Featured post

Self-assessment taxpayers given more time

Late filing and late payment penalty waived for one month.

On 6 January, HMRC issued a press release stating that, for the second year in a row, it is waiving the late filing and late payment penalties for those who complete self-assessment tax returns, by one month. This is to give, those who file, extra time to complete their 2020/21 tax return and pay any tax due.

HMRC recognises the pressure faced due to the pandemic for taxpayers and their agents, however, is encouraging taxpayers to file and pay on time if they can. Figures show that, of the 12.2 million taxpayers who need to submit their tax return by 31 January 2022, almost 6.5 million have already done so.

The deadline to file and pay remains 31 January 2022. However, the penalty waivers mean that:

  • anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February;
  • anyone who cannot pay the tax owed by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April.

Interestingly, that Christmas was a popular time to file with over 31,000 filing over the festive period, but New year proved to be even more popular, with 33,467 tax returns filed on New Year’s Eve and 14,231 tax returns filed on New Year’s Day.

The following is a useful summary of the self-assessment timeline:

  • 31 January – self-assessment deadline (filing and payment);
  • 1 February – interest accrues on any outstanding tax bills;
  • 28 February – last date to file any late online tax returns to avoid a late filing penalty;
  • 1 April – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty;
  • 1 April – last date to set up a self-serve Time to Pay arrangement online.
Featured post

Sarah Walker, Financial Planning Week Tip: Putting protection at the forefront of financial planning

The foundation of all financial advice is built on protection. There is little sense in building a great wealth portfolio on shaky ground. The fuel that powers our ability to build up our investments is often reliant on our ability to generate an income. If the fuel runs out, the vehicle stops moving. Therefore, it is logical to ensure (or should that be insure?) that our client’s income continues to flow, even in the event of them being unable to continue working due to ill health, or as the result of an accident.

How well we cement our client’s ‘foundations’ is dependent on what protection is available to them. Appropriate advice obviously relies upon needs and risks being identified and discussed. However, it is also vital that an in-depth conversation about a client’s health is conducted at an early stage. There is no point in discussing a solution with a client, if the product in question would ultimately be unavailable to them, due to their medical history, or even that of their family.

Conducting detailed research before making a recommendation to a client is extremely important. It ensures that expectations are managed, and this can come in many forms:

  • The premium – will a loading be applied, and, if so, what will the final premium look like?
  • Exclusions – will any be applied to the final underwritten offer issued by the insurer? If so, they need to be discussed with the client before an application is made, to avoid any unwelcome surprises once the underwriting has been completed.
  • Declined applications – can lead to awkward conversations with a client. Adverse and unwelcome decisions can often be avoided if the fact finding and research process is thorough at the outset. In other words, by not applying for cover that was always going to be declined.

Protection isn’t complicated, but sometimes it can be. There are a lot of moving parts to stay on top of. Insurance providers regularly update their policies, particularly critical illness and income protection cover.

They also regularly update their underwriting policies – just because a particular insurer previously accepted someone with an above average BMI on standard terms, it doesn’t mean they are going to offer the same terms again.

Unless you advise and arrange protection on a very regular basis, it is easy for knowledge to slip. In our experience, many clients in the ‘wealth management space’ tend to be in their 50’s and 60’s where it’s unusual to find a client with a clean bill of health. We also find that due to their age and the sum assured required, medicals and GP reports are frequently requested. Helping a client navigate safely and efficiently through this process can also take a considerable amount of time and effort.

Broadly, we find that clients are all too ready to insure their lives and maybe even protect themselves against critical illness, but income protection often lags behind as it isn’t deemed to be a priority.

In a year when Swiss Re reported a 10% reduction in income protection policies sold, we all know that the risk of becoming too ill to work is greater than the risk of suffering a critical illness or even dying.

Yet so much is reliant upon income, such as our:

  • Lifestyle
  • Mortgage
  • Bills
  • Mental wellbeing.
  • Pension contributions.
  • Education
  • Bank of Mum and Dad.
  • Payment for health/household insurances.

Often the person who stays at home to raise the family can be completely overlooked. If that person had an accident or was too ill to be able to run the house, raise the children, cook the meals, taxi drive the children, then who would do it? And how would that be financed?

Why liquidate hard-earned savings and assets, or be forced to downsize, when they can all be protected by arranging a suitable policy whilst paying an affordable monthly premium?

What matters is your duty of care to your client and that protection is considered at the forefront of financial planning.  

Featured post

Chris Jones, Financial Planning Week tip: Making the most of pensions tax relief ahead of another Budget

As we approach another Budget there will no doubt be the usual speculation that pensions tax relief may come under attack. And with the latest HMRC statistics showing the estimated gross tax cost of pensions tax relief at £41.3bn in 2019/20, this may be too tempting for the Treasury to ignore.

Whilst wholesale changes to pension tax relief are unlikely in the short term, there may be some tinkering with allowances and reliefs. Any further changes are unlikely to make to make pension contributions more favourable. Therefore, where clients have the available funds and allowances, it may be better to make contributions sooner rather than later.

It’s worth a reminder of the limits and mechanics of the tax relief available on pension contributions to ensure clients can maximise the benefits of making any contributions.

