If you’re self-employed and have to submit your own Self-Assessment tax returns, the new tax year might be longer than you were expecting.

Normally, self-employed taxpayers are taxed on their profits made in their accounting year ending within the tax year. However, the government wants to speed up the tax return process by making self-employed earners pay tax on their profits made in the tax year instead.

Moving from the individual’s accounting year system – or ‘current year basis’ – to a tax year basis means catching up by paying tax on more than twelve months of profits in one tax year.

Unless your accounting year ends on 31st March or 5th April, more or less aligning with the tax year already, this will begin to take effect in the current 2023–2024 tax year. Read on to learn about why this is happening and how it could impact your self-employed business.

What is basis period reform?

All business owners, including the self-employed, have an accounting year which runs for twelve months. The start and end date of their accounting year may be different to the UK tax year, which runs from 6th April each year to 5th April the following year.

Now that HMRC plans to use the tax year as the basis period for all taxes, rather than letting businesses use their own accounting year, there is a new set of rules for when this basis period reform is likely to cause an overlap in taxable profits and relief eligibility.

To make tax returns more straightforward, shifting all accounting periods to the standard tax year was intended to apply from April 2024 along with the mandatory introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA),
but the launch of this digital platform has been pushed back until April 2026.

However, the basis period reform is still going ahead from April 2024, enforcing a transitional period that starts with the current tax year from April 2023. This means those with different accounting periods will not only be taxed on profits for the last basis period within the 2022–2023 tax year, but will also be charged an extra ‘transitional’ component from the end of that period to April 2024.

Theoretically, this will stretch out the tax year for up to 23 months, though the additional tax liability from this period can be spread over several years.

What if you don’t adjust your accounting period?

While self-employed taxpayers are still allowed to choose their own accounting periods for now, adjusting them to comply with the tax year basis for tax returns will be complicated, and is likely to cause problems with reporting profits and losses and claiming reliefs.

It’s not always practical for accounting periods to immediately switch to the tax year, as many businesses design their accounting year around commercial dates relevant to their work. However, if they don’t, they’ll have to take the extra administrative step of apportioning profits and losses.

For example, if a self-employed trader ran their accounts according to the calendar year (from the first day of January to the last day of December), they would have to calculate 270/366ths of profits from the 2023 calendar year and combine it with 95/365ths of profits from the 2024 calendar year to report their profits for the 2023–2024 tax year.

This obviously involves a lot more work, but there’s also the problem of those with accounting year end dates falling later in the year not having available profit figures to use before the tax return filing deadline. Using provisional figures instead would require amending their tax returns when the actual figures become available, creating an even larger administrative burden.

Even if the trader chose to wait until submitting the next year’s tax return to update the previous return’s profit and loss figures, which HMRC will allow, this would create uncertainty around tax liabilities and their National Insurance and State Pension contributions.

What do the transitional rules mean for your business?

If you run a limited company, or your accounting year ends between 31st March to 5th April, then the basis period change shouldn’t affect you. As the change is supposed to simplify the system, HMRC doesn’t intend to make businesses apportion a few days of profit or loss.

That said, if your accounting period doesn’t align with the tax year even with the allowance of those dates, then the move will potentially increase your tax liabilities from 2023. In addition, everyone else will be affected by the ‘transitional’ component mentioned earlier.

HMRC will automatically allow self-employed taxpayers to spread the ‘transitional’ profits from the 23-month tax period over 5 years to ease the financial burden, though some or all of those profits can be brought forward to pay off tax liabilities sooner if you prefer.

For example, if your accounting year ends on 30th April, your taxable profits for 2022–2024 would be the regularly calculated profits for your accounting year from 1st May 2022 to 30th April 2023, plus one-fifth of the ‘catch-up’ element for your profits from 1st May 2023
to 5th April 2024 (around 541/366ths of the profits from your May 2023–April 2024 accounting year).

If you experienced double taxation in your first year of trading due to your accounting year overlapping tax years, you can carry the amount over and deduct it from another year’s tax liability as ‘overlap relief’ – so if you have remaining overlap relief, you must apply it during this transitional year, as HMRC will not allow it to be generated or carried forward after that.

