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May – Monthly Round up

Doctors tapering off as pension tax rules bite

Measures designed to limit the cost
of pensions tax relief to the Treasury are having some unwelcome
consequences, as some senior doctors have found their incomes

Some members of the medical profession
have found changes to legislation mean their earnings are getting
swallowed up by the tax system. According to a recent Financial
report some NHS consultants are being landed with tax bills
of up to £87,000, prompting them to reduce working hours or even
take early retirement.

The doctors’ problems primarily stem
from the implementation of the pension annual allowance tapering
rules. These have two key trigger points:

  • ‘Threshold
    income’ (broadly speaking total income from all sources,
    less personal pension contributions) exceeding £110,000.
  • ‘Adjusted
    income’ (broadly total income from all sources plus
    employer pension contributions) exceeding £150,000.

If both levels are crossed, then the
standard annual allowance for pension contributions of £40,000 is
reduced by £1 for each £2 by which ‘adjusted income’ exceeds
£150,000, subject to a minimum annual allowance of £10,000. The
all-or-nothing nature of the triggers can mean that just an extra £1
of earnings brings the taper rules into play. That additional £1
could therefore result in an additional tax bill of much more than

To complicate matters further, £110,000
sits almost in the middle of the band of income between £100,000 and
£125,000 at which the personal allowance is tapered away, creating
an effective marginal tax rate of up to 60% (61.5% in Scotland).
Added to that will usually be 2% national insurance contributions.

The Financial Times article said
that many doctors had been ‘surprised’ by their pension tax
bills. This implies they had not sought personal financial advice on
how the pension taper rules, introduced from April 2016, would affect

There are ongoing discussions between
the Treasury and the Department for Health and Social Care about the
issue, but it seems highly unlikely the former will forgo the revenue
generated by the annual allowance rules (over £560m in 2016/17).
In the meantime, the episode serves as a reminder of the
importance of regular financial reviews to avoid – or at least be
aware of – the growing range of tax traps in the UK’s
labyrinthine tax legislation.

The value of tax reliefs depends on
your individual circumstances. Tax laws can change. The Financial
Conduct Authority does not regulate tax advice.

Record IHT take parallels estate planning confusion

While the Treasury benefitted from
record inheritance tax (IHT) receipts of £5.2bn in 2018, new figures
show that many people are unaware of how the IHT system works or how
it could help them pass their wealth to their beneficiaries.

A survey out in April from Quilter
showed that only 37% of those asked were aware of inheritance tax
rules. Under half of those surveyed knew about basic IHT rules around
gifting or the nil rate band. At the same time, however, 60% thought
the rules likely to be important for how they could pass wealth on,
highlighting the disconnect between the information available and
understanding the practical implications for individuals and their

The Office of Tax Simplification (OTS)
is due to deliver the second part of its review of IHT regulations
during this spring, following an initial report in January that
looked largely at administrative issues. The review is aimed at
simplifying how IHT is implemented, with the second of the reviews
expected to focus on specific areas of change.

With additional complications like the
residence nil rate band still focusing on the nuclear family, the IHT
regime appears out of step with modern families and concerns about
inter-generational wealth. A House of Lords committee on
intergenerational fairness has already reported across a range of
issues from housing to pension credits and estate tax.

Among a raft of recommendations, they
called IHT “capricious and not fit for purpose”. Going back to
fundamentals, the Lords report questions why and how assets should be
taxed at death or on transfer to the next generation. The report
suggested options such as a capital receipts tax payable on income
received by beneficiaries or exempting certain assets from IHT if
earmarked for first home purchase by a family member.

Whether any of these ideas come to
fruition, and whatever the awaited OTS report recommends, there are
ways in which the existing IHT regime can currently benefit your own
estate planning and ensure a fairer distribution of your assets
through your family. The £3,000 a year annual gift allowance is good
place to start. So is reviewing your will and making sure your assets
will be dispersed the way you wish.

Let us know if we can help.

Payslips for all

It may have come as a surprise to
realise that until this April, not all workers were entitled to a

From 6 April, all workers now have a
statutory right to receive an itemised payslip, including zero hour
and casual workers. Up to that date, the right only extended to
employees. Employers must now be prepared to provide information on
‘time worked’ with details of the number of hours being paid on
workers’ payslips. This can be given either as a single aggregated
figure or separate figures for different types of work at different
rates. Workers should be able to clearly see that they have been paid
for the hours worked at the appropriate statutory rates where

As the new rules were coming into
force, however, the Department for Business, Energy and Industrial
Strategy (BEIS) released a survey revealing that many don’t
entirely understand all the information on their slips – only 62%
were confident about everything they saw. Gaps in understanding were
higher for women than men (55% of women compared to 70% of men
admitted to not understanding their complete payslips) and younger

April also marked the 20th
anniversary of the national minimum wage (NMW), which has risen this
year to £7.70 an hour for employees between 21 and 24. At the same
time the national living wage saw a record 5% increase to £8.21 an
hour for employees over 25, However, the BEIS survey also revealed
misunderstanding around entitlement to the NMW, with around 30%
believing that only permanent employees are entitled to receive it.

