Better be a baby boomer
Are you better off than your parents?
In an attempt to answer this question, the Institute for Fiscal Studies (IFS) has been looking at wealth for the generations born between the 1940s and 1970s. It has come up with some interesting findings:
- The lack of growth in incomes of working age households in the last 10 years means those born in the 1960s and 1970s have not seen the rapid rise in income between the ages of 30 and 50 that their predecessors (including the baby boomers) did.
- For much of their earlier adult life, the 1960s and 1970s groups did have higher take-home incomes than their predecessors enjoyed at the same age. However, this was matched by higher spending, with the result that the extra income did not generate any extra saving than the earlier generations achieved.
- Those born in the 1960s and 1970s will find that their state pension (eventually) replaces a lower proportion of their income than for earlier generations, with the affect most noticeable at the higher end of the income scale. The cause is primarily the single-tier pension, due to arrive in 2016.
- It is taking longer to get on the housing ladder. 66% of those born between 1970 and 1976 owned a home at age 35, compared with 71% of those born in the 1950s and 1960s. In recent years, the homeownership rate among those born in the 1970s appears to have stalled at about two thirds. For the generation born in the 1940s and 1950s, the corresponding rate by the same age was 80%. The average age of second-time buyers has risen by 15 years (to 42) since the 1960s.
- The proportion of the younger groups who expect to receive an inheritance is far larger than the number in older groups who have done (or will do) so. 28% of those born in the early 1940s have received, or expect to receive, an inheritance against 70% of those born in the late 1970s. As the IFS says, “Inheritances look like the major potential reason why the later economic position of [groups] born in the 1960s and 1970s could yet turn out better than that of their predecessors, on average.”
So, if you are a baby boomer, for your children’s sake make sure your estate planning is up to date. If you are younger, start showing your parents some respect…
Avoidance, tax planning and fairness
HMRC is winning its battles against complex tax avoidance schemes…and it needs to.
The many pages of Treasury documentation issued in the wake of last month’s Autumn Statement included a ‘Scorecard’ listing the revenue impact of the Chancellor’s actions. Of the 59 items listed, 13 fell under the heading of “Avoidance, tax planning and fairness”, while another seven were captured by the grouping of “Fraud, error and debt”. Together the 20 measures listed are meant to raise an extra £1,515m for the Exchequer in 2014/15 and nearly £8,900m in total by the end of 2018/19.
That serves a reminder of the resources being given by HMRC to maximise taxpayer receipts. It is one of the inevitable consequences of a situation where further tax increases have become politically difficult. According to recent information obtained from HMRC, in 2012/13 £20.7bn in extra revenue was raised as a result of ‘compliance work’, up £2.1bn on the previous year and £2bn above its original target.
The Autumn Statement noted that since the Budget in March, the government had signed automatic tax information exchange agreements with the Isle of Man, Guernsey, Jersey, the Cayman Islands, Gibraltar, Bermuda, Montserrat, the Turks and Caicos Islands and the British Virgin Islands. In 2014 HMRC will start work “to exploit the data generated” by the new agreements. There was also a promise in the Autumn Statement that “at Budget 2014 HMRC will consult on a range of enhanced sanctions to penalise those who hide their money offshore and enhance deterrence.”
The irony is that the success of the UK in securing information exchange agreements is down to the US’s imposition of FATCA (Foreign Account Tax Compliance Act). This US legislation has given the HMRC considerable leverage with the Crown Dependencies, as each needed UK government consent for FACTA to operate.
Warm island homes for hot money are becoming scarcer by the day…
Government’s national insurance tax cut to save businesses £5.5 billion
New figures predict a boost to business through cutting tax on employment
The figures reported by HM Revenue and Customs (HMRC) on 9 January show that the Government’s plan of cutting employers’ national insurance contributions (NICs) will save nearly £5.5 billion per year for employers, HM Revenue and Customs reported on 9 January. This is equivalent to £200 per employee.
