This month’s articles include an update regarding changes for employers in the pension rules, an explanation of the tax position of Child Benefit from January next year, a reminder of tax return submission deadlines and the date of the forthcoming Autumn Statement.
Please note that the closing paragraph of the Charitable Giving article published last month, quoted an incorrect year date. We have amended the date and have included the rectified article again in this month's newsletter.
Our next newsletter will be published 6 December 2012.
Workplace pension reform
All employers need to be aware of their responsibilities following the introduction of pension reforms. Some elements of this new legislation, such as the safeguards for individuals, came into effect for all employers from 1 July 2012.
The Pensions Regulator has issued “Getting Ready” notes for employers and this can be downloaded as a PDF document at http://www.thepensionsregulator.gov.uk/docs/pensions-reform-getting-ready-v4_1.pdf.
This article summarises some of the key points.
- Employers should find out the staging date from which the new auto enrolment regulations apply to their business.
- Employers will need to familiarise themselves with the duties they are likely to have to comply with. These could include: deciding on a pension scheme to use, preparing data to send to scheme administrators, preparing information to send to employees, and setting up payroll processes.
- Employers with 250 or more employees will be staged between 1October 2012 and 1 February 2014.
- Employers with 50 to 249 employees will be staged between 1 April 2014 and 1 April 2015.
- Employers with less than 50 employees will be staged between 1 June 2015 and 1 April 2017.
- New employers setting up a business from 1 April 2012 up to and including 30 September 2017 will have staging dates between 1 May 2017 and 1 February 2018.
In certain circumstances small employers (employers with less than 50 employees at 1 April 2012) can elect to move their staging date to a later modified date. These modified dates are published in the PDF linked earlier in this article.
The Pensions Regulator will be writing to each employer 12 months and 3 months ahead of their staging date.
Higher paid and Child Benefit
From January 2013 a person who earns more than £50,000 must advise HMRC if they receive Child Benefit personally, or if they are the higher earner of a couple where their partner receives Child Benefit. If you fall into this category you may be receiving a letter soon from HMRC advising you of the new tax charge.
We have summarised below the details of the tax charge that will apply from 7 January 2013:
- Child Benefit is not being made liable to tax, the amount claimed is unaffected. The tax charge simply claws back the value of the benefit of those with higher incomes.
- Child Benefit claimants can elect not to receive benefit if they or their partner do not wish to pay the new tax charge. This election can subsequently be withdrawn if circumstances change.
- The amount of the tax charge will be collected through self assessment and PAYE.
- The tax charge will be 1% of the amount of the Child Benefit you receive for every £100 of income you earn in excess of £50,000. This sliding scale will apply to earnings up to £60,000.
- The tax charge will recover all of the Child Benefit you or your partner receives if your income exceeds £60,000.
- An individual who has an income over £50,000 but does not receive Child Benefit themselves will only be subject to the tax charge for any part of the tax year during which they live with a Child Benefit claimant whose income is below theirs.
A couple or partnership affected by these new rules comprises:
- a married couple living together;
- civil partners living together;
- a man and a woman who are not married to each other but who are living together; or
- a man living with a man or a woman living with a woman who are living together as if they were civil partners.
How can you mitigate this tax charge?
If the highest earner’s income is marginally over £50,000 the simplest way to reduce or eliminate this new tax charge is to reduce your income for tax purposes. One way that you can do this and retain benefit for your family is to make a lump sum contribution into your pension scheme. You will create higher rate tax relief on the contribution and save all or part of the higher Income Tax charge to recover Child Benefit. Depending on the number of children you claim for, this could create tax savings of over 70%.
Couples affected would be wise to seek professional help to ensure this new tax charge is kept to a minimum, especially for families where the highest income earner’s income only marginally exceeds £50,000.
Tax return deadline approaching
The filing deadline for paper copies of your Self Assessment tax return for 2012 was 31 October 2012. If you file a paper return after this date penalties will apply.
Would readers note that if we prepare your return it will be filed electronically, the deadline for electronic filing of 2012 Self Assessment returns is 31 January 2013.
If you have still not sent us the information we will need to complete your return, could you attend to this as soon as possible. The penalties for late filing are now rigorously enforced by HMRC. If the filing deadline is breached you will be facing the following charges:
- 1 day late - A penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.
- 3 months late - £10 for each following day - up to a 90 day maximum of £900. This is as well as the fixed penalty above.
- 6 months late - £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.
- 12 months late - £300 or 5% of the tax due, whichever is the higher.
In serious cases you may be asked to pay up to 100% of the tax due instead. These are as well as the penalties above.
These penalties will apply in addition to interest and surcharges for late payment of any tax outstanding.
Autumn statement 2012
The Autumn Statement 2012 will be made by the Chancellor of the Exchequer, George Osborne, on Wednesday 5 December at 12.30pm.
The Statement provides an update on the Government's plans for the economy based on the latest forecasts from the Office for Budget Responsibility. These forecasts are published alongside the Autumn Statement on 5 December. It is regarded as the most significant economic event of the parliamentary year after the Budget.
We will be including updates in the December 2012 issue of our newsletter on matters affecting UK tax.
Charitable giving - the tax breaks
After much intense lobbying by the charity sector, the Chancellor’s attempt to cap tax relief on charitable giving (Budget 2012) was withdrawn.
Major donors to charities are obviously moved to philanthropy by considerations other than the amount of tax they can save, although they will want to make their donations in the most tax efficient way. Here is a roundup of some of the tax considerations to be considered.
- To qualify for relief, cash donations need to be paid out of taxed income. Accordingly, charities can recover the 20% basic rate tax deemed to have been paid by the donor, thus increasing the cash value of the donation significantly.
- 40% or 50% rate tax payers can claim an additional 20% or 30% tax relief on qualifying donations.
A gift can be made by way of an outright gift of a qualifying investment or land. In this case the Gift Aid rules set out above do not apply and the reliefs available are as follows:
Income Tax consequences:
- The donor can claim Income Tax relief based on the market value of the investment or land on the date of the gift, or
- If the donor sells the investment or land to the charity at less than market value. Income Tax relief is normally available on the difference between the sale price and the market value when the sale is completed.
- In each case the relief is given by deducting the relevant value from income.
Capital Gains Tax consequences:
- In the case of an outright gift, no chargeable gain will arise.
- In the case of a sale at less than current market value, CGT will only be payable if the amount received from the charity is more than the base cost of the asset for CGT purposes.
Carry back bonus
It is still possible to carry back Gift Aid donations made in a current tax year to the previous tax year. The over-riding condition is that any election to make the carry back must be made prior to the tax return being submitted for the relevant year. For example, if a tax payer wanted to carry back a donation, made during the tax year 2012-13 to 2011-12, they would need to make the election prior to submitting their tax return for 2012.
Tax Diary Nov/Dec 2012
1 November 2012 - Due date for Corporation Tax due for the year ended 31 January 2012.
19 November 2012 - PAYE and NIC deductions due for month ended 5 November 2012. (If you pay your tax electronically the due date is 22 November 2012.)
19 November 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 November 2012.
19 November 2012 - CIS tax deducted for the month ended 5 November 2012 is payable by today.
1 December 2012 - Due date for Corporation Tax due for the year ended 28 February 2012.
19 December 2012 - PAYE and NIC deductions due for month ended 5 December 2012. (If you pay your tax electronically the due date is 22 December 2012.)
19 December 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 December 2012.
19 December 2012 - CIS tax deducted for the month ended 5 December 2012 is payable by today.
30 December 2012 - Deadline for filing 2011-12 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2013-14.