Personal Pension Changes
The rules regarding the taxation treatment of personal pension contributions change dramatically with effect from 6 April 2001. It should be emphasised that these changes apply to Personal Pension policies only. Retirement Annuity Contracts are not effected.
The ability to carry forward potential relief based on the previous 6 years' net relevant earnings is removed from 6 April 2001. Individuals who make relatively large personal pension contributions will wish to review their position prior to the changes. Please contact us if you wish to potentially make use of this relief.
In future, contributions in a particular tax year will be based on earnings in any one only of the five preceding tax years, if this enables higher contributions than the current year's earnings.
Tax relief will be granted on premiums based on either a maximum of £3,600 p.a. or the figure dictated by your "net relevant" earnings - whichever is the greater.
Such premiums are to be paid net of basic rate tax, which the pension provider will then claim back from the Revenue, with higher rate tax relief claimed later via the personal tax return. In future it will not therefore be necessary to have any net relevant earnings at all in order to allow contributions of up to £3,600 p.a. This opens up the opportunity for personal pensions provision for non-workers and even children.
The carry back of personal pension contributions into the previous tax year will still exist but must be paid by 31 January in a particular tax year and elected back at the time of payment. This will therefore be of advantage more rarely.
Readers are encouraged to discuss and consider how the new rules will effect them.
National Insurance on Benefits
A re-designed P11D form for the year to 5 April 2001 will include the figures necessary to implement the previously announced extension of Class 1A National Insurance contributions (NICs) to most taxable benefits in kind. Previously such NIC costs have only arisen on car and car fuel benefits. Liabilities only arise for employers and will fall due for the first time in July 2001 for benefits provided in the year to 5 April 2001.
At the same time as making these changes a certain number of benefits have been taken out of the equation and are exempt from both tax and NICs. Exempted items and other circumstances where Class 1A will not apply include:
- Employer - provided refreshments, such as tea and coffee, where these are available to all staff.
- Small amounts of private use of items provided for the employee's work, for example, tools.
- Qualifying beneficial loans where the employee would be entitled to an offsetting deduction against an interest-free or low interest loan provided by reason of employment.
Expense payments do not give rise to Class 1A NICs but they could be liable to Class 1 NICs if they do not represent specific and distinct payment of expenses incurred by an employee in carrying out their work.
It is important for employers to consider the impact of the additional charge on their staff costs and to take action where possible to minimise the cost and administrative burden by ensuring dispensation arrangements, if any, are adequate.
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