ER Grove are warning about higher penalties for late filed company accounts and new penalties for failing to pay the National Minimum Wage:
Anyone running a company needs to be aware that the penalties for not filing the Statutory Accounts at Companies House on time have increased significantly. Private company and LLP accounts filed up to a month late will now attract a penalty of £150; this rises to £375 for accounts filed up to three months late; to £750 for accounts filed up to six months late; and to an enormous £1,500 for accounts filed more than six months late. Please forgive us when we chase you about your accounts, but the fines are now so big it really is important to keep up-to-date!
Penalties for public companies are: £750 up to one month; £1,500 up to three months; £3,000 up to six months; and £7,500 more than six months.
From 6 April 2009, failure to pay the NMW will result in an automatic penalty of up to £5,000.
Secondly, all employers should note that penalties will now be charged wherever an inspector discovers that employees have been paid less than the minimum wage (hitherto, penalties have only been charged when an employer failed to comply with an enforcement notice, issued after an underpayment was discovered). The penalty is calculated as half the underpayment identified, subject to a minimum penalty of £100 and a maximum of £5,000. There is a 50% reduction if both the arrears of wages and the penalty are paid within 14 days. The penalty will not be a deductible expense for tax purposes. Also, arrears of wages are now to be calculated at current NMW rates, not (as hitherto) at the rates in force when the work was done.
Note that the rule that arrears must be calculated at current NMW rates applies to all calculations made on or after 6 April 2009, even if they relate to a period before that date. However, only arrears arising in pay reference periods beginning on or after 6 April 2009 will be taken into account when determining the penalty payable. Further details can be found on the National Minimum Wage pages of the BERR website.
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Running a business is a full-time job, so it’s not surprising that many owners and managers are often too busy to think about the bigger picture.
But if you want to maximise your business’s potential for success, you need a clear idea of where you are going and how to get there.
That’s where business strategy comes in - to define your goals, your game plan and the funding, management tools and work practices that you will need achieve your objectives.
It’s tough to do it alone but taking independent, professional advice can help you to look at your business with fresh eyes and develop a strategy that gives you a focus for the future and bring about changes to benefit you and your organisation.
Your strategy now will focus on dealing with difficult trading conditions but you also need to have plans in place to help you take advantage of a future upturn.
You will probably need other strategies at other stages in the life of your business, to help you diversify or expand, for example, to maintain a position you’ve worked hard to achieve or to make sure you receive the maximum benefit in a management buy-out or disposal of a business.
Regularly reviewing your business strategy – whether monthly, quarterly or to look at a specific issue – is a wise move, to help you stay on track to achieve what you want and to measure your progress against your targets.
As your business develops, it may also open up new opportunities, so your business strategy needs to reflect this new direction.
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With more and more business feeling the pinch in the current economic climate, should you consider charge interest on late payments?
In reality, each debt needs to be considered on a case-by-case basis depending on your relationship with the customer. You should obtain the opinions of customer-facing staff and assess your credit management system.
With persistent offenders, you may need to start charging interest to act as a deterrent. So how can you claim interest?
First of all, your right to charge interest on late payments and claim compensation for debt recovery costs should be written into your terms and conditions, along with the rate of interest to be claimed. This gives you the contractual right to claim interest at the specified rate.
Even if this is not written into your terms and conditions, you still have a statutory right to claim interest under The Late Payment of Commercial Debts (Interest) Act 1998. The interest is calculated using reference rates, based on the Bank of England base rate, which are fixed for six-month periods. Currently you can charge interest at 8 percent above the base rate.
If the late payer still fails to pay their debts, you can sue not only on the principal debt, but also on the interest claimed. The present court rate is 8 percent and will run from the date that the debt was due until judgment or the debt is paid.
If you don’t already charge interest, you should consider amending your invoices and terms and conditions so they state that you reserve the right to charge interest - even if you don’t always intend to use it. You should then notify customers to check they understand the new terms and conditions, and make any necessary amendments to your credit management and billing systems.
