The new Marriage Allowance

On 6 April a new Marriage Allowance comes into effect, offering tax benefits for eligible couples - those married or in a civil partnership.

For 2015/16 the personal income tax allowance will rise to £10,600. In situations where one partner's earnings are less than this (including pensions, savings or investment income) they may be entitled to the Marriage Allowance. The scheme allows the transfer of 10% of unused personal allowance to a partner.

The partner making the transfer, which could be up to £1,060, must themselves have earnings within the basic income tax threshold - which is increasing to £42,385 for 2015/16. Making full use of this relief could save couples up to £212 per year. If one partner earns over the basic rate then the couple will not be eligible for the new allowance.

Prime Minister David Cameron said: 'I made a clear commitment to the British people that I would recognise marriage in the tax system. We can afford to do it because of the growing strength of the British economy. And as a result, it means families up and down the country can get a little bit of extra support and more financial security.

'This policy is about far more than pounds and pence. It's about valuing commitment.'

Chancellor George Osborne added that the measure means 'saving £212 on your tax bill couldn't be simpler or more straightforward'.

However the new Marriage Allowance received some criticism from both Labour and Liberal Democrat MPs when the measure was first announced in the Autumn Statement 2013.

Stephen Williams, former Treasury spokesman, said: 'You don't build a fairer society by using the tax system to favour one type of family over another'.

The Government estimates that over four million married couples and 15,000 civil partnerships will benefit from the new measure. You can register and make your application online here.

The end of the tax return?

It was announced that by the end of the next Parliament, every individual and small business will be able to see and manage their tax affairs through a digital account, removing the need for annual tax returns.

Under the plans, by early 2016 all of the UK's five million small businesses and the first ten million individuals will have access to their own digital tax account. It is intended to be simple, personalised and secure, offering an increasing range of integrated services. The accounts should bring together in one place all the information that taxpayers need to understand their tax position. They will be able to register, file, pay and update their information, at any time of the year, using the digital device of their choice.

Taxpayers will get a real-time view of their tax affairs and see how their tax is calculated. They will also be able to check how much tax they owe or need to be repaid and see their options for paying securely. Digital accounts aim to give small businesses greater certainty and control over their tax position. Those which pay more than one tax (such as corporation tax, VAT and PAYE) will be able to take a single view of their total liabilities across all taxes.

HMRC will automatically use the information it holds, along with new data from third parties, to populate the digital accounts. Those who pay their tax through PAYE will have their income tax, national insurance contributions (NICs) and pension position shown in their digital accounts, including any interest from banks and building societies. Taxpayers will then be able to log-in to check and confirm that their details are complete and correct.

By 2020, businesses will be able to manage their taxes together as part of their day-to-day running, rather than something to be done separately. Their accounting software will be able to feed data straight into their digital tax account, so that some businesses will simply log-in to check their details and not need to send an annual return.

The digital account will show PAYE taxpayers how much tax they will pay via their employer. Those with complex tax affairs will be able to tell HMRC about additional income online and have it reflected in their digital tax account. Individuals and small businesses will have the option to 'pay as you go'. In addition, instead of making a number of payments across different taxes, they will be able to make just one. Taxpayers will be able to let agents manage their digital account on their behalf.

Over time, it is intended that the digital accounts will offer access to a range of other Government services. To begin with, individuals will be able to see how their NICs affect their state pension. Later in 2015, the Government will publish a road map and consult on how it will deliver the changes needed. Separate consultations will cover a new payment process to support digital accounts and reform of NICs for the self-employed.

2015 Budget: measures for savers

The Chancellor's Budget Speech focused on four key areas, which formed the foundation of proposed Government policies for the next few years.

As previously announced, up to five million pensioners are being given the opportunity to cash in their existing pension annuities. When the changes come in, savers will be allowed to take their whole pot in a single lump sum, or make withdrawals as they see fit.

