Thursday, August 31st, 2023
Here at Copia Wealth & Tax, we recognise the importance of tax planning. This month, we also discuss managing the reliance on key people given that this can prove to be business critical. In addition, as it is also easy to miss the fact that your organisation has grown to exceed the parameters, we have included a quick reminder about audit thresholds.
Finally, we set out the earnings limit for child benefit, something which can often catch people out and leave them with an unwanted and very unexpected tax bill.
A key person risk arises where potential disruption and uncertainty could arise should a vital team member (e.g., one having distinctive skills, knowledge, and/or influence) suddenly be unable to contribute to the organisation due to incapacity, death or just being headhunted by a third party. Organisations need to have a strategy to help them mitigate any potential impact.
Well thought out succession planning is also crucial in managing key person risk. Organisations should identify and nurture potential successors so that a seamless transition can take place should the need arise. Another area to consider is the diversification of responsibilities and decision-making across several individuals, thereby avoiding excessive reliance on one person. Not doing so could prove to be catastrophic should that individual suddenly leave the organisation.
Various insurance solutions are available to mitigate some of the financial aspects of key person risk should a key person become incapacitated or unable to contribute due to unforeseen circumstances.
Key person risks and the actions that would need to be taken to mitigate them should be included within a continuity plan. By doing so, an organisation can deal effectively with a situation where a key person is suddenly lost to the organisation; a continuity plan would set out the various actions to be taken by the business that would help mitigate or negate any potential downside.
The team here at Copia Wealth & Tax can offer an external viewpoint to help your business identify key persons together with any associated risks that might arise from their loss to the organisation. Please call the office on the number below if you would like some help with this.
Companies will be exempt from an audit under section 477 of the Companies Act 2006 (the Act) if they qualify as small companies under section 382-384 unless a) they are members of a group or b) are charities in which case they are required to follow the different charity audit thresholds.
A company is defined as small if it meets two out of three of the criteria set out below for two consecutive years:
Once a company exceeds two out of three criteria for two consecutive years it is required to have its financial statements audited. Then, to regain the exemption, the company must meet two out of three of the criteria for a further two consecutive years.
If it is part of a group, the whole group must meet these criteria to be exempt from audit. If the group cannot meet the exemption requirements, then this would mean all members of the group would be required to be subject to an audit, Subsidiaries can be exempt from audit if they meet certain criteria, and their parent company provides a guarantee in respect of all outstanding and any contingent liabilities.
It is worth noting that for charities, the audit exemption is available if their income is less than £1m (but if their income is more than £0.25m and their total assets are more than £3.26m then they are still required to have an audit).
Companies are required to check that they meet the audit exemption requirements.
We can help our clients manage all this and of course, have the capability to undertake audits as and when these are required, be it a company, group, or charity.
This really is a worthwhile reminder to parents and carers. If you or your other half have an ‘adjusted net income’ of over £50,000, then you could be required to repay some, or all any child benefit received via your self-assessment tax return.
The High-Income Child Benefit Charge (HICBC) was introduced back in 2012/13 and imposes a 1% charge on the amount of child benefit received for every £100 that the taxpayer’s adjusted net income exceeds £50,000. Note that ‘Adjusted net income’ is an individual’s total taxable income before any allowances, but after deducting Gift Aid, pension contributions, and trade union subscriptions.
This means that where the adjusted net income is £60,000 or more, then there is a 100% charge against the child benefit, meaning that all the child benefit received is clawed back.
HMRC is now considering plans to deduct HICBC directly from salaries via PAYE in the future.
Taxpayers can opt out of receiving Child Benefit payments where adjusted net income exceeds £60,000 and that may mean that a taxpayer who has their tax collected under PAYE would not then be required to submit a self-assessment tax return. If you do not do this, then you may be required to complete a self-assessment tax return even if all your income is taxed under PAYE.
For individuals with earnings above £50,000, it may be worth considering opportunities such as salary sacrifice with their employer to keep their earnings beneath this threshold enabling child benefit to still be paid without a claw back.
Whether it be monitoring key person risk, your business’s audit threshold, or undertaking a review with respect to eligibility for child benefit, just remember our friendly team here at Copia Wealth & Tax is here to help.
If you would like to talk things through in complete confidence with one of our experts, please call 01902 783172 to book an appointment. Alternatively, just click HERE to use the form on our website.
We very much look forward to helping your business solve any tax planning or business risk challenges.