Annual allowance

The annual allowance limits the tax benefits on the total contributions paid in a tax year. This will include contributions made by the individual, their employer, or a third party on behalf of the individual. The standard annual allowance is £40,000. High earners may have a lower tapered annual allowance, which can be as low as £4,000 and will depend on their level of earnings. Those who have accessed their pension benefits flexibly may be subject to the £4,000 money purchase annual allowance.

Where an individual exceeds their annual allowance in any tax year they are be able to carry forward any unused allowances from any of the three previous tax years.  

If, after allowing for any carry forward, the contributions exceed the individual’s annual allowance in any tax year, the individual will be subject to an annual allowance charge. The annual allowance charge aims to reclaim the tax relief received on the contribution. The excess over the annual allowance is added to the individual’s other taxable income and charged at their marginal rates of income tax. 

For example, if a higher rate taxpayer exceeds the annual allowance by £10,000 the annual allowance charge would be £4,000 assuming they remained within the higher rate band after adding the £10,000 to their other income.

Tax relief on personal contributions

Tax relievable personal contributions are limited to 100% of the individual’s relevant earnings in the tax year they are paid, which is broadly earnings from their employment or self-employment. Other types of income such as dividends or buy-to-let rental income do not count as relevant earnings. 

It is not possible to carry forward unused earnings from a previous year. If, for example, an individual has unused allowances of £90,000 and earnings of £30,000 the maximum tax relievable personal contribution is limited to £30,000.

Where an individual’s earnings are less than £3,600 they can pay and receive tax relief on contributions of up to £3,600 in any tax year. It is not possible to carry forward this allowance.

Tax relief is available on personal contributions at the individual’s highest marginal rates of tax. How the relief is applied depends on what type of scheme the contributions are paid into, either a “relief at source” scheme or “net pay scheme”. Aside from non-taxpayers (please see below), the tax relief available is the same whichever method is used.

Relief at source

Personal pensions and group personal pensions will operate as relief at source schemes. With these, the contributions are paid net of basic rate tax and the provider adds the tax relief. The provider then reclaims this directly from HMRC. Basic rate relief is added regardless of the tax rate the individual pays, even if they are non-taxpayer. Any higher rate or additional rate tax is reclaimed direct from HMRC by the individual. The relief is claimed by increasing the individual’s basic rate tax band by the gross value of the individual’s contribution.

Example

Paul earns £70,000 a year and wants to make a gross contribution of £10,000 to a relief at source scheme. He pays a contribution of £8,000 to the pension provider who add the 20% tax relief.

Paul’s basic rate tax band is then extended by £10,000. This means that £10,000 more of his income is taxable at 20% rather than 40% and so he benefits from a further £2,000 of tax relief.

Net pay schemes

Most occupational schemes operate on a “net pay” basis. With this type of scheme, the individual’s pension contributions are deducted from their pay before it is subject to tax. This means the full amount of tax relief is applied immediately by reducing the taxable pay. Note though that National Insurance contributions are still applied to the full pay before the deduction of the pension contribution.

Example

Fiona earns £80,000 a year. She pays personal contributions of £5,000 to her occupational pension scheme. The £5,000 is paid gross to the pension provider and her taxable income reduces to £75,000. The net cost to her of the £5,000 pension contribution is £3,000 so she has received 40% tax relief.

Note that because contributions simply reduce the level of taxable earnings, any non-taxpayer in a net pay scheme will not receive tax relief. This is an anomaly in the tax system and one the Government has been consulting on to resolve.

Salary sacrifice

With salary sacrifice, the employee reduces their salary in exchange for a pension contribution. Therefore, technically, the pension contribution is an employer contribution. For tax purposes it works in a similar way to a net pay scheme. However, the advantage of salary sacrifice is that it reduces the salary for all purposes, meaning that both the employer and employee also save the National Insurance on the amount sacrificed.

Tax relief on employer contributions

Employer contributions are always paid gross. As long as they are within the individual’s annual allowance there is no tax consequences on the employee. The employer can claim relief against corporation tax on the contributions as long as they meet what are known as the “wholly and exclusively” rules. Essentially this means that in order to benefit from tax relief, any contributions must be a genuine expense in the running of the business. In a normal employer/employee relationship this is unlikely to be an issue as there would usually be a genuine commercial reason for paying employer pension contributions as part of the employee’s reward structure.  

For small owner managed limited companies it can also be an extremely tax efficient way of extracting funds from the company. Again, meeting the “wholly and exclusively” condition in this type of situation is rarely a problem where the owner/director is taking on the business risks (e.g. as a shareholding director) of the company. However, issues can arise where contributions do not represent the fair market reward for a role – if, for example, a large contribution is made for the spouse of a director who has minimal duties (and that spouse is not is taking on the business risks of the company) and a pension contribution of that size would not normally be made for other employees who have similarly minimal duties.

Unlike personal contributions, employer contributions are not limited to the level of the individual’s earnings. So, for example, a director earning £10,000 could also receive an employer pension contribution of £40,000. The company will receive corporation tax relief on the contribution as long as it meets the “wholly and exclusively” rules.

