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My PFS Technical news 04/12/2017

Personal Finance Society news update from the 21st November to 4th December 2017.

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Taxation and trusts

Investments planning

Pensions

TAXATION AND TRUSTS

Finance Bill 2017-18

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8)

Finance Bill 2017-18 was published on 1 December 2017.

Explanatory notes and guidance to Finance Bill 2017-18 can be found here.

Further supporting documents, including tax information and impact notes, can be found on the Autumn Budget 2017: tax related documents page.

A legacy to a Jersey charity is taxable in the UK

By way of background, in the case in question, Routier -v- HMRC [2017] EWCA Civ 1584, Beryl Coulter died in 2007 domiciled in Jersey. Her estate included £1.8 million of assets located in the UK. These assets were part of her residuary estate, which she left in trust to build homes for elderly residents of the parish of St Ouen in Jersey or, in default, to fund a charity, Jersey Hospice Care.

On her death her executors claimed charitable relief from UK IHT as set out in section 23 of the Inheritance Tax Act 1984 (IHTA 1984). Section 23 broadly states that property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only. The definition of charity in Finance Act 2010 Schedule 6 Part 1 includes the condition that charities must be subject to the jurisdiction of a UK court or that of another EU member state.

However, HMRC refused the relief on the basis that this did not apply to gifts made outside the UK even though it accepted that the Coulter Trust has only charitable purposes as a matter of English law.

Mrs Coulter's executors challenged HMRC's decision in 2014, but having lost in the England & Wales High Court they then took the case to the Court of Appeal in 2016.

The denial of relief in this case derived from a 1956 House of Lords ruling in the case of Camille and Henry Dreyfus Foundation Inc v IRC [1956] AC 39. This judgment affirmed that the phrase 'trust established for charitable purposes only', as used in the Income Tax Act 1918, contained an implicit limitation such that trusts only qualify if they are governed by the law of some part of the UK. HMRC interpreted this as meaning that the Coulter Trust was not a charity within the meaning of the relevant law and thus the bequest was not eligible for charitable relief from UK IHT.

The Court of Appeal found that the 60-year old Dreyfus judgment was correct and that the High Court judge in the earlier Coulter hearing, Mrs Justice Rose, had been right to note a discrepancy in requiring a court to ascertain whether the purposes of a body governed by foreign law were charitable purposes as a matter of UK law.

However, the executors also argued that HMRC’s interpretation of section 23 would constitute an unlawful restriction on the free movement of capital between the EU member states and third countries under Article 63 of the EU treaties under which Jersey is a third country, but HMRC also rejected this argument.

As neither the executors nor HMRC presented enough detail regarding the Article 63 argument to enable the Court of Appeal to decide, the appeal was dismissed and the court ordered the parties to return after they had prepared full arguments on this ground.

The case was reheard in June 2017 and it was found that Jersey is not part of the UK for the purposes of EU freedoms and HMRC is entitled to refuse to grant relief on gifts to non-UK charities unless there is a mutual agreement between the UK and the country in which the charity is based. There was no such agreement with Jersey at the time of Mrs Coulter’s death so the appeal was dismissed. The charitable trust did not therefore meet the requirements of section 23 IHTA 1984 or Schedule 6 Part 1 Finance Act 2010 so relief from IHT was not available in this particular case.

The outcome of this case is interesting as it provides some guidance to those who are planning to leave assets to non-UK charities.

Bank interest feeds HMRC calculations

(AF4, FA7, LP2, RO2)

We commented recently on HMRC’s ending of the tax return for many by the introduction of Simple Assessment from September.

HMRC has now confirmed to the ICAEW that the system has gone live, following earlier notification of the first round of taxpayers brought within Simple Assessment. One key aspect of the process is that HMRC will be using 2016/17 banks and building societies savings interest (BBSI) data it receives to populate tax calculations and PAYE codes. Only data from sole accounts will be used, not joint accounts.

