Loyalty rewards and tax avoidance
Has anyone had recent experience of these so called loyalty rewards??
We have become aware of a rapidly expanding firm who are 'asking' their staff to promote such loyalty schemes to clients as a mechanism to save tax.
In essence the client pays £x per month to one of these loyalty firms for advertising (or similar service) and in return directors/staff of the client receive loyalty rewards equating to a significant % of the original invoice value. These loyalty rewards normally take the form of pre-paid mastercards and are provided tax/ni free.
My take on this is similar to the previous commentators and strikes me as a not particular high level tax avoidance scheme. BUT if such a scheme is being so agressively pushed by a leading independent firm am I missing something??
Depends on the scheme
It all depends on how the AE scheme has been set up - whether it is a gross (occupational) or net (personal) contribution
NEST is normally .8%
People's can do it both ways, depending on how the scheme is set up.
Very generally, net schemes are better for lower paid employees.
Spot on old greying
We have 3 clients who have staged and for one of these in particular it has been a nightmare. This one client is probably an exception (130+ employees with at least 5 new starters per month) but we spend at least 2 hours extra per month running the various maintenance reports, up loading these to the pension provider etc etc and this is using a pension provider that is 'preferred' by our software.
Each month the software re-asses[***] the entire workforce as it is possible that someone who wasn't eligible at the start becomes so during the year. Likewise, we are regularly issue refunds to new starters as they can be due a refund of their contributions if they opt out within 30 days of receiving their information pack from the provider - but the provider can't send this pack until we have run and submitted the first payroll with the new employee included and contributions deducted.
Now, we expect (hope) things to be a lot easier at the lower end of the payroll spectrum, but there will certainly be an extra time cost to running the majority of payrolls and we will have to charge for this.
With regards to the set-up of an AE scheme, the IFA we have partnered with are fairly open with our clients and tell them that they could do all the initial set-up and compliance themselves. However given the complexities and time involved in this (not sure about the 100 hrs but it is certainly involved) all have chosen to pay the IFA's fees.
Likewise, as a practice we could have put a proposition to our clients that we would do the initial setup for them. But given the opportunities to get things wrong, miss deadlines etc sometimes you have to question whether even a £500+ fee would be worth it. At the end of the day we are accountants, not pension advisors.
Two pronged approach
We are working with an IFA on our clients who have staged or are due to stage in the next 12 months.
In a nut shell the IFA works with the client to ensure everything is set up and registered correctly, whereas we are using our software (sage) to undertake the ongoing month processes and reporting to the pension company.
We are charging on a per employee per month basis. In the first few months the set charge doesnt cover costs due to the those opting out often doing so after the first payroll has been run and therefore refunded contributions are common. after this the charge is covering time costs.
The IFA is charging a one off set fee + hourly rate for any further work.
We have chosen to work with an IFA not for referral fees etc, rather to protect our clients from a number of 'shark' IFA's out there who are quite frankly charging extortionate fees for service levels that aren't required.
Our first stager who we run the payroll for was charged £50 per employee as a set up fee (which for 150 employees was a seizable cost. In addition the IFA wanted to charge £5k ongoing consultancy fee even though our payroll takes care of everything!!!
Give and take
What the tax man gives he also takes. Yes, employers get the £2k er's allowance, but from 6/4/14 employers will no longer be able to reclaim any SSP
Ignore future profit & fee's - for the time beign anyway
In some ways the future fees and profit aren't important, certainly when looking at the 'deal'. The multiple should be based on the GRF now, not what you make it in 12-18 months time (why should he benefit from your hard work??). Likewise, deals are usually based on fee's not bottom line profit, so this shouldn't be part of the thought process - unless you can use it to your advantage. That said, the multiple is governed by the quality of the fee's, so if the practice is too cheap then this will reflect in a lower multiple. Personally, I would structure a deal over 2-3 years based on the original fee's remaining at the end of each year plus an upfront payment. It may also be worth paying him a consultancy fee for 1 or 2 days of work to help keep problem clients on board. Finally, in some ways the most important thing is cash flow. Whilst you will be saving some/all of his drawings, you need the funds to pay out the consideration at the end of years 1, 2 and 3 and also pay out any capital account he has in the business. Is this possible purely from cash flow???
The 'correct' multiple is key
You need to identify what you think is a fair multiple early on as there is every chance that your bosses view of the market place is dated and therefore he could be expecting a multiple that is no longer realistic.
We are currently negotiating to buy out the senior partner. His (dated) view of the multiple (1.2 to 1.4 x) was a long way from that used by two different valuations we obtained (.85 & .95 x) and negotiations have been difficult ever since.
As a general rule, the bigger the portfolio the lower the multiple due to the marketability of the portfolio.
You also need to look at the period over which you make the payment. I would always suggest there needs to be a decent % of the deal that is deferred over 1, 2 or even 3 years. This helps mitigate the risk of clients leaving when your boss retires.
Grateful for the small things
At least your client has received a statement. We are seeing an increasing number of clients being sent letters from debt management threatening collection proceedings when there has been no prior request for payment / statements sent.
how long is a piece of string.
All depends on the level of testing undertaken and the quality of the systems used.
Some testing is required irrespective of size / number of clients whilst other testing is activity geared.
Also remember that SRA rules are very detailed and the number of areas where breaches can occur mean that you need to be undertake comprehensive testing.
Finally, remember this is a high value service to the solicitor - without a report the solicitor can't trade!
Pm me to discuss further.
Re-allocate to current year.
We have had several P35d's and in each we provided HMRC with the reason why the overpayments had figured.
For each, HMRC refused the refund/reallocation request with the same letter as mentioned in this thread.
We have written back and told HMRC that we think adequate explanations have already been provided and therefore we do not think it's correct for then to hold our clients money. we have therefore suggested to our clients that they deduct the overpaid amount off the current year liabilities.
I am not suggesting this is the absolutely correct of dealing with it, but at least the clients get their money back.
The biggest 'crime' being committed by HMRC at present is the with holding of CIS refunds where there are no payroll deductions to offset.