By David Watkinson
AS I write this inflation has hit 9%, it’s highest rate for 40 years. The last time was in 1982 when all shops were closed by law on a Sunday, there were only 3 television channels which broadcast from lunchtime each day, and there were only 4 national radio stations all of which were operated by the BBC.
All expectation is that, despite the efforts of government, inflation will take years to come back down again. Indeed, many commentators are predicting that it may even increase further. Additionally, whilst the headline rate is 9%, the actual rate is currently calculated at about 10.5% for poorer households due to the largest increases being in fuel and in basic foodstuffs.
The next budget is due in the Autumn, but the Chancellor is under increasing pressure from all sides to bring in mitigating measures sooner, such as a reduction in the rate of VAT charged, or shortening the previously announced freezing of tax allowances and thresholds until April 2026. However, there are a small number of things that you may meanwhile be able to do yourself.
Firstly, if you are married or in a civil partnership, AND one partner is a non-taxpayer and the other pays tax at basic rate, then the non-taxpayer can transfer 10% of his or her personal allowance to the other partner. This will save £250 in tax each year at present. Additionally, if the same conditions applied in previous years then the claim can be backdated for up to 6 years, resulting in a one-off tax refund of up to approximately £1,250.
It is very easy to apply and details of how to do so are at Apply for Marriage Allowance – GOV.UK (www.gov.uk).
Secondly, and as an extension to the above, if you earn above £50,270 then you will be paying tax at 40% on the excess rather than the basic rate of 20%. If you are above this income then you may be able to reduce your income to below this threshold by paying into a pension scheme. In the extreme, if you are earning £50,320 then you will not be a basic rate taxpayer and hence ineligible for the Marriage Allowance. However, provided only that your partner is a non-taxpayer then paying £51 into a pension will enable you to claim the £250 Marriage Allowance. Additionally, your contributions into the scheme will be grossed up by 25%!
Thirdly, if you have children and are receiving child benefit then a high-income charge, effectively clawing back the benefit, will be applied if your own or your partner’s income is above £50,000. To avoid the clawback then you can similarly pay into a pension to reduce your income to below this threshold and retain the child benefit. Again, any contributions will be grossed up by 25%.
Some people avoid the high-income charge by simply not claiming the child benefit. One very important thing to remember is that you will get Class 3 National Insurance Credits if you are registered for Child Benefit for a child under 12 even if you do not receive it, thus preserving your contribution record in respect of state pension. Therefore, do not avoid the high-income charge by just not claiming child benefit. If you are eligible, always register to receive it and then elect not to have it paid.
At this point, we must state that we are not registered to provide pension advice. Therefore, we must advise you to take independent investment advice before making any investments, including pensions.
WatkinsonBlack have considerable experience in all areas of taxation and business services. This includes providing a very cost-effective payroll bureau service, as well as assisting to ensure compliance with the latest Making Tax Digital legislation. If you are employed or self-employed either as a sole trader, partnership or limited company and want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us by telephone on 01925 413210 or by e-mail to [email protected]. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