While using 2016/17 interest information in tax calculations (P800s and PA302 Simple Assessments) for that tax year is straightforward enough, using the same information for estimated interest in 2017/18 tax codes could create problems. These could include cases where:

  • Interest accumulated over several years and is paid as a final maturity sum in 2016/17, eg on structured deposits.
  • Where a fixed term product maturing in 2016/17 is reinvested at a much lower interest rate.
  • Where a savings product had a step-up pattern of interest payments which ended in 2016/17 with the highest yearly payment.

The use of historic data in current year PAYE codes is understandable, but it does once again underline the importance of not accepting any PAYE code at face value.

The fact that HMRC is using only sole account data could trip up many people who assume HMRC has used all the data automatically supplied to it in calculating Simple Assessment numbers. Remember, there is only 60 days in which to contact HMRC about errors in the calculation.

The penalty for not declaring a scheme under DOTAS

(AF1, RO3)

Under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, promoters of tax avoidance schemes are required to disclose a scheme to HMRC if the scheme contains certain hallmarks of tax avoidance.  Of course, even if the scheme has been notified under DOTAS, it does not signify that it has been approved by HMRC. However, failure to notify is punishable with a penalty.

The scheme in question, known as Alchemy, had been marketed by Root2 and it was a form of employment benefit trust in which owners of small businesses took their profits as tax free winnings from betting on the stock market rather than taxable employment income.  HMRC brought the case against Root2 in the First-tier Tax Tribunal which duly agreed with them that the promoter did not abide by the DOTAS rules.  Root2’s argument that the scheme was not reportable was rejected.  The company is now subject to an accelerated payment notice and HMRC claims that it could lead to recovery of about £110 million.

This is the first case ever brought by HMRC under the DOTAS rules but probably not the last one.  The case reference is Root2Tax and Root3Tax limited (in liquidation), 2017 UKFTT 0696.

Autumn Budget 2017 – what does it mean for inheritance tax and trusts?

(AF1, RO3)

While there were no surprise announcements in relation to any inheritance tax changes, the Budget figures show revenue from inheritance tax has hit £5.1 billion between May 2016 and May 2017.

This alone shows that as the nil rate band has not increased since 2009/10 more estates are being brought into the inheritance tax net and, as a result, there is likely to be more of a need to carry out some planning in this area. Clients should be reminded to make use of the various exemptions which are available to them as well as being reminded of the various other options that are available to help mitigate inheritance tax.

There are numerous strategies available to fit clients' overall circumstances and objectives. For example, in cases where clients may not wish to make gifts, they could consider alternative options, like loan trusts, which effectively ‘freeze’ the liability, or discounted gifts trusts. Investing in assets which qualify for business property relief after a two year holding period could also be considered depending on the clients’ attitude to risk. And, in cases where an inheritance may have been received, consideration should be given to executing a deed of variation, within the two year period, as this provides an immediate inheritance tax saving.

There is more information on Techlink in the Taxation section regarding inheritance tax planning in general.

The government also published some research it had commissioned to understand the motivations, behaviours, attitudes and underlying decisions made by individuals on inheritance tax matters and the use of reliefs and exemptions in that process.

Specifically, the objectives were:

  1. To understand the decisions made by testators with agricultural or business assets when planning what to do with their estate
  2. The influence of IHT reliefs on these decisions
  3. What beneficiaries do, or intend to do with inherited assets.

A total of 80 interviews were conducted among testators and beneficiaries who owned business assets and agents (for example, solicitors, accountants and tax advisers) who advise on business property relief and agricultural property relief.

The qualitative nature of the research means that findings in this report are not statistically representative of the wider population. Nevertheless, it was interesting to see that many individuals said they only knew a little about inheritance tax so were aware of the basic principles but very few were aware of business property relief or agricultural property relief.

It will be interesting to see what the government intends to do, if anything, with the findings of this research.

Finally, the government also announced that a consultation would be published in 2018 on how to make the taxation of trusts simpler, fairer and more transparent. However, we know that this isn’t the first time that the government has looked to simplify the inheritance tax treatment of trusts as, dating back to 2013, an initial consultation was launched followed by two more consultations in 2014 and 2015. Various proposals were considered. However, it soon became evident that simplification would come at a cost. It will nonetheless be interesting to see what the 2018 consultation has to offer.

Autumn Budget 2017 – what does it mean for shareholder directors?

