Tax-Free Child Care Update

Tax-Free Childcare Launch Date now 2017

HM Treasury

Government confirms Tax-Free Childcare launch date as it welcomes judgment from Supreme Court

From:

HM Treasury and HM Revenue & Customs

Tax-Free Childcare is part of the government’s long-term plan to support working families.

The government today (Wednesday 1 July) welcomed a judgment from the Supreme Court that found the government’s proposals for delivering Tax-Free Childcare to be clearly lawful.

It also confirmed that, as a direct result of the legal challenge, the scheme is now expected to launch from early 2017. The existing Employer‑Supported Childcare scheme will remain open to new entrants until Tax-Free Childcare is launched.

As a result of the legal action, the court placed a suspension on the development of the scheme which prevented key delivery steps from taking place. This legal action was brought by a small group of childcare voucher providers involved in the delivery of the scheme that Tax-Free Childcare will eventually replace.

Exchequer Secretary to the Treasury, Damian Hinds said:

We are pleased that the government’s proposals for delivering Tax-Free Childcare have been found to be clearly lawful. This government is absolutely clear on the importance of supporting families with their childcare costs.

It is disappointing that some organisations involved in the existing scheme felt the need to take and persist in this costly and wasteful course of action, which has led to a delay in the launch of Tax-Free Childcare.

We are now pressing ahead with the scheme as part of our ongoing commitment to support working families.

Tax-Free Childcare is part of the government’s long-term plan to support working families and will provide up to 1.8 million families across the UK with up to £2,000 of childcare support per year, per child, via a new simple online system.

The government is clear on the importance of supporting families with their childcare costs. Spending on childcare was increased by £1 billion in the last Parliament and the government has also committed to doubling free childcare for working parents of three and four year olds to 30 hours a week.

Further information

  • a legal challenge was brought against the government’s decision to deliver the Tax-Free Childcare accounts through HMRC working in partnership with NS&I
  • some organisations involved in the existing Employer-Supported Childcare scheme decided to pursue challenges against the government’s decision to deliver Tax-Free Childcare childcare accounts by HMRC and NS&I working in partnership, and NS&I’s use of an existing outsourcing contract to deliver childcare accounts
  • the Supreme Court “unanimously dismisses their appeal
  • formal arrangements have now been made between HMRC and NS&I and they are pressing ahead to deliver Tax-Free Childcare as soon as possible
  • exact rollout details for Tax-Free Childcare will be confirmed in due course
  • Employer‑Supported Childcare, often referred to as childcare vouchers, will remain open to new entrants until Tax-Free Childcare launches. Parents who wish to remain in Employer-Supported Childcare once Tax-Free Childcare is launched will be able to, while their current employer continues to offer the voucher scheme
  • workplace nurseries will be unaffected by the introduction of Tax-Free Childcare

Emergency Budget – Holiday Reading

The Emergency Budget – HOLIDAY READING!

By: Anne Wilson

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Tax advisors and MPs will have a little light holiday reading to enjoy following George Osborne’s emergency budget which will take place on 8th July.  Having shaken off the Lib Dems, the government is keen to make its mark on tax policy as soon as possible.

What announcements can we expect based on the Conservative’s manifesto?

Tax Lock

One promise was the introduction of a “tax lock” to prevent increases in VAT, National Insurance Contributions or Income Tax during the life of the parliament.  Why does this commitment need to be legislated for; are politicians so untrustworthy as to break a promise!

The Personal Allowance and the Minimum Wage

The personal allowance will be increased so that by 2021 this will be £12,500.  The personal allowance will be linked with the minimum wage so anyone earning the minimum wage and working for 30 hours a week should not pay any tax.  This suggests that the minimum wage will be £8 an hour by 2021.

Higher Rate Band for Higher Income Only

Alongside these measures is the target to raise the basic rate band so that by the end of the parliament no one with income of less than £50,000 will pay tax at the higher rate.  The basic rate band has been eroded over the years, in 1994/95 approximately 2m people were paying tax at the higher rate compared with 4.6m people now.

