eSmart Money Issue 20 by Steve Wright

The DIGITAL personal finance magazine

eSmartmoney MAY / JUNE 2008

Tax facts 2008/2009 what the numbers really mean

Retiring

abroad taking your pension with you

Farewell to the 10p tax rate the winners and losers

Also inside this issue

Self Assessment how it works

Capital gains tax one minute guide

Tax codes what you need to know

Retirement

matters

commitment to help pensioners

The Budget at a glance

key announcements

Life insurance bonds... Pension Schemesâ&#x20AC;ŚTax trackerâ&#x20AC;Śtargeting unpaid taxes

want to explore your personal finance options? Tell us what you need?

09 18

insurance 05 Life bonds…

no change following CGT reform

Budget 06 The at a glance

key announcements

Farewell to the 10p tax rate… the winners and losers

10 Tax facts 2008/2009… Budget 16 The and business…

21 Tax returns…

new measures could lead to penalties

22 Retiring abroad… 24 Inheritance tax… taking your pension with you

if you have concerns tax planning is essential

25 The futures bright… financial incentives encourage the young to save

In this issue

what the numbers really mean

the key announcements at a glance

17 Retirement matters… 17 News in brief… 18 Pension Schemes… Revenue 20 &HMCustoms commitment to help pensioners

incapacity benefit reform

your questions answered

extension of power your questions answered

eSmartmoney MAY / JUNE 2008

In this issue

26 Self Assessment… 27 Capital gains tax… Gateway 28 Savings Accounts

how it works

one minute guide

getting in the savings habit

29 Tax tracker… company 29 UK pension schemes… targeting unpaid taxes

greater powers to appoint trustees

actively 30 Revenue pursues offshore bank accounts…

around 5,000 UK taxpayers come under scrutiny

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

eSmartmoney MAY / JUNE 2008

Taxation

Life insurance

bonds No change following CGT reform

The government has announced that it ‘does not see the need for any change to the taxation of life insurance bonds as a result of CGT reform.’ Investment bonds are primarily of benefit to higher rate taxpayers, who expect their tax rate to fall in the future and who already make full use of their annual capital gains tax allowance. But they can also be beneficial for passing money on to children or for inheritance tax planning. The effects of 18 per cent CGT on investment bonds will depend on an individual’s own circumstances, whether they want capital gains or income and whether they are investing for the long or short term. Under the new proposals, it appears that individuals may be better off holding collective investments directly within the new capital gains tax regime, although this will depend on an individual’s circumstance. This contrasts

eSmartmoney MAY / JUNE 2008

with gains on investment bonds which, at encashment, are taxed as income at an effective rate for higher rate taxpayers of up to 40 per cent, although there are differences for onshore and offshore bonds.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our digital magazine to someone you know, please email us with their details and we’ll send them a copy.

Investment bonds are primarily of benefit to higher rate taxpayers, who expect their tax rate to fall in the future and who already make full use of their annual capital gains tax allowance. 05

Budget 2008

The Budget at a glance Key announcements

eSmartmoney MAY / JUNE 2008

Budget 2008

Employment

n P ublic sector employment has fallen in the past year. Private sector employment has risen to record levels. n S ome £60m to be spent over the next three years to encourage people to enter work and progress.

Public spending

n P ublic spending in the next three years will grow by 2.2 per cent. n T he government will spend £2bn more on British troops in 2008, including £900m on equipment.

Business and corporation tax n New flat rate capital gains tax charge of 18 per cent for individuals introduced from April as previously announced, up from 10 per cent. n Small firms loan guarantee scheme increased by £60m this year. Enterprise management incentive tax relief scheme increased from £100,000 to £120,000. n Target for small and medium-sized businesses to win 30 per cent of public sector contracts in the next five years. n No further cut on corporation tax above the 2 per cent reduction to 28 per cent announced last year. Main corporation tax rate reduced from 30 per cent to 28 per cent from April.

n S mall business corporation tax rate increased to 21 per cent in 2008/09 and 22 per cent in the following year. n Government to go ahead with plans to charge a levy, set at £30,000, for non-doms in the UK who will not be charged on offshore income. n An extra £60m has been committed to filling the UK ‘skills gap.’ n Government will introduce a capital fund of £12.5m to encourage more female entrepreneurs. n The threshold for businesses to account for VAT on a cash basis increases from £660,000 to £1.35m from April.

eSmartmoney MAY / JUNE 2008

n T he upper earnings limit on National Insurance contributions increased from £670 per week to £770 per week from April. n N on-domicile tax scheme implemented from April, charging a fee to those in the UK for more than seven years who wish to retain non-domicile status. Annual tax charge of £30,000 on overseas income and gains unless these amount to less than £2,000. There will be no further changes to the regime in this parliament or the next. n B eer duty to increase by 4p per pint, wine up 14p a bottle, cider up 3p a bottle and spirits up 55p a bottle. n T obacco duty increased by 11p per packet of 20 cigarettes and 4p for five cigars. n A n escalator was introduced by the Chancellor on alcohol duties, which will see charges increase by 2 per cent above inflation for the next four years.

Motorists

Property n T he government will be inviting views on how to provide long-term fixed rate mortgages. n Key workers and first-time buyers to be able to borrow from new shared equity schemes to provide up to half of the price of new homes. n Sites identified for a target of 70,000 more new houses in addition to the 40,000 already under construction.

Tax and National Insurance

n C hanges to income tax confirmed from April. Basic rate drops from 22 per cent to 20 per cent and the 10 per cent band is abolished.

n S tamp duty on shared ownership homes will not be required until the occupant owns 80 per cent of the equity. n Teachers, nurses and first-time buyers can borrow money for shared equity schemes, and the minimum stake has been reduced from 75 per cent to 50 per cent. n £8bn in funds to be committed to new, affordable and social housing.

n Major reform of the vehicle excise duty from 2009. For new cars from 2010, the lowestpolluting cars will pay no road tax in the first year, with the highest-polluting cars paying £950. n Funding set aside for road-pricing proposals. n F or environmental reasons, fuel duty will rise by 0.5p per litre in real terms in 2010.

Budget 2008

Welfare

n L ong-term recipients of sickness benefits to attend ‘work capability assessments’ from April 2010. n G overnment plans to reform council tax and housing benefit. n N ew contract to help parents into work, involving a commitment to find employment. Benefits for working families will be boosted. n G overnment to invest an extra £125m over three years to stop child poverty. n F rom April 2009, child benefits will rise to £20 for the first child. An extra £50 above inflation will be added to child tax credit for lowincome and middle-income families. nG overnment will work with energy companies on a voluntary and statutory basis to help low-income households meet fuel bills. n T he government will again be making Winter Fuel Payments to most people aged 60 or over for winter 2008/09. There will be an additional one-off payment for winter 2008/09 of £50 for households with someone aged 60-79 and £100 for households with someone aged 80 or over. This will be paid alongside the Winter Fuel Payment.

