Expenses and benefits, Single-tier state pension, End of contracting-out

As we start a new tax year, we look at some of the changes that come into effect from the start of the 2016/17 tax year. We explore the new-look expenses and benefits regime and examine the single-tier pension and the implications of the end of contracting out. 

This is an
extract from our topical tax tips newsletter dated
7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Single-tier state pension 
Individuals who reach state pension age on or after 6 April 2016 will receive the new single-tier state pension rather than the two-tier pension (comprising the basic state pension and the earnings-related second state pension) which is payable to people who reach state pension age before 6 April 2016. Those individuals who are of state pension age on 6 April 2016 will continue to receive their state pension under the two-tier system. They will not switch to the new single-tier state pension. 

The single-tier state pension is set at £155.65 per week for 2016/17 (slightly above the standard minimum guarantee, which is £155.60 per week). The basic state pension is £119.30 per week (but this may be topped up by the pension credits). 

To qualify for the full single-tier state pension, individuals need a minimum of 35 qualifying years. A reduced pension is payable where an individual has less than 35 qualifying years but at least ten. By contrast, only 30 qualifying years were needed for the basic state pension where state pension age was reached between 6 April 2010 and 5 April 2016. A person who contracted-out prior to 6 April 2016, may receive less than the full single-tier state pension, even if they have 35 qualifying years. 

It is possible to make up for missed years by paying voluntary Class 3 contributions. Also, individuals who reached state pension age before 6 April 2016 have until 5 April 2017 in which to pay a Class 3A contribution. Each Class 3A contribution increases the basic state pension by £1 per week and individuals can `buy’ up to £25 per week extra from Class 3A contributions. The amount of a Class 3A contribution depends on the individual’s age at the time that the contribution was made. 

Before deciding whether to pay voluntary contributions, individuals should get a pension forecast so that can assess whether or not such contributions are worthwhile.

This is an
extract from our topical tax tips newsletter dated 7 April
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

The
full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
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Share scheme reporting, Pension withdrawal forms, VAT refunds for charities

The work of the tax adviser is not all about annual tax returns, you also need to advise clients on the circumstances in which they don’t need to submit an annual return, when the official form may be wrong, and how to claim a tax refund. All those situations are covered in the current issue of our tax tips newsletter for accountants in general practice.

Pension withdrawal forms 
There has been huge press coverage of the new pension freedoms which allow those aged 55 or more to withdraw their pension savings as cash lump sums. What has received less attention is the tax effect of doing this. If your clients have already accessed their defined contribution pension pots they may have suffered an unexpected tax charge. 
  
Unless the individual can provide a current form P45 which tells the pension company what PAYE code to use, the pension company will deduct tax using an emergency code. That will generally mean that too much tax is deducted and the individual needs to claim a tax refund either on their self-assessment return after the end of the tax year, or by using one of these new forms within the tax year: 

  • P50Z- if the entire pension pot is taken and the individual has no other income;
  • P53Z – if the entire pension pot is taken and the individual has some other income;
  • P55 – in other circumstances such as where only part of the pension pot is taken.

There are further illustrations of circumstances in which each form should be used in the HMRC Pension Schemes newsletter, number 68. 
  
All three of the new refund forms must be completed online, and then printed off to submit to HMRC. However, there is a problem with form P55 which has incorrect instructions. 
  
Form P55 should allow the taxpayer to reclaim the tax deducted within 30 days, but the online form said this was not possible. Following an article in the FT newspaper at the weekend it appears that form P55 has been temporarily withdrawn from the GOV.UK website to fix the wording.
This is an
extract from our tax tips newsletter dated 14 May 2015. The newsletter
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other two topical, timely and commercial tax tips. It’s clearly written
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