Category

Pensions

Potts & Co - Accountancy & Business Advice

Check Your State Pension Forecast

By | National Insurance, Pensions, Potts & Co Accountancy & Business Advice News

Do you know how much state pension you will receive when you retire? You can find this figure though your online personal tax account; click on ‘view state pension forecast’.

People who reach state retirement age after 5 April 2016 need 35 full years of national insurance contributions (NIC) to qualify for the full state pension. Your personal tax account also shows any gaps in your NIC record.

An incomplete NIC year will be recorded for periods in which you were contracted out of the state pension. If you are still under state pension age (which is gradually increasing to 68) you can continue to pay NIC or collect NIC credits to boost the amount of your state pension.

Self-employed individuals need to pay class 2 NIC of £153.40 for 2018-19 to achieve a full NIC year. If you are employed you can accrue a full year of NIC for free by earning between £6,032 and £8,424 for 2018- 19. If you are neither employed nor self-employed you can pay class 3 NIC on a voluntary basis at £14.65 per week. Class 3 NIC can also be used to fill gaps in your NIC record for the last six years.

Potts & Co - Accountancy & Business Advice

Pension Planning

By | Pensions, Potts & Co Accountancy & Business Advice News

You are probably too busy running your company to think about your pension, but you should give this some thought before the deadlines overtake you.

Your company can only claim deductions for pension contributions made within the accounting period. If it has a 31 December year end you should now review the level of contributions made on behalf of the directors and senior employees. Do you want to increase contributions to your own pension fund if you have had a good year?

Before you decide, check how much annual allowance you have available for pension contributions in 2018-19. The standard allowance is £40,000 but this is reduced to £4,000 if you have already flexibly accessed benefits from a defined contribution pension scheme, even if you received those benefits in an earlier year.

If your income is expected to be £110,000 or more for 2018-19 you need to check whether the total pension contributions paid on your behalf, plus your income, will top £150,000. In this case your annual allowance is tapered down by £1 for every £2 over the £150,000 threshold to a minimum of £10,000. We can help you with this calculation.

It is worth checking whether any highly paid individuals on your payroll have been automatically re-enrolled into their workplace pension scheme. This should happen every three years on the anniversary of the date the individual was first auto-enrolled.

Even a small contribution made into the workplace pension can cause the individual’s annual allowance to be exceeded and they could lose the fixed protection of their pension lifetime allowance.

Potts & Co - Accountancy & Business Advice

Pension Lump Sum

By | HMRC, Pensions, Personal Tax, Potts & Co Accountancy & Business Advice News

If you have taken a lump sum from your pension fund you may have had excess tax deducted by the pension company, but you can reclaim it.

Although 25% of your pension savings can be drawn out tax-free, the pension company normally interprets this as being 25% of any single withdrawal, leaving 75% of the lump sum to be taxed at your marginal tax rate. What’s worse, if the lump sum is the first withdrawal you have made from the pension scheme the company will apply an emergency PAYE code. This results in you having far more tax deducted under PAYE than is due.

There are two ways you can get this tax back:
• if you are not expecting to take further pension payments in the same tax year you can reclaim the tax on the lump sum using form P53Z or P53. We can submit those forms for you; or
• if you expect to take further pension payments in the same year your tax repayment should be dealt with through your PAYE code. The tax refund should be made when your next pension instalment is paid.

The second method requires an adjustment to your PAYE code, which you can request through your online personal tax account. Alternatively, you can phone HMRC to ask for your code to be changed. We can phone HMRC for you if we have the authorisation to act on your behalf.

Potts & Co - Accountancy & Business Advice

State Pension: When To Stop

By | HMRC, Pensions, Personal Tax, Potts & Co Accountancy & Business Advice News

In order to receive the full flatrate state pension (currently £159.55 per week) you need to accrue 35 years of national insurance (NI) credits. It’s easy to find out how many NI credit years you already have: log in to your online personal tax account on gov.uk/personal-tax-account.

If you contracted out of the state pension for any significant period in the past, your predicted state pension entitlement will be smaller, but the maximum pension can be obtained by paying NI for additional years.

Where you have already racked up 35 full years of NI credits and your pension prediction says you qualify for the full pension, why would you pay more? You may want to protect your entitlement to unemployment support, maternity or sick pay, but if you work for yourself those state benefits are largely irrelevant.

Most directors of their own companies pay themselves just enough salary to get an NI credit, but don’t actually pay any NI. If you don’t need the NI credits, you could stop paying yourself a salary.

Potts & Co - Accountancy & Business Advice

Backdated Tax Law-

By | HMRC, Pensions, Potts & Co Accountancy & Business Advice News, Property

The mechanisms to pass new tax law have been disrupted by the EU referendum and the following General Election. A number of measures which were to come into effect from April 2017 or earlier had not yet been passed into law. However, the Government plans to publish another Finance Bill very shortly to include all the following tax changes to be backdated to take effect from the intended start date.

Property & Trading Income

From 6 April 2017 individual taxpayers will be entitled to two annual £1,000 allowances to cover rental income (but not from letting your own home under the Rent-a-Room scheme) and sundry other income, respectively. Taxpayers who receive small amounts of income within these allowances, won’t have to report that income on their tax returns.

Cash Basis

From 6 April 2017, individual landlords with annual gross rents of no more than £150,000 will be expected to keep their business records using a simplified form of accounting called the cash basis. Each landlord will be able to opt-out of using the cash basis and use normal accruals accounting instead.

Non-Domiciled

Many people who were born abroad or who have chosen another country as their permanent home will not be domiciled in the UK. These people will be affected by new deemed domiciled rules, which will be backdated to 6 April 2017.

Pensions

Once you are aged 55 or over you can draw funds from your money purchase pension schemes. If you take more than the tax-free cash (25% of the fund), your additional pension contributions are restricted to £10,000 per year. This contribution limit will be retrospectively reduced to £4,000 with effect from 6 April 2017.

Contractors loans

Individuals who worked as contractors or freelancers in the 1990s and 2000s were often offered loans instead of regular pay. These workers were led to believe that the ‘loan’ would never be repayable and they would only be taxed on the nominal interest due on the loan.

HMRC is changing the law so that any of those ‘loans’ which remain outstanding on 5 April 2019 will be taxed as earnings, at the date the loan was originally advanced. This means the contractor will be liable for interest on that tax calculated over many years. Alternatively, the worker can settle the tax due now. Talk to us if you are in this position.

Potts & Co - Accountancy & Business Advice

What’s on the scrap heap?

By | Pensions, Potts & Co Accountancy & Business Advice News

The sudden decision to call a General Election meant that draft laws passing through Parliament had to be quickly finalised or dropped. Many new tax measures were abandoned, including some which were due to come into effect on 1 April or 6 April 2017.

New Allowances

Two new allowances of £1,000 each were to apply from 6 April 2017. These were to cover income from let property, and trading or sundry other income, to avoid the need to report small amounts on a tax return. You now need to keep records of all your income and the related expenses, however small.

Cash basis

Individual landlords with annual turnover under £150,000 were due to apply a simplified form of accounting called the Cash Basis from 6 April 2017. The few transactions recorded since that date are unlikely to cause many problems, but you need to record carefully the date that all receipts were received for your lettings business.

Non-domiciled

A new deemed-domiciled regime was due to apply from 6 April 2017 to individuals not domiciled in the UK. If you are affected, you may have sold assets around that date to prepare for the new regime and have realised a capital gain unnecessarily. If you took advantage of the rules to cleanse foreign bank accounts, you may have moved money into the UK which you thought was not taxable. These funds may now be taxable so we need to discuss your tax position.

Pensions

Where an individual has already drawn taxable pension benefits, their subsequent pension contributions are capped by the Money Purchase Annual Allowance (MPAA). These individuals won’t know how much they can pay in pension contributions in 2017-18 as the MPAA was set to reduce from £10,000 to £4,000 on 6 April 2017.

Capital Allowances

Businesses had expected to be able to claim 100% first year capital allowances on electric vehicle charging points installed from 23 November 2016 to 31 March 2019. These allowances may not now be available. The new Government may reintroduce some or all of the above tax changes, but not necessarily from the same dates.

