The 2009 Budget included a measure designed to stop people earning £150,000 or more from “increasing” their pension contributions in the tax years 2009/10 and 2010/11 in advance of the new 20% cap on tax relief coming in from April 2011.

Unfortunately, the self employed and owners of small companies who have traditionally waited until the end of the tax year when they can assess their cash position and take advice about pension savings will be the hardest hit. The annual or sporadic contributions that are generally made are not regarded as “regular” contributions and thus are not protected under the new rules.

Broadly, you will not be affected by the new rules:

• if your total annual income is less than £150,000 in any of the tax years from 2007/08 onwards

• even if your total annual income was £150,000 or more if you continue as normal with your existing “regular” pension savings (including any employer contributions) and do not increase your pension savings after 22 April 2009. (see example below)

• If your total annual income was £150,000 or more and you increase your pension savings provided your overall annual pension contributions are less than £20,000.

Pension Contributions in excess of £20,000 (that are not part of ongoing regular pension contributions) will be subject to an additional tax charge which will be collected through the self assessment tax return (to restrict the tax relief to 20%).

Annual pension contributions are limited to 100% of a person’s gross UK earnings, subject to a maximum of £245,000 (2009/10) tax year) and £255,000 (2010/11 tax year).

Example:

A has income of £170,000 in 2009/10 and makes total pension contributions of £50,000 to his personal pension scheme. The contributions reflect a regular monthly contribution of £2,000 (as for previous years) and a single payment of 26,000.

• A’s income exceeds the £150,000 income threshold and his pension contributions are more than the £20,000 special annual allowance.

• However, his normal regular contributions of £24,000 are not subject to the special annual allowance charge.

• The additional single contribution of £26,000 will be subject to the special annual allowance tax charge.

Pre 22 April 2009 Contributions

There are special transitional rules if you made a payment into your pension between 6th April and 22nd April 2009

Example:

B made a “one off” contribution of £30,000 on 17 April 2009.

• The Special annual allowance is reduced to nil, leaving no special annual allowance for 2009/10.

• Although her total contributions are greater than £20,000, she is not liable to the special annual tax charge on the £10,000 excess.

• However, as she has used up all her special annual allowance of £20,000, if she makes any more new pension savings in the remainder of 2009/10, the new savings will be subject to the special allowance tax charge and she will only receive tax relief at 20% on these subsequent payments.

The new pension rules are complex and specialist advice should always be sought. Please do contact Humphrey & Co for further advice.

If you, as the employer of a Dental Nurse, reimburse or otherwise meet the cost of your dental nurses’ GDC registration fees then this must be reported to H M Revenue and Customs on Form P11D.

The penalty for failing to complete a P11D is £300 per form, whilst the penalty for an incorrect P11D is up to £3,000.

Since a dental nurse’s GDC registration fee qualifies for tax relief, it is possible to obtain a dispensation for reporting this. This is done by completing P11DX which is available form HM Revenue & Customs at http://www.hmrc.gov.uk/forms/p11dx.pdf.

Those employers that already have a valid dispensation from reporting reimbursed employee benefits in place will be covered by this.

If you have any queries with regards to this, or any other employment matters, please get in touch with your contact at Humphrey and Co for further information.

The Government has announced a 7p rise in the minimum wage. From October, employees aged 22 or over will be paid a minimum of £5.80 an hour.

The rate for 18 to 21-year-olds will increase to £4.83, a hike of 6p; 16 to 17-year-olds can look forward to an increase of 4p an hour, taking the minimum wage paid to their age group £3.57.

 In recent weeks, the British Chambers of Commerce discouraged a rise in the national minimum wage, while the Trade Union Congress encouraged an increase. Business secretary, Lord Mandelson, commented: “The Low Pay Commission has carefully examined the latest economic date before making their recommendations on the minimum wage rate, balancing the needs of workers and businesses in the current economic climate.”

…A Summary

For all those reaching state pension age on or after 6th April 2010 (i.e. men born on or after 6 April 1945 and women born on or after 6 April 1950), the contribution required to qualify for a full state pension was recently reduced to 30 years.

Previously to this change, men had to earn 44 years worth of National Insurance contributions and women 39 years to qualify.

Anyone who has not yet paid sufficient contributions to gain entitlemen to a full retirement pension, and who is unlikely to do so over the remainder of their working life, should consider paying voluntary contributions to buy ‘added years’…

Buying ’added years’

The purchase of ‘added years’ has always been good value for money , and even more so as the returns on other investments are likely to be very low. Also, of course, the National Insurance Scheme is guaranteed by the Government.

The rules governing entitlement to buy these added years are complex in the extreme – in some cases, for example… it is possible to buy added years if you have already retired and begun to draw your pension

Accordingly, it is impossible to provide a simple guide and so we would invite clients to contact us for individual advice.

From 1 April 2009 HMRC introduced a new single penalty regime to replace the separate ones currently in force.  The new rules will apply to most mainstream taxes (i.e. Income tax, Corporation tax, Capital Gains Tax, VAT, CIS, and PAYE).

In the majority of cases the new regime will apply to 2008/09 Tax Returns.

Penalties are charged on the “potential lost revenue” – (which includes losses) – at an increasing rate according to the severity of the “behaviour” which gave rise to the inaccuracy.

For unintentional errors there are two categories of behaviour:

• Mistakes made despite taking reasonable care – no penalty is charged, and
• Mistakes where there has been a lack of reasonable care – the penalty is up to 30% of the potential lost revenue.

If there is evidence that the inaccuracy was deliberate, the rate of penalty will rise significantly, with two further rates of penalty:

• Deliberate errors -  the penalty is up to 70% of the potential lost revenue, and
• Deliberate errors which are then concealed – the penalty can be up 100% of the potential lost revenue
A lot depends on what is meant by “reasonable care”

What is Reasonable Care?

Unfortunately, the new penalty rules do not clearly define “reasonable care”.

This depends on the person in question and their circumstances.  Essentially you are required to keep appropriate records for the complexity of your affairs.  If your affairs are simple then you only need simple records.  However, if your affairs are more complex, you will need to keep more sophisticated records which are maintained more frequently.However, it is clear that HMRC will expect all taxpayers to keep sufficient records for an accurate Tax Return to be prepared.  

Suspended penalties

Suspended penalties will be used to “influence behaviour by supporting those who try to meet their obligations and penalising those who do not” If a penalty is charged, it may be suspended for up to 2 years if certain conditions are met, and no other penalties are incurred during the suspension period.  If at the end of the period all conditions have been met, the penalty will be cancelled.  Penalties for “deliberate errors” cannot be suspended.