Meston
Reid & Co: The global perspective
Europe
: Should the Bottle of Port be Passed to the Left or to
the Right?
This
burning question will be uppermost in the mind of one of
our partners when he travels to Portugal shortly for the
world conference of Nexia International where, as well as
attending the conference, he will chair the final day's
proceedings. Lively debate is bound to ensue.
Meston
Reid & Co is an active member of Nexia International,
which is a network of independent accountancy and consulting
firms. Nexia International ranks in the top ten and has
members in 96 countries. It is one of the few accountancy
networks which was born out of a genuine need to provide
a cross border capability for its clients.
USA
: California Dreaming
Towards
the end of 2004 a request was received from our Nexia associate
in San Francisco looking for suitably qualified individuals
to undertake a four month secondment from January to April
2005. Louise Rae, one of our audit managers accepted the
task and was looking forward to spending a milder winter
than normally experienced in the north east of Scotland
.
Our
Nexia associate is one of the largest accounting and consulting
firms in San Francisco and enjoys a national reputation
for its experience in the audit of investment funds and
it was in this area that the secondment took place. The
work centred on the audit of a portfolio of hedge fund clients
in order to ensure that reliable figures were obtained for
inclusion in each investor's tax return.
The
hedge funds in which Louise was involved are similar to
a private investment club, usually in the form of a partnership,
and open to a small number of wealthy investors. A variety
of types of investment securities are a feature of hedge
funds and hence, a combination of market philosophies and
analytical techniques are used to develop financial models
which can identify and evaluate market opportunities/positions.
Louise
says that "despite working long hours, working in a highly
technical environment and having to meet tight deadlines
the work and culture experiences were invaluable. San Francisco
is a vibrant city with a unique mix of people and nationalities
and the spare few hours that I could devote to sight-seeing
proved the adage that "you leave a piece of your heart in
San Francisco".
Golden
Gate bridge from Alcatraz
Africa
: darker than Croydon?
The
leading member of our strategic planning department returned
recently from his second trip to West Africa in order to
complete an assignment for a major oil company. Indeed,
some of the work was finished by the team in Croydon: hard
to know where the third world began and finished!
I
Have a Cunning Plan: do you?
Our
strategic planning department has been involved in a number
of recent projects where we met with clients and encouraged
them to look ahead in order to determine both business and
personal goals. Detailed discussions inevitably followed
which led to written objectives being set, together with
an action plan, timetable and an allocation of responsibility
for carrying out this action plan. A clear business strategy
will yield a more certain, controllable future and increased
profits whilst defined personal goals tend to create inner
contentedness and satisfaction which allows a person to
approach life's challenges with focus and anticipation..
Give
us a call and let us explain how Meston Reid & Co can
help you grow your business and achieve your goals.
Guest
Feature:
The
Pensions Bill 2004 - Key Aspects of Pensions Simplification
In
the previous newsletter (March
2005) we looked at some of the changes to the pensions'
legislation which will take effect from 6 April 2006, "A-day".
In this edition we will discuss further changes and review
the planning opportunities open to individuals, pension
schemes and employers.
Investments
A
major change after A-day is that all pension schemes will
be able to invest in all types of assets, including residential
property. Any non-commercial use of an asset (for
example, where the member lives rent free in a house owned
by the pension scheme) will be regarded as a benefit in
kind on the member and taxed accordingly.
Holdings
of shares in the sponsoring employer will be restricted
to 5% of the fund value. Loans of up to 50% of the
asset value can be made but only to employers. Investments
made before A-day will not be affected by these changes.
Scheme
borrowing will be restricted to 50% of the scheme's assets,
subject to Department of Work and Pensions requirements
(which may be more restrictive).
What
are the Opportunities?
There
will be a number of opportunities for individuals, pension
schemes and employers to take advantage of both pre and
post the changes in 2006. A few of them are outlined below.
Increased
flexibility regarding annual contributions
Limits
on pension contributions will be greatly increased, allowing
for more flexible tax and retirement planning.
"Exit"
planning
With
no limits on contributions in the year prior to retirement,
the ability of individuals to plan for a tax efficient move
from working life will be greatly enhanced. This will be
of especial interest
to
owners/directors of businesses who view their business as
their pension. They will now be able to receive large capital
sums upon the sale of their business via a tax advantaged
pension and not as a direct payment.
No
requirement for purchasing annuity at age 75
Individuals
will no longer be forced to give up control of their pension
fund at age 75. By using an alternatively secured pension
arrangement they can now retain control to any age they
wish.
