The UK will remain on lockdown for “at least” three more weeks, Foreign Secretary Dominic Raab revealed at the Government’s daily coronavirus press conference on April 16. Mr Raab said that while there were signs of “light at the end of the tunnel”, the UK has not yet reached the peak of the virus.

We hope you are keeping safe and well. We are here to answer any questions or concerns you may have so please do not hesitate to contact us.

This week in our Information Hub we look at the impact on retirement, R&D tax credits and commercial contracts. We welcome questions and ideas on what to cover, please just reply to this email.

As always, we welcome questions and ideas on what to cover, please email Jennifer Macfarlane.

 

Impact on Retirement

The world has changed quickly in a matter of months, causing almost unprecedented market volatility, which will have impacted on those either approaching or now in retirement. Men and women today may well live into their eighties and beyond, which means retirees often have decades to live and pensions can be complex with so many considerations, including your family circumstances, health and changing pension legislation. A positive aspect of pensions is the Government continues to encourage us all to save for retirement by providing tax relief on individual pension contributions, which has the benefit of reducing your tax bill and/or increasing your pension fund. In the case of employer contributions, this reduces the employer’s corporation tax liability.

As financial advisers, our aim is to manage client expectations as to what retirement will be like for them – both the positive and negative aspects it may bring, so we can better prepare them for a new chapter in their lives. It’s always key to remember that members of pension schemes can access their pension savings early, provided they have reached the normal minimum pension age (currently 55). The next step, and a crucial one, is deciding what to do with your pension pot as it is a key decision for your future. What are your options to consider? These may include leaving your pension pot untouched for now until markets recover; receive a guaranteed income (annuity) for the rest of your lifetime or receive an adjustable income (flexi-access drawdown); or indeed, a combination of these two. For most individuals, they can also draw up to 25% tax-free, with the remainder being taxable income.

Finally, cash flow modelling should be an integral part of the advice process and an intrinsic part of the client proposition, to ensure all retirees fully understand what the future may look like. The good news is that whatever your situation, and however you want to enjoy retirement, Pareto can help set up and regularly review your pension to ensure they remain right for individuals ever changing circumstances. Please call or email us to discuss.

 

Research & Development (R&D) Tax Credits

The government has announced numerous special measures to help businesses to limit the impact of Covid-19, however, a valuable relief has been around for many years and could gain your company access to vital funds is R&D tax credits.

The research & development (R&D) tax credit is designed to encourage innovation and increase spending on R&D activities for companies operating in the UK. It’s one of the UK government’s top incentives for encouraging investment in research and development and allows up to 33.35% of a company’s R&D spend to be reduce corporation tax bill or recovered as a cash repayment from HM Revenue & Customs.

If your company is developing new products or processes, now could be a ideal time to review whether you can submit an R&D claim. You can make a claim for R&D relief up to 2 years after the end of the accounting period it relates to and monies can be used to reduce future corporation tax, get a refund for tax already paid or obtain a tax credit from HMRC.

Companies are entitled to claim R&D tax relief even when they have not resolved the problem they are looking to solve or the project has not been completed, as long as they can demonstrate investment and that the project meets the criteria of an advancement in the application of science and technology and have no existing internal solution. Details of the R&D reliefs are available on the gov.uk website, but you certainly don’t have to be wearing a white lab coat to qualify for R&D relief, the number of companies which have successfully made claims has increased dramatically over recent years.

Small and medium companies could claim 230% tax relief on qualifying expenditure that can be attributed directly to R&D activities, rather than a standard 100% relief. Such expenditure includes materials consumed in R&D, staffing time expended on R&D as well as software, consultancy and utility costs incurred on qualifying activities.

In numbers terms, an R&D spend of £50,000 could result in a company being able to reduce its profits saving corporation tax of up to £12,350 at the current UK company corporation tax rate of 19%.

Please contact us if you believe your business may be eligible for this scheme and we can put you in contact with our trusted network of professionals for a free initial consultation.

 

Commercial Contracts

Businesses may be concerned whether their contracts are enforceable against third parties and whether third parties can enforce their contracts against them.

Aspects to consider include:

  • General rights to terminate on notice
  • Force majeure
  • Frustration

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    If there is a general right to terminate on notice, you may need to check:

  • The right to terminate applies in the circumstances
  • The notice period
  • Any penalties apply and if they are enforceable
  • The clause concerning the means by which notice needs to be given and any deemed dates of service

    •  
    If there is a force majeure clause, things to consider are:

  • Check the events that count as ‘force majeure’
  • The burden of proof will be on the defaulter to prove that the event falls within the scope of the clause and that the non-performance is due to the event
  • Check the period for which the clause relieves the defaulter from performing its obligations and then what happens e.g. rights to terminate if continuing after a certain period
  • Have reasonable steps been taken to prevent or to mitigate the effect of the event?

    •  
    As a last resort you may need to consider whether the contract has been ‘frustrated’.

    Is it physically or commercial impossible to fulfil the contract; or is the obligation to perform now a radically different obligation from that undertaken at the moment of entry into the contract?

    Generally speaking a frustrating event:

  • Must have occurred after the contract is formed
  • Is so fundamental that it strikes at the root of the contract
  • Was beyond what was contemplated by the parties when they entered the contract
  • Must not be due to the fault of either party
  • Renders further performance impossible, illegal or makes it radically different from that contemplated by the parties when they made the contract

    •  
    A business may be unhappy that a defaulting party is seeking to excuse itself from its obligations.  There are different outcomes depending on which (if any) of the above can be relied upon.

    Termination on Notice

  • Termination does not render the contract as if it had never been made.  Instead, from the time of termination, both parties are released from any further duty to perform their primary contractual duties.  Some secondary obligations will survive.
  • Rights that have accrued up to the time of termination are usually still enforceable
  • A party in breach must pay damages unless the contract specifically provides otherwise

    •  
    Force majeure

  • Force majeure suspends a party’s obligations for the period during which an event occurs.  It does not dispense with the obligations.  When the event comes to an end the contract is re-activated.
  • It is important for the affected party to take all possible steps to avoid the event or its impact (to mitigate).
  • If the clause allows termination after a period of time it may specify that termination is without liability, except in respect of prior breaches.

    •  
    Frustration

  • A frustrated contract is automatically discharged, and the parties released from their future obligations.
  • Neither party may claim damages for the other party’s non-performance of obligations falling after the frustrating event.
  • Money paid before the frustration event can be recovered.
  • Money due before the frustrating event, but not in fact paid, ceases to be payable.
  • A party who has incurred expenses is permitted, if the court thinks fit, to retain an amount up to the value the expenses out of any money it has been paid before the frustrating event.
  • Where money was due and payable at the time of frustration, a party who has incurred expenses is entitled to recover its expenses incurred.

    •  
    If you have any concerns relating to contract issues as a result of COVID-19, please contact us and we can signpost you to the best support.

    All information presented in this document has been obtained from sources believed to be reliable and is based on our understanding of current legislation. Legislation may be subject to change. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.