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Tax Update Bulletin – April 20071. PENSION TERM ASSURANCE From 6 April 2006 under the new Pension Rules it is now possible to take out life assurance under policies known as Pension Term Assurance and qualify for income tax relief as part of, and together with the relief available under Personal Pensions. The premium is paid net of basic rate tax and higher rate relief is available if it is applicable to the tax payer. There are certain limits and these form part of the pension limits. It is anticipated these policies will be increasingly used to take out new life assurance. 2. TRUST CHANGES As part of the Finance Act 2006 there were significant changes made to Accumulation and Maintenance Trusts and Interest in Possession Trusts. For such Trusts commenced after 22 March 2006 the new rules apply, but for trusts in existence at that point there is a window until 6 April 2008 whereby the nature of the trusts for tax purposes can be altered. It may be worth reviewing any trusts that you have in place under these rules to see whether or not it is beneficial to change the basis and to be aware of any changes that will automatically take place. 3. RETIREMENT ANNUITIES From 6 April 2007 notices of coding under normal PAYE arrangements will be effective, whereas up to that time such annuities have either been taxed at basic rate, higher rate or not at all by the payers at source. These codes are currently being issued, of which there are about 3 million pensioners involved. However, HM Revenue & Customs have overlooked various circumstances which affect a number of these pensioners, and are now reviewing the codes they have issued and are hopeful that they will be able to correct all these by 6 April 2007 before they come into effect. It is therefore important, if you wish to have the correct amount of tax deducted from your annuity, that these codes are looked at closely. 4. WINTER FUEL PAYMENT Any man or woman aged 60 in the week 18-24 September 2006 or thereafter can claim this tax-free winter allowance. The entitlement is normally picked up by HM Revenue & Customs through the State Pension arrangements. However, this may not be picked up where the man is aged 60 whilst the wife is under 60, and therefore a claim needs to be made. The appropriate form can be obtained under www.thepensionservice.gov.uk/winterfuel, and we can assist with this if you wish. 5. ADVISORY HMRC FUEL RATES FOR COMPANY CARS Where company cars are provided by employers to employees but fuel is not provided other than for business trips, there is a rate of fuel per mile which HM Revenue & Customs allow to be paid by the employer to the employee tax free. These arrangements have been in place for some years, but on 1st February 2007 these fuel rates were reduced at very short notice in all circumstances. In view of the short notice HMRC have said that they would not seek to tax any overpayment of old higher rates until 1st March 2007, and therefore it is important to review the rates that are being paid to employees in these circumstances to avoid a tax bill for the employee and employer. One example of the rate reduction is for a petrol engine car 1400cc or less has had its rate reduced from 11p per mile to 9p per mile. We will be happy to review the appropriate arrangements or advise you of the rates accordingly. 6. ON-LINE SELF-ASSESSMENT TAX RETURN FILING Now that 31 January 2007 has passed, it is becoming reasonably clear that approximately one-third of tax payers filed online their tax returns to 5 April 2006 by 31 January 2007. This represents about 3 million tax payers, and it appears that the system is becoming more robust, with less errors arising. It is therefore likely that more online filing will be done in 2007. For the tax year to 5 April 2008 returns the deadlines will be longer to file online compared to paper returns so even more will go online in 2008. 7. NEW CONSTRUCTION INDUSTRY SCHEME RULES From 6 April 2007 HMRC have introduced a new Construction Industry Scheme with the primary objective to help the Construction Industry to get the employment status of workers correct. This will therefore be an opportunity for them to review the status of sub-contractors who will receive information in March 2007 about their registration status under the scheme and contractors will receive lists of sub-contractors and their status under the scheme.
It is also up to contractors to verify sub-contractors’ tax status before they pay the sub-contractors and to do this they will need the tax reference and National Insurance number or company registration number where applicable. Every month the contractor will provide information to the sub-contractor as to the amount paid and tax deducted, and if tax is suffered at 30% payment advices should include a number called a verification number, which is ten digits long and is preceded by the letter “V”, followed by one or two letters. This is important, otherwise it may not be possible to obtain credit for tax suffered as far as sub-contractors are concerned. Essentially, the principles behind the new scheme are similar to the old Scheme, but there is a tightening up in administration and application of the scheme compared to before by HMRC. |
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