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Month: January 2024

ISA reforms afoot from April 2024

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Changes to individual savings account (ISA) rules coming into effect from 6 April 2024 will make ISAs more user friendly, most notably the move to allow multiple subscriptions of same-type ISAs in a tax year.

Multiple subscriptions

It is currently only possible to pay into just one ISA of each type in a tax year. Multiple subscriptions will mean:

  • Cash savers will be able to open new cash ISAs if better deals become available. Greater flexibility will mean some funds could go into a fixed-rate deal, with a reserve held in an easy-access cash ISA.
  • Investors will be able to spread their investments over several different providers. For example, one stocks and shares ISA might be used for longer-term investments, with another – offering low dealing costs – used where regular trades are made.

For 2024/25, the annual £20,000 ISA contribution limit will not see any change, with the £9,000 Junior ISA and £4,000 Lifetime ISA limits also frozen.

Other changes

Although details are still to be announced, the government’s intention is that in future it will be possible to hold fractional share contracts within a stocks and shares ISA. Under existing rules, at least one full share must be held, even though the shares of some US tech companies can cost hundreds.

Other changes to be introduced from April 2024 include:

  • Partial transfers between ISA providers will be possible during the tax year. For example, if £15,000 has been paid into a cash ISA since 6 April, £5,000 could be moved to a different provider. Currently, the whole £15,000 would have to be moved.
  • The minimum account-opening age for cash ISAs is to be harmonised at 18. It will therefore no longer be possible for 16- and 17-year-olds to open a cash ISA – just a Junior cash ISA where the investment limit is somewhat lower.

Any 16- and 17-year-olds without a cash ISA might want to open one while they still can ­– by 5 April 2024 at the latest.

Although not yet updated to the 2024/25 tax year, HMRC’s basic guide to ISAs can be found here.

Photo by Andre Taissin on Unsplash

Business rates relief: extensions and cuts

Written by admin on . Posted in Business Rates. No Comments on Business rates relief: extensions and cuts

Last November’s Autumn Statement included a package of measures to help alleviate the burden of business rates in England and on the Scottish islands, but Wales won’t be so fortunate.

75% relief rules

Retail, hospitality and leisure properties that do not qualify for small business rates relief currently receive a 75% business rates discount, subject to a cap of £110,000 for each business. This relief is to continue throughout 2024/25.

Property will typically qualify for relief if the business is mainly being used as a:

  • Shop;
  • Restaurant, café, bar or pub;
  • Cinema or music venue; or
  • Gym, spa or hotel.

There is an equivalent scheme for Welsh retail, hospitality and leisure property, but for 2024/25 the discount has been reduced to 40%. There is no equivalent relief for Scottish or Northern Irish business property. However, Scotland has announced a new 100% relief for hospitality businesses situated on the Scottish islands.

Multipliers

A business rates bill consists of a property’s rateable value multiplied by a multiplier (or poundage). For 2024/25, the small business multiplier (rateable value below £51,000) is again frozen at 49.9p. However, the standard multiplier (rateable value over £51,000 or more) is being uprated by 6.7% to 54.6p.

Given inflation has now dropped to 3.9% (November 2023), the 6.7% increase for the standard multiplier is not going to be favourably received.

  • Scotland: The basic multiplier has been frozen, but higher value properties will see poundage increased by 6.7%.
  • Wales: The multiplier will see an across-the-board increase of 5%. This will be painful for smaller businesses, especially as the Welsh multiplier at 56.2p is the highest in the UK.
  • Northern Ireland: No announcement as yet, and, in any case, rate poundage varies across council

To summarise the various outcomes:

England Scotland Wales
RV below £51,000 RV £51,000 or more RV up to £50,000 RV £51,001 to £100,000 RV £100,000 or more
Retail, hospitality and leisure relief (all subject to a cap of £110,000) 75% 100% (islands only) 40%
Multiplier 49.9p 54.6p 49.8p 54.5p 55.9p 56.2p

Details of the various business rates reliefs available in England can be found here.

Photo by Toa Heftiba on Unsplash

National Insurance Cut

Written by admin on . Posted in National Insurance Contributions, PAYE. No Comments on National Insurance Cut

Employee National Insurance cut announced in the Autumn Statement takes effect (from 6 January).

