No suffix letter? No problem
HMRC has published guidance on its website for employers, telling them what to do if they’re given an employee National Insurance (NI) number without a suffix letter.
NI numbers take the form of two letters, followed by six numbers, followed by a suffix letter (either A, B, C or D). HMRC has mistakenly issued some NI numbers without the suffix letter. No new numbers will be issued while HMRC investigates.
Incorrect numbers were issued either in response to a verification request, or following the submission under Real Time Information (RTI) of a full payment submission (FPS) in which an employee’s NI number was either missing or incorrect. If you’ve received an incorrect number from HMRC, what you need to do will depend on the circumstances.
If you included an incorrect NI number for an employee on an FPS and were sent back a suffix-less number, you should use that and add the suffix you gave on the original submission.
However, if the NI number was missing from the FPS (for example, because you did not know it) and the number sent back to you had no suffix letter, you should use the number sent to you and enter a space where the suffix letter should be. The space is important so that the NI number has the required nine characters. You should not guess at the suffix letter.
If you submitted an NI verification request and received back a national insurance number without the suffix letter, again you should use the number provided and enter a space in place of the missing suffix letter.
HMRC advises that NI numbers without suffix letters should only be used in the limited circumstances described.
HMRC consults on two aspects of partnership tax rules
HMRC is consulting on the detailed design of changes to two aspects of the partnership tax rules, and want comments on the proposals by 9 August 2013.
At the time of the 2013 Budget, George Osborne announced that the Government would be consulting on the changes to two aspects of the partnership tax rules. The changes aim to prevent loss of tax arising from the use of limited liability partnerships (LLPs) to disguise employment relationships and certain arrangements involving the allocation of profits and losses among partnership members.
HMRC published a consultation paper on 20 May 2013 which sets out proposed changes to the tax rule. Comments are sought on the detailed design of the proposals, which are essentially anti-avoidance proposals designed at levelling the tax playing field.
The first proposal removes the presumption of self-employment for members of an LLP. Under the current rules, individual partners in an LLP are taxed as partners, even if the terms of engagement are closer to that of an employee.
A partner receives more favourable income tax and national insurance treatment than an employee engaged on similar terms. Consequently, LLPs can be used to disguise employment relationships and evidence suggests they are increasingly marketed on this basis. To address this issue, HMRC proposes removing the presumption of self-employment for individual LLP partners.
The second area of change concerns schemes where partnerships allocate profits or losses to reduce tax. This may be achieved by allocating profits to the partner who pays the lowest rate of tax or losses to the partner who pays the highest rate of tax. Schemes often involved mixed partnerships (made up of companies and individuals) where the profits are shared to enable income taxpayers to obtain lower corporation tax rates. Changes are proposed to counter profit sharing arrangements where one of the main aims of the allocation is to secure a tax advantage.
The legislation is slated to be included in Finance Bill 2014, with the new rules in force from 6 April 2014.
PAYE tax calculation check
HMRC has started the annual process of checking whether taxpayers within PAYE paid the correct amount of tax in 2012/13.
After the end of every tax year, HMRC carries out an automated End of Year Reconciliation process to check whether taxpayers within PAYE paid the correct of tax. The 2012/13 process has begun.
At its most pure, the PAYE system should collect the correct amount of tax throughout the tax year. In reality, complications such as changes to benefits in kind during the year mean that sometimes there are differences between the amount due and the amount actually collected under PAYE.
Although HMRC estimates that 85% of those taxed under PAYE will have paid the correct amount, the annual reconciliation system can throw up nasty surprises. Some taxpayers find that they owe quite large amounts of tax. By contrast, other taxpayers may find that they have paid more tax than they needed to and are owed a refund by HMRC.
If a taxpayer is found to have paid too much or too little tax, HMRC will send them a tax calculation (also known as a P800). You will not hear from HMRC if you paid the right amount of tax under PAYE.
If you receive a tax calculation from HMRC, you should check that it is correct. There is guidance on how to do this on the HMRC website at www.hmrc.gov.uk/incometax/p800.htm or you can ask us to check the calculation for you. It is dangerous to simply assume that HMRC has got it right.
If you have underpaid tax, HMRC will normally refund the amount overpaid by cheque. You should receive this within 14 days of the issue of the tax calculation. If it’s delayed, it’s advisable to chase it up.
If you have underpaid tax, HMRC will endeavour to collect the underpayment through an adjustment to your tax code. If this isn’t possible, for example the underpayment is more than £3,000, it will write to you to tell you how to pay the tax.
HMRC expect the 2012/13 reconciliation process to be completed by October 2013.
New system for reporting expenses and benefits online
HMRC is developing a new system which will provide employers and agents with an additional method of reporting end of year expenses and benefits information online.