Lifetime allowance

In addition to the limits on pension contributions, the lifetime allowance (LTA) sets a limit on the overall benefits that an individual can receive from all of their pension plans without suffering an additional tax charge. The LTA is currently £1,073,100 and is frozen at this level until 2025/26. Where an individual takes benefits in excess of this, or dies or reaches age 75 without taking their benefits, an LTA charge applies on the excess. The LTA charge is 55% if benefits are taken as a lump sum or 25% if the funds are used to provide an income. Any income is also subject to income tax at the point it is taken.

Where uncrystallised funds or funds in drawdown are subject to an LTA test at age 75 the tax charge on any excess is always at 25%.

With the LTA currently frozen, more and more clients are likely to be impacted by the limit and charges. This limit also needs to be considered for clients considering making further contributions.

Earlier in the year there were rumours that this limit may be reduced further, and this is one to watch out for in the Budget. The only positive news is that whenever the LTA has been reduced in the past, protection has been available to allow clients to protect the LTA at the current levels.

National Living Wage 2024/25

The new NLW rate for 2024/25, which has been announced at a higher level than originally proposed


Source: Gov.UK CPI based on September in year

What gets revealed either side of a fiscal statement can often throw a light on measures that the Treasury find awkward to include in the main presentation. The announcement on the day before the Autumn Statement of the 2024/25 National Living Wage (NLW) and National Minimum Wage (NMW) rates is a case in point.

As we noted in an earlier Bulletin, the Chancellor had trailed in October that the NLW rate would rise to over £11 an hour (from the current £10.42) as well as being extended down to 21 year olds (from the current 23 minimum age). Yesterday’s announcement revealed a figure well over £11 and 1p above the top of the band proposed by the Low Pay Commission back in March. The new rates are:

RateFrom 1/4/2024From 1/4/2023Increase
£ per hour(%)
NLW Age 21* + above11.4410.42  9.8
NMW Age 21-22*  N/A10.18  12.4*
NMW Age 18-20  8.60  7.4914.8
NMW Age 16-17  6.40  5.2821.2
Apprentice rate  6.40  5.2821.2

* NLW applies from age 21 from 1/4/2024, previously 23

The 9.8% NLW increase is well above the current rate of inflation (4.6% CPI in October 2023) and comfortably exceeds the latest Office for National Statistics (ONS) earnings growth figures for July-September of 7.9% (including bonuses) and 7.7% (excluding bonuses). The size of the rise is driven by the Government’s longstanding goal to bring the NLW up to two thirds of median earnings by April 2024 for workers aged over 21. This also explains the jumps in the NMW for those under age 21, bringing them closer to the NLW level they will eventually move into.

The large increases are something of a problem for the Chancellor:

  • It was not so long ago that Mr Hunt was saying that pay rises above inflation would be a ‘terrible mistake’ and fuel inflation.
  • On the day that the NLW announcement was made, the Governor of the Bank of England told the Treasury Committee that wage growth remained too high, creating an upside risk to inflation. Of late, Mr Hunt (and his boss) have focussed on their ‘success’ in halving inflation in 2023.
  • The sharp jump in the NLW will directly benefit 2.7m employees and indirectly benefit many more – a £1.02 an hour increase will ripple some way up through wage scales. That will add to business (and Government) costs, potentially countering the increased investment Mr Hunt wishes to encourage via his widely anticipated ‘full expensing’ extension.
  • A 10%ish NLW rise contrasts awkwardly with the likely continued freeze in the personal allowance.
  • Similarly, the NLW rise may shine an unfavourable light on benefit increases, particularly if working benefits are linked to October 4.6% CPI, as has been rumoured.

Comment

The 2024/25 NLW equates to £20,821 a year, based on a 35-hour week. That is a number worth remembering when the New State Pension, assuming a (far from certain) 8.5% increase, will be £11,502…   

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

ISAs and differential shares

With fractional shares, rather than owning a share in a company, individuals own fractions of one or more shares. This could be useful, where, for example, a whole share would cost more than the £20,000 annual ISA subscription.

The emergence of fractional shares post-dates the ISA regulations. However, HMRC recently issued a definitive answer on the topic of differential shares in ISAs, by way of its tax-free savings newsletter published on 9 October 2023.

According to HMRC, a fraction of a share is not a share and therefore cannot be held in ISAs. ‘Shares’, as referred to in paragraph 7(2)(a) of the ISA Regulations, refers only to whole shares and not parts or derivatives thereof. A fraction of a share does not give the investor the same legal rights as a whole share does. Fractional shares could only qualify for inclusion in ISAs if the ISA Regulations were amended to allow them.

HMRC’s newsletter goes on to say that, where fractional shares are an underlying investment in a collective investment scheme or fund (for example an exchange traded fund), they are not subject to the same restrictions.

HMRC says that any ISA managers who allow fractional shares to be purchased or held within their ISAs as a qualifying investment under Regulation 7(2)(a) should contact HMRC by email at savings.compliance@hmrc.gov.uk.