Savings

n A ll PEPs will automatically become Stocks and Shares ISAs. n I ndividuals aged 16/17 can save up to £3,600 in a Cash ISA.

n G overnment to launch the Saving Gateway, a cash saving scheme for those on lower incomes, which will be introduced nationally with the first accounts available to savers in 2010. n T o encourage people to save money, the government increased the ISA investment limit to £7,200 from April for Stocks and Shares ISAs, with the amount that can now be held in a Cash ISA rising to £3,600. Investments in a Cash ISA can be transferred to a Stocks and Shares ISA. n I nvestors can invest in both a Cash ISA (up to £3,600) and a Stocks and Shares ISA (up to £7,200) in the same tax year, provided they don’t exceed an overall total of £7,200. The investments do not have to be with the same provider.

Transport

n Funding for the Crossrail project in London secured. n New measures to be introduced at Heathrow and other airports aimed at increasing the use of biometric technology to speed up air travel. n Aviation duty to increase by 10 per cent in the second year of operation.

Defence

n The Chancellor expects to spend £2bn more on defence, including £900m on new equipment.

n I nvestment of £200m in under-performing schools in an effort to improve GCSE grades by 2011. n T here will be an increase in the amount of funding for adult training.

Economy

n U K GDP growth is forecast to slow from 3 per cent in 2007 to between 1.75 per cent and 2.25 per cent in 2008, before picking up to 2.25 per cent and 2.75 per cent in 2009 and 2.5 per cent and 3 per cent in 2010. n T he inflation target for CPI will remain at 2 per cent. n B orrowing will rise from £36bn to £43bn in 2008, equal to 2.9 per cent of national income. This will decline to £23bn, or 1.3 per cent, by 2012/13. n B orrowing will total £140bn over the next four years. n T he current Budget deficit will be £10bn in deficit in 2008/09. It is forecast to decline to £4bn in the following year and is expected to return to a surplus in 2010/11 – a year later than was scheduled. n U K debt is now 36.6 per cent of GDP. Debt is forecast to reach 38.5 per cent in 2008. n P ublic sector investment will reach £33bn next year.

Environment nG overnment is to take advice on whether the carbon emissions reduction target can be raised to 80 per cent by 2050. Climate change levy increased in line with inflation from April. n Reform of the North Sea fiscal regime to encourage investment. n Five million customers on pre-payment meters to be given a fairer deal. Legislation will be introduced if necessary. n Some £26m funding next year for the Green Homes Service to help people reduce the carbon output of their homes.

Education

n G overnment to spend £10m over the next five years to create a new science fund for teachers in secondary schools.

n T hreat to introduce legislation to reduce plastic carrier bags in 2009 if voluntary action does not work, with funds going to environment charities. n New non-domestic buildings to become ‘carbon neutral’ by 2019. n Energy companies to spend £150m a year on energy tariffs. n ‘Carbon Budgets’ to be issued alongside regular Budgets from 2009.

eSmartmoney MAY / JUNE 2008

Taxation

Farewell to the 10p tax rate The winners and losers

The Treasury Select Committee has criticised the government for abolishing the 10p tax rate, a move pre-announced in Gordon Brown’s Budget last year. The committee says that those on lower incomes who will be affected disproportionately by the change represent an “unreasonable target for raising additional tax revenues.

The cut in the basic rate of tax from 22p to 20p will hit the less well-off according to the Treasury Select Committee, claiming that households without children or anyone over the age of 65, and who earn less than £18,500 a year, would be the “main losers.” The independent Institute for Fiscal Studies (IFS) estimates the losers will include 2.2 million single working people with no children, 1.2 million double-income couples with no children, 700,000 double-income couples with children, 500,000 non-workers, 400,000 single-income couples without children and 300,000 women aged 60 to 64. Changes in tax credits mean that some families with children and some pensioners, but not all, will be protected. However, that is provided they successfully apply for credits and benefits, a procedure that some find too challenging. The council tax benefit take-up rate was just 65 per cent in 2006, while that for working tax credits was about 80 per cent.

eSmartmoney MAY / JUNE 2008

In addition a small percentage of the population earning between £38,840 and £40,040 will be adversely affected by the alteration in the National Insurance rate, rising from 1 per cent to 11 per cent on this element of income. However, they could still benefit if the other changes are taken into account, but by less than other taxpayers.

Tax Facts

2008 2009 Tax YEAR

eSmartmoney MAY / JUNE 2008

Tax Facts

What the numbers

really mean ALLOWANCES & RELIEFS

2008/2009 2007/2008

Personal Allowance under 65

£5,435

£5,225

65-74

£9,030

£7,550

75 and over

£9,180

£7,690

Married couples/civil partners allowance (relief at 10%) age 65 before 06/04/2000

£6,535

£6,285

age 75 and over

£6,625

£6,365

minimum amount £2,540

£2,440

Age allowances reduced by 1/2 of income over

£20,900

£21,800

(to a minimum equal to the personal allowance for those under 65)

INDIVIDUALS - INCOME TAX RATES 2008/2009 (2007/2008)

Dividends*

Savings

Other

£1 - £36,000

10%

20%**

20%

(£1 - £2,230)

(10%)

(£2,231 - £34,600)

(10%)

(20%)

(22%)

Over £36,000

32.5%

40%

(Over £34,600)

(32.5%)

(40%)

* Dividends are increased by a non-repayable tax credit of 1/9th ** 10% up to £2,320. If an individual’s taxable non-savings income is above this limit, the 10% rate does not apply

Blind person’s allowance

£1,800

£1,730

Dividends are treated as the top slice of total income, savings

Rent-a-room relief - maximum

£4,250

as the next slice and other income as the lowest slice

Maximum ‘Golden Handshake’

£30,000

NATIONAL INSURANCE CONTRIBUTIONS (NIC) Charitable Giving

Class 1 employee

Gift

Donor receives

Charity receives from

Total weekly earnings up to £105 (£100)

HMRC

£105 to £770 (£100 to £670) over £770 (£670) on excess

2008/2009 2007/2008 nil

nil

11%*

Cash (under Gift Aid)

20/80th higher

22/78th of cash

rate relief

donation

Payroll giving

100% income

10% of cash

tax relief

donation

Employer

Quoted

100% income tax relief

Nil

securities/property

exemption from CGT

* contracted out rate is 9.4%

up to £105 (£100)

nil

over £105 (£100)

12.8%*

*contracted out rate is 9.1% (9.1%) for salary related schemes, 11.4% (11.4%) for money purchase schemes for earnings from £105 to £770 (2007/2008 £100 to £670)

eSmartmoney MAY / JUNE 2008

Tax Facts (continued)

Entrepreneurs’ Relief - from 6 April 2008

Class 1A employer

12.8% on taxable benefits

Class 2 self employed

£2.30 pw if earning over £4,825 p.a.

