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We hope that the information provided below is of assistance. Please do not hesitate to contact us on any matter that may affect you.

April 2014

When Is £250,000 Worth Only £176,782?
The answer, unfortunately, is when you take it out of your pension fund. The headline announcement in last month's budget was that, from April next year, people aged 55 or more will be able to withdraw as much as they like, whenever they like, from their personal pension plans and similar arrangements. However, the catch is that, while the time-honoured rule will remain: that a quarter of the fund may be taken as a tax-free lump sum, anything more will be taxed as income of the year in which it is taken.

For example, suppose an individual has a pension fund of £250,000 and no income other than the National Insurance pension of (say) £6,000 a year. He or she might decide that a good plan would be to withdraw the whole fund, use £200,000 to purchase a buy-to-let property to provide an income for life and a worthwhile inheritance for the children, and keep £50,000 on deposit for contingencies. However, if the whole pension fund is withdrawn as a single lump sum, the income tax charged (at 2015/16 rates) will be £73,218, leaving the individual with only £176,782 of his or her original £250,000. This is because nearly two-thirds of the lump sum is taxed at 40% or even 45%.

Spreading the withdrawal over two tax years - with the tax-free lump sum taken in the first year, and the balance half in the first and half in the second - would reduce the total tax paid to £58,686, largely because spreading means twice as much would be charged at the basic rate.

Looking at two smaller pension funds, a fund of £100,000 would suffer a tax charge of £21,843 if wholly withdrawn in one year, or £13,686 if withdrawn over two years, while a fund of £50,000 would suffer a charge of £6,483 or £5,700 (in all cases, assuming the only other income was the £6,000 pension).

The bottom line, perhaps, is that pension fund holders should think long and hard before taking a withdrawal which will suffer tax at more than the 20% basic rate. Very broadly speaking, this means that after taking a quarter of the pension fund as the tax-free lump sum, further withdrawals plus pensions and any other income should not exceed about £42,000 in any tax year.

Another point to watch is that the tax charge on money withdrawn from a pension fund is likely to be even higher if the individual has substantial earnings or other income in the tax year he or she makes the withdrawal. If in our first example (of a £250,000 pension fund) the individual had earnings of £30,000 instead of the National Insurance pension of £6,000 (say, because he or she retired towards the end of the tax year and took the maximum withdrawal immediately), the tax charge on that withdrawal would be £80,118, reducing the after-tax sum available to £169,882.

One would hope that the pension provider will warn the investor if he or she applies for a withdrawal which is likely to trigger a significant tax liability. However, it is easy to see how cases might slip through the net. For example, where the individual has invested in pension plans with several different providers and the overall scale of the proposed withdrawals is not appreciated.

Will Temptation or Prudence Win the Day?
It has been suggested that people reaching retirement age will not be able to resist the temptation to cash-in their pensions and spend the proceeds on exotic sports cars and luxury cruises. However, we think there is a greater danger that the money will be frittered away on sensible things like helping sons and daughters to buy houses, or paying school fees for the grandchildren. People are going to have to make decisions, about how much they can sensibly afford to help their children and grandchildren, and how much they need to keep for their own old age. The trouble with having access to the money is that it will make it harder to say no.

Don't Waste a Valuable Guarantee!
Hidden away in the small print of many older pension plans (especially those taken out before about 1990) is the option to take a pension calculated according to a set formula - effectively a guarantee to pay a stated minimum pension. Originally, such guarantees were not particularly generous, but now that interest rates have fallen to historic lows, taking the guaranteed pension may well be a very attractive alternative. It will produce a far-higher income than could be obtained by buying an annuity on the open market, and provide that income securely for life.

However, because the guaranteed pension is technically an option, it is up to the policyholder to claim it. Moreover, entitlement to the guaranteed pension is almost always conditional upon taking the pension at a fixed date - usually the default retirement date specified by the policy. We would strongly advise anyone with a pension plan to see if it promises a guarantee; and, if it does, to make a prominent 'reminder to self' of the date by which it must be claimed. A lot of money could be at stake.

Transitional Arrangements
As stated in the first paragraph, 'withdraw as much as you like, when you like' begins in April 2015. Until then, some of the existing rules are relaxed, to allow higher withdrawals under drawdown plans, and small pension savings to be taken as an immediate lump sum. Please contact us if you would like further detail on these changes.

