Taxation and trusts; Quarterly stamp duty statistics, 2021/22 Income Tax and National Insurance rates and more.

• Tax-free virtual Christmas parties okayed by HMRC
• Press release by the government announces pay rise for millions
• Quarterly stamp duty statistics – Q3 2020
• Capital gains tax changes that self-assessment customers need to know
• New fuel rates for company cars
• The financial statement
• The FSCS publishes November outlook
• Help to Buy ISAs – Quarterly statistics released
• Coronavirus grants for businesses affected by lockdowns - £1,000 for wet pubs
• HMRC targets promotors of employment-based avoidance schemes
• 2021/22 Income Tax and National Insurance rates
• Pre-paid funeral plans – New regulations

 

Tax-free virtual Christmas parties okayed by HMRC

(AF2, JO3) 

On 20 November, HMRC confirmed that it will accept a virtual Christmas party (particularly one that includes a party box) as an event which is capable of falling within the tax and NIC exemption for annual functions.

HMRC has supplied the Association of Taxation Technicians (ATT) with the following statement:

“Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held, parties. Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met. It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally. We will be updating our GOV.UK guidance shortly.”

Current rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function, such as a Christmas party, without creating a tax or National Insurance (NIC) liability for their employees and themselves – provided that certain conditions are met.

For a social event for employees to qualify for income tax and NICs exemption it must be an annual event (for example a Christmas or Summer party) which is open to all staff generally or all staff at a location, if the employer has more than one location. No liability to tax or NICs arises provided that the total cost of the event (including travel and accommodation although that is unlikely to be applicable this year) is no more than £150 per head. If the employer has more than one annual event in a tax year, for all the events to be tax-free the combined cost per head of all the events must be under £150.

In addition to the exemption for an annual function, employers can also take advantage of the trivial benefits rules to make seasonal gifts to staff, such as a bottle of wine or a Christmas pudding. Under the trivial benefits rules, employers can provide benefits costing up to £50 to an employee without tax consequences - provided that these benefits are intended as genuine gifts and not intended as a reward for their work.

When assessing whether an item falls within the trivial benefits rules all associated costs of the gifts must be factored in, including any VAT and also costs of postage, delivery or courier charges. For events such as cooking demonstrations, where fresh food is supplied to the employee in advance, delivery charges could be significant.

For a gift to be trivial, and therefore exempt from income tax and NICs for both the employer and employee, it has to meet all of the following conditions:

• it is not cash or a cash voucher (a normal gift voucher should meet this requirement);

• the cost does not exceed £50 per employee (or average cost if provided to a group of employees and it is impractical to work out the individual cost);

• it is not provided under a salary sacrifice or other arrangement; and

• it is not provided in recognition of particular past or future services performed by the employee (a gift on the occasion of Christmas should meet this requirement). 

There is an additional cap of £300 on the aggregate value of trivial benefits that can be paid to directors or officeholders of close companies (companies owned and controlled by five or fewer participators, such as typical family companies) or employees related to them in any one tax year. However, beyond this there is no limit on the number of individual trivial gifts that can be given to an employee in any one year, provided each gift individually qualifies for relief and the employer is not trying to divide a larger gift into several smaller ones.

It should also be noted that this is an all or nothing exemption - if the cost of a gift (including VAT) exceeds £50 then the full value is taxable under the usual benefits rules.  

Source: ATT News: HMRC confirmed that they will accept a virtual Christmas party as an event which is capable of falling within the rules for annual functions – dated 20 November 2020.

Press release by the government announces pay rise for millions

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

The Government issued a press release on 26 November announcing that millions of workers across the UK will receive a rise in their pay, following an increase in the National Minimum Wage and National Living Wage from April 2021.

The Chancellor, Rishi Sunak, has confirmed that the rate rises include a 2.2% increase in the National Living Wage to £8.91 per hour, the equivalent of £345 extra per year for someone working full-time.

The age threshold for those eligible for the National Living Wage will be lowered from 25 to 23.

These rises mean that since its introduction in 2016, a full-time worker on the National Living Wage will have seen an increase in their annual earnings of around £4,030.

In full, the hourly increases are:

• National Living Wage (23+) to increase 2.2%, from £8.72 to £8.91
• National Minimum Wage (21-22) to increase 2%, from £8.20 to £8.36
• National Minimum Wage (18-20) to increase 1.7% from £6.45 to £6.56
• National Minimum Wage (under 18) to increase 1.5% from £4.55 to £4.62
• Apprenticeship Wage to increase 3.6% from £4.15 to £4.30

Given the current pandemic the Government said it was committed to protect jobs and income so these rises will no doubt be welcomed by those on lower incomes.