If you cease trading during the transition period, the total balance that would have been spread over the next few years will become payable in your final tax year of trading.

Get help with Making Tax Digital tax returns

The easiest way forward for most sole traders will be to make the switch from a different accounting period to the tax year basis during the transitional year (April 2023–April 2024).

While you’ll have to account for additional tax on liable profits from the overlapping period, administration will be much simpler from then on, without having to apportion profits and deal with the resulting cashflow issues every year.

Of course, this is easier said than done, as there isn’t a general strategy that would work for every situation. You should speak with an accountant to discuss your unique circumstances and the best way to implement these changes with the least disruption to your business.

If all this is giving you a headache, you’re not alone – but don’t let this complicated situation put you off from taking action to organise your accounts and tax management. It’s better to get to grips with the newer tax system and digital accounting before it becomes mandatory to use the Making Tax Digital online filing system.

For guidance on anything from MTD software to changing your accounting end date to match the tax year, get in touch with us at GBAC by phone or email. Our Barnsley accountants can help traders throughout Yorkshire and across the country get to grips with recent and upcoming tax changes to minimise your administrative burden.

A recent investigation into Child Trust Funds by the National Audit Office (NAO) revealed that almost £400 million is languishing across hundreds of thousands of unclaimed accounts, with many children unaware that they could have several hundred pounds waiting for them.

Child Trust Funds were set up by the Labour government under Gordon Brown, creating savings accounts for more than 6 million children who were born between September 2002–January 2011. The government paid around £2 billion into these accounts in free cash vouchers of up to £250, or £500 for low-income families, so each account will have at least this amount in it.

With Child Trust Funds being locked until the child’s eighteenth birthday, and no new accounts being opened since the scheme was scrapped over a decade ago, many parents will have forgotten about them – or may have never been aware that their child has one.

However, the money is still out there and can still be claimed – if you were born between 1st September 2002 and 2nd January 2011, or the parent of a child who was born between these dates, this blog explains what you should know about these forgotten funds.

27% of Child Trust Funds remain unclaimed

All children born within the dates above should have a Child Trust Fund, regardless of family wealth or whether their parents or guardians set the account up for them. While parents were encouraged to contribute extra savings to the account for their child to withdraw when they turned 18 years old, many failed to set them up when they received the free voucher.

The government then had to set up around a third of Child Trust Funds on behalf of these children, meaning there are around 1.7 million accounts that children or their parents are unlikely to know about as they had no involvement with them.

Additionally, many Child Trust Fund providers have either closed down or merged with others, taking the number of providers from 74 down to 55, and increasing the likelihood of accounts moving to different providers and being harder to track.

Though HMRC has been writing to some children to remind them they might have a Child Trust Fund when sending out National Insurance numbers ahead of their sixteenth birthdays, the NAO believes the government isn’t doing enough to notify account holders or monitor account data.

In fact, the NAO found that despite the first eligible children reaching adulthood in 2020, almost half of matured Child Trust Funds were not claimed as of April 2021. This has dropped from 45%
to 27% according to the most recent estimates, but over a quarter of matured accounts are still unclaimed.

With the NAO estimating an average of £2,700 per unclaimed Child Trust Fund and the possibility of these savings eroding over time as the providers charge levies on the accounts, the sooner eligible children can withdraw their matured funds, the better.

How to trace a lost Child Trust Fund account

If you are an eligible child or the parent of an eligible child, and you know who the provider was who should be managing the account, you can contact the company directly to access the Child Trust Fund and transfer the funds if the account has matured.

If you don’t know who the provider was, you can contact HMRC to request this information through their Child Trust Fund tracing service. You’ll need a Government Gateway account to log in and submit the online form – alternatively, you can write to them by post, but it can take up to 3 weeks to receive a response this way.

You can do this whether you are the parent or guardian of an eligible child, or an eligible child yourself. If you are over 16 years old, you can request your own Child Trust Fund details, but you cannot access or withdraw the money in it until you are 18 years old.

In all cases, to request Child Trust Fund provider information from the government, you’ll need to provide the name, date of birth, National Insurance number, and address of the eligible child. They should respond with the details of the bank, building society, or investment company that provides the account, so you can contact the provider directly.

