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    Roger Phillips – tax partner at PM+M – reacts to the March 2024 Budget

    It’s fair to say that this Budget threw up no great surprises as there was limited scope for any sizeable changes to tax, spending or borrowing. With the spectre of Kwarteng and Truss’ dual legacy still in the air, coupled with it being an election year, the Chancellor simply couldn’t risk being seen as fiscally irresponsible. He had to tread a fine line of giving away something to appease the right in his own party but without spooking the markets.  I don’t think he could have feasibly done much more as unfunded and grandiose tax cuts were – thankfully – off the table.

    By choosing the cheaper – and some might say less headline grabbing – option of cutting national insurance by a further 2% rather than slashing income tax, the Chancellor has professed to putting more money in the coffers of millions of working people. The changes should mean that someone who earns £30,000 a year will be around £58 “better off” a month when the national insurance cuts that were announced in the Autumn Statement are factored in. However, when you look at it in the round, it will have little impact as we are all still facing the highest tax burden in recent memory – as he didn’t take the opportunity to increase the personal allowance or tax thresholds – and therefore the effect of fiscal drag will likely outstrip the NIC saving for many.

    Cutting income tax would have been significantly more expensive as it benefits both workers and pensioners. The announced cut of 2% in employee NIC will cost about £10 billion a year, whilst a 2p cut in income tax would have cost £13.7 billion a year. I also had concerns that if he did capitulate to the right – and had cut income tax or announced a raft of short-termism, vote grabbing measures – there might have well have been inflationary consequences, so I think he’s made the right call, especially as the government is so constrained by the highest public sector debt levels since the 1960’s, low public spending, weak economic growth and overall tax levels that are beyond the highest level as a share of GDP, since World War II.

    The Chancellor has helped some families by way of a long-overdue reform of the high-income child benefit charge tax trap, largely seen as unfair by many – although he decided to shift the issue further up the earnings ladder for the time being, rather than choosing to get rid of it altogether – so this will please some, but not all.

    The increase in the VAT registration threshold from £85,000 to £90,000 was long overdue – and anything that acts as a barrier to growth should be addressed. The news will cut taxes for some small businesses in the North West and right across the UK – however, he could have been braver and increased the threshold even further – or alternatively he might have considered a more dramatic reform to the VAT registration rules, as has been called for by some well-respected tax commentators.

    There is a fear that the decision to abolish the current ‘non-dom’ status to fund tax cuts for working families could have led to a decline in investment in the UK, as those affected may be more inclined to move to other locations. The abolition of the concept of “domicile” and the introduction of a new residency-based system sounds like a sensible solution – although as ever the devil will be in the detail as to how this will work in practice for those looking to come to the UK – and whether it will have the unintended impact of making taxpaying individuals leave the UK for other shores.

    Other tax changes included the scrapping of the furnished holiday let regime – so a tax rise for those who currently benefit from it, and a modest reduction in CGT for higher rate taxpayers where they sell residential property – the rate dropping from 28% to 24%.

    In terms of stamp duty, we saw the Chancellor abolish multiple dwellings relief. This was not necessarily the stamp duty change that many in the property sector were hoping for.

    This Budget was largely aimed at workers, and it was interesting that there was no real mention of anything for pensioners. Perhaps he is hoping the triple lock guarantee will be enough to win that vote.  In reality, the Budget was always going to be about the election – and making sure nothing was done to rock the country’s current fragile economy.

    All in all, he may have achieved that and hopefully the markets will be reassured. I’m sure the Chancellor is now hoping that he has persuaded some voters that the Conservative party isn’t economically, and politically, dead in the water. That will of course, remain to be seen. It will now be interesting to see when the Prime Minister calls for a general election, and whether there will be enough time for the Chancellor to try to win a few more votes with another fiscal event before that.

    HMRC confirms NIC reclaim rules on car allowances

    HMRC have released an update on how to reclaim historic NIC charges following their loss in the Upper Tribunal ruling of the joint case of two constructions, Wilmott Dixon and Laing O’Rourke.