Source: HM Treasury Press release: UK government announces pay rise for millions of people – dated 26 November 2020

Quarterly stamp duty statistics – Q3 2020

(AF4, FA7, LP2, RO2)

Quarterly statistics on residential and non-residential SDLT transactions valued at £40,000 or above have been prepared for the third quarter.  Whilst transactions had significantly decreased as a result of the pandemic, the latest figures below show a marked increase which is positive to see.

 

In addition, the statistics broadly show that:

• Total Stamp Duty Land Tax (SDLT) transactions in Q3 2020 (July to September) were 68% higher than in Q2 2020 as a result of the easing of the COVID-19 lockdown measures and following the introduction of the residential SDLT holiday.

• Total SDLT transactions in Q3 2020 were 18% lower than in Q3 2019, mainly due to the impact of the pandemic.

• Residential property transactions were 72% higher in Q3 2020 than in Q2 2020 and residential property receipts were 24% higher in Q3 2020 than in Q2 2020.

• Non-residential property transactions were 38% higher in Q3 2020 than in Q2 2020 and non-residential receipts were 33% higher in Q3 2020 than in Q2 2020.

• Since the introduction of first-time buyers’ relief there have been 568,000 claims that have benefited, and the total amount relieved by these claims is £1,344 million over the period. Since the introduction of a residential SDLT holiday on 8 July 2020, there is no requirement for first-time buyers to claim the relief.

• 43,800 transactions were liable to higher rates for additional dwellings (HRAD) in Q3 2020, with the 3% element generating £245 million in receipts, an increase of 13% from the previous quarter, and a fall of 49% compared to 2019 Q3.

• The percentage of residential receipts from HRAD transactions has remained similar at 47% when compared to the 48% for Q2 2020.

Source: HMRC Official Statistics: Quarterly Stamp Duty Statistics – dated 20 November 2020

https://www.gov.uk/government/publications/quarterly-stamp-duty-statistics/quarterly-sdlt-commentary-2020-q3)

Capital gains tax changes that self-assessment customers need to know

(AF1, RO3)

HMRC recently issued a press release reminding customers that they have until 31 January 2021 to declare any gain made from selling a UK residential property, which was not their main home, during the 2019/20 tax year and pay any capital gains tax (CGT) that is due.

For the current tax year (2020/21) the position is somewhat different as a result of the changes announced whereby individuals and trustees are required to use the online service to inform HMRC of any gain and pay any CGT due within 30 days of completion – see HMRC’s guidance.

Penalties will be applied for any late filing and the guidance makes it clear that interest will accrue on the outstanding tax if it is still unpaid after 30 days.

These rules affect landlords, property developers or UK residents who sell a residential property that is not their primary home. Non-UK residents disposing of UK land and property should also use the online service, regardless of whether there is a gain or not.

CGT payable on gains realised from other assets will still need to be included within the individual’s self-assessment return and any CGT paid by 31 January following the end of the tax year where the return is submitted online or 31 October where a paper return is completed.

Source: HMRC Press release: Capital Gains Tax changes that Self Assessment customers need to know – dated 24 November 2020

(https://www.gov.uk/government/news/capital-gains-tax-changes-that-self-assessment-customers-need-to-know and https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax)

New fuel rates for company cars

(AF2, JO3)

HMRC has announced the new fuel rates for company cars applicable to all journeys from 1 December 2020 until further notice.

The rates per mile are based on fuel prices and adjusted miles per gallon figures.

For one month from the date of the change, employers may use either the previous or the latest rates. They may make or require supplementary payments, but are under no obligation to do either. Hybrid cars are treated as either petrol or diesel cars for this purpose.

Rates from 1 December 2020:

Engine size	Petrol	LPG	Engine size	Diesel
1,400 cc or less	10p	7p	1,600 or less	8p
1,401cc to 2,000cc	11p	8p	1,601cc to 2,000cc	10p
Over 2,000cc	17p	12p	Over 2,000cc	12p

Rates from 1 September 2020:

Engine size	Petrol	LPG	Engine size	Diesel
1,400 cc or less	10p	7p	1,600 or less	8p
1,401cc to 2,000cc	12p	8p	1,601cc to 2,000cc	10p
Over 2,000cc	17p	12p	Over 2,000cc	12p

 
Advisory Electricity Rate

The advisory electricity rate for fully electric cars is 4p per mile.

