This is set to be a year of plenty for practitioners when it comes to keeping up with the regulatory load. There is a legion of changes in 2015 across pension issues in particular, as well as the usual raft of taxation and employment issues.
Pensions will offer fruitful ground for accountants with high-net-worth individuals to advise, for instance. The juggernaut that is the freedom of access to pension savings reform rolls in on 6 April this year (see page 44), bringing with it plenty of opportunity for accountants to talk to clients about retirement income planning.
In probably the biggest change to the pensions landscape we have seen since the simplification brought in on A-Day in 2006, purchasing an annuity will no longer be mandatory.
It is probably worth remembering, says Andrew Shaw, head of personal tax at Kingston Smith, that for many people with modest pension pots, purchasing an annuity will still be the response that makes the most sense. But for individuals whose pension savings don’t represent the bulk of their resources, the new freedoms represent a great deal of potential.
“It gives people the freedom to withdraw perhaps £50,000 one year and £150,000 the next, as fits their needs,” he says. “Yes these decisions will have tax consequences, but for people with sizeable wealth, we have the pension pot brought into the armoury of their financial planning.”
For many, access to the funds they have accrued will simply mean a chance to review what part the pension will play in their retirement.
Accountants should not overlook the potential for pension funds in inheritance planning. “The pension pot is just a part of financial wellbeing,” says Shaw. “There are a lot of advantages to leaving it untouched and passing it on within a trust effectively tax free, whereas if you take it out, it will fall into your estate and be subject to inheritance tax.”
There will be challenges around how well pension providers will be able to make this work in practice, for instance. Withdrawing cash from a pension pot is notionally possible via a transfer to another provider. But such transactions are rarely straightforward and they can often be long-winded. New transfer or withdrawal mechanisms may take time to evolve.
However, overall freedom of access widens the possibilities for retirees – an open goal in terms of opportunity to talk to clients about their finances more broadly. “The crucial point is that we are going to be in a much more open regime.
“Most of it is all well and good for financial planning, but we mustn’t lose sight of the fact that for most the pension is there for income. It’s simply that there is now more flexibility on how you plan your retirement,” explains Shaw.
This year will be significant for smaller businesses and their preparations for auto-enrolment. Businesses with fewer than 30 workers will have staging dates beginning in June and carrying on through to April 2017.
For accountancy firms that offer payroll services this is an area where smaller businesses are likely to need considerable help, says Clive Lewis, head of enterprise at ICAEW.
The challenges are far-reaching and begin with awareness of the task ahead. Employer obligations include: notifying employees of their eligibility and right to opt out; collecting employee data in a useable format for a pension provider; ensuring payroll and other systems are in synch with those of intermediaries and pension providers.
More fundamental, though, will be the search for a provider. “One of the worries is that lots of pension providers simply won’t want to serve this market,” says Lewis.
Starting the search in good time and/or investigating the government fallback fund, NEST, must be a priority or even overdue. “Additionally, if a business already offers a pension, how does it compare to the minimum standards expected? All of this kind of assessment takes time – and small businesses are notoriously last minute.”
SMALL BUSINESS ISSUES
For accountants with owner-managers on their client roster, there is also potentially good news ahead in the shape of the Small Business Enterprise and Employment Act, which is due to receive Royal Assent before the general election in May.
The Act brings in provisions aimed at making the UK business climate more user-friendly for the smaller enterprise. Amid the array of employment and procurement measures, policymakers have homed in on two key areas for small businesses – getting paid more promptly and securing growth capital.
ACCESS TO FINANCE
Provisions within the Bill aimed squarely at improving access to finance for smaller enterprises include a new obligation for banks to refer anyone they reject for finance towards alternative providers such as peer-to-peer lending or online invoice finance platforms.
“If you are rejected for finance by a bank, as it stands you can already appeal and have a completely separate group of people within the bank look at your application,” says Lewis, “and quite often this results in businesses succeeding in their applications.” The new proposals mean banks must do more than this, however. “Now they must refer people to alternative providers as well,” he continues.
The mechanics of this have yet to be resolved, says Lewis. But it seems likely that a single private sector website will act as an intermediary platform and direct applicants towards providers suited to their requirements and likely to be able to come up with funding, he says.
For accountants, this does open up the possibility of revisiting discussions on sourcing finance, and these should go beyond the obvious, says Bobby Lane, partner at Shelley Stock Hutter.
Alternative providers are a welcome addition to the funding landscape he says, but advisers should not overlook existing resources such as Seed Enterprise Investment Schemes and even the maligned Enterprise Finance Guarantee. “There are some fantastic schemes and we’ve seen SMEs and clients have some successes even with much-criticised resources such as the EFG,” he says.
According to the Federation of Small Businesses, SMEs in the UK are owed a collective £40bn. So it’s welcome news indeed that the Department of Business Innovation and Skills is consulting on more rigorous approaches to get larger companies paying out to their supply chain businesses. The new proposals would give businesses the right to challenge grossly unfair contract terms, for instance.
In the meantime, the Small Business Enterprise and Employment Act brings a firm duty on large companies to report payment practices and procedures quarterly, using a standard set of metrics, and posting the information regularly on a corporate website, rather than citing this information in annual reports.
The problem in the past, says Lewis, has been that no one knew where to find this information. “Advisers will be able to direct clients to it and help them interpret the information, giving a lot more specific insight on payment terms,” he says.
In other moves, the reduction in corporation tax to 20% brings to completion George Osborne’s staged programme to make the UK’s corporate tax regime the most competitive in the G20.
This year’s cut will only reduce corporation tax liabilities by a further 1%, but it nevertheless offers a prompt to advisers to talk to sole traders about the issue of incorporation. With a general election in the offing and with tax competitiveness and fairness centre stage in public debate, accountants and clients will do well to remember, however, that the current rate may not hold steady for as long as they would like.
On the VAT front, the registration threshold increases this year from £79,000 to £81,000 in a well-publicised and welcome move for small business, who will be able to turn over an extra £2,000 before having to register and account for VAT. And personal allowances become partially transferable between spouses and civil partners in 2015.
There are also changes to employee share schemes of some complexity that will affect companies with internationally mobile employees that they reward with securities. Businesses operating employee share schemes will need to be mindful of the changes to rules on employment-related securities held by these kinds of employees that were deferred from last year as they bring an undoubted added administrative burden.
The changes align the UK regime with international practice, but will bring some challenges. Companies will need to keep accurate records on the movements of their mobile members of staff, because income from employment-related securities and securities options will become taxable when employees are non-resident as well as when UK-resident.