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My PFS - Technical news - 25/04/17

Publication date:

27 April 2017

Last updated:

22 September 2017


Technical Connection

Personal Finance Society news update from 11th to 25th April 2017.

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Taxation and Trusts



Taxation developments

(AF1, AF2, JO3, RO3)

The recent announcement of a General Election throws some interesting spanners into the process of government:

  • Parliament is likely to be prorogued on 3 May - just over a week's time.
  • In the interim there will be a "wash-up" period during which the many Bills currently going through Parliament will be rushed to Royal Assent or dropped.
  • One very large piece of legislation caught in this limbo is the Finance (No 2) Bill 2017, which coincidentally reached its House of Commons second reading stage on the day the Prime Minister made her announcement. It is likely that the Election will mean an abbreviated Finance Act followed by another Finance Bill once the new government is chosen - a repeat of what happened in 2010 and 2015.
  • The Pensions Schemes Bill 2016/17 is just about at the end of the parliamentary process so should survive unscathed.
  • An Election will mean a new set of manifestos for the political parties. The Conservatives' 2015 manifesto, prepared under David Cameron, was causing Theresa May's government problems - witness the Class 4 NICs U-turn last month.
  • A new manifesto will allow the Conservative party to regain the tax flexibility it lost with George Osborne's ill-fated 'triple lock' on VAT, income tax and NICs. It could also see the widely-expected demise of the other triple lock - on state pension increases - brought forward.

Ironically Mr Hammond may end up having a Summer Budget, having killed off Spring Budgets in favour of Autumn.

Employed, self-employed or incorporated?

(AF1, RO3)

The company wrapper is not always the best solution. It is possible to undertake a three-way comparison between three main options:

  1. Employment All earnings/income are assumed to be drawn as salary, meaning that there is employer's and employee's Class 1 NICs at combined rates of up to 25.8% and income tax at rates of up to 45%.
  1. Self-employment All profits are treated as income, with Class 4 NIC at up to 9%, Class 2 at £2.85 a week and income tax at rates of up to 45%.
  1. Incorporation Profits are assumed to provide a salary of £8,164 (the primary and secondary NIC Class 1 threshold), with the balance subject to corporation tax at 19% and the remainder distributed as a dividend. There are no NICs, but dividends are subject to rates of up to 38.1% once the dividend allowance is exhausted.

In practice, once the personal allowance is less than £8,164 (ie dividends are at least £98,508) there is a very marginal advantage in paying only enough salary to cover the available personal allowance, subject to the lower earnings limit (£5,876 in 2017/18) being covered. Similarly, if some Employment Allowance were available, this would favour a higher salary of up to the personal allowance. These two possibilities have been ignored in the calculations below because the overall saving is generally minimal.

In every instance employment (1) comes out as the worst option from a net income viewpoint because of the impact of 13.8% employer's NIC and, up to £45,000 of earnings, 12% non-tax-relieved employee's NIC.

The difference between self-employment and incorporation is variable as the table below shows, which assumes a £2,000 dividend allowance, no Class 2 contributions and current tax rates, bands and NIC thresholds. There are three main factors driving the relative attractiveness of incorporation:

  • At all levels, there is no NIC on the incorporated route - this drives the improving gain up to the £45,000 level, at which Class 4 NICs drop to a marginal 2%.
  • The lack of grossing up means that, for any given profit level, there is less taxable income under incorporation. This shows up at two thresholds - the higher rate threshold and personal allowance threshold:
  1. the higher rate threshold - hence the 6.37% gain at £55,000;
  1. the personal allowance threshold - hence the 5.95% gain at £120,000; and
  • Once dividends are attracting higher or additional rate tax, the marginal tax rate favours self-employment at 42% v 45.325% (higher rate) and 47% v 49.861% (additional rate). This higher marginal rate explains why the advantage of incorporation fades as each threshold is left behind.

By the time profit is over about £145,000, incorporation is the costlier option.





Net Income



Net Income


Gain on Incorporation


























































These are purely tax and NIC driven calculations. The choice between self-employment and employment should not be made on bare numbers alone.

Update on ISA tax advantages to be extended to deceased estates

(AF1, RO3)

The consultation period for the Statutory Instrument (SI), which extends ISA tax advantages to investments held within an account after the death of the account holder, ended on 7th April.