Where an employer provides taxable expenses and benefits to an employee, details must be provided to HMRC by means of the various expenses and benefits returns (P9D, P11D and P11D(b)) by 6 July following the end of the tax year to which they relate.
In April this year, HMRC started to provide employers with a new online system for reporting benefits and expenses. The system, ‘Online end of year Expenses and Benefits forms’, is web-based and will be suitable for employers who need to submit benefit and expenses information for up to 250 employees. HMRC aims to have a full suite of forms available in June 2013 in time for the 6 July 2013 deadline for the submission of 2012/13 returns.
The new system offers an additional method for reporting expenses and benefits information to HMRC. However, employers using Basic PAYE Tools should note the facility to create expenses and benefit forms is no longer available and an alternative method must be used from 2012/13.
Are you resident in the UK?
HMRC has published guidance on the new statutory residence test to determine whether you are UK resident for tax purposes.
Residence status is important for tax as it determines the extent to which you pay tax in the UK on your income and gains. The new statutory residence test sets out the rules used from 6 April 2013 to determine your residence status for tax purposes. Prior to 6 April 2013 there was no statutory definition of ‘residence.’
For most people, deciding whether they are UK resident for tax purposes will be straightforward and the new test won’t change their status. If your affairs are more complex, however, it’ll provide certainty.
HMRC has published guidance on its website. It’s also launching an online ‘residence indicator,’ which will provide an indication of your residence status from the answers that you provide to a series of questions. You can find the guidance and tax residence indicator on the HMRC website at: www.hmrc.gov.uk/migrantworkers/tax-non-uk.htm
DEMOB Happy?
The Governor of the Bank of England showed unusual signs of optimism in presenting the latest quarterly inflation report.
Sir Mervyn King is now in his last month as Governor of the Bank of England. In July he will be replaced by Mark Carney, currently the governor of the Canadian central bank. Sir Mervyn has had a turbulent ten years as Governor. He started the job in July 2003, just as the markets were beginning to recover from the Iraq War and the fallout from the end-of-century technology boom and bust. For the second half of his tenure he has had to deal with the 2007/08 financial crisis and its lingering consequences.
It is therefore unsurprising that Sir Mervyn was in a reflective mood when he presented the May Quarterly Inflation Report (QIR), the final to be issued under his reign. What was less expected was the optimistic note in his finale. For once, Sir Mervyn was able to say that “projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago.”
The improved outlook was partly down to the higher than expected figure of 0.3% growth for the first quarter, which was reconfirmed towards the end of May. That allowed the Bank to raise its growth estimate for 2013. On the inflation front, a week after the QIR’s publication National Statistics revealed a 0.4% fall in annual inflation for April, double the drop predicted by the pundits. At 2.4%, CPI inflation is still above the Bank’s target, but far enough away from 3% to mean Sir Mervyn’s successor should not be writing a ‘Dear Chancellor’ letter explaining above-target inflation immediately he takes up his post.
These pieces of good news do not mean the economic good times are just around the corner, even if the world’s share markets have seemed to think so of late. As Sir Mervyn noted, “…markets expect Bank Rate to remain below 1% for a further four years,” which hardly suggests an imminent return to boom times. Or, for that matter, any respite for those relying on income from bank or building society deposits.
Volatile returns
The value of investments can go down as well as up…
The second half of May saw a sudden bout of jitters hit global stock markets. As the graph shows, until mid-May the major markets had been enjoying a good 2013, with last year’s various concerns (Eurozone, US fiscal cliff, UK deficits, etc) seemingly forgotten.
Then, on 23 May, Japan’s Nikkei 225 plummeted by 7.3%, its biggest one-day fall since the March 2011 earthquake and tsunami. Other markets duly crumbled in Tokyo’s wake, although not to the same extent. The blame for the fallout was mostly pinned on one or both of the following:
- The previous evening Ben Bernanke, chairman of the US Federal Reserve, had raised the possibility that the process of quantitative easing (QE – ‘printing money’) could be phased down in coming months. QE has been seen by many as one of the reasons behind the global rally in share prices – all that extra money has to go somewhere.
- The China Manufacturing Purchasing Managers’ Index, released early on 23 May, hit a seven-month low. The reading was 49.6 – any figure below 50 implies a contraction. China has been the global growth story, so signs that it may be slowing are a worry for investors.
Whether either was the true cause, nobody knows: there is always a temptation to pin events to market movements rather than leave them unexplained. In the final week of May – shortened by a Monday holiday in some countries – markets remained volatile. It could all be just ‘noise’. Looked at over the month as a whole, the main US, UK and Japanese indices were virtually unchanged.
The first five months in the markets
Source: Digital Look
Dark blue: Nikkei 225
Red: S&P 500
Pale blue: FTSE All-Share
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 performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Child Trust Funds: is the end nigh?
The Government has issued a consultation on allowing transfers between Child Trust Funds (CTFs) and Junior ISAs (JISAs).
