement age for women will be equalised with that for men at 65 by 2018 and both will increase to 66 by 2020.
These changes, which affect those born after 6 April 1953, have been brought about by the Government's intention to reduce the welfare bill, it is expected that these changes will mean that more than five million people will receive state pension later than previously expected.

Age today	Age pension received
60 yrs	60 yrs 6m
59 yrs 6m	61 yrs
59 yrs	61 yrs 6m
58 yrs 6m	62 yrs
58 yrs	62 yrs 6m
57 yrs 6m	63 yrs
57 yrs 3m	63 yrs 9m
57 yrs	64 yrs 6m
56 yrs 9m	65 yrs 3m
56 yrs 6m or under	66 yrs

The conditions for getting the state pension were amended by the Pensions Act 2007 and mainly affected people reaching state pension age on or after 6 April 2010. The changes introduced partly as a result of the fact that less than 25% of women were entitled to a full state pension.

From 6 April 2010 the number of qualifying years for a full basic state pension is reduced to 30. A qualifying year is each tax year in which enough national insurance was paid or treated as paid or credited as contributed. Each qualifying year is worth 1/30th of the full basic state pension.

Those with very few qualifying years will be able to secure some basic state pension.

http://www.truemanbrown.co.uk/

HMRC cuts back on helpline hours

TruemanHM Revenue and Customs (HMC) is to drop its Sunday telephone helpline as from the end of November.
HMRC announced that contact centres will close on Sundays from 29 November.

A spokesman said: "After consulting widely, we have redeployed our Sunday contact centre staff to the busiest periods during the week, driving down waiting times and providing a more effective service when our customers need it most.

"This does not reduce the number of advisers answering calls. We have simply moved staff from quiet periods to busier ones, enabling us to answer an additional 1.7m calls during peak times."

Saturdays, too, are to see a reduction in times when HMRC helplines will be open, changing from 8am to 8pm to 8am to 4pm.

The usual times of 8am to 8pm will still apply to week days.

HMRC said it would extend opening hours to meet temporary peaks in demand, such as the tax credits renewals date and the deadlines for self-assessment returns.

The spokesman said helpline hours were extended in January 2009 in the run up to the 31 January cut-off point for the filing of self-assessment forms and that a similar policy is likely to be adopted for January 2011, including offering a helpline on Sundays.

Trueman Brown

Buying A Business

Buying an established business that someone else wishes to sell provides a path that many follow to fulfil the desire to enter into business or expand existing operations. Like buying a second hand car or house the need for care and due diligence is essential as this could represent the opportunity to achieve ambitions, but could also be the route to financial disaster, as Lloyds Banking Group discovered after they had acquired HBOS - seemingly with little attention to the financial situation of their acquisition.

Advantages of buying a business

One of the main reasons for buying an existing business is the partial elimination of the time and stress in establishing and growing a business. While the initial outlay may be greater this is almost certain to be represented by underlying assets. Any deficiency in asset value is normally represented by what is known as 'goodwill' - the difference between the price of the business and the underlying value of the net assets. That is the price of being able to operate an existing business and generate cash flow and profits. It may also be easier to secure financing for an existing business, provided there is a positive track record and the purchaser is considered a suitable person or company for running the business successfully.
A new business may be acquired through a franchise. Other business types include internet or mail order businesses.

Disadvantages of buying a business

Often the biggest hurdle to buying a small business outright is the initial purchasing cost. As the business concept, customer base, brands and other fundamental work are already established the financial costs of acquiring an existing business are usually greater than starting one from nothing. Other possible disadvantages include hidden problems associated with the debtors or stock that may not be worth what they are valued at. Good research and professional advice are essential ingredients on the path to acquiring a business.
Other disadvantages of buying an existing business include:

1. Customers may associate the goodwill to the previous owner and leave when a new owner takes over the business.
2. Staffing problems/issues
   • Some staff may leave when the new owner takes over
   • Some staff may be unsuitable for the job they are doing
   • Some staff may not approve of the new owner
   • You will inherit statutory obligations with regard to their employment
3. Plant, equipment, technology may be obsolete or faulty
4. The business may not have a good image or reputation
5. The cost of acquiring goodwill may be unrealistically high

Choosing a business

Finding profitable businesses for sale at reasonable prices can be difficult, as business owners are often overly optimistic with regard to the market value of their business. There are many resources for finding a business including business sale agents, advertising sections of trade magazines or papers such as the Times or Guardian, or more commonly today online agencies. Some of the best search terms include 'business for sale'; 'buy business'; 'sell business' or 'buy sell business'. You may need to further refine the results by entering criteria that restrict the geographic area and also the type of business you are seeking to acquire. Before registering with any agency it is essential to establish any costs that you may incur - not all agencies are free to use, even for the purchaser. Other opportunities for finding out about businesses for sale include word of mouth - although this is often the most unreliable relative to conducting a specific search.

