Revenue issues warning over tax rebate emails

HM Revenue & Customs (HMRC) has warned taxpayers not to respond to ‘phishing’ emails regarding tax rebates, as it emerged that taxpayers reported almost 80,000 of the bogus emails last year.

According to HMRC, fraudulent activity often increases following the closure of the 31 January self assessment deadline.

The emails, which are set up to look as though they are sent by HMRC, ask the recipient to confirm their personal, credit card or bank account details in order to process a tax refund.

However, HMRC has stressed that it would never contact customers via email regarding a genuine tax rebate.

Gareth Lloyd of HMRC said, ‘If anyone receives an email offering a tax rebate and claiming to be from HMRC, please send it to phishing@hmrc.gsi.gov.uk before deleting it permanently’.

Further advice about online security, including some examples of phishing emails and how to identify them, is available on the following link: www.hmrc.gov.uk/security/index.htm.

This article is for general guidance only.

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

New code to help retirees understand their pension options

 

Individuals approaching retirement are to be given more guidance to help them make an informed decision about their pension options.

Under the new Association of British Insurers (ABI) code of conduct, insurers must provide pension savers with information to help them better understand their options at retirement and the importance of shopping around for an annuity deal.

The new code will require insurers to send a letter to customers two years from retirement to encourage them to consider their retirement options. Further information will then be sent at six months before retirement and again at six weeks.

Insurers should explain the various options and ways to take retirement income, as well as providing advice on combining small pots and highlighting the benefits of shopping around for the best annuity deal.

Commenting, Otto Thoresen, director general of the ABI, said: ‘Increasing life expectancy means that many people will be receiving a pension for longer than they were paying a mortgage so the need to make the right decisions at retirement has never been more important.

‘The timely, clear and relevant information provided under the code will significantly increase the number of people reaching retirement with the confidence to make the right pension decision.’

Meanwhile Darren Philp, director of policy at the National Association of Pension Funds (NAPF), said: ‘The ABI's work is welcome, and an important step forward, but we believe that there is further to go if we are to maximise the chances of people securing the best possible retirement income’.

The code came into effect on 1 March.

This article is for general guidance only.

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

Child's play? The new rules on child benefit

 

From 2013, changes to the rules on child benefit mean that higher or additional rate taxpayers will be liable to a tax charge. The reforms will affect an estimated 1.2 million households, while thousands of people will be required to complete a self assessment tax return for the first time.

Here we consider how the new tax charge will work, along with some key strategies to help you preserve your entitlement to child benefit and minimise, or even eliminate, a potential tax liability.

Background to the change

 

Under the previous rules, most people could claim child benefit for children aged under 16 and, in some cases, until they reach the age of 20. One parent could claim £20.30 a week for their first (or only) child and £13.40 a week for each subsequent child, irrespective of their annual income.

However, from January 2013 the Government is 'clawing back' child benefit from individuals whose income exceeds £50,000 a year. The controversial move is designed to help reduce the budget deficit.

The policy to withdraw child benefit from higher/additional rate taxpayers was set out in the Spending Review 2010, but it was not until the 2012 Budget that the mechanism was made clear.

Child benefit will continue to be paid as a universal benefit and will not be made taxable. However, there is a new High Income Child Benefit Charge (HICBC) where the income of the claimant, or their partner, is between £50,000 and £60,000, after which the benefit will be fully eroded.

HMRC has predicted that the average loss to families will be around £1,300 per year.

Who is affected?

 

The tax charge applies both to taxpayers whose income exceeds £50,000 and who are in receipt of child benefit, and to taxpayers with income exceeding £50,000 and whose partner is in receipt of child benefit. If both partners have income in excess of £50,000, the charge applies to the partner with the highest income.

You will not be affected if both you and your partner have individual incomes below £50,000 for a tax year, or if neither of you are entitled to receive child benefit payments.

Another person is regarded as your partner if you are:

• a married couple living together (or have lived together during a tax year and are not permanently separated)
• civil partners living together (or have lived together during a tax year and are not permanently separated)
• a man and a woman who are not married to each other but who are living together as if they were married
• a man living with a man or a woman living with a woman who are living together as if they were civil partners.
•  

This means that potentially someone may suffer the tax charge in respect of the child benefit paid for children who are not theirs. Also, the person who receives the child benefit may not be the person who suffers the charge.

The first year of the change

 

The measure came into effect on 7 January 2013. In November 2012, HMRC started contacting people earning over £50,000 to alert them to the possibility of their being affected by the new charge.

For the tax year 2012/13, the first year of the charge, the amount of income taken into account will be the full amount of income for the tax year, and the charge will apply to the amount of child benefit paid in the period from 7 January 2013 to 5 April 2013. The amount of the HICBC will be collected either through Pay as You Earn or self assessment.

How is the tax charge calculated?

 

Where a person in receipt of child benefit or his or her partner has adjusted net income of between £50,000 and £60,000, the HICBC is levied at 1% of the benefit for every £100 by which income exceeds £50,000. Once adjusted net income reaches £60,000 the charge is equal to the full amount of child benefit received for the tax year. Where it is certain that the charge will bite, claimants can elect not to receive their child benefit (see below for further details).

