That’s Scotch Tax!

Scottish Tax

On the 15th September HMRC issued the following announcement…

Depending on the level the Scottish Parliament sets the rate at Scottish taxpayers may pay a different rate of Income Tax to the rest of the UK.

Some of the Income Tax collected under the Scottish rate will fund the Scottish government and the rest will fund the UK government.

The Scottish rate of Income Tax doesn’t apply to income from savings such as building society interest or income from dividends. This rate will stay the same for all taxpayers across the UK.

The Scottish government is expected to announce the proposed Scottish rate of Income Tax for the tax year 2016 to 2017 in its autumn 2015 draft budget.

HM Revenue and Customs (HMRC) will collect the Scottish rate of Income Tax on behalf of the Scottish government.

Identifying Scottish taxpayers

It’s where you live, not where you work, that decides whether you’re a Scottish taxpayer.

You’ll pay the Scottish rate of Income Tax if:

  • you’re resident in the UK for tax purposes, and
  • your main residence for most of the tax year has a Scottish postcode

HMRC will contact potential Scottish taxpayers before April 2016. If the address HMRC holds for you is in Scotland you’ll be classed as a Scottish taxpayer. It’s your responsibility (not your employers’) to notify HMRC if you change your address.

Your April 2016 tax code will begin with the letter ‘S’ to show you’re a Scottish taxpayer.

If you pay your Income Tax through your wages (known as Pay As You Earn) HMRC will advise your employer to treat you as a Scottish taxpayer so you don’t need to do anything.

The Scotland Act 2012 contains the full definition of a Scottish taxpayer but where residency is not straightforward these examples of ‘close connection’ will help you.

National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.

Scottish Rate of Income Tax Calculator – click here

According to the Telegraph in August

Nicola Sturgeons’ rhetoric suggests she is planning to revive Labour’s ailing fortunes in Scotland, where it was all but wiped out in the general election, by veering Left and attempting to regain the party’s traditional working class support.

Among the policies she said she supported were a 50p top rate of income tax for people earning more than £150,000 and removing independent schools’ charitable status.

But the Tories said her blueprint would “send Scotland back to the 1970s” and warned it would merely result in an exodus of “wealth creators” south of the Border.

It will be interesting to see what the Scottish Parliament does to tax rates and whether or not its a success for Scotland.

steve@bicknells.net

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Can my Pension buy shares in my company?

Entrepreneur startup business model

A pension scheme can buy quoted or unquoted shares in a company based either in the UK or overseas.

An occupational pension scheme can buy shares in one or more of the employers participating in the scheme as long as both the following conditions are met:

  • the total value of the scheme funds invested is less then 20% of the net value of the pension scheme funds
  • the amount invested by the scheme in the shares of any one employer participating in the scheme is less than 5% of net value of the pension scheme funds

Any investment larger than this will be an unauthorised payment and both the scheme employer and scheme administrator will have to pay a tax charge on the amount above the limit.

https://www.gov.uk/pension-trustees-investments-and-tax

So in theory, yes, it is possible, but in reality its likely to fail because:

  1. An independent ‘Arms Length’ valuation will be required, for an unquoted small business or start up this is extremely difficult as establishing a market value for the shares will be difficult and often a start up will have losses in the first few years
  2. The HMRC’s rules which govern all registered pension schemes (in particular the sections covering both taxable property and tangible moveable property) dictate that the combined shareholding in the unquoted company held between the pension fund, the member personally and any other connected persons must never exceed 19%, otherwise there would be enormous tax consequences for all concerned
  3. The company concerned must not (and never should be in the future) controlled by the trustees of the pension fund in conjunction with connected parties

If the business needs the money to buy commercial premises for its trade it would be easier for the pension scheme (SSAS) to lend the money, a SSAS can lend up to 50% of net scheme assets as explained in in this fact sheet from Curtis Banks

If you are over 55, you could also consider drawing down funds from your pension, the first 25% will be tax free.

steve@bicknells.net

Is this the End of National Insurance?

Pay Packet And Banknotes

You pay National Insurance contributions to qualify for certain benefits including the State Pension.