CTFs were one of Gordon Brown’s recurrent Budget ideas. They eventually became reality in April 2005, with the Government making payments of around £250 or £500 for children born after 31 August 2002. Parents and others could make top-up contributions, but few did.
In January 2011 the current Government stopped all payments to CTFs, saving around £500 million a year. The end result is that there are now over six million CTFs, with an average total contribution of under £320. The replacement for the CTF, the JISA, was launched in November 2011 and to date has not proved popular. It receives no government contributions, but does allow payments from parents and others totalling up to £3,720 in a tax year (2013/14).
Last month the Treasury published a paper on the consequences of allowing CTFs to be transferred into JISAs. The Treasury’s preferred route is to permit voluntary transfers, operating in the same way as current CTF to CTF or JISA to JISA transfers. The paper floats the possibility of merging CTF into JISA to create a single tax-favoured savings product for children, but sees a number of difficulties with this option – not least that some CTF providers do not offer JISAs.
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 performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The Care Bill
The Queen’s Speech marked the start of reform of long-term care.
Last month’s Queen’s Speech was criticised in some quarters for a lack of legislation – there were only 20 Bills announced, two of which were in draft. However, two of the Bills that did appear will have major long-term implications for most people:
- The Pensions Bill, which will introduce a complete overhaul of the state pension system and, in tandem, produce an annual £5 billion+ windfall to the Treasury through savings on national insurance.
- The Care Bill, which will mark an equally radical reform of the provision of care, but only in England.
The Care Bill had been trailed for some time and has its roots in proposals put forward in a report issued in July 2011 by the Government-sponsored Commission on Funding of Care and Support (aka the Dilnot Report). While ultimately the Bill will be a welcome improvement on the current long-term care funding rules, it is not a panacea:
- The cap on total lifetime care costs of £72,000, which will be index-linked, does not cover ‘general living costs’, which the Government puts at ‘around £12,000 a year’.
- The cap is based on what the local authority would pay for care, not what the individual chooses to pay. This means that if you want more comfort than the local authority would provide, there will still be a bill to pay.
- Anyone with capital of more than around £118,000 will have to meet all their own costs until the cap is reached.
- Anyone with capital of more than around £17,000 will have to make a contribution to their care costs until the cap is reached. How much this will be is not spelt out in the Bill – it is conveniently left to regulations. At present, the contribution is £1 a week per £250 of capital above the threshold (effectively about 21% of excess capital each year).
- The meter for the £72,000 ceiling will not start running until April 2016, so any expenditure before then will not count.
If you get the feeling that there remains a need to plan for the costs of long-term care, you are probably right. The legislation will eventually remove the extreme costs, but there could still be a six-figure bill for you to meet personally.
Interest-only mortgages
The Financial Conduct Authority has undertaken some interesting research.
Interest-only mortgages are a simple concept: you pay the lender interest and leave all capital repayment until the end of the term. Until the early 2000s interest-only mortgages were commonly accompanied by endowment policies, designed (but generally not guaranteed) to clear the mortgage at maturity. Poor investment performance and relaxed lending practices put an end to the endowment mortgage, so that the first decade of the 21st century saw many interest-only home loans with no linked repayment plan. There was also a steady flow of repayment mortgages converted to interest-only as personal finances got squeezed.
The Financial Conduct Authority (FCA – the FSA’s successor) has been investigating what will happen when the day of reckoning comes for interest-only mortgages and repayments fall due. Its research revealed three peak periods of mortgage maturity: 2017/18, 2027/28 and 2032. The final peak, driven by mortgages arranged between 2005 and 2008, is the most worrying for the regulator, because it relates to a time of high income multiples and high loan to values.
90% of borrowers said that they had a strategy (or strategies) in place for repayment and that they were ‘very confident’ (43%) or ‘fairly confident’ (32%) that they were on track for full repayment. Even so, when explicitly asked whether they were expecting a shortfall between their funds for repayment and the sum to be paid off, 22% said that they were, with a further 15% saying “possibly.”
An independent statistical analysis of borrowers’ resources revealed a gloomier picture:
- 48% of borrowers are projected to have a shortfall.
- While the average borrower fearing a shortfall estimates it to be around £22,000, the independent assessment puts the figure at nearly £72,000.
- For loans maturing by 2022, the average borrower estimated shortfall is £20,000 whereas the assessed average is £56,000. About a third of these borrowers with a maturity date less than ten years away face an assessed shortfall of over £50,000, while only about a fifth of borrowers are predicting this level of shortfall.
If you have an interest-only mortgage, do make sure that you understand your likely repayment position. As with so many other financial matters, the sooner you start planning a solution to any shortfall, the better.
Your home is at risk if you do not keep up with repayments on a mortgage or other loan secured on your property.