Example

 

Jenny and Michael are married and live together. They have two children in respect of whom Jenny receives child benefit. Based on current figures, Jenny receives child benefit of £1,752 a year.

For the tax year in question, Jenny has adjusted net income of £15,000 and Michael has adjusted net income of £55,000. As Michael's income exceeds £50,000, he will be liable for the child benefit charge. The charge will be 50% of the child benefit received. Based on current figures, this will be £876 ((£55,000 - £50,000/£100 x 1%) x £1,752).

Adjusted net income

 

As we have already seen, the new HICBC rules focus on 'adjusted net income'. Broadly speaking, this is total taxable income less certain tax reliefs, such as:

• Trading losses and payments made gross to pension schemes
• Gift Aid donations to charity and pension contributions which have received tax relief at source.
•  

In certain cases it may be possible to minimise or avoid the HICBC by reducing your adjusted net income - please refer to the section 'Preserving your entitlement to child benefit' for more details.

Making a decision

 

Those affected by the new rules will need to calculate their liability to the HICBC before deciding whether or not to continue receiving child benefit payments. We can calculate your tax charge on your behalf - please contact us for assistance.

Continuing with child benefit payments

 

If you or your partner choose to continue receiving child benefit, you will need to register for self assessment (unless you have already done so) and complete a tax return. You will need to register by 5 October 2013 or you may incur a penalty.

Stopping child benefit payments

 

Child benefit claimants can elect not to receive the benefit if they or their partner do not wish to pay the new charge. Stopping child benefit payments will also remove the need to complete a tax return (unless you need to do so for other reasons). Child benefit payments can be stopped at any time, although you may still face a tax charge for the time during which you have been claiming the benefit.

Individuals who choose not to receive their child benefit may revoke this election if their circumstances subsequently change, i.e. their annual income falls.

Note that while you can elect not to receive child benefit payments, it is still important to complete a child benefit claim form for any new children in order to qualify for national insurance credits and thus preserve your entitlement to the State Pension. It also ensures that your child will automatically receive a national insurance number ahead of their 16th birthday.

Preserving your entitlement to child benefit

 

Couples affected by the changes may want to consider strategies to reduce or equalise income in order to avoid or reduce their exposure to the HICBC.

Transferring income

 

Where combined income is less than £100,000 it may be possible to transfer income to a partner to prevent the child benefit charge from impacting.

In the example, Jenny and Michael have combined income of £70,000. By moving income from Michael to Jenny, for example by transferring income producing assets, the charge will be reduced. If Michael's income is reduced to less than £50,000 they will be able to keep the full amount of their child benefit.

Pension contributions

 

Pension contributions are deducted before 'adjusted net income' is calculated. Therefore, if you or your partner are affected by the HICBC, you might want to consider making or increasing contributions to a registered pension scheme. Such contributions will reduce your adjusted net income, potentially minimising your liability to the HICBC and preserving your entitlement to child benefit.

Other options

 

There are other options available to reduce income without losing it entirely and, in doing so, retain your child benefit. These include swapping cash salary for tax-free benefits, such as childcare vouchers, under a salary sacrifice arrangement.

In a family company scenario, the parties might want to consider reviewing the way in which income is taken out of the company. Charitable giving provides another alternative.

To discuss these and other strategies which may be available, please contact us.

We can help! For more information on the changes to child benefit, and for advice tailored to you and your family, please do not hesitate to Jolliffes. We would be delighted to assist you.

Are you up-to-date on pension auto-enrolment?

 

Since the framework for pension auto-enrolment - whereby employers must automatically enrol staff into a pension scheme - was first set out in 2008, the legislation has been subject to numerous changes. With the first enrolments commencing this Autumn, here is an update on the current situation.

A brief recap

 

Despite the recent changes to the Pensions Act, the central principle of the regulations remains unchanged. Under the scheme, employers will be required to enrol automatically all eligible employees into a qualifying pension scheme and pay a minimum contribution into the fund. The move has been hailed the most radical change to workplace entitlements since the introduction of the National Minimum Wage.

Auto-enrolment is being phased in over a number of years, starting from October 2012 (larger employers first, smaller employers last).

To help employers adjust, compulsory contributions will also be phased in, starting at 1% before eventually rising to 3%. Employees will also contribute to their pension scheme - this will start at 1% of their salary, before eventually rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate.

So what's changed?

 

A revised timetable

 

In response to a consultation on the reforms, the Government made changes to the original timetable. As part of the changes, businesses with 50-249 staff will now have a staging date between April 2014 and April 2015.

Meanwhile, no small employer with fewer than 50 workers in its PAYE scheme will be brought in before May 2015. Businesses with fewer than 50 workers were originally scheduled to begin pension auto-enrolment in April 2014.

Consequently, firms with fewer than 49 staff will now begin to be staged in between June 2015 and April 2017. These small employers will be split between:

• those with 30 or more staff (who will be staged between August 2015 and October 2015), and
• those with fewer than 30 (who, apart from a test tranche in June 2015, will not be staged until January 2016).
•  

New employers will have until February 2018 to commence auto-enrolment.

Note that the staging dates for firms with 250 or more employees remain unchanged. Those with 120,000 or more personnel in their PAYE scheme must enrol staff from 1 October 2012, with firms with fewer than this number (up to 250 employees) being brought on board month by month until February 2014.