Electricity is not a fuel for car fuel benefit purposes.

Source: HMRC Guidance: Advisory Fuel Rates – dated 25 November 2020.

The financial statement

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

On 25 November the Chancellor gave a ‘Financial Statement’ setting out a one-year Spending Review and the latest economic projections from the Office for Budget Responsibility (OBR).

In mid-September we suggested five reasons why the Autumn 2020 Budget could be deferred and the Spending Review shortened from three years to just 2021/22 alone. In summary they were:

1. The possibility of a resurgence of COVID-19 infections;

2. Unfinished Brexit business;

3. The likely requirement to make amendments next March in the light of events;

4. The need for time to get the ‘hard choices’ message across; and

5. The economic consensus that tax increases should not be introduced until the economy had stabilised.

Less than a fortnight later, Mr Sunak presented his Winter Economy Plan and announced a deferral of the Autumn Budget. In the following month the Spending Review became a one-year exercise.

The statement made by the Chancellor on 25 November reinforces the logic of these deferrals and sets up the March 2021 Budget to be one of the most significant for many years. 

The OBR Economic & Financial Outlook

The OBR’s last Economic and Fiscal Outlook (EFO) was published alongside the Budget on 11 March, 12 days before the first lockdown came into force. By the end of the month, it was woefully out of date. The OBR subsequently issued a series of ‘coronavirus scenarios’, the last one of which emerged in early August. In those projections the OBR’s central case was for borrowing to be £372bn in 2020/21, nearly seven times the £54.8bn in the March EFO.

Since August the Chancellor has announced a range of new spending measures, including the extension of the Coronavirus Job Retention Scheme (CJRS). The economy has also performed better than the OBR feared, with tax revenues declining less than projected. Unfortunately, spending won over tax and the net result is that the OBR’s central case for 2020/21 borrowing is now £393.5bn (19% of GDP).

In 2021/22 there will still be £55bn of COVID-related expenditure (eg. for vaccines, test-and-trace and PPE), keeping borrowing at about £165bn. Thereafter borrowing stabilises at roughly £100bn, as the graph below shows.

The debt/GDP ratio will rise to 105.2% in 2020/21 and largely flatline thereafter. That is about 25% higher than the OBR was projecting in March.

While the OBR said nothing explicit about tax increases, its latest EFO did make two points of note:

• Based on its central forecast, the OBR said “…even on the loosest conventional definition of balancing the books, a fiscal adjustment of £27 billion (1 per cent of GDP) would be required to match day-to-day spending to receipts by the end of the five-year forecast period.”

• It also noted the upward revision to borrowing from the March EFO “settling at around £42 billion from 2022/23 onwards”. That figure is close to the £40bn round numbers estimate that both the Institute for Fiscal Studies and Resolution Foundation arrived at as the required level of tax increases in the medium term.

The Spending Review

The nearest the Chancellor approached to mentioning tax increases was to say in his speech “…we have a responsibility, once the economy recovers, to return to a sustainable fiscal position.” Aside from that, the focus was on government spending, which will be 3.5% higher in 2021/22 than he envisaged in the March Budget.

The long list of measures announced by the Chancellor includes:

• An additional £38bn of public services support in 2020/21, taking the total spending on the COVID-19 crisis this fiscal year to over £280 billion. As mentioned above, in the next financial year there will be another £55bn COVID-19 expenditure.

• £100bn of capital spending will be undertaken by the government in 2021/22, which will be £27 billion more in real terms than in 2019/20. The target will be investment that delivers jobs.

• An infrastructure bank will be established as part of a National Infrastructure Strategy. The bank will aim to bring private investment into projects and will be headquartered in the North of England.

• Local areas will be able to bid for funding from a new Levelling Up Fund with up to £4bn of resources available. The Fund will be jointly managed by the Treasury, the Department for Transport and the Ministry of Housing, Communities and Local Government.

• Local authorities will be able to levy a fresh 3% precept on council tax bills to help fund social care in addition to raising bills generally by up to 2% without needing to hold a referendum. In addition, the £1bn social care grant, introduced last year, will continue into 2021/22. The government will bring forward proposals for adult social care “next year”.

• In the public sector, only NHS workers and those earning less than £24,000 a year will receive an increase in pay during 2021.

