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Over-65s set new employment record

Written by admin on . Posted in PAYE, Pensioners, Pensions, self-assessment. No Comments on Over-65s set new employment record

The latest data from the Office for National Statistics (ONS) reveals that more people than ever are working beyond age 65.

One of the stranger economic statistics of recent times has been the strength of employment markets on both sides of the Atlantic. For all the talk of an impending recession and the upward march of interest rates, employment has remained buoyant in both the UK and the US. The unemployment rate in both countries is under 4.0%, which is about as close to full employment as can be reached. The latest estimate for the UK is that unemployment numbers are 42,000 less than job vacancies, whereas in the US, job openings are double the unemployed numbers.

A notable feature of the UK employment market has been the increase in the population aged 65 and over who are in work. The latest data from the ONS – covering the period April to June 2022 – showed both a record quarterly increase and a record total of close to 1.5 million, of whom nearly three quarters were employed. Viewed another way, 15.5% of men and 9.2% of women aged 65 and over were in work during this period.

The longer-term ONS figures show that over the last ten years, while overall employment has risen by about a tenth, employment among those aged 65 and over is up by a little over a half. These senior workers are not labouring all week, but they are, on average, putting in nearly 22 hours. The recent joiners of the 65-and-over workforce are predominantly part-timers, both employed and self-employed, according to the ONS.

What the ONS statistics do not reveal is why employment is growing so rapidly in this sector of the population. There is a clue in the fact that, to quote the ONS, “The industries where informal employment is more common, such as hospitality and arts, entertainment and recreation, saw some of the largest increases.”

The combination of sharply rising inflation and the increase in state pension age to 66 is likely to be forcing some former retirees back into work to make ends meet. It does not help that the April 2022 increase in the state pension was 3.1%, less than a third the current (August) rate of CPI inflation.

If the idea of joining that growing band of those still working at 65 and over does not appeal, then make sure your retirement planning provides you with enough income when you need it.

Source: ONS 9/2022.

Six-fold increase on late payment interest rates

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HMRC late payment interest rates have now been raised six times during 2022 – from 2.6% at the start of the year to a current rate of 4.25%. However, at least there’s some good news, with an uplift to the tax repayment rate.

The charge for late payment is set at base plus 2.5%. So, with the Bank of England base rate going up from 1.25% to 1.75%, HMRC’s late payment rate has correspondingly gone up from 3.75% to 4.25%. The increased rate applies from 23 August and covers almost all taxes and duties – the exception being quarterly instalment payments of corporation tax, for which the rate has risen from 2.25% to 2.75% since 15 August.

Unfortunately, current predictions have the base rate peaking at 2.25% or 2.5% by the end of 2022, so further late payment interest rate hikes should be expected.

Get up to date

The latest late payment rate increase will hit taxpayers who are not up to date with their tax payments. Many will be struggling to pay outstanding taxes -–particularly the latest self-assessment payment on account due on 31 July – against the backdrop of rising living costs.

  • Banks and building societies have generally not passed on the latest 0.5% base rate increase to savers, so it makes sense to use savings to repay, or at least reduce, tax debt.
  • For a tax liability of, say, £15,000, the annual late payment interest cost has already risen by nearly £250 to almost £650 during 2022.


Repayment rate

The one piece of good news is that the repayment rate on overpaid tax has gone up by 0.25% to 0.75%, being the first increase in over a decade.

However, the still meagre repayment rate means there is little incentive for HMRC to make prompt repayments, with taxpayers often encountering significant delays.

HMRC interest rates for late and early payment can be found here.

Photo by Markus Spiske on Unsplash

Setting new taxpayer records

Written by admin on . Posted in Employment Tax, High Income Child Benefit Charge, Income Tax, Inheritance Tax, Lasting Will & Testaments, self-assessment. No Comments on Setting new taxpayer records

New data from HMRC reveals there are now over six million people paying higher or additional rate tax in the UK.

