The View from No 50

 

 

 

 

November 2014

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925

Email:  keith@kpbonney.co.uk

www.kpbonney.co.uk

 


 

DEFERRED STATE PENSIONS

 

Do you reach the state retirement age before 6 April 2016?  Before you claim your state pension you might stop to ask yourself whether you could be better off deferring the date of its commencement. 

 

Why so? 

 

First, it may be that you intend to carry on working and you already have a good income from employment or self-employment.  If you take the state pension you might have to pay tax on it at the higher rate.  In these circumstances it can make sense to defer the state pension until you stop working.  In this way, when you eventually receive it, your state pension is taxed at a lower rate.

 

Second, for every year you defer the commencement of your state pension your entitlement is increased by 10.4%

 

As an alternative to taking an increased pension you can take the reward for deferring your pension as a lump sum.  The lump sum is equal to all the state pension income foregone during the deferral period plus interest of at least 2% over Bank of England base rate.

 

The state pension is chargeable to income tax.

 

The lump sum is also chargeable to income tax but its taxation is a little odd in that it is not aggregated with your other income in order to work out how much tax is due on it.

 

If, ignoring the lump sum, you are a non-taxpayer in the year in question, the whole of your lump sum is tax free.

 

Likewise if you pay tax at 20% or 40% or 45% in the year in question your lump sum is taxed at 20% or 40% or 45% as appropriate.

 

More information can be found here:

 

https://www.gov.uk/government/publications/deferring-your-state-pension

 

It has taken the government a while to realise that in this low interest rate environment and with people living longer the deferment terms are just too generous.  Accordingly, for those individuals reaching state pension age after 5 April 2016 the enhancement is reduced from 10.4% per annum to 5.8% per annum and the lump sum option is removed.  For those already past state pension age at 6 April 2016 the old terms continue.  Lucky you.

 

Our Advice: If you are fortunate enough to be able to afford to defer the date of commencement of your state pension then do give it serious consideration, especially if you reach state pension age before 6 April 2016.

 

 

OH NO NOT ALREADY!

 

How many more newsletters to go before Christmas?  None!   So this is a good time to remind you exactly what are the direct tax consequences of making gifts (other than gifts of cash or vouchers) to employees and business contacts this Christmas.

 

Gifts to employees

 

For the employer the cost of the gift is deductible from profits for tax purposes.

 

For the employee there is a charge to income tax.  For those earning at the rate of £8,500 pa or more the charge is based on the cost of the gift to the employer.  For other employees the charge is based on the gift’s second hand value.  Interestingly the £8,500 limit hasn’t changed for many years.  So through fiscal drag those Christmas turkeys which were commonly tax free in the eighties and nineties (foodstuffs having a negligible second hand value) are now mostly taxable.

 

Gifts to business contacts

 

For the donor the cost of the gift is generally not deductible for tax purposes.  However, it is deductible if

 

It carries conspicuous advertising for the donor and

 

It does not consist of food or drink or tobacco or a token or voucher exchangeable for goods and

 

It, together with other gifts to the same recipient, does not exceed £50 per annum.

 

Our Advice:  Do what makes you happy.  Just make sure you get the tax reporting right.

 

 

DIGITAL SERVICES

 

Ever wondered why Amazon supplies services from Luxemburg?

 

Amazon sells predominantly to non-business customers.  Non-business customers don’t care how much VAT they are charged.  They only care how much they are charged in total.

 

Under current rules supplies of digital services made within the EU by a business based in one member state to a non-business customer based in another member state are charged to VAT at the rate applicable in the state of the supplier.

 

Suppose Amazon works out that the best price the market will support for a particular music download is 10 Euros.

 

The rate of VAT in Sweden is 25%.  The rate in Luxemburg is 15%.

 

If Amazon were based in Sweden it would keep 8 Euros and pay over 2 Euros to the Swedish authorities on sales to EU non-business customers.

 

But as Amazon is based in Luxemburg the appropriate rate of VAT is the Luxemburg rate - 15%.  So it keeps 8.70 Euros and pays over 1.30 Euros to the Luxemburg authorities.

 

As a result of basing itself in Luxemburg, Amazon increases its revenue by nearly 9%.  That is a lot of money making its way into the coffers of Amazon and the like.  The hard pressed governments of Europe would like to stick their shovels into Amazon’s stores or, as they would put it, level the playing field.

 

So with effect from 1 January 2015 the rate of VAT charged on supplies of digital services will be the rate applying in the state in which the non-business customer is based.

 

On the plus side that will make it easier for smaller businesses to compete with Amazon.

 

On the minus side any UK business which sells digital services to non-business customers in other EU member states must, with effect from 1 January 2015, implement new procedures which could include having to register for VAT in the state in which the customer belongs.

 

Our Advice:  HMRC recognises UK businesses will need help with this change.  For the latest news see

 

www.hmrc.gov.uk/news/one-stop-shop.pdf

 

WRITE A WILL

 

The rules governing who gets what from a UK estate where there is no will have been simplified recently.

 

If you haven’t written a will you can find out what the changes mean for your family by following this link.

 

www.gov.uk/inherits-someone-dies-without-will/y

 

Better still, write a will.

 

 

MORE SCAMS

 

The latest one is an email, supposedly from HMRC, in which you are informed you are no longer eligible to receive a tax return!  As if that in itself weren’t enough to raise your suspicions you are invited to click on a link to ‘re-join’.  And that is when the scammers elicit the sensitive information from you.

 

Our Advice:  If you are feeling lazy just delete the email.  If you are feeling vengeful forward the email to phishing@hmrc.gsi.gov.uk and then delete.

 

 

PLAYING AWAY

 

A married man is having an affair with a female colleague.  One day their passions overcome them and they take off for her house.

 

Exhausted after their afternoon’s activities they fall asleep.

 

Waking at 8.00pm the man throws on his clothes and dashes into the garden to rub his shoes in the grass and dirt.  Then he drives home.

 

“Where have you been?” demands his wife when he arrives.

 

“Darling, I can’t lie to you,” he replies, “I have been having an affair with a woman at work.  I fell asleep in her bed and didn’t wake up until eight o’clock.”

 

His wife looked down at his shoes.  “You liar,” she said, “You have been playing football again!”

Copyright:  K P Bonney & Co LLP 2014.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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