Transferable Inheritance Tax Relief

A new transferable inheritance tax relief will be introduced to enable a couple to pass an additional £175k each of value in their main residence to their children so that potentially they could leave £1m to their children without inheritance tax.

The relief tapers away where the estate is worth more than £2m.  This seems likely to add fuel to the fire of the north/south debate as this is will be of far greater benefit to taxpayers in high property value areas.

For example a couple whose only asset is a property worth £1m could leave this to their children free of inheritance tax.  Contrast this with a couple with a property worth £200k and investments worth £800k, their estate would suffer inheritance tax of £140k!  It is unclear at present if the £175k is the top slice of the estate and how it will interact with the nil rate band.

Limit Pension Contribution Tax Relief for High Earners

There is also a proposal to limit tax relief for pension contributions for high earners.  It is thought that relief will be  restricted for those with incomes of between £150k and £210k with the current contribution limit of £40k tapering away so that the maximum someone with income of £210k can contribute to a pension scheme and claim tax relief on will be £10k.

The Child Benefit Anomoly

These are the manifesto pledges but we can expect to see other changes, it is possible that the child benefit high income withdrawal will be calculated by reference to a couple’s income.  This will correct an anomaly,  currently  a couple with income of £49k each can still claim benefit whereas a couple with one  earner who has income of £60k loses the allowance in full.

Capital Gains Tax

There are question marks over the top rate of Capital Gains Tax which was not included in the tax lock announced in the Queen’s speech.  It would also be useful for businesses to know sooner rather than later what the annual investment allowance for capital allowances will be on 1 January 2016.

Up the Chancellors Sleeve

We shall have to wait and see what other surprises the Chancellor has in store.

2014 Chancellors Budget images

 

 

 

 

Universal Credit – know the rules

Universal Credit – a word for warning for anyone who runs an Owner Managed Business

By: Anne Wilson

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Anyone who runs an Owner Managed Business (OMB) and is currently claiming either child tax credits or working tax credits, will have to master the complexities of claims to universal credit which will replace various welfare benefits for claimants who are employed, self-employed or unemployed. Universal credit will start for some claimants in 2016 but will be rolled out to all claimants by 2019.  Claimants may be able to elect to continue with tax credits until 2019 if that is more beneficial.

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A guide to Universal Credit for the self-employed can be found at

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https://www.moneyadviceservice.org.uk/en/articles/universal-credit-for-the-self-employed

The recent announcement about the new digital tax account and the ability for the self-employed to link their accounts package into the digital tax account is obviously intended to dovetail with the rules concerning universal credit and the self-employed.  However this assumes that the self-employed claimant can afford both online access and accounts software, which seems unlikely if their income is so low that they are able to claim universal credit.

The purpose of the article is not to take a claimant through the various stages of a claim but to highlight some of the major differences compared with the current system.  Given the complexity and the need to make monthly claims it would not be surprising if the number of self–employed claimants reduces dramatically despite assertions that the impact of universal credit will be neutral.

 

Current rules

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  • Claims to benefit are made annually and follow the tax year and so it is only necessary for the claimant to transfer the details from their tax return to their benefit claim.
  • The claimant may carry forward surplus tax losses to the following benefit claim period.
  • The net taxable result is the same figure as used in the benefit claim.
  • Claimants trading through a company are assessed to benefit entitlement on the income they draw from the company as salary and dividend and not on the company’s trading results.
  • Capital is not means tested.

 

Universal credit rules

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  • Claimed by reference to a monthly assessment period on a cash-in cash-out basis.
  • No relief is given for business expenditure that is incurred “unreasonably” this is not defined in legislation!
  • Relief for interest on a business loan is restricted to £41 in the assessment period.
  • There is no deduction for expenditure on the purchase of a car but a fixed deduction is allowed for mileage.
  • No relief is given for expenditure on non-depreciating assets e.g. property.
  • Relief for carry forward of business losses is limited.
  • Income in excess of the threshold for a claim will be carried forward to later period to restrict future claims to benefit.
  • A minimum level of income will be assumed for claimants based on the national minimum wage and an assumed number of hours worked.
  • A claimant trading through a company in a similar way to a sole trader or partner will treated as if the income of the company is their personal income (this will prevent shareholders leaving cash in the company to increase their benefit entitlement).