In recent years, the end of June has been the time for HMRC to issue its annual statistics on taxpayer numbers. This series is more up to date than some of HMRC’s releases and includes a projection for the current tax year.

The latest set of data received more press attention than usual for several reasons:

  • The number of income tax payers jumped by 1.3 million (4%) for 2022/23, the largest increase since 2004/05.
  • Higher rate taxpayer numbers rose by 750,000 (16%), an increase unmatched in over 30 years of HMRC data.
  • The population of additional rate taxpayers grew by 66,000 (12%). When the additional rate of tax was introduced in 2010/11, only 0.75% of taxpayers were in this lofty band, a proportion that has since grown to 1.75%.
  • Add together higher and additional rate taxpayers and the total exceeds 6.1 million, over one in six of all income taxpayers.

This means there are more taxpayers than ever before and more of them are paying higher and additional rates due to a combination of two main factors:

  1. The then Chancellor Rishi Sunak’s decision in March 2021 to freeze the personal allowance, higher rate and additional rate thresholds from 2021/22 through to 2025/26. In fact, the additional rate threshold has never moved from its initial £150,000.
  2. Inflation has been vastly higher than anticipated back in March 2021, when the CPI rate was running at 0.7% (a year, not a month) and the Office for Budget Responsibility (OBR) was projecting that it would not reach 2% until 2025. The OBR’s projection for total inflation over the four years from the start of 2022 to the end of 2025 was 7.7%, a figure that is almost certain to be below what 2022 alone will deliver.

The winner in all of this is the Treasury, so much so that there is now talk of tax cuts being announced in the Autumn Budget, if not sooner. As with July’s ‘tax cut’ in National Insurance contributions, any new income tax cut will be a reduction in the size of the previously planned increase.

Meanwhile, if you have become a higher rate taxpayer this year, you should make sure you are using all available reliefs and allowances to the full. The one piece of good news is that tax relief on your pension contributions has potentially doubled.

Source: HMRC.

Defining ‘period of ownership’ on residence disposals for CGT purposes

Written by admin on . Posted in Capital Gains Tax, Litigation & Dispute Resolution, self-assessment. No Comments on Defining ‘period of ownership’ on residence disposals for CGT purposes

The disposal of a private residence is exempt from capital gains tax (CGT) if used as a main residence throughout the period of ownership. A recent case heard in the First-Tier Tribunal has come up with a very favourable interpretation of what this means.

The facts

In the case heard by the Tribunal:

  • A married couple purchased a plot of land.
  • Over the next two and a half years the land was redeveloped, with the original house demolished and a new house built.
  • The couple then moved in before selling the new house a year later.
  • The sale resulted in a gain of over £500,000 for each spouse.
  • The couple claimed private residence relief for the total amount gained, but HMRC argued that full exemption was not available as the house had not been lived in for the entire period from when the land was originally purchased.

The decision

The question for the First-Tier Tribunal to decide was whether the period of ownership covered just the new house (one year) or whether it went back to when the land was bought (some two and half years earlier).

Both parties put forward detailed arguments to support their respective positions, but in the end the decision was simply that the natural reading of the legislation was the ‘period of ownership’ means the period of ownership of the house being sold – so the couple’s gains were fully exempt.

It is of course possible that HMRC might chose to appeal the decision.

There may be tax planning scope for anyone sitting on a plot of land representing a potential substantial gain if they can build a house on the land and live in it for a few years before a sale to claim private residence relief.

However the other important caveat to bear in mind is that First-Tier Tribunal decisions do not set a precedent. View HMRC’s guidance on private residence relief here.

Photo by Saúl Bucio on Unsplash

Are you on top of Making Tax Digital’s latest developments?

Written by admin on . Posted in Making Tax Digital, MTD, National Insurance Contributions, self-assessment, Self-Employed, VAT. No Comments on Are you on top of Making Tax Digital’s latest developments?