• From next April the National Living Wage (NLW) will increase by 19p (2.2%) to £8.91 an hour. The age at which workers become eligible for the NLW will drop by two years to 23. National Minimum Wage rates will also rise.

• Spending on overseas aid will be cut from 0.7% of GDP to 0.5% – a cut of approximately £4 billion in 2021/22. The cut will be restored “when the fiscal situation allows”.

• The business rates multiplier will be frozen in 2021/22, sparing businesses in England an increase of 0.5% (the CPI annual rise to September 2020).

• From 2030, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) will effectively replace RPI. This will impact on index-linked gilts and pension increases, as CPIH is generally lower than RPI (eg 0.9% against 1.3% as at October 2020).

This statement was probably the last of the Chancellor’s run of extra spending announcements and sets up the Spring Budget as the time when he starts addressing the income side of the government’s finances.

Self-evidently the importance of tax know-how and tax planning looks set to continue to assume fundamental importance as a core part of the financial planning process for the foreseeable future

Source: Treasury 25/11/20

The FSCS publishes November outlook

The FSCS have published their bi-annual Outlook document which includes general updates, updates on the levy position and a recoveries update amongst other things.

Claims

Since the annual levy announcement in May 2020, the FSCS have also continued to see a rise in the number of pension advice compensation payouts, with the number of claims up 45%. In addition, the associated average cost of compensation has increased by 5% due to more complex cases.

There has also been an increase in the cost of “return of funds” cases, for example with the failure of Reyker Securities plc, where the FSCS funds the cost of transferring the cash and assets of failed investment firms to a new provider and addresses any shortfalls suffered by clients where they are eligible for FSCS protection.

Recoveries

The FSCS have a statutory duty to pursue all recoveries that are reasonably possible and cost-effective. They do this not only to reduce the cost of the levy to the industry, but also in certain cases to provide further protection to customers with losses in excess of the compensation limits.

A key focus for the recoveries function over the next two years will be the increasingly growing portfolio of “illiquid funds”. These are the high-risk esoteric investments that some customers have been wrongly advised to purchase, often by transferring their existing pensions funds into a SIPP. The types of investment are wide-ranging and held across multiple jurisdictions. Common examples include storage spaces, airport car parking, tree plantations and property developments. Their values are often extremely uncertain or will take many years to realise. A number of these “illiquid funds” involve fraudulent investments, and the FSCS are currently working closely with the Serious Fraud Office (SFO) to tackle these cases.

Source: FSCS Outlook November 2020

Help to Buy ISAs – Quarterly statistics released

(FA5)

HMRC’s latest quarterly statistics on Help to Buy ISAs have been released. These cover the period from 1 December 2012 to 30 June 2020.

The statistics show that since the launch of the Help to Buy ISA, 336,884 property completions have been supported by the scheme. The figures also show that 443,678 bonuses have been paid through the scheme with an average bonus value of £1,010.

The mean value of a property purchased through the scheme is £173,988 compared to an average first-time buyer house price of £200,028 and a national average house price of £237,834. 

The table below shows the number of property completions supported by the scheme broken down by property value.

The figures also show that:

• the median age of a first-time buyer in the scheme is 28 compared to a national first-time buyer median age of 30;

• the highest number of property completions with the support of the scheme is in the North West, Yorkshire and The Humber;

• the lowest number is in the North East and Northern Ireland.

Source: HM Treasury Official Statistics: Help to Buy: ISA Scheme Quarterly Statistics: December 2015 to 30 June 2020 – dated 27 November 2020

 

Coronavirus grants for businesses affected by lockdowns - £1,000 for wet pubs

(AF2, JO3)

In addition to being able to claim up to £3,000 per property every 28 days, ‘wet-led’ pubs in England will be able to claim a one-off £1,000 ‘Christmas grant’.

Following a series of different announcements recently covering support grants available to businesses impacted by the various types of lockdown, the Government has now announced an additional £1,000 Christmas grant for ‘wet-led pubs’ (pubs that predominantly serve alcohol rather than provide food) in tiers 2 and 3.

The payment will be a one-off for December and will be paid on top on the existing, up to £3,000, monthly cash grants for businesses. This will cover those in tiers 2 and 3 forced to reduce their operations as a result of the latest regional measures put in place to contain transmission of the virus.

Eligible wet-led pubs across these tiers are invited to apply through their local authority who will be responsible for distributing the grants. The payment will be made once per business for the month of December only.