Individual Savings Accounts
The Chancellor also announced that, with effect from 1 July 2014, the annual limit on ISA investments will rise to £15,000. At the same time, the scheme will be renamed the 'New ISA' (NISA). Furthermore, from that date investments may be made in, or transferred between, Cash, and Stocks and Shares NISAs in whatever proportions the investor chooses. For example, the whole £15,000 subscription for 2014/15 may be placed in a Cash NISA, or savings previously accumulated in a Stocks and Shares ISA may be transferred to a Cash NISA.

However, the rule will remain that an individual will be able to invest in only one Cash, and one Stocks and Shares NISA each (tax) year, although it will also become possible to hold tax free cash deposits in a Stocks and Shares NISA.

Existing ISAs will automatically become NISAs on 1 July 2014 and any ISA investments made since 6 April 2014 will count against the £15,000 annual maximum.

For many people, it is important to have the reassurance that they are covered by the government guarantee that their losses will be made good under the Financial Services Compensation Scheme, should a savings institution default. With the higher savings limit, and the increased ability to concentrate savings in a Cash NISA, they should now watch that their savings with any one institution (or group of linked institutions) do not exceed the compensation limits, which are £85,000 for cash deposits and £50,000 for investments.

Capital Gains Tax on Houses
It has always been the rule that any profit a family makes on the sale of their main home (or principal private residence) is not liable to capital gains tax. That rule is not changing, but about a week after budget day it was announced that, from April 2015, people with two (or more) properties will no longer be able to choose which is to be treated as their principal private residence for capital gains tax purposes. Instead, it will have to be determined, as a matter of fact, which is the family's main home. That might be simplified - possibly at the cost of some rough justice - by imposing a one-size-fits-all test, such as counting how many days were spent at each property. In any case, anyone with two properties will have to keep records to show which property was his main home, otherwise (presumably) neither will qualify.

There is to be a public consultation, not on the principle of withdrawing an individual's right to choose which, of two or more properties is his principal private residence; but on how the statutory test to identify his main home should be framed. There are likely to be some hard cases - for example, that an individual who spends most of his time living in rented or employer-provided accommodation (so as to be near his work) may not be able to claim his weekend or holiday cottage as his principal private residence. It is unlikely that the outcome of the consultation, and the final details of the changes, will be known before the autumn.

Capital Allowances for Machinery and Vehicles
Annual Investment Allowances (AIAs) allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase. There is an annual ceiling on the maximum qualifying expenditure a business can incur, which bounces up and down like a yo-yo. It was originally set, in April 2008, at £50,000, but two years later in April 2010 it was doubled to £100,000. Three months after that, in the June 2010 emergency budget, the new coalition Government announced that it would be reduced to £25,000, but not until April 2012.

Nine months after the reduction to £25,000, in his December 2012 Autumn Statement, the Chancellor stated that the ceiling would be raised to £250,000, but only for the two calendar years 2013 and 2014. However, the real complexity is caused by the illogical rules for calculating the maximum allowable expenditure when the ceiling changes part way through the trader's accounting year - especially, when it is reduced. Time apportionments have to be made and, in the last edition of this newsletter, we pointed out that if, as then expected, the ceiling fell back to £25,000 in January 2015, a company with a 31 March accounting date would be limited to an annual investment allowance of only £6,250 for asset purchases in the first three months of 2015.

However, in last month's budget the Chancellor changed his mind again, and said that the ceiling will be doubled to £500,000 for the 21 months April 2014 to December 2015, then reverting to £25,000 on 1 January 2016. Again, there will be transitional provisions, so where the accounting year began before April, the ceiling on qualifying expenditure will be less than £500,000, even if the assets are bought in May or later.

As a rule of thumb, asset purchases of up to £250,000 a year will not now be affected by the transitional rules; provided they are made in an accounting year which ends no later than 31 December 2015. However, the rules are so complex that we would strongly advise any business proposing a major purchase or programme of investment to discuss their plans with us before entering into any binding commitments.

...and Finally
Where family members work part-time in a family business, it is important to remember that worthwhile National Insurance pension rights can be accrued, at no cost, by paying them a salary just over, rather than just under, the lower earnings limit. If you are already doing this, watch that the lower earnings limit rises slightly each April - this year from £109 to £111 a week (£473 to £481 a month) - so you may need to increase wages accordingly. No employee or employer contributions are payable until earnings exceed £153 a week or £663 a month.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

August 2013

Danger: VAT Registration
VAT is probably the most dangerous of all the taxes for a small business, firstly because it is charged on turnover, not profit, so any mistakes can be expensive; secondly because most penalties are tax-geared; and thirdly because there are very tight deadlines for providing information to HM Revenue and Customs (HMRC) - a trader certainly cannot leave it all for his accountant to sort out at the end of the year.

