Did you know….?

A SSAS:

• will reduce Corporation Tax every year a contribution is made

• can receive a large pension contribution up to £500k and receive Corporation Tax relief in the current Tax year

• can receive carried-forward pension contribution allowancesup to £150k per Director

• can receive pension contributions with or without cash from the business

• can lend to the business

• can buy business premises

• can borrow money to purchase commercial property

• can receive rent Tax free on commercial property

• provides an Auto Enrolment solution for business owners

• can hold all existing pension funds in one place under personal control

• can reduce pension administration fees

• allows more flexible HMRC approved investments than any other scheme

• increases a pension fund through Tax free and compound growth

• allows Members i.e. business owners to access 100% of the fund at age 55

• gives business owners total control

Contents

1. Background to the White Paper

2. What is a SSAS?

3. What a SSAS can do for business:

a. Corporation Tax relief through contributions

b. Use of Property Tax reliefs

c. Loans and borrowing facilities

d. All pensions in one scheme under Members control

e. Reduced pension administration fees

4. Enrolex: an Auto Enrolment solution for Directors and employees

5. Investments within a SSAS

6. Retirement options within a SSAS

7. Summary

8. SSASCo advisers support package

This paper introduces SSAS pensions and gives an overview of the many benefits they can offer to both professional advisors and business owners.

SSASs have lost prominence in the pension marketplace and many advisors have assumed that they are no longer available. Those that are aware of their existence are typically not aware of the many benefits a SSAS can offer to a business.

In recent years pensions have been unpopular with business owners because of the poor options available at drawdown stage. In addition, the lack of funding available since the credit crunch has meant that businesses have been keen to keep cash within the business. This lack of popularity has resulted in pensions being largely ignored by many advisers as a planning tool.

However, two major events have recently brought pensions back into sharp focus, which means advisers will once again have a role in discussing pension options with their clients. These key events are the new drawdown rules coming into force in April 2015 and the Auto Enrolment challenge currently facing all businesses.

This paper makes the case for the use of a SSAS as part of an Auto Enrolment solution and demonstrates that SSASs today are the most flexible form of pension scheme with more benefits and applications than any other scheme available and, as such, should be a financial planning tool that all professional advisers should be aware of.

Changes in drawdown regulations

As of April 2015 anyone with a pension will be able draw all of their accumulated benefits in one lump sum from the age of 55, should they choose to do so. This significant change will undoubtedly impact attitudes towards pensions. Business owners will begin to look at pensions as a serious planning tool and start to discuss their retirement plans with their advisers on a more regular basis.

Auto Enrolment

The volume of businesses who are required to stage for AE jumps exponentially in the next couple of years. This creates a series of challenges and exciting opportunities for businesses and the impact on professional business advisers will be huge. Many business owners are currently unaware of their obligations with regards AE and will look to their trusted advisors for guidance.

SSASCo Survey of Accountants and IFAs

To better understand the awareness, product knowledge and level of preparedness for AE within our market, i.e. Accountants and IFAs, we conducted some market research to identify where our services should be positioned. The results were surprising:

Survey of Accountants - Results

Our survey of 50 small to medium sized accountancy practices produced the follow-ing results:

• 76% (38) rated their knowledge of SSASs at less than 4 on a scale of 1 - 10

• None of the Accountants had realised it was possible to use a SSAS within Auto Enrolment provision

• 34% (17) were not aware that a SSAS couldlend funds back to the business

• Only 7 of the Accountants we spoke to had planned to speak to their clients about Auto Enrolment

1. Background to the White Paper

Survey of IFAs - Results

Our survey of 50 small to medium sized IFAsproduced the following results:

• 54% (27) rated their knowledge of SSASs at less than 4 on a scale of 1 - 10

• None of the IFAs surveyed had realised thatit was possible to use a SSAS within Auto Enrolment provision

• 32% (16) were not aware that a SSAS couldlend funds back to the business

• Only 6 of the IFAs we spoke to had planned to speak to their clients about Auto Enrolment