 

Although 2019 seems a long way off some claimants may be affected as early as 2016 so planning ahead is advisable and keep a look for further guidance as matters develop.

 

 

 

The Budget 2015 in full

The Budget 2015 in Full

Chancellors red box

Read the Budget document in full.

Download our detailed budget report as a pdf.

UPDATE: Download the presentation slides from our budget breakfast review.

The Chancellor has presented his Budget to Parliament – here’s a summary of what was announced.

1. The UK had the fastest growth in the G7 in 2014

The UK economy had the fastest annual growth among G7 economies in 2014, and the strongest annual growth since 2007. At the end of 2014, employment had reached its highest ever level, unemployment has been falling in every region across the UK, and inflation is at a record low.

But risks still remain and there is still more to do to support businesses and boost p

Read the Budget document in full.

2. Debt will be falling as a share of GDP in 2015-16

Debt will be falling as a share of GDP from 2015-16. This is a year earlier than forecast at Autumn Statement.

By 2014-15, the deficit is forecast to have fallen by half, from 10.2% at its peak in 2009-10, to 5% in 2014-15.

In 2018-19, the government will have a surplus (will raise more in taxes than is being spent) of £5.2 billion.

Access the Treasury’s set of Budget infographics, explaining some of the key announcements.

3. The tax-free personal allowance is being increased in April 2017, to £11,000

To make work pay and ensure families keep more of the money they earn, the tax-free personal allowance – the amount people earn before they have to start paying tax – will rise to £10,800 in 2016-17, and £11,000 the year after.

The increases to the personal allowance from £6475 in 2010, to £11,000 in 2017-18 will save a typical taxpayer £905.

To make sure the full benefits of the personal allowance increase are passed on to higher rate taxpayers, the government will also increase above inflation the point above at which higher earners start paying 40% tax. It will increase by £315 in 2016-17, and by £600 in 2017-18 – taking it to £43,300 in 2017-18.

4. A new Personal Savings Allowance will take 95% of taxpayers out of savings tax altogether

From April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest that people earn on savings.

If they are a basic rate taxpayer and have a total income up to £42,700 a year, they will be eligible for the £1,000 tax-free savings allowance.

If they are a higher rate taxpayer and earn from £42,701 to £150,000, they’ll be eligible for a £500 tax-free savings allowance.

Access the Treasury Personal Savings Allowance one page explainer factsheet.

5. Introducing the Help to Buy ISA – every £200 people save towards their first home, the government will put in an extra £50, up to a maximum bonus of £3000

The government has already helped people to buy a home with Help to Buy, which allows people to purchase a home with just a 5% deposit.

The government is now going further. To help first time buyers save for a deposit, it is introducing a Help to Buy ISA.

People will be able to open an ISA, save up to £200 a month towards their first home, and the government will boost it by 25%. That’s a £50 bonus for every £200 people save, up to £3000.

Access the Treasury’s Help to Buy: ISA one page explainer factsheet.

6. People will have complete freedom to take money out of an ISA and put it back in later in the year

ISAs are being reformed so that instead of being able to put up to £15,240 in the 2015-16 tax year into an ISA in total, people can take out their money and put it back in within the same year, without losing their ISA tax benefits – as long as the repayment is made in the same financial year as the withdrawal.

7. £1.25 billion for children’s’ mental health services

An extra £1.25 billion will be spent on mental health services for children and new mums – helping more than 110,000 people.

8. Cancelling the fuel duty increase scheduled for September

Fuel duty will be frozen again; since 2011, the government has cut and frozen fuel duty, saving a typical motorist a total of £675 by the end of 2015-16.