Get help with a Child Trust Fund

More information about Child Trust Funds, including how to locate them and add or withdraw money, is available on the government website. Once you’ve found the account and checked the funds in it, you’ll have a few options.

If the holder of the Child Trust Fund is under 16 years old, you can either leave the account as it is or add more money into it until they’re old enough to claim it. Alternatively, if the holder is between 16–18 years old, you may want to switch the account to a Junior ISA.

While you aren’t allowed to take the money out before the holder is 18 years old, the government does allow closing the account and transferring its contents to a Junior ISA instead, which can then be withdrawn once they reach the qualifying age. This is often preferable, as ISAs
tend to have lower charges and higher interest rates.

Once the holder is 18 years old or above, they are free to withdraw the money from their Child Trust Fund and do whatever they like with it. There’s no obligation to re-invest, but it would be wise to transfer at least some of the funds to a new savings account or adult ISA.

If you want to do something sensible with the savings from a Child Trust Fund, and are interested in financial planning services for yourself or your family, get in touch with our accountants in Barnsley.

The most recent and second ever Tax Day (Tax Administration and Maintenance Day) took place on 27th April 2023 – an event that is becoming a fiscal calendar fixture following the Spring Budget. This day focuses on technical proposals for future tax policies.

This April, the UK government published a series of policy updates and consultation announcements, which primarily aim at modernising the current tax system and reducing the tax gap (the amount of tax that should be paid to HMRC that isn’t actually being paid).

Here is a summary of the steps the government is taking to update the tax system over the next couple of years, and who may be affected by these key areas.

Definite changes for parents and repayment agents

While most proposals related to ongoing or upcoming consultations on potential system changes, there were some concrete changes announced. One of these is the requirement for repayment agents to register with HMRC by 2nd August 2023, to reduce speculative repayment claims.

Another is the acknowledgement that not claiming Child Benefit – perhaps due to the High Income Child Benefit Charge – may have a negative impact on State Pension eligibility for some parents. The government intends to resolve this by allowing eligible parents to receive retrospective National Insurance credits, though they have yet to announce how this will be actioned.

Consultations on simplifying the tax system

The primary tax simplification consultations that may affect the average taxpayer involve the Help to Save scheme and off-payroll working rules. Firstly, the government’s scheme to help low-income savers earn a 50% bonus is running until April 2025, but a consultation is being launched on reforming it to make the scheme simpler and more accessible for the target group.

Secondly, the government is also publishing a technical consultation on potential changes to the legislation for off-payroll working. This would allow HMRC to set off payments by a worker or the worker’s personal service company against the deemed employer’s PAYE liability, reducing the risk of taxes and National Insurance contributions being paid twice on the same income.

Many other miscellaneous consultation announcements for more niche areas of tax policy include:

Some of these consultations have already been published, while others have yet to be launched.

Consultations on tackling the tax gap

There are also several consultations aimed at tackling the non-compliance responsible for the tax gap. The main concerns that may affect small businesses include regulatory scrutiny of umbrella companies and further reform of the Construction Industry Scheme (CIS).

A consultation on a reform package for the construction industry has been published, considering adding VAT to the list of taxes for Gross Payment Status tests (which allow subcontractors to get payments without withholding taxes), and taking measures to reduce their administrative burden.

The government is due to release a response to their previous call for evidence on umbrella companies in 2021, with a further consultation on regulating these companies to address non-compliance and prevent their usage for tax fraud purposes.

Similarly, another consultation will be released on the introduction of criminal offence laws for the promotion of tax avoidance schemes, which will clamp down on non-compliance after receiving legal notices and speed up the disqualification of company directors involved in tax avoidance.

Other consultations relating to the government’s aim to close the tax gap include:

Again, some of these consultations are already underway, while others will be published soon.

What are the next steps?

Individuals and businesses who could be affected by the changes resulting from these consultations should consider whether they want to take part in the consultations themselves, and what the implications may be if the government follows up on their suggested policy changes. You can find a summary of Tax Day announcements and consultations on the government website.