Summary

Our survey shows that only a very small percentage of advisers are aware that a SSAS can be utilised to great effect within an Auto Enrolment solution. In addition there appears to be a disconnect between advisors and their clients which is detrimental to all:

• Many advisers are not aware of SSASs andwhat they can do for businesses

• Due to the perceived lack of fiscal rewardthe attitude of advisors towards AE is tepid at best

• Advisers are missing out on opportunities tobuild relationships with SMEs

• Many Accountants have not realised theirclients’ expectation of them and may not beprepared for these important discussionswith clients

• Business owners may leave their AutoEnrolment planning until the last minute,have no time to explore options and riskmissing their staging date and incurringfinancial penalties

A Small Self-Administered Scheme (SSAS) is a type of UK occupational pension scheme with up to 11 Members. The Pension Regulator and HMRC regulate SSASs, not the Financial Conduct Authority.

A SSAS is a Defined Contributions scheme, (sometimes referred to as a Money Purchase scheme). The Members’ benefits at retirement, i.e. what they draw out, are provided by the fund which has accumulated through contributions, investments and compound growth.

A SSAS registered with HMRC enjoys Tax exempt status. All investments made will be free of Capital Gains Tax, and employer contributions to the SSAS will receive Tax relief.

A SSAS is usually established by Directors of limited companies for specific employees of the company and their family members. However, it is possible to establish a SSAS for other legal entities such as partnerships and LLPs.

The Members of the SSAS are usually also the Trustees, which means there is a reduced maintenance and regulatory requirement as the Members of the SSAS are deemed to be investing the funds for themselves i.e. Member Directed Investment.

The Trustees can invest the funds as they see fit, within HMRC investment guidelines. For example, they can invest the assets of the pension scheme in the company that establishes the SSAS. This process is known as Pension-Led Funding.

In summary, a SSAS is an HMRC registered pension scheme specifically designed for small businesses. Its main differentiating factor is that the business owners are Trustees and Members, which means they control the scheme. This allows more flexibility than any other type of scheme.

2. What exactly is a SSAS?

A SSAS is the best pension arrangement for small businesses because it brings Tax benefits, Member control and the facility to grow funds in a Tax free environment.

3a. Corporation Tax relief throughcontributions

A SSAS will reduce Corporation Tax every year a contribution is made

A business can make pension contributions on behalf of its Directors. These are allowable expenses, which means the business willpay less Corporation Tax. For example, if a business makes a £50k pension contribution each for 2 Directors, the Corporation Tax will reduce by £20k. Importantly, the whole £100k

goes into the pension scheme, unlike other contribution methods, i.e. personal contribution from funds after CT and Dividend Taxes. In a SSAS there is no set contribution or any requirement to make a contribution at all. This means that the business can decide when and how much it contributes depending on its financial performance.

Note! Contributions must be physically made in the financial year to which they are to be applied so it is important to decide on the level of contribution that you wish to make pre-year end.

3. What a SSAS can do

1 nil corporation tax due since expenditure is fully allowable for tax2 when benefits are taken (earliest age 55), 75% of the fund will need to be taken over time as an unsecured income or be used to purchase a lifetime annuity. These

are both taxed as earned income at your marginal rate3 assumes total taxable income is less than £100,000

4 if you are a 40% tax payer in retirement this figure will be £14,000

Assumptions:

• Small Companies Corporation Tax rate applies (20%)• The additional £17,575 slice of salary is applied at the 40% rate of Income Tax and 2%

additional employee NIC• An employer pension contribution of £20,000 will be tax deductible• The tax treatment depends on the individual circumstance of each client and may be subject to

change in the future

Salary Dividend Pension Contribution

Pre-tax cost to Company £20,000 £20,000 £20,000Paid as salaryEmployer’s NI (13.8%)

£17,575£2,425

Corporation Tax (20%) nil1 £4,000 nil1

Salary3

less Income Tax (40%)less additional National Insurance (2%)

£17,575£7,030£351.50

Dividend distributionless additional Income Tax due

£16,000£3,600

Gross ContributionPension Commencement Lump SumPlus remaining fundAssumed tax at 20% on income taken

£20,000£5,000

£15,0002

£3,000Benefit to the individual £10,193.50 £12,400 £17,0004

A SSAS can receive large pension contributions up to £500k and receive Corporation Tax relief in the current year by utilising a General Unallocated Fund within the scheme

If a business has made large profits and wishes to make a pension contribution for its Directors, it can make a contribution of up to £500,000 which will be allocated to a General Unallocated Fund within the SSAS. The company will receive £100k Corporation Tax relief in the current year. The SSAS will have £500k with which to make investments from the contribution date.