(2007/08 £2.20 pw £4,635 p.a.)

Class 3 voluntary

£8.10 pw (2007/08 £7.80 pw)

Class 4 self employed

8% on profits between £5,435

and £40,040

(2007/08 between £5,225 and £34,840)

and further 1% on profits above £40,040

group) if holds at least 5% ordinary share capital and voting

(2007/08 £34,840)

rights throughout period of ownership, and is an officer or

‘Lifetime’ limit

£1,000,000

Reduction in taxable gain (effective tax rate 10%) 4/9 Available on ‘material disposals’ of:

NIC Class 2 Registration

n Shares in a trading company (or holding company of a trading

employee for at least 12 months

Within 3 months from self

n All or part of a trading business the individual carries on alone or

employment start

in partnership, for at least 12 months n Assets of the individual’s or partnership’s trading business following cessation and used for over 12 months

CAPITAL GAINS TAX (CGT) Rates

n Assets owned by the individual and used by the connected

2008/2009

2007/2008

18%

Savings tax rates

Individuals

As settlor’s gain

minor child/spouse/civil partner retains interest Other trusts and

over 12 months

INHERITANCE TAX (IHT)

(as top slice of income) Trusts where settlor/settlor’s

trading partnership or personal trading company (or group) for

18%

Death rate

2008/2009

2007/2008

0% (nil rate band)

£1-312,000

£1-£300,000

40%

over £312,000

over £300,000

40%

personal representatives Trusts for the vulnerable

As beneficiary’s gain

Lifetime gifts n to an individual are initially not chargeable to tax

(subject to election)

n to trusts established after 22/03/06 are taxable at 1/2 death rates Married couples/civil partnerships (unless permanently separated) Transfers between spouses/civil partners - recipient is deemed to acquire

Gift within 7 years of death - tax at death rates payable, reduced as follows and credit given for any tax paid on lifetime gift:

the asset at 31 March 1982 and at the value at that date, or original date and at cost of acquisition if later

Exemptions

Individuals

£9,600

£9,200

Trusts

£4,800

£4,600

Years

0-3

3-4

4-5

5-6

6-7

Reduction in tax

20%

40%

60%

80%

Trusts established after 22/03/06, accumulation and maintenance trusts from 6 April 2008, and all discretionary trusts are subject to

Exempt assets include main home, cars and chattels worth less than

a 10 year charge of 6% on assets in excess of nil rate band and pro

£6,000Chattels worth more than £6,000: alternative charge on 5/3 excess

rata on exit. Certain trusts established on death are not liable to

over £6,000

these charges

eSmartmoney MAY / JUNE 2008

Tax Facts (continued)

Main exemptions Spouse/civil partner - both UK domiciled (or transferor non domiciled)

unlimited

Non domiciled spouse/civil partner - UK domiciled transferor

£55,000

Annual gifts per donor

£3,000

Small gifts per donee not exceeding

£250

Marriage/civil partnership gifts by

- parent

£5,000

- other ‘relative’

£2,500

- other

£1,000

Regular gifts out of surplus income

unlimited

Trusts for the vulnerable

unlimited

Business and agricultural relief Interest held for more than 2 years in a business, farm or shares in qualifying unlisted companies and let farmland held for more than 7 years - 100% Assets used by qualifying company or business, or controlling holding in listed company - 50%

Payment date 6 months after death/chargeable transfer, or for lifetime gifts made 06/04 to 30/09, due 30/04 in next year.

TRUSTS - INCOME TAX RATES 2008/2009 (2007/2008)

CAPITAL ALLOWANCES

Dividends

Interest

n Plant and machinery - 20% (reducing balance)

Other

Interest in possession trusts and 10% 20% up to£1,000 for discretionary & accumulation and maintenance trusts (10%) (20%) On income for non interest in 32.5% 40% possession trusts over £1,000 (32.5%) (40%)

If working life of 25 years or more - 10% (reducing balance) Fixtures integral to buildings - 10% (reducing balance)

20%

Annual investment allowance £50,000 per annum (excluding cars) n 100 % for: restoring flats over pre-1980 shops; designated

(22%)

energy saving plant and machinery; scientific research; 40%

commercial buildings in enterprise zones; energy efficient technologies and low emission cars; renovation of business

(40%)

premises in disadvantaged areas; natural gas, biogas and hydrogen refuelling equipment

Trusts where settlor or spouse/civil partner retains interest taxed as settlor’s income

n Acquisition of intangibles (goodwill, intellectual property, etc)

Trusts for the vulnerable - subject to election taxed as beneficiary’s income

allowances in line with accounting depreciation (min 5% p.a.)

CORPORATION TAX

Year to 31 March

2009

2008

Full rate

28%

30%

29.75%

32.5%

21%

20%

Intermediate rate (profits £300,000 to £1.5m) Small company rate (profits to £300,000)

n Companies chargeable gains included in profits chargeable to corporation tax. Indexation relief continues to apply n Large companies are entitled to a tax deduction equivalent to 125%* of their actual expenditure on qualifying R&D. Other businesses 150%* * To be amended to 130% and 175% respectively subject to EU approval

eSmartmoney MAY / JUNE 2008

Hotels, industrial and agricultural

- 3%

2008/2009

buildings (straight line)

2009/2010

2010/2011

2011/2012

n Cars (maximum £3,000 p.a. per car) - 20% (reducing balance) NB: Where the original market value of a leased car exceeds £12,000, tax relief is restricted in respect of lease charges paid

Tax Facts (continued)

BENEFITS IN KIND

VAT Standard rate

17.5%

Lower rate

General rule n Amount assessable is cost (including VAT) to employer

Exemptions

If annual turnover less than:

n Employee relocation expenses up to £8,000

£67,000 from 01/04/2008 - registration not necessary

n I ncidental expenses of business trips per night up to £5 in the UK /

£65,000 from 01/04/2008 - deregistration possible

£10 outside the UK

£1,350,000 - eligible to use Cash Accounting scheme

n Staff parties not exceeding £150 per employee p.a.