However, it appears that, this update has caused some controversy, with disagreement in some parts over HMRC’s interpretation of the consolidated version of The Individual Savings Account Regulations 1998 (SI 1998 No. 1870). According to AccountingWEB, Dan Neidle, a regular contributor to their site, has since “set out his own stall”, as to why he believes that HMRC is probably wrong. Please see here.

Whether such an investment is in fact legal or not, since HMRC has published its own view, it’s unlikely that an investor would want to take a chance on including fractional shares in their ISA in the knowledge that this would be open to challenge.

It’s quite possible that HMRC will seek to settle the matter via the courts. However, that will take time, and that might mean investors facing uncertainty regarding their entitlement to tax relief on the fractional shares in question until some time late in the current decade.

Or, maybe, Jeremy Hunt will look to resolve this once and for all, in the upcoming Autumn Statement, by arranging for some suitable wording to be included in the current ISA regulations, either to make it clear that that fractional shares can’t be held in an ISA, or, perhaps, to allow fractional shares to be held in an ISA.

Please look out for information on any developments regarding this in our Autumn Statement analysis which will be published on Techlink on the evening of 22 November 2023.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

Cryptoassets – new FCA guidance and a new consultation

The FCA’s new guidance, which is designed to give people a better understanding of what they are investing in, and the risks involved. And a consultation on a new Discussion Paper to help develop the FCA’s regime for fiat-backed stablecoins including when used as a means of payment.

New guidance for crypto firms to help them comply with marketing rules

Following a change in legislation, cryptoassets promotions targeting UK consumers now fall within the FCA’s remit.

Following a consultation, the FCA has published Guidance to further support crypto firms complying with the new marketing rules. The Guidance also details how authorised firms communicating or approving financial promotions should apply the Consumer Duty to their marketing.  

To further support firms make necessary improvements to their marketing, the FCA previously published examples of good and poor practice on firms’ preparations for the new financial promotions rules. 

It says that it continues to remind people that despite these new rules, cryptoassets remain high-risk and people should be prepared to lose all the money they invest. 

Consumers should check the Warning List before making any investment in cryptoassets. The list is intended to help consumers make more informed investment decisions by finding details of unauthorised firms the FCA is aware of. It should also help consumers understand which firms may be providing or promoting financial services or products in the UK without the FCA’s permission. 

New Discussion Paper

The Treasury’s recent Policy Statement sets out their intention to define fiat-backed stablecoins in legislation, expecting it to capture those stablecoins which seek to maintain a stable value by reference to a fiat currency, and hold (in part or wholly) currency as ‘backing’. Please see our earlier Bulletin.

The Treasury is also considering making changes to the payments legislation to enable retail payments for goods and services to be made using fiat-backed stablecoins. This includes an option the Treasury are exploring to allow certain stablecoins which are issued outside of the UK (overseas stablecoins) to be used for payments.

The FCA says that its Discussion Paper will be a part of a joint publication package with the Bank of England’s Discussion Paper on systemic payment systems using stablecoins and related services providers, and the Prudential Regulation Authority’s Dear CEO letter on innovative uses of deposits, e-money and stablecoins. To accompany these publications, it is also publishing a joint ‘Roadmap paper’ with the Bank and Prudential Regulation Authority which aims to explain how its proposed regimes interact and its approach for dual regulation. 

This Discussion Paper will interest anyone in the UK who has bought, or may in the future buy, fiat-backed stablecoins. This regime will also interest organisations and individuals that participate in the cryptoasset sector (specifically, cryptoassets that claim a form of stability and make use of a stabilisation mechanism). It will particularly interest:  

  • firms or individuals that design, issue or maintain a fiat-backed stablecoin;  
  • firms that provide custody for, or safeguarding ownership of, fiat backed stablecoins – or the ‘private keys’ to access them (this will include any entity that takes custody of stablecoin, no matter how briefly, for example an exchange that does so to facilitate a trade);  
  • retail payment service providers, which may consider using fiat-backed stablecoins as an alternative means of payment;  
  • cryptoasset firms providing services to UK consumers for fiat-backed stablecoins industry groups/trade bodies;  
  • professional advisers;  
  • consumer groups and individual consumers;  
  • policy makers and other regulatory bodies; 
  • industry experts and commentators;  
  • academics and think tanks.


The FCA has asked for feedback by 6 February 2024. It will consider feedback to decide its next steps and it will consult on any proposals in this Discussion Paper if it proposes to adopt them as part of its final rules.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

Group Income Protection Policies – new HMRC guidance

HMRC’s guidance around the impacts of its corrected advice on the treatment of Group Income Protection (GIP) policies and salary sacrifice schemes, and the interaction with NIC credits for the State Pension.

On 15 October 2019 HMRC provided guidance to the Association of British Insurers (ABI) on how the OpRA legislation (please see below) affected the taxation of Group Income Protection (GIP) policies taken out by employers to fund payments of sick pay. This guidance stated that salary sacrificed by employees could be taken into account as employee contributions for the purpose of determining the amount taxable under either section 221 ITEPA 2003 or chapter 7 of part 5 ITTOIA 2005.

This guidance was incorrect. In August 2022, HMRC updated its guidance, and says that EIM06474 shows the correct taxation position and agreed transitional arrangements if this incorrect advice had been relied on.