(AF2, JO3)

The Autumn Budget did not involve any surprise announcements affecting shareholder directors. Nevertheless, this may be a good time to consider some planning options as we discuss below.

Leaving funds in the business

For those business owners who have sufficient ‘spendable’ income, the most effective way to limit their overall tax bill is to choose to leave profits in the company rather than draw either a dividend or salary. With the top rate of income tax currently at 45%, there is an obvious argument for allowing profits to stay within the company, where the maximum tax rate (for the Financial Years beginning 1 April 2017 and 2018) will be 19% and is scheduled to reduce to 17% in 2020.

The government is aware that the disparity in the rates of corporation tax and income tax gives rise to opportunities for tax reduction and it is material.  This is particularly the case where the director leaves profits in the company, pays a low rate of corporation tax on those profits with the resulting cash then forming an asset of the company.  That cash can potentially then be accessed by the shareholder then liquidating the company and only paying CGT at 10% provided entrepreneurs’ relief is available.   This strategy has tax risks in terms of future changes to the eligibility for CGT entrepreneurs’ relief and inheritance tax business property relief. Also, where a company is liquidated by a shareholder and that shareholder starts up a similar business within 2 years of liquidation (a “phoenix company”), the capital arising on the earlier liquidation can be recategorised as a dividend for tax purposes. 

Money left in the company is also money exposed to the claims of creditors, so professional advice should be sought before turning a business into a money box.  Furthermore, to combat this practice, the government is looking at ways in which they can prevent this practice by imposing higher tax charges in such circumstances.

It is worth noting that excess cash can result in the loss of IHT business relief if the cash is treated as an excepted asset because it has no business purpose.

Payments to a director/shareholder in 2017/18

For those who need to draw funds out of the company, the next issue that will arise is what is the most tax efficient way to withdraw profits – assuming, of course, that the director needs to withdraw the cash.

One planning point that a number of companies operate is short-term loans to director/shareholders. In this respect, the government has made short-term loans from a company to a shareholder less tax attractive by imposing a 32.5% tax charge if those loans are not repaid within 9 months of the end of the accounting period in which the loan is made.  This tax can be reclaimed if and when the loan is repaid.

The more conventional method of drawing profits out of a business is by remuneration or dividends.  The dynamics on whether a director/shareholder should draw remuneration from a company by way of remuneration or dividends has changed over the last couple of years because of the taxation changes on dividends.

To recap, since 2016/17 the tax charge on a dividend for a basic rate taxpayer is 7.5%, 32.5% for a higher rate taxpayer and 38.1% for a 45% taxpayer. 

However, all taxpayers will be entitled to a £5,000 dividend allowance (effectively a £5,000 nil rate band).  This is due to reduce to £2,000 in 2018/19 and so the position will then change again.

Currently, for a higher rate shareholder/director taxpayer who has their full dividend allowance available, drawing dividends will still be more financially attractive than bonuses. 

For those who are looking at remuneration strategies in the run up to the end of the 2017/18 tax year, the best strategy to adopt will obviously depend on all the tax circumstances of the individual or company.  But despite the increased tax rate on dividends in excess of the allowance, dividend payments will mostly remain the more attractive option due to the NIC saving.  Of course, with the reduction in the dividend allowance to £2,000 in 2018/19, the position will need to be reviewed for that tax year.

For example, let’s take the case of Bill who is the controlling shareholder of a private company which has £25,000 of gross profits which he wishes to draw, either as bonus or dividend in 2017/18. Assuming the company pays corporation tax at the rate of 19% and Bill is already a higher/additional rate taxpayer with annual income in excess of £45,000, the choice in 2017/18 can be summarised as follows:

 


Bonus

£

Dividend

£

 

40% tax

45% tax

40% tax

45% tax

Amount available (gross profit)

25,000

25,000

 25,000

 25,000

Corporation tax @ 19%

N/A

N/A

 (4,750)

 (4,750)

Dividend

N/A

N/A

 20,250

 20,250

Employer’s National Insurance Contributions £21,968 @ 13.8%

 

 (3,032)

 

 (3,032)

