Newsletter May 2012

This month we are highlighting the following topics: the possible transfer of State Pension payments into the PAYE system, the revised benefit in kind position of smart phones, HMRC's introduction of security deposits, and the reduced rate of IHT if you make sufficient charitable provision in your will.

Our next newsletter will be published 8 June 2012.

State pensions subject to PAYE?

Apparently, 60% of pensioners are unaware that their State Pension is taxable income. Historically this assumption is probably based on the way in which their pension is paid – without deduction of tax. This may be about to change!

The Office of Tax Simplification has come up with an idea to streamline the taxation of pensioners. They are seriously considering bringing the State Pension into the pay-as-you-earn system.

If this happened HMRC would issue a code number to the Department of Works and Pensions who would calculate any tax due and deduct it before making the net of tax payment to a pensioner's bank account.

If you have no other income apart from your State Pension you are unlikely to be affected. However, if your personal allowances are already used against other income (including other pensions) you would likely suffer a tax deduction. No change is proposed before April 2013.

How likely is this change? We will have to wait and see...

Overall, moving the State Pension into the PAYE system will not affect pensioners' total tax liabilities. What it may affect, initially, is the timing of tax payments. At present any tax that should have been paid will be collected through the self-assessment process. Any arrears for each tax year will need to be settled the following January. So any tax underpaid in 2011/12 would have to be paid 31 January 2013. If PAYE is applied to the State Pension from April 2013 pensioners may be faced with budgeting to clear any arrears for the tax year 2012/13, in January 2014, from a reduced monthly income. This of course will be a one-off issue.

If you are a basic rate tax payer and your tax allowance is set off against other earnings or pensions, your weekly State Pension will be reduced from £107.46 (the present weekly rate) to £85.96.

If you pay tax at 40% and your tax allowance is set off against other earnings or pensions, your weekly State Pension will be reduced to £64.47.

Potential tax refunds for smart phone users

HMRC have at last woken up to technological advances in recent years, and in particular, to the so-called smart phones.

Until recently HMRC decreed that smart phones were not mobile phones and therefore subject to tax as a benefit in kind. Users of iPhones, Blackberries and other "Android" devices, who have suffered a benefit in kind charge in recent years, can now reclaim any tax paid. Claims can be backdated to the tax year 2008/09.

In order to be considered a tax free benefit, the smart phone contract must be between the employer and the phone operator. As with mobile phones there is no restriction or tax charge if private calls are made.

This change of tack by HMRC does not apply to tablet devices such as the iPad.

HMRC flexes new muscles!

From 6 April 2012 HMRC can exercise new powers that will allow them to require a cash deposit or a bond, which can be cashed on demand, from certain employers where it is considered there is a real risk that they will not pay their PAYE and NIC liabilities.

HMRC have said that this will not affect the vast majority of employers who pay their tax on time, nor will it affect employers who are in genuine financial difficulties. Employers who may be affected include:

• Employers that deliberately choose not to pay.
• 'Phoenix' businesses that cease trading and then re-emerge in a different guise.
• Employers who build up large PAYE or NIC debts, and
• Employers who ignore HMRC attempts to contact them.

Readers may find the following comments from HMRC's website useful:

HMRC will calculate the amount of the security on a case by case basis - depending on the amount of tax at risk, the previous behaviour of the employer and other risks. Those being required to pay a security can appeal against this decision.

As with VAT, if an employer fails to provide the security for PAYE or NICs, HMRC can prosecute them. The sanction is a fine, not a custodial sentence.

10% reduction in IHT rates...

If you leave at least 10% of your net estate to a recognised charity this may reduce the amount of Inheritance tax paid by your estate to 36% instead of 40%.

The following notes explain some of the factors that need to be taken into account.

1. The net value of your estate is the value of your taxable assets less qualifying debts, exemptions, nil-rate band and any other reliefs or liabilities.
2. A qualifying charity is one recognised by HMRC that has been granted a charity reference number.

If by chance your IHT planning does not qualify your estate for the 10% rate reduction, your beneficiaries can arrange an instrument of variation to increase charitable donation to an appropriate level.

Needless to say the rules are complicated in all but the simplest circumstances so do talk to us if you want to introduce this feature into your estate planning.

Tax Diary May/June 2012

1 May 2012 - Due date for corporation tax due for the year ended 31 July 2011.

19 May 2012 - PAYE and NIC deductions due for month ended 5 May 2012. (If you pay your tax electronically the due date is 22 May 2012).

19 May 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 May 2012.

19 May 2012 - CIS tax deducted for the month ended 5 May 2012 is payable by today.

19 May 2012 - The payroll forms P35 and P14s must be filed by this date - employers late in filing these forms may receive a penalty.

31 May 2012 - Ensure all employees have been given their P60s.

1 June 2012 - Due date for corporation tax due for the year ended 31 August 2011.

19 June 2012 - PAYE and NIC deductions due for month ended 5 June 2012. (If you pay your tax electronically the due date is 22 June 2012).

19 June 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 June 2012.

19 June 2012 - CIS tax deducted for the month ended 5 June 2012 is payable by today.

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