While the proposals mentioned are subject to amendments of the Finance Act before possibly coming into effect in the next few years, they do underline the importance of self-employed individuals and business owners alike ensuring that they are totally tax compliant in all areas.

To this end, you might want to arrange professional assistance with your tax management or bookkeeping
and PAYE
services, which the team here at GBAC is well qualified to provide. Whether you need help with Income Tax or VAT returns, get in touch with our accountants in Barnsley by phone or email to find out how we can assist you and your business.

There are two accounting methods used by small businesses – cash basis accounting and accrual basis accounting. Cash basis is often favoured by sole traders and partnerships, as it involves recording revenue and expenses when payments are received and made, while accrual basis requires recording transactions as they occur rather than when invoices are paid.

Small businesses using the cash basis method don’t have to wrangle with accruals or most capital allowances, but there is a turnover limit that forces businesses to switch from cash basis to accrual basis at a certain point. The government wants to make this simpler to help new businesses meet their tax obligations as they grow.

With HMRC looking into cash basis reform, here’s how the cash basis scheme could change, and how it could affect your small business.

What is the cash basis income threshold?

Currently, small self-employed businesses can only use the cash basis scheme if their turnover is below £150,000 a year (though they don’t need to leave the scheme until their annual turnover reaches £300,000). This threshold applies to all businesses owned – meaning if you have more than one, their combined turnover must not exceed the threshold.

As announced in the 2023 Spring Budget, the government will be consulting on ways to expand the cash basis scheme to expand eligibility and make the tax system easier to understand. Some of the ways that HMRC is considering increasing its availability include:

The first suggestion, if implemented, would set the same limits as the VAT cash accounting scheme.

While cash basis is currently an ‘opt in’ system, HMRC is also considering a change to an ‘opt out’ system, meaning it would become the default for eligible businesses.

Will loss relief rules change?

Some businesses may not want to opt in to using cash basis accounting due to restrictions on interest cost reliefs and losses. Currently, interest and bank charges have a maximum deduction of £500, and traders can only carry losses forward – they can’t be carried backward, or relieved against other income.

Though HMRC hasn’t announced anything definitively, the maximum interest and bank charges deduction could be increased up to £1,000
to accommodate higher interest rates. It’s also possible that the loss relief rules could be relaxed, but not to the same extent as accrual accounting rules.

Should your business use cash basis accounting?

Larger businesses that aren’t eligible for the cash basis scheme must use other traditional accounting methods, but if your small business fits the eligibility criteria, you could opt in.

With this method, you would have to record income as payments received and expenses as business costs paid during the tax year – not including payments still owed. Even VAT-registered businesses can use cash basis if their annual income (including VAT repayments from HMRC) is £150,000 or less.

However, cash basis may not be suitable if you have plans to grow your business quickly, apply for business financing, or have more complicated operations (e.g. keeping high levels of stock). When you have a higher turnover or more stakeholders get involved, you’ll have to switch to accrual basis for a more accurate analysis of income and expenses.

If you’re transitioning from one type of accounting to another and need professional guidance, or need help getting your financial records in order, why not enquire at GBAC? Our accountants in Barnsley offer a range of services that could help your business operate smoothly and grow at your desired pace, including bookkeeping and VAT and cloud accounting.

Eligible parents of children between 9 months old and school age will soon be able to get 15 or 30 hours a week of government-funded childcare during term-time.

Extending this childcare support to children 2 years old and under is one of the measures announced by the Chancellor in the 2023 Spring Budget to help parents with young children go back to work.

With childcare being one of the biggest costs for many households, this extension aims to reduce the financial barrier that prevents both parents from staying in work, while keeping the economy growing at the same time.

Here is a summary of what’s changing with childcare support, when these changes come into effect, and who will benefit from them.

When does this start and who is eligible?

At the moment, parents working over 16 hours a week
with an annual income below £100,000 are eligible for up to 30 hours a week of free childcare for children aged 3–4 years. This provision will be expanded to younger children aged 9 months–2 years over the next couple of years.

To be eligible, each parent must still work at least 16 hours per week earning the National Minimum Wage or National Living Wage, with a taxable income of less than £100,000. This means that parents who are trainees may not be eligible.