N/A

N/A

Gross bonus

21,968

  21,968

N/A

N/A

Director’s NICs £21,968@ 2%

 (439)

 (439)

N/A

N/A

Income tax *

 (8,787)

 (9,886)

  (4,956) **

 (5,810) **

Net benefit to director

12,742

 11,643

15,294

14, 440


*          Amount available as a bonus to director is net of employer’s national insurance contributions

**        Assumes full £5,000 dividend allowance is available

Of course, in 2018/19, the dividend allowance will reduce to £2,000 and this means that the net benefit to a director taking a dividend will reduce to £14,319 (40% taxpayer) and £13,297 (45% taxpayer). Therefore the dividend route will still remain preferable but with the net benefit having been somewhat reduced.

Employing the spouse

The Employment Allowance (EA) which increased to £3,000 with effect from 6 April 2016, is not available for employers with only one employee – typically the director/shareholder.  In such cases it may therefore be worth the company employing the spouse.  For 2017/18 it will make little sense for the spouse to be paid more than the primary threshold (£157 a week) because above this level employee’s NIC are payable.  Any gain in net income has to be considered against the hassle of paying (and deducting) NICs.

In 2017/18 the employee will still be liable for NICs once their earnings exceed £157 a week, but the employer’s NIC liability will be removed by the EA until their sole employee earns more than about £29,903 a year.

Where a non-taxpaying spouse can be legitimately employed in a business, income of up to £11,500 can be paid in 2017/18 (£11,850 in 2018/19) without income tax liability. The payment of remuneration should be deductible for the employer provided reasonable services are provided by the employee – the deduction being based on the “wholly and exclusively” principle.  Earnings would need to be restricted to £8,164 to avoid employer and employee NICs. 

Such tax planning must always ensure that the spouse’s level of pay can be justified, i.e. in accordance with the work/role they are due to carry out. An increase from, say, £7,500 a year to £29,903 a year just to utilise the EA could well invite HMRC scrutiny. Where the employed spouse has little other income, an increase to make full use of their personal allowance is clearly now much more attractive.

If the director/shareholder was prepared to transfer shares to a spouse, it may be possible to use the spouse’s £5,000 dividend allowance on any subsequent dividend declaration in 2017/18. However, it is important to note that such a transfer must be outright and unconditional.

Pension Planning      

Pension contributions remain an effective means of reducing tax for the small business.  Last year, provisions were introduced to reduce the Annual Allowance for those with adjusted income (AI) in excess of £150,000 and threshold income in excess of £110,000.  For somebody with AI of £210,000 their annual allowance reduces to the minimum of £10,000.  People caught by this provision should review their level of contributions.  

The carry forward rules allow any unused annual allowance to be carried forward for a maximum of three years. Thus 5 April 2018 is the last opportunity to rescue unused relief from 2014/15. With the introduction of a tapered reduction in the annual allowance for 45% taxpayers from 6 April 2017, there is even more reason for directors/shareholders to consider using the carry forward rules in the run-up to 6 April 2018.

Last Will and testament by text message

(AF1, RO3)

The new consultation on the Review of the Law on Wills and Testamentary Capacity, published by the Law Commission (England and Wales), ended on 10 November 2017 and the Law Commission is currently analysing the responses it has received.

One of the items for consultation was the possibility of using electronic means to make a Will.  At the time of the consultation there were indeed some headlines in the press along the lines of: "What next? A Will by text?" Well, now it has happened, albeit not in this country. An Australian Court recently accepted an unsent draft mobile text message as an official Will. This text message was found on a mobile after a man’s death. The text left all that he owned to his brother and nephew and included detailed bank information as well as instructions for the scattering of his ashes. The message concluded with the words “My Will” but was never sent.

While the law in England and Wales that governs Wills is mainly derived from The Wills Act 1837 and the law of Scotland from The Requirements of Writing (Scotland) Act 1995, the Australian law is actually much more modern, having been changed as recently as 2006 to allow more informal documents to be accepted as Wills.  For example, recently a DVD entitled "My Will" was accepted as a Will, as well as audio recordings and an unsigned electronic word document entitled "Will".  So perhaps the fact that a text message was accepted as a Will in Australia is not at all shocking. Needless to say the man’s widow contested the validity of the Will based on the fact that it had not been sent. However, the Court ruled that the informal nature of the message did not stop it representing the man’s intentions. 

