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