£1,350,000 - eligible to use Annual Accounting scheme

n One mobile phone per employee

£150,000 - eligible to use Flat Rate scheme

n B enefit of occupying overseas holiday home owned by single purpose company

Car fuel scales (where private fuel provided) 24 bands based on CO2 emissions

Loans

(www.hmrc.gov.uk/budget2008/master-notes.pdf - P181 for full detail of bands)

n Less than £5,001: no benefit n Over £5,000: taxable on deemed interest at ‘official rate’

VAT for 3 month period between £20.55 and £71.94

n Special rules apply for some foreign currency loans

VAT for 1 month period between £6.85 and £23.98

Living accommodation

Errors on VAT Returns From July 2008 voluntary disclosure limit increased from £2,000 to the greater of £10,000 or 1% of VAT turnover subject to a maximum of £50,000

n Greater of rateable value or rent paid by employer n For accommodation where cost to employer was over £75,000, rateable value plus ‘official rate’ on excess of cost to employer over £75,000

STAMP DUTY AND STAMP DUTY LAND TAX

‘Official rate’

Exempt: All assets other than land and property, shares and interests

Private use of company car: scale benefits

in partnerships.

n Benefit based on 10% to 35% of list price, dependant on CO2 emissions

Shares and securities:

n With effect from 06/04/2007 - 6.25%

n S upplement of 3% for most diesel cars, subject to a maximum

0% up to £1,000

charge of 35%

0.5% above £1,000

n No adjustment for business mileage or additional cars Rate

Residential land & property

Commercial land & property

outside disadvantaged areas

Residential land & property

within disadvantaged areas

Up to 125,000

Up to 150,000

125,001 to 250,000

150,001 to 250,000

250,001 to 500,000

Over 500,000

n C ars without an approved figure of CO2 emissions will be taxed according to their engine size n S pecial rules apply to LPG, electric and dual fuel cars, cars over 15 years old at the end of the tax year and to the value of accessories

From 1 Oct 2007 to 30 Sept 2012 no charge on Zero Rated Carbon Emission homes up to £500,000. Above £500,000 the charge will be reduced by £15,000.

Car fuel benefit - 2008/2009 (2007/2008) The fuel benefit is a percentage of £16,900 (£14,400). The percentage is the same as used for the company car benefit Private use of company vans Vans available for private use: taxable benefit = £3,000. Further charge of £500 for private use of fuel

TAX FREE MILEAGE RATES

New leases rate

Net Present Value of rent

Residential outside

Commercial & residential

disadvantaged areas

in disadvantaged areas

Employee’s own car

Nil

Up to 125,000

Up to 150,000

Annual business mileage up to 10,000 miles

40p

Excess over £125,000

Excess over £150,000

Each additional mile over 10,000 miles

25p

Rate per mile

Special rules apply to shared equity schemes

eSmartmoney MAY / JUNE 2008

Tax Facts (continued)

EMPLOYEE SHARE INCENTIVES Share incentive plan - up to £3,000 of free shares p.a. plus further 2 shares for each share bought by employee (maximum free shares £6,000 p.a.). Open to all employees on similar terms. No tax or NI charges on grant or exercise if retained in plan 5 years. Increase in value after withdrawal from plan charged to CGT. Enterprise management incentives - increases to £120,000 from 6 April 2008 (previously £100,000) of share options offered per employee. Maximum £3m per company. No tax or NI on grant or exercise unless granted at undervalue. Increase in value on disposal chargeable to CGT. Other approved share incentive schemes also exist Unapproved share option schemes - no limit, full discretion over qualifying employees. No tax or NI on grant of options lasting 10 years or less. Income tax charge on value when exercised plus (in certain circumstances) NI charge on exercise of options

PENSION CONTRIBUTION RELIEFS 2008/2009

TAX SAVING INVESTMENTS Subscriptions for shares in qualifying Enterprise Investment Schemes (EIS) companies and Venture Capital Trust (VCT) companies: n I ncome tax relief: Investment up to £500,000 in shares in EIS companies qualify for income tax relief at 20% if qualifying criteria met for 3 years. Half of any investment but not more than £50,000 for investments between 06/04/08 and 05/10/08 can be carried back to give relief in 2007/08 n Income tax relief on investment of up to £200,000 on VCT companies qualify for income tax relief at 30% if qualifying criteria met for 5 years

INDIVIDUAL SAVINGS ACCOUNTS (ISAs) For individuals aged 18 or over Annual ISA allowance is £7,200. Up to £3,600 of the allowance can be saved in cash with one ISA provider. The remainder of the £7,200 can be invested in stocks and shares with either the same or a different ISA provider Individuals aged 16/17 Cash ISA only; maximum investment £3,600

n C apital gains exemption: Gains on disposals of EIS and VCT shares are exempt from tax if qualifying criteria met for 3 years n C GT deferral: Gains on other assets may be deferred (and reinstated on the subsequent disposal of the EIS/VCT shares) if reinvested into qualifying EIS companies, or (if before 06/04/2004), a maximum of £100,000 p.a. into VCT shares

Maximum contributions 100% of earnings to a limit of £235,000 (£225,000) Up to £3,600 p.a. gross can be paid into pensions irrespective of earnings to age 75 Subject to any Registration of Protected pension funds, aggregate retirement benefits in excess of the Lifetime Allowance of £1.65 million may be subject to the Lifetime Allowance Charge of 55% of the surplus benefit

eSmartmoney MAY / JUNE 2008

Enterprise

The Budget and

business The key announcements at a glance

n New ‘entrepreneurs’ relief’ CGT rate of 10 per cent on £1m lifetime allowance.

n A temporary 20 per cent increase in Small Firms Loan Guarantee to ease the impact of the credit crunch.

n VAT threshold rises from £64,000 to £67,000. n More than 500,000 businesses can write off up to £1,000 of historic capital investment. n Draft legislation for tax rules that govern the way family businesses distribute their profits delayed until 2009. n Small company corporation tax rate rises from 20 per cent to 21 per cent. n Annual investment allowance of £50,000 capital gains tax (CGT) on business assets increased to 18 per cent from 6 April.

n Plan for small firms to win 30 per cent of all public sector work in the next five years. n Plant and machinery allowance rate drops from 25 per cent to 20 per cent. n Hotels, industrial and agricultural buildings annual allowance falls from 4 per cent to 3 per cent.

n New £30m Enterprise Capital Fund to provide mezzanine finance to growing firms. n A £12.5m capital fund to back female entrepreneurs. n Increase in small firms R&D (research and development) tax credit delayed and new EU state aid rules applied to restrict access. n

Reforms to reduce regulatory burden.

