View more on these topics

Termination of endearment

Last week, I started to consider the theme of refining one&#39s business offering to reflect actual and anticipated needs in these relatively hard times.

Of course, at any time, it is essential that an adviser properly segments his or her marketplace and builds, communicates and delivers propositions that are relevant to that client or client segment.

When looking at an individual client, the service will in effect be bespoke or at least partially bespoke where a generally used solution is refined to meet the particular needs of the client. In the case of client segments, the adviser can use his or her skills of mass customisation. This is a term I have used before although, sadly, cannot claim responsibility for – that honour, I think, goes to the authors of the excellent Funky Business. It means that the adviser can build a solution that is, in effect, a one-to-one solution in respect of the receiver of the service but is actually received by everyone (or many) in that client segment.

Last week, I looked at investment business and considered how, for the increasing community of investors who are choosing to invest cautiously, the relevance of good tax structuring in connection with the investment wrapper can make a serious improvement to the bottom line.

It may that the reduced amount paid out in tax becomes the new investment return. After all, an extra £1 is an extra £1 whether it comes from performance or saving. Agreed?

Anyway, for those advising business owners or employees, the unfortunate issue of redundancy stands a reasonable chance of coming up in the current climate. As I have always said, the adviser who can at least have the conversation will be better placed to create or enhance a relationship and thereby, directly or indirectly, do more business than one who is not.

If the relationship in question is with another professional, for example, an accountant or solicitor, then having relevant knowledge is a real differentiator. Consequently, investing time in acquiring and maintaining this knowledge is, I believe, highly worthwhile.

There is little doubt in my mind that those advisers with the greatest store of relevant intellectual capital (RIC) – you heard it first here, folks – which is used to communicate effectively with existing and potential clients, will be the advisers who win.

So, where was I? Oh yes, redundancy. Building RIC here depends on having a firm foundation in the basic tax rules on termination payments.

Section 19 Income and Corporation Taxes Act 1988 is the basic provision under Schedule E that provides for charging income tax on emoluments in respect of any office or employment provided that the income falls within one of the three cases of Schedule E.

In determining the tax treatment of a termination payment received by a director or employee, it is first necessary to establish whether such payment is taxable under section 19. If a payment made on termination of employment falls within the basic charging provisions of section 19, then the special provisions, reliefs and exemptions for termination payments will not be available.

Section 148 ICTA 1988, on the other hand, operates in a stand-alone way to tax under Schedule E (but not under any of the three cases of Schedule E) any “payments and other benefits not otherwise chargeable to tax which are received in connection with (a) the termination of a person&#39s employment or (b) any change in the duties of or emoluments from a person&#39s employment” if, and to the extent that, the aggregate amount of such payments exceeds £30,000.

This provision was originally introduced in 1961, by which time it had become apparent that it was possible to avoid any charge to tax if it were possible to avoid the general Schedule E charge. Section 148 was amended by the Finance Act 1998 in relation to payments or other benefits received on or after April 6, 1998, except where the payment or other benefit, or right to receive it, has already been brought into charge before that date. The new rules affect all payments and receipts made on or after April 6, 1998 unless there has been a previous charge to tax on them.

There are exemptions and reliefs that apply specifically to payments that fall under section 148 ICTA 1988. However, it is still necessary to ascertain that a payment is not taxed under the general provisions of Schedule E if it is desired to access the exemptions and reliefs in section 148.

Schedule 11 ICTA 1988 supplements the provisions of section 148, detailing the payments to which section 148 applies and also those that are excluded from the provisions.

Modern termination packages often include provision for non-cash benefits to continue after termination. Under the previous legislation (sections 148 and 188 and Schedule 11 ICTA 1988 prior to the Finance Act 1998 changes), such an approach could generate administrative burdens for employers. Under the old rules, everything chargeable under section 148 was assessed in the year of termination.

Under the Finance Act 1998 rules, payments and benefits are assessed in the year they are received. A cash benefit is received when:

•Payment is made of or on account of the benefit or

•The recipient becomes entitled to require payment of or on account of the benefit.

A non-cash benefit is received when:

•It is used or enjoyed.

Next week, I will continue this look at redundancy payments with particular focus on the exemptions from tax. I bet you can&#39t wait.

Recommended

Banks face FSA probe as Bond investors lose cash

Major banks such as Lloyds TSB look set to bear the brunt of FSA action over structured products after the regulator admitted that high-street retailers rather than IFAs may be guilty of misselling.The FSA is investigating sales of index-linked bonds amid fears that thousands of products maturing this year will fail to return capital to […]

Second time around for Britannia International

Britannia International has unveiled the second issue of the split deposit bond, a combination of a high interest account and a guaranteed equity bond.The product is available to new investors with at least £10,000, while the minimum amount for existing customers is £5,000.The high-interest account element pays 5 per cent gross for three years and […]

Correspondent&#39s week

There is a tangible air of anticipation and excitement in the SimplyBiz offices – particularly surrounding those who are lucky enough be heading off for the first SimplyBiz seminars to be held in the South.For those of you who do not know, the SimplyBiz offices are in the heart of Huddersfield and we do not […]

Multi-ties could come in by end of the year

Multi-ties could exist as soon as the end of the year as the FSA estimates the final rules for depolarisation will be in place by the fourth quarter.Their implementation comes sooner than expected as, following the publication of CP121 last January, it was estimated that depolarisation would not occur until at least mid-2004.The FSA says […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com