The new flexible ISA will allow individuals to withdraw their savings and then make further investments up to their annual allowance, without being penalised, so long as the transaction occurs within the same tax year. From 6 April this year, the ISA allowance will be set at £15,240.

The Help to Buy: ISA, which combines an ISA with the Help to Buy scheme for first time house buyers, means that the Government will top up savings by £50 for every £200 saved. These ISAs are intended to help individuals save for a mortgage deposit. Government contributions will go up to a maximum of £3,000 per Help to Buy: ISA.

Additionally, the Personal Savings Allowance means that the first £1,000 of savings income will be free from tax for most individuals from April 2016.

The Chancellor said that these measures will create tax-free banking for almost the entire population.

The Chancellor’s Budget: what to expect

With Chancellor George Osborne preparing deliver his Budget Speech today at 12.30pm, the nation has been speculating on what announcements he might make.

In advance of the Speech, there have already been a number of announcements about possible future changes, which are expected to be confirmed today.

Possible changes to the inheritance tax threshold and cash for pension annuities have been reported this week. The lifetime allowance on tax-free pension savings will reportedly be reduced from £1.25 million to £1 million, with the additional income to the Treasury being used to raise the tax free income tax allowance to even higher than already planned.

The Government has previously committed itself to a review of business rates, with corporation tax set to fall to 20%, and a number of measures likely to be put in place to aid the North Sea oil industry.

In the latest announcement, the national minimum wage (NMW) is set to increase by 20p per hour from October 2015. The rate for those aged 21 and over will be £6.70, while the rate for apprentices will be increased by 57p to £3.30 per hour.

Be sure to check our website after the Budget Speech for further updates on the major announcements.

Saving tax before the 5 April year end

Proper financial planning is always important, but as the end of the tax year approaches, now is the time to ensure that your business and personal finances are as tax-efficient as possible. Here we consider some of the planning strategies that are available to you before 6 April 2015, and outline some key tax measures planned for 2015/16.

Capitalising on personal allowances

Every individual has their own tax-free personal allowance for income tax purposes, which for 2014/15 is £10,000 for those born after 5 April 1948.

Those with an income over £100,000 could be at risk of paying an effective rate of 60% on a proportion of their income. Higher rate income tax is payable at 40% on taxable income over £31,865 (that is income after personal allowances), but once 'adjusted net income' exceeds £100,000 the personal allowance is clawed back at a rate of £1 for every £2 by which adjusted net income exceeds £100,000. This means that taxpayers could effectively be paying tax at 60% on up to £20,000 of their income.

Future changes

Chancellor George Osborne announced in the 2014 Autumn Statement that the personal allowance will rise to £10,600 from 6 April 2015, a higher increase than was originally planned at the time of the 2014 Budget. The basic rate band will increase to £31,785 and thus, for many taxpayers, higher rate taxes will start to be paid when total income exceeds £42,385.

From April 2015, up to £1,000 of an individual's personal allowance may be transferred by eligible spouses and civil partners to their partner, where neither pays tax at the higher or additional rate.

Making tax-efficient savings and investments

While low interest rates continue to pose a challenge to savers, the ISA has maintained its status as a popular tax-free savings vehicle. On 1 July 2014, Individual Savings Accounts (ISAs) were replaced by the New ISA, or NISA.

Under the new system, adult savers can now invest in any combination of cash or shares, up to a total of £15,000 per annum. There are still two types of ISAs – cash NISAs and stocks and shares NISAs. The £15,000 can only be invested in a maximum of one cash NISA and one stocks and shares NISA so, if investments have been made earlier in the tax year to a cash ISA, further contributions into a cash NISA must be made into the same ISA. Another change this year is that money that is held in stocks and shares ISAs opened during any tax year can be transferred into a cash NISA. Transfers from cash to stocks and shares ISAs was already allowed and so transfers either way can be made as many times as the account holder wishes.

Savers aged between 16 and 18 can pay up to £15,000 into a cash NISA.

