Claim tax relief on pension contributions

You can usually claim tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of income tax paid.

This means that if you are:

  • A basic rate taxpayer, you get 20% pension tax relief.
  • A higher rate taxpayer, you can claim 40% pension tax relief.
  • An additional rate taxpayer, you can claim 45% pension tax relief.

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your self-assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are some regional differences if you are based in Scotland.

There is an annual allowance for tax relief on pensions of £60,000. This limit remains unchanged in the new 2024-25 tax year. There is also a rule that allows you to carry forward any unused amount of your annual allowance for three tax years.

The lifetime limit for tax relief on pension contributions was removed with effect from 6 April 2023 and has now been abolished.

Source:HM Revenue & Customs | 01-04-2024

Workplace pension responsibilities

Automatic enrolment for workplace pensions has helped many employees make provision for their retirement, with employers and government also contributing to make a larger pension pot.

The law states that employers must automatically enrol workers into a workplace pension if they are aged between 22 and State Pension Age, earning more than the minimum earning threshold. The minimum threshold is currently £10,000 and will remain the same in 2024-25