Category: Government

Proactive is not authorised to give pensions advice, and the comments here are a guide to complying with new legislation. It is not a guide to pensions! The figures below relate the tax year 2016/17 and may change every April as each new tax year starts.

Do I need to comply?

You may not need to offer auto enrolment if your business employs no regular staff, but only directors, and none of those directors have a contract of employment. If that’s the case then check this report.

For everybody else, the key points are listed below.

What is a staging date?

The Pensions Regulator writes to all new employers telling them their staging date, the date from which auto enrolment must be in force for qualifying employees. The staging date varies depending on the age of your business and the number of employees. The Government would be unable to handle everything all at once and so this policy is being phased in for existing employers over the period 1 Oct 2012 to 5 Apr 2017. New employers will be assigned a staging date by 28 Feb 2018 at the latest.

You can start earlier if you wish.

Who qualifies?

If all of your staff are already in a workplace pension scheme, then you have no additional duties under auto enrolment.

Staff aged between 22 and state pension age who earn more than £8,105 a year, must be offered a workplace pension scheme and the employer must make contributions. Staff can opt out if they wish, but you must offer a workplace pension scheme!

Staff who do not meet the criteria above, and who are older than 15 and younger than 75, and who earn more than £5,564 a year, can opt in to a workplace pension scheme. If they choose to do so then the employer must provide one, and make contributions.

Employers will also need to enrol any workers aged 16-74 who earn less than £5,564 a year, and who ask to opt in to the scheme, but you don’t need to pay contributions for them.

Employers are prohibited from offering incentives or perks to encourage staff to opt out.

What contributions need to be paid?

It depends!

As time goes by, you will be required to make greater contributions and so will your staff. The timing and the amount of the contributions depends on your staging date.

Here is a broad overview, and the highest level of contributions will be in force by 31 Oct 2018.

The minimum contribution will start at 2% of a worker’s gross earnings (of which at least 1% must be paid in by the employer).

By 31 Oct 2018 the minimum will have risen to 8%, made up of at least 3% from the employer, up to 4% from the employee, and 1% in tax relief.

These percentages don’t apply to all of an individual’s salary, but only to what they earn over a minimum (currently £5,564 for 2016/17) up to a maximum limit (currently £42,475 for 2016/17).

What do I have to do now?

Establish a workplace pension scheme through either a commercial business of your choice or through the Government’s NEST scheme (National Employment Savings Trust). The choice is entirely yours.

The NEST web site sets out key steps in the process of implementing a workplace pension.

Once you have a workplace pension scheme in place, let us know and we will log the details in our payroll system. We need one month’s notice of this in order that payrolls comply with the Real Time Information rules implemented back in 2013.

Call us on 020 3051 2462 if you need to chat more about this.

We are accountants and tax advisers, and we do not get involved in pension matters. However, this is what we know about the interaction between National Insurance Contributions and the UK State Pension.

If you are following our recommended director shareholder payments pattern, then your salary should be high enough to give you a National Insurance credit, even though you don’t pay Class 1 National Insurance.

A full year at this level is a “qualifying year”. This page https://www.gov.uk/state-pension/eligibility used to say:

“You might not pay National Insurance Contributions because you’re earning less than £XXX a week. You may still get a qualifying year if you earn between £YYY and £XXX a week from one employer.”

However, the rules keep changing and at the moment the “eligibility” explanation on the Government site takes you round in circles and no longer explains the position for paid employees and directors on low salaries.

If you want the relevant information, the best thing you can do is a twofold approach:

Firstly

Write (with your NI number) to . . .

National Insurance Contributions Office
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ

. . . and ask for a copy of your National Insurance record for all years since [date of your sixteenth birthday] showing contributions paid and any credits received.

Secondly

Complete a Form BR19 and send it to . . .

The Pension Service
Newcastle Pensions Centre Futures Group
Mail Handling Site A
Wolverhampton
WV98 1LU

Once you have the two replies, check that the number of “qualifying years” is the same on both documents. If there is anything that you think needs attention, write to the National Insurance Contributions Office again seeking help, particularly if credits are missing for qualifying years.

Lastly, you won’t get your State Pension automatically, you have to claim it. You should receive a letter 4 months before you reach State Pension age, telling you what to do. Put a note in your diary now, for 3 months before you reach State Pension age, in case that letter doesn’t turn up.

We are indebted to Richard Dyson of The Daily Telegraph for this news on pensions. Though we stress that it’s a forecast and not an absolute certainty.

A tax break set to be axed within weeks

And at the same time, we need to remind you that we are not authorised to provide pensions advice, but we can tell you about tax law and possible changes to it. If we are to believe everything which we read in the Press, which we hear in Accounting Bulletins and which we learn on our CPD courses, then the March 2016 Budget is going to squeeze middle Britain like never before.

Matt Cartoon
Pension adviser: “Have you considered befriending a wealthy despot?”

George Osborne has already announced that new punitive tax rates will be applied to dividend income from 6 April 2016 and that buy to let landlords will be hit with restrictions on tax relief. Now, it seems that higher rate taxpayers who have private pensions will also be hit.

If you’re a higher rate tax payer investing in pensions, and you’re used to getting 40% (or 45%) tax relief on pensions, then you may be shocked to see that tax relief reduced to 20%. Let’s assume you’re a 40% taxpayer. Up to now, for every £1,000 you added to your private pension, you gained an instant 20% boost as The Exchequer would add £250 to your pension pot, and your pension provider would then have £1,250 to invest on your behalf. Then, a few months down the road, you do your Self Assessment Tax Return, you get back (in your hand effectively) another 20% (being another £250), because your tax bill is reduced by that amount.

That means that your pension provider has a pot of £1,250 which cost you £750 of your money. That’s how 40% tax relief works.

Now if, as seems likely, the Chancellor changes the rules on 16 March 2016 then you may find that your tax relief is restricted to 20% and thus your pension provider will have a pot of £1,250 which in future costs you £1,000 of your money.

Richard Dyson of the Telegraph suggests you pour your money into pensions now, before this forecasted measure is introduced. Our view is that, if you were going to be investing in your pension anyway, in 2016/17 and later years, then you could potentially get more tax relief by bringing forward that investment and doing it in 2015/16 and preferably before Budget Day on 16 Mar 2016.

Is there any alternative? Well perhaps yes! For those of you who are a director and shareholder of a UK limited company, get your company to invest in a pension, rather than do it yourself. All things being equal, your company will get tax relief at its company rate, and your personal income from the company can come down to match the contributions. That way, you’ll find that rather than funding your pension out of your own taxed income, you’ll have a lower income, a lower tax bill, and your company will have a lower tax bill too!

 

Proactive is not authorised to give pensions advice, and the comments here are a guide to complying with new legislation. It is not a guide to pensions!

The Government decided in about 2012 to shake up UK pension provision, and as a result, a lot of smaller businesses have to comply with the new laws from 2015 or 2016. It appears that they launched a campaign in Spring 2015, sending letters like this example, to the smallest of UK employers.

Oddly, if the new legislation does not apply to you, then you still have to comply with the new legislation, by telling The Pensions Regulator that the new legislation does not apply to you! That’s law makers for you! The key question to consider is “do I have any eligible employees”? The long answer is to be found on the The Pensions Regulator web site.

The short answer is “if you have staff with a contract of employment and a decent wage” then you probably have to provide some pension arrangements. The key in all this is “contract of employment” and if this is an issue for you then you may need a dedicated payroll service.

What if you are a director of your own company, with no employment contract and a very basic salary? We found another short answer (well not exactly short, but shorter) on the Accounting Web UK forum.

That means two things:

• Proactive can continue to provide you with basic payroll services.
• You have to notify The Pensions Regulator that the new legislation does not apply to you.

If you visit the page below on the Regulator’s website you will find a pre-populated email to send to them which should ensure the record is updated to show that the small business is not an employer.

http://www.thepensionsregulator.gov.uk/employers/what-if-i-dont-have-any-staff.aspx

For those of you who don’t like to rely on form to email solutions like that one, here’s the text of the standard message which you can use to send your own email to customersupport@autoenrol.tpr.gov.uk or send a Recorded Delivery or Special Delivery letter on your business letterheaded paper to the address shown.

The Pensions Regulator	The Pensions Regulator
PO Box 16314	Napier House
Birmingham	Trafalgar Place
B23 3JP	Brighton
	BN1 4DW

I confirm that [add your company name here] is not an employer for the purposes of automatic enrolment for the following reason.

[please select one option from the list below and delete the others]

1. There is only one director and there are no other staff working for the company.
2. The only people working for the company are directors and none of them have an employment contract.
3. The only people working for the company are directors and only one of them has an employment contract.
4. The company does not or no longer employs any staff because it has ceased trading/is terminally insolvent eg has gone into liquidation/has been dissolved.

The letter code for the company is: [add your letter code here]

The PAYE scheme(s) reference is: [add your PAYE reference(s) here]

The Companies House number (where applicable): [add your Companies House number (if you have one) here]

The name, email address, address and telephone number of contact at the company: [add these details here]

You may already have enough email to deal with, so rather than send an email (which automatically provides them with an email address for you) send them a letter by Special Delivery as a number of our clients have suggested!