For many years, successive governments have been happy for the public to vaguely believe that national insurance contributions (NICs) are building up in some national benefit fund, rather than representing just another tax on income. While something called the National Insurance Fund does exist, as a House of Commons Library briefing noted back in 2019, “The Fund operates on a ‘pay as you go’ basis; broadly speaking, this year’s contributions pay for this year’s benefits.”

For politicians, the perceived difference between NICs and income tax made it possible to grab the headlines by reducing the basic rate of tax while receiving much less attention for maintaining or even increasing revenue by raising NICs.

Last November, the Chancellor appeared to have finally given up on the distinction-without-a-difference approach by proclaiming that his cuts to NICs for employees and the self-employed were tax cuts.

The changes

If you are an employee (but not a director, to whom special rules apply), the cut means your main NIC rate (on annual earnings between £12,570 and £50,270) fell from 12% to 10% from 6 January 2024. The extra amount in your pay packet is broadly the same as if a 2p cut had been made to basic rate tax (which covers the same £37,700 band of income). However, from the Chancellor’s viewpoint, the NICs cut was cheaper, as there was no ‘tax cut’ on pension or investment income, both of which are NIC-free.

The employer’s NIC rate did not change, remaining at 13.8% on all earnings above £9,100. If your earnings are below £50,270, the theoretical advantage of using salary sacrifice to pay pension contributions has been marginally reduced but remains attractive, as shown in the table below, based on a £1,000 sacrifice.

If you are among the growing band of higher or additional rate taxpayers, the financial advantage of salary sacrifice is unaltered. Either way, if you are not using salary sacrifice to pay pension contributions, it is still worth taking advice about the option. It is beneficial in most circumstances, but there are drawbacks to be aware of.

Personal contribution

 

 Salary sacrifice employer contribution (sacrificed amount + NIC saving)
Employee NIC rate 12% 10% 12% 10%
  £ £ £ £
Gross salary 1,000 1,000 Nil Nil
Employer pension contribution Nil Nil 1,138 1,138
Employer NIC   138 138 Nil Nil
Total employer outlay 1,138 1,138 1,138 1,138
Employee salary 1,000 1,000 Nil Nil
Less:

income tax

  

(200)

  

(200)
    Employee NICs    (120) (100)
Net pay = net pension contribution    680    700
Tax relief   170   175
Total pension contribution 850  875 1,138 1,138
Gain     33.9% 30.1%

 

Getting a head start: retirement planning attitudes in 2023

Written by admin on . Posted in Retirement, Wealth. No Comments on Getting a head start: retirement planning attitudes in 2023

A survey of 6,000 people, aged 18 to 80, revealed starkly different views on retirement across the generations.

According to the Office for National Statistics, the median age of the UK population in mid-2021 was 40.7 years, up from 39.6 in mid-2011. Perhaps that gradual ageing and the impact of Covid-19 on working patterns explains why there is a steady flow of research reports on attitudes to, and experiences of, retirement. The latest to emerge is Standard Life’s Retirement Voice, now in its third annual edition. One of the more interesting topics covered is the extent and benefit of planning ahead of retirement.

The bad news is that only 29% of those questioned said they were doing “a great deal of planning for retirement.” Predictably, households with income of more than £100,000 and those who took professional financial advice were the most likely to fall into this category, but even in those instances the proportion was no more than half.

Just over one in five members of Generation X (born between 1965 and 1980, so in their 40s and 50s) said they had done a great deal of planning, a smaller share than either of the two subsequent and thus younger generations (Millennials and Gen Z). The reluctant Gen Xers would do well to consider that over half of today’s retirees wish that they had thought about retirement finances at a younger age or started saving earlier. However, Gen X may not be completely head-in-sand, as on average they confessed to a six-year gap between their aspirational retirement age (62) and what they expected to be the reality (68).

The benefits of planning were evident in responses to another survey question: “How do you feel about your current financial situation?” Those who had done the most planning were nearly three times more likely to feel positive about their finances than the non-planners (61% vs. 21%). The group that had done “only a little planning” fell in the middle (40%).

The survey found that on average, age 36 is when people start to take a keener interest in their retirement planning. That average figure hides a big generational difference – the Baby Boomers trigger age was 49, while for Gen Z (currently 18–25) it was 20. In this instance, Gen Z looks the wiser generation…

Find out more about retirement attitudes here.

