New State Retirement Pension Rates

Details of the new State pension rates were announced by George Osborne in the recent Autumn statement.

From April 2016, the rates will be as follows:

  • £119.30 per week for existing pensioners (i.e. those who reach state pension age before 6 April 2016)
  • £155.65 per week for the new ‘single tier’ state pension for those who reach state pension age on or after 6th April 2016, and have the full 35 years of National Insurance contributions. The actual amount payable could be higher or lower, depending on your National Insurance record.

If you are aged 55 or over, you can apply for a forecast of the amount of State pension you are likely to receive here.

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Christmas Parties and Gifts!

With Christmas fast approaching, a reminder of the tax implications of Christmas parties and gifts provided to staff.

A Christmas party for your employees is considered entertaining, but there is a tax exemption for employee entertaining that applies to ‘annual parties’, which are open to all staff.

The tax-free limit for this is £150 (inclusive of VAT) per guest, which must include any related transport or accommodation costs.  However, if the total exceeds £150 per head, the whole cost becomes taxable as a benefit in kind, not just the excess.

It is also important to remember that the £150 per head applies to both your employees, and their guests or partners.

With regards to Christmas gifts, any cash or vouchers paid to staff will be taxable, however HMRC won’t seek to tax ‘seasonal presents’, such as turkeys or chocolates, so long as the cost is reasonable.

Lower Emissions Company Cars

If you have the option of a company car, or are about to change your current company car, think about the CO2 emissions of any vehicle you are considering.

Choosing a car with lower emissions can save considerably on the amount of the taxable benefit in kind, and consequently decrease your tax liability.

The taxable benefit is calculated as a percentage of the list price of the car, and the higher the emissions, the higher the percentage applied.

Please see here for a full list of current and proposed rates.

State Pension Top-up

The state pension top-up opportunity opened on 12th October for people who want to boost their annual income by increasing their state pension.

The opportunity is available to anyone who already receives a state pension, or anyone who will become eligible to receive the state pension before 6th April 2016 (when the new flat rate pension commences).

Those taxpayers can pay a voluntary lump sum (Class 3A National Insurance) to receive up to £1,300 a year, for life, on top of their current state pension.

The actual amounts payable to receive additional pension depend on the pensioner’s age at the time of payment. Further information and calculators can be found on the HMRC website.

(Please note that the ability to inherit a spouse’s pension will disappear next April with the introduction of the flat rate pension. People who reach state retirement age on or after that date need to ensure they have sufficient complete NI contribution years in their own name to receive a pension – a minimum of 10 years, and a maximum of 35).

The New Personal Savings Allowance

The government is set to introduce a new personal savings allowance from 6th April 2016.

The allowance will enable basic rate taxpayers to receive up to £1,000 of savings income tax-free, whilst 40% taxpayers will be able to receive up to £500, resulting in a tax saving of up to £200 per year.

Because so many people will no longer pay tax on their savings, the automatic deduction of tax by banks and building societies will no longer be necessary.

Please note that the savings allowance will not be available to additional rate taxpayers, i.e. those with taxable income in excess of £150,000 per year.

Increase in Rent-a-Room Relief

If you rent out a room in your only or main home, you can currently claim up to £4,250 in rent-a-room relief.

This means that you can receive up to £4,250 per year tax free income from letting out furnished accommodation in your home.

However, from 6th April 2016, this relief is set to increase by over 75% to £7,500 per year, giving an opportunity for householders with spare rooms to generate additional tax free income.

See here for further information regarding the Rent a Room scheme.

ISA Changes!

A new ‘Help to Buy’ ISA initiative is being introduced this autumn to encourage first time buyers to save regularly for a deposit for a home, and these are now being offered by several major financial institutions.

Each saver will be able to invest up to £2,400 a year (up to a maximum of £12,000) and the government will top up the savings by 25% (up to a maximum of £3,000). For further information please see this HMRC factsheet.

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From 6th April 2015 there has also been a new ‘inherited ISA allowance’. Spouses and civil partners of ISA holders who have died since 3rd December 2014 can now have an additional allowance equivalent to the value of funds held in their ISAs when they died.

The inherited ISA allowance is in addition to the normal annual ISA allowance, and can be used for up to three years from the date of death.

Update to Income Certification

Since the rules for obtaining a mortgage or loan have been tightened up, it has become increasingly difficult to obtain sufficient evidence of earnings for the application process.

Previously, many lenders would request an original HMRC ‘SA302’ tax calculation as proof of earnings. However, as HMRC were getting deluged with requests for these forms, they have devised a new process to enable individual taxpayers and Agents to access the forms themselves.

If you submit your tax returns yourself using the HMRC online filing software, you can print the documents yourself – the instructions can be found here.

If your accountant submits your tax returns on your behalf, they can print the forms for you.

New Permanent Annual Investment Allowance

HMRC’s Annual Investment Allowance (AIA) allows you to claim tax relief of up to 100% on the purchase of assets for use in your business.

This can enable you to claim tax relief on many common business assets such as vans, office equipment, furniture, and machinery.

In a Tax Tip last December, we advised that the qualifying expenditure limit was due to drop from £500,000 to just £25,000 from 1st January 2016.

However, in the recent Budget, HMRC announced that instead, the AIA will be set at a more generous £200,000, on a permanent basis.

This will assist businesses in planning their capital expenditure, as there will no longer be the potential for a temporary allowance to be withdrawn.

Employment Allowance Increase

Many employers have been enjoying the benefits of the Employment Allowance, which started in April 2014.

Currently, employers can reduce the amount of National Insurance contributions they pay for their employees by up to £2,000. The good news is that it was announced in the recent Budget that with effect from April 2016, the allowance is set to increase to £3,000.

The bad news is that the allowance will no longer be able to be claimed by companies whose only employee is the sole director.