Employers can check their staging dates at www.thepensionsregulator.gov.uk.

Flexible staging dates

 

In an effort to afford firms greater flexibility, the Pensions Regulator has announced that employers will be able to bring forward their staging date.
Firms that choose to do so must notify the Pensions Regulator in writing at least one calendar month before the new earlier staging date.

New eligibility thresholds

 

When the legislation was originally published, it was proposed that workers must be earning at least £7,475 to qualify for auto-enrolment. However, the Government has now confirmed that the earnings limits for contributions will rise in line with the thresholds for tax and national insurance.

This means that eligible workers must now be earning at least £8,105 a year to qualify for auto-enrolment, although this figure is expected to be reviewed annually. Workers must also be aged between 22 years and the State Pension Age, working or ordinarily working in the UK, and not already in a qualifying pension scheme.

Meanwhile, minimum employer and employee contributions will now be based on 'qualifying earnings' - in 2012/13 terms, between £5,564 and £42,475. The threshold rates will be reviewed by the Government each tax year.

Qualifying earnings cover all of the following pay elements (gross):

• Salary
• Wages
• Commission
• Bonuses
• Overtime
• Statutory sick pay
• Statutory maternity, paternity and adoption pay.

Please contact us for advice. We can help with all your financial planning needs and will be delighted to assist you - 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

Thousands of entrepreneurs receive support under Start-Up Loan scheme

The Government’s Start-Up Loan scheme has exceeded expectations, with more than 2,000 young entrepreneurs receiving support under the initiative.

Over 1,000 new businesses were granted a loan in the last month alone, the Government revealed.

Chaired by entrepreneur and Dragons’ Den panellist James Caan, the scheme grants loans of around £4,500 to help 18 - 30 year olds in England start up their own business.

The loans must be repaid within a maximum period of five years, with interest charged at a rate of RPI plus 3%.

Successful applicants are also offered mentoring as well as free products and services from sponsors and partners.

The scheme was originally targeted at 18 - 24 year olds but it was extended earlier this year to include individuals up to the age of 30.

Commenting, James Caan, said: ‘Whilst we are well ahead of our target numbers, I believe we are only scratching the surface. Two thousand young and ambitious people have taken their future into their own hands. At the moment 40 people a day are launching their own business with Start-Up Loans’.

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

Saving tax ahead of the year end

There is a range of tax planning opportunities to consider ahead of the tax year end, some of which expire on 5 April 2013. Here we consider some key strategies to help you minimise your tax liability, whilst looking ahead to the raft of tax and business changes set to take effect in 2013/14.

Personal allowances: are you making the most of them?

 

The tax-free personal allowance (PA) for 2012/13 is £8,105 for those aged under 65. Meanwhile, the PA for those aged 65 to 74 at 5 April 2013 is £10,500, and for those aged 75 or over it increases to £10,660. Both higher allowances are scaled back if income exceeds £25,400.
If your spouse or partner has little or no income, consider transferring income (or income-producing assets) to them to make full use of their personal allowance. However, care should be taken to avoid falling foul of the settlements legislation governing 'income shifting', and any gifts of capital should be unfettered. Please contact us before taking action as we will need to consider the wider implications for you and your family.
You may also want to invest in tax-free savings options such as ISAs and some National Savings products in order to keep your income below the level at which the age reduction allowance is scaled back.

Take Note!

 

As announced in the Autumn Statement, the tax-free personal allowance for 2013/14 will rise to £9,440. This is higher than the increase originally planned at the 2012 Budget, when it was announced that the personal allowance would be raised to £9,205. The basic rate limit for income tax will be adjusted so that the higher rate threshold above which individuals pay income tax at 40% increases by 1% in 2014/15 and in 2015/16. For 2013/14, the higher rate threshold will be £32,010, decreasing from the current £34,370.

Planning for a 45% top tax rate

 

From 6 April 2013 the additional rate of income tax, which is levied on those with incomes over £150,000, is set to fall from 50% to 45%. Consequently, the dividend additional tax rate will be reduced in line with this from 42.5% to 37.5% and trust rates will mirror these changes. If you are likely to be subject to the 50% tax rate in 2012/13, you might want to consider deferring your income into the following tax year, for example by delaying dividend payments. This could mean that you would benefit from paying income tax at the lower dividend rate of 37.5%. The result would be that for every £90 of dividend subject to the additional rate, you would pay additional tax of £27.50 rather than £32.50.
Conversely, maximising pension contributions (within certain limits) before 5 April 2013 will allow you to obtain relief at the higher rate of 50% - please see overleaf for further information.
Giving careful consideration to the timing and structure of your income could significantly reduce your tax bill. Please contact us for further advice.

Take Note!

 

While the 50% rate may be falling, it is always advisable to review tax rates across the family to ensure that you are making the most of tax-free opportunities and keeping marginal tax rates as low as possible. For example, it is costly for one spouse or civil partner to be paying tax at 40% or even 45% while the other pays tax at only 20%. Talk to us for strategies tailored to your individual circumstances.

Are you saving tax-efficiently?

