In last year’s Autumn Statement, the Chancellor announced a reduction in the rate at which employees would pay NICs on earnings between the primary threshold (the point at which earnings start to attract a NICs charge) and the upper earnings limit (UEL – the point at which earnings are charged to lower NICs).
That change, a reduction from 12% to 10%, took effect from 6 January 2024.
The Chancellor has now announced a further reduction (on the same earnings band) to 8%, effective from 6 April 2024.
There is no change to the threshold levels, which will remain as:
The maximum annual saving for an employee will, therefore, be £754 ((= £50,270 - £12,570) x 0.02).
There is no change to the rate of NICs payable on earnings above the UEL, which remains at 2%.
As employee pension contributions are subject to NICs – unless using salary sacrifice – payment of these will not impact the overall saving attributable to the NICs charge reduction.
Where contributions are made by salary sacrifice, these are not subject to NICs. Where sacrificing is on an opt-in basis the incentive for employees (in the £12,570 to £50,270 earnings range) to opt in may (further) weaken marginally. Where sacrificing is automatic, unless employees opt out, the level of employee incentive is less of an influence except in lower earner cases where a reduced salary may adversely affect benefit entitlements etc. The maximum employee saving from sacrificing pensions contributions will be 8% as opposed to 10% (or 12% when compared to the pre-6 January 2024 position). However, to the extent that earnings net of the sacrifice remain above the UEL, the saving would be 2%.
Pensioners do not pay NICs on their pension income.
Employers usually pay 13.8% NICs on employees’ earnings above the secondary threshold (£9,100) and no changes are being made to these.
NICs are not payable on employer pension contributions.
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The Government announced it will reform the way Child Benefit is withdrawn for individuals with higher incomes. At present, if a recipient of Child Benefit, or their partner, earns above £50,000 a year, the higher earner pays additional tax (the HICBC) such that the Child Benefit is fully offset for earnings above £60,000. From 6 April 2024 individuals can earn up to £60,000 a year before the offsetting begins, and the rate of offsetting will be halved. This will mean there will be some net benefit for individuals earning up to £80,000. The Government also announced its intention to administer the HICBC on a household rather than an individual basis by April 2026, and will consult in due course – this may benefit some households where one partner is above the threshold and the other is not.
The marginal rates of taxation will be particularly high for individuals with adjusted net incomes between £60,000 and £80,000. Pension saving for these individuals will often be particularly tax-advantageous, as pension contributions reduce adjusted net income. The tax advantages of pension saving will be even higher for savers in this position who are also able to use salary sacrifice, as they can benefit from reduced NICs as well.
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HMRC has published a consultation setting out its proposals for regulating the tax advice market. This arises from long-standing concerns that a minority of tax practitioners are incompetent, unprofessional or unscrupulous.
The consultation sets out three options:
The intention is that that this would apply as a minimum to tax practitioners who deal direct with HMRC in relation to their clients’ UK tax affairs, but potentially to all tax practitioners acting in a professional capacity. HMRC intends to introduce a legal definition of a tax practitioner and to consult on draft legislation which will define tax advice and assistance. This will include dealing with the UK tax authorities and could encompass advising a client in relation to tax. HMRC envisages exempting those (for example lawyers, actuaries and financial advisers) who are currently regulated in this regard by a professional body. However, the list of exemptions does not currently include other pensions professionals who liaise with HMRC over their clients’ UK tax affairs, which could encompass certain standard pensions administration activities.
In any event, the consultation proposes that all tax practitioners who deal direct with HMRC should be registered, during which process HMRC will carry out certain automated checks (such as anti-money laundering and whether the practitioner is up to date with their tax affairs). Implementation of this might be possible in 2028.
The consultation runs until 29 May 2024.
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A British ISA has made a reappearance after rumours it was to be introduced previously in the Autumn Statement 2023, to encourage people to invest in the UK, while supporting UK companies. This will be an additional £5,000 allowance in addition to the existing ISA allowance of £20,000 for UK adults, with all the same tax advantages of other ISA’s. How keen investors will be based on how UK companies have performed against other global companies and investors wishing to diversify their investments, will be interesting. There is a consultation inviting views on how to design and implement the UK ISA, that runs from 6 March 2024 to 6 June 2024.
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As already announced in last year’s Autumn Statement, the Government confirmed that it is “maintaining the triple lock” in 2024-25. Whether this extends beyond 2024-25 will become clear only once a new government is in place.
The Office for Budget Responsibility forecasts that the 2.5% underpin within the State Pension Triple Lock will bite when the Government increases pensions in April 2026, April 2027 and April 2028. That is unlikely to change any politicians’ minds about keeping the Triple Lock for at least another five years rather than reverting to the earnings-based increases in legislation. It does, though, mean that the Triple Lock costs more in the short term than the minimum earnings-related increases due by law.
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Building on its 2022 “Edinburgh Reforms” package, the Government confirmed that the FCA will regulate providers of environmental, social and governance (ESG) ratings to users within the UK. ESG ratings are assessments of ESG matters, which increasingly drive investment decisions in financial markets. The confirmation follows its earlier consultation in spring 2023. A full consultation response and legislative steps will follow later this year.
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The Government states that it remains committed “to exploring a lifetime provider model” for defined contribution (DC) pension schemes “in the long-term”. The Government will, therefore, “undertake continued analysis and engagement”, with the aim being to ensure that this would improve outcomes for savers. Although this seems less committed than when it consulted on this after the Autumn Statement, which was couched in terms of “how to” rather than “whether”, it reflects more recent views expressed by the Pensions Minister.
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Last weekend, HMT published a press release stating that the “Chancellor backs British business with pension fund reforms”. In today’s Budget the Chancellor reiterated the main theme of that announcement – that defined contribution (DC) schemes will be required “to publicly disclose the breakdown of their asset allocations, including UK equities”.
Back in November, the Financial Conduct Authority (FCA) confirmed that it would consult in Spring 2024 “on detailed rules for a new value for money (VFM) Framework for DC workplace pensions”. This consultation will seek to align the Value for Money regime across all workplace DC schemes with that proposed in a response document published jointly in July 2023 by the Department for Work and Pensions, TPR and the FCA. Indeed, the Pensions Regulator (TPR) encouraged trust-based schemes to engage with the FCA consultation “so that there are no barriers to implementing the [VFM] framework in the trust-based environment.” In the 2023 document, the proposal had been to extend to contract-based plans the ‘asset allocation disclosures’ that currently apply to relevant occupational pension schemes, including “strong encouragement to disclose sub-asset classes that include, for example…[the] proportion of UK-based assets invested in”. It appears that the Government now intends to mandate disclosure in relation to “their levels of investment in British businesses” by 2027, although the detail of quite what comprises British, in this context, remains to be seen. The Budget documents also state that “the government will review what further action should be taken if this data does not demonstrate that UK equity allocations are increasing”.Back to top
The UK ISA (see section of same name) is also intended to build on the government’s Mansion House and Autumn Statement 2023 measures to reform the pensions market to unlock investment into high growth sectors and improve the competitiveness of the UK as a listing destination. As part of those measures, the Budget also confirms that the Government is working with the ABI to put in place a framework to monitor the progress of the Mansion House Compact (see section headed “DC – the first mover”).
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