It says:

“The correct position is now reflected in the previous pages [to EIM06474] and at IPTM6120. These amounts of salary foregone will not be employee contributions for either provision.

The guidance was provided as a general view on the tax treatment of sick pay funded via salary sacrifice arrangements. HMRC says that it therefore recognises that this guidance may have been relied on by:

  • employees entering into or deciding to remain in sick pay arrangements via salary sacrifice after 15 October 2019;
  • payers and payees considering the tax treatment of sick pay payments made after 15 October 2019 where they derived from salary sacrifice arrangements.

HMRC will therefore not seek to revisit the tax treatment where customers [taxpayers] have relied on the previous guidance in the following cases:

  • where sick pay payments were made to employees or former employees without deduction of tax between 15 October 2019 and 31 December 2023 inclusive to the extent that they are (or are derived from) amounts that can be or have been attributed on any just and reasonable basis to salary foregone by employees in periods starting on or after 6 April 2017;
  • where repayment claims (including overpayment relief claims and PAYE adjustments) were made between 15 October 2019 and 1 December 2022 inclusive to the extent that these claims related to sick pay payments made to employees or former employees and are, or are derived from, amounts that can be attributed on any just or reasonable basis to salary foregone by employees in periods starting on or after 6 April 2017;
  • sick pay payments made on or after 1 January 2024 will be accepted as non-taxable to the extent that they are made or are derived from amounts that can be attributed on any just or reasonable basis to salary foregone by employees between 15 October 2019 and 31 December 2023.

HMRC will assume that customers [taxpayers] have relied on the 15 October 2019 advice unless details of the claim indicate there was no such reliance.

In all other cases, the guidance provided in the preceding pages [to EIM06474] and relevant pages in IPTM6200 onwards will apply to the taxation of sick pay provided under OpRA.”

HMRC’s guidance in its latest Employer Bulletin, says that, in some cases, there may be an impact on an individual’s entitlement to contributory benefits including State Pension if they or their employer relied on the incorrect advice given in October 2019. This is because they may have received, or will receive under the transitional arrangements, income from a GIP policy not fully subjected to National Insurance contributions (NICs), as it would have been under the correct taxation position.

Whether there is an impact will depend on other income or NIC credits an individual has received in the year. HMRC has considered this issue and concluded that due to this, any such impact should be looked at on a case by case basis.

HMRC is therefore urging individuals to check their personal tax account or their NICs record for years where they have benefited from GIP policies to see whether there is a shortfall in their NICs record. If there is they should contact HMRC if:

  • they made contributions to a GIP policy by way of salary sacrifice;
  • they received sick pay from their employer under that GIP policy and that sick pay was not fully subjected to NICs.

HMRC says that it will look at each case individually at that point and, if required, rectify the shortfall to mitigate impact on any contributory benefit entitlement.

The OpRA legislation

Salary sacrifice is an agreement between an employer and employee to change the terms of an employment contract and reduce the employee’s entitlement to cash pay in exchange for some form of non-cash benefit in kind. The effect of this, depending on the benefit in kind, is often to reduce the amount of income tax, employee and employer NICs due on the employee’s remuneration. Making efficient pension contributions is one of many reasons to sacrifice salary.

In its 2016 Budget report, the Government announced it would limit the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. As a result, from 6 April 2017 certain benefits provided under salary sacrifice arrangements (described in the legislation as ‘optional remuneration arrangements’ – OpRAs), no longer benefit from the income tax and NICs advantages previously available under salary sacrifice arrangements – please see EIM42750. (This does not however affect all benefits. For example, employer pension contributions are not affected. So, salary sacrifice can remain as tax efficient as ever for employer pension contributions.)

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

Consultation on electronic wills and the effect of marriage/civil partnership on an existing will in England and Wales

As reported in our earlier bulletin, the Law Commission restarted its wills project earlier this year. On 5 October, it launched its anticipated consultation paper.

This “Supplementary consultation” focuses on two main issues which have recently become very topical.

The first is whether electronic wills should be allowed in light of technological and societal developments. The second is whether the rule that marriage or a civil partnership automatically revokes a will should be retained in the light of concerns about predatory marriage and vulnerable people.

The Covid pandemic highlighted the problems with execution of wills and, in the UK, provisions were introduced for virtual witnessing of paper wills. However, many countries went farther and introduced permanent reforms to enable electronic wills.

The Law Commission is now seeking views on whether a new Wills Act should permit electronic wills, either immediately or by allowing for them to be introduced later. The new legislation could go further than the temporary measures brought in during the pandemic. Fully electronic wills could be created digitally, using electronic signatures, and could be stored electronically with no paper version needed. However, any legal provision for electronic wills would need to ensure that they are as secure as paper wills. The key question, therefore, is how electronic wills can be made legally valid and how bespoke requirements for these wills should be introduced.

The issue of predatory marriages was recently highlighted in a Channel 5 documentary about “Inheritance Wars”. In one episode, a 92-year-old widow with severe dementia was befriended by a man. She was apparently unable to make even simple decisions but married the man a few months before her death, with her family having no notice of this. Although Registrars have responsibility for judgment of mental capacity on the day of marriage, they often lack training and/or awareness of capacity issues.