The General Unallocated Fund is then allocated to the Members fund over time in lieu of future contributions for Members within HMRC limits. This fund may be invested and borrowed from as with any other part of the fund.

Creating a Tax loss and rebate with contributions

If the contributions exceed the profits of the company in any year, they will create a loss, which can be applied to the previous year’s profits by resubmission of the CT600. This would result in a Tax refund.

Note! There must be sufficient reserves in place in previous year’s accounts for this to apply. Certain conditions must also be met, please contact SSASCo for more information

In specie contributions

Contributions can be made either in cash or in specie, which means that should either an individual or a company wish to contribute a commercial property into a scheme, they can do so, subject to contribution limits.

Carried forward pension contributionallowances

Contributions are limited by the annual pension contribution allowance, which is currently £40k per year. It is possible to carry forward and claim unused allowances from the previous three years, providing the individual has been a Member of a registered pension scheme for the period, although it is not necessary to have made a contribution during the period.

The allowance pre 2014 was £50k, which means that an individual could have £150k carry forward pension contribution allowance less any pension contributions made in that period.

The carry forward allowance does not all have to be used in one year, so it is possible for an individual to increase their contributions above the annual allowance of £40k over a number of years until the allowance is fully utilised.

For example, if an individual has not made any contributions for the past three years their current carry forward allowance would be:

Year 2011 2012 2013

Allowance £50k £50k £50k

Plus current year allowance £40k

= Total allowed contribution £190k

Because a SSAS is a Trust, its assets are secured from creditors or any other threat under Trust Law. This means, should a business experience financial hardship, the retirement fund would be safe.

3b. Use of Property Tax reliefs

If a commercial business premises is owned personally by the Directors or business owners, receiving the rental income personally from that commercial property could create a higher personal Tax charge for those business owners.

Using a SSAS to buy a commercial property currently owned by the Directors or business owners personally has multiple benefits:

If the SSAS wishes to purchase acommercial property

A SSAS may purchase a commercial property outright or with funding. Many banks are happy to lend to a SSAS.

It is quite normal for Members to transfer other existing pension funds into their SSAS and then purchase a commercial building.

Note! If the commercial property is to be used by a connected party to the scheme once it is in the scheme, the tenant must pay the market rate for the property and will have to have a formal lease in place.

There are other factors such as Capital Gains Tax to be taken into account, please contact SSASCo to discuss your circumstances.

If the business already owns thecommercial property

1. The SSAS can buy the commercial property from the business which income can then be used to draw on any credited Directors loan account

2. The Business could make an in specie contribution of the property as an employer contribution

3. The SSAS can receive rent Tax free fromthe company

4. The company will receive Corporation Taxrelief on that rent as it is an allowable business expense

If the business owner owns the commercial property personally

1. The property owners can put a propertyinto their limited company which will create a credited Directors Loan Account (DLA). This creates a Tax efficient environment from which to draw income in lieu of that DLA

2. The SSAS can buy the commercial property from the business

3. The SSAS can receive rent Tax free from the company

4. The company will receive Corporation Tax relief on that rent as it is an allowable business expense

Property contributed to the Scheme in specie

A SSAS can receive a commercial property in lieu of a pension contribution. This again saves Corporation Tax to the value of the commercial property, as it is seen as an in specie contribution.

The commercial property may also be contributed to the General Unallocated Fund if the value is greater than the contribution allowance.

Rent received by the scheme

The rent received by the pension scheme is exempt from Income Tax; however, it is an allowable expense for the company paying it. There is no Capital Gain Tax on the resale of the property from within the pension.