The widening scope of Making Tax Digital (MTD) is highlighting several issues, including the limited availability of the MTD for income tax pilot scheme, and low awareness of the recent expansion of MTD for VAT to all VAT registered businesses.

Pilot scheme

Although the functionality of the MTD for income tax pilot scheme is constantly evolving, HMRC is still restricting sign-up to small numbers, citing the need for detailed, individual guidance for users.

From this month, taxpayers can join the pilot if they have the following types of income:

  • self-employment, even if there is more than one business;
  • UK property;
  • employment income; or
  • UK savings and dividend income.

Functionality to be added over coming months will mean that pilot scheme users will be able to claim relief in respect of personal pension contributions and the marriage allowance, and it will also be possible to report capital gains, pay voluntary class 2 NICs and make student loan repayments.

The scope of the pilot scheme is still quite restricted, with taxpayers only able to sign up through their software provider.

MTD for VAT

MTD for VAT was extended to all VAT registered businesses from 1 April. Previously, it only applied to those above the £85,000 VAT registration threshold.

Some new entrants will currently be in the process of preparing their first MTD compliant VAT return – although research indicates considerable misunderstanding as to how MTD for VAT differs from the previous electronic VAT return filing requirement. Some 30% of responders thought they had already signed up to MTD, when in fact they had not.

There will be something of a delay for those businesses who submit VAT returns annually. For example, with an annual accounting period running to 31 March 2023, the first MTD return will not need to be submitted until 31 May 2023.

As MTD progresses, stay up to date with HMRC guidance here.

Please take professional advice if you require assistance with your MTD transition.

Photo by Eden Constantino on Unsplash

Charitable giving pitfalls

Written by admin on . Posted in Gift Aid, Income Tax, self-assessment. No Comments on Charitable giving pitfalls

Many individuals donate to charity simply for altruistic reasons, but this doesn’t mean the tax benefit should be ignored. With Gift Aid donations saving tax at an individual’s marginal rate, donors need to watch out for any pitfalls that might preclude relief.

If a Gift Aid donation helps to preserve a person’s entitlement to the personal allowance, the tax saving is 60%. For example, a gross donation of £1,000 costs just £400.

Benefit received

Any benefit received in return for making a donation must be minor. An acknowledgement of the donor’s generosity – such as a plaque – is permitted but should not take the form of business advertisement or sponsorship.

When it comes to right of admission, such as a National Trust membership fee, the donation must be at least 10% more than the normal admission cost. For example, £11 would need to be paid for entrance that would otherwise cost £10. Alternatively, admission rights can be for at least 12 months during public opening hours.

Other pitfalls to be aware of include:

  • Gifts: Tax relief is not available for an individual membership or subscription gifted to someone else, such as a spouse or parent. However, this restriction doesn’t apply where a donor’s minor child is the recipient.
  • Double counting: Where charitable giving is via a Charities Aid Foundation account, tax relief is given on donations to the account – not when donations are made from the account to charities. Therefore, be careful not to double count when claiming relief. The advantage of using a centralised charity account like this is that only one Gift Aid declaration need be completed.

Tax planning

If a donor’s income varies from year to year, donations can be made in the tax years when the tax saving is greatest.

  • The ability to treat donations as being made in the previous tax year is a great help here because – unlike pensions – tax planning can be done retrospectively once the donor’s tax position is established.
  • The same approach should be followed for spouses or partners. If a donation comes from a joint bank account, the donor who will benefit the most should make the Gift Aid declaration.

Detailed guidance from HMRC on Gift Aid for individuals and companies can be found here.

Photo by micheile dot com on Unsplash

Sharp rise in higher rate taxpayer numbers…….

Written by admin on . Posted in Employment Tax, Income Tax, IR35, self-assessment, Self-Employed, Tax, Wealth. No Comments on Sharp rise in higher rate taxpayer numbers…….

……and if that’s you, then advice is now more important than ever.

