Most of the clients John Davies Financial Consultancy deal with have a business as their life blood - this fuels the other aspects of their lives and with their busy lives, many do not consider what might happen if:
Their business partner was to pass away or become ill?
Their business manager was to become ill? How would that affect the business profits?
John Davies Financial Consultancy encourages all of its clients to look at what their position would be if any of these were to occur and consider a solution.
Call us on 01752 896943 - we understand businesses, the challenges and how to ensure you're covered.
This is designed to protect the business against financial loss in the event of the death, terminal or critical illness (if requested) of a company director or partner. The death or a diagnosis of a terminal or critical illness of a key person can have a devastating effect on a business as well as personal life. A company may have to employ and train another member of staff to take over the running of that part of the business and profits and sales could reduce, with a knock on effect of other staff having larger workloads.
It is basically a life assurance on a key member of staff. During the term of the plan, if the person insured dies or is diagnosed with a terminal or critical illness (if included), it will pay the sum assured to the employer. The plan is owned and the premiums are paid by the employer. The premiums are a deductible business expense and can be offset against profits made to reduce a tax bill. If the company wanted to pay this lump sum direct to the employee, the employee would pay income tax on the proceeds.
Key man insurance can also be on an income protection basis.
The policy is owned by the company and could be open to creditors. If the key person leaves the company, you might still have to pay the premiums. There isn’t a benefit to the key employee and if leave the company the policy can be cancelled.
This type of insurance is designed to cover the lives of business owners or directors of a company. If a business partner or director dies or is diagnosed with a terminal or critical illness (if requested) during the term of the plan, the sum assured will be paid to the remaining business partners or directors. If a plan is not in place, the partner or directors shares normally go to their family and they could sell those shares to someone else outside of the business. This type insurance allows the remaining directors or partners to keep 100% control of the business.
Mr Smith and Mr Jones are equal shareholders in a company and the company is worth £100,000. If either one of them were to pass away or be diagnosed with a terminal or critical illness (if requested), and a claim was made to the insurance company, their share would pass to their spouses.
If the company had invested in a Share Business Protection policy with a sum assured of £50,000, if one of them were to pass away or be diagnosed with a terminal or critical illness (if requested) the life assurance policy would pay £50,000 to the remaining business partners by way of a trust. This would allow the remaining partner or director to use the money to buy the shares from the family thus owning 100% of the company and keeping full control.
There are many ways this can be achieved depending on how your business is structured, whether it is a Limited company, LLP or a Partnership.
Life cover might be difficult to obtain for some shareholders, due to health, age etc. It might not be easy to value the company and you could be under insured, once a claim is made, as a result.
Call or email John Davies and his team today to find out more - 01752 896943
Auto enrolment could potentially have huge implications on a business in the coming years even if your business is still 3 years away from setting up such a scheme. The implications of paying pension contributions for your employees needs to be considered well in advance of your staging date, not when the time comes for you to enrol your employees.
If a business employs 20 staff and each member of staff earns £20,000 per annum, the cost to the business could be approximately an additional £6,000 per year, (3% of each employee’s earnings per year). This is a large amount to of money to find and with poor planning could be difficult to achieve. You may need to increase the cost of your products or services and this may be difficult to do in one year but, with good planning this could be achieved by gradually increasing the prices in the 3 years leading up to auto enrolment.
Employers have 3 months from their staging date in order to enrol their staff into their Qualifying Work Place Pension Scheme (QWPS). Auto enrolment will take place every 3 years even if employees have opted out.
Below shows the process and timescales we would expect a company to go through.
If you meet all of the eligible criteria, you will be advised on how much you will need to contribute. This amount will be taken from your earnings and may just show you the amount as a percentage of your earnings. The table below shows the minimum contributions required and the tax relief on the employees’ contribution.
|Staging Dates||Total Required||Employer||Employee||Tax Relief|
October 2012 – September 2017
October 2017 – September 2018
October 2018 - onwards
This is the new Government sponsored pension scheme option available to all employers. NEST could be the fall back position they have to take all employees and all schemes. The advantage of using NEST is low charges and as it is government backed it will never fail.
If a business has an existing group/stakeholder pension scheme, they will be allowed to continue but they will need Qualifying Work Place Pension Scheme status (QWPS). The employer will need to self-certify its qualifying or QWPS status with the Pensions Regulator. Existing group/stakeholder plans will not need to be stopped or paid-up in order for contributions to be paid in to NEST, as long as they have the QWPS status.
If an employee chooses to fund their pension contributions in the form of salary sacrifice then this improves their pension contribution and saves the company tax and National Insurance
See table below.
|Without Salary Sacrifice||With Salary Sacrifice|
|Salary per month||£2,000||£1,782.61|
|Income Tax Payable||£309.50||£266.02|
|Gross Pension Contribution||£187.50||£245.22|
|Increase in pension contribution||30.78% or £57.72|
Even if you started a salary sacrifice scheme today it could be withdrawn at any stage and the tax and NI advantages removed by HMRC.
The Financial Conduct Authority do not regulate auto enrolment and NEST.
John Davies and his team are experts with pensions advice. Click here to email them