 

Despite continuing low interest rates, ISAs are still a popular tax-free saving option.
For all adult savers the maximum investment in 2012/13 is £11,280, of which no more than £5,640 can go into a cash ISA. 16-17 year olds can invest up to £5,640 only in a cash ISA. You have until 5 April 2013 to make your 2012/13 ISA investment. In addition, Junior ISAs, for those aged under 18 who do not have a Child Trust Fund account, allow investment of up to £3,600 in 2012/13.

Take Note!

 

The overall annual contribution limit for ISAs is set to rise from ?11,280 in 2012/13 to £11,520 in 2013/14. Of this, the cash limit will increase from £5,640 to £5,760.
The Junior ISA subscription limit and the Child Trust Fund annual subscription limit will also increase, climbing from £3,600 to £3,720 in 2013/14.

Pension planning is key

 

Investing in a company or personal pension scheme will afford tax breaks on your retirement savings. For 'additional rate' taxpayers, maximising pension contributions during 2012/13 will allow you to obtain relief at the rate of 50% (or in some cases over 60%). From April 2013 the rate will reduce to 45%.
For pension contributions to be applied against 2012/13 income they must be paid before 6 April 2013. Tax relief is available on contributions limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings, but subject also to the annual allowance of £50,000. Note that unused allowances may be carried forward for up to three years - please talk to us about maximising your pension savings and tax relief.

Take Note!

 

The 2012 Autumn Statement contained controversial proposals to restrict pensions tax relief. The maximum annual amount that you can contribute (and still receive tax relief) is going down from £50,000 to £40,000, although this change will not take effect until 2014/15.
In addition, the lifetime allowance will be lowered from £1.5 million to £1.25 million with effect from 6 April 2014. Please talk to us if you are affected by the changes.

Inheritance tax - lifetime planning for big tax savings

 

Inheritance tax (IHT) is currently payable at 40% on total assets exceeding £325,000 at death. However, with careful planning and by utilising the available allowances, it may be possible to reduce your liability to IHT.
Where possible, make sure you utilise the annual IHT exemption for gifts before 6 April. This is £250 per recipient, per year, plus up to £3,000 to cover larger gifts (any unused amount may be carried forward to enhance the following year's exemption). Gifts covered by the exemption do not form part of the estate for IHT purposes.
Your IHT planning strategies may also include maximising reliefs, utilising exempt transfers and making the most of trusts. Please contact us to discuss a programme for tax-efficient lifetime gifts.

Take Note!

 

The IHT threshold, officially known as the nil-rate band, has been frozen at £325,000 until 2015. However, in the 2012 Autumn Statement it was announced that the nil-rate band will rise by 1% in 2015/16 to £329,000.

Timing your expenditure

 

With the main rate of corporation tax and top rate of income tax set to fall over the coming years, delaying expenditure to save money or aid cash flow might not be the most tax-efficient approach.
By incurring expenses shortly before the year end rather than after, relief may be obtained 12 months earlier and at a higher rate. In the same way, the disposal of an asset may trigger an earlier claim for relief or even, in the event an asset is sold at more than its written down value, a charge to tax.

Take Note!

 

The main rate of corporation tax will be reduced from 24% to 23% for the financial year beginning 1 April 2013.
Furthermore, the Chancellor announced in the Autumn Statement that from 1 April 2014 the main rate of corporation tax would be lowered to 21%. This was a greater reduction than previously announced in the 2012 Budget, which intended a rate of 22% from 1 April 2014.
The Autumn Statement also introduced a temporary increase in the annual investment allowance from £25,000 to £250,000. This means that the majority of businesses can now claim a year-one write off for expenditure on most types of plant and machinery (excluding cars) of up to £250,000 per annum for a limited two year period commencing from 1 January 2013. We can advise on capital allowances to help maximise tax relief.
The rules are complicated so please contact us for advice about optimising the timing of your expenditure, ahead of the year end.


This article is for general guidance only.

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

Small business group calls for Budget action on business rates

The Forum of Private Business (FPB) has called on Chancellor George Osborne to scrap the 2.6% increase in business rates planned for April, in his forthcoming Budget.

Research conducted by the business group has revealed business rates to be the least popular of all business taxes, with 94% of businesses reporting that the rates are too high.

Business rates are currently linked with inflation, a fact which resulted in a 5.6% increase in rates last year.

However, the FPB is urging the Chancellor to consider capping further rises at 2% for the next two years.

Commenting on the Forum’s Budget submission, Alex Jackman, FPB Head of Policy, said, ‘By scrapping business rate rises this April and capping them at 2% over the following two years, the Government can help with both cash flow and certainty for financial planning. It would also encourage businesses to consider local council proposals on supplementary business rates with more open minds’.

The organisation has also emphasised the need to improve credit for those businesses that need it the most, both through boosting traditional SME lending routes and by encouraging new forms of lending.

This article is for general guidance only.

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

Our top 10 tips for reducing your tax bill

Sensible tax planning is an essential tool in making the most of your finances and helping your business's profitability.
Keeping your tax bill to a minimum is not a matter of aggressive or complex tax schemes, but rather of identifying which of the many tax reliefs and allowances specifically granted by law are available to you.
From ISAs to capital allowances, here are our top 10 ways of saving tax - for you, your family and your business. Contact us to discuss how we can help you take advantage of them.