The savings will occur as part of the new ‘Employment Allowance’ which takes effect in three months time (from April this year). This allowance will wipe up to £2,000 off the total national insurance bill of every business.
The savings to businesses come from three areas:
- The new Employment Allowance taking effect from April;
- The abolition of employer national insurance for employees under the age of 21 from April 2015;
- Raising the threshold, in April 2011, before a business starts paying national insurance for an employee, which reversed the most damaging part of the increase in the employer NICs rate, under inherited plans.
“Small businesses make a vital contribution to our economy, creating jobs and stimulating growth. The ones I have visited...want to expand, take on new staff and make new investments so the actions we have taken to cut tax will be a real boost to them”, the Chancellor said.
HMRC Unveils list of “oddest” excuses for late tax returns
HM Revenue and Customs (HMRC) has compiled a list of strange excuses for sending late tax returns.
The list was released to encourage taxpayers to meet this year’s 31 January deadline. Some of the more bizarre excuses included a builder who was mourning the death of his pet goldfish, a self-employed trader who blamed his wife for not handling his mail, and a taxi driver who argued that he is unable to go upstairs to pick up his tax return because of a bad back.
To avoid paying a penalty for a late tax return, one woman claimed she could not concentrate after seeing a story about a volcanic eruption on the news and a writer from Coventry claimed he had been far too busy showing his one-man play. An accountant from London told HMRC that he had been too preoccupied in submitting his clients’ tax returns to submit his own in time and a man from the south-east gave the excuse that he had been cruising around the world on his yacht and could only pick up his post once he was ashore.
Approximately 10.9 million people are expected to fill out a self-assessment return for the 2012 - 13 tax year. With the 31 January deadline for sending in returns and paying any tax owed just around the corner, HMRC is reminding people that an initial £100 fixed penalty applies to those who do not get their returns in on time, even if there is no tax to pay or if the tax due is paid on time. Further fines may be applied. All those who are late paying will be fined, regardless of their excuse.
More than 1,500 submitted their tax returns on Christmas day, according to HMRC, and 26,905 people sent in their tax returns on New Year’s Eve, with 137 filing between 11 pm and midnight.
HMRC’s director general of personal tax, Ruth Owen, said: “There will always be unforeseen events that mean a taxpayer could not file their tax return on time. However, your pet goldfish passing away isn’t one of them”.
One in three taxpayers paid wrong amount in 2013
One in three taxpayers did not pay the correct amount of tax last year due to a series of errors from HM Revenue & Customs officials, according to research by national accountancy firm UHY Hacker Young.
It found that HMRC employees have made a number of “basic errors” including failing to tax employees benefits, such as company cars and private health cover.
The result is that millions of people have underpaid their tax by thousands of pounds because they have been given the wrong tax code. One pensioner from Lancashire, for example, has been told he owes more than £500,000 in tax according to the Daily Telegraph. The pensioner is a retired councillor on a pension of £11,000 a year and was mistakenly sent a tax bill demanding payment of £576,850.85.
The firm carried out similar research in 2012 and analysed hundreds of pay as you earn (PAYE) tax codes they had sent to their clients to see how many were incorrect. At that time, about a quarter were wrong but a year later, the number of errors has increased to around 37%.
The Telegraph reports that there have been numerous tax code errors since HMRC introduced a new computer system in 2009. For the first time, the system combined information on national insurance contributions and PAYE, which led to a number of errors.
The errors are unfortunate for some taxpayers as most of them do not realise that they have received more money than they should have, before later receiving a bill for unpaid tax once HMRC have realised its mistake. Others receive a rebate once it has been realised that they have overpaid. “Underpaying tax is more of a problem than people realise as it can be a shock to an individual’s cash flow when HMRC moves to claw it back”, said Roy Maugham, tax partner at UHY Hacker Young.
However, a spokesman for HMRC said: “The numbers being cited are not correct, accuracy of PAYE coding notices is now 99 %. The vast majority of people are paying the right tax at the right time through PAYE”.