Could this happen in England or Wales?  Well, given the current state of our legislation, the answer to this must be an emphatic no.  What about Scotland?  Actually Scottish Courts have in the past accepted Wills that have not been executed in accordance with the 1995 Act although Court action involving time and money was needed in each such case to achieve the result.  For example, a letter to a deceased's sister sixteen years before her death in which she said “I haven’t made a Will, but everything I have is for Billy” was held to be a valid Will.  In 2012, a signed diary entry in which the deceased had written “please remember… if Anne is still alive, I want her to have my wealthy remains… it is my wish” was also found to be valid.  On the other hand, a document headed “Will” with a list of names and figures signed by the deceased was not found to be a valid Will.

English case law also shows that the Courts may be willing in certain circumstances to exercise a degree of flexibility and give effect to a Will even if the Will isn’t clear. This happened in the recent case of Vucicevic v Aleksic (2017)[EWHC 2335]. In this case Mr Aleksic (the testator), originally from Montenegro, moved to the UK after the second world war and became a British citizen. He died in 2014 aged 91 with no wife, partner or children.  He left a handwritten Will dated 2012 leaving some straightforward pecuniary legacies to his extended family and three properties to the Serbian Orthodox Church and then stated that “all the money which is left” after taxes should also go to the same Church. There was also a provision that one property was not to be sold until 2040.

The value of the estate was about £1.8 million and the question was whether the gift to the Church was in fact an absolute trust or, given the additional words, namely that the testator had "full confidence that the Bishop would ensure that the benefit went to the right place", was it in fact a trust? Readers of Techlink will no doubt be aware that to create a trust there must be clear intention to create a trust.  Much of the argument in the Court was therefore dedicated to the analysis of the wording, in this case having particular regard to the fact that the testator did not speak good English and, needless to say, did not take legal advice in relation to the Will. In this particular case, and based on the facts, the Court decided that the Will created a valid trust rather than an absolute gift.

The examples and case law mentioned above may be a good topic for conversation about Wills and some time may even be found amusing. However, more often than not the problems with DIY Wills cause unnecessary litigation which could result in much of the estate being spent on legal costs.  Even if the case goes to Court, there is no guarantee that the Court will actually give effect to the testator’s wishes.  In short, there is nothing much to be said for DIY Wills. Instead advisers should always recommend professional help in the drafting of a Will, especially where the estate is substantial and/or if any trusts are intended.

INVESTMENT PLANNING

Companies, capital gains and no indexation allowance

(AF4, FA7, LP2, RO2)

Read HMRC’s policy paper “Corporation Tax: the removal of capital gains tax indexation allowance from 1 January 2018” and you might think there is nothing to worry about. Under the standard heading “Impact on individuals, households and families”, the document states:

‘This measure has no impact on individuals or households as it only affects companies.’

On the evening of Budget Day, we emailed the HMRC contact named in the paper and asked whether the measure would affect life companies despite the reference quoted above. The HMRC reply was a classic straight bat: “I can confirm that, as life assurance companies are subject to corporation tax on their capital gains, this measure will apply to them”.

In terms of UK life company fund returns, just how much policyholders returns will be hit depends upon three factors:

  • The rate of capital growth within the fund;
  • The rate of RPI inflation; and
  • The reserving rate used by the life company to cover its eventual tax liability.

The Office for Budgetary Responsibility’s long term RPI estimate, which it needs to estimate the cost of servicing index-linked gilts, is 3% (against 2% for long-term CPI).

The corporate tax rate on gains within the policyholders’ funds is set by s102 of Finance Act 2012 as ‘the rate at which income tax at the basic rate is charged for the tax year that begins on 6 April in the financial year’. When the Act was passed, basic rate was 20% and the CGT rate for basic rate taxpayers was 18%. In his final March 2016 Budget George Osborne cut 8% from the CGT rates (other than for residential property and carried interest), but made no changes to “policyholder taxation”. Thus, the policyholders’ fund rate is now double the 10% CGT rate payable by basic rate taxpayers and matches that for higher and additional rate taxpayers.