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In his celebrated Dictionary of the English Language, Dr Johnson defined a pension as: ‘An allowance made to any one without an equivalent. In England it is generally understood to mean pay given to a state hireling for treason to his country.’ Ironically, the great lexicographer was himself later rescued from penury by a pension awarded by King George III.
Two hundred and fifty years later, pensions are still a contentious topic, but whereas in Dr Johnson’s time they were a matter of Royal grace and favour, today they are the subject of the most complex and convoluted legislation. Most recently, the Pension Acts of 2007 and 2008 have been enacted, and there has been a plethora of announcements from Government Departments. The information overload has left most people in a state of total confusion, and so we try to attempt to explain the current position in the following words:
So many changes have been made to the law governing pensions recently that it is hard to keep abreast of what is happening. As they will affect everybody, and as some people will have the opportunity of significantly improving their National Insurance Retirement Pension for relatively little outlay, we thought it was worth outlining the position for clients below.
National Insurance pension deferred
The first change – equalisation of State Pension age for men and women at 65 – was in fact announced as long ago as 1993, but implementation is finally in sight:
Between April 2010 and April 2020, State Pension age for women (the age at which a woman can begin to draw her National Insurance Retirement Pension) will rise gradually until it equals that for men. Roughly speaking, for women born on or after 6 April 1950, State Pension age will be deferred by one month for every two months their 60th birthday falls after 5 April 2010 (for anyone wishing to know the exact date, there is a State Pension Age Calculator at www.thepensionservice.gov.uk – type in your date of birth and the Calculator will tell you the date you become entitled to a pension). At the end of the phasing-in period, a woman born on 6 April 1955 will attain State Pension age on 6 April 2020 – her 65th birthday.
Unfortunately, that will not be the end of the story, as between 2024 and 2046, State Pension age will increase from 65 to 68, for both men and women. This will affect people born on or after 6 April 1959.
The detailed proposal is to phase in an increase in State Pension age from 65 to 66 over two years from April 2024; then from 66 to 67 over two years from April 2034; and finally from 67 to 68 over two years from April 2044.
Reduced contribution requirement for a full pension
Most people seem to be aware that a full pension can now be earned on 30 years’ contributions, but it seems as well to spell out the detail of the change. Be warned that some ladies born shortly before 6 April 1950 feel quite cheated by the cliff edge introduction of the new 30 year rule!
Hitherto, it has been necessary for a man to pay (or to be credited with) National Insurance contributions for 44 tax years in order to qualify for a full National Insurance Retirement Pension (£95.25 a week for 2009/10) and for a woman to have paid or been credited with contributions for 39 years. However, for all those attaining State Pension age on or after 6 April 2010 (that is, men born on or after 6 April 1945 and women born on or after 6 April 1950), the contribution requirement was recently reduced to 30 years.
Anyone who has not yet paid sufficient contributions to gain entitlement to a full Retirement Pension, and who is unlikely to do so over the remainder of their working life, should consider the possibility of paying voluntary contributions to buy ‘added years’. The purchase of ‘added years’ in the National Insurance scheme has always offered good value for money, and even more so now, when the returns earned on other investments are likely to be very low. Also, of course, the National Insurance scheme is guaranteed by the Government.
The rules governing entitlement to pay voluntary contributions are complex in the extreme – in some cases, for example, it is possible for further contributions to be paid by people who have already retired and begun to draw their pensions. Accordingly, it is impossible to provide a simple guide and so we would invite clients to contact us for individual advice.
Basically, most people can pay voluntary contributions for the past six years (that is to say, 2003/04 to 2008/09).
Class 3 contributions for 2007/08 and 2008/09 may be paid at the rates for those years; contributions for earlier years must usually be paid at the current (2009/10) rate of £12.95 a week.
