HMRC’s rules and limits on pension contributions are often misunderstood. Many people are aware of the Annual Allowance (AA), but most people miss the point that the AA only limits the tax relief available, it does not set a limit for the amount that you can invest into a pension.
One problem that many business owners face is that for tax/national insurance efficiency they only draw a minimal salary that is topped up by dividends. This effectively reduces their AA to the salary that is being drawn. But one solution is to get the individual’s company to make the contribution. The company gets a corporation tax deduction for the payment and HMRC are unlikely to challenge this as it can be justified as being a cost incurred for the business to remunerate it’s director.
Before making pension contributions you should get advice from an independent financial advisor.
When making a payment to HMRC it is important to quote the correct reference, and HMRC system can be very pedantic and difficult about this.
When paying VAT and self-assessment tax the reference number is your VAT number or UTR (Unique Taxpayer Reference) and do not change from one payment to the next.
Corporation tax and PAYE are different and look for additional digits to allocate a payment against a specific liability.
If you always pay your PAYE on time between 6th of the month and 22nd you only need to quote your Accounts Office reference, if you pay outside these dates you need to add four digits to identify the tax month and year, so a late February 2020 payment should be noted Accounts Office reference +2011.
This is understandable as part of the data capture process but we saw a letter sent to one client this month which said you should quote “the Accounts Office reference followed by four digits”. There was no clue what digits should have been used.
National Minimum Wage Rates
With effect from 1 April the new rates are:
25 and over - £8.72
21 to 24 - £8.20
18 to 20 - £6.45
Under 18 - £4.55
Apprentice (first year only) - £4.15
The reference period used to calculate holiday pay will be extended from 12 weeks to 52 weeks, which is an important development for those who work variable hours. Currently a worker may get different rates of pay during holidays taken, depending on how many hours they worked in the three months previous.
Contracts of Employment
Employers currently have two months in which to provide the written particulars to their employees but this will change to become a “day-one” right instead. This will ensure that both parties are clear about the main contractual terms from the outset of the relationship.
Changes to Capital Gains Tax when selling residential property
From 6 April new rules apply where tax is payable for gains made from the sale of residential property located inside or outside the UK. From that date you will have to file a provisional calculation of the gain and pay the estimated tax due within 30 days of completion. You will still have to declare the gain on your normal self-assessment return and pay any tax over and above the provisional payment. If you overstate the gain and pay too much tax you cannot reclaim the overpayment until your file your self-assessment return.
Saving tax with trivial benefits
This is a topic I have visited before but with the end of the tax year approaching it is worth revisiting. The exemptions for “trivial benefits” were introduced in 2016. They cannot be used as a tax and NI free substitute for salary etc. because the exemptions only apply to benefits which aren’t a reward for work.
A trivial benefit is one that costs less than £50 and cannot be cash or a cash voucher, it can be a gift voucher for a store or restaurant etc. There is a limit of £300 per year for director shareholders, but there is no limit for other employees. If you haven’t used any of your trivial benefit allowance this year why not go out and buy six £50 store vouchers and treat yourself?
Please note: the matters included in this newsletter are guides. You should not take any action or refrain from taking any action based on the matters raised without taking professional advice