You pay National Insurance if you’re:

  • 16 or over
  • an employee earning above £155 a week
  • self-employed and making a profit of £5,965 or more a year

The Office of Tax Simplification is currently beginning a process of looking at merging National Insurance with Income Tax.

OTS NI TOR

ACCA’s head of tax Chas Roy-Chowdhury warned that an alignment of NI and income tax rates would be crucial prior to a merger taking place.

Whilst This is Money reported…

Middle and high earners could see their tax bills jump under radical plans to merge income tax and National Insurance, a tax expert has warned.

People taking home £50,000 a year could be £230 worse off, but low earners on £20,000 would save more than £530, and those on £30,000 would come out around £380 ahead, according to snap research by Tilney Bestinvest on the potential tax shake-up.

Chancellor George Osborne wants to reduce ‘complexity’ in the tax system to make it clearer exactly how much people have to cough up, and has ordered the Office of Tax Simplification to see if there is a case for change.

This change is also likely to lead to changes to Pension tax relief reform, Your Money reported…
The government has already announced a consultation on the pension tax relief system, and I believe that a merger of income tax and NI would likely result in the floated idea of a pension with ISA-like tax treatment. This is because at present, a basic rate taxpayer gets 20% tax relief on pension payments but surely this would increase to 32% under a combined system. It seems illogical to increase tax relief at a time when they are actually trying to reduce the cost to the Exchequer. An equal tax treatment of ISAs and pensions could be a prelude to merging the two, potentially drawing ISAs into some form of limetime allowance.
steve@bicknells.net

Have you been over taxed on your pension withdrawal?

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You should be able to withdraw 25% of your pension tax free, but your pension provider will tax you on payments above this level.

If they don’t hold a current P45, the pension provider will apply an emergency tax code on a month 1/week 1 basis, which could mean you pay too much tax.

You will need these forms to reclaim the tax

Form P50Z – if the client has chosen to empty all their pension pot in one go and they have no other PAYE or pension income (other than the state pension);

Form P53Z – if the client has chosen to empty all their pension pot in one go and they do have other PAYE or pension income other than the state pension;

Form P55 – where the client has taken a lump sum payment which doesn’t use up all of their pension pot, they have only taken a single payment and don’t intend to take further payments in that tax year.

steve@bicknells.net

Will you be taxed if you inherit a Pension Fund?

Signing Last Will and Testament

IHT only applies if the pension company has to pay the value of your scheme to your estate, in which case it becomes like any other asset, but generally the pension pot is held in a discretionary trust, which means it isn’t taxed on death.

You can now nominate anyone not just dependents to be the beneficiary.

Since 6th April 2015 anyone who inherits a pension fund from a person who dies before the age of 75 is entitled to receive it tax free and the you can take the money as a lump sum or income. Once over 75 a special tax of 45% applies (previously 55%), you could reduce this by taking a regular income.

From 6th April 2016 the 45% tax is likely to be scrapped and income tax rates will be applied.

The BBC website has a useful post which explains the changes in 10 questions, click here to read it

steve@bicknells.net

 

 

Free Auto Enrolment Checklist to Maximise Profits

For years, accountants and bureaus have been offering payroll services, taking a massive burden off the hands of their clients. However, the payroll profession has changed dramatically over recent years with the introduction of Auto Enrolment. A significant 1.2 million small and micro businesses are set to start staging between June 2015 and the beginning of 2018. The Pensions Regulator defines small businesses as employers with 5 to 40 workers and micro businesses as having one to four workers.

Brightpay

The thought of choosing the right payroll provider has exasperated with the new AE employer duties that need to be completed. Some software providers are avoiding auto enrolment completely, while others are offering AE features with limited functionality or at a high extra cost. If you have payroll clients they may have an expectation that you will handle the AE setup and ongoing duties for them. For bureaus, it will be important to discuss the options with your clients as early as possible.

Auto Enrolment Functionality

Payroll software will play a vital role in ensuring the success of Automatic Enrolment. Many of the functions necessary to comply with Automatic Enrolment duties are process-driven and can be handled by technology. Your payroll clients will need to access their employees to ascertain who they have to automatically enrol and who will have the right to request to join.