To find out how your business may have been affected, please email or contact us with your enquiry.

eSmartmoney MAY / JUNE 2008

Retirement

News in brief

Retirement

matters Commitment to help pensioners

New rules announced in the Budget will allow small occupational pension scheme benefits to be paid as a lump sum where the value is below £2,000. This allows people to take very small benefits in one occupational scheme as a lump sum under the triviality rules while receiving an income from another, larger, pension pot. Previously it was not possible to take small pension pots as a lump sum if the value of a person’s pension savings in total exceeded £16,000.

By next winter they will have to show they have stopped penalising users of pre-payment meters by making them pay higher rates for energy.

Winter fuel bonus

As previously announced, the inheritance tax allowance will be increased by more than inflation in each of the next three years.

The Chancellor announced a higher winter fuel payment for older people, but it will be paid only once. The Treasury said: ‘Building on the government’s substantial commitment to help pensioners, there will be an additional payment for winter 2008/09 of £50 for households with someone aged 60-79 and £100 for households with someone aged 80 or over. This will be paid alongside the Winter Fuel Payment.’

Energy bills

Gas and electricity companies will have to provide £150m of subsidies per year to the poorest households through social tariffs.

Inheritance tax

The allowance for the tax year 2008/09 is £312,000 for individuals or £624,000 for married couples and civil partners. For 2009/10 it will be £325,000 for individuals or £650,000 for married couples and civil partners. For 2010/11 it will be £350,000 for individuals or £700,000 for married couples and civil partners. The value of estates over and above the allowance is taxed at 40 per cent.

Incapacity

benefit

reform From late 2008, an integrated and simplified Employment and Support Allowance (ESA) will replace the current system of incapacity benefits for new claimants and will have a clearer balance of rights and responsibilities. The introduction of ESA will be accompanied by a new Work Capability Assessment (WCA), which will apply to new claimants from October 2008. To ensure that the increased focus on a person’s capability to work has an impact for current as well as future claimants, the Budget announces that all existing incapacity benefits claimants will be required to take the Work Capability Assessment from April 2010. The government is also looking at the way it contracts with specialist providers to support existing long-term incapacity benefits claimants. The government will explore using a new funding mechanism to reward private and voluntary sector specialist providers for investing in helping long-term incapacity benefits claimants to return to work.

eSmartmoney MAY / JUNE 2008

Retirement

Pension

Schemes Your questions answered

eSmartmoney MAY / JUNE 2008

Retirement

Q: I am a woman who will be 60 after 6 April 2010. When can I get my State Pension?

Q: I have built up over 30 years paid contributions. Will I be able to get a refund?

A: State Pension age for women will increase in steps from 60 to 65 between 2010 and 2020. From 2020 it will be the same as men’s State Pension age. State Pension age will then increase gradually from 65 to 68 between 2024 and 2046.

A: Only people who have paid voluntary contributions on or after 25 May 2006, are due to reach State Pension age on or after 6 April 2010, and did not know about the State Pension changes when they paid the voluntary contributions, may be entitled to claim a refund.

Q: I am due to retire soon after 2012. Will I be enrolled into a Personal Account?

People who have paid more than 30 years Class 1 or other non voluntary contributions are not entitled to claim a refund.

A: If your employer provides a pension scheme you may be enrolled into that scheme or into a personal account. You will be able to opt out if you want to. You will be able to contribute to the personal account scheme until you are 75 if you continue working. Q: I have heard that State Pension Age is going to increase for both men and women. Is that right? A: Yes that is correct. State Pension age for both men and women will rise gradually from 65 to 68 between 2024 and 2046. But before that women’s State Pension age is to increase to make it the same as men’s (65). This was legislated for in the 1995 Pensions Act. It means that State Pension age for women will increase gradually from 60 to 65 between 2010 and 2020.

Q: I will reach State Pension age after 6 April 2010. Do I still need to have credits / contributions for at least 25 per cent of my working life to qualify for any basic State Pension? A: No. Both men and women reaching State Pension age from 6 April 2010 will need 30 years qualifying years (rather than 39 for women and 44 for men as now) for a full basic State Pension. If you do not have the full 30 years of paid or credited contributions to get a full State Pension, each year you do have will give you one thirtieth of the full rate Basic State Pension. Q: I am a woman getting Jobseeker’s Allowance and will be 60 years old after 6 April 2010. Will I still receive my State Pension (and be able to get Pension Credit) when I am 60?

Q: I am due to reach State Pension age in August 2011. My wife will be 50 years old (in 2011). She has always been financially dependent upon me. Will I be entitled to Adult Dependency Increase (ADI)? A: No, you will not be eligible to ADI if you reach State Pension age after 6 April 2010, even if your wife is still financially dependent upon you and has no earnings. However, if you and your wife will be on low income you may be able to get Pension Credit. Q: I’m staying at home to look after the children. My husband is working. The Child Benefit is in his name. Will I get credits towards my pension? A: No. The credits will go to the person who’s getting Child Benefit. As your husband is already paying National Insurance contributions, the credits won’t improve his pension. You should think about changing your arrangements so that you’ll get the Child Benefit and the new credits. Although the new credits don’t start until 2010 you could get Home Responsibilities Protection before then if the Child Benefit is in your name. Home Responsibilities Protection is only given for full tax years.

Q: Will I be entitled to Winter Fuel Payments? A: Until 2009, the minimum age for getting a Winter Fuel payment is 60. Between 2010 and 2020 this will rise in steps to 65 for both men and women. Q: Why won’t my pension be up rated in line with earnings until 2012 at the earliest? A: The change is timed to coincide with other economic factors associated with the overall package of Pensions Reform. However if you are on a low income you may be able to get Pension Credit. The standard minimum guarantee in Pension Credit is already up rated in line with earnings and this will continue. Q: I understand that Pensions Reform will change the number of qualifying years needed for a full State Pension. How will this affect me? A: As you reach State Pension age on or after 6 April 2010 you will only need 30 qualifying years to get a full State Pension.

eSmartmoney MAY / JUNE 2008

A: No, you will not be entitled to your State Pension (nor be able to claim Pension Credit) when you are 60. State Pension age for women born on or after 6 April 1950 will rise in steps from 60 to 65 between 2010 and 2020. (This is also the age at which people can claim Pension Credit). It will rise again for both men and women from 65 to 68 between 2024 and 2046. Q: My wife and I are in receipt of Incapacity Benefit. I have heard that State Pension age is increasing and that we will be affected because we are both due to reach the current State Pension age after 6 April 2010. Is this correct? A: Yes, State Pension age will rise from 60 to 65 years old for women between 2010 and 2020 and then rise gradually to 68 years old for both men and women between 2024 and 2046. Benefits such as Incapacity Benefit or Jobseeker’s Allowance will continue to be available until the new State Pension age.

To find out how your business may have been affected, please email or contact us with your enquiry.

