How can your pension help your business cash flow? The small self administered scheme (SSAS) explained.

The small self administered scheme (SSAS) is a business pension that is either completely overlooked or raved about depending on your individual circumstances.  Whilst we want you to read on, we do have to say at the outset that SSAS rules are very complex and you do need to talk to your accountant and a qualified financial advisor before making any decisions. 

For those of you still with us after that warning, we can give you the good news which is that a SSAS is potentially a way of raising finance for your business from your pension fund.  For all those businesses struggling to raise finance from banks, the SAAS could be a viable alternative.

So how does the scheme work?  Well, a SSAS is a pension scheme which is set up under a trust deed for the benefit of its members.  It has to be originally set up for a business although once set up, non employees can join.  This means that relatives of directors or employees could join.  The only limit is that is has to have fewer than twelve members.  A SSAS scheme is run under the control of its trustees and is regulated by HMRC.

One of the benefits of a SSAS is that members can pay in to the scheme which can then lend up to 50% of the value of the scheme’s assets to the business.  Not only that, the SSAS can borrow up to 50% of the value of its assets to purchase items such as business property or intellectual property.  There are regulations on allowable investments and although a SSAS can invest in business premises it cannot invest in private property.  Buy a shop with a SSAS and develop the top floor into a flat and you can expect to face major penalties.

Taking the first scenario, businesses with a SSAS pension fund can borrow from the SSAS.  There are some conditions however.  The loan has to be secured against assets by way of a first charge so it won’t work if your business already has already given a full bank mortgage over business assets.  The loan term has to be less than five years so repayments may be steep and interest rates of at least 1% over bank base rate has to be charged.  These conditions mean that businesses who are already in financial difficulty and who have charged their assets will probably not be able to benefit fro a SSAS. 

Looking at the second scenario, if the SSAS has sufficient funds it may be able to borrow to fund the purchase of business premises. The property can then be leased to the business and any capital gain within the scheme is free from CGT.  One slight note of caution here in that the SSAS trustees are legally bound to ensure the fund is secure.  There have been cases of businesses defaulting on their lease payments and being evicted by their SSAS.  Again, this is probably not the answer for businesses which already have difficulty in meeting their payments.

Having given the notes of caution, for businesses which are on a sound footing but need an injection of cash to fund expansion and development, the SSAS may well be the answer.  A SSAS can provide a tax efficient and flexible way of pension planning whilst providing much needed funds for your business.