With the new payslip rules now in
force, it’s even more important for all workers to be aware of
their entitlements and check that they are receiving them. But many
people don’t check their payslips, trusting their employers to get
it right and assuming deductions are correct. Payroll offices do make
mistakes or may have been given erroneous information on pay and
allowances. For permanent employees likely affected by April’s
increase to auto-enrolment contributions, there is even more reason
to make sure everything is present and correct.

Encouraging employees to question
anything they don’t understand, and to ask if concerned about
unknown deductions, will go a long way to consolidating trust.
Ensuring engagement with wages flows into helping workers with
informed financial decision-making, pensions planning and alleviating
one of the major factors of workplace stress.

Van or company car: what’s the real thing?

The phrase ‘define your terms’
could have been invented for the benefit-in-kind rules around company
cars. A recent case that ended up in the Upper Tribunal between
Coca-Cola and HMRC illustrates the importance of understanding when a
van is a van – or legally a car.

These definitions determine the
relevant income tax and NICs payable where a vehicle is provided to
an employee as a benefit-in-kind. The charges vary considerably
between ‘cars’ and ‘vans’, with tax on company cars generally
much higher than for vans.

In the legislation, the key concept is
around use as a ‘goods vehicle’, so:

  • A car is not classed as a goods
  • A van is a goods vehicle with a
    weight of 3.5 tonnes or less when loaded.
  • A ‘goods vehicle’ is described
    as one “of a construction primarily suited for the conveyance of
    goods or burden of any description”.

The case centered
on three models of vehicles provided by Coca-Cola to technicians who
had previously been provided with cars. Over time the equipment they
were required to use became heavier and they were offered different
vehicles – either a ‘panel’ van or a modified vehicle. Two
models of a VW Kombi had dual capability, where some elements could
be added or removed for additional passengers or equipment. Which is
where the problems started.

The employees who were given these
vehicles had their PAYE coding notices adjusted by HMRC for car
benefit and the employer, Coca-Cola, was assessed for Class 1A NICs.
They appealed initially to the First Tier Tribunal on the grounds
that the vehicles were not cars but vans. The models came under
scrutiny under the definition of “construction” and whether they
were “primarily suited” for the purpose used, which was ‘the
conveyance of goods’.

The case hinged on the second element
of primary suitability. Because the Kombi model could be used both
for carrying passengers and for conveying goods, the Upper Tribunal
ruled it did not have a primary suitability for only conveying goods
and so could not be classed as a goods vehicle. It therefore had to
classed as a car for benefit-in-kind purposes. The other model
narrowly fell on the other side of the argument. Ultimately the VW
models were deemed to be more like mini-buses, while the other
vehicle on offer was a van.

The upshot of this complex case is that
the external appearance of any vehicle is not the deciding factor for
benefits-in-kind. Internal configuration and the purposes behind it
will make a difference. Being aware of how legal definitions may be
applied could ultimately save you and your employees some potentially
painful lessons.

How long do you want to work…?

As people are living longer, a
parallel older-age profile is emerging in the labour force.

Source: National Statistics

Labour market statistics for the period
December 2018 to February 2019 revealed some impressive results. In
the UK, employment of those aged 16–64 was running at 76.1%, the
joint highest level ever and up 0.7% on a year ago.

Drill down into National Statistics
numbers and some interesting facts emerge:

  • The
    increases are being driven by more women aged 50–64 in the
    workforce. At the start of the decade, 58.5% of women aged 50–64
    were in employment, whereas the latest figure is 68.1%.
    Coincidentally in 2000, that was the male rate of employment
    in the 50–64 age band.
  • The
    proportion of men aged 50–64 in work has also risen over the same
    period, but less dramatically – from 71.4% in 2010 to 76.8% now.
  • At 65 and
    beyond, employment is reaching record levels for both men and women,
    as the graph shows. Women and men aged 65 and over have an
    employment rate of 7.9% and 14.2% respectively, compared to 5.5%
    (women) and 10.8% (men) in January 2010.

There are several reasons for the
increase in employment beyond age 50:

  • For women –
    and now men – the rise of state pension age (SPA) has undoubtedly
    had an impact. As recently as April 2010, the SPA for a woman was
    60. By October next year, both men and women will share a SPA of 66.

  • The ending
    of compulsory retirement ages has encouraged longer working lives.

  • The gradual
    disappearance of final salary pension schemes, particularly in the
    private sector, has forced some people to revise their retirement

  • Economic
    conditions have played their part. Real (inflation-adjusted) wage
    growth has been virtually zero over the last 10 years, limiting the
    scope for retirement savings.

Working for longer can be beneficial to
health, although the case is by no means clear cut: continuing
work-related stress could be life shortening. The key is to be able
to choose when to stop work, rather than have the decision
forced upon you. To get into that position, there is no substitute
for adequate retirement planning – preferably well before the age
50, yet alone 65, is reached.

The value of your investment can go
down as well as up and you may not get back the full amount you
invested. Past performance is not a reliable indicator of future