Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into the them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances. While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the basis for making decisions without seeking further advice and guidance.
We all know that they are coming. It just depends on what they will be called. One way or another the Government needs cash, and it is going to come from you and me.
This time it is dressed up to look like it is all for the health service, the Health and Social Care Levy.
All rates of national insurance contributions as well as the income tax on dividends will increase by 1.25 percentage points from 6 April 2022. In 2023 this increase will be rebranded as the “health and social care levy” and identified separately on payslips etc.
NIC rates will revert to their previous levels from April 2023, but the monetary effect for each taxpayer will be the same. Only the names of the taxes are changed. This new levy will apply irrespective of age. So older workers will also pay it.
Self-employed individuals who are over the state pension age on 6 April 2023, will pay the health and social care tax at 1.25% on profits over £9,568 per year.
This is a good time for the Government to introduce this levy because 2022/23 is the transitional year with the change in tax basis periods, when it is likely that a lot of sole traders and partners will be taxed on more than 12 months profits and HMRC will get a windfall of Levy on these extra profits.
Employees currently don’t pay primary class 1 NIC when they reach state pension age, but employers do pay secondary class 1 NIC on the salary of these older workers, unless they fall under one of the exemptions. Any employees over state pension age will now have to pay the health and social care tax at 1.25% on all of their earnings above £9,568 per year from 6 April 2023.
The rates of income tax on dividends received will increase by the Levy but dividends received on investments held within ISAs are not subject to the dividend tax and so will not suffer the Levy.
We will have to wait and see if the Levy is to be added to the rate of tax currently charged on overdrawn director’s loan accounts
Budget Day 27 October
The Chancellor has confirmed that government spending plans will be outlined at the Spending Review on 27 October alongside a second 2021 Budget
The three-year review will set government departments’ resource and capital budgets for 2022-23 to 2024-25 and the devolved administrations’ block grants for the same period.
Chancellor Rishi Sunak said: ‘At the Spending Review later this year, I will set out how we will continue to invest in public services and drive growth while keeping the public finances on a sustainable path.’
Core day-to-day departmental spending will follow the path set out at spring Budget 2021, with the addition of the net revenue raised by the new Health and Social Care Levy and the increase to dividend tax rates. The government will make available around an additional £12bn per year for health and social care on average over the next three years.
What Makes You Scottish?
The Scottish parliament has the power to set income tax rates on non-savings and non-dividend income. Scottish rates only diverged from the rates applicable in the rest of the UK from 2018–19.
For the majority of taxpayers, Scottish taxpayer status will be straightforward to determine – it will simply depend on where you live.
For PAYE taxpayers, HMRC makes the initial decision based on the individual’s address and allocates a prefix letter ‘S’ for Scottish taxpayers. This can be appealed if you believes it is incorrect.
The rules for determining whether an individual is a Scottish taxpayer are in the Scotland Act 1998.
An individual is a Scottish taxpayer in a tax year in which they are UK resident and satisfy one of three conditions.
The first condition (condition A) is that the individual has a ‘close connection’ with Scotland. If an individual has only one ‘place of residence’ in the UK and lives there for at least part of the year, this will establish a ‘close connection’ with that part of the UK and therefore determines the status question – this is the reason why most taxpayers’ status can be simply determined depending on where they live.
If there is more than one place of residence in the tax year the location of the main place of residence has to be established. If there is more than one main place of residence it is necessary to determine the part of the UK in which the taxpayer has had a main place of residence for the longest period of time.
The second condition (B) applies only if the taxpayer does not have a close connection and in this case the condition is then met if the taxpayer has spent more days in Scotland than in each other part of the UK.
The third condition (C) is met if the taxpayer is a member of parliament for a Scottish constituency or of the Scottish parliament for all or part of the year.
HMRC considers that an individual’s ‘place of residence’ is ‘a place that a reasonable onlooker, with knowledge of the material facts, would regard as the dwelling in which that person habitually lives i.e. their home..
A ’main place of residence’ is not necessarily the residence where the individual spends most of their time, although it frequently will be. HMRC provides a list of factors (in no particular order) to be taken into account.
- if the individual is married, in a civil partnership or a long-term relationship, where does the family spend its time?
- where do the children (if any) go to school?
- where are social/non-work activities conducted?
- how is each residence furnished?
- where are most of the individual’s possessions kept?
- where is the individual registered with a doctor/dentist/optician?
- which address is used for correspondence (including banks, credit cards, utility bills, etc)?
- at which address is the individual’s car registered and insured?
- which address is the main residence for council tax?
- at which residence is the individual registered to vote?
Pensioners 2.5% Pay Rise
The government has confirmed that the state pension will rise by 2.5% from April 2022, breaking the pension lock as a result of the impact of the pandemic. But the minister of state told MPs that this would be a one-year intervention and that the normal increase in line with average earnings increase would be reinstated from the 2023-24 tax year.
Secretary of state for work and pensions, Thérèse Coffey MP, said: ‘[Last year], we legislated to set aside the earnings link, allowing me to award an uprating of 2.5% as this was higher than inflation. If we had not done this, state pension would have been frozen.
In addition to those receiving basic and new state pensions, this will apply to those receiving standard minimum guarantee in pension credit and widows’ and widowers’ benefits in industrial death benefit.
Teenagers Missing Out on Child Trust Fund cash
HMRC is urging young people to check if they have a surprise savings pot in the shape of a Child Trust Fund (CTF), the government savings scheme for children
It is now one year since the first account holders started turning 18 and around 55,000 CTFs mature every month. This means their owners can withdraw funds or transfer savings into an adult ISA. Hundreds of thousands of accounts have been claimed so far, but many have not.
CTFs were set up for all children born between 1 September 2002 and 2 January 2011 with a live child benefit claim. Parents or guardians set up these accounts with child trust fund providers – usually banks, building societies or investment managers – using vouchers provided by the government. If an account was not opened by the child’s parent, HMRC set one up on the child’s behalf.
Between 2002 and early 2011, about six million CTFs were opened by parents or guardians, with a further million set up by HMRC.
‘If you’re unsure if you have an account or where it may be, it’s easy to get help from HMRC to track down your provider online.’
Some young people may not know they have a CTF – or some parents or guardians may have forgotten who they set the account up with. To help them find their accounts, HMRC has created a simple online tool.
At 16 years, a child can choose to operate their CTF account or have their parent or guardian continue to look after it, but they cannot withdraw the funds. At 18 years of age, the CTF account matures and the child is able to withdraw money from the fund or move it to a different savings account.
To find out more about Child Trust Funds go to the following link:
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.