Source: HM Treasury Press release: Prime Minister announces £1,000 Christmas grant for 'wet-led pubs'– dated 1 December 2020.

HMRC targets promotors of employment-based avoidance schemes

(AF1, RO3)

HMRC believes that the market has moved away from top accountancy firms and banks selling investment-based schemes towards employment-based avoidance schemes, aimed at those with middle income levels, including contractors and agency workers.

HMRC’s latest report ‘Use of marketed tax avoidance schemes in the UK’ very helpfully sets out the contrast between tax avoidance and legitimate tax planning, as follows:

‘Tax avoidance is bending the tax rules to try to gain a tax advantage that Parliament never intended. It usually involves contrived transactions that serve no real purpose other than to artificially reduce the amount of tax that someone has to pay. It’s about seeking to operate within the letter but not the spirit of the law.

It’s very different to legitimate tax planning, which is about following the letter and the spirit of the law, and taking advantage of tax breaks in a way that Parliament intended. Putting money into an ISA isn’t tax avoidance because Parliament introduced ISAs as a tax-privileged way of encouraging savings. In contrast, when Parliament passed legislation covering Employee Benefit Trusts, they didn’t intend that people could artificially reduce their tax liabilities through a convoluted process where so-called loans are routed through offshore tax havens.’

Financial planners have an excellent opportunity to powerfully communicate the value of tried and tested financial planning strategies. These will also have the benefit of tax efficiency – but tried and tested tax efficiency – worlds apart from tax evasion and aggressive avoidance. At a time when many clients will be justifiably anxious about taking any action in relation to their finances, justified reassurance that a recommended strategy does not represent avoidance or evasion and is safe from HMRC and attack will be highly valued.

HMRC’s latest report highlights both a 50% reduction in the amount of tax the UK loses to tax avoidance and changes to the market for tax avoidance schemes, since 2013/14.

In 2018/19, HMRC estimates that 95.3% of all the tax that was legally due in the UK was paid. That’s £627.9 billion. HMRC says that £34.1 billion of that figure was additional tax from tackling avoidance, evasion and other non-compliance.

In the same year, HMRC estimates that around £1.7 billion was lost to tax avoidance.

Around half of this gap (£0.9 billion) is attributed to corporation tax.

£0.6 billion relates to avoidance schemes marketed to individuals and is mainly made up of unpaid income tax, National Insurance contributions and capital gains tax.

Other direct taxes and VAT account for the smallest share of avoidance (each at £0.1 billion).

HMRC says that the income tax, National Insurance contributions and capital gains tax elements of the avoidance tax gap have been estimated using information it collects on tax avoidance schemes that were marketed and sold to individual UK taxpayers. The £0.6 billion figure is a projection and is likely to be revised as HMRC works through its data.

HMRC’s analysis suggests the market for the promotion of tax avoidance schemes has in the last six years moved away from the top accountancy firms and banks selling schemes to high-income individuals, to small promoters selling employment-based avoidance schemes (disguised remuneration schemes), typically to middle-income earners such as contractors and agency workers. It believes this move away from accountancy firms and banks is a direct result of its campaign to make avoidance schemes reputationally damaging.

HMRC says that it is determined to continue to do all that it can to stop unscrupulous promoters. And it seems to have a particular focus on disguised remuneration avoidance schemes.

HMRC action against promoters

• In March 2020, HMRC published its strategy Tackling promoters of mass-marketed avoidance schemes, setting out how it would continue to tackle promoters and their supply chain, using the powers in the anti-avoidance regimes.

• In Summer 2020, HMRC consulted on new policy measures to enable it to act more quickly when tackling promoters. This includes powers to publicly name schemes and promoters earlier, to help it warn taxpayers about the tax avoidance schemes being marketed.

• In July 2020, the Government also launched a call for evidence on how best to tackle disguised remuneration avoidance schemes, which continue to be marketed despite legislation being enacted which HMRC says makes it clear that they do not achieve the tax savings claimed for them. This included questions on how to tackle promoters.

• In September 2020, the independent General Anti-Abuse Rule (GAAR) Advisory Panel gave its opinion on a tax avoidance arrangement that rewarded a director through a remuneration trust.