There are dangers both if you are not yet registered for VAT, and if you are:

1. If You Are Not Already Registered for VAT
The basic rule is deceptively simple - you must register as soon as your 'taxable supplies' exceed the registration threshold, currently £79,000 a year. The first point to watch is that taxable supplies include sales of goods and services that are VAT zero- rated, as well as those which are subject to VAT at the 20% standard rate or 5% lower rate. However, you do not have to count sales of capital assets used in your business. For example, a jobbing builder would have to total his charges to customers, but would not have to include the sale of his truck or cement mixer. Broadly speaking, then, unless you are making any VAT-exempt sales, your taxable supplies for VAT registration purposes will be the same as your turnover for ordinary accounts purposes.

The second point is that the registration threshold is not necessarily £79,000 for your accounts year; it is £79,000 for the twelve months to the end of any calendar month. So it is essential to keep a month by month check on your cumulative taxable supplies for the last twelve months. It is of course entirely within the rules to limit your trading to avoid going over the registration threshold - a lot of small hairdressers close for an extra day a week for this reason.

Otherwise, the registration application should be submitted within 30 days of the end of the month in which the twelve-month rolling total of taxable supplies first exceeded £79,000. If it is not, a penalty will be charged usually of between 15% and 30% of the net VAT payable for the period from the date the business should have been registered, to the date it was in fact registered.

If there is a 'spike' in taxable supplies, so that they go over £79,000 for one twelve-month period, but are likely to be less than £77,000 for the next, HMRC may (not necessarily will) agree that the business need not be registered. But you have to ask. If you take a chance and the VAT man finds out, the business will be registered from the date it should have been registered until you in fact apply to deregister, with VAT payable on your sales, plus a penalty, for the whole of that period.

By the way, HMRC will not agree to allow a business to remain unregistered if the reason that taxable supplies in the coming year are likely to be less than £77,000 is that the proprietor intends to take an extended holiday.

2. If You Are Already Registered for VAT
Obviously, you have to make your quarterly or monthly returns on time, and pay the tax. All traders are well aware of that. Less obviously, a wide range of changes have to be notified within 30 days of their taking place. These include any change in the registered, legal or trading name of the business, its principal place of business, or its main business activity. If the business is carried on by a partnership, the admission of a new partner or the retirement of an existing partner must be notified, as must as any changes in personal details, such as a partner's private address or name (for example, if a woman changes her name on marriage).

However, it is fairly unlikely that HMRC will in practice charge a penalty for failing to notify any of the above changes, at least in the case of an innocent error or oversight which does not lead to any loss or late payment of tax. The real danger is that a change may take place which means that the existing registration should be cancelled and the business re-registered. The most common examples are where:

- A trader (or a partnership) incorporates his (their) business, as a company or a Limited Liability Partnership (LLP).
- A sole trader takes on a partner (even where the new partner is, for example, his wife).
- All but one of the partners withdraw from a business, leaving that business to be carried on by the last remaining partner as a sole trader. For example, this could happen where a married couple carried on business in partnership, one died, and the other continued the business as a sole trader.

Here, HMRC's practice is to charge a penalty for failing to register the 'post-change' business. Their starting point will be to charge a penalty equal to 15% to 30% of the net VAT payable for the period from the date the change took place to the date it was finally notified - even if that VAT was in fact paid, on time, under the existing registration for the 'pre-change' business. It is usually possible to negotiate that penalty down, but frankly it is a situation far better avoided by deregistering and re-registering within the 30 days allowed.

To avoid VAT problems - which can be disastrously expensive - we would strongly advise that you 'think VAT', watch your turnover if you are not already registered, and keep us informed about changes in the structure or ownership of your business.

It All Comes Out in the Wash!
It is often not appreciated that an employer can pay his employees tax-free allowances for the cost of washing or dry cleaning clothes they are required to wear for work. However, this applies only where the clothes count either as 'protective clothing' or as 'a uniform'.

Protective clothing means items such as overalls, gloves, boots and helmets, which the employee has to wear in order to be able to work safely. However, HMRC does not accept that warm clothing for working in exceptionally cold conditions is 'protective', or that high-visibility clothing necessarily qualifies.