Those who are eligible can claim a childcare place for their child in the term that starts after they meet the minimum age requirement (after receiving a code for the childcare provider). Terms typically start from 1st January, 1st April, and 1st September.

Extended free childcare will not be available immediately, as some time is needed to prepare and implement the new measures. They will be phased in as follows:

This means that children who are currently 1–2 years old will not be eligible, but current newborns and babies born in the next few years onwards will benefit.

Though state-funded childcare will be available for younger children, it will still only be provided for up to 38 weeks a year. This also only applies in England, as different schemes are available in Scotland, Wales, and Northern Ireland.

Is there enough childcare support available?

While this is welcome news for those with newborns or in the family planning stage, there are concerns that there won’t be enough places available for parents to claim the extended free childcare when they need it. There is already a shortfall in places due to lack of resources, including staff, and the phased introduction only gives childcare providers a year to turn this around.

As per the Spring Budget, the government will increase funding for nurseries to £204m this year and to £288m next year, and increase the staff-to-child ratio from four children per staff member to five children. These measures are intended to help childcare providers to deliver the extended entitlement, but they may not be enough.

Additionally, the government currently only funds free childcare for up to 1,140 hours a year, which means the full 30 hours a week can only be claimed for 38 weeks. So, if parents want to receive the full amount of hours a week of childcare for the full year, they’ll have to fund the rest themselves.

It’s important to bear in mind that tax-free government childcare cannot be used at the same time as claiming tax credits – including Working Tax Credit or Child Credit – or receiving Universal Credit, a childcare grant or bursary, or childcare vouchers.

For more information on childcare support, government guidance on help paying for childcare can be found online. Or, for help with family financial planning, contact our accountants in Barnsley.

Out of over 12 million taxpayers who file self-assessment tax returns, under 3% do so via paper form submissions. Low demand meant HMRC already stopped sending paper tax return forms in the mail a few years ago, but the tax agency is now removing the option of downloading and printing off a blank version of the form from the government website.

This means that from 6th April 2023, taxpayers will no longer be able to download the form and complete a paper tax return that way, either. This is part of HMRC’s push towards digital submissions, reducing the use of paper and speeding up the filing process.

There are still around 135,000 taxpayers under 70 years old using downloaded forms, but as this will no longer be possible for the 2022–2023 tax year onwards, the tax agency will write to them to provide guidance on how they can file their returns from now on.

That’s not to say it’s no longer possible to file a paper tax return at all, but it will be a much more limited service that may not be worth the difficulty for those who are able to file digital returns.

How to file tax returns online

Completing tax returns online via the Making Tax Digital
platform is now the most sensible and convenient option for most taxpayers, with a range of commercial software available as alternatives.

If you’re switching from paper forms to online tax returns for the first time, you’ll need to:

You can then use your active account to file your tax returns digitally, as almost 97% of taxpayers already are. You’ll no longer have to worry about your paper tax form getting lost in the mail, and you’ll have more time to submit your return.

The deadline for paper tax returns is 31st October of the following tax year, while the deadline for online tax returns is 31st January of the next tax year, giving you an extra 3 months to complete them. Other benefits of filing online include:

This means that not only is filing tax returns online simpler and faster, but it can also help you to budget properly for the tax you’ll need to pay if you file in advance of the deadline.

What if you can’t submit an online tax return?

There are limited exceptions for accessing paper tax returns after 6th April 2023. Visually impaired people and those over 70 who have never filed online will still receive paper forms in the post from HMRC
automatically, and shouldn’t have to do anything differently.

However, anyone else who still wants to file a paper return will have to call HMRC to request the form. The agency may ask about your circumstances to find out why you cannot file online, such as lack of internet access or a disability, and offer support for submitting digitally in the future.

Those who have the appropriate commercial software may be able to print out a blank tax return to send in the post without having to call HMRC. However, this may only be accepted if your tax calculations are too complex for the online system.

Need help filing tax returns?

While capital gains tax (CGT) is going in the other direction, with a downloadable version of the UK property return form available as a trial for those who can’t report capital gains through the online service, the self-assessment tax return forms are no longer available.