Enterprise

HM Revenue & Customs’

extension of power Spot-checks for companies and self-employed people who run their businesses from home From April 2009 tax inspectors will be able to carry out spot-checks on all companies and self-employed people who run their businesses from home. Landlords, online traders and other people who work from home could find the taxman turning up on their doorstep unannounced demanding their records, as the government seeks a big increase in the Revenue’s powers. Inspectors under the new scheme will be permitted to visit businesses with no warning to ‘inspect records, assets and premises.’ At present, HM Revenue & Customs’ (HMRC) must open an inquiry into a company and then give 24 hours’ notice of a visit. However, VAT officials will lose the power to turn up at people’s homes without notice. Under the current rules, tax inspectors usually have to provide evidence of criminal activity and seek permission from a judge to carry out unannounced spot checks. From April next year, new powers will give HMRC the right to visit business premises to

During last year’s crackdown on offshore accounts HMRC managed to obtain details of 400,000 accounts, but only after court action forced the banks to cough up.

demand access to records without warning. That could include your home if that is where you work. Among proposals are new powers to enable the taxman to obtain information more easily from third parties such as banks and building societies. During last year’s crackdown on offshore accounts HMRC managed to obtain details of 400,000 accounts, but only after court action forced the banks to cough up. It wants extra powers to force outside agencies to hand over details at will. How this will work has yet to be finalised.

eSmartmoney MAY / JUNE 2008

Self-assessment

Tax returns New measures could lead to penalties At the moment you can be fined up to 100 per cent of the unpaid tax for an incorrect return, but discounts for cooperation and disclosure cut fines to nothing for many people.

New powers announced n P owers to turn up unannounced at business premises, including homes. n Tough penalties for failure to allow an inspection. n Banks, building societies and other third parties to be forced to hand over customer records. n Single penalty regime for all taxes, including inheritance tax. n Taxpayers could be fined for carelessness even if their accountant made the mistake. n People will be able to pay their tax bill by credit card. This extension of HMRC’s power comes as it also prepares to address the issue of tax loopholes in the coming year. The Treasury claims that the crackdown, which it calls ‘protecting tax revenue.’ will raise £660m in revenue next year alone. A spokeswoman for HMRC said: ‘The aim of the Powers Review is to align and modernise the powers and taxpayer safeguards that HMRC inherited from Customs & Excise and the Inland Revenue. The intention is to provide greater consistency and alignment of our access to records and information.’ In an unusual move, the Treasury has backdated one of the tax amendments to

eSmartmoney MAY / JUNE 2008

1987, meaning that companies or individuals who have taken advantage of tax-planning measures since then could be hit with a hefty tax bill in the coming months. Any companies or individuals who have used trusts to take advantage of double taxation treaties to minimise their tax bills could be affected. The HMRC spokeswoman said: ‘There has been highly aggressive avoidance with the clear intent of frustrating [the] previous legislation, hence the clarification.’ The other measures include tightening special stamp duty exemptions for those who take out Sharia mortgages, stopping people from setting up loss-making businesses to minimise their tax bills and a crackdown on the way in which North Sea oil and gas companies calculate their tax liabilities. The Revenue will also clamp down on companies using UKcontrolled offshore vehicles to minimise their tax payments.

Taxpayers could pay penalties of up to 30 per cent of any unpaid tax if they mistakenly mis-state their income in self-assessment returns, according to new measures introduced in the Budget. HM Revenue & Customs (HMRC) will be allowed to levy the fines if taxpayers ‘fail to take reasonable care’ when preparing tax returns, the Budget documents have revealed. The new penalties are initially for errors on returns and documents for VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme. Self Assessment taxpayers are affected. For these taxes, the new penalties apply to returns or other documents for return periods starting on or after 1 April 2008 that are due to be filed on or after 1 April 2009. The penalties will not apply to basic errors, but HMRC has cast the net wider than before so that penalties will apply to most cases when money is income and has been understated.

In brief n i f people take reasonable care when completing their returns but still make a mistake, they will not be penalised n if they do not take reasonable care errors can be penalised; the penalties will be higher if the error is deliberate n disclosing errors to HMRC early will substantially reduce any penalty due

Retirement

Retiring

abroad Taking your pension with you

If you are planning on retiring abroad it is now possible to take funds with you and not have to buy an annuity as a result of new rules on overseas pensions.

eSmartmoney MAY / JUNE 2008

Retirement

It is estimated that as many as 400,000 Britons who move abroad each year will now be able to take their pensions too and withdraw their funds as cash within five years.

While the QROPS scheme will free you from UK tax, you may be taxed in the country in which it is based and in your new country of residency.

New rules have also been introduced in the Isle of Man for its pensions including: no obligation to buy an annuity, higher tax-free lump-sums, the freedom to invest in residential property and inheritance tax at less than one-tenth of that in here.

The new Isle of Man rules make their QROPS pensions significantly more flexible than their UK counterparts. Unlike the UK, there is no requirement to buy an annuity at age 75, taxfree cash is set at 30 per cent rather than 25 per cent and funds can invest in residential property.

Jurisdictions such as Singapore, the Republic of Ireland and Hong Kong are even more liberal in what they will let you do with your pension, allowing you to get your hands on all the cash once you have been out of the UK for five years.

Isle of Man pensions charge income tax at 18 per cent, which will be taken account of in your country of residence provided it has a double taxation treaty with the Isle of Man as most EU states do. But you also need to consider what the local tax rates are in the country to which you are moving.

To capitalise form the tax advantages of moving your pension abroad you have to move your fund to a Qualifying Registered Overseas Pension Scheme (QROPS). Once in a QROPS scheme, your cash is no longer subject to HMRC rules, although the pension provider must report your dealings with it to the Revenue for the next five years.

France, for example, is not a great place to be taxed on your pension, because tax-free cash is not an option so you will be taxed on your lump sum as income. Taking tax-free cash before you go makes sense if you are retiring to live there.

After that there is no reporting requirement, and if you are still not living in the UK your entire fund can be taken as cash. Anyone moving abroad needs to make sure it makes sense to switch into a QROPS scheme for the country that is to be their new home. Professional advice is essential because the evaluation is a triangular process involving tax rules in the UK, the country where the QROPS pension scheme is based and the country where you plan to live.

eSmartmoney MAY / JUNE 2008

Local income taxes in Spain and Italy could leave some people worse off, depending on their situation, although the IHT savings and access to cash after five years may make QROPS plans worthwhile in the long run. Portugal has a generally lower rate of income tax while anyone retiring to Cyprus could save thousands as it charges only 5 per cent income tax on pensions. Research from Scottish Widows shows that twothirds of higher-rate taxpayers are planning to move abroad when they retire and this figure is set to grow.