A uniform can be either clothing that anyone would recognise as work-wear for a particular job, such as a nurse's uniform, or clothing on which the employer's name or business logo is prominently displayed. In the latter case, it is not sufficient for the clothing to be in corporate colours, or for the employer's name to appear on a clip-on badge, or on a label sewn inside a jacket, etc. There must be a label sewn on the outside. Each item of clothing is considered separately - thus if a shop assistant is required to wear a matching jacket and skirt, but only the jacket displays the employer's name, then only the jacket will count as a 'uniform' for tax purposes. (And they say tax doesn't have to be taxing...).

The tax rules for cleaning expenses are the same whether the employer provides the protective clothing or uniform, or whether the employee has to buy his own. The employer can either reimburse against receipts for the amount actually spent (for example, where clothes are dry cleaned) or pay a flat rate cleaning allowance of up to £60 a year (£5 a month), for example where overalls are washed at home.

If the employee earns less than £8,500 a year, such payments are simply not taxable. However, these days that will apply only to part-timers and some apprentices. Otherwise, strictly speaking the payments should be reported as reimbursed expenses on Forms P11D and the employees should claim corresponding deductions. In practice, it will be more convenient to agree a 'dispensation' with HMRC - shortly put, if HMRC are satisfied that the payments qualify to be made tax free under the above rules, it will agree that they need not be reported on Forms P11D.
 
In any case, payments made by the employer to reimburse the cost of cleaning qualifying protective clothing and uniforms are not subject to employer's or employees National Insurance contributions.

Work-Wear Provided by the Employer
A related point is the tax position where an employer provides work-wear for his employees. If this qualifies as protective clothing or a uniform under the above rules, the same tax and NIC treatment applies as for cleaning expenses - namely that the employer should include it as a benefit-in-kind on the employee's Form P11D, unless a dispensation is agreed, but no National Insurance contributions will be due. If the clothing is given to the employee, the reportable amount is the cost to the employer, but if the clothing remains the employer's property, an amount equal to 20% of the cost should be reported each year the item is worn.
 

Protecting Your Retirement Pension
At present, the basic rule is that both men and women have to pay National Insurance contributions for 30 years in order to qualify for a full retirement pension. However, National Insurance credits may be due - for example for periods when the individual was not working but caring for a young child - and these count towards the 30-year target.

A major change is that the government has decided that, for people who reach State Pension age on or after 6 April 2016, the requirement will be increased to 35 years, contributions paid or credited. This will affect men born on or after 6 April 1951 and women born on or after 6 April 1953.

To help people who will now have to pay more contributions than they expected to qualify for a full pension, the government has extended the time limit for paying voluntary contributions, for all years from 2006/07 to 2015/16, until 5 April 2023. Also, the rules governing the surcharge for contributions paid late have been amended, so there will be no disadvantage in delaying payment for these years, providing payment is finally made by 5 April 2019.

This will allow a period of grace for individuals to review their overall contribution position and plan for payment of any additional contributions required.

A final point to watch is that the pension age calculator on the GOV.UK website should not be used to calculate State Pension age for people born after 5 April 1960 because it has not yet been updated to incorporate the latest changes. We are however able to calculate the date for you.

National Minimum Wage and Apprentices
From 1 October 2013 the National Minimum Wage will rise from £6.19 to £6.31 an hour. The development rate (for 18- to 20-year-olds) will rise from £4.98 to £5.03 and the rate for 16- and 17-year-olds from £3.68 to £3.72.

However, enforcement work this year is likely to focus on apprentices, as the government has expressed its concern that many employers either misunderstand the NMW rules for apprentices, or choose to ignore them. Failure to pay the appropriate rate is, apparently, particularly common in retail businesses such as hairdressing.

Part of the confusion is that there is an 'apprentice rate' of £2.65 an hour, rising to £2.68 on 1 October 2013. However, this applies only if the apprentice is aged 18 or less, or is in the first year of his or her apprenticeship. If the apprentice is aged 19 or more, and has completed his or her first year, he or she is entitled to the development rate if aged 19 or 20, or the full rate if aged 21 or more.

