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Technical news update 12/03/2019

Technical Article

Publication date:

12 March 2019

Last updated:

15 March 2019

Author(s):

Technical Connection

Update for 21 February 2019 to 6 March 2019.

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Taxation and trusts

Investment planning

Pensions

 

TAXATION AND TRUSTS

Corporate residence

(AF2, JO3)

From time to time the question of corporate residence and the resulting tax implications is raised. Often, it’s in the context of an enquiry about registering the company abroad in a low-tax jurisdiction to reduce corporation tax on trading profits. 

Generally speaking, unless a company is actually and substantially centrally managed and controlled from the proposed low-tax jurisdiction, then there will be absolutely no UK tax benefit, despite what anyone may say.  

So, if the business is transacting in the UK and the real management and control is in the UK, the idea of registering the company abroad is really not worth pursuing. 

Even if, substantially, the central management and control of the company is outside of the UK (not an easy test to satisfy) there is another issue to consider in the light of the OECD (and UK in particular) attack on the erosion of taxable profits generated in the UK. 

Here is the HMRC briefing on this subject from March 2016. 

1. Introduction

The general rule is that a company which is not resident in the UK (and remember, it is first necessary to overcome the “central management and control” test- our words - see above) has to pay UK Corporation Tax only if: 

  • it has a permanent establishment in the UK 
  • the economic activity that generates its profits is carried out in the UK 

2. What is a permanent establishment? 

A permanent establishment is where a company has a presence in a country through which trade is carried out. There are two types of permanent establishment: 

  • a fixed place of business 
  • a dependent agent 

A fixed place of business is generally a building or a site which the non-resident’s personnel have at their disposal and use to carry out the non-resident’s business. An office, a factory or a shop, for example, can all be a fixed place of business. 

A dependent agent is a person who is not independent of the non-resident company and regularly does business for the company, usually by concluding contracts on its behalf.

3. What determines the location of economic activity? 

Many different elements contribute to a multinational’s economic activity, including sales, employees, technology, physical assets and intellectual property. The tax authorities need to work out which of these are developed or take place in a particular country and how much profit is attributable to them. 

Simply having customers in the UK does not mean that a company is carrying out its economic activity here. This is because having UK customers is not the same as having a permanent establishment in the UK. There is a difference between a non-resident company that is trading from abroad with customers in the UK, and one that is actually trading in the UK.

4. Websites and group companies

Having a UK website does not mean that a non-resident company has either a fixed place of business in the UK or a dependent agent in the UK. All of the trading activity could be taking place outside the UK.

Most multinational businesses are not single companies, but a group of companies, only some of which will be operating in the UK. 

For example, sometimes a company from outside the UK sells to UK customers via the internet. Another group company in the UK provides warehousing, distribution or other services and support to the selling company. Where this takes place, the UK service company will be taxed only on the profits of its own business, ie the services it provides to the selling company. 

This is not tax avoidance: it is simply the way that Corporation Tax works, ie it applies to individual companies.

5. UK companies operating overseas 

Most major economies operate Corporation Tax in the same way as the UK, so UK resident companies are treated in a similar way in other countries. In other words, UK companies do not pay Corporation Tax to another country on the profits from sales in that country, unless they trade through a permanent establishment there. Instead, they pay Corporation Tax on those profits in the UK. 

So, a UK resident company that is selling its goods overseas via its website will pay Corporation Tax in the UK, and not in the countries where its customers are physically located.

6. What is happening now? 

The concept of a ‘permanent establishment’ and how multinationals are taxed in different countries is not new. As far back as the 1920s, the League of Nations created draft tax treaties to prevent companies from being taxed twice on the same income in different countries. These rules are now part of modern tax treaties, which follow a model developed by the Organisation for Economic Co-operation and Development (OECD). 

What has changed is the way in which businesses operate, not least because of their ability to sell online in many different countries. This has raised questions about whether the tax rules for permanent establishments need to be updated to address these fundamental changes. 

The UK has led the way in initiating and implementing the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, which was set up to review and improve the function of international tax rules. The question of what constitutes a permanent establishment was one strand of this work and proposals to amend the international rules were announced in October 2015.  

92 countries are working together on an instrument designed to implement the revised definition by amending existing tax treaties.  