In addition, Junior ISAs remain an option for those aged under 18 who were not entitled to open a Child Trust Fund account. Up to £4,000 can be invested in a JISA during 2014/15 and this can be a cash ISA, a stocks and shares ISA or both. On reaching 18, the JISA becomes a normal adult NISA.

Future changes

Contribution limits for NISAs, the Junior ISA and Child Trust Funds are set to be uprated in line with the Consumer Price Index for 2015/16, bringing the NISA limit to £15,240 and the JISA and Child Trust Fund limit to £4,080.

As announced in the 2014 Autumn Statement, for deaths from 3 December 2014 surviving spouses or civil partners are able to inherit the NISA tax advantages by means of an additional NISA allowance equal to the value of that saver's holdings on their death. This will be able to be used from 6 April 2015 onwards.

Tax-efficient pension planning

Making contributions into a pension scheme offers tax relief at an individual's marginal rate of tax (potentially worth up to 60%), subject to limits. Relief on annual contributions is limited to the greater of £3,600 (gross) or the amount of UK relevant earnings, and subject to the annual allowance, which from 6 April 2014 has been reduced from £50,000 to £40,000.

Future changes

The Government has implemented a number of measures aimed at affording individuals greater flexibility over their pension pots. From April 2015 members of defined contribution pension schemes will be able to take their retirement savings without needing to buy an annuity. The taxation consequences of taking advantage of this flexibility will be a significant factor in deciding when to access the pension fund.

From April 2015, beneficiaries of individuals who die under the age of 75 with remaining uncrystallised or drawdown defined contribution pension funds, or with a joint life or guaranteed term annuity, will be able to receive any future payments from such policies tax-free where no payments have been made to the beneficiary before 6 April 2015. The rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was over 75, the beneficiary will pay the marginal rate of income tax, or 45% if the funds are taken as a lump sum payment. Lump sum payments will be charged at the beneficiary's marginal rate from 2016/17.

Extracting profits – tax-efficiently

When it comes to extracting profit from your company, it is important to consider both the tax and business implications of the various options available.

Taking a dividend rather than a salary or bonus could reduce the national insurance bill. While a dividend is paid free of NICs, a salary or bonus can carry up to 25.8% in combined employer and employee contributions. However, a salary or bonus is usually tax deductible to the company. The last date for paying a 2014/15 dividend is 5 April 2015. Any related higher or additional rate tax on the dividend may not be due until 31 January 2016. However you may have already paid some of the tax through the payments on account system. The rules can be complex – please talk to us about the implications of paying a dividend.

Timing may also be an important consideration – it may be helpful to delay the timing of bonuses and dividends if taxable income is likely to exceed £100,000 or £150,000, especially if income in 2015/16 will be less.

Future changes

From April 2015, employer NICs up to £42,385 p.a. for employees aged under 21 will be 0%. Employers will be liable to 13.8% NIC beyond this limit. Also from April 2015, employer NICs up to £42,385 p.a for apprentices aged under 25 will be abolished, with the aim of further encouraging employers to take on apprentices.

Considering your company car

The company car remains a key part of the remuneration package for many employees, but it is important to consider the tax and national insurance implications of your company car arrangements.

Employees and directors pay tax on the provision of the car and on the provision of fuel by employers for private mileage. Employers pay Class 1A NICs at 13.8% on the same amount. The amount on which tax and NICs is paid is calculated by multiplying the list price of the car by an 'appropriate percentage'.

It may be worth considering paying your employees for business mileage in their own vehicle, at the statutory rates. We can review your company car policy and discuss the options available to you.

Future changes

The maximum taxable percentage is set to rise from 35% to 37% in April 2015. From April 2015 the five-year exemption for zero carbon and the lower rate for ultra low carbon emission cars will come to an end. Two new bands will be introduced for ultra-low emission vehicles. The diesel supplement will also be removed in April 2016, making diesel cars subject to the same level of tax as petrol cars.