Gains on collective investments are subject to special rules, effectively spreading the tax charge over seven years. Long ago this used to mean that there was a useful saving, but in a world when seven-year gilts yield less than 1%, any discount for deferral is not significant and, for simplicity’s sake, can be ignored.

This leads to a calculation that if a fund’s underlying assets have capital growth at least matching 3% RPI, the reduction in annual returns due to the Chancellor’s measure will be a maximum of:

            3% x 20% = 0.6% pa

Two other areas where the boundary between the individual and corporate investor blur are:

  • Property-holding companies The various tax moves against residential buy-to-let investment have encouraged the use of companies to hold residential property portfolios. This approach has always had the potential problem of double taxation of capital gains – once within the company and again for the individual on their shareholding. Indexation allowance has helped to offset this somewhat, but will no longer do so from January 2018. The tax rate involved is corporation tax – 19% for now but 17% from 2020 (which has already been legislated for). As a result, the return reduction is marginally less than applies to policyholder funds. To gain a feel for the impact, consider that over the last ten years to September 2017 the average UK house price rose by 19.1% according to the Land Registry. The corresponding indexation factor for the period was 32.3%, meaning that indexation would have comfortably negated any tax charge. Over the last five years, the corresponding figures are 33.0% (yes, average UK house prices fell between 2007 and 2012) and 12.7%, so indexation would have removed well over a third of the gain from tax.
  • Private/personal investment companies These have become a popular way of holding investment assets for the wealthy, thanks to the fall in corporation tax rates, indexation allowance on gains and relative simplicity of operation.

The Sun newspaper already has a story about a “£500 million stealth tax on ten million savers”. No doubt the ABI will be making similar points in its representations. Watch this space…

Government borrowing goes the wrong way just before the Budget

(AF4, FA7, LP2, RO2)

At the time of the March 2017 Budget, the Office for Budget Responsibility (OBR) forecast that borrowing (PSNB) for 2017/18 would be £6.6bn more than in 2016/17. The borrowing figures for October give us a snapshot of the UK’s finances seven months into the financial year. The picture that emerges remains better than the OBR (and many others) had predicted, but has deteriorated slightly over the month.

The borrowing figures for the month of October alone revealed a deficit of £8.0bn against £7.5bn last year and market expectations of £7.0bn. That £8.0bn figure marked only the second month in 2017/18 when borrowing has exceeded the 2016/17 level – in September the figure was £1.9bn below last year’s.

For the first seven months of 2017/18 PSNB amounted to £38.5bn, down £4.1bn on 2016/17, making it the lowest at this stage since 2007. Income and capital gains tax receipts were up 6.9% over October 2016, VAT payments up 2.3% and NIC inflows up 3.3%. On the expenditure side, government interest payments were the big factor in worsening the outturn. Interest amounted to £6.0bn, 25% higher than a year ago. The Treasury attributes the increase to the impact of inflation on payments due under index-linked gilts (RPI was running at 4% in October 2017, double the rate of October 2016).

If the borrowing pattern follows the 2016/17 experience, the October figures would suggest an outturn for 2017/18 about £7bn below the 2016/17 figure. However, the OBR does not expect the 2016/17 profile to be repeated because last January’s self-assessment receipts were distorted by an estimated £3.8bn boost from dividend forestalling measures. 

The added interest bill is a reminder that RPI inflation still matters to the government. As at April 2017 there was nearly £400bn of index-linked gilts in issuance out of total gilt issuance of £1,522bn. 

FTSE 100 review

(AF4, FA7, LP2, RO2)

FTSE Russell, the providers of the FTSE 100 and related UK indices, has announced the results of its quarterly review.  This was based on market values on 28 November and will take effect from Monday 18 December.

As far as the FTSE 100 is concerned, there are three exits and three entries:

Going out…

ConvaTec Group is a healthcare group focused on wound care, continence and critical care and infusion devices. In mid-October it issued a profit warning which prompted a near 25% drop in the share price. That was enough to put ConvaTec’s position in the Footsie at risk. The share price did not recover from the warning, leaving the inevitable to happen. 