Potts & Co - Accountancy & Business Advice

Salary sacrifice phased out

By | Budget Update, Pensions, Potts & Co Accountancy & Business Advice News

Many employers supply a range of benefits such as pension contributions, cars, childcare vouchers or bicycles, with employees permitted to choose between receiving less salary and taking up a benefit, a ‘salary sacrifice’.

The Government is concerned that it is missing out on tax in such arrangements, as the benefit received may not attract the same level of tax and national insurance as the salary given up. So the rules are to change to ensure it gets the same income whether the employee receives a salary or a benefit.

This change will be phased in: it will only impact new salary sacrifice arrangements made from 6 April 2017 onwards. Existing arrangements will be caught if they are modified or renewed after that date, such as when a different company car is provided. All existing salary sacrifice arrangements involving cars, vans, fuel, accommodation and school fees will come under the new rules from 6 April 2021. Other benefits, such as free car parking, will fall under the new rules from 6 April 2018. Some benefits won’t be affected at all, including pension contributions, subsidised meals and medical treatments.

If you offer a salary sacrifice arrangement to your employees, we should discuss how these changes will affect your business.

Potts & Co - Accountancy & Business Advice

Topping-Up Your State Pension

By | National Insurance, Pensions, Potts & Co Accountancy & Business Advice News

To receive the full amount of the new state pension you need to pay national insurance contributions (NIC) for 35 complete tax years.

If you were contracted out of the second state pension, or SERPS, for any part for your working life you may receive less pension than you were expecting.

You can check how much state pension you are due to receive on gov.uk under ‘check state pension’ or through your personal digital tax account. We can help you with this.
Where you have missed paying NIC, those contributions can often be replaced using voluntary NIC payments; Class 3 NIC for employees or Class 2 NIC for the self-employed. This top-up facility is particularly useful for those who have retired before state pension age or have missed making contributions because they lived overseas.

Spouses and civil partners of members of the armed forces, who accompanied their partners when posted overseas, can apply for NI credits toward their state pension for tax years back to 1975-76.

If you reached pension age before 6 April 2016 you can also top-up your state pension by up to £25 per week, by making lump sum payment before 6 April 2017. The amount due will depend on your age at the time you make the payment. This is a useful way of increasing the income of women who have a small state pension because they spent some years out of the workforce.

Potts & Co - Accountancy & Business Advice

Pension Recycling

By | ISA, Pensions, Potts & Co Accountancy & Business Advice News

Anyone aged 55 or over can now access their pension savings built up in a money purchase (defined contribution) scheme.

This access can be as a one-off lump sum payment, an annuity purchase or as flexi-access draw-down.

The downside is that once you start to access your pension in this way, the amount of further pension contributions you can make is restricted to £10,000 per year. This is to prevent people from drawing funds from their pension scheme and replacing the money in the same or another pension scheme, with additional tax relief.

From 6 April 2017, the amount you can contribute into a pension scheme after starting to draw your benefits will be year. If you don’t use that allowance in the year, it can’t be carried forward to the next tax year. You can continue to save for retirement in other ways, such as using an Individual Savings Account (ISA). The current
annual ISA contribution limit is increasing from £15,240 to £20,000 on 6 April 2017.

Pensions Lifetime Allowance Protection

By | Pensions

The pensions lifetime allowance was reduced to £1m from £1.25m on 6 April 2016. This threshold is tested when you start to take your pension benefits. If your pension fund value exceeds the lifetime allowance at that point, you need to pay a tax charge on the excess at 55% or 25% (depending on whether you take a cash lump sum or not).

If you have retired since 5 April 2016, or expect to do so shortly, you should assess whether the value of your pension savings does exceed £1m. A pension valuation from a qualified IFA may be required to do this. You may be surprised at the value of your total pension funds, as a total of £1m can be easily achieved by making regular pension contributions over 30 to 40 years.

Where you find your pension pot is around the £1m mark you should consider applying for fixed protection 2016 (FP2016) or individual protection 2016 (IP2016). These procedures fix your lifetime allowance at the lower of your pension pot value at 5 April 2016 and £1.25m.

You need to apply for either type of fixed protection online, through the HMRC services page. We can help you through this process, but the first step is to think about how much your pension pot could be worth