Financial Monitor (November/December 2010)
Pension Schemes – the Rules change again
The Government has confirmed the changes it intends to impose in connection with tax relief for pension scheme contributions. These will be effective from 6 April 2011 when the existing anti-forestalling rules will come to an end but the regime that the previous Government intended to introduce will be abolished before it is implemented.
The changes to be introduced are:
- The annual allowance for pension contributions will be reduced to £50,000. This is the maximum total for employer and employee contributions where appropriate.
- The lifetime allowance will be reduced from £1.8m to £1.5m but there will be protection for those who have pension values above £1.5m or who had made plans based on the availability of a £1.8m fund.
- Tax relief at marginal rates, up to 50%, will be available on pension contributions depending on the individual’s taxable income.
- A form of carry forward relief of up to three years unused annual allowances will be available to help those with fluctuating income streams providing they have paid a pension contribution in the year of carry forward.
- Contributions not covered by the annual allowance or carry forward relief will be subject to tax on the excess so that the tax relief is effectively reduced to 0%.
- The annual allowances will be linked to pension scheme anniversaries rather than tax years although it is difficult to see how this will work in practice for those with a multitude of policies taken out at different times.
- The annual allowance may be disapplied where an exceptionally high contribution is made by an employee in a defined benefit occupational scheme when they retire early on health grounds. There is, however, no special treatment for those made redundant or others retiring early.
Class 2 National Insurance Contributions
From April 2011 payment of Class 2 national insurance paid by the self-employed will become due on 31 July and 31 January, the same dates that income tax is paid. Those paying by monthly direct debit will cease paying contributions in March 2011 and then commence again in August 2011. A new option to pay by 6 monthly direct debit in July and January will be introduced.
HM Revenue and Customs will contact all those affected shortly.
Employers Providing Pension Schemes
The Government is to press ahead with pensions “auto-enrolment” from 2012. Automatic enrolment will apply to all employers regardless of size, but only those employees earning more than £7,500 will be included. The Department of Work and Pensions (DWP) has confirmed that every employer will have to offer a pension scheme from 2012. Those employers not offering their own scheme will be compelled to use the new National Employment Savings Trust (NEST). The DWP has, however, made some concessions with employers to be given 12 weeks’ grace before staff are automatically enrolled, to ease the burden on those employing large numbers of temporary workers (although workers will be able to opt in during this waiting period).
VAT on Overseas Customer Entertaining
A recent European Court of Justice judgement has confirmed that in certain circumstances VAT can be recovered on entertaining overseas customers. This only applies to customers, not suppliers or other overseas contacts, where VAT recovery continues to be blocked. In addition it is only entertaining which is ancillary to a business meeting which can be recovered, eg. office lunches or outside training event but not corporate hospitality events such as golf days, trips to sporting events, evening meals and the like.
Business Journeys in Company Cars
Where an employer provides a company car but the employee pays for the fuel, the employer can pay a mileage allowance for business journeys. HMRC have revised their ‘tax free’ rates with effect from 1 December 2010. The previous rates are in brackets:
| Engine size | Rate per mile |
||
| Petrol | Diesel | LPG | |
| Up to 1400 cc | 13p (12p) | 12p (11p) | 9p (8p) |
| 1401 to 2000 cc | 15p (15p) | 12p (11p) | 10p (10p) |
| Over 2000 cc | 21p (21p) | 15p (16p) | 15p (14p) |
Income Tax Rates and Allowances
The personal tax allowance will rise by £1,000 to £7,475 in 2011/12 and the higher allowances for those aged 65 or 75 plus will each go up by £450 to £9,940 and £10,090 respectively. The threshold above which these age allowances are tapered will be £24,000 (currently £22,940). The threshold at which higher rate tax is payable will however be reduced from £37,400 to £35,000. This is to ensure that higher rate taxpayers do not benefit from the increase in personal allowances.
National Insurance Contributions
The rates for 2011/12 will be :
| Employees on earnings between the primary threshold (£139 per week) | |
| and the upper earnings threshold (£817 per week) | 12% |
| Employees on earnings above the upper earnings threshold | 2% |
| Employers on earnings above the primary threshold | 13.8% |
| Self employed on profits between the lower profit limit (£7,225) and | |
| the upper profits limit (£42,475) | 9% |
| Self employed on profits above the upper profits limit | 2% |
The small earnings exemption for Class 2 contributions will be £5,315 and the weekly payment will be £2.50.
Individual Savings Accounts
The overall investment limit from April 2011 will be £10,680 of which £5,340 can be in cash.
Christmas Greetings
The team at UHY Wingfield Slater wishes you a very Happy Christmas and a Prosperous New Year. Our offices will be closed on 24, 27 and 28 December 2010 and 3 January 2011.
Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.
UHY Wingfield Slater
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