By the end of 2015-16 fuel duty will have been frozen for five years, resulting in the longest duty freeze in over 20 years.

9. Cutting beer duty for the third year in a row

There will be another penny off a pint, a 2% cut for spirits and most ciders, and a freeze on duty on wine.

10. Up to five million pensioners will be given the freedom to sell their annuity for a cash lump sum

From April 2016, people who already have an annuity will be able to now effectively sell it on, so that they too can benefit from the pension freedoms announced at last year’s Budget.

Currently, people who have bought an annuity are unable to sell it without having to pay at least 55% tax on it. From April 2016, the tax rules will change so that people who already have income from an annuity can sell that when they choose and will pay their usual rate of tax they pay on income, instead of 55%.

11. Charities will be able to claim more gift aid on small donations

The amount of small donations charities can get an extra 25% top up payment on in gift aid without needing any paperwork is increasing from £5,000 to £8,000 a year.

The government expects 6,500 charities to claim in full the higher new cash boost of £2,000 a year – nearly double the current amount.

12. Farmers will have more time to average their profits for income tax

This extends the period from two to five years, and will give farmers additional security as they typically have volatile profits due to uncontrollable factors such as the weather.

13. We will abolish the annual tax return

Millions of individuals will have the information HMRC needs automatically uploaded into new digital tax accounts. Businesses will feel like they are paying a simple, single business tax – and again, for most, the information needed will be automatically received.

14. Support for all regions across the UK

Working with Transport for the North, the government will look at rolling out better roads, quicker journeys and improved rail connections between the major cities of the north, as part of the government’s plan to build a Northern powerhouse.

The government is also giving even more powers to local areas, with a new devolution deal for things like transport, business support and skills for West Yorkshire, and more planning powers for London.

Ten Enterprise Zones across the country are also being supported to go further to create growth and jobs.

The government is also working on a Cardiff city deal and opening negotiations on the Swansea Bay Tidal Lagoon.

15. Making sure banks pay their fair share

The government is increasing the rate of the bank levy (one of the taxes that banks pay) from 1 April 2015.

This will raise an additional £900 million a year.

16. Increased support for the oil and gas sector

The oil and gas sector provides highly-skilled jobs, energy security and makes a significant contribution to the UK economy.

To encourage further investment in the North Sea, the government will introduce a new Investment Allowance and reduce the supplementary tax charge on oil and gas companies further, from 30% to 20%, from 1 January 2015.

The rate of Petroleum Revenue Tax paid on older oil and gas fields will also be reduced from 50% to 35%.

These changes are expected to increase oil production by around 15% by 2019, and drive £4 billion of new investment over the next five years.

17. Faster broadband and better mobile networks

The government is investing up to £600 million to deliver better mobile networks, and is announcing a new ambition that ultrafast broadband of at least 100 megabits per second should become available to nearly all UK premises in the country.

18. Introducing postgraduate research loans

Loans up to £25,000 will be available for postgraduate PHD and masters research students.

The government will also conduct a review into how the government can strengthen its funding for postgraduate research.

19. Further investment in science and innovation

Future economic success depends on future science success. The government is investing £140 million in world class research on the infrastructure and cities of the future, and £40 million in research into what is known as the Internet of Things. This is the next stage of the information revolution, connecting up everything from urban transport to medical devices to household appliances.

The government is also launching a new UK research initiative into the future potential of digital currency technology, supported by a £10 million increase in funding in this area.

20. The government will consult on a tax relief for local newspapers

Local newspapers are a vital part of community life, but they’ve had a tough time – so the government is announcing a consultation on how to can provide them with tax support.

 

GOV.UK Tax Free Childcare Announcement

Hello Employer,
HMRC Business Help and Education Emails
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From: Sarah Phillipson

18/03/2014

The Government has today outlined how the new Tax-Free Childcare scheme will work, following last year’s consultation. This email contains information on what the scheme will mean for parents and employers. We have included a  draft email to send to your employees below.