The first questions you should ask yourself

• Do you know what type of business you wish to acquire?
• What are your qualifications for running the business successfully?
• Do you have the temperament to deal with all types of customers, demanding creditors, and difficult employees?
• Do you have the necessary business acumen?
• Can you deal with all the administrative demands of the business including book keeping and the demands of business regulation?
• Are you prepared for the business to take greater prominence in your life than when you were previously employed?
• Can you address problems without losing your cool?
• Can you deal with uncertainty without losing sleep?
• Are you satisfied that your relationships will not be too adversely affected by the acquisition of a business?
• Can you accept the potential significant financial loss that investing in the business exposes you to?

Common mistakes

• Buying a business that doesn't fit with your capabilities or your existing business
• Buying without proper due diligence
• Buying without proper preparedness
• Buying without a proper contract in place
• Not knowing the seller's intentions

Business acquisition checklist (partial)

• Find out why the business is for sale
• Are profits falling? What forecasts are available?
• What is the likely market potential over the next one to five years?
• Decide whether the type and size of the business fits with your needs, skills and experience, financial capacity and future plans
• Check the operations of the business, including sales, costs, profits and assets. It is important to seek our advice when reviewing the financial records
• Discuss with us our due diligence services - the larger the business the more essential this becomes. Larger businesses will normally require a due diligence service which may include specialist due diligence services such as legal, patent, technology reports.

Checking the operations of the business (partial)

• Sales
• Costs
• Profits
• Taxation
• Assets
• Staff
• Technology

The purchase agreement

It is possible that before both parties proceed to a purchase agreement the intention to proceed and contract together may be evidenced in a draft agreement sometimes referred to as an MOU (Memorandum of Understanding) or HOT (Heads of Terms). This normally precedes the work on due diligence. Closely review the draft purchase agreement with us and your lawyers in particular the non compete, warranty and guarantee clauses. This agreement will detail:

• Details of the assets to be acquired
• States when the business is to be taken over
• Details any warranties
• Covenants
• Representations
• Guarantees
• Obligations

How we can help

There are many decisions to take along the path to acquiring a business regardless of whether this is your first business or the decision to expand existing business operations. We welcome the opportunity of advising you while you are acquiring your business. In particular we can advise with regard to the areas we have discussed above.

http://www.truemanbrown.co.uk/

Estate Planning - "Don't Pay Death Taxes"

Here's where we can advise

Lifetime gifts of assets, including business interests Gifts to charity Disposition of your assets on death Using trusts in lifetime and estate tax planning Minimising tax on gifts and inheritances Choosing a friend as an executor Choosing a professional as an executor Inheritance tax reduction planning and life assurance to cover any liabilities Naming a guardian for your children How your business interests should devolve if you die or become disabled

Estate planning should start early in life. If your estate is large it could be subject to inheritance tax, but even if it is small, planning and a well drafted Will can ensure that your assets will go to your chosen beneficiaries.

Do you have a liability to inheritance tax? Use our calcuator to identify your potential liability to tax - and then contact us.

Do you need a Will?

Anyone who owns property - a home, a car, investments, business interests, retirement savings, collectibles, personal belongings, etc - needs a Will. A Will allows you to direct by and to whom your property will be distributed after your death. If you have no Will, your property will normally be distributed according to the intestacy laws, and making assumptions about how these rules work is a very common mistake.

The more you have, the less you should leave to chance when it comes to creating an estate plan that minimises taxes. We can help you to ensure that, through planned lifetime gifts and a tax efficient Will, more of your wealth will pass to the people you love.

Making your estate plan

Start by answering the following questions:

Who? Who do you want to benefit from your wealth? What do you need to provide for your spouse? Should your children share equally in your estate – does one or more have special needs? Do you wish to include grandchildren? Would you like to give to charity?

What? Should your business pass only to those children who have become involved in the business, and should you compensate the others with assets of comparable value? Consider the implications and complications of multiple ownership.

When? Consider the age and maturity of your beneficiaries. Should assets be placed into a trust restricting access to income and/or capital? Or should gifts wait until your death?

Use your exemptions

You should make the best use of IHT exemptions, including:

• The £3,000 annual exemption,
• Normal expenditure gifts out of after-tax income,
• Gifts in consideration of marriage (up to specified limits)
• Exemption for gifts you make of up to £250 per annum to any number of persons
• Exemption for gifts between spouses*, facilitating equalisation of estates

*Transfers on or within seven years of death to a spouse domiciled outside the UK are exempt only to the extent of £55,000

If you die within seven years of making substantial lifetime gifts, they will be added back into your estate and may result in a substantial IHT liability for the recipients. You can take out a life assurance policy to cover this tax risk if you wish.

However you can make substantial gifts out of your taxable estate into trust now, and as a trustee retain control over the assets. However, the inheritance tax treatment of assets held in trust is extremely complex and undergoing a period of change, so you should discuss your thoughts with us in detail.