    Both employers had car schemes that let participants choose between a company car and a cash allowance. Employees who chose the cash allowance had to maintain a private vehicle suitable for business use, but there was no requirement to spend the allowance on motoring expenses.

    The employers maintained that the car allowance payments represented ‘relevant motoring expenditure’ which, whilst in principle is subject to NIC, also allows for relief on the ‘qualifying amount’ of 45p per business mile travelled less any business mileage reimbursed.

    Who will the update affect?

    HMRC’s confirmation of the NIC reclaim rules may affect employees with car allowances that use their own vehicle for work.

    In a recent update to employers, HMRC confirmed: “The tribunal ruled that it is not just payments relating to actual use, but also potential and anticipated use of the vehicle. This will affect those who receive fixed sum car allowance payments where those payments are made in anticipation or potential use of a qualifying vehicle.”

    A refund of overpaid contributions may be claimed for earlier years in instances where car allowance payments have been made and NICs have been paid on these amounts by employees.

    However, HMRC have stressed that, for a claim to be successful amongst other conditions, there needs to be evidence of business mileage actually undertaken.

    Further information on the rates can be found in the Employment Income Manual.

    HMRC guidance is currently being updated to reflect the change following the tribunal ruling, and further communications will be made once complete.

    How to make a claim

    Employers

    Employers in a similar situation to the two businesses which were successful in their case against HMRC will be expected to make their claim by way of adjusting their PAYE RTI submissions.

    If this is not possible, it should be the case that written submissions can be made to HMRC.

    Employees

    If you are an employee who believes they are due a refund, we would recommend contacting your employer in the first instance. The employer should make a refund claim, and repay any overpaid NICs due to you.

    If the employer has not applied for a refund, employees may be able to approach HMRC directly.

    Get in touch

    If you would like to find out more about NIC reclaim rules on car allowances, whether you are an employer or an employee, or need help submitting a claim, get in touch with PM+M tax manager, Julie Walsh by clicking the button below…

    Potential refund of national insurance on certain car allowances

    A recent tax appeal which has reached the Upper Tier Tax Tribunal (UTT) has been heard and the decision could be significant for companies who offer a car allowance to their employees rather than a company car.

    Background

    In the case heard, arrangements were in place for two employers which allowed employees to choose between taking a car allowance or a company car. To receive the car allowance, employees had to ensure a suitable car was available for business use, but there were no directions on how the allowance should be spent by employees.  The companies involved in the case treated these payments as earnings subject to income tax and national insurance.

    However, both employers contended that the car allowances were Relevant Motoring Expenditure (RME) for NIC purposes and that any ‘qualifying amounts’ of RME were not liable to NIC. The qualifying amounts being 45p per business mile less any business mileage separately paid.

    Both employers sought significant refunds of NIC which were initially rejected by HMRC, and the case went to the UTT to be heard.

    The judgement

    In its judgement on 10 July 2023, the UTT agreed with both taxpayers that their car allowances were RME, and therefore the qualifying amounts of RME were not liable to NIC.

    The UTT decision was mainly because RME for NIC purposes has a much wider definition than HMRC had contended and included car allowances paid for expected or potential use of a car, or for making a car available for use. The UTT also found that the grade of the employee, and how the car allowance is spent by the employee, are irrelevant for determining whether a payment is RME.

    Impact on similar employers

    The UTT’s decision is currently setting a binding precedent. It means that any employer paying car allowances in comparable circumstances to those in this case (where employees have paid tax and NIC on the allowances, have used the cars at least partially for business but have not been paid 45p per business mile), could potentially seek refunds of both employers’ and employees’ NIC from HMRC, potentially going back six years.  The claim would be based on the NIC suffered on an amount equal to the HMRC approved mileage rate of 45p per mile for the first 10,000 miles in a tax year and 25p thereafter, less the actual business mileage rate paid to the employees.

    HMRC do have around 30 days to appeal this decision and if they do so, it could take at least one or two years for the case to be reheard in the Court of Appeal. It is likely that any employers who follow suit and claim refunds will have to wait for this case be resolved before any refunds are issued.  It is also likely that the government may seek to amend the legislation on this matter in the forthcoming Autumn Statement.

