Year-End Personal Tax Planning

If you receive this before 5 April then this is to remind you that you have a few last days to use your various personal annual allowances for things like ISA and pension contributions.

Whilst it is good to use your annual allowances and make sure you utilise the tax free benefits that are available it is much better to plan the use of these allowances over the whole of the tax year.

For pensions, regular contributions will make sure that you regularly build your pension pot. If you are making regular contributions with lump sum payments at the end of the year then you should already have had the discussion with us about how much lump sum you can make.

For ISAs, again regular payments should be the way to go. Foe ISAs lump sum payments tend to be made at the start of the tax year and these can be topped up, if needed, by regular payments during the year.

Don’t feel pressurised into making payments just to use up the available allowances.

Planning of how and when to make payments and contributions is much more efficient.

We are available for a review of your personal finances and are happy to meet with you to go through any planning you wish to consider.

Payroll reminder - minimum wage rates increase on 6th April

It is important to remember that the minimum wage pay rates are increasing with effect from 1 April 2024. Failing to increase to the new rates can result in penalties being charged.

If you need help with any aspect of your payroll, please do not hesitate to call us. We will be happy to help!

See: https://www.gov.uk/national-minimum-wage-rates

Payroll reminder − National Insurance rate reducing from 6 April

From 6 April 2024, the 2% cut in employee national insurance contributions will come into effect. Employees will now be deducted 8%, rather than 10%, on monthly earnings between £1,048 (£12,570 p.a.) and £4,189 (£52,570 p.a.). A 2% deduction on earnings above this amount continues to apply.

There is no change to the rate of employers’ national insurance, which stays at 13.8% on monthly earnings above £758. (£9,100 p.a.)

It is important that your payroll software is up to date so that it deducts the right amount of national insurance from your staff.

You may need to check with your payroll software provider, or you may need to update your software to make sure that the calculations will be made correctly.

If you need any help with this or any other aspect of your payroll, please call us. We will be happy to help you!

See:https://www.gov.uk/government/publications/changes-to-national-insurance-contributions-from-6-april-2024/reduction-to-the-main-rates-of-primary-class-1-and-class-4-national-insurance-contributions

Are you eligible for a £252 saving on your tax bill?

With the tax year ending on 5 April, now is a good month to check whether sharing unused tax allowances with your partner could save you some money.

HM Revenue and Customs (HMRC) say that March is the most popular month for Marriage Allowance applications. Almost 70,000 couples applied in March last year. As there is also the option to backdate their claim for the previous 4 tax years, eligible couples who have not previously claimed could receive a lump sum payment of more than £1,000.

Marriage allowance allows individuals to transfer up to 10% of their tax-free Personal Allowance to their husband, wife, or civil partner. For the 2023/24 tax year, this means a maximum amount of £252 could be available to those who qualify.

In order to benefit, either you or your partner must have an annual income of less than the Personal Allowance, which is currently £12,570. And the higher earning partner’s income must be between £12,571 and £50,270. If you live in Scotland, the higher earning partner’s income must be between £12,571 and £43,662.

To find out if you are eligible, you can use HMRC’s online calculator at https://www.tax.service.gov.uk/marriage-allowance-application/benefit-calculator

If you need any help working out whether you are eligible or in applying for the allowance, please do not hesitate to contact us!

Have we heard the death knell for national insurance contributions?

The original concept for national insurance contributions (NICs) was as a part of social welfare reforms implemented by the government in the early 20th century. The idea being to establish a social insurance that provides financial protection and assistance to individuals and families when sick or unemployed, or in old age.

The National Insurance Act of 1911 required workers and their employees to start making contributions to a national insurance fund, which was to be used to finance various benefits.

The National Insurance system has been further expanded and refined since then, but now in 2024 national insurance contributions could well be on their way out.

NICs was the hot topic of last year’s Autumn Statement and this year’s Spring Budget, with the rates for employee NICs and those charged on self-employed profits significantly cut. Class 2 NICs − a set rate of contribution paid by all self-employed businesses with profits above a certain threshold − has also effectively been abolished.

In the Spring Budget, the Chancellor, Jeremy Hunt, identified NICs on the earnings of the self-employed and employees as paying tax twice. He indicated that, when possible, the government would continue to cut national insurance.

This thought was further emphasised in a speech the Prime Minister, Rishi Sunak, gave last week at the 2024 Business Connect Conference. He said: “[The government’s] long-term ambition is to simplify the system and end the double tax on work, by abolishing NICs.”

After outlining the recent cuts, he concluded by saying: “We’re not done yet. We’ll make more progress towards abolition, in the next Parliament.”