1. Maximise personal allowances

 

Ensure that you are making the most of the tax-free personal allowance (PA), which for 2012/13 is £8,105 for those aged under 65, or the higher rate age-related allowance which is up to £10,660, maximum income £25,400. If your spouse or partner has little or no income, consider transferring income (or income-producing assets) to them to ensure that they are able to make full use of their PA.
Care should be taken to avoid falling foul of the settlements legislation governing 'income shifting'. Any transfer must be an outright gift with 'no strings attached'. One useful planning situation can arise where there is a transfer into joint names as tenants in common. In these circumstances, giving your spouse as little as 1% interest can mean that 50% of the income is automatically shifted for tax purposes. Please contact us before taking action.

2. Pay into a pension scheme

 

Investing in a company or personal pension scheme will afford tax breaks on your personal pension contributions. For 'additional rate' taxpayers, maximising pension contributions (within limits) during 2012/13 will allow you to obtain relief at the rate of 50% (45% from April 2013). Pension contributions can be made at up to 100% of relevant earnings, subject to the annual allowance of £50,000, and unused allowances may be carried forward for up to three years.

3. Use your capital gains tax (CGT) allowance

 

Make the most of your CGT exemption limit each year (£10,600 in 2012/13). It may be possible to transfer assets to a spouse or civil partner or hold them in joint names prior to any sale to make full use of exemptions. Individuals with a particularly large gain may want to realise it gradually to take full advantage of more than one tax year's allowance. However, you should only consider spreading a disposal of, for example, shares if you will not be putting your gain at risk in the meantime.

4. Invest in an ISA

 

Up to £11,280 can be invested in an ISA this tax year, of which up to £5,640 can be invested in cash. Most income accrues tax-free, although the tax credit on UK dividend income cannot be recovered. All investments held in ISAs are free of CGT. And don't forget, the new JISA, for those aged under 18 who do not have a Child Trust Fund account, allows investment of up to £3,600 in 2012/13.  16-17 year olds can also invest up to £5,640 in an adult cash ISA, even if they already have a JISA.

5. Review your business structure

 

The structure of your business can have a significant impact on your annual tax bills. While in the early years of a business it may be more advisable to operate as a sole trader or partnership, as profits increase it may be more beneficial to form a limited company or put in place a hybrid structure (e.g. have a limited company as a partner). Please talk to us about the best option for your business.

6. Go for green transport

 

Switching to a 'green' company car with low CO₂ emissions can reduce your tax liability, as such vehicles are taxed at a lower percentage rate. For cars which do not produce CO₂ engine emissions under any circumstances when driven ('zero emission cars', including those powered solely by electricity), the emissions-based percentage reduces to zero thereby reducing the car benefit charge to nil.

7. Review your capital expenditure

 

Review your capital expenditure to maximise claims for capital allowances. The majority of businesses are able to claim a 100% Annual Investment Allowance on the first £25,000 of expenditure on most types of plant and machinery (except cars).

8. Rent out a room

 

Under the 'rent a room' scheme, income from letting furnished rooms in your main residence is exempt from tax if the gross annual rent does not exceed £4,250 (£2,125 if you share the income). If you are letting to lodgers who live as part of the family, there will be no loss of capital gains exemption. Otherwise, there may be some restriction.
A lodger can occupy a single room or an entire floor of your home. However, the scheme doesn't apply if your home is converted into separate flats that you rent out. The scheme also doesn't apply if you let unfurnished accommodation in your home.

9. Write a Will and keep it up-to-date

 

A well-drafted Will can ensure that the wealth you have built up during your lifetime benefits the right people on your death - and it can also be structured to save tax. However, you must review it regularly to ensure it reflects changes in family and financial circumstances as well as changes in tax law.
We can help to reduce your tax liability and secure your family's long-term financial future, through a tax-efficient Will. Please contact us for further assistance.

10. Utilise inheritance tax (IHT) exemptions

 

You should make the best use of IHT allowances, including the annual exemption, which allows you to give away cash or assets up to a total value of £3,000 a year without incurring any taxes. Any regular gifts you make out of your after-tax income, not including your capital, are also exempt from IHT (providing you have enough income left after making them to maintain your normal lifestyle).
Most gifts made during your lifetime will be entirely exempt from IHT if you live for seven years after making the gift. These sorts of gifts are known as 'Potentially Exempt Transfers' (PETs).
Taxable gifts made up to seven years before death are added back into your estate and tax is calculated on the inclusive value. But to the extent that such lifetime gifts made between three and seven years before death exceed the tax threshold, the associated tax is discounted by up to 80%.
Don't forget, small gifts of up to £250 a person per tax year are exempt, while parents can each give cash or gifts worth up to £5,000 to their children as a wedding/civil partnership gift (grandparents can give up to £2,500 and others can give up to £1,000).

For advice on these and other tax-saving ideas, please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information.

Budget 2013: Government announces new tax-free childcare scheme

The Government has unveiled plans for a new tax-free childcare scheme in a bid to reduce the cost of childcare for working families.

It is thought that the initiative, which was announced ahead of Wednesday’s Budget, will ultimately benefit around 2.5 million families.

