Welcome to the April 2014 Newsletter from Connolly Accountants Ltd

In the aftermath of the 2014 Budget, Chancellor George Osborne moved to dispel fears that retirees could 'blow' their pension savings as a result of significant changes to the pensions regime.

The changes were central to the recent Budget speech, with the Chancellor announcing a series of headline measures, including the ability for future retirees to choose how to spend their money rather than being forced to buy an annuity.

The news resulted in around £5bn being wiped from the value of some of the UK's top pension companies.

Meanwhile, the Government has confirmed that the National Minimum Wage will increase significantly with effect from 1 October 2014.

The rise in the main adult rate from £6.31 to £6.50 represents a 3% increase and is in line with the recommendations of the Low Pay Commission.

You can view our summary of the 2014 Budget by visiting the tax information section of our website.


Chancellor moves to dispel fears over pension pot changes

Chancellor George Osborne has moved to dispel fears that retirees could 'blow' their pension savings as a result of changes to the pensions regime that were set out in last week's 2014 Budget.

The Chancellor announced a series of changes to pensions, in order to:

  • increase the maximum income that a drawdown pensioner with a capped drawdown pension fund can choose to receive, to 150% of the 'basis amount'
  • reduce the minimum income threshold for flexible drawdown to £12,000
  • allow members over 60, with total pension savings of £30,000 or less to take out all of those savings as one or more trivial commutation lump sums, and
  • increase the size of a small pension pot which can be taken as a lump sum from £2,000 to £10,000 and the number of personal pension pots that can be taken as a lump sum under the small pot rules from two to three.

The Government is also consulting on plans to allow those from age 55 in a defined contribution scheme to choose from three options. The access to a tax-free lump sum at retirement will continue, but thereafter the retiree can choose:

  • to draw the remainder of the pension pot, which will then be taxed at the marginal rate (0,20,40 or 45%)
  • to go into drawdown under the new limits as above, or
  • to buy an annuity.

Some experts voiced concerns over a possible buy-to-let boom, should pensioners decide to invest in property or higher risk stock market options.

The Institute for Fiscal Studies warned that the changes are based on 'highly uncertain assumptions', calling into question the Government's estimates regarding the likely increased tax revenue and warning that there will be 'losers' as a result of the new scheme.

However, Chancellor George Osborne argued that the measures form 'part of a coherent pension reform', and sought to offer reassurance that pensioners should be trusted the make the right financial decisions, stating, 'In the end, people who have saved through their lives, who have earned that money, I think should be trusted to make their own decisions, with good advice, about what to do with that money in retirement'.


Government confirms National Minimum Wage hike

The Government has confirmed that the National Minimum Wage (NMW) will rise by 3% with effect from 1 October 2014, in line with the recommendations of the Low Pay Commission (LPC).

The rise in the main adult rate from £6.31 to £6.50 an hour represents the first above inflation increase of the NMW in six years.

Meanwhile, the NMW rate for 18-20 year olds will increase by 10p to £5.13, while the rate for those aged 16-17 will rise by 7p to £3.79. The NMW rate for apprentices will see an increase of 5p, bringing the rate to £2.73 an hour.

Commenting on the announcement, David Norgrove, Chair of the LPC said, 'We believe that the economic recovery should allow an increase in the real value of the minimum wage. Our recommendation that the adult minimum wage should increase by 3% to £6.50 an hour is likely to increase its real value for the first time for at least five years'.

'At the same time it takes account of the pressure the minimum wage places on businesses particularly in the low-paying sectors and small firms.'

The LPC expects to recommend further progressive increases to the NMW as the economic improvement continues.

Business groups have broadly welcomed the news, with the British Chambers of Commerce describing the new rates as a 'reasonable compromise'.

Phil Orford of the Forum of Private Business said, 'In the context of many rising costs for business, it was important that wages do not become an overbearing burden as businesses seek to invest and grow in the current, improved economic climate'.

However, some trade unions have criticised the Government for not announcing a more dramatic increase, emphasising the fact that earlier this year the Chancellor had lent support to the prospect of introducing a NMW worth £7 an hour by October 2015, which would now require an increase of more than 7% next year.

Under new rules that came into force in February, the maximum penalties levied for firms that fail to comply with NMW regulations have increased. For each underpaid worker, the firm must now pay £20,000, up from £5,000, plus a financial penalty of 100% of the missing wages rather than the previous 50%.


ESSENTIAL TAX DATES FOR MARCH

5 April
Last day of 2013/14 tax year.
Deadline for 2013/14 ISA investments.
Last day to make disposals using the 2013/14 CGT exemption.

14 April
Due date for income tax for the CT61 period to 31 March 2014.

19/22 April
Quarter 4 2012/13 PAYE remittance due.

20 April
Interest will begin to accrue on unpaid PAYE/NI for 2013/14.

30 April
Normal annual adjustment for VAT partial exemption calculations (monthly returns).


QUOTE OF THE MONTH

'The recommendations I have accepted today mean that low-paid workers will enjoy the biggest cash increase in their take-home pay since 2008'.

Business Secretary Vince Cable, announcing that the NMW will rise by 3% from 1 October.


WEBSITE OF THE MONTH

www.cyberstreetwise.com

Website offering online safety advice to businesses and individuals.


ON OUR WEBSITE

Budget Report
For information on the 2014 Budget Report and how the announcements could affect you and your business, visit our Tax Information page.

2014/15 Tax Rates
For the latest tax rates, visit our Tax Information page.

Concerns over pension irresponsibility
Relaxed rules for pension annuities - the most radical changes since 1921 - have been questioned by many since the Budget speech.
Click here for the full story

Budget measures did not go far enough, says finance group
The Institute for Fiscal Studies (IFS) warned that recent announcements do not give businesses the certainty needed to drive the economy.
Click here for the full story

Cutting tuition fees 'could fill skills vacuum', says CBI
The Confederation of British Industry (CBI) has called on the Government to cut tuition fees for science, technology, engineering and maths (STEM) subjects, in a bid to fill the UK 'skills vacuum'.
Click here for the full story

Capital gains tax investigations 'raise £110m' in extra revenue
HM Revenue & Customs has recouped an additional £110m in revenue following investigations into underpayments of capital gains tax for the year 2012/13, a third more than in the previous tax year.
Click here for the full story

Government announces new start date for flexible working rights
The Government has announced that the right to request flexible working arrangements will be extended to all employees with effect from 30 June 2014, following a previous delay to the Children and Families Bill.
Click here for the full story