Estimate the inheritance tax on your estate		£
Value of:	Your home (and contents)
	Your business*
	Bank/savings account(s)
	Stocks and shares
	Insurance policies
	Car
	Jewellery
	Other assets
Total assets
Deduct:
Mortgage
Loans
Other debts
Total liabilities
Net value of your assets
Add: Gifts in last seven years**
Deduct		- 325,000
Taxable estate		£
Tax at 40% is		£
* If you are not sure what your business is worth, we can help you value it. Most business assets currently qualify for Inheritance Tax reliefs. ** Chargeable and potentially exempt transfers.

Your gift strategy

Business assets
Under current rules, there will be no CGT and perhaps little or no IHT to pay if you retain business property until your death. This is fine, as long as you wish to continue to hold your business interests until death, and recognise that the rules may change, the IHT rules that will apply at the date of your death are as yet unknown!

Alternatively, you may wish to hand your business over to the next generation. A gift of business property today will probably qualify for up to 100% IHT relief, and any capital gain can be rolled over to the new owner, so there will be no current CGT liability.

Appreciating assets
Gifts do not have to be in cash. You could save more IHT and/or CGT by gifting assets with the potential for growth in value. Gift while the asset has a lower value, and the appreciation then accrues outside your estate.

Gifts out of income
Another way to build up capital outside your own estate is to make regular gifts out of income, perhaps by way of premiums on an insurance policy written in trust for your heirs. Regular payments of this type will be exempt from IHT.

Use the nil rate band
Currently most transfers of property between spouses or civil partners are exempt from IHT. This means that when one partner dies leaving some or all of their property to their spouse/civil partner they may not make full use of their nil-rate band (currently £325,000).

It is possible to transfer unused nil-rate band allowances between spouses or civil partners. The rules apply to allow a claim to be made to transfer any unused IHT nil-rate band on a person's death from the estate of their deceased spouse/civil partner where the second death occurs on or after 9 October 2007.

The amount of the nil rate-band potentially available for transfer will be based on the proportion of the nil-rate band unused when the first spouse or civil partner died. If on the first death the chargeable estate is £150,000 and the nil-rate band was £300,000, then 50% of the original nil-rate band is unused. If the nil rate band when the surviving spouse dies is £325,000, then that would be increased by 50% to £487,500.

Any claims for transfer of unused nil-rate band amounts can be made by the personal representatives of the estate of the second spouse or civil partner to die when they make an IHT return. The rules apply to all surviving spouse/civil partner estates, including those when the death of the first spouse/civil partner occurred prior to that date.

Estate planning for singles

Single people might not have given a thought to estate planning. But you should make a Will to set out your preferred funeral arrangements, how you want your estate to devolve on your death – and who will have responsibility for it.

Your estate might pass to your parents or your siblings under intestacy rules, but would you prefer to leave your wealth to your nieces and nephews - with the bonus of potential IHT savings through 'generation skipping'.

Estate planning and ‘second’ marriages

A different set of challenges faces parents in their 'second' marriages, with children from former and current marriages.

If both partners are wealthy, you might want to direct more of your own wealth to children of your first marriage. If your partner is not wealthy you might wish to protect him or her by either a direct bequest or a life interest trust (allowing your assets to devolve on the second death according to your wishes). Should younger children receive a bigger share than adult children, already making their own way in the world, and should your partner’s children from the previous marriage benefit equally with your own?

If you are concerned about your former spouse gaining control of your wealth, consider creating a trust to ensure maximum flexibility in the hands of people you choose.

Estate planning for grandparents

Your children may be grown up and financially secure. If your assets pass to them, you will be adding to their estate, and to the IHT which will be charged on their deaths. Instead, you might consider leaving something to your grandchildren, or reducing your taxable estate by helping them out during their education.

A Will is a powerful planning tool

Through a properly drawn Will you can:

• Protect your family by making provisions to meet their present and future financial needs
• Minimise taxes that might reduce the size of your estate
• Name an experienced executor* who will ensure that your wishes are carried out
• Name a trusted guardian for your children
• Provide for any special needs of specific family members
• Include gifts to charity
• Establish trusts to manage the deferral of the inheritance of any beneficiaries
• Secure the peace of mind of knowing that your family and other heirs will receive according to your express wishes

Having a Will also means that there is an opportunity for re-writing in the two years after your death, in the event that some changes are agreed by all concerned to be appropriate.

* Before choosing someone as your executor, give serious thought to how well he or she will be able to handle the duties and responsibilities of the role, and indeed whether or not they will be willing to accept the role.

Is it time to update your estate plan?

Estate plans can easily become out of date. Check to see if any of these changes have occurred since you last updated your estate plan.

• The birth of a child or grandchild
• The death of your spouse, another beneficiary, your executor or your children’s guardian
• Marriages in the family
• Divorces
• A substantial increase or decrease in the value of your estate
• The formation, purchase or sale of a business
• Retirement
• Changes in tax law

The new rules now applying with regard to the inheritance tax allowance means that there may be an opportunity to review your Will now that the inheritance tax exemption on first death is no longer 'lost'.

Do contact us if you would like further help or advice on this subject on 01708 854943 or http://www.truemanbrown.co.uk/