Under the scheme, eligible parents will be able to save up to 20% of their total childcare costs, or £1,200 per child, with effect from 2015.

The scheme will initially be available to parents of children under the age of five, although it will eventually be extended to include all children under 12.

To qualify, the parents will have to be in work and each must earn less than £150,000 and not already receive support through tax credits and later, Universal Credit.

Families will receive 20% – equivalent to the basic rate of tax – of their yearly childcare costs up to £6,000 per child.

The scheme, which will replace the existing employer-supported childcare programme, will be phased in from Autumn 2015 and will ultimately be open to parents with children under 12.

Announcing the measure, Prime Minister David Cameron said: ‘Too many families find paying for childcare tough and are often stopped from working the hours they'd like.

‘This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs’.

High earners reminded of child benefit opt-out deadline

High earners reminded of child benefit opt-out deadline

Individuals who earn more than £60,000 a year are being reminded to opt out of receiving child benefit before 28 March, if they wish to avoid filling in a tax return and repaying the benefit for the 2013/14 tax year.

Following recent changes to the child benefit regime, the benefit is gradually clawed back for those individuals whose income is between £50,000 and £60,000 a year, by means of the new High Income Child Benefit Charge. For those earning more than £60,000, the charge is 100% of the amount of child benefit.

Individuals who are affected by the charge have the option either to stop receiving the payments, or to pay back some or all of the benefit they receive through the self assessment system.

If child benefit payments are stopped from the end of March 2013, no payments will be made for the tax year 2013/14, and taxpayers will only need to complete one self assessment tax return, covering the payments made from 7 January to 5 April 2013 (unless they need to complete a return for other reasons).

Lin Homer of HM Revenue & Customs said, ‘Anyone with an income over £60,000 who has received child benefit since January needs to register for self assessment by 5 October 2013 to repay some or all of this year’s benefit, but if they opt out now this will be a one-off’.

We can help with your tax planning needs. Please contact Jolliffes 0845 258 1445 email info@jolliffes-accounting.co.uk

Saving tax ahead of the year end

 

There is a range of tax planning opportunities to consider ahead of the tax year end, some of which expire on 5 April 2013. Here we consider some key strategies to help you minimise your tax liability, whilst looking ahead to the raft of tax and business changes set to take effect in 2013/14.

Personal allowances: are you making the most of them?

 

The tax-free personal allowance (PA) for 2012/13 is £8,105 for those aged under 65. Meanwhile, the PA for those aged 65 to 74 at 5 April 2013 is £10,500, and for those aged 75 or over it increases to £10,660. Both higher allowances are scaled back if income exceeds £25,400.
If your spouse or partner has little or no income, consider transferring income (or income-producing assets) to them to make full use of their personal allowance. However, care should be taken to avoid falling foul of the settlements legislation governing 'income shifting', and any gifts of capital should be unfettered. Please contact us before taking action as we will need to consider the wider implications for you and your family.
You may also want to invest in tax-free savings options such as ISAs and some National Savings products in order to keep your income below the level at which the age reduction allowance is scaled back.

Take Note!

 

As announced in the Autumn Statement, the tax-free personal allowance for 2013/14 will rise to £9,440. This is higher than the increase originally planned at the 2012 Budget, when it was announced that the personal allowance would be raised to £9,205. The basic rate limit for income tax will be adjusted so that the higher rate threshold above which individuals pay income tax at 40% increases by 1% in 2014/15 and in 2015/16. For 2013/14, the higher rate threshold will be £32,010, decreasing from the current £34,370.

Planning for a 45% top tax rate

 

From 6 April 2013 the additional rate of income tax, which is levied on those with incomes over £150,000, is set to fall from 50% to 45%. Consequently, the dividend additional tax rate will be reduced in line with this from 42.5% to 37.5% and trust rates will mirror these changes. If you are likely to be subject to the 50% tax rate in 2012/13, you might want to consider deferring your income into the following tax year, for example by delaying dividend payments. This could mean that you would benefit from paying income tax at the lower dividend rate of 37.5%. The result would be that for every £90 of dividend subject to the additional rate, you would pay additional tax of £27.50 rather than £32.50.
Conversely, maximising pension contributions (within certain limits) before 5 April 2013 will allow you to obtain relief at the higher rate of 50% - please see overleaf for further information.
Giving careful consideration to the timing and structure of your income could significantly reduce your tax bill. Please contact us for further advice.

Take Note!

 

While the 50% rate may be falling, it is always advisable to review tax rates across the family to ensure that you are making the most of tax-free opportunities and keeping marginal tax rates as low as possible. For example, it is costly for one spouse or civil partner to be paying tax at 40% or even 45% while the other pays tax at only 20%. Talk to us for strategies tailored to your individual circumstances.

Are you saving tax-efficiently?

 

Despite continuing low interest rates, ISAs are still a popular tax-free saving option.
For all adult savers the maximum investment in 2012/13 is £11,280, of which no more than £5,640 can go into a cash ISA. 16-17 year olds can invest up to £5,640 only in a cash ISA. You have until 5 April 2013 to make your 2012/13 ISA investment. In addition, Junior ISAs, for those aged under 18 who do not have a Child Trust Fund account, allow investment of up to £3,600 in 2012/13.