Merlin Entertainments runs Madame Tussauds, Legoland Parks and a variety of other theme parks. Its share’s suffered a downward rollercoaster experience in October when it revealed “difficult” summer trading because of terror attacks and unfavourable weather.  After falling nearly 20%, the shares have drifted down further, following a similar pattern to ConvaTec. At current levels, the market punishes bad news.

Babcock International Group is a support services company with an emphasis on defence industries. Support services have been out of favour (think Capita, Carillion). Its half year results in November were in line with forecasts, but highlighted issues that were holding back revenue growth, giving the share price a Footsie-fatal second leg down.

Coming in… 

Just Eat will be a familiar name to many. Floated only 3 years ago, Just Eat dominates mass market takeaway internet ordering although, unlike its rivals, such as Deliveroo, it makes no deliveries itself. Just Eat has grown dominant by buying out much of the competition. Its growth comes at a rich share price – the price/earnings ratio is over 50 and, so far, there is no dividend.

Ironically, at the same time as Just Eat moved into the Footsie, Restaurant Group (whose brands include Frankie & Benny's, Garfunkel's, Joe's Kitchen, etc) was ejected from the FTSE 250.

Smith (DS) is a packaging specialist, with an innovative line in corrugated paper. It has grown as its competitors have fallen by the wayside, making acquisitions en route. Ultimately, its business is about cardboard boxes, but there remains plenty of demand for them – just think of all those Amazon deliveries...

Halma is the sort of business that generates a “Who?” response. It produces safety, health and environmental equipment and has been on a roll since announcing “widespread growth” in a September trading update, followed by good half year results in November.

The arrival of Just Eat is a reminder that technology can produce rapidly growing companies outside the USA. 

PENSIONS

TPR AE spot checks: south of England

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has begun spot checks in Sussex, Surrey, Hampshire and Kent to ensure employers are complying with their pension duties.

Inspection teams will visit more than 200 businesses from Southampton in the west to Ashford in the east in the weeks before Christmas to check that qualifying staff are being given the workplace pensions they are entitled to.

The move is part of a nationwide enforcement campaign which began in London in April to ensure employers are meeting their automatic enrolment duties correctly.

This is the first time these checks have been done in these counties. Short-notice inspections have previously been carried out in Greater Manchester, Sheffield, Birmingham, Scotland and South Wales.

The checks will help TPR understand whether employers are facing any unnecessary challenges that we can help them with, such as helping them improve their systems.

But they will also highlight employers who have not taken the required steps to become or remain compliant, paving the way for enforcement action.

PPF Bridging pension draft regulations published

(AF3, FA2, JO5, RO4, RO8)

Bridging pensions allow individuals who retire before reaching State Pension age to be paid a higher rate of pension initially. The bridging pension then reduces when the individual begins to receive their State Pension or reaches an age specified in their pension scheme rules.

Between 31 August and 1 October 2017 the government ran a consultation which sought views on its preferred approach to address the PPF bridging pensions anomaly by actuarially converting the bridging pension into a flat-rate lifetime equivalent amount (known as smoothing).The vast majority of those who responded to the consultation agreed that the government should legislate to correct the PPF bridging pension anomaly. However, a significant proportion of respondents expressed a preference for the alternative approach set out in the consultation, one based on the rules of the original scheme. After careful consideration of the responses, the government has decided to address the PPF bridging pension anomaly by more closely aligning with the approach that schemes would have taken.

So a further technical consultation has been published seeking to establish whether the new draft regulations achieve the policy intent.

The changes to PPF compensation rules will come into effect in February 2018, subject to Parliamentary procedures.

The draft Pension Protection Fund (Compensation) (Amendment) Regulations 2017 would allow the Pension Protection Fund (PPF) to take account of bridging pensions by smoothing the amount of PPF compensation over the individual’s lifetime.

The consultation seeks views on:

  • the implications of the government’s preferred option to allow the PPF to take account of bridging pensions by smoothing the amount of PPF compensation over the individual’s lifetime
  • whether the draft regulations achieve their intended purpose

The consultation closed on 3rd December 2017.

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