As the SI is technical in nature HMRC will not be publishing responses to the consultation.  The next step is for the SI to be laid before Parliament.

However, we have been in communication with HMRC on this matter and have been advised that the SI is currently 'on-hold' until after the General Election. Then the new government will need to decide whether or not the SI is to be laid before Parliament to give effect to the changes.


HMRC newsletter 86

(AF3, FA2, JO5, RO4, RO8)

HMRC has recently published Newsletter 86 which covers:

  • In specie contributions to registered pension schemes
  • Registration statistics
  • Relief at source
  • Lump sum death benefits - information requirements
  • Pension flexibility statistics
  • Lifetime allowance
  • Contacting Pension Schemes Services
  • Qualifying recognised overseas pension schemes (QROPS)
  • Scottish rate of Income Tax
  • Annual allowance scheme pays

Of notable interest -

In-Specie Contributions

HMRC reiterates its stance on In-specie contributions and directs schemes to the updates guidance in the PTM. The guidance has not changes significantly and HMRC again do not confirm that following the example in the guidance will result in the contribution being eligible for tax relief.

HMRC do say the following:

"The reasons why we may consider that the transfer of an asset does not give effect to a cash contribution are numerous, but may include:

the value of the asset is not sufficient to give effect to the pre-existing obligation to make the cash contribution; the nature of the asset is such that it is not capable of being able to meet the pre-existing obligation to make the cash contribution; there is no or insufficient evidence that there was a pre-existing obligation to make a cash contribution (the steps in the example in the PTM are the minimum we would expect to see when considering this) HMRC undertakes compliance activity on a case by case basis and the outcome will depend upon the facts and circumstances specific to each individual case."

Lump Sum Death Benefits

Two new forms have been published to help scheme administrators and trustees meet their information obligations on taxable lump sum death benefits paid to trusts.

These are:

R185 (Pension scheme admin) and;

R185 (LSDB)

Pension Flexibility Statistics

The quarterly release of official statistics on flexible payments from pensions for the period 1 January to 31 March 2017 will be published on 26 April 2017.

HMRC have also provided more information on the number of tax repayment claim forms (P55s, P53Zs and P50Zs) processed in respect of pension flexibility payments.

From 1 January to 31 March 2017 they processed:

P55 = 4,102 forms

P53Z = 4,113 forms

P50Z = 795 forms

Total value repaid: £22,810,697

Figures for the period 1 April to 30 June 2017 will be published in July 2017.

Lifetime allowance

A reminder that applications for IP14 are now closed but it is possible to still log in to make amendments to existing applications.

HMRC also hope to provide the basic protection look up service for scheme administrators in the summer, although this will be very limited.

Contacting HMRC

The postal address for Pension Schemes Services has changed. If you need to write to us, you should write to:

Pension Schemes Services

HM Revenue and Customs


United Kingdom

In addition HMRC remind us that the correct email address is this and those contacting them shouldn't use the automated reply email address because they are unable to access them to reply.


HMRC have announced additional changes to the publication schedule of the ROPS list, as follows

18 April 2017 -HMRC published an updated list

1 May 2017 - routine publication of the ROPS notifications list

15 May 2017 - routine publication of the ROPS notifications list

2 June 2017 - suspension the ROPS notifications list

5 June 2017 - HMRC will publish an updated list

15 June 2017 - routine publication of the ROPS notifications list

Scheme pays

HMRC have updated the PTM to clarify the time when a scheme is required to pay the annual allowance charge for its member, in particular it confirms that the pension input amount to the scheme must exceed the standard annual allowance rather than the tapered or money purchase annual allowance

AE Updated certification guidance

(AF3, FA2, JO5, RO4, RO8)

The DWP have published revised guidance for employers and their advisers on the certification of money purchase pension schemes. It sets out the issues employers must consider in determining whether they can certify that their money purchase scheme or the money purchase element of their hybrid scheme(s) satisfies the relevant or alternative quality requirements, in respect of the relevant jobholders.

The guide has been updated to reflect the changes being made to the timing of planned increases in the minimum level of contributions through the Employers' Duties (Implementation) (Amendment) Regulations 2016. As a result, the planned increase in October 2017, to 5% minimum contribution (2% employer), will take effect in April 2018, and the planned increase in October 2018, to 8% (3% employer), will take effect in April 2019.

The guide also now includes a template certification form.

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.