Take Note!

 

The overall annual contribution limit for ISAs is set to rise from ?11,280 in 2012/13 to £11,520 in 2013/14. Of this, the cash limit will increase from £5,640 to £5,760.
The Junior ISA subscription limit and the Child Trust Fund annual subscription limit will also increase, climbing from £3,600 to £3,720 in 2013/14.

Pension planning is key

 

Investing in a company or personal pension scheme will afford tax breaks on your retirement savings. For 'additional rate' taxpayers, maximising pension contributions during 2012/13 will allow you to obtain relief at the rate of 50% (or in some cases over 60%). From April 2013 the rate will reduce to 45%.
For pension contributions to be applied against 2012/13 income they must be paid before 6 April 2013. Tax relief is available on contributions limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings, but subject also to the annual allowance of £50,000. Note that unused allowances may be carried forward for up to three years - please talk to us about maximising your pension savings and tax relief.

Take Note!

 

The 2012 Autumn Statement contained controversial proposals to restrict pensions tax relief. The maximum annual amount that you can contribute (and still receive tax relief) is going down from £50,000 to £40,000, although this change will not take effect until 2014/15.
In addition, the lifetime allowance will be lowered from £1.5 million to £1.25 million with effect from 6 April 2014. Please talk to us if you are affected by the changes.

Inheritance tax - lifetime planning for big tax savings

 

Inheritance tax (IHT) is currently payable at 40% on total assets exceeding £325,000 at death. However, with careful planning and by utilising the available allowances, it may be possible to reduce your liability to IHT.
Where possible, make sure you utilise the annual IHT exemption for gifts before 6 April. This is £250 per recipient, per year, plus up to £3,000 to cover larger gifts (any unused amount may be carried forward to enhance the following year's exemption). Gifts covered by the exemption do not form part of the estate for IHT purposes.
Your IHT planning strategies may also include maximising reliefs, utilising exempt transfers and making the most of trusts. Please contact us to discuss a programme for tax-efficient lifetime gifts.

Take Note!

 

The IHT threshold, officially known as the nil-rate band, has been frozen at £325,000 until 2015. However, in the 2012 Autumn Statement it was announced that the nil-rate band will rise by 1% in 2015/16 to £329,000.

Timing your expenditure

 

With the main rate of corporation tax and top rate of income tax set to fall over the coming years, delaying expenditure to save money or aid cash flow might not be the most tax-efficient approach.
By incurring expenses shortly before the year end rather than after, relief may be obtained 12 months earlier and at a higher rate. In the same way, the disposal of an asset may trigger an earlier claim for relief or even, in the event an asset is sold at more than its written down value, a charge to tax.

Take Note!

 

The main rate of corporation tax will be reduced from 24% to 23% for the financial year beginning 1 April 2013.
Furthermore, the Chancellor announced in the Autumn Statement that from 1 April 2014 the main rate of corporation tax would be lowered to 21%. This was a greater reduction than previously announced in the 2012 Budget, which intended a rate of 22% from 1 April 2014.
The Autumn Statement also introduced a temporary increase in the annual investment allowance from £25,000 to £250,000. This means that the majority of businesses can now claim a year-one write off for expenditure on most types of plant and machinery (excluding cars) of up to £250,000 per annum for a limited two year period commencing from 1 January 2013. We can advise on capital allowances to help maximise tax relief.
The rules are complicated so please contact us for advice about optimising the timing of your expenditure, ahead of the year end.


This article is for general guidance only.

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information

Real Time Information: are you ready?

From April 2013, HM Revenue & Customs (HMRC) is introducing a new way of reporting PAYE, known as Real Time Information, or RTI. The new system will see fundamental changes to the way in which employers and pension providers must report the payments and deductions they have made under PAYE. This guide provides an overview of the RTI regime, and how the new requirements may affect you.

The background to the scheme

Under the Pay as You Earn (PAYE) system, employers deduct an appropriate amount of income tax and national insurance contributions (NICs) from employees’ wages, in accordance with PAYE codes, tables and other instructions and procedures laid down by HMRC. Over the course of a year, the amounts deducted should be a close match to the actual tax and NIC liability due.
Employers deduct the tax and NICs, add their own employer’s NICs, and pay the total to HMRC, net of certain adjustments, every month or quarter. However, it is not until the end of the tax year, when the annual return is completed, that the overall liability is reviewed and calculated.
Under this system, inaccuracies can go undetected for long periods of time, with the result that individuals can go for extended periods inadvertently paying the wrong amount of tax.
The aim of the new RTI system is to ensure that the correct deductions are made from pay, resulting in more individuals paying the right amount of income tax and NICs throughout the tax year.

The new RTI system

While essential aspects of the system will remain the same (ie. The use of tax codes, deducting tax and NICs, and calculating pay), RTI will require employers and pension providers to submit information to HMRC regarding deductions they have made for PAYE, NICs and student loans when or before each payment is made, rather than at the end of the year.
HMRC believes that RTI will make the process simpler and less burdensome for employers, by:

• making it easier to ensure individuals pay the right amount of tax following a change of job
• removing the need to submit year end forms P14 and P35, and form P38A for casual employees – although you will still need to provide P45s and P60s to your employees, and to complete forms P11D and P11D(b) in respect of taxable benefits and allowances
• simplifying the PAYE end of year reconciliation process for employers and HMRC
• removing much of the uncertainty that leads to errors in the tax credits system.