With robust planning and expert advice, you can minimise the tax bill and maximise your business and personal wealth now and in the coming years. Please contact us for further assistance.

March 2015 Newsletter

Welcome to the March 2015 Newsletter from Easterbrook Eaton Limited

The nation is preparing itself for this year's Budget speech, followed shortly by the General Election. With the future of the improved economy still uncertain, all eyes are on Westminster and the decisions to come. Our monthly news update highlights some of the major topics affecting businesses today...

New RTI rules for smaller businesses in March

HM Revenue & Customs (HMRC) has been phasing in the Real Time Information (RTI) system since April 2013, and it is now entering the next phase. Employers with fewer than 50 employees will now be required to use RTI for each member of staff on payroll.

Small businesses (those with fewer than 50 employees) and micro businesses (nine or fewer employees) will be required to submit their payroll information to HMRC in 'real time' from 6 March.

Until this date, small businesses who had difficulty reporting weekly staff payments, or payments occurring more regularly, were allowed to send their information by the end of the tax month. Preparing for RTI has been the responsibility of each business, with all now expected to have sufficient infrastructure in place to enable submission.

Micro businesses who submit their information late may be liable to a £100 monthly penalty, while small businesses may be liable for £200. Penalty notices will be sent quarterly, with interest charged if you fail to pay within 30 days, therefore HMRC has advised businesses to make preparations for RTI.

The main document businesses are required to submit is the Full Payment Submission (FPS), which contains details of all the payments and deductions that have been made to each employee - including income tax, national insurance contributions (NICs) and student loans. This must also include accurate details of new employees and any who have left the business since the last submission.

Every time an employer makes a payment to an employee they will need to submit an FPS. This can be done either at or before the time of payment, which could be weekly or monthly, and must also include payments that are below the lower earnings limit for NICs.

The original HMRC document can be found here.

Budget 2015 - hopes, demands and predictions

The Institute for Fiscal Studies (IFS) recently said in its Green Budget that the Chancellor's intention to generate an overall financial surplus will require even tougher measures than those which have come before. Some £50 billion will have to be cut in order to reduce the Government's spending by the intended 14.1%.

Prime Minister David Cameron has expressed the Conservative party's intention to raise the tax-free personal allowance should they win the next election. Given this promise, tax cuts are expected to be a key feature of the Budget. But Chancellor George Osborne, upon announcing the date of his speech, said: 'Anyone expecting unaffordable pre-election giveaways will be disappointed because we will stay on course to prosperity'.

There is also speculation that fuel duty will remain frozen, with backbenchers eager to raise the 40% income tax band, while Mr Osborne claims a further £12 billion needs to be saved in welfare cuts.

A key topic in the current economic climate is the energy sector, with North Sea operations seeking tax breaks to get the ailing industry back on track. Malcolm Webb, chief executive of the Oil and Gas UK industry body, said: 'The upcoming Budget presents a final chance to get this right, half measures will not do and there will not be a second chance.

'In order to be encouraged to persevere on the UKCS, the industry needs to see cross party alignment for a permanent reduction and simplification of the tax burden on this industry. If no, many will quietly turn away and invest elsewhere.'

Mr Osborne has since commented: 'We want to make sure we maximize investment in the North Sea, and so I can see we are going to have to take further steps to support the industry'.

Elsewhere, the Scottish Whisky Association (SWA) has lobbied the Government to cut the 'onerous' Scotch whisky duty by 2%, after the Chancellor last year praised the industry as a 'huge British success story'.

The Budget speech will take place on 18 March, with the dissolution of Parliament on 30 March in preparation for the general election on 7 May 2015. Visit our website for the latest Budget news.

ON OUR WEBSITE

Tax Information
Everything you need to know from the Budget to newly updated Tax Rates, our Tax Information page can help you on a daily basis.

Your Business
Our concise tips and guides can be an excellent first step and point of reference. Visit the Your Business section of our website today.