However, Class 3 contributions cannot be paid for a year throughout which a married woman or widow had elected to pay a reduced contribution, nor for the year in which the contributor reached State Pension age (or any later year). On the other hand, a person now over State Pension age may still pay contributions for years before he or she attained that age.
In a number of cases, the time limits are extended and/or contributors are allowed to pay contributions at the rates applicable to the years for which they are paid – these are explained in an article which appeared in Small Business Tax & Finance, February 2009, page 96. They are essentially designed to compensate contributors for errors and failings in the official recording of National Insurance contributions.
HMRC’s notes on paying voluntary National Insurance contributions are posted at www.hmrc.gov.uk/nic/class3.htm.
Finally, the Pensions Act 2008 allows some contributors to pay Class 3 contributions for up to six years, for any years since 1975/76. Such contributions must be paid at the current year rate (£12.95 for contributions paid in 2009/10). The qualifying conditions are set out in section 135 of the Act (section 136 for Northern Ireland) and are quite complex. The contributor must be eligible to pay contributions for the relevant year, except for the fact that the usual six year time limit has expired. This means, for example, that contributions still cannot be paid for a year for which a married woman’s election was in place. Other than that, the main requirements are that the contributor attained or will attain State Pension age between 6 April 2008 and 5 April 2015 and that he or she will, before paying contributions for any of the six additional years, already have 20 ‘qualifying years’ (years for which he or she has paid, or been credited with, contributions, or for which he or she is entitled to Home Responsibilities Protection).
New rules for the State Second Pension
Since 1961, there have been schemes to provide employees with an earnings-related ‘top-up’ to their National Insurance Retirement Pension. First there were Graduated Contributions, which from 1978 were replaced by the State Earnings-Related Pension Scheme (SERPS). Then from April 2002, SERPS was in turn replaced by the State Second Pension, also referred to as ‘S2P’ or the ‘Additional State Pension’ – the terms are interchangeable.
At present, an individual’s eventual S2P entitlement is built up from contributions based on his earnings. Until 5 April 2009, the definition of ‘earnings’ for this purpose was capped at the Upper Earnings Limit (UEL) for employees’ National Insurance contributions purposes, but from 6 April 2009 it will be capped at a new ‘Upper Accrual Point’ (UAP). For 2009/10, the UAP is £770 a week and the UEL £844, so that on the band of earnings between the two, the employee will be paying additional contributions which buy no additional benefit. The UAP will remain £770 in future years, so that (with inflation) the ceiling on earnings taken into account for S2P purposes is expected to fall, over time, in real terms.
It should also be noted that, where an employee is contractedout, he or she will be paying standard (11%) National Insurance contributions on earnings between the UAP and UEL (and the employer will be paying standard 12.8% contributions on all earnings above the UAP).
On 6 April 2012 (the date has not yet been finally confirmed), another change to the rules will take effect. Further accrual to S2P will no longer be entirely incomerelated: a ‘floor’ will be set so that those on lower earnings will build up an additional pension of at least £1.60 a week for every year (from 2012/13) they are in employment, or entitled to National Insurance credits as a carer, or are seriously ill or disabled. The other side of the coin is that from April 2010 the rate at which earnings-related contributions earn additional pension above the ‘floor’ will be reduced in stages. The overall effect of this, taken with the ‘freezing’ of the Upper Accrual Point already mentioned, is that from around 2030 the additional pension will accrue at a flat rate each year, irrespective of the individual’s earnings.
Accordingly, the simple effect of a highly complicated series of changes is that, over a very long period, the earnings-related pension is to be abolished altogether, though the basic pension will be increased. But by 2030 the rules will no doubt have been changed all over again...