    However, for now, protective claims for refunds of national insurance on payments made as detailed above could be advisable for affected employers in order to ensure that the opportunity to make such a claim is not missed.

    If this is something you would benefit from and would like to know more please get in touch with tax manager, Julie Walsh, by clicking the button below…

     

    Time could be running out to increase your pension pot

    In order to qualify for a full State Pension, you will need a complete National Insurance (NI) record of 35 years or a minimum of 10 qualifying years to be entitled to any amount.

    There are various ways you will build up your entitlement, the main ones being:
    -Whilst you work and pay NI contributions
    -Receiving NI credits
    -Paying voluntary NI contributions

    You are able to attain a forecast of your state pension and a copy of your NI record through the Government Gateway, this will provide information on the State Pension you have accumulated to date and any extra NI credits that are needed in order for you to receive the full State Pension entitlement.

    Voluntary contributions

    If you find there is a shortfall in your NI contributions, there is the option to make voluntary contributions to fill any gaps in your NI record. This is usually only possible for gaps during the previous six years.

    However, there are certain extensions available to the six-year timeframe but only until 5 April 2023; so, if applicable to you, prompt action is advised. Until this date, men born after 5 April 1951 and women born after 5 April 1953 are able to pay voluntary contributions for any eligible gaps between the tax years April 2006 and April 2016. This essentially provides a potential window of 16 years for which to make up any shortfalls.

    The cost to fill in gaps in an NI record are up to £3.15 per week for class 2 contributions (£163.80 per annum) or up to £15.85 per week for class 3 contributions (£824.20 per annum). It is clear to see the benefit of making these contributions, given that each additional qualifying year equates to an extra £275.08 of State Pension benefit. Voluntary payments can be made as a one-off payment, by quarterly or monthly instalments.

    What should I do?

    If you think you could potentially miss out on utilising your voluntary contributions based on the above information, it is important that you seek clarification from an expert financial planner as soon as possible. With specialist advice, you can ensure you make the most of the potential benefit before the end of this tax year when the window of opportunity will be reduced to the previous six years for everyone.

    Get in touch with a member of our financial planning team today to discuss your personal circumstances by emailing enquiries@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    National Insurance thresholds are set to change from 6 July – are you prepared?

    The Primary Threshold (PT), the level at which employees begin paying National Insurance contributions (NICs), is set to increase to £12,570 from 6 July 2022 – a move designed to lessen the impact of the Government’s decision to increase NIC rates by 1.25 percentage points in April 2022.

    This rise will bring the rate in line with the current personal allowances for income tax, therefore, those earning below this amount will pay no tax or NICs. Many people should see benefit from the cut to their NICs as a larger proportion of an individual’s income will be free of the charge – something which will be welcomed given the current cost of living crisis alongside rising inflation.

    What does this mean for those who are self-employed?

    Alongside the increase to the PT, the Lower Profits Limit (LPL), the point at which self-employed individuals start paying Class 4 NICs, will also be increased to £12,570.

    By increasing the LPL, Class 2 NICs liabilities are also reduced to nil on profits between the Small Profits Threshold (SPT) and LPL, ensuring that no one earning between the SPT and LPL will pay any Class 2 NICs, but will continue to accrue National Insurance credits.

    Will employers’ contributions change?

    The Secondary Threshold, the point at which employers must start making contributions, remains unchanged at £9,100 per year. This means that employers will continue to pay NICs for all employees once they earn £9,100 and over.

    Has the threshold for Directors increased?

    As Director’s in limited companies pay NICs on an annual basis, they are calculated using annual earnings rather than what they earn in each pay period. For 2022-23, the PT rate of £11,908 will apply, If you are a director, it may be worth reassessing your remuneration strategy following NI changes and increasing dividend tax rates to ensure you are minimising your tax burden.

    Get in touch

    To accommodate the NIC threshold increase, payroll software, including HMRC’s Basic PAYE Tools, will need to be updated before processing and reporting any payments on or after 6 July 2022.

    For more information on the NIC increase, or any other payroll requirements, please get in touch with payroll director, Julie Mason, by clicking the button below.