There was once a time when paying tax at more than the basic rate made you a member of a somewhat select club. In 2010/11, the first year in which additional rate tax was introduced, the proportion of taxpayers who were taxed at more than the basic rate was 10.4%.

Five years later, a dose of austerity pushed the figure close to 16%. Then it began to drop as higher rate thresholds were raised, so that by 2019/20 it was down to 13.6%. From that low, the upward path was resumed.

Alongside the Chancellor’s Spring Statement in March, the Office for Budget Responsibility (OBR) issued estimates that the freeze in the personal allowance and, outside Scotland, and basic rate bands through to 2025/26 will mean by that year almost 19% of taxpayers will be liable for higher rate tax.

The number of taxpayers will also be increasing too because of the personal allowance staying at £12,570. The rising taxpayer numbers explain why the Chancellor could announce a 1p cut in basic rate tax in 2024/25 at the same time as the OBR calculated that income tax revenue for the year would increase by £12 billion. Scotland already has a starter rate of 19%.

If your head is spinning from all the numbers, there is a simple message you: you are likely to pass more of your income to HMRC in the coming years. To limit just how much extra the Exchequer gains and you lose, there are plenty of actions to consider wherever you are in the UK:

  • If you are married or in a civil partnership, make sure you are maximising the benefits of independent tax and, if you are eligible, claiming the transferable marriage allowance.
  • Check your PAYE code – it could be wrong.
  • Ensure you are claiming full tax relief on the pension contributions you make. Do not assume this will be given automatically, especially if you pay higher rate tax.
  • Consider an ISA first for any investment as it is free from UK income tax and capital gains tax.
  • Choose any employee perks with care. Some are highly tax efficient, while others carry a heavy tax burden.

Remember that if you are or likely to become a member of the ever-expanding higher rate taxpayer club, the value of taking independent financial advice rises with your tax rate.

Source: ONS data, OBR projections.

A new breed of digital nomad

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The pandemic has freed many workers from the confines of the office, leading to the emergence of a new breed of digital nomad – people who can take their laptop, jump on a plane and set up a remote ‘office’ somewhere exotic.

Some countries have responded with schemes to assist long-term workcations. For example, with the Barbados Welcome Stamp, digital nomads can stay in Barbados for up to 12 months with no tax implications – the fee is $2,000 for an individual. But before packing your bags there are some practicalities that cannot be overlooked.

The self-employed should not have any insurmountable problems, but employees will need to consult with their employer to see if they are going to be supportive of a move away, potentially to a different time zone.

UK property

There might not be much of a problem if currently renting in the UK, but home ownership comes with more issues. Simply leaving a home empty – even if affordable – could be in breach of the mortgage agreement and may invalidate household insurance. Property rental is a solution but means meeting serious requirements; a good letting agency should be able to advise. Some remedial work may be necessary, such as the installation of fire alarms.

You should definitely retain your UK bank account, but also look at online options for holding currency and transferring funds overseas.

Tax status

It’s all very well having tax-exempt status where you are based, but it is of limited benefit if you remain subject to UK tax. It is important to remember that UK residence status is determined separately for each tax year. The rules can be quite complicated, but you can be classed as non-resident if you:

  • Spend fewer than 16 days in the UK during a tax year. Unfortunately, it’s probably too late now to meet this requirement for the current year;
  • Work full-time overseas, whether self-employed or employed – and you are allowed to visit the UK for up to 90 days each tax year; or
  • Balance your visits and ties to the UK. For example, if you just make use of a UK home, UK visits will need to be restricted to no more than 90 days.

A good starting point for establishing residence status is HMRC’s guidance on the statutory residence test. This can be found here.

Photo by Peggy Anke on Unsplash

Can the child benefit charge be fixed?

Written by admin on . Posted in Employment Tax, High Income Child Benefit Charge, Income Tax, self-assessment. No Comments on Can the child benefit charge be fixed?

A critical review of how the government taxes child benefits has raised a major question mark over HMRC’s approach to collecting payments.