Under the scheme, the director of the contributing company makes very small loans to the trust, or to someone appointed by the trust. The contributions received by the trust are not used to provide benefits to anyone other than the director of the contributing company through loans made to them on uncommercial terms. It is claimed that the loans are not connected with the director’s employment with the company. Instead they may say they receive the loans because, as a provider of finance, they qualify as a beneficiary of the trust. As part of the arrangements a personal management company is set up and controlled by a third party supporting the arrangements or in some cases controlled by the contributing company or its director. The third party extracts the scheme fee, then transfers the remaining money to the director of the contributing company. Money received by the director is claimed to be a tax-free loan. So, the company claims a tax deduction for its contributions to the trust and both the company and its director claim that the loans are tax free.
HMRC views these arrangements as tax avoidance and will challenge anyone operating such arrangements and investigate the tax affairs of all users. The GAAR Panel agreed with HMRC’s view that entering into and carrying out these arrangements was not a reasonable course of action. For more information, please see here.

• HMRC will consider taking action against promoters of arrangements which, in the GAAR Panel’s opinion, are unreasonable. HMRC will also pursue anyone who promotes or enables tax avoidance. HMRC will use its powers under the Promoters of Tax Avoidance Schemes regime against those who continue to promote tax avoidance schemes. These powers include the right to impose significant conditions on how a promoter conducts its business. This may also include using the enablers penalty regime for anyone who designs, sells or enables the use of abusive tax avoidance arrangements which are later defeated by HMRC. The penalty applies where any of these arrangements have been enabled and entered into on or after 16 November 2017.

• The Government announced on 12 November 2020 further proposals to tackle promoters, which it will consult on in Spring 2021. This will include consulting on measures to ensure that promoters face significant financial consequences for promoting tax avoidance more quickly than under the existing regimes.

• On 26 November 2020, HMRC and the Advertising Standards Authority (ASA) launched new action to cut out misleading marketing by promoters of tax avoidance schemes. The joint enforcement notice aims to disrupt the activity of promoters and protect people from being presented with misleading adverts which may tempt them into tax avoidance.

Sources:

• STEP News: HMRC reports shift in promoted tax avoidance-scheme market – dated 30 November;
• HMRC Corporate report: Use of marketed tax avoidance schemes in the UK – dated 26 November;
• HMRC Press release: HMRC and Advertising Standard Authority launch new action to disrupt promoters of tax avoidance schemes – dated 26 November;
• HMRC Guidance: Disguised remuneration - tax avoidance by owner managed companies using remuneration trusts (Spotlight 56) – dated 1 September 2020;
• HMRC Open consultation Call for evidence: tackling disguised remuneration tax avoidance – dated 21 July 2020.

2021/22 Income Tax and National Insurance rates

(AF1, RO3)

Hidden away in the recent Spending Review was an increase in tax allowances and NI bands

Normally, if the Treasury plans to adjust income tax allowances and bands and/or National Insurance (NIC) thresholds and bands, it will publish full, comparative tables. When none appeared alongside Rishi Sunak’s statement on 25 November, many people assumed the issue had been kicked down the road to the Spring Budget. After all, any increases would only be a mere 0.5%, based on the CPI annual rate to September 2020.

As often happens, after a few days poring over all the documents that emerged in the wake of a Treasury set piece more information has been discovered in the small print. Go to page 22 of the Spending Review and it states:

‘1.36 Further, the government will increase the 2021-22 Income Tax Personal Allowance and Higher Rate Threshold in line with the September CPI figure. The government will also use the September CPI figure as the basis for setting all National Insurance limits and thresholds, and the rates of Class 2 & 3 National Insurance contributions, for 2021-22.’

That would imply the following:

	2020/21	2021/22
Personal allowance	£12,500	£12,570
Basic rate band	£37,500	£37,700
Higher rate threshold	£50,000	£50,270
NIC Primary Threshold	£183pw/£9,500pa	£184 pw/£9,550pa
NIC Secondary threshold	£169/£8,788	£170pw/£8,840
Upper Earnings Limit	£962/£50,000	£967/£50,270

These figures are provisional and have not yet been published officially, although on 3 December no greater organ of repute than The Sun newspaper said it had had the income tax numbers confirmed by the Treasury.

In particular note:

• The increase in the higher rate threshold is more than 0.5% because section 21 ITA 2007 requires the basic rate band to be rounded up to the higher £100.

• The NIC figures may be subject to tweaking. In any event, the Government Election manifesto statement that “Our ultimate ambition is to ensure that the first £12,500 you earn is completely free of tax” looks to have become rather more ultimate than originally envisaged.