Further OECD/G20 work on the guidance on the principles for attributing profits to permanent establishments is also in progress. 

So you can see that merely registering in another (low-tax) country and satisfying the requirements of the law of that country to establish residence there will not be enough alone to secure a UK tax advantage. The central management control test and the generation of profit from trading in the UK are likely to provide significant barriers to legitimate and permissible avoidance of UK tax for businesses run from and trading in the UK. 

Source: HMRC Policy Paper - HMRC issue briefing: taxing the profits of companies that are not resident in the UK -  Published 1 March 2016.

 

New fuel rates for company cars

(AF1, RO3)

HMRC has announced the new fuel rates for company cars applicable to all journeys from 1 March 2019 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 March 2019:

Engine size

Petrol

LPG

Engine size

Diesel

1,400 cc or less

11p

7p

1,600 or less

10p

1,401cc to 2,000cc

14p

8p

1,601cc to 2,000cc

11p

Over 2,000cc

21p

13p

Over 2,000cc

13p

Rates from 1 December 2018:

Engine size

Petrol

LPG

Engine size

Diesel

1,400 cc or less

12p

8p

1,600 or less

10p

1,401cc to 2,000cc

15p

10p

1,601cc to 2,000cc

12p

Over 2,000cc

22p

15p

Over 2,000cc

14p

Source: HMRC Guidance: Advisory Fuel Rates – dated 22 February 2019.

 

HMRC trust statistics

(AF1, JO2, RO3) 

On 14 February HMRC issued its latest annual set of trust statistics. These are based on UK family trusts and estates that make a full self-assessment return and are thus inevitably somewhat out of date – they end with the 2016/17 tax year. What they show is:

The number of family trusts has continued to decline. Using past HMRC data shows this pattern since 2010/11:

The HMRC commentary notes the decline, which it coyly states ‘…may be a result of gradual changes in behaviour following an increase in the income tax rates applicable to trusts in 2004, which could make trusts less attractive’. The 2004 measure was the one which put the tax on trusts in the rate-applicable-to-trusts (RAT) regime (primarily discretionary trusts at the time) up from 34% to 40%. HMRC could also have mentioned the 2006 trust inheritance tax (IHT) taxation change, which placed many more trusts in the RAT regime, making them potentially subject to the IHT periodic and exit charges.

The tax generated by family trusts has not moved in the same direction as the number of trusts, mainly because, in another HMRC understatement, ‘tax payable arising from capital gains has been volatile in recent years in part due to changes in taxation such as the introduction of new CGT rates for non-residential property’.

These figures show the continued gradual fade of trusts. They also emphasise how it is just a relatively small number of trusts that provide the bulk of trust tax. In 2016/17: 

  • 3,000 interest in possession (IIP) trusts (5.3% of the total) paid 59.7% of income tax on IIP trusts; and 
  • 3,000 trusts subject to the rate-applicable-to-trusts (3.4% of the total) paid 53.1% of income tax on RAT trusts. 

Source: HMRC Trusts statistics February 2019 – published 14 February.

 

Scotland’s 2019/20 income tax differences from the rest of the UK confirmed

(AF1, AF2, JO3, RO3) 

On 19 February, the Minister for Public Finance and Digital Economy (Kate Forbes) moved that the Scottish Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2019/20 are as follows: 

(a) a starter rate of 19%, charged on income up to a limit of £2,049;

(b) the Scottish basic rate is 20%, charged on income above £2,049 and up to a limit of £12,444; 

(c) an intermediate rate of 21%, charged on income above £12,444 and up to a limit of £30,930; 

(d) a higher rate of 41%, charged on income above £30,930 and up to a limit of £150,000; and 

(e) a top rate of 46%, charged on income above £150,000. 

After debate, the motion was agreed to (by division: For 61, Against 52, Abstentions 6). 

Source: The Scottish Parliament: Meeting of the Parliament – 19 February 2019

 

Gifts with reservation of benefit statistics

(AF1, JO2, RO3) 

Figures obtained from HMRC indicate that in the last two tax years £261 million of gifted assets were brought back into the IHT net because of a reservation of benefit. 

The above statistics were quoted in an article in the Daily Telegraph in November last year. The figures were obtained through Freedom of Information requests. Over 840 estates were affected.    