As mentioned above, under English law, a marriage or civil partnership automatically revokes an existing will so, as a result of marriage in this case, the lady’s children lost their inheritance and indeed were not even able to bury their mother. This case resulted in the daughter of the lady starting a campaign for a change in the law, resulting in a Private Member’s Bill from her local MP. There are apparently numerous similar examples.

In this regard, the new consultation seeks to establish how often this form of financial abuse takes place and considers whether wills should continue to be automatically revoked by marriage or civil partnership.

The Commission asks the following main questions (with a lot of supplementary questions on the details of the proposals as well as any evidence of the need for change):

  • Should electronic wills be legally valid? If yes, how, and when should bespoke requirements for these wills be introduced?
  • Should marriage or civil partnership automatically revoke a will, given the risk of predatory marriage?

Responses to the consultations should be submitted by 8 December 2023.

The consultation document is available here and the response can be made online here.

While this particular consultation focuses on the two issues mentioned above, the Law Commission’s Wills project covers all of the following:

  • The formal and substantial validity of a will, including:
    • testamentary capacity;
    • the formalities for a valid will (currently governed by section 9 of the Wills Act 1837), including an examination of the issue of a will being made electronically;
    • the interpretation and rectification of a will;
    • the possibility of a power to dispense with the formalities otherwise necessary for a will to be valid;
    • the age at which a will can validly be made; and
    • knowledge and approval and undue influence in the testamentary context.
  • Statutory wills.
  • Mutual wills.
  • Ademption of testamentary gifts (where the property no longer exists or has changed in substance) and revocation of wills.
  • The registration of wills.
  • Donationes mortis causa.
  • The comparative and international context of the law of wills.
  • Other areas of the law of wills as set out in the Wills Act 1837.

Given that wills in England and Wales are governed by the Wills Act 1837 (that’s almost two hundred years old!) and case law, it is clearly high time for reform. Clearly, the subject is complex and, unfortunately, the Law Commission’s Wills Project, ongoing since 2016, was interrupted for two years due to Covid. Let’s hope, now that things are moving again, it won’t be too long before we see reform. Before that happens, though, there will probably be several more Supplementary consultations.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

National Living Wage 2024/25

A press release from the Treasury at the start of this week was headlined ‘Chancellor announces major increase to National Living Wage [NLW]’. The release’s timing probably had more to do with where the Chancellor was – at the Conservative Party conference in Manchester – than its newsworthiness. If there is no scope for cutting taxes, then announcing wages increases is not a bad substitute.  

The Low Pay Commission (LPC), whose job it is to set the NLW and the National Minimum Wage (NMW), issued a consultation back in March 2023 which proposed an NLW rate from next April of between £10.90 and £11.43  an hour with a central estimate of £11.16. That would represent a 7.1% rise on the current rate of £10.42. The LPC’s consultation closed in early June and on Monday Jeremy Hunt said the minimum figure would be at £11.00 an hour.   

The forthcoming NLW decision has added significance because in 2019 the government set a target that the NLW should equal two thirds of median pay by 2024/25. As the press release also noted, April 2024 was also that time at which the NLW minimum age would be reduced from the current 23 to 21. At present the NMW for 21–22-year-olds is £10.18. 

The precise figures for 2024/25 are likely to emerge in the Autumn Statement once the LPC crunches the latest pay data to arrive at its final recommendation. The most recent annual rate of average weekly earnings growth (including bonuses) was 8.5% for the May-July period. When the LPC issued its consultation six months ago, the corresponding figure (for November 2022 – January 2023) was 5.7% (6.5% excluding bonuses). 

If the settled figure is £11.00 an hour – which looks low, given the above – then it will mean that by April 2024 the NLW will have risen by 52.8% since its introduction in April 2016. Assuming inflation will be around 4% by April 2024, the corresponding increase of the CPI over the same period will be about 34%. Take a slowing earnings growth to April 2024 of 5% and average earnings will have grown by about 38%.  

Comment

The NLW increase will affect over two million employees (and their employers). One point the Chancellor’s press release failed to explain was the inflationary impact of countenancing pay increases of at least 5.5%. The Bank of England would not consider that a level compatible with 2% inflation.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

New legislation paves way to expand the scope of automatic enrolment

A Private Members Bill aiming to expand the scope of automatic enrolment has received Royal Assent.  

The new legislation provides powers to abolish the Lower Earnings Limit for contributions and reduce the age for being automatically enrolled from 22 to 18.

The DWP press release states that the changes mean that millions more people including younger and lower earning workers will be helped to save more into their pensions. It also states that these changes combined with the Mansion House Reforms announced by the Chancellor in July, mean that a minimum wage earner could see their pension pot increase by over 85%.

Minister for Pensions, Laura Trott, said:

“Automatic enrolment has been a phenomenal success, and we are determined to go further. It’s great news that the Private Members’ Bill has successfully passed through Parliament and received Royal Assent.