• As is the case now, Scotland will have its own tax bands and higher rate threshold but keep the UK personal allowance. That probably means another cut in the intermediate (21%) band if the Scottish Government continues their practice of freezing the higher rate threshold.

• The move to a higher rate threshold above £50,000 means the High Income Child Benefit Charge will have a threshold that catches some basic rate taxpayers. Perhaps a name change is required…

It is an interesting comment on the Chancellor’s approach to income tax that this news was so well buried. Admittedly the benefits are small, but in theory they will exist. 

Source: HMT Spending Review 25/11/20 

Pre-paid funeral plans – New regulations

The FCA will be taking over regulation of the pre-paid funeral plans sector in the summer of 2022.

Over recent years, it has become increasingly common for clients to take out a pre-paid funeral plan as not only is it an easy way to get a funeral arranged it also protects family members from rising costs and uncertainty about any specific final wishes.

Funeral plans are most commonly backed either by assets held in trust or by a whole-of-life insurance policy.

Back in June 2018, following concerns about the risk of consumer detriment in the pre-paid funeral plan market, the Government launched a Call for Evidence on the regulation of the sector.

Citizens Advice Scotland and Fairer Finance had highlighted numerous failings in the sector, including a lack of clarity for consumers, high pressure and misleading sales activity and a lack of access to redress schemes if things go wrong. Fairer Finance also raised doubts about the financial soundness of some trust-based providers.

Currently, funeral plan providers can seek registration with the Funeral Planning Authority (FPA), a self-regulatory body for the sector. The Call for Evidence sought views and information on how the funeral plan market currently operates and the Government’s initial policy proposal to bring all funeral plan providers within the remit of the Financial Conduct Authority (FCA). The Government’s objectives were that any regulation of the sector should seek to ensure that:

• all pre-paid funeral plan providers are subject to robust and enforceable conduct standards;

• there is enhanced oversight of providers’ prudential soundness;

• consumers have access to appropriate dispute resolution mechanisms if things go wrong.

According to the Government, responses to the Call for Evidence confirmed that consumer detriment was present in the market and that there was broad demand for the sector to come under compulsory regulation. So, in June 2019, the Government launched a Consultation on its proposed approach to strengthening the regulation of the funeral plans market.

After considering the responses to the consultation, the Government has now decided to amend the regulatory framework to bring funeral plan providers within the remit of the FCA.

It will also extend the jurisdiction of the Financial Ombudsman Service (FOS) so that it can deal with complaints relating to funeral plan providers that were previously regulated by the FPA, even where funeral plan contracts may have been transferred to other providers.

The Government will shortly lay before Parliament secondary legislation to amend the regulatory framework for funeral plan providers, and will publish a de minimis impact assessment when the statutory instrument is laid. The proposal is that the new regulatory framework will come fully into force 18 months after the legislation is made. This will allow time for the FCA to design, consult on and implement the relevant architecture for the new regulatory regime, and for funeral plan providers and intermediaries to take the necessary steps (including seeking authorisation) to meet the requirements of the new regulatory framework. 

You can read the full consultation response here.

The FCA says that it expects to take responsibility for the regulation of the sector in summer 2022, some four years after the Government started launched its Call for Evidence in 2018.

To help firms in this sector get ready, it will be publishing more detailed information on its website in the coming weeks.

The FCA intends to consult in spring 2021 on its plans for regulating this sector, including its proposed rules and approach to authorising firms, and will then finalise its rules later in 2021.

Once the FCA has finalised its rules, firms seeking its authorisation will need to submit an application demonstrating how they meet the FCA’s regulatory standards. The FCA will assess all applications and seek additional information from firms where needed, to decide if they can be authorised.

In order to carry out regulated funeral plan activities, firms must be authorised by us at the point at which the FCA takes responsibility for regulation, i.e. by the summer of 2022.

The FCA adds that continuing with regulated activity without authorisation is a criminal offence, and firms that don’t intend to seek FCA authorisation should start planning now for how to wind down their business in an orderly way before FCA regulation comes into force. 

However, it has confirmed that funeral plan providers will have the option to seek permission solely for administering funeral plan contracts where they are no longer seeking to sell new plans. This is intended to help to address concerns raised around the transition to FCA regulation.

Source: HM Treasury Consultation outcome: Regulation of pre-paid funeral plans: consultation on a policy proposal/FCA statement on regulation of pre-paid funeral plans – dated 27 November 2020