Child benefit tax, or the High-Income Child Benefit Charge (HICBC) to use its legal name, is a case study in how not to introduce and operate a tax. It was designed as a quick fix to political pressure for the withdrawal of child benefit from high earners during a period of austerity.

When the HICBC was introduced in January 2013 – not even the start of a tax year – broadly speaking, it applied if either parent had ‘adjusted net income’ of over £50,000. At the time, the higher rate income tax threshold throughout the UK was £42,475, meaning the ‘high income’ label had some meaning. The threshold has remained at £50,000 ever since, with the result that, outside Scotland, it has now been overtaken by the higher rate threshold (£50,270 in 2022/23). A corollary is that the proportion of families affected has increased over the period from one in eight to one in five, according to the Institute for Fiscal Studies.

In a recent review, the OTS has been highly critical of HICBC and the convoluted way in which HMRC collects the tax. The OTS notes that in 2019/20, HMRC opened over 125,000 compliance checks on ‘customers’ who it suspected had not paid the correct amount of HICBC. The OTS report also noted that HMRC had written to 94,000 potentially affected people in 2020/21, many of whom could face shock tax bills in the near future.

The HICBC is structured as a tax charge equal to 1% of child benefit received for each £100 of income above the £50,000 threshold. So, for example, if you have:

  • two children and are entitled to child benefit of £36.25 a week (£1,865 a year); and
  • your ‘adjusted net income’ is £54,000; then
  • you face a tax charge of £754 (£1,865 @ 40%).

At £60,000 or more of income, the tax charge matches the child benefit, making it sensible to opt for non-payment of the benefit. However, you or your partner should still register for child benefit because it gives entitlement to national insurance credits.

In some circumstances, it is possible to use tax planning to limit or even sidestep the HICBC completely, but given the charges’ complexities, doing so requires professional advice.

NICs boost for the self-employed

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Prior to the March Spring Statement, most self-employed individuals were facing increased national insurance contribution (NIC) bills this year. However, those with profits up to and just over £28,000 will now see a fall in the amount they pay compared to last year. What’s more, low earners can benefit from deemed contributions.

Class 4 NICs

The introduction of the 1.25% health and social care levy from 6 April put up the rates of profit-related class 4 NICs to 10.25% and 3.25%. However, the rate increase has been mitigated by a substantial uplift to the starting threshold. It was going to be set at £9,880 but will now be £11,908 across the 2022/23 tax year. For 2023/24, the threshold will be fully aligned with the income tax personal allowance of £12,570.

Although the freezing of the upper threshold at £50,270 is pushing more people into higher rate income tax, it is actually beneficial for NIC purposes. Extra profits are subject to NICs at 3.25% instead of 10.25%.

Class 2 NICs

The threshold at which fixed-rate class 2 NICs become payable was due to increase from £6,515 to £6,725. However, this threshold has also now been set at £11,908, and will be aligned with the personal allowance for 2023/24.

The £6,725 threshold has not, however, been discarded. In a big change for class 2 NICs, self-employed people with profits between £6,725 and £11,908 for 2022/23 are deemed to have made contributions without actually having to pay them. They will therefore continue to build up their contribution record. This is particularly important for State pension purposes where 35 qualifying years are required to obtain the maximum.

The deemed contribution threshold might mean a useful tax planning opportunity. For example, if profits for 2022/23 are set to be £12,000, spending £200 on, say, a new telephone before the year end will avoid the cost of class 2 NICs, and also save some income tax and class 4 NICs.

Overall impact

The table shows the overall impact of the Spring Statement changes at different profit levels:

Profit 2021/22 2022/23 (Original) 2022/23 (Now)
£10,000 £197 £176 Nil
£15,000 £647 £689 £481
£20,000 £1,097 £1,201 £923
£30,000 £1,997 £2,226 £2,018

The Spring Statement factsheet explaining the changes can be found here.