In view of the government's intended focus on this area, we would recommend all employers of apprentices to check that they are in fact paying the appropriate NMW rate.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

10 April 2013

The Spring 2013 Budget
For small businesses, the most important budget announcement was probably that, for 2014/15 and subsequent tax years, they will be excused payment of the first £2,000 of employer's National Insurance contributions otherwise due. This relief, to be known as the Employment Allowance, will be available to all kinds and sizes of businesses, and to charities, but not, for example, to families employing nannies to work in a private household. Otherwise, very little detail is yet available. For example, presumably there will be rules to stop multiple claims from associated companies, and it is not yet clear whether companies where the only employee is the director-proprietor will be entitled to the allowance at all.

Cash Accounting Scheme for Small Businesses
Another important development, although not mentioned in the budget speech itself, is that there have been substantial last-minute amendments to the cash accounting scheme for small businesses, originally announced in last year's budget.

The scheme will give qualifying businesses the option of calculating their taxable profits as cash received less payments made in the year, so ignoring creditors, debtors, changes in stock levels, etc. It takes effect for 2013/14 and, initially, can be used by sole traders and partnerships (but not companies or LLPs) with annual receipts below the VAT registration threshold (currently £79,000).

Two of the principal disadvantages of adopting cash accounting, as it would have worked under the original proposals, have been removed by the last-minute amendments. First, the requirement to claim motoring costs on the basis of a fixed allowance of 45p a mile will no longer apply. Instead, traders will retain the option of claiming the business proportion of costs actually incurred, as hitherto. Second, the requirement to prepare accounts on a tax year basis has been removed. The significance of this is that the transition from a traditional accounting date to the tax year end would, in many cases, have produced a spike in taxable profits for the transitional year.

There is no rule of thumb to say which businesses might, or might not, benefit from cash accounting. Some trades are anyway conducted on a cash basis, with little or no stock and no-trade credit for purchases or sales, so it will make very little practical difference. In other cases, HMRC has said that cash accounting will simplify record-keeping, but we are not so sure. For example, if goods are sold or services supplied without immediate payment, the trader will in any case have to keep copy invoices or other records of sales, in order to be able to chase up non-payers.

As part of our annual review of each client's affairs, we shall be considering whether cash accounting could be beneficial, but we doubt that it will be in very many cases. Alternatively, if you think you would find cash accounting easier or in some way beneficial, we would be glad to discuss the pros and cons with you.

Corporation Tax
Since the last General Election, the Chancellor of the Exchequer has, in stages, reduced the main rate of corporation tax from 28% to 23%, and in 2011 he reduced the small company rate from 21% to 20%. He has now stated that the main rate will be reduced to 21% in April 2014 and to 20% in April 2015.

He has also made it clear that he has no plans to reduce the small company rate and that the final target is that, from April 2015, all companies will pay corporation tax at 20% (subject to some special rules for companies drilling for oil in the North Sea).

Value-Added Tax
The VAT registration threshold was increased to £79,000 with effect from 1 April 2013 and the VAT scale charges for taxing the private use of road fuel (on which input tax has been reclaimed) are to be increased by approximately 1.1% with effect from 1 May 2013. Please contact us if you require further details.

National Insurance Retirement Pension
The Chancellor also announced that the single tier State Pension will now come into force on 6 April 2016. In outline, this means that someone reaching State Pension age on or after that date (which means men born on or after 6 April 1951 or women born on or after 6 April 1953) will be entitled to a flat rate pension of £144 a week (plus index-linking from 2013) or, if higher, their accrued entitlement under the existing scheme (including earnings-related additions under S2P/SERPS and the old Graduated Pension scheme). The main drawback to the new scheme is that people reaching State Pension age on or after 6 April 2016 will need to have paid National Insurance contributions for 35 years (or to have qualified for equivalent credits) to qualify for a full pension, rather than the present 30 years.

Accordingly, anyone who will reach State Pension age on or after 6 April 2016, and who does not expect to have paid, or qualified for credits for, 35 years - contributions before reaching that age, should consider whether it is worth paying voluntary contributions. To assist them, there are to be some concessions in the rules governing the time limits for paying contributions, and the rates at which contributions are payable.

...and Finally
For 2014/15, the income tax personal allowance will be increased to £10,000, which will reduce the annual liability of a basic rate taxpayer by £112 compared with 2013/14, or by ?379 compared with 2012/13.

Buying an Annuity
When people who have saved for their retirement in a personal pension plan or similar arrangement wish to start drawing their benefits, they usually do so by way of using the majority of their pension fund to buy an annuity. The government, the newspapers and the independent money advice agencies all stress that such individuals should not simply take the annuity offered by the life assurance company or other financial institution currently holding their pension fund; rather, it is said, they should use their 'open-market option' to shop around and see if another institution is offering a better annuity rate (the amount of pension which can be bought for each £1,000 in the pension fund).