Unless you have unchangeable circumstances that prevent you from filing online, it’s best to make the switch sooner rather than later. Once everything is set up, using the online system should make things run much more smoothly – and if you use your own accounting software, like Xero, you can connect them securely to transfer information directly.

Cloud accounting software also makes analysing financial information easier, providing opportunities to spot potential savings and manage taxes more efficiently. Of course, if you don’t have such software, but don’t want to use HMRC’s platform either, you can always outsource your accounting records and tax management to an agency like GBAC.

Here at GBAC, we have a team of accountants in Barnsley who can provide professional financial services and advice. Call us on 01226 298 298 today to learn more about how we can assist you with digital self-assessment tax returns.

Households across Britain have been dealing with ever-increasing energy bills for over a year, thanks to supply problems that were exacerbated by Russia invading Ukraine. While wholesale energy prices have fallen from their peak last summer, this hasn’t translated to lower energy bills yet.

Meanwhile, the UK government is continuing to subsidise household energy bills via the energy price guarantee (EPG). The current EPG of £2,500
was due to end in March, but the Spring Budget included an extension to maintain this level of support for another 3 months (1st April–30th June).

This is good news for employees who work from home, or home-based small business owners, who will have higher energy bills from spending more time in their residence. However, the support is still minimal – read on to find out what’s changing and how it could affect your energy costs.

How is the energy price guarantee changing?

The energy price guarantee (EPG) is a temporary subsidy offered by the UK government to limit the amount that energy suppliers can charge customers per unit. The government reimburses the suppliers for the difference between their capped price and the market price of wholesale energy.

The EPG set the annual energy price cap at £2,500
until 31st March, which was then due to increase to £3,000 from 1st April. However, campaigners warned that a £500 increase on top of winter discounts ending would double the amount of people in fuel poverty from 10%
to 20%.

To try and prevent this, the government is postponing the increase until 1st July 2023, effectively freezing the EPG at its current rate for 3 more months. Therefore, the average annual energy bill for a typical dual-fuel household shouldn’t be more than £2,500 a year while this applies.

While the current EPG remains, customers will not have to pay up to Ofgem’s energy price cap, which is currently £3,280 for this period. However, the EPG only applies when it is lower than the energy industry regulator’s cap, and this is predicted to fall closer to £2,000 in the second half of the year.

Will energy bills go up again?

Unfortunately, despite the price guarantee keeping the current cap on energy prices, many people will still see their energy bills increase from 1st April. This is largely because previous government support schemes have now ended, including the £400 Energy Bill Support Scheme, so those who had been paying a discounted price over the past few months will no longer have this support.

The second factor is that the EPG only caps the price of energy per unit, not energy bills in general – the government’s calculations apply for average energy usage. Your bills could therefore be higher or lower, depending on how much energy your household uses. A well-insulated home that uses less energy will continue to have lower costs than a poorly insulated home with high energy usage.

The government is optimistic that consumers won’t need the EPG as a crutch later in the year, reporting that the Office for Budget Responsibility (OBR)
predicts the UK will not fall into a recession this year as inflation is anticipated to drop to 2.9% by the end of 2023. This forecast should offer some consolation to small business owners who have struggled with rising costs recently.

While the EPG is a temporary measure that will end, Ofgem’s price cap isn’t – it will continue to be updated every 3 months, with the next one due to be announced at the end of May for commencement in July. When the EPG ends on 30th June, consumers will therefore be at the mercy of the Ofgem cap instead – but this is predicted to fall to around £2,100.

What does this mean for you and your business?

The 3 months of extended support for domestic consumers is far less generous than that for non-domestic business customers, who will continue to benefit from the EPG until 31st March 2024. However, saving up to £500 on energy costs is undoubtedly better than nothing.

Energy suppliers should have already notified customers of their new rates as soon as possible, and should correct any inaccuracies after 1st April if they didn’t update your tariff in time. Check your supplier’s website for the latest information, or consult the EPG regional rates for April to June 2023 to help you estimate your energy expenses for this period.

If you’re on a fixed tariff, it’s worth keeping an eye on prices, as a fixed deal could end up being higher than the price cap from July 2023 – making it beneficial to move to a standard tariff if you aren’t locked in to your current deal.

More information on the Energy Price Guarantee (EPG) is provided on the government website.