It is not known what types of gift were involved but the chances are that, in most cases, a gift of a family home with continued occupation by the donor was involved. We are coming across an increasing number of questions related to trusts of properties where the settlor remains one of the discretionary beneficiaries or is a life tenant.  In some cases problems arise where such trusts were set up by companies promoting the so-called “asset preservation trusts” and where third party trustees appointed by such companies have since disappeared. 

Whilst in some cases there may be good practical reasons for transferring a family home into a trust, in reality, if the truth be known, most of such arrangements would have been set up with a view to avoiding paying care home fees. This would generally be the case where clients “bought” the so-called “asset protection trust” off the shelf from a marketing company.  Over the years a number of such schemes have been marketed and some promoters have clearly overstepped the mark of legality. In 2015 a number of people were jailed in Nottingham Crown Court for mis-selling the so-called “asset protection trust” to elderly clients, and in the most recent scandal, involving Universal Wealth Preservation and its associated companies, the owner of the business, Steven Long, was jailed for 8 months. 

Many of the schemes set up as “asset preservation trusts” have also unfortunately falsely claimed that they provided protection from inheritance tax. The above statistics on gifts with reservation can be quoted to highlight the point that a gift with reservation of benefit will not help avoid inheritance tax. 

The fact that each year so many estates are affected by the gift with reservation of benefit problem is likely to stem from a lack of understanding of how arrangements that individuals embark upon actually work.  It is surely unlikely that, except in a very small minority of cases, clients would embark on planning involving substantial gifts (and substantial fees) and even potential immediate inheritance tax liabilities, not to mention reporting and periodic IHT charges, knowing that they don’t actually avoid any IHT at all. When advising a client on any estate planning matters, it is essential to establish clearly what gifts have been made in the past and verify whether any of them were gifts with reservation of benefit.

 

Insolvency changed - new Government cosultation

From 6 April 2020, when a business enters insolvency, more of the taxes paid by its employees and customers, and temporarily held in trust by the business, will go to HMRC rather than being distributed to other creditors. 

This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE income tax, employee National Insurance contributions, and Construction Industry Scheme deductions). The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer National Insurance contributions.  

Legislation will be introduced in Finance Bill 2019/20 to make HMRC a secondary preferential creditor for certain tax debts paid by employees and customers on the insolvency of a business. This means HMRC will move ahead of holders of floating charges (mainly financial institutions) and other non-preferential unsecured creditors, but remain below holders of fixed charges (also primarily financial institutions) and higher ranking preferential creditors. 

HMRC has now published a consultation document outlining how its new status will differ from existing rules when a business goes into insolvency.  It is not proposed to introduce any time limit in respect of debts that are due and any penalties or interest arising from these taxes will also form part of HMRC’s preferential claim. 

This measure will have no effect in relation to any insolvency proceedings commencing before the implementation date of 6 April 2020. 

Economic impact

Although this change will affect financial institutions, the Government says that it does not expect it to have a material impact on lending. The Office for Budget Responsibility made no adjustment to its forecast as a result of this measure.  

The reasons given are: 

  • Financial institutions will remain above HMRC in the creditor hierarchy for fixed charges they hold over assets. 
  • The debts they will no longer recover are a very small fraction of total lending. Bank lending to small and medium enterprises alone was £57 billion in the 12 months to July 2018, compared to an estimated maximum yield of £185 million a year from this measure.
  • Other unsecured creditors – such as suppliers – are usually unable to recover any of their debts and so most will be unaffected. They currently only recover 4% of debts owed on average. 

HMRC has added that, where appropriate, it will also continue to offer Time to Pay (TTP) arrangements to help viable businesses with tax debt avoid entering insolvency. 

This consultation closes at 11:45pm on 27 May 2019 and the Government plans to publish a summary of the responses along with the draft legislation in Summer 2019. 

The legislation will apply to England, Wales and Scotland. For Scotland, a legislative consent motion may be required. 

Other insolvency related measures 

This follows on from a recent decision to make directors and other persons involved in tax avoidance, evasion or phoenixism jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency, which will apply following Royal Assent to Finance Bill 2019/20.

Source: HMRC consultation: Protecting your taxes in insolvency - dated 26 February 2019.

 

IHT receipts look to have stalled at around £5.2bn.

(AF1, RO3) 

The latest HMRC statistics for tax receipts show an interesting picture for inheritance tax (IHT). In the 12 months to January 2019, IHT receipts amounted to £5.214bn, down 1.6% on the figure for the year to January 2018. As the graph below shows, the Government’s IHT take has seemingly paused on its relentless climb and is now flatlining at around £5.2bn.

   

Last October the Office for Budget Responsibility (OBR) had projected 2018/19 IHT income of £5.5bn, noting that ‘receipts were front-loaded in 2017/18 in anticipation of a probate fee rise that in the event was not implemented’. That bringing forward of receipts for the latest round of probate fee increases – due in April - has not yet appeared in the monthly figures. To hit the OBR target, IHT receipts will need to be nearly £1.47bn in the final three months, which looks highly unlikely. However, the recent monthly IHT receipts data is provisional so revisions may come to the OBR’s rescue. 

The flatlining may be a reflection of the residence nil rate band (RNRB), which came into being in April 2017 and will have taken some months to impact on tax receipts. That could account for the drop early in 2018. The step up from £100,000 to £125,000 for the RNRB from April 2018 will have had less effect because it marked a maximum 25% increase in IHT saving over the original RNRB level. The path of receipts could be giving the Treasury food for thought on any IHT restructuring while it awaits the next report on IHT simplification from the OTS, due imminently.  

  

The late filing of tax returns could carry extra penalty risk

(AF1, AF2, JO3, RO3) 

Following the self assessment deadline in January, each February HMRC issues £100 penalty notices. However, due to Brexit-related pressures on HMRC resources, the issue of those notices will be delayed this year – possibly until near the end of April 2019. 

The £100 fixed penalty notice is an important prompt for taxpayers that are yet to complete their return because not only does it remind them that their return is outstanding but also reminds them that they risk incurring an additional penalty of £10 per day, subject to a maximum of £900, if the return is still outstanding after three months from the self assessment due date. 

However, if HMRC has not issued these notices then a number of taxpayers may fail to complete their returns sooner thereby facing significant penalties. As ever, it is vital clients are reminded that they should complete their return if they haven’t already done so. 

Finally, HMRC has produced a calculator to obtain an estimate of how much will be payable in penalties and interest for those who have missed the deadline for sending in their self assessment return and/or paying their self assessment tax bill. 

Source: HMRC Press Release: ‘Self Assessment deadline: less than one month to go’ published 2 January 2019.

  

HMRC has updated its guidance on the 'off payroll working rules' (IR35) in the public sector

(AF1, AF2, JO3, RO3) 

The HMRC off payroll working rules (IR35) are intended to make sure that, where an individual would have been an employee if they were providing their services directly, they pay broadly the same tax and National Insurance as an employee. 

The burden of responsibility for deciding if a worker is caught by IR35 or not falls on the engager if they are a public sector body. If the engager is a private sector business, the onus is currently on the worker. However, for private sector engagements, this burden of responsibility will be moving from the worker to the fee payer (the engager), from April 2020 although, importantly, this will not apply to small private sector businesses. 

HMRC has recently updated its guidance for clients working as a self-employed contractor for a public authority (ie. in the public sector).

Off payroll working 

If a worker uses their own intermediary (HMRC suggests that this is most commonly a limited company that they control – a personal services company) to provide their services to a public authority, the public authority is responsible for deciding if the off payroll working rules (IR35) should apply. 

If the rules apply, income tax and Class 1 National Insurance contributions will be deducted from the payments their intermediary receives from the public authority. 

The worker will need to: 

  • provide the fee-payer (the public authority, agency or third party responsible for paying their intermediary) with the information they need to deduct income tax and National Insurance contributions from the payment they make; 
  • report to HMRC on their own, and their intermediary’s, tax affairs. 

The worker will need to account for and pay income tax and National Insurance differently for work they do for private sector businesses. (Although the off payroll working rules are expected to be partially aligned from April 2020 for larger Private Sector businesses, so some differences will disappear from then.) 

Payments received from the fee-payer 

The fee-payer will pay VAT (if the worker is VAT registered) and then deduct income tax and employee Class 1 National Insurance contributions from the worker’s fee. This means the payment the worker receives will be net of tax. 

For example, Harry is a contractor working for Teignbridge council, via his intermediary company Harry H Ltd: 

  1. Harry H Limited invoices Teignbridge council for £7,200 for services provided (£6,000 fees and £1,200 VAT). 
  1. From their fees of £6,000, Teignbridge council deducts £1,613 (£1,200 tax at 20% basic rate and £413 employee Class 1 National Insurance contributions) which it pays to HMRC. 
  1. Harry H Limited receives a payment of £4,387 for Harry’s services plus £1,200 VAT. 
  1. Teignbridge council also pays employer National Insurance contributions. 

If the person paying the intermediary is outside of the UK, slightly different rules apply

The worker paying themselves through their personal services company 

The off payroll working legislation allows the worker’s intermediary / personal services company to deduct the amount of the payment it receives (which has had tax and National Insurance contributions deducted) from its taxable income, so it will not be taxed twice. 

There are a number of ways the intermediary / personal services company can pay the worker for his or her services. This can include paying the worker a: 

  • salary through the worker’s company’s payroll; 
  • dividend from the company’s profits. 

Salary 

The worker can pay themselves for the work provided to public sector clients through their company’s payroll. As employment taxes have already been paid on the amount their intermediary / personal services company receives, he or she can pay themselves that amount without deducting income tax or National Insurance contributions. 

The worker should report non-taxable payments their company pays them on the Full Payment Submission (FPS) that their payroll software produces.

Dividends 

If the worker is a shareholding director of their own company, they might choose to pay themselves a dividend from the company’s profits. They can pay themselves a tax-free dividend up to the total of the deemed direct payment received from contracts in the public sector, where income tax and National Insurance contributions have been deducted at source. The worker does not need to declare that dividend on their self-assessment tax return. 

Note that workers caught by IR35 are not able to pay themselves tax efficiently, through a combination of low salary and high dividends. The point here is that the worker is required to pay income tax and National Insurance contributions on their income, just as they would when working as an employee. 

Corporation tax calculations 

When the worker is calculating their personal services company’s turnover, they should deduct the VAT exclusive amount of the invoice, which is the amount from which income tax and National Insurance contributions were deducted at source. Their company accounts should show this deduction to make sure the amount is not taxed twice. 

Private sector differences 

For workers caught by IR35 under services performed for a private sector business, (and remember at the moment the burden of that decision still falls on the worker) the worker’s intermediary / personal services company currently receives a gross payment from the fee-payer (ie. without deduction of income tax and National Insurance), and is instead required to calculate a ‘deemed employment payment’. This is the amount deemed to be the income of the worker, and liable to income tax and employee National Insurance, once allowed deductions and employer National Insurance contributions have been removed. 

Deductions allowed include: 

  • a 5% expense allowance – workers / contractors working under IR35 for private sector businesses, through their own personal service company, are allowed to deduct 5% of their gross income earned through the IR35-caught contract, for the costs associated with running a company. Note that this 5% expense allowance doesn’t apply to workers in the Public Sector. 
  • pension contributions - irrespective of whether the IR35-caught contract happens to be in the Private or Public Sector, workers are able to claim tax relief on pension contributions made by their personal services company on the worker’s behalf. 

Under the IR35 reforms proposed for the private sector, the burden of responsibility will be moving from the worker to the fee payer, the engager, to decide if that worker is caught by IR35 or not although, importantly, this will not apply to small private sector businesses.

The above guidance provides some basic information for workers in the Public Sector.
 

Private sector engagers, who will often be far less knowledgeable about IR35 than HMRC, will likely need a significant amount of help in the run up to April 2020 to be in a position to be able to work out which of their contractors might be caught. 

Great reliance is expected to be given to the results shown by HMRC’s Check Employment Status for Tax (CEST) tool. However, evidence given by BBC Director General Lord Hall and other BBC representatives to the Government Public Accounts Committee inquiry into the BBC’s engagement with personal service companies in January, suggested that their presenters’ self-employed status was deemed legitimate before the introduction of the CEST tool, but the tool found 95% of them should actually be considered employees. These BBC representatives repeatedly criticised the performance and swift introduction of the CEST tool.

Lord Hall said: 

“From 2017 onwards, we were surprised by the way the outcomes of the tests that we had been applying perfectly legitimately and properly before were suddenly changed by CEST.” 

He added: 

“HMRC should be thinking very hard about the difficulties created by rushing into something which was more global in nature, and which we still haven’t worked through the consequences of now.”


Sources:

  • HMRC Guidance updated - Off-payroll working rules in the public sector for intermediaries – dated 27 February 2019;
  • Public Accounts Committee inquiry hearing: The BBC’s engagement with personal service companies – dated 30 January 2019.

  

INVESTMENT PLANNING

 

Government borrowing data gives the Chancellor a fair wind ahead of the Spring Statement

(AF4, FA7, LP2, RO2) 

January’s all-important Government borrowing figures have put the Chancellor on course to undershoot the OBR’s Autumn Budget estimate for the 2018/19 deficit, just when the opposite was looking possibility. 

The Government borrowing figures for January have just been released, giving us the last view of the UK’s finances before the Spring Statement on 13 March. The data covers ten months of the current financial year and crucially include the large inflow that comes from self-assessment payments in the first month of a new calendar year. 

The picture that emerges is better than suggested by the Office for Budget Responsibility’s (OBR’s) projections issued in October 2018, alongside the Autumn Budget. Indeed, the OBR’s home page notes ‘…borrowing is now down almost half relative to the same period in 2017/18 – a slightly larger fall than implied by our latest full-year forecast.’ 

The statistics for the month of January 2019 alone revealed a surplus of £14.9bn against a £9.3bn surplus for 2018, making it the highest surplus on record since monthly recording of net borrowing began in 1993. 

For the first ten months of 2018/19, Public Sector Net Borrowing (PSNB) amounted to £21.2bn, down £18.5bn on 2017/18, and the lowest year-to-date sum at this stage since 2001. Combined self-assessed income tax and capital gains tax (CGT) payments received in the month were £21.4bn, up £3.1bn on January 2018. CGT receipts alone were £6.8bn, up £1.2bn from January 2018. VAT payments were up 5.2% and National Insurance Contribution inflows up 4.6%, but most other income sources were little changed year on year.  

On the central Government expenditure side, there was an overall increase in the month of £1.4bn over 2018. The OBR attributes the rise mostly to higher net social benefit spending and higher other current and capital spending, offset by lower debt interest payments ‘reflecting the monthly path of RPI inflation’. 

The OBR remains predictably cautious about extrapolating the year-to-date figures, saying “there is still significant uncertainty over the full-year figure”. However, if the YTD numbers are simply extrapolated using last year’s pattern, then the PSNB is set to come in at around £22.5bn against the OBR’s Autumn Budget projection of £25.5bn. To hit the OBR projection the final two months of the year would have to produce a combined deficit of £4.3bn, whereas last year their outcome was a £2.2bn deficit. 

The bumper January receipts pose a problem for the OBR. Its October calculations resulted in a windfall of £18bn for the Exchequer which some commentators saw as getting Mr Hammond out of a tricky situation. 

The OBR now has to decide the extent to which it incorporates January’s jackpot in the March Spring Statement projections. No wonder the OBR says “Typically, a higher starting point for receipts would raise our forecast for future years too, but the extent of that effect would depend on many other influences. For instance, ahead of our March forecast we will consider provisional HMRC analysis of SA tax returns to understand the drivers of this month’s higher receipts and any implication that has for future years.” 

Source: Public sector finances, UK: January 2019 published by the Office for National Statistics on 21 February.

  

NS&I has announced increases to the variable interest rates on their ISAs

(AF4, FA7, LP2, RO2) 

Last July, a few weeks before the Bank of England increased base rates by 0.25%, National Savings & Investments (NS&I) announced a 0.25% cut in the interest rate on its main ISA, the Direct ISA. We remarked at the time that the timing was strange, not least because the notice period requirement meant that the rate change would not take effect until well after the August Bank of England’s interest rate decision, which was widely anticipated to deliver an increase. Subsequently, at the end of August, NS&I did increase some of its variable interest rates, but it left the Direct ISA and its Junior counterpart untouched. 

On 4 March 2019, as the ISA season got into full swing, NS&I announced an increase in ISA rates, retrospectively effective from the beginning of the month. The new rates are: 

Product

Old rate

New rate from 1/3/19

Increase

Direct ISA

0.75% gross/AER

0.90% gross/AER

0.15%

Junior ISA

2.50% gross/AER

3.25% gross/AER

0.75%

There are no other variable rate changes, although it is worth noting that only the old Investment Account (0.80%) pays less than the uplifted Direct ISA.

NS&I says that the increase to the Direct ISA “…follows the changes in the ISA market”. Research by Moneyfacts last month revealed that the cash ISA market was becoming more competitive, with 24 providers having raised rates since the start of the year.

The top variable rate now is 1.45%, underlining how far adrift the NS&I Direct ISA remains. However, many cash ISAs opened in earlier years pay a much lower rate. For example, Halifax pays just 0.60% on their ISA Saver Variable. Existing ISA savers would seem an attractive market for NS&I, but the Direct ISA does not accept transfers in.

The NS&I Junior ISA is more competitive, with only two providers beating the 3.25% rate.

We commented in February 2019 that Government borrowing looked set to undershoot the target announced alongside the Autumn Budget. This means the Treasury is less concerned about bringing money in via NS&I. Last October, the Treasury increased NS&I’s 2018/19 Net Financing target from £6bn to £9bn (±£3bn in both instances). The chances are that a lower number will be announced on 13 March for 2019/20.

Source:  NS&I Press Release 4/3/2019

  

PENSIONS

 

The Single Financial Guidance Body gets a name

(AF3, FA2, JO5, RO4, RO8)

At the start of the year, the Single Financial Guidance Body (SFGB) officially took on its ‘delivery functions’ from 1 January 2019. However, at the time it didn’t have an actual name because the SFGB was just a “working title”.

It has now been named the Money and Pensions Service (MAPS). 

The body now called MAPS was established by the Financial Guidance and Claims Act 2018 and is (theoretically) the one stop shop combining three Government-sponsored financial advice bodies: 

 MAPS, chaired by Sir Hector Sants, became a legal entity back in October. Structurally it is classed as an executive non-departmental public body, sponsored by the Department for Work and Pensions. That means there is no Treasury involvement and underlines the bias towards pension guidance. 

The SFGB website has yet to be rebranded and is still only four pages long.

 

Pension Schemes Newsletter 107

(AF3, FA2, JO5, RO4, RO8) 

The newsletter covers the following: 

  • Relief at source
  • Master Trusts - The closing date for applications for authorisation is 31 March 2019
  • Reporting non-taxable death benefits
  • Managing Pension Schemes – registering as a scheme administrator 

Issues of particular interest 

Annual return of information 2018 to 2019 – updated version will be published imminently.  HMRC will email pension scheme administrators who are currently on their relief at source technical specifications mailing list when this is available. If you want to be added to this mailing list, you should email pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Annual return technical specifications’ in the subject line of your email.

Annual return of information using the new 2018 to 2019 format – HMRC explain that you must change the way you name the sub references on your return if you choose to submit your annual return of information using the 2018 to 2019 spreadsheet or electronic flat text file specifications. 

 

Automatic enrolment: qualitative research with newborn employers

(AF3, FA2, JO5, RO4, RO8) 

The Department for Work and Pensions has commissioned research throughout the roll out of automatic enrolment (AE), seeking to understand the views of employers and employees as they go through the process. The latest round considers what they refer to as “newborn employers” – those who took on their first eligible workers after 2012. 

The research looked at 70 newborn employers and workers who had both remained and opted out of their workplace schemes. 

The main findings were: 

  • New employers generally viewed AE as a positive measure and accepted their duties as simply another task involved in setting up a business.
  • Employers usually sought just enough information to ensure they were compliant.
  • Most employers found the implementation costs to be lower than anticipated.
  • Workers who remained in the scheme spent little time considering the decision. They viewed the employer contribution as “free money”. However, very few saving beyond the minimum levels.
  • Workers who opted out had given the decision more thought, most were aged over 50 and the most common reason given was that they felt they already had sufficient pension provision.
  • The increase in the minimum contribution levels didn’t appear to cause concern for either employers or employees.

 

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.