NICs therefore seem likely to be an ongoing topic in the run up to a general election, likely to be held in the autumn. This is perhaps the death knell for NICs, but also raises questions about how tax will be levied to offset a reduction to NICs.

It would be easy to sell the abolishment of personal NICs and a corresponding increase of tax as a combination of the two, especially if the “new” tax rate was lower than the abolished “old” tax rate and NICs added together.

However, pensioners, who do not pay NIC, and other taxpayers who received income without paying NIC (such as landlords or those receiving their income as dividends) would effectively be getting a large tax increase. This is something that indicates a potential tax grab on those who do not pay NICs at the moment. It would mean a large increase in tax on investment income.

This is not an immediate possibility but could be on the cards in as little as 5 years.

If you need help optimising your tax strategies so that you pay the minimum of tax or national insurance, please talk to us. We will be happy to help you!

HMRC announces and then halts changes to helpline services

Last month, HM Revenue and Customs (HMRC) announced changes to its helpline services that will encourage people to go online first.

However, in a fast about turn, the very next day they halted these changes while they consider how best to help taxpayers make more use of online services.

The changes HMRC are proposing apply to Self Assessment, PAYE and VAT services. Feedback though suggests that there is still a significant number of people who are reluctant to deal with their tax affairs online.

HMRC are keen to pursue online services because of the cost savings they bring. They revealed that last year they received more than three million calls on queries that could have been carried out online, including on questions such as resetting an online password, getting a tax code, or finding out a National Insurance number.

The changes they are proposing include:

• Closing the Self Assessment helpline between April and September and directing callers to self-serve using online services.

• Opening the Self Assessment helpline between October and March for priority queries. Straightforward queries will still be directed to HMRC’s online services.

• Opening the VAT helpline for 5 days each month ahead of the deadline for filing VAT returns. At other times, callers will be directed to use online services.

• The PAYE helpline no longer taking calls on refunds.

• Having HMRC advisers continue to be available to support those who cannot use online services or need additional support because of their health or personal circumstances.

Jim Harra, HMRC Chief Executive, said: “Making best use of online services allows HMRC to help more taxpayers and get the most out of every pound of taxpayers’ money by boosting productivity. … However the pace of this change needs to match the public appetite for managing their tax affairs online.”

All this comes just after HMRC were castigated by a Parliament Committee.

According to MPs, phone line waiting times for HMRC have continued to worsen. A committee found that nearly two-thirds of callers had to wait more than 10 minutes to speak to an adviser.

The Public Accounts Committee’s report says that in the year to April 2023, the average wait for a call to HMRC to be answered was 16 minutes and 24 seconds. This compares to 12 minutes and 22 seconds the year before.

63% of callers waited more than 10 minutes, increasing from 46% the previous year. This proportion has increased each year since 2018-19.

HMRC’s hold music holds the dubious honour of being among the most streamed!

HMRC have said they received more than three million calls on resetting online passwords, getting tax codes, and checking National Insurance numbers, many of which could have been handled using their digital services instead of calling.

The take home seems to be that if you need to call HMRC, it may be best to do so from an easy chair with a coffee in hand!

See: https://www.gov.uk/government/news/hmrc-helpline-changes-halted

Many couples may need to restart child benefit claims

The changes to the High Income Child Benefit Charge (HICBC) announced in the Spring Budget have now been incorporated into the latest Finance Bill and are scheduled to take effect from 6 April 2024.

The increase in the threshold for the tax charge was good news, although many were lobbying for the charge to be removed completely. HICBC is intended to claw back child benefit where the higher earner in a relationship has adjusted income in excess of £60,000 (£50,000 up to 2023/24). The claw back rate will then be 1% for every £200 of net income in excess of £60,000 with full recovery of child benefit where net income is £80,000 or more.

Rather than pay the tax charge, many couples have chosen not to claim child benefit in recent years. It is estimated that some 180,000 couples eligible for child benefit will no longer be caught by the HICBC and should restart their claims from 6 April 2024. This can be done by using an online claim form.

Example

Fred and Wilma have 2 children for whom they are eligible for child benefit. Fred is the higher earner and his income was £68,000 in 2023/24, which is scheduled to increase to £70,000 in 2024/25.

In 2023/24 the HICBC would have been 100% of the child benefit received. Their child benefit for 2024/25 is £25.60 for the first child, then £16.95 for each additional child = £42.55 x 52 = £2,212.60 p.a.

Based on Fred’s £70,000 net income there would be a 50% HICBC for 2024/25 of £1,106.30.

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