Administratively, for those individuals with a State Pension age falling on or after 6 April 2020, the Department for Work and Pensions intends to ‘consolidate’ the pensions earned up to 5 April 2012 under the three earnings-related schemes (Graduated Contributions, SERPS and S2P) into a single amount, which will thereafter be increased annually in line with average earnings until retirement and afterwards in line with inflation. The reason given is that this will make pension statements easier to understand. Where the individual has been contracted-out at any time, the appropriate adjustment will be made to his or her consolidated pension.
From 2012/13, it will no longer be possible to contract out of S2P via a defined contribution pension scheme. Thus it will no longer be possible to contract out through a personal pension scheme, or a money purchase scheme sponsored by an employer (the present ‘contracted-out money purchase scheme’ or COMP).
Guaranteed Minimum Pensions (GMPs)
One rather technical point, which may arise when discussing the papers a client has received from his occupational pension scheme, is that, from 6 April 2009, it will be possible for a contracted-out scheme to convert accrued Guaranteed Minimum Pension (GMP) rights into ordinary scheme benefits.
Any decision to convert will be taken by the scheme trustees and sponsoring employer, though there should be prior consultation with scheme members. The conversion must produce defined benefits actuarially equivalent to the accrued GMP and, where a pension is already in payment, it cannot be reduced.
A separate point on GMPs is that the GMP will remain payable at age 60 for a woman and 65 for a man, even once the higher State Pension age begins to be phased in. Unfortunately, owing to a computer programming error, some statements issued by HMRC have been prepared on the basis that GMP will not become payable until State Pension age. HMRC say that ‘the problem is being addressed’.
Pension plans for all employees
Government policy is founded on a desire to transfer pension provision from the public to the private sector, and one stratagem used is to encourage even quite low paid employees to contribute to pension plans. However, relatively few employees have chosen to join the ‘workplace personal pension schemes’ introduced in 2001 and so the latest idea is that all employees should automatically be enrolled in a scheme and that, as a douceur, their employers should be required to contribute. The ‘Minister for Pensions and Ageing Society’, Rosie Winterton, is quoted in a Department for Work and Pensions Press Release as saying that: ‘With individuals’ minimum contributions matched £ for £ under the new reforms by the employer and tax relief, plus years of investment growth, these measures provide a strong incentive to save.’ Ah yes, poor Investment Growth, we remember him well.
Since October 2001, employers have been obliged to offer their employees the opportunity to join a ‘workplace personal pension scheme’, unless the employer has less than five employees or offers an alternative company pension scheme. However, less than 40% of eligible employees have chosen to avail themselves of this opportunity and many small employers have found that no-one wanted to join the pension schemes they had been obliged to set up.
The Government is keen to encourage employees to join private pension schemes (because the alternative is that they will be claiming Social Security benefits when they retire) and so, from 2012, will require employers to enrol all employees (between age 22 and State Pension age) in a pension scheme, to which the employee will contribute at least 4% of his earnings between £5,035 and £33,540 a year (to be uprated annually) and the employer a sum equal to at least 3% of those earnings. For both employers and employees, minimum contributions will be phased in over three years.
These contributions will be payable on the employee’s full earnings (including overtime, commission payments, etc – and even Statutory Maternity Pay) not, as is usually the case with pension contributions, only on his or her basic pay. The Government will ‘contribute’ 1% (in the form of the usual tax relief on the employee’s contribution) and the pitch will be that the employee ‘gets £8 for £4’.
There will be no minimum length of service to qualify for membership of the pension scheme, and part-time and temporary employees will be entitled to join on the same basis as permanent staff. However, employees will be entitled to opt out if they wish. They would not then pay contributions themselves, but would lose the benefit of contributions paid by their employer.
Even employers with existing pension schemes may have to reconsider their arrangements before 2012, as membership may have to be opened to individuals currently excluded, and the definition of earnings for contributions purposes may have to be extended.
The intention is for ‘auto-enrolment’ to be into the employer’s pension scheme (if there is one) or, failing that, ‘a new savings vehicle currently known as a personal account scheme’. This will be a money purchase occupational pension scheme.
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