"Family"
pension schemes
By
using the new alternatively secured pension option it will
be possible for an individual to draw an income post 75
until they die and for the residual fund to be passed onto
other individuals, i.e. family, to provide them with pension
benefits.
Pension
life cover
Individuals
will be able to put in place pension life cover up to the
value of the lifetime allowance (£1.5M in 2006).
Residential
property purchase
As
part of the relaxation of the allowable investments within
a pension arrangement residential property will be a legitimate
asset. This will allow individuals to purchase "buy to let",
holiday or private residence properties and hold them within
the tax advantaged pensions environment.
The
list of opportunities shown above is far from exhaustive.
The changes in legislation have been aimed at broadening
the appeal of pensions through allowing increased flexibility
in the payment of contributions, the investment of the pension
funds and the way in which benefits are taken. This means
that there are a myriad of positive actions that can be
taken by an individual in respect of their pension provision.
How
can I be certain I am prepared for 2006?
Currently,
to take best advantage of the new legislation in 2006 it
is important that you ensure that the current shape and
composition of your pension provision is correct. The best
way to do this is to undertake a pension review.
The
review will look at all aspects of your pension provisions
and highlight any action that will need to be taken to ensure
that you are not disadvantaged in any way come 2006.
The
above article was supplied by Professional Financial Advisers
Limited who can be contacted by telephoning 01224 587582.
Employer
Supported Childcare
The
Finance Act 2004 made significant changes to the rules on
employer supported childcare costs.
Prior
to 6 April 2005 , if an employer provided childcare vouchers,
the employee was liable for the tax on the cost to the employer
of providing the vouchers. The only good news was the vouchers
were free from both employer's and employee's national insurance
contributions.
There
was also a workplace nursery scheme under which neither
tax nor national insurance was due on the benefit provided
to an employee. However, in order to qualify the employer
had to be involved in the finance and management of the
childcare facility. Unsurprisingly this reduced the attractiveness
of the scheme.
From
6 April 2005 new exemptions were introduced to encourage
an employer to assist employees with childcare costs. Under
the new rules, the first £50 per week of the cost
of contributing towards an employee's childcare costs are
free from both tax and national insurance.
Further,
the exemption is per employee so that a husband and wife
can each receive £50 per week but beware, the exemption
is per parent, so whether there is one child or five children
the exemption remains at £50 per parent.
An
employer can contract with the childcare provider direct
or can provide childcare vouchers to employees for the purpose
of paying an approved childcare provider. Cash payments
to an employee to assist with childcare costs will not be
covered by the exemption, nor will paying an employee's
childcare costs on his/her behalf. So, be careful, the following
conditions must be met in order to qualify for the tax and
national insurance exemptions:
-
The
scheme must be open to all employees.
-
The
child is placed with a registered or approved childcare
provider.
-
The
child is wholly or partly maintained by the employee.
-
The
premises are made available by the employer or the registered/approved
childcare provider.
These
changes provide the opportunity for both employer and employee
to save tax and national insurance by offering a "salary
sacrifice" arrangement. For example, if an employer
pays £50 per week towards an employee's childcare
costs for 52 weeks and, with the agreement of the employee,
reduces the salary by an equivalent amount, then an employee
who is a basic rate taxpayer will save approximately £858
in tax and NIC with the employer saving £333. If the
employee is a higher rate taxpayer the potential saving
in tax and NIC is £1,066.
A
salary sacrifice involves an alteration of the employee's
work contract, and the employee needs to carefully consider
the effect this will have on:
-
His/her
future right to the original higher cash salary.
-
Any
contributions to pension schemes.
-
Entitlement
to Working Tax Credit or Child Tax Credit.
-
Entitlement
to state pension or other state benefits.
Washing
machine required?
It
could be argued that the perception of the general public
is that money laundering is the province of organised crime
syndicates and terrorist organisations: normally with foreign
accounts. We tend to think that the ordinary person
on the street is unlikely to come into contact with such
people. Indeed most people will admit that they have little
idea what money laundering either is or means. Money laundering
is often viewed as an invisible, victimless crime and these
factors make it difficult for the authorities to tackle
it.
Indeed
it is rumoured that the term "money laundering" stemmed
from mafia ownership of laundromats in the United States
during prohibition. The Mafioso are alleged to have earned
vast amounts of cash from bootlegging, prostitution, gambling,
extortion etc. and they had to integrate these funds into
the economy by pretending they came from a legitimate source.
This was achieved by setting up Laundromat businesses. Remember,
despite allegations of murder and extortion Al Capone was
sent to prison for tax evasion.
Whether
this theory surrounding the origin of the phrase of money
laundering is true, suffice to say that it can be described
as the processing of criminal proceeds through a series
of transactions so that it appears to be legal or clean
at the end of the cycle.
There
are three principal stages to the money laundering cycle:
-
Placement
- The launderer introduces his illegal cash into the
financial system. This could be achieved by breaking
up large amounts of cash into smaller sums and converting
it into other assets such as travellers cheques and
other types of monetary instruments.
-
Layering
- The launderer attempts to conceal the source of the
funds creating a web of financial transactions in order
to hide the audit trail. Layering can involve moving
monies in and out of offshore bank accounts, disguising
cash transfers as payment for goods and services etc
in order to give the impression that the monies originated
from a legitimate source. Such transactions can include
business purchases and sales, heritable property transactions,
over-stating cash sales in appropriate businesses and
transfer pricing.
-
Integration
- The funds re-enter the economy as "clean" money.
Let
us provide you with a fairly straightforward example that
could be happening just round the corner from you as you
read this.
Eric
is a second hand car dealer who buys and sells luxury cars.
His business has been established for ten years and his
business and personal bank accounts are with Safehaven Bank
PLC.
Eric
visits his bank and asks to lodge £100,000 in cash
into an existing offshore personal bank account. He volunteers
that he inherited the money from an aunt who died recently.
The bank clerk is aware that the offshore account offers
a very low rate of interest and suggests that Eric deposits
the sum in a new high interest savings account within the
branch. Eric insists that he wants the cash to be deposited
in the offshore bank account. The clerk appears to comply
with Eric's instructions.
Immediately
after Eric leaves the bank, the cashier files a report with
the bank's money laundering regulation officer "MLRO". The
report indicates that the clerk feels that a cash deposit
of £100,000 is unusually high and that it is unlikely
that an inheritance would take the form of a cash sum. Additionally
the clerk was suspicious of the low interest rate which
was accepted by Eric.
The
MLRO decides to report the transaction to the National Criminal
Intelligence Office "NCIS" and seeks permission for the
bank to process the transaction. NCIS respond and give their
consent to the funds transfer. Eric is unaware of the fact
that the transaction has been reported to NCIS.
NCIS
forward a summary of the report to HM Revenue & Customs
who examine Eric's tax returns for the past two years and
discover there is no declaration of any interest from offshore
bank accounts.
Thus,
Eric thinks that he is laundering cash through a bank account
but is unaware that the system permits the authorities to
be advised of the transaction and proceed accordingly. Eric
will know nothing about this until he receives an innocuous
letter from HM Revenue & Customs seeking clarification
of his tax return.
Marathon
Man
Meston Reid & Co partners and staff offered moral (and
financial) support to marathon man Will Plumley as he accepted
The Loch Ness Monster marathon challenge. Will, who works
with Meston Reid & Co's tax department, ran the marathon
a few weeks ago and expressed his delight at the £500
sponsorship money raised which is being donated to Arthritis
Research Campaign.
Will
says "As I dug into my soup at the pre-race soup and pasta
party, a fellow competitor quipped: "after aw the
months o' training, I hope I'm no' undone by a bowl o' cock-a-leekie".
I
did not see him at the finish but assume he crossed the
line.
On
2 October 2005 I ran 26.2 miles from the southern end of
Loch Ness to Inverness city centre, and have the medal to
prove it. Having just missed out on a podium finish (I came
in 950 th , just five places behind the man running in a
yellow chicken suit) I was exhausted. However the race was
not about beating a chicken to the finish , although that
would have been something, but was about pushing myself
to the limit."
Meston
Reid & Co Strengthens Tax Department
Meston
Reid & Co is delighted to announce the appointment
of Alasdair Imray as tax partner. Prior to his appointment
with Meston Reid & Co Alasdair had, for many years,
been a tax partner with an international firm of chartered
accountants. Alasdair has over twenty years experience
providing tax specialist advice to a diverse range of
business sectors.
We
are also pleased to announce the appointment of Ken Moody
as tax manager. Ken became a member of the Institute of
Taxation in 1976 and has, for many years, been advising
both individuals and businesses on a broad range of tax
issues. Ken is also a regular contributor on tax matters
to the professional press.
Alasdair
Imray
Ken
Moody
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