3. What a SSAS can do

Security of assets

Because a SSAS is a Trust, its assets are secured from creditors or any other threat under Trust Law. This means, should your business experience financial hardship, your retirement fund would be safe.

3d. All pensions in one scheme under your control

It is possible to transfer any existing pensions into a SSAS. Current returns on standard Defined Contribution schemes are generally low, and with the added costs of inflation plus relatively high administration costs, the value of many ‘standard’ pensions is actually reducing.

Transferring existing pensions into a SSAS where costs are not dependent on the size of the fund and where it is possible to invest andachieve higher returns, is becoming increasingly popular.

Note! Before organising any transfers it is advisable to have all the pensions professionally reviewed. Some pensions still have very attractive benefits packages and transferring those funds may mean losing those benefits.

3e. A SSAS reduces pension administration fees

Due to the collective nature of a SSAS, the fees are usually less than other types of arrangement. Because there are more Members, the costs per Member are reduced, particularly when all other existing pension rights are transferred in to be managed under one scheme.

3c. Loans and borrowing facilities

Loan to sponsoring employer

A SSAS is able to lend up to 50% of the fund to the Member’s business. This facility is of-ten utilised with a transfer into the SSAS from other existing pension schemes.

So, in effect, it is possible to transfer Members’ current pensions into the SSAS and then arrange a loan back to the business on a secured basis, even if no contributions have been made.

In the current business environment where it is difficult to arrange bank funding, this may be a huge benefit to businesses looking for working capital.

Note! There are conditions to be met to allow a loan to the sponsoring company, please contact SSASCo to discuss your circumstances.

Loan to unconnected party

The SSAS can lend up to 100% of the net assets to an unconnected party on a secured basis.

Note! There are conditions to be met to allow a loan to an unconnected party, please contact SSASCo to discuss your circumstances.

Borrowing

For the purpose of funding the property, the scheme can borrow up to 50% of the net asset value of the SSAS. The majority of banks are happy to lend to registered pension schemes.

Advisers will need to understand SSASs to be able provide clients with a complete picture of their options within Auto Enrolment.

Auto Enrolment publications miss a key point, which is the provision of a separate pension fund for business owners within the Auto Enrolment framework.

Auto Enrolment legislation treats all employees the same, however, there are a number of major differences between business owners, Directors and their employees:

• A Director or business owner will very rarelytransfer to another employer

• A Director or owner will probably wish to make larger pension contributions than their employees

• A business owner will want to have input into how their pension fund is invested

It is because of these differences that many business owners and Directors have indicated they will opt out of Auto Enrolment, whilst the current opt out rates for employees are comparatively low at about 8%.SSASCo have created a unique product “Enrolex” to satisfy the requirements of business owners and their employees by having two separate schemes running side by side within the Auto Enrolment regulatory framework using a middleware system.

This ensures compliance whilst providing the Directors and business owners with a SSAS with all the associated benefits, whilst the employees have the benefit of an industry standard scheme.

Enrolex is a unique structure which encompasses a bespoke SSAS for business owners combined with a master trust for employees. The compliance element of both schemes is managed by a unique middleware system. This provides seamless Auto Enrolment options for both business owners and their employees, allowing different investment options for both whilst managing total compliance with the Auto Enrolment legislation.

The Benefits of Enrolex

• Auto Enrolment compliance is handledautomatically by a proven middleware solution

• Business owners have a separatepension scheme to their employees and can decide their level of contribution

• Comprehensive free service for employees

• Low cost set up and administration forbusiness owners

• Interlinks with current payroll system

• No separate software requirements

• End to end expert advice

4. Auto Enrolment solutions for Directors and Employees

Enrolex is unique - it provides two pension schemes; one for business owners and the other for employees. The compliance element for both schemes is coordinated and managed by sophisticated middleware

A SSAS can make a wide range of investments under the control of the Trustees who are also Members resulting in much greater control over investment than in any other pension scheme.

Many business owners transfer low performing “standard” pension funds into the SSAS and then reinvest where they believe a better return will be achieved.

The range of investments a SSAS pension scheme can make is wide and varied:

• Bonds

• Unit Trusts

• Building Society and Bank Accounts

• Quoted Stocks and Shares

• Unquoted Stocks and Shares

• Commercial Property

• Unregulated Investments

• Gold

• Futures

• Holiday Homes (under certain circumstances)

• Intellectual property (under certain circumstances)

Investments which are not allowed:

• Vintage Cars

• Yachts

• Wine

• Stamps

• Antiques

• Art

• Residential Property

• Tangible Moveable property within aconnected party business

• Plant and Machinery

Note! It is advisable for the Trustees to consult an Independent Financial Adviser and their pension administrator before making any Investment, as there are Tax penalties for unauthorised investments.

5. Investments within a SSAS

A SSAS allows a business owner to take advantage of the recently announced flexible drawdown options, offering control and flexibility in pension contributions and investments as well as flexible exit options.

At the age of 55 a member can commencedrawdown from their pension fund. Currently they can draw the first 25% of the fund Tax free and, because of the recent changes in pension legislation, they can take the remainder of the cash as they wish and only pay marginal rate Tax as and when they draw it.

For example:

• If a Members fund holds £200k at age 55, the available Tax free lump sum will be £50k

• If the other £150k is taken at £10k per year, there will be no Tax on that £10k if there is no other income payable

• If the Member chooses to take the entire fund, a higher rate of Tax under the PAYE scheme at marginal rates will be paid

As life changes occur, Members being in control of their own scheme allows the choice to make changes and adapt to new circumstances.

If a SSAS owns a property, Members can still receive rent even when they have retired.

It’s up to the Member! There are a number of variables to discuss, please contact SSASCo to discuss your clients particular circumstances.

6. Retirement Options within a SSAS

This White Paper has been written for Advisers: Accountants, Bookkeepers, IFAs and Wealth Managers. Its objective is to highlight how a SSAS could benefit their clients.

By opening conversations about retirement planning a host of other subjects will undoubtedly be discussed, in turn opening up further opportunities to add value.

Benefits to Accountants

Business owners will turn to their Accountant for advice about Auto Enrolment. Having information about the potential options available and discussing retirement planning with clients will bring a number of benefits:

• Build a deeper relationship with the client

• Increase client retention

• Increase services provided to the client i.e. payroll

• Prolong the relationship with the client after retirement through drawdown

Benefits to IFAs

The development of a SSAS structure which meets Auto Enrolment compliance requirements increases the commercial attractiveness of Auto Enrolment to the IFA:

• Building a closer relationship with the client

• Potential to advise on investments within the SSAS

• Additional services to be provided to business owners and their staff

• Developing commercial relationships with Accountants

7. Summary

Advisers who help to implement a tax efficient Auto Enrolment solution will enjoy Trusted Adviser status with their clients.

To help Advisers to become equipped to discuss SSASs with their clients, SSASCo has developed a support package which includes;

• Regular SSAS updates

• Client friendly co-branded SSAS marketing materials

• Technical helpline

• Client seminar programme

• Marketing support

• CPD accredited training

We also have a consultation fee reimbursement scheme, where we will pay Advisers for introduction to the client. Subject to a maximum fee of £200 plus vat and the SSAS being placed with SSASCo.

Our support package is only available toregistered affiliates. To register as an affiliate we ask Advisers to sign a simple agreement which formalises SSASCo’s commitments and asks Advisers to agree to confidentiality around SSASCo’s practices and product details.“mechanics” of setting up the scheme

We work with our Affiliates closely in collaboration; the usual process is as follows;

8. SSASco Advisers Support Package

Contact us today to register as an affiliate go to www.SSASCo.co.uk

To find out more about becoming a SSASCo affiliate please visit our website:

www.ssasco.co.ukEmail: info@ssasco.co.uk or call: 0845 862 2869

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Affiliate meets with client to discusssuitability of SSAS

Affiliate contacts SSASCo to discuss case

SSASCo manage the agreed transactions,liaising with Client and Affiliate

contact client to arrange the “mechanics” of setting up the scheme

Affiliate presents proposed solution to client If client wishes to proceed, SSASCo

Review periods are agreed