If you currently offer childcare vouchers or directly-contracted childcare to your employees through an Employer-Supported Childcare scheme, you will be able to continue offering the scheme for existing members for as long as you want. Parents   will not be able to join your scheme – or move employers within the scheme –   once Tax-Free Childcare is introduced in autumn 2015.

Tax-Free Childcare is designed to benefit employees directly, helping working parents with their childcare costs, supporting them back into the workplace if they want to and  helping them to increase their hours in work. Key features of the new scheme, which will be introduced in autumn 2015 include:

  • Help with childcare costs for a much wider range of working parents – available to around 1.9million families.
  • Providing all eligible parents with a government  top-up of 20p for every 80p parents pay towards their childcare costs, up to a limit of £2,000 per child per year.
  • Unlike initial proposals, the scheme will now be rolled out to all eligible families with children aged under 12 within the first year of the scheme’s operation (rather than staggered over seven years).
  • With a single account provider – National Savings and Investments – the process will be simple for parents, and their money will be safe.
  • Run through flexible online childcare accounts which will allow parents to build up credit for use when they need it most, for example during school holidays.
  • Parents who are currently using the Employer-Supported Childcare scheme will be able to choose to stay in that scheme or move to Tax-Free Childcare. It will be their choice. Employers’ workplace nurseries will not be affected.

You can play a role in Tax-Free Childcare if you want to. You and your employees can familiarise   yourselves with the key benefits of the scheme by visiting GOV.UK. The Government will provide further  guidance in due course.

You may wish to send the following information to your employees:

For parents whose employer offers Employer-Supported Childcare  

The Government is introducing Tax-Free Childcare, to help parents go out to work if they want to so they can provide greater security for their family. This will be available to all eligible employees from autumn 2015. However, it is important to note that you will not lose your ESC entitlement. You will be able to choose whether you continue receiving Employer-Supported Childcare or move to Tax-Free Childcare, although a household cannot be in receipt of support through both schemes at the same time.

The Government will provide clear advice and guidance to allow you to decide which support best suits your individual circumstances.

You can carry on in the current scheme for as long as your employer continues to offer the scheme. If you move employers after autumn 2015 you will no longer be entitled for Employer-Supported Childcare – although you will be able to join the new scheme if you meet the eligibility requirements.

Workplace nurseries will not be affected by the introduction of Tax-Free Childcare.

For parents whose employer does not offer Employer-Supported Childcare 

The Government is introducing Tax-Free childcare, to help parents go out to work if they want to so they can provide greater security for their family. This will be available to all eligible employees from autumn 2015. You can register for the scheme direct with Government, open a childcare account, and receive 20 per cent support towards qualifying childcare costs, up to a limit of £2,000 Government support per child per year.

Tax-Free Childcare will be introduced in autumn 2015. The scheme will be rolled out to parents with children under 12 within the first year of the scheme’s introduction. The Government will set out further details of the scheme’s rollout in due course, in good time for you to factor in to your childcare plans. Further advice is available at GOV.UK

Child Benefit Warning for Higher Income Families

Child Benefit Warning for Higher Income Families

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From:  Ben Davies

HM Revenue & Customs are now sending reminders to parents on higher incomes who are still receiving Child Benefit that they should register for Self Assessment if they have not already done so.

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Parents with incomes of over £50,000, who have continued to receive Child Benefit and are not already in the Self Assessment system should register by 5 October 2013 to avoid any penalties.

Reminders are currently being sent out to over 2 million taxpayers according to HM Revenue & Customs but we can be fairly sure that there will be some who do not receive the reminder.

If your income is over £50,000 and you or your partner have received Child Benefit in the year to 5 April 2013 you will need to complete a Self Assessment Tax Return for the 2012/13 tax year.

Check whether the tax charge applies and register.

Contact Pierce for more details.

Child benefit changes ‘unfair’?

Thousands of East Lancashire families could be affected by changes to child benefit which are due to come into force in January.

Under the new rules, if either a claimant or their partner has income in excess of £50,000 Continue reading