Recent editions of this newsletter have featured the important changes to personal pensions for those over 55 that take effect from 6 April 2015.
From 6 April 2016 the new flat rate State Pension will be introduced, which is expected to be around £150 a week. A person’s actual entitlement will depend on their National Insurance contribution record.
Those who have built up an entitlement greater than the flat rate amount due to paying SERPs or other additional contributions will receive that higher amount.
Individuals will need a minimum of 10 qualifying years and the full flat rate State Pension will only be given if they have 35 qualifying years (previously 30 years).
Those aged over 55 are encouraged to contact the Department of Work and Pensions (DWP) to receive a projection of their expected State Pension and check their contribution record. It is possible to make good any shortfall by making voluntary Class 3 contributions (£13.90 a week). Those who are self-employed will find it cheaper to make Class 2 contributions (currently £2.75 per week).If you are an employee or director, provided your salary exceeds the Lower Earnings Limit (currently £5,772 p.a.) then although no NIC is actually due you are deemed to have contributed for that year.
£150 a week may not seem a lot to live on but note that at a 5% annuity rate you would need a fund of over £155,000 to generate such an income.
Annual Investment Allowances (AIAs) allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase. There is an annual ceiling on the maximum qualifying expenditure, which is currently £500,000, but which is scheduled to fall by 95% to just £25,000 on 1 January 2016.
The important point to bear in mind is that the allowance is apportioned to accounting years. For example, if a company’s accounting date is 30 September, the maximum qualifying expenditure for the year to 30 September 2015 will be £500,000 but that for the year to 30 September 2016 will be only £143,750 (3/12ths of £500,000 plus 9/12ths of £25,000). Thus it is certainly not the case that every company has until 31 December 2015 to make a qualifying £500,000 investment.
There are also some very complicated rules for determining when expenditure is, for capital allowance purposes, ‘incurred’ – it is not, normally, either the date you place the order of the date you sign the cheque. Accordingly, if you are planning a programme of capital expenditure, or a significant asset purchase, we strongly urge you to contact us for details advice at the earliest possible stage.
In principle, the usual scale charge for a director’s or employee’s private use of a company car or van may be reduced by any payment the director, etc, is required to make for that private use. In many cases, especially for directors, it has been the practice for the payment to be made after the tax year end.
However, for 2014/15 and future years, there is a strict statutory rule that payments will not be taken into account unless they are made before the end of the tax year to which they relate – and HMRC have put us on notice that this rule will be rigorously enforced. Any company operating such arrangements should, therefore, ensure that payments are now made in good time.
This will not affect the longstanding easement under which no fuel scale benefit is charged where the director or employee fully reimburse the cost of fuel used for private motoring, even if (for example) the mileage-based payment for March is not made until (say) the end of April.
Employers with 49 or fewer employees should note that automatic penalties will apply if their PAYE RTI submissions are not up-to-date by Thursday 5 March 2015 – and thereafter kept up-to-date. (Larger employers became subject to penalties last October, and the first penalty notices will be issued early February.) Penalties will be imposed:
Where a Full Payment Submission (FPS) is filed late – that is to say, is not filed by the day the employees are paid or, if the employer qualifies for the concession for some employers with nine or fewer employees, by the last pay day in the tax month; and
Where an employer fails to file a nil Employer Payment Summary (EPS) – for a month in which no payments to employees were made – by 19th day of the following month (so by 19 March for the tax month to 5 March).
The first default each tax year will be ignored, but otherwise the penalty will be £100 if the employer has nine or fewer employees or £200 if he has between ten and 49.
Where a submission is three months late, HMRC will additionally be able to impose a 5% surcharge on the tax and National Insurance contributions payable. They say that this will be used ‘only for the most serious and persistent failures.’
From April, the screw will be tightened yet further, for all employers, with the existing penalties for late payment of monthly or quarterly PAYE remittances being made automatic and applied in all cases. The penalty will be between 1% and 4% of the tax due, depending on how many times, in the tax year, the employer pays late.
In last year’s Finance Act it was announced that the VAT rules for dealing with prompt payment (or early settlement) discounts would be changing from 1 April 2015. HMRC have now issued brief 49/2014 setting out guidance for businesses affected by the change, many of whom may need to change their invoicing procedures.
From 1 April 2015, output VAT will need to be calculated on the consideration actually received from the customer instead of the current rules where VAT is calculated on the value of the supply, net of any discount for prompt payment.
Let’s assume, for example, that you supply goods to the value of £100 but allow the customer a 2.5% discount if they pay within 30 days. Under the current rules VAT is charged on the discounted price of £97.50 not £100, whether or not the customer pays within 30 days.
From 1 April 2015, suppliers issuing a VAT invoice will enter the invoice into their accounts, and record the VAT on the full price. If offering a PPD, suppliers must show the rate of the discount offered on their invoice. The supplier will not know if the discount has been taken up until they are paid in accordance with the terms of the PPD offer, or the time limit for the PPD expires. The supplier will then have two options to deal with the discount:
(a) they may issue a credit note to evidence the reduction in consideration
(b) alternatively, if they do not wish to issue a credit note, they will need to adjust the output tax in their VAT return and the invoice must contain the following information:
(1) the terms of the PPD (in particular the time by which the discounted price must be made).
(2) a statement that the customer can only recover as input tax the VAT paid to the supplier.
Prior to the introduction of RTI, employers were required to complete an end-of-year checklist and declaration on form P35 and submit to HM Revenue and Customs. Under RTI this was replaced by the final full payment RTI submission which included a similar checklist and declaration.
HM Revenue and Customs have recently announced that from 6 March 2015, the requirement for employers to complete the end-of-year checklist when making their final full payment submission under the real time information regime will be removed, for the current tax year 2014/15 and subsequent years.
The personal allowance for 2015/16 was originally scheduled to increase to £10,500 but it was announced that this will now be £10,600, so the tax free amount will now be £883 per month. If re-elected the Chancellor stated that this would be increased to £12,500 by 2020.
The point at which higher rate tax (40%) becomes payable will be £42,385 for 2015/16, meaning that the basic rate band will be £31,785. The Chancellor “promised” that this threshold would increase to £50,000 by 2020. The 45% rate will continue to apply to taxable income over £150,000.
Remember that the personal allowance is reduced where the taxpayer’s adjusted net income exceeds £100,000. The reduction is £1 of allowance for every £2 of excess income, resulting in a marginal tax rate of 60%. For 2015/16 this restriction is even wider than before with the increase in personal allowance to £10,600:
|£100,000 to £121,200
|£121,201 to £149,999
This is set to be £11,100 in 2015/16, so is worth a useful £3,108 for higher rate taxpayers for whom the 28% rate applies.
Where employees are provided with a company van the taxable benefit increases from £3,090 to £3,150 for 2015/16 and there will be an additional taxable benefit of £594 where private fuel is provided by their employer. Note that this charge does not apply to all company van drivers, only those who use the van for private journeys.