The Pensions Regulator recommends that payroll software should automate the majority of these processes, such as assessing employees’ eligibility, producing employee communications, monitoring employees’ ages, and earnings on ongoing basis, producing the required reports and much more. It will be important to check with your software provider to see if it can handle the requirements of Automatic Enrolment. From that point on, it is all about efficiency and there are several questions that need to be answered first in order to start making a profit from these jobs.

So what should you be looking for in potential payroll software to process AE more efficiently? These 10 questions outline key factors to ease the decision making process.

1. Does it support your chosen AE pension schemes?
2. Will employee assessment be automated?
3. Is enrolling employees problematic or effortless?
4. Can it produce employee communications based on individual’s work status?
5. Does it allow for Postponement?
6. Are employees being continuously monitored by the software?
7. What are the limitations regarding the number of employees or employers that can be set up?
8. Will it make contributions and deductions?
9. Does it allow you to produce the required reports?
10. Are auto enrolment features and support charged at an extra cost?

Discover how the right payroll solution will empower you to improve profit margins and increase the turnaround of clients. This step by step guide details how the correct systems in place with fully optimise their payroll operations for efficiency. Check your have full AE functionality.

 

Download full Guide Here

Written by Karen Bennett for BrightPay Payroll

Will cashing in your annuity lead to a better pension?

This is exactly how I pictured the partners lounge

The chancellor George Osborn has announce that he plans to allow pensioners to cash in their annuities.

Before the pension reforms….

Individuals saved into a pension during their working life and so built up a pension pot.

At some point during the first years of retirement, they used the money to buy an annuity from an insurance company.

This is a transaction that occurs once, and only once.

An annuity is an annual retirement income that is paid to them for the rest of their life.

BBC

From April 2016 the proposal is to allow pensioners to swap an annuity for a fixed lump sum.

But will pensioners be able to find investments which are better than the annuity they currently have?

steve@bicknells.net

Auto Enrolment – Free Webinars

BrightPay_&_AE

With the introduction of automatic enrolment, thousands of employers need to automatically enrol their eligible employees into a workplace pension scheme. Many small and micro employers will look to their bookkeeper, accountant or payroll advisor for help and advice. BrightPay is hosting a series of free Auto Enrolment Webinars specifically designed for bookkeepers, accountants and payroll advisors to make it easier to help payroll clients with their new obligations.

These webinars will include a number of guest speakers from the accounting and payroll industry. The topics covered will highlight various methods to streamline your auto enrolment processes and save you time handling these employer duties for payroll clients. Below is a list of each webinar with the guest speakers and topics that will be discussed. These are completely free webinars. Book your place today.

Webinars Dates

18th March
● Paul Byrne: Payroll Bureaus Guide to Profit from Auto Enrolment
● Mark Lee: How to STAND OUT from your competition
Register here https://www.brightpay.co.uk/events/9/

24th March
● Paul Byrne: Embrace Auto Enrolment to increase profits
● Patrick McLoughlin: Using Auto Enrolment to attract your Ideal Clients
Register here https://www.brightpay.co.uk/events/10/

25th March
● Paul Byrne: Essential Questions to ask you Payroll Software Provider
● Darren Critten: Auto Enrolment – Collaboration is the key to Success!
Register here https://www.brightpay.co.uk/events/7/

Written by Karen Bennett for BrightPay Payroll Software

Will you pay Class 3A NI to top up your Pension?

This is exactly how I pictured the partners lounge

From 12 October 2015 to 5 April 2017 you’ll be able to make a ‘Class 3A voluntary contribution’ to top up your State Pension by up to £25 per week.

You can choose to top up your State Pension by between £1 and £25 per week. How much you’ll need to contribute depends on:

  • how much extra pension you want to get each week
  • how old you are when you make the contribution

Example You are 68 years old in October 2015. You decide that you want to get an extra £5 per week (£260 a year) on top of your pension.

The cost of an extra £1 per week for a 68 year old is £827, so you multiply £827 by 5.

You’ll make a lump sum payment of £4,135.

You can use this calculator to see how it works…

https://www.gov.uk/state-pension-topup

Here is a link to the legislation…

http://www.legislation.gov.uk/ukdsi/2014/9780111121689/contents

steve@bicknells.net