Photo by Harli Marten on Unsplash

National Living and Minimum Wages increase

Written by admin on . Posted in Employment Tax, National Living Wage, National Minimum Wage. No Comments on National Living and Minimum Wages increase

Minimum wage rates will see substantial increases from 1 April 2024 – welcome news for younger workers and apprentices, but not so much for those employers struggling in the current economic climate.

Eligibility for the National Living Wage is to be extended by reducing the age threshold so that 21 and 22-year-olds are included. Current and future rates of National Living/Minimum Wage are:

Current From 1 April 2024 Increase
Age Rates Age Rates %
23 and over £10.42 21 and over £11.44 9.8%
21 to 22 £10.18 12.4%
18 to 20 £7.49 18 to 20 £8.60 14.8%
Under 18 and apprentices £5.28 Under 18 and apprentices £6.40 21.2%

Employers can only pay the apprentice rate if the apprentice is aged under 19 or, if older, is in the first year of their apprenticeship. Apprentices over 19 who have completed the first year of their apprenticeship must be paid the rate for their age.

The provision of accommodation is the only benefit counting towards the National Living/Minimum Wage, with the maximum offset from 1 April 2024 set at £9.99 a day (£69.93 a week).

Real Living Wage

Some 14,000 employers – covering over 460,000 employees – now pay the Real Living Wage. This is on a voluntary basis, with the Real Living Wage independently calculated based on actual living costs.

  • The current hourly rate of Real Living Wage outside of London is £12, so – with the latest increase – the National Living Wage is not far off parity.
  • Where the government’s rate falls down, however, is for London-based employees where a Real Living Wage of £13.15 is deemed necessary due to the higher costs of working and living in the capital.

Also, the National Living Wage covers employees aged 21 and over, but the Real Living Wage applies from age 18.

HMRC’s National Living and Minimum Wage calculator for employers can be found here.

Photo by Desola Lanre-Ologun on Unsplash

WANTED: Insolvency litigation support

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I am reaching out to my LinkedIn connection for some direct networking – I have seen an increase in the volume of insolvency work (rescissions, WUP, validation orders) coming through my pipeline in recent months and whilst this is great, it is placing some pressure on my sole practice within @Nexa and so for this reason, I am looking to talk to legal practitioners (solicitor, Paralegal, Legal Executive) who may or may not be local to my base in Merseyside – and is familiar with LEAP – to work with me on my current cases.

I should add that I am not looking to employ anyone so I would only be willing to chat to individuals who work for themselves whether that be via a corporate vehicle, partnership or old fashioned self-employment. If this is you, or if any of my connections know anyone who might be interested in chatting about what’s on offer, then please feel free to share this missive.

Photo by Brett Jordan on Unsplash

Cash basis to become default

Written by admin on . Posted in Income Tax, Making Tax Digital, self-assessment, Self-Employed. No Comments on Cash basis to become default

From 2024/25, restrictions to the cash basis will be removed, making it the default method for calculating trading profit for the self-employed and most partnerships.

The accruals basis is currently the default, with a business having to opt in to use the cash basis. In future, a business will need to opt out of the cash basis if it wants to use the accruals basis.

Restrictions removed

A business, regardless of size, will be able to use the cash basis once the £150,000 turnover restriction has been removed. The removal of two other restrictions will mean there are no longer any obstacles to – otherwise qualifying – businesses choosing to use the cash basis:

  • Interest costs will in future be fully deductible. Currently, there is a maximum deduction of £500.
  • Losses incurred under the cash basis will be relievable in the same way as accruals basis losses. Currently, a cash basis loss cannot be relieved against other income or carried back.

When moving from the accruals basis to the cash basis, a number of adjustments may be necessary to avoid double counting or items being omitted.

Pros and cons

The cash basis removes complexities such as accruals and most capital allowances, though it will be unsuitable for some businesses, especially larger ones.

  • The cash basis does mean it is quite easy to calculate trading profit by, for example, extracting information from easily accessible documents, such as bank statements – so there may be less need for a bookkeeper.
  • It is also easier to legally manipulate a period’s trading profit. For example, paying suppliers early towards the end of a period will reduce profit.

The accruals basis, however, is a more accurate reflection of a period’s trading profit, so banks and other financial institutions may insist on this basis being used.

HMRC’s guide to calculating trading profits, notably section 3 on moving to the cash basis, can be found here.

Photo by Kelly Sikkema on Unsplash