Portugal has a generally lower rate of income tax while anyone retiring to Cyprus could save thousands as it charges only 5 per cent income tax on pensions.

Wealth Protection

Inheritance tax If you have concerns tax planning is essential

Inheritance tax (IHT) is something most people do not worry about but probably should do. For those with concerns tax planning is essential. You only have to begin paying IHT at a certain point. The 2008/2009 threshold for married couples and those in civil partnerships is now £624,000 following the Chancellor’s announcement in his pre-Budget Report last October. For individuals the threshold remains at £312,000, but this will rise over the coming years to £350,000. The joint married couples IHT limit will be raised to £700,000 from 2010. If the value of your estate, including your home and certain gifts made in the previous seven years, exceed this figure, tax will be due on the balance at 40 per cent. A person’s estate includes everything owned in their name, including the share of anything owned jointly, gifts from which they keep back some benefit, such as a home given to a son or daughter but still lived in by the parent and assets held in some trusts from which they receive an income. Against this total value is set everything that the deceased person owed, such as, any outstanding mortgages or loans, unpaid bills, and costs incurred during their lifetime for which bills have not been received, as well as funeral expenses.

However gifts to most other types of trust will be treated as chargeable lifetime transfers. Chargeable lifetime transfers up to the threshold suffer no tax but amounts over are taxed at 20 per cent with a further 20 per cent payable if the person making the gift dies within seven years. Some cash gifts are exempt from tax regardless of the seven-year rule. They include: wedding gifts of up to £5,000 to each of your children, wedding gifts of £2,500 to each grandchild, and wedding gifts of £1,000 to anyone else. Other gifts include up to £3,000 a year (plus any unused balance of £3,000 from the previous tax year), gifts of up to £250 each to any number of people each year, gifts to charities, the National Trust, national museums, the main political parties and most registered housing associations.

Any gifts between husbands and wives are exempt from IHT whether they were made while they were both still living or left to the surviving spouse on the death of the first. Tax will be due eventually when the surviving spouse dies if the value of their estate is more than the combined tax threshold, currently £624,000. In most cases, IHT must be paid within six months from the end of the month in which the death occurs. If not, interest is charged on the unpaid amount. Tax on some assets, including land and buildings, can be deferred and paid in instalments over 10 years. Though if the asset is sold before all the instalments have been paid the outstanding amount must be paid. The IHT threshold in force at the time of death is used to calculate how much tax should be paid.

Regular gifts from after-tax income, such as a monthly payment to a family member, are also exempt as long as the giver still has sufficient income to maintain their standard of living.

Any amount of money given away outright to an individual is not counted for tax if the person making the gift survives for seven years. These gifts are called ‘potentially exempt transfers’ and are useful for tax planning. Money put into a ‘bare’ trust, a trust where the beneficiary is entitled to the trust fund at age 18, counts as a potentially exempt transfer, so it is possible to put money into a trust to stop grandchildren, for example, having access to it until they are older.

eSmartmoney MAY / JUNE 2008

Wealth Creation

The futures

bright Financial incentives encourage the young to save The number of younger people taking advantage of the generous financial incentives surrounding pensions in general and Self-Invested Personal Pensions (SIPPs) in particular is rising rapidly. According to new research by Fidelity Funds Network there are more than 234,000 people aged between 25 and 34 that are currently saving enough to become millionaires by the time they retire. It found that 3 per cent of younger workers are setting aside at least £600 each month for their pension.

With no retirement provision many people may have no option but to rely on whatever the government has to offer in terms of a state pension, which is likely to lead to a considerable drop in lifestyle.

Time is one of the saver’s greatest allies and the earlier you start, the less you have to set aside to reach your goal and the long-term growth potential of equities should not be under-estimated.

A good guide to follow is to aim to pay in about half your age as a percentage of your income. For example, if someone is starting their pension at the age of 20, 10 per cent, including any employer contribution, is a good starting point.

Many financial commentators believe that starting a pension is as important as buying your first home and it needs to be high up on the list of financial priorities. The reality is that today’s young people will spend almost as many years in retirement as they do working and the impact of not starting a pension is that they will be faced with a future where they can’t afford to stop working at retirement age, if at all.

Regardless of age, everyone should have some sort of retirement plan that they can change and grow with age and as their circumstances alter. The main thing to remember is the sooner you start saving for your future, the easier and more affordable it will be, and the more security you will have for a comfortable retirement, even if that seems a long way off at the moment.

eSmartmoney MAY / JUNE 2008

Regardless of age, everyone should have some sort of retirement plan that they can change and grow with age and as their circumstances alter.

Taxation

Self Assessment How it works Self Assessment is a system that some people use to report their income and ‘capital gains’ (profits on the sale of certain assets) to HM Revenue & Customs (HMRC), or to claim tax allowances against their tax bill. It involves completing a paper or online form called a Self Assessment tax return. Most people pay tax on their earnings or pensions through PAYE (Pay As You Earn). Under PAYE the employer or pension provider deducts tax on behalf of HMRC, and you don’t usually get a Self Assessment tax return. But if you’re not on PAYE, and/or are due to pay additional tax because of other income not taxed through PAYE (for example from property or investments above a certain amount, or because you’re self-employed) you have to account for this income through Self Assessment. HMRC uses the figures you supply on the tax return to work out your tax bill, or you can work it out yourself.

It’s called ‘Self Assessment’ because you’re responsible for making sure the details you provide are right.

Who gets a tax return and when?

Tax returns are usually sent out in early April, following the end of the tax year to which they apply. (A tax year runs from 6 April to 5 April.) They may also go out at other times, for example, if you want to claim an allowance or repayment or you want to register for Self Assessment for the first time.

The two types of tax return

If you have simple tax affairs including, employees, pensioners and the self employed with turnover less than £15,000, you’ll receive the short four-page return. If your affairs are more complicated you’ll receive the full return. This has twelve core pages and extra pages you may need to complete, depending on what sorts of income you get. If you receive a return you must fill it in and send it back by the deadline even if you don’t think you need one.

Reporting new income and gains

You only have six months from when the tax year ends to report any new income or capital gains. If you become self-employed you have three months after the calendar month in which you began self-employed work to let HMRC know.

Tax return filing and payment deadlines There are key deadlines for filing (sending in) completed tax returns and paying the tax due. If you miss the filing deadline you may have to pay a penalty. You’ll also have to pay interest, and sometimes an extra surcharge if you don’t pay tax that’s due on time. If you file your tax return online the deadlines are more generous if you don’t want to calculate the tax due yourself. It’ll also be dealt with faster and you’ll get any repayments due sooner.