This will mean younger workers and those in lower paid employment will be able to fully participate in Automatic Enrolment. For the first time, every eligible worker will benefit from an employer contribution from the first pound earned – which will make a huge difference to their eventual pension.”

Importantly, the new legislation will not result in any immediate change. It simply provides the powers to amend the age limit and lower the qualifying earnings limit for automatic enrolment. Any changes will be subject to consultation before implementation. The consultation is expected to be issued shortly. However, employers are expected to be given significant notice before the changes need to be implemented.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

Triple Lock 2024 – more thoughts

We noted in a recent Bulletin that the May-July earnings growth figure implies an 8.5% rise in the New and old (Basic) State Pension, assuming that an untweaked Triple Lock formula is applied with effect from April 2024. That assumption, which is beginning to look a little shaky, would have some interesting consequences:

The amounts. The Institute for Fiscal Studies (IFS) calculates that the old State Pension should rise from £156.20 per week to £169.50 and the New State Pension from £203.85 per week to £221.20. Those State Pension benefits that are not Triple Locked (e.g. Additional Pension) look set to see smaller percentage increases – probably around 7% based on September’s CPI figure (due 18 October). In April 2023, the CPI was the Triple Lock factor of choice, so all State Pension elements rose at the same rate.

Treasury cost. The Office for Budget Responsibility (OBR)’s estimate for the 2024 Triple Lock increase, included in the March 2023 Economic and Fiscal Outlook (EFO) was 6.2%. The IFS calculates the extra 2.3% will add £2bn to State Pension spending in 2024/25. That is arguably at least £2bn a year extra as the ratchet effect means that the 2025 increase will start from the 2024 pension level.  

Income tax. We commented in an earlier Bulletin on the interaction of the Triple Lock and the frozen personal allowance. The 8.5% adds a further twist. If in 2024/25 the New State Pension is £11,502.40 a year, it will be £1,068 below the personal allowance. From there increases averaging just over 3.0% a year are needed for the New State Pension to exceed the frozen personal allowance by 2027/28, the (currently scheduled) last year of the six-year allowance freeze.

If the Triple Lock remains after the election – a big if – then once the pension/allowance crossover happens it will take above-inflation increases to the personal allowance to reverse the situation. The Government is dragging a growing number of people into tax – an extra 3.2m over the period of the personal allowance freeze, according to the March 2023 EFO. HMRC is already creaking, so how it will deal with a large influx of new ‘customers’ ought to be a concern for the Treasury. Alongside the rise in State Pension income is the substantial jump in interest rates, which will also create more taxpayers given the personal savings allowance is still at its initial 2016 level.

Intergenerational fairness. A possible 8.5% increase for pensioners inevitably raises the topic of intergenerational fairness, particularly when there is also talk that in-work benefits may rise by 1% below CPI inflation to provide scope for tax cuts. In March 2023, the Low Pay Commission estimated that the National Living Wage (NLW – currently £10.42 a hour) would need to be between £10.90 (+4.6%) and £11.43 (+9.7%) in 2024/25 to meet the Government’s target of the NLW equaling two thirds of median hourly pay by October 2024. The Commission’s central case was £11.16 (+7.1%).

However, those calculations were based on 5.0% earnings growth in 2023 – the OBR projection. The difference between outcome and projections points to a possible NLW rise of around 10%, which is not a figure either the Chancellor or the Bank of England would wish to see. More detail should become clear next month, when the Commission is due to makes its recommendation for 2024.

The first Budget after an election is generally the one that contains the largest tax increases. The next Budget première may be the one that finally kills off the Triple Lock – if neither of the parties puts its preservation in their manifestos. That in turn could become a game of publication date chicken: whoever prints first will effectively make the decision for both parties.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

UK dividend payments fell sharply in the second quarter, but there was a special reason for the drop

If you have been wondering why the Link Asset Services Dividend Monitor figures seem to have disappeared, the answer is in the first word: Link. In April 2023, the Link Group agreed the sale of its UK business to finance FCA mandated compensation for Link’s involvement in the collapse of the Woodford funds in 2019. The quarterly Dividend Monitor has now moved under Computershare’s wing.

Computershare has recently published its Q2 2023 UK dividend monitor, showing what appears to be bad news: a second quarter fall of 9.0% in headline dividend payments. However, as is often the case with one set of figures, the context is all important:

  • In Q2 2022, there was a bumper crop of special dividends. These one-off payments totalled £5.0bn, of which nearly 80% originated from just three companies; Aviva, Rio Tinto and Anglo American. In Q2 2023, the special dividend feast turned to famine, with the one-off total down over 80% at £704 million.
  • The loss of £4.3bn of special dividends between Q2 2022 and Q2 2023 meant that total dividends payouts were £3.2bn lower (9.0%) in 2023 at £32.8bn.
  • Underlying (regular) dividends were £32.2bn, up 3.5% on 2022, although this was a decline from the first quarter’s rise of 5.2%.
  • Computershare notes that ‘By far the biggest contribution came from the banks which have been reporting very strong profits. They paid £7.8bn, up by three fifths year-on-year.’ A good example is HSBC, which paid a dividend of 18.0c in April 2022. In 2023 the bank paid 23.0c in April, followed by another 10.0c in June as it resumed quarterly payments that had been suspended in response to the pandemic.
  • The Bank sector saw headline dividends up by 59.3%, although in terms of growth (but not total payments) it was beaten by 63.5% growth in dividends from Airlines, Leisure & Travel sector. There were some significant falls too, in part associated with the lack of special dividends. Thus, the General and Life Insurance sector saw a 57.8% decline and mining recorded a 32.7% headline drop.  
  • Payouts from the Top 100 companies fell 8.1% year-on-year on a headline basis, for which special dividends can again take the blame. On an underlying basis dividends grew by 5.8%, with banks being the biggest driver. The Top 100 companies accounted for 89% of all dividend payments in Q2 2023, 1% more than in 2022. Mid-cap payments fell in Q2 2023, due to the takeover and delisting by private equity groups of Direct Line Insurance and Homeserve and the takeover of Micro Focus International. Exclude these three, and underlying payments would have been around 3% up year-on-year.
  • The concentration of dividend payouts in a handful of companies decreased in comparison with Q2 2022, again due to disappearing special dividends. Nevertheless, the top five payers (HSBC, Rio Tinto, Glencore, Shell and British American Tobacco) accounted for 34.8% (cf 37.3%) of total payments. The next ten companies accounted for 27.6%, (cf 25.1%%) meaning that just 15 companies were responsible for 62.4% of all UK dividends in the quarter, the same proportion as a year ago.
  • Computershare has upgraded its dividend forecast for 2023, but still sees a headline decline of 1.7% because of the drop in special dividends. On an underlying basis it is forecasting 6.1% growth.

Comment

Computershare makes the point that, while the prospective yield for the top 100 companies increased to 4.0% in Q2, yields in other asset classes rose faster during the quarter. Ten-year gilts (4.66%) and the best instant access savings account (4.35%) were both offering better-than-equity yields by the end of June.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

High Income Child Benefit Charge and separated couples

Child Benefit is paid upon a claim to the parent or carer of a child up to the age of 16, or 20 if in approved education or training.

The HICBC, introduced in January 2013, remains a prime example of how not to design and operate a tax. As a reminder, the aim of HICBC is to make any Child Benefit recipient repay some or all of their Child Benefit back (as tax) if they or their partner has an individual adjusted net income exceeding £50,000 per year. The repayment is at the rate of 1% of total benefit paid for each £100 of income above the threshold, up to £60,000, at which point the tax charge matches the total benefit.

The Low Incomes Tax Reform Group (LITRG) has published a warning to separated couples following a recent First-tier Tribunal decision (Meades v HMRC) that a parent was liable for the HICBC, despite the fact that the benefit was paid to their former partner. In this case, Mr Meades had separated from his ex-wife in 2017. He was found liable for a £1,076 HICBC for the 2019/20 tax year even though the Child Benefit payments were made to his ex-wife, because he was the Child Benefit claimant, and, in that tax year, his adjusted net income was higher than £50,000.

The LITRG has also been contacted by others in a similar position and has published information on what claimants can do if faced with this situation.

Child Benefit is always claimed by an individual, not a couple. The claimant is the person who completes and signs the form to make the claim, even if they choose for their partner to receive the benefit payments. As some years may have passed between the original Child Benefit claim being made and the separation, it’s possible that people may have forgotten who the claimant originally was and assume it is the person getting the payments.

If a couple separates, the claimant could become liable for the HICBC if their adjusted net income later exceeds the £50,000 threshold, even if the payments are paid into their former partner’s account. It is also possible that any new partner of the claimant might become liable to the HICBC if they exceed the threshold and are the higher earner, even if they had nothing to do with the original claim. This is because the way the charge is worked out initially looks at the adjusted net income of the person who made the claim and any partner they have. (A ‘partner’ for HICBC purposes means a spouse or civil partner (unless separated), or someone with whom the person is living together as if married or in a civil partnership).

The LITRG is urging child benefit claimants to review their Child Benefit arrangements if they have separated from the partner they had when the claim was originally made. In doing this, claimants should check that these arrangements continue to be appropriate to their circumstances and to avoid being unwittingly exposed to the HICBC.

Some separated couples may decide they want the person who made the original claim to continue doing so, even if the Child Benefit payments are being paid to the other parent or carer (for example, a claimant who is not receiving the payments themselves may require the National Insurance credits awarded with a Child Benefit claim for their own State Pension), while others may seek a new arrangement – particularly in cases where the HICBC would otherwise be payable by the claimant.

The LITRG says that it understands that it is not possible to retrospectively change the name of the person claiming Child Benefit to avoid the HICBC, but it is possible to end the claim for Child Benefit and for the former partner to make a new claim. However, this could mean that the former partner (or any new partner they may have) may be liable to the HICBC themselves if they earn above the HICBC threshold.

If taxpayers are found to be liable for the HICBC, but have failed to notify HMRC, they may be charged penalties – although, if they have a reasonable excuse for the failure then the penalties can be appealed.

Claiming child benefit can also impact a person’s entitlement to a State Pension, as it attracts National Insurance credits. While these can be transferred to the other parent or carer, deadlines and conditions apply.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk