(Time Sensitive): Tax Year End Changes for Pension Allowances

The start of the new Tax Year on 6 April 2014 – just 6½ weeks away at time of writing – will see two very important changes in relation to pensions allowances.

The first change will affect the ‘Annual Allowance’ (or ‘AA’) which is the annual limit on pension savings attracting tax relief. This limit will be reduced from £50k to £40k (having been as high as £255k back in 2010/11) and includes contributions made by anyone into your pension whether that’s you or your employer. Should your pension savings be greater than this amount then you will have to pay a tax charge and include such information on your Self Assessment tax return. A calculator is available to work out whether you have any unused annual allowance available, this being particularly useful because you are eligible to carry forwards any unused allowance if it exists from the 3 previous tax years. If present the unused allowance can be used to offset against any tax charge.

The second change will affect the ‘Lifetime Allowance‘ (or ‘LTA’) which is the amount payable from a private and/or work pension scheme (excludes State pension) before tax also becomes payable. Having already recently been cut from £1.8 million the LTA is currently set at £1.5 million but will be reduced to £1.25 million from 6 April 2014. The LTA is only applied to pension savings when you actually take your pension benefits, or at certain key events such as reaching the age of 75. Other examples of applicable key events are explained here. Read more

Taxfile-Jobseeker’s Allowance

Unemployment figures are now showing that just over 2 million people in the UK are out of work, this unfortunately means that when you are out of work you are not earning. Fortunately there is an allowance where if you are unemployed and available for work, you could qualify for something called Jobseeker’s Allowance depending on your circumstances.
To qualify for JSA, you must meet the following requirements:
•Be available for work
•Be able to work
•Be actively looking for work
Also you have to be under the state pension age, live in UK and not be working or working for an average of less than 16 hours per week.
There are two types of Jobseeker’s Allowance: Contribution-based and Income-based.
Income-based JSA (IB) is given to you if you are on low income, even if you have not made any National Insurance contributions in the past.
Contribution-based JSA (C) is dependent on your NIC record and is paid for a maximum period of six months. However if you did not earn enough to pay NICs, you many still be entitled to get JSA(C) if you were given NIC credits. This would have happened, if you were earning more than the lower earnings limit (£90 a week in 08/09 and £95 a week for 09/10), if you were unemployed or unable to work because of illness, and in some other circumstances.
If you are unemployed and either 16 or 17, usually you do not receive JSA unless you are forced to live away from your parents and will suffer severely if you don’t receive JSA or if you or your partner are responsible for a child.

If you are on JSA(C), you will receive £47.95 if you are aged 16-24and £60.50 aged 25 and over per week. For JSA (IB), you will receive a maximum weekly rate depending on your circumstances:
•Single people aged 16-24 – £47.95
•Single people aged 25 and over – £60.50
•Couples and civil partnerships (both aged 18 or over) – £94.95
•Lone parents (aged under 18) – £47.95
•Lone parents (aged 18 and over) – £60.50
Your payments might be reduced if you receive income from part-time employment or you will get less if you have savings over £6,000 and if you have savings over £16,000 you probably will not qualify.
In certain cases, a claimant’s Jobseeker’s allowance may be stopped.
One reason would be that you did not actively seek work or sign the Jobseekers Agreement. If this happens, your benefit will be automatically suspended until the date you complete and sign the agreement. Once this has been signed, you are still not guaranteed back all of your benefit, as a decision maker will decide how much you get back, if any.
Other reasons why your Jobseekers allowance could be stopped is if you miss a restart interview, if you voluntarily leave work or refuse a notified vacancy or if you refuse to attend a compulsory scheme or fail to comply with Direction. Doing any of the above could result in you missing a month’s benefit or having to renew your claim, which could take months.

If you wish to make a claim for Jobseekers Allowance, follow this link and it will take you to Job Centre Plus where you can type in your postcode to find your local Job Centre.
Taxfile’s tax agents hope you found this useful, and if you have any more queries regarding Jobseeker’s Allowance why not pop into our offices in South East London and Exeter. Our accountants and tax advisers would be happy to assist.

2008 Pre-Budget Report

In his 2008 Pre-Budget Report speech on 24 November, the Chancellor has set out his actions for supporting people through the difficult times of the current global financial crisis. Among the most important changes to do with tax, VAT and benefits, we can mention the following:
•Personal tax allowance increases to £6475, and the basic rate tax limit to £37,400 from April 2009. This means that basic rate taxpayers will pay £145 less tax a year in 2009-10;
•Basic Personal allowance for individuals with income over £100,000 to be reduced to half its value from April 2010;
•Personal allowances will be scrapped for those earning in excess of £140,000 a year from April 2010.
•A new, higher rate of Income Tax of 45% will be introduced for incomes above £150,000;
•Employee, employer and self-employed rates of National Insurance Contributions will increase by 0.5 per cent from April 2011 but those earning less than £20,000 will be exempted.
•The child benefit increases was brought forward to 5th January 2009 instead of April. This is worth an additional £22 on average to families. The commitment to increase the child element of the Child Tax Credit by £25 above indexation in April 2010 will also be brought forward to April 2009.Children will receive a one-off £70 payment for Christmas.
•All pensioners will be paid £60 in the New Year, the equivalent of bringing forward the April increase in the Basic State Pension for a single pensioner to January.In April 2009 the level of a full State Pension will rise in line with prices from £90.70 to £95.25 a week.
•Pensioners on modest incomes will get an increase in pension credit from £124 to £130 and for couples from £189 to £198 from January 2009;
•The standard rate of VAT will be reduced by 2.5% from 17.5% to 15% on 1 December 2008. This new rate will apply until 31 December 2009, when it will revert to 17.5%.This reduction will be offset by increased duties on alcohol, tobacco and petrol.
•The planned increase in the Small Company Rate from 21% to 22% from 1 April 2009 will take effect from 1st April 2010.
•SMEs will be allowed to spread business tax payments over a period to help to ease cashflow and credit constraints.
•Business losses of up to £50,000 could now be offset against profits made in the past three years rather than just one;
Taxfile‘s tax agents recommend the following link for more details regarding the Pre-budget Report.

April’s tax reforms

One of the most significant changes in the tax year 08/09 is the adjustment to income tax bands. The 10% band is being scrapped and the 22% band is being replaced by a 20% band. The income above £41,435 is taxed at 40 %.
There will also be changes to the amount of national insurance contributions we pay.
The upper earnings limit, up to which you pay the standard rate of 11%, is being increased from £670 a week to £770 . Any earnings above the limit are then taxed at 1%. This change will affect those with weekly earnings between £670 and £770, that previously used to pay 1% on these earnings and now they have to pay 11 %.

In terms of Capital Gains Tax (CGT), the top rate of 40% is being replaced by a flat rate of 18%. But this good news is balanced by the abolition of two tax reliefs: indexation relief and taper relief which would normally reduce the investor’s gain and so minimize his or her tax.

Changes also affect non-domiciled residents. At the moment, non-UK residents who are working in this country pay tax here on their earnings in this country but not on any of their non-UK income. From today, non-domiciled residents who have lived in the UK for more than seven years will be taxed on their worldwide earnings, rather than just those in this country, or have to pay an annual charge of £30,000.

Ed Green, financial planning manager for Chartwell Private Client, warns: “On the face of it, this looks like good news as the basic rate of income tax is going down. But the reality is that the changes to your pocket will hardly make a difference. However, one area that should be of concern is for people with a personal pension. At present, tax-relief means that, for a basic-rate taxpayer, a contribution of 78p into a pension fund is made up to £1 – this will soon be only 97-and-a-half pence. The changes will also affect higher-rate taxpayers. Now is therefore a good time to put in a lump sum.[…]Another group that will be hit by the income tax changes are those on low incomes, currently paying only 10 per cent on pay above their £5,225 basic allowance. This benefits those on an income of up to £7,455.[…] Pensioners could also be particularly hard hit by the change as they will be forced to pay the higher 20 per cent rate of tax on pension income above the initial tax-free allowance, currently £7,550 for individuals aged 65 to 74 or £7,690 for those aged 75 or more. Previously they paid a tax rate of just 10 per cent for the following £2,230 of income above this allowance, but this will now only apply to savings income.(…) “(The Independent, Saturday, 8 March 2008 )

Tell us at Taxfile in what way you are being affected by these changes and whether it has a positive or a negative impact on you as a the taxpayer.

What is the basic state pension?

The basic State Pension is money you may be able to get when you reach State Pension age. The amount you receive depends on the qualifying years you have built through your National Insurance contributions.

There are two circumstances to be considered:

If you reach State Pension age before 6 April 2010, you normally need to have 44 qualifying years to be entitled to the full basic State Pension if you are a man, or 39 qualifying years if you are a woman. In this case, to get any State Pension you need to meet two minimum conditions:

• you must have at least one qualifying year where you have paid or have been treated as having paid enough NI when you are in employment or voluntary Class 3 contributions.you cannot get any basic state Pension based on NI credits alone.(You will normally get NI credits when you are ill, unemployed or getting Carer’s Allowance)

• you must have at least 25% of the qualifying years needed for for a full basic state pension(11 years for a man and 10 years for s woman)to get any basic state Pension.

You will not be entitled to a refund of the NI contributions you have paid because those contributions pay towards other benefits like sickness, unemployment, and bereavement benefits.

If you reach State Pension age on or after 6 April 2010, the current contributions conditions are being replaced with new rules:

• the number of qualifying years needed to get a full basic State Pension will be reduced to 30 for women and men .

• you will no longer need to have 25% of the qualifying years needed for a full basic state Pension to get any basic State Pension.

• you will no longer have to have at least one qualifying year where you have paid NI contributions.

The minimum state pension amount is £21.83 a week and the maximum amount is £87.30 a week in 2007/08 tax year.

In order to make up for time when you did not pay NI , you may be able to pay NI Class 3. You have to pay the contributions within six years of the end of the tax year the payment is for.

If you are still confused about State Pension, Taxfile in South London can help you get a better understanding of it, explaining you the importance of filling in a retirement pension forcast form called BR19 so you know exactly where you stand.