How your tax return figures are checked

HMRC has 12 months from the filing deadline to check and make enquiries about your return. Some of these checks are random, while others may be triggered because figures need further explanation. They can also correct any obvious errors within nine months of receiving your return. They’ll usually let you know on your tax calculation, but in some cases may call to clarify a point. You can ask for a review of any such changes within 30 days.

eSmartmoney MAY / JUNE 2008

Investment

Taxation

Capital gains tax One minute guide Capital gains tax (CGT) is a tax on capital ‘gains’. If when you sell or give away an asset it has increased in value, you may be taxable on the ‘gain’ (profit). This doesn’t apply when you sell personal belongings worth £6,000 or less or, in most cases, your main home.

When do I have to pay CGT? You may have to pay CGT if, for example, you: n s ell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset n receive money from an asset - for example compensation for a damaged asset You don’t have to pay CGT on: n your car n your main home - provided certain conditions are met n ISAs or PEPs n UK Government gilts (bonds) n personal belongings worth £6,000 or less when you sell them n betting, lottery or pools winnings n money which forms part of your income for income tax purposes

eSmartmoney MAY / JUNE 2008

These are some points to bear in mind: n i f you are married or in a civil partnership and living together you can transfer assets to your husband, wife or civil partner without having to pay CGT n you can’t give assets to your children or others or sell them assets cheaply without having to consider CGT n if you make a loss you may be able to make a claim for that loss and deduct it from other gains, but only if the asset normally attracts CGT - for example you cannot set a loss on selling your car against gains from disposing of other assets someone dies and leaves their belongings n if to their beneficiaries, there is no CGT to pay at that time - however if an asset is later disposed of by a beneficiary, any CGT they may have to pay will be based on the difference between the market value at the time of death and the value at the time of disposal n CGT is worked out for each tax year (which runs from 6 April one year to 5 April the following year). It is charged on the total of your taxable gains, after taking into account: n certain costs and reliefs that can reduce or defer gains n allowable losses you have made on assets to which normally CGT applies n the annual exempt (tax-free) amount (the AEA) - this is £9,600 for every individual in the tax year 2008/2009

For 2008/2009 there is a single rate of CGT of 18 per cent for individuals, trustees and personal representatives on taxable gains. If you don’t usually complete a tax return, but wish to report gains or losses, contact your local Tax Office. If you have CGT to pay you must tell your tax office in writing by 5 October following the tax year. There is a time limit for claiming losses.

To find out how your business may have been affected, please email or contact us with your enquiry.

Savings

Saving Gateway

Accounts Getting in the savings habit The new Saving Gateway accounts are to be rolled out nationally from 2010. The government will make a contribution for each pound saved to an individual that is receiving one or more qualifying benefits and tax credits from a list that includes income support, jobseeker’s allowance, working tax credits and child tax credits paid at the maximum rate.

The accounts which have been piloted twice between 2002 and 2007 are being introduced to promote a saving habit among people on lower incomes by providing a strong incentive to put money aside in the form of top-up cash from the government. Although an evaluation of the pilot schemes found that it was not necessary to match the amounts saved to incentivise people to save. It is being proposed that a £25 limit on the amount will be matched each month by the government. The accounts will be offered by banks, building societies and credit unions, and will run for two years. When the account matures the government proposes to top up the amount saved, although no decision has been made about how this will work. The Saving Gateway has been closely modelled on a US concept called the Individual Development Account, which works by matching the money people put in with a contribution from public or private funds. In America, people often have to use the money for a specific purpose, such as buying their first

home, starting up a small business or funding post-secondary education, but in the UK there will be no restrictions on what the money can be used for. Non-doms will also be affected by the £30,000a-year fee they will have to pay to live in the UK. The winners will be wealthier people with children and teetotal, non-smoking nondriving households.

eSmartmoney MAY / JUNE 2008

Investment Taxation

News in brief

UK company pension schemes

Tax tracker

The government wants greater powers to appoint trustees to the boards of UK company pension schemes. A recent amendment to the Pensions Bill will expand the powers of the Pensions Regulator to appoint its own trustees.

Her Majesty’s Revenue and Customs (HMRC) is getting better at tracking down unpaid taxes but could still be more effective, a report from the National Audit Office (NAO) has concluded.

The government says the change is vital to protect the interests of scheme members in response to the increasing number of pension funds being sold by employers that are often keen to save on administration costs.

Targeting unpaid taxes

HMRC raised an additional £4.40 for every £1 it spent on chasing unpaid tax, hidden away by evaders. However, the report said the penalties imposed by HMRC on these people were not a deterrent and there were far too few prosecutions each year. “The risk of being detected and the consequent penalties for non-compliance are relatively low, and there are opportunities to tackle the hidden economy more effectively,” the report said. But the NAO also highlighted the success of the recent campaign against taxpayers who have been hiding income in offshore tax accounts. The bid by HMRC to get those avoiding tax to come forward led to 45,000 people with offshore accounts paying an extra £400m in tax, interest and penalties.

eSmartmoney MAY / JUNE 2008

The NAO said the scheme showed good practice because it “respects the tax rates of the UK, is limited in scope and duration, and uses direct targeting such as writing to those individuals suspected of holding income and/or capital outside of the tax system.”

HMRC raised an additional £4.40 for every £1 it spent on chasing unpaid tax, hidden away by evaders.

Greater powers to appoint trustees

The amendment will lower the legal test that the regulator has to pass before appointing a trustee. The Pensions Regulator says it has nearly 60 qualified trustees on its books with “a wide range of skills and experience” to more than enough to cover the sector.

Tax

Revenue actively pursues

offshore bank accounts Around 5,000 UK taxpayers come under scrutiny Around 5,000 UK taxpayers believed to hold offshore bank accounts are being written to by HM Revenue & Customs (HMRC) requesting them to pay the unpaid tax they owe. This follows the Revenue’s so-called ‘amnesty’ last year, when the agency gave holders of offshore bank accounts the chance to disclose hidden money in exchange for a flat rate penalty of 10 per cent of underpaid taxes and payment of all back taxes with interest. The Revenue is now actively pursuing a group of 5,000 people who it suspects have still not owned up to holding offshore accounts and they will all have received letters by 4 April. Those individuals with offshore accounts who do not cooperate could face prosecution for tax evasion.

eSmartmoney

Prior to the June deadline last year, over 60,000 people notified the Revenue over their offshore accounts.

Around 5,000 UK taxpayers believed to hold offshore bank accounts are being written to by HM Revenue & Customs (HMRC) requesting them to pay the unpaid tax they owe.

NOVEMBER/DECEMBER timely information, there2007 can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

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