However, there are four traps, which mean that a higher headline annuity rate may not necessarily mean a higher pension:

The Incredible Shrinking Pension Fund
Firstly, at retirement the institution with which the individual has been saving will quote a fund value and an annuity rate. It seems obvious that the individual will get a better deal by buying his annuity from another institution if it offers a higher annuity rate. But in fact, it is commonly the case that the institution with which the individual has been saving will charge a substantial fee for transferring the fund to another institution, or alternatively reduce or withhold a terminal bonus. These 'adjustments' are not always clearly explained in advance, so it is very necessary to establish exactly how much will be available for annuity purchase if the fund is transferred to another institution - otherwise, you may well lose more on the swings than you gain on the roundabouts.

Don't Make a Mistake with the Date
Another potential trap is that institutions may also make substantial adjustments where the pension fund is not transferred on the default retirement date specified by the policy - especially, where it is transferred a few days early. Therefore it is important to know the institution's exact requirements and to follow them precisely.

Remember to Claim What's Yours
Thirdly, hidden away in the small print of some older pension plans (especially those taken out before about 1990) is the option to take a pension calculated according to a set formula - effectively a guarantee to pay a stated minimum pension. Originally, such guarantees were not particularly generous, but now that interest, and therefore annuity, rates have fallen to historic lows, these guaranteed pensions are often far higher than anything that can be bought on the open market. However, because they are technically an option, not all institutions feel obliged to remind their savers that the right to take a guaranteed pension exists, and so in the first instance they may simply quote their standard, current annuity rate - and may even recommend the saver to explore his open market option!

A related point is that entitlement to the guaranteed pension is often conditional upon taking the pension at a fixed date - usually the default retirement date specified by the policy. We would strongly advise anyone with a pension plan to see if it promises a guarantee and, if it does, to make a prominent 'reminder to self' of the date by which it must be claimed. A lot of money could be at stake.

In Sickness and in Wealth
Finally, there is the delicate question of 'enhanced' or 'impaired life' annuities. Basically, the principle is that the institution is willing to pay a higher annuity because the annuitant's health or lifestyle is such that his life expectancy is less than average. It is not necessary to be seriously ill - all kinds of factors may be taken into account, for example high blood pressure (even if controlled by medication), moderately heavy drinking or even the postcode in which the annuitant lives. Simply smoking ten cigarettes a day may bring an enhancement of 30 per cent. In fact, it is thought that one in three people looking to buy an annuity qualify for an enhanced, impaired life annuity. But each institution has its own criteria and enhancement rates, so it is necessary to compare like with like, by obtaining quotations for your own circumstances, rather than simply comparing the headline, advertised rates for the healthiest individuals.

...and There is an Alternative
As already mentioned, interest and therefore annuity rates are at an historic low, so it could be said that now is the worst time ever to be buying an annuity. The alternative is to take pension drawdown - essentially, not buy an annuity but withdraw an equivalent amount from the pension fund each month or quarter. The drawback is that charges are incurred and it may be difficult to arrange drawdown if there is less than, say, £50,000 in the pension fund. If drawdown is taken, it will always be possible, at a later date, to use the remaining fund to buy an annuity, for example when annuity rates improve.

Employing Family Members
There is a band of earnings which are subject to 'nil-rate National Insurance contributions' - this apparent contradiction in terms means that no contributions are payable, by employee or employer, but the employee's contribution record is still franked for pension and social security benefit purposes. For 2013/14, the 'nil-rate band' runs from the lower earnings limit of £109 a week (£473 a month) to the 'secondary threshold' (the point beyond which employer's contributions become payable) of £148 a week (£641 a month).

Where family members work part-time in a family business, it is important to remember that worthwhile pension rights can be accrued, at no cost, by paying them a salary just over, rather than just under, the lower earnings limit. If you are already doing this, watch that the lower earnings limit rises slightly each April - this year from £107 to £109 a week - so you must remember to increase wages accordingly.

If you are not already franking the contribution records of family members, consider whether you should start, bearing in mind that - as explained on the second page of this newsletter - people reaching State Pension age on or after 6 April 2016 will need a 35 year contribution record to qualify for a full National Insurance pension.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

Contact us, in Halesowen, West Midlands, to speak to our experts about the first-class solutions we offer as dedicated accountants.