The information on individuals’ employment income will also be used to support the administration of the new Universal Credit welfare benefit, which is due to come into force in October 2013.

Timescale for the changes

The new system is being phased in from April 2013, with all micro, small and medium-sized businesses and most large employers and payroll bureaux set to begin sending payroll information to HMRC in real time from this date. Businesses employing more than 5,000 people will arrange a ‘migration date’ between April and October with HMRC. The scheme will be mandatory for all employers from October 2013.
HMRC has agreed that any new PAYE schemes set up from November 2012 will be allowed to send payroll information in real time, as will employers joining HMRC’s RTI trial before March 2013. In addition, existing employers who in 2012/13 use or switch to software which is RTI compliant will also be allowed to report using the new system. Small employers, with nine or fewer employees, can use the free HMRC Basic PAYE Tools package instead of commercial payroll software.
HMRC will notify employers 4-6 weeks before they must begin using RTI. However, much of the impetus has been placed on employers, and it is important that you prepare for the move ahead of time. You may need to change some of your business systems and procedures to ensure that your information is correct and that your staff will be paid on time. Failure to submit PAYE data on time via RTI could also lead to penalties.

Getting RTI-ready

Check your data

You need to check in advance that your payroll data is accurate and in an appropriate format for RTI. The information that you submit will be matched against records held on HMRC’s databases, and any discrepancies could lead to inaccurate tax calculations or trigger a compliance check. See our employee data checklist below for tips on ensuring the accuracy of your employee information.

Update your payroll software

If you currently use payroll software, you will need to update it so that it is capable of processing and submitting RTI data. If you use a payroll provider, make sure that they are RTI-ready.
If you do not use payroll software, you will need to take steps to ensure that you are able to submit data to HMRC electronically by the deadline.
As mentioned earlier, if you are an employer with nine or fewer employees you can use either the free HMRC Basic PAYE Tools package or commercial payroll software, which will allow you to submit the data to HMRC when you complete the payroll. However, HMRC recommends that employers with more than nine employees use more appropriate software available from commercial software providers.

Update your Bacs references

If you pay your employees by direct Bacs, you must include a cross-reference or ‘hash’ in the submission and Bacs payment instruction.
If you make payments via a payroll bureau, bookkeeper or agent you should discuss with them what changes you may need to make to your PAYE processes.

Employee data checklist

Name: Ensure that individuals’ names are submitted in full, spelt accurately, and listed in the correct order, so: Alison Mary Smith, not A Smith, Smith A or Alison M Smith. Avoid using shortened versions, or covering entries such as ‘unknown’ or ‘A.N.Other’.
DOB: Do not use a default date of birth, and make sure the date is in the correct format (day, month and full year of birth).
NI: Ensure that you submit the correct national insurance number, which will take the form of two letters, followed by six numbers, ending with the letter A, B, C or D.
You can verify employee details by checking them carefully against an official document, such as a passport, birth certificate or full driving licence, and by making a national insurance number verification request (see below).

Making an RTI submission

There are several types of submission under the new RTI system, as set out below.

Full Payment Submission (FPS)

An FPS is the main type of submission, and contains details of all employee payments and deductions, including income tax, NICs and student loans, together with details of any new employees and those who have left the business.
An FPS is required each time an employer makes a payment to an employee, either at or before the time of payment, whether this is weekly or monthly, and it includes those whose income is below the lower earnings limit for NICs.
The first FPS should include all employees who have been employed during the current tax year, including starters and leavers, or those who have not yet received a payment, together with the hours normally worked.
Employers can submit a first FPS for each part of their payroll, eg. One first FPS for weekly pay, one for monthly pay and another for leavers. Subsequent FPS’ will only contain pay and deduction details for those employees that are actually being paid on that payday.
When you send your final submission for the tax year, you must indicate that this is the case and answer the relevant questions and declarations.
You may also be required to make the following submissions, depending on your individual circumstances:

Employer Alignment Submission (EAS)

This is used to match and align employee records with those held by HMRC, before you submit further information. You will need to submit an EAS if you have a large PAYE scheme with over 250 employees, if your PAYE scheme is split between different payroll providers or you have two or more payroll systems, or if you are unable to make a single FPS submission due to bandwidth restrictions.

Employer Payment Summary (EPS)

An EPS can be submitted where no payments are made to any employees in a pay period. The submission is also used where you need to advise HMRC of an alteration to your overall PAYE and NIC liability, recover statutory payments, etc.
If you want a deduction to apply to a specific tax month, the EPS must be received by the 19th of the following month.

National Insurance Number Verification Request

This allows employers to validate an employee’s national insurance number, or to trace a number where it is not known.

Earlier Year Update

This submission is used after 19 April to correct any of the year to date totals submitted in your final FPS for the previous tax year, and will only apply to RTI years.

This article is for general guidance only. We can offer assistance with all your payroll needs, from helping you to maintain accurate records to managing your payroll function on your behalf. 

Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information