Every individual and business owner should be aiming to make savings wherever possible, especially if you are a self-employed small business owner who works from their home. Part of this should involve thorough accounting and tax planning – which GBAC can help with.

Contact our accountants in Barnsley to discuss our financial management services today.

Published on 21st March ahead of the new tax year starting on 6th April, the Spring Budget 2023 introduced a range of reforms for pension tax allowances. With more scope for pension savings, these new measures mean it’s a good time to review your retirement planning strategy.

The pension tax change making the biggest splash is the scrapping of the Lifetime Allowance (LTA) for pensions. This tax-free cap has been the cornerstone of pension tax planning since 2006, but rather than increasing the allowance to help pension savers, Chancellor Jeremy Hunt made the surprise move of abolishing the Pension LTA altogether.

The Spring Budget announcement also included several other significant adjustments to pension rules for the 2023–2024 tax year and beyond. Let’s take a look at the new measures to explore how they might affect you and your financial plans for retirement.

Why is the government abolishing the Pension LTA?

The Pension Lifetime Allowance (LTA) is the amount of money you can build up in your pension pot over your lifetime without having to pay an extra tax charge when you withdraw it. This was first introduced in 2006 by Gordon Brown and viewed as a kind of ‘wealth tax’ on the biggest savers, triggering a 55% tax charge for exceeding the LTA.

This allowance started at £1,500,000 in 2006, before increasing to £1,800,000 in 2010–2012, and gradually decreasing until being frozen at £1,073,100 from 2020–2026. This figure may seem more than enough for the average person with minimal pension savings, but it had the unintended consequence of affecting senior public service workers with high final salary pension schemes.

This meant that NHS employees, for example, were deterred from working and saving for longer by the high tax charge – contributing to NHS staff shortages. Chancellor Jeremy Hunt specified in his Spring Budget speech that the aim of removing the LTA is to encourage such senior workers to remain in the workforce for longer, or even to return to work after retiring early.

The abolition of the Pension LTA won’t just help NHS doctors and senior staff, though. Anyone who was considering retirement to avoid triggering the tax charge may now be incentivised to work for longer, keeping more experienced mid-to-high earners in employment.

To clarify, the pension savings cap will not be completely abolished until April 2024–2025, but LTA tax charges have been scrapped from April 2023–2024. This means you can contribute as much as you like to your pension savings from 6th April 2023 without worrying about the LTA charge, and anyone who withdraws their excess as a lump sum from this date onwards will only pay income tax rather than the much higher 55% LTA tax.

Is the Spring Budget changing other pension tax rules?

As of 6th April 2023, the Pension Lifetime Allowance has been reduced to 0%, and it will be fully removed next year with the 2024 Finance Bill. However, this isn’t the only change that pension savers should be aware of. Additional pension measures in the Spring Budget included:

These changes are mostly positive for pension savers, as they offer more tax relief. That said, the tax-free lump sum cap still remains – so the amount you can take out at commencement without being taxed is frozen at £268,275 (25% of the LTA).

Most people will welcome the increased pension allowances, especially considering that many other tax allowances – including personal income tax – have been frozen until 2028, and inflation continues to push workers into higher tax bands thanks to fiscal drag.

What does abolishing the Pension Lifetime Allowance mean for you?

If your combined pension savings are getting closer and closer to the Lifetime Allowance (LTA), the Spring Budget reforms could give you the opportunity to continue working while boosting your pension contributions for longer.

Of course, you’ll still have to be wary of other tax traps – your personal circumstances and where you live as a UK citizen will also affect your pension tax liabilities. Additionally, these rules could change again in the near future, as the Labour Party claims it will reintroduce the LTA
but with special exemptions for NHS doctors if Labour wins the next General Election.

Before taking any action regarding your pension, you may want to seek professional financial planning advice. At GBAC, our accountants in Barnsley offer efficient tax planning services that could help you get the most out of your retirement fund.

Give our team a call on 01226 298 298 to arrange a consultation and learn more about how our accounting services could benefit you and your financial future.

The UK government provides state benefits for parents with dependent children whose partners have passed away, in the form of Bereavement Support Payments.

