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Month: December 2023

Big plans for private and State Pensions

Big plans for private and State Pensions

Pensions are set to have one of the biggest overhauls in recent memory, as the Chancellor also announced a consultation on plans that would bring significant changes to pensions in the UK. The biggest change would be a Lifetime Pension, more colloquially known as a ‘pot for life’ – where someone would choose the pension plan that suits them best, and every employer would then pay into that plan rather than the employee being put into the employer’s scheme.

The obvious benefit is that you are less likely to lose this pension, as it will be the only one that you need to have during your working life. The downside, according to experts, is that it will increase the employers’ costs of providing pensions to employees, as they would need to pay into multiple pensions for different members of their workforce. Paying into a single scheme, which is the current system, is much simpler for employers as they have one block payment to make each month. However, these pensions often get forgotten about by employees as they move from job-to-job.

Triple lock stays, with State Pension up 8.5%

There was concern before the Autumn Statement that the triple lock, which uprates State Pensions each year by the highest of average earnings growth, inflation, or 2.5%, might disappear given the high levels of inflation we have seen in recent months in the UK.

However, Jeremy Hunt chose to keep the triple lock, and the State Pension will be increased by 8.5% from April 6, 2024, meaning someone on the new State Pension will see their weekly income rise from £203.85 to £221.20. Anyone who reached State Pension age before 2016 will see their pension rise from £156.20 to £169.50 per week.

This is one of the largest State Pension increases in cash terms and will go some way to helping pensioners who have been struggling with the cost-of-living crisis.

Tax on pensions passed on after death to be scrapped

The Government has also had a change of heart when it comes to pensions passed on after death. The Chancellor announced that pensions passed to beneficiaries if someone dies before they reach age 75 will not be taxed.

The original plan, announced by HMRC in the summer, was to tax any income taken from a pension pot through drawdown – where an income is taken from the underlying fund over a period of time – or from an annuity, would be taxable. This announcement reverses that decision, and HMRC has now confirmed these payments will continue to be tax free from April 6, 2024.

Under the current rules, a defined contribution pension pot can be transferred to beneficiaries tax-free if the original owner of the pension dies before they reach 75.

The Chancellor also re-confirmed that the Lifetime Allowance – which limited the amount of money you could build up in your pension over your lifetime, including all contributions and investment returns to £1,073,100 – will be removed from April 6, 2024.

We can help you meet your obligations

Pensions are complex and whether you are an employer, employee or self-employed, you should know what you can do to maximise your retirement savings. If you would like more information on this, then please get in touch and we will explain what you need to know.

December 20, 2023

Chancellor announces tax cuts and business boosts

Chancellor announces tax cuts and business boosts

Chancellor Jeremy Hunt announced several tax breaks for individuals and businesses in this year’s Autumn Statement ahead of the General Election next year. While they will help to put a little more money back into our pockets, other decisions made over many years on areas such as the freezing of tax thresholds make them less favourable than they first appear, according to many commentators.

Cuts in National Insurance Contributions (NICs) and major changes for pensions were just some of the big announcements, in the Autumn Statement on November 22, and there is also a freeze on alcohol duty until August next year, which is good news for those who have a favourite tipple.

What were the big announcements?

The NICs cuts were some of the most significant changes – with Class 2 NICs being abolished completely for the self-employed, and Class 4 NICs to fall from 9% to 8% in the next tax year. For employees, Class 1 NICs will also fall from 12% to 10%.

Pension changes are also in the offing too, with the biggest change set to be allowing everyone to have a single pension that they choose for themselves, and they keep for their lifetime, with each employer paying into that pension pot no matter how often they change employers. The real benefit of this is there would be less chance of it getting lost or forgotten about over time.

The State Pension will also rise by more than many commentators had expected, as the Chancellor confirmed the triple lock will remain in place. So, the State Pension will rise by 8.5% – the amount wages rose by in September.

For businesses, the biggest announcement was that full capital expensing which was a measure introduced in the Budget in March and was originally intended to last three years, will now become permanent.

This is just a very small number of the 110 measures the Chancellor announced on November 22. If you want to find out more details about what Jeremy Hunt had to say, you can read his Autumn Statement online, and you can find other supporting documents – which is where the finer details are outlined – at Gov.uk.

ISAs get much needed flexibility

Individual Savings Accounts (ISAs) were given a welcome boost from next April, as the rules will become more flexible, allowing multiple ISAs of the same type to be opened in a single tax year. It will also be possible to make partial transfers of ISAs opened in the current tax year, which gives far greater flexibility to ISA savers than they have previously enjoyed.

One of the main benefits of this change is that savers in Cash ISAs will have the option to benefit more easily from better savings rates as they appear throughout the tax year. Although you can transfer your ISA currently, it is much more restricted, and you would need to move all the money in one go.

It will also be possible to invest in ‘fractional shares’ – where you invest in part of a share in a business, rather than owning a whole share – something that to this point has not been available through an ISA.

However, the ISA limits remain the same – at £20,000 for adult ISAs and £9,000 for Junior ISAs – something many commentators are unhappy about.

IR35 and National Minimum Wage updates

IR35 has been one of the most hotly contested pieces of legislation HMRC has produced, and many people have ended up with huge tax bills after it was applied retrospectively. IR35 is used to determine whether a worker should be considered an employee and therefore under the PAYE tax regime, or whether they can be considered self-employed.

Most often, this question relates to contractors who may be working under their own limited company structure, but if they are working more for one employer than any other, then HMRC believes they should be an employee of that company instead. It has resulted in many high-profile court cases, including for Eamonn Holmes and Gary Lineker.

While the contentious legislation will remain in place, one major change that will be legislated for in the Finance Bill 2023 is to allow organisations who have incorrectly categorised off-payroll workers under IR35 rules, to reduce their additional PAYE liability. This will be done by offsetting Income Tax and Corporation Tax already paid by the worker or their intermediary, where they have been found to not comply with the IR35 rules. These changes will come into effect on April 6, 2024, and typically apply to higher earners.

However, those earning at the other end of the scale got benefits too in the Autumn Statement. Anyone being paid the National Minimum and Living Wage will see their pay increase by 9.88% to £11.44 across the UK for those aged 21 and over, from April 1, 2024. Young people and apprentices will see their wages rise to £6.40 per hour.

Contact us

If you need to find out more about IR35, ISA changes, or any of the other parts of the Autumn Statement that might affect you, please get in touch with us and we would be delighted to help you make sure you are benefiting as much as possible from the changes.

December 18, 2023

Christmas party with a gift of tax breaks

Christmas party with a gift of tax breaks

Yes, it’s that time of year again! Christmas is on the horizon, and the office Christmas party planning will be in full swing for many companies across the UK. So, if you are planning a shindig for your employees, you should maximise the tax breaks available from HMRC, and make sure you don’t fall foul of the rules and fail to pay what could be due to the taxman.

If you want to have a party that can benefit from tax breaks, then there are a few rules you need to follow. The party needs to cost less than £150 per head – providing you haven’t had any other parties during the same tax year. The exemption of £150 per person applies across the year, so if you have had a summer barbeque for example, which cost £60 a head, then you only have £90 per person left to spend on the Christmas party.

The party must be open to all

The parties must be annual – like the Christmas party – and must be open to all employees, otherwise they will not be considered exempt by HMRC.

If you happen to have various offices around the UK, then it is fine to have different parties in different places, as long as all members of staff are able to attend one of them. If this is the case, then you will still benefit from the tax exemption.

One other thing to consider is that if you have staff who are on Salary Sacrifice arrangements within your business, then you need to inform them of how much each social occasion is worth to comply with the rules.

Remember, if any of the events you have put on for staff throughout the year don’t count as being exempt, then you must report all costs to HMRC and you will be liable for National Insurance payments on those amounts.

Each employee will need to have the cost reported to them on their P11D form, and the employer will need to pay Class 1A NICs on the amounts.

You can find out more about your obligations on the Gov.uk website, which is the best way to ensure you don’t end up with a financial hangover.

Let us help you

If you want to know what you can and can’t do in terms of the cost of your Christmas party, then please get in touch and we will be happy to offer you the help and guidance you need.

December 11, 2023

Autumn Statement NICs changes in detail

Autumn Statement NICs changes in detail

The biggest tax cuts announced by the Chancellor in his Autumn Statement were in NICs, where self-employed people will no longer pay Class 2 NICs at all from April 6, 2024. Class 4 NICs will be reduced from 9% to 8% from the same date. Class 1 employee NICs – which apply to employees working under PAYE – falls from 12% to 10% from January 6, 2024.

The removal of Class 2 NICs means anyone who is self-employed and has profits above £12,570 will no longer need to pay Class 2 NICs, but they will still receive access to the contributory benefits associated with these payments in the past, such as the State Pension. Benefits will also still be accessed for those self-employed people with profits between £6,725 and £12,570 through a National Insurance Credit. Those who have profits below £6,725 can still make voluntary NICs if they want to.

What is happening for PAYE earners with NICs?

Employees aren’t being left out of the Chancellor’s largesse either – Class 1 NICs is being cut from 12% to 10% from January 6, 2024. The NICs cuts overall will cost the Treasury around £9 billion and put an extra bit of cash into the pockets of around 29m workers in the UK.

Those earning £20,000 a year will keep an extra £149 per year if they are employed, or £254 per year if they are self-employed. This rises to £754 and £556 respectively, when both the employed and self-employed reach £60,000 according to expert calculations.

However, the effect of freezing tax thresholds more than wipes out the benefit from the cuts announced, as the overall tax take has risen to its highest level for 70 years. The cut to the additional rate threshold to £125,140 at the start of the current tax year, will earn £29.3 billion for the Treasury by 2027/28, according to the Office for Budget Responsibility – the equivalent of increasing the basic rate of income tax by 4p. So, it is a little like giving with one hand while taking with the other.

Veterans NICs relief for companies extended

However, employers who hire Armed Forces veterans will be able to continue to claim relief for longer than expected on the secondary Class 1 NICs due on the wages of veterans for the first 12 months of their civilian employment.

HMRC said: “The relief applies to earnings up to the Veterans Upper Secondary threshold, which is £967 per week.”

To qualify for the employers’ relief, the veteran being employed must have been in the UK regular Armed Forces. The relief is available until April 5, 2025.

Rising costs hit Brits hard

Despite these welcome cuts to NICs providing some benefit to workers, the rising cost of living is outpacing the benefits, based on calculations from the Office for Budget Responsibility which shows how much we will each be paying to cover ongoing debts, especially our mortgage debts.

The OBR forecasts that the cost of servicing household debt will rise from £73 billion in 2023 to £151 billion in 2026. This is higher than the peak of 2008, when the debt figure was £98.3 billion. The Liberal Democrats have calculated that the typical household will soon be spending £5,350 per year to “service” their debts, including mortgages which have seen rates rise significantly along with the Bank of England base rate over the past year.

Liberal Democrat Treasury Spokesperson Sarah Olney MP said: “This is a horror show for Brits. There is no end in sight to the mortgage nightmare faced by millions. Not only have household finances been clobbered by a barrage of tax rises, but now they face household debts not seen since the financial crisis.

“The blunt truth is that any tax cut before the election will be more than cancelled out by the mortgage bombshell.”

We can help you

If you want to find out whether you are going to be better or worse off with the NICs changes, or you need some help or guidance to deal with rising mortgage costs, then please get in touch with us and we will be happy to help you.

December 4, 2023