manufacturing 13 Protecting families of directors of


Where there is a need to provide a lump sum on death to protect their families, shareholding directors should consider the most cost-effective and tax-efficient options. In the current economic climate every means of reducing cost should be explored. Sadly this is not always the case.


Where a business has three or more employees, the directors can establish a ‘registered’ group scheme. The directors can obtain all or some of their cover without medical underwriting under free cover limits. The premiums are usually an allowable expense, are not a benefit in kind and any lump sum is normally free from inheritance tax.


However a lump sum payment will be taken into account in the lifetime allowance and could lead to a tax charge. Joining a ‘registered’ scheme may also negate enhanced or fixed


finance Small businesses benefit from alternative finance


A fast-growth SME businesses based in Surrey has become one of the first two in the country to benefit from a new type of investment finance designed to help fill the recognised gap in this funding market for companies with turnovers under £10 million. The Growth Capital investment, available through Santander’s Breakthrough programme, provides mezzanine-based finance at a low rate which helps bridge the gap between angel and equity investment.


Surrey-based Vocality designs and produces voice communication systems and network routers used by military and commercial satellite users, particularly working in emergency, government and tactical communications as well as news broadcasting. The company has received £1m of growth capital to help it exploit new opportunities within the maritime and fast responder satellite markets, as well as to bring to market a tranche of new, innovative technology.


Vocality, which turned over nearly £6m in 2012, is forecasting further rapid growth in the coming years and is looking to take on additional staff as part of the investment, particularly in its engineering, test and development areas. In addition, Vocality expects the growth investment to have a positive impact on its British manufacturing partner and supply chain.


Steve Pateman, Santander UK’s head of banking, said: “We are proud to have made our first investments through the Breakthrough programme. Access to finance is crucial for businesses looking to invest and grow, and there has for too long been a gap in the funding market for smaller companies looking for investment finance that is both affordable and enables them to keep hold of their company in its entirety.


“We hope that these loans will be the first of many this year and, in the long term, we hope that our Growth Capital programme will inspire other banks and private institutions


THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2012


to look at new, innovative ways to get this all important type of funding to growing smaller businesses.”


Michael Fallon, business minister at the department for business, innovation and skills said: “The Regional Growth Fund is helping to rebalance the economy and it’s good to see that firms are now getting access to finance through the Santander scheme to help them grow their business.


“Whether it’s creating jobs or boosting manufacturing capability, the Regional Growth Fund shows the difference that government and the private sector can make when working together. It is real projects like these which will unlock private sector investment and boost economic growth.”


The Growth Capital loans are part of Santander’s Breakthrough programme which aims to support fast-growth small businesses to help them accelerate their growth potential. As well as funding,


Breakthrough offers companies access to trade missions, business masterclasses, networking events and support in areas such as finance and marketing.


Vocality will also benefit from a graduate intern through Santander’s new internship programme, launched in collaboration with Santander Universities and its university partners. The programme, which will place 500 university graduates in placements with SMEs, aims to encourage entrepreneurialism and promote the benefits of working for an SME amongst graduates, whilst also providing smaller businesses with an injection of talent not always easy to obtain by companies with limited administration resources.


Santander will work with its 58 partner universities to find students and companies who will benefit most from the scheme and will help with placement and administration, including project management, as well as part-funding a basic salary for the students.


www.businessmag.co.uk


protection elections with major tax implications. When employment ceases the cover will stop unless there is a continuation option. Where the director is unlikely to be disadvantaged, the ‘registered’ scheme route can be the most appropriate option.


What about directors who do not have sufficient employees to write ‘registered’ group arrangements, could be caught by the Lifetime Allowance or could negate their protection elections? Directors of small owner-managed businesses have relied on term assurance. Where premiums are paid through the business there is a liability to tax and national insurance. If cover is not written under trust, benefits form part of the individual’s estate for inheritance tax.


One solution is to establish tax-


• the policy premiums paid by the business are likely to be an allowable deduction against corporation tax,


• there is no liability for national insurance for the company or the employee,


• there is no income tax liability for the employee,


• the benefits are paid tax free to their nominated beneficiaries under trust,


• the policy premiums do not form part of an individual’s annual or lifetime allowance,


• on leaving service there are a number of options available to continue the cover, and


• benefits are provided under a discretionary trust.


small manufacturing companies Many small manufacturing companies are family businesses with spouses being directors and shareholders, writes Dion Prideaux-Reynolds of Griffins


efficient one member death-in-service schemes under ‘relevant life rules’:


Significant cost savings can be achieved by using cover under the ‘relevant life rules’. A saving of 49% can be achieved by using relevant life rather than term assurance. This assumes a monthly premium of £250, 20% corporation tax, 40% individual tax rate, and national insurance at the 2% additional rate for the employee and 13.8% for the employer.


Details: Dion Prideaux-Reynolds dion@griffins.co.uk 01635-551333 www.griffins.co.uk


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