Previously, bereaved parents were only eligible for these benefits if they were married to or in a civil partnership with their cohabiting partner at the time of their death.

However, the law is now changing to provide financial support for more grieving parents raising children after losing their partner, regardless of the legal status of their relationship.

This means parents who were cohabiting with their partner, whom they have at least one child with, can now apply for Bereavement Support Payments (BSP).

Does this change in the bereavement benefit law affect you? Here’s what you should know about the new rules and who is now eligible to apply.

How are bereavement benefits changing?

Despite just over 1 in 5 couples in the UK living together without being married or in civil partnerships as of 2021, the UK government has brushed off most suggestions for cohabitation law reforms that would give these couples similar legal rights if they split up or a partner passes away.

Cohabiting couples are often treated unfairly by legal frameworks that don’t consider them equal to married couples or civil partners. For example, the joint income of a cohabiting couple is taken into account for state benefit claims like Universal Credit, yet they are classed as unrelated individuals for Inheritance Tax (IHT) purposes.

In the last several years, two cases challenging this differential treatment took the government to court concerning bereavement benefits. The government lost both cases – but not because of discrimination against unmarried couples. Instead, the courts found that the couples’ children were being treated unequally, against the European Convention of Human Rights.

In any case, three years after the second court judgment, the government is now introducing legislation revising the original law. The change means that if an individual in a cohabiting couple with dependent children passes away, the surviving partner is entitled to the same rate of bereavement benefits as a married spouse or civil partner would be.

This has also been backdated to the first Supreme Court ruling in the aforementioned cases, which was on 30th August 2018. It covers the legacy benefit Widowed Parent’s Allowance (WPA), too, which was replaced by Bereavement Support Payment (BSP) in April 2017.

Who can apply for backdated bereavement benefits?

The eligibility criteria changes came into effect on 9th February 2023, meaning that cohabiting parents whose partner passes away after this date may now be able to claim BSP. This is expected to help up to 1,800 more families a year, who would otherwise be struggling financially and unsupported by the state following the death of a parent and partner.

For cohabitating partners who were bereaved before this date, the Department for Work and Pensions (DWP) has opened a 12-month
application window for retrospective claims.

The Childhood Bereavement Network (CBN) estimates that around 21,000 widowed parents will now be able to make a retrospective claim. If the claimant is eligible, the government could make payments dated back to August 2018.

These families could even have been bereaved as far back as 2001
– if the partner passed away before 6th April 2017 and the survivor would have met the eligibility criteria for the replaced WPA on or after 30th August 2018, they could now apply for backdated BSP.

The amount the claimant will be entitled to depends on when their partner passed away, their partner’s National Insurance Contributions (NICs), their age, and whether they were pregnant with their partner’s child at the time of their death or have been entitled to/receiving Child Benefit for at least one child with their partner.

Unfortunately, this means that only unmarried couples with dependent children are eligible for BSP, so cohabiting couples who don’t have dependent children are still excluded and can’t make a claim.

How to claim Bereavement Support Payments

To apply for BSP, you can either use the trial online service, call the Bereavement Service helpline, or download and print a BSP1 Form to send in the post. You can find more details on Bereavement Payment Support eligibility and the information you’ll need to provide on the government website.

BSP is usually awarded as an initial lump sum of £3,500, followed by up to 18 monthly payments of £350. You may receive fewer payments depending on when your partner died, or different amounts depending on when and how they died if you are applying for WPA instead.

While BSP is a tax-free benefit, any payments after the first year of receiving it could then affect other benefit claims, such as Universal Credit. It’s important to consider how these payments, especially larger back payments, may affect your entitlements and liabilities.

While the BSP rates were set back in 2017, they haven’t been adjusted since, which means inflation has now reduced their value by up to a fifth. This is yet another reminder that the state’s ‘safety net’ for cohabiting couples is inadequate, showing how important it is to build your own financial safety net to protect your family both in the present and the future.

Here at GBAC, we provide a selection of helpful financial planning services for individuals and businesses, from tax consultancy
to wills and probate. If you would like professional fiscal advice and support with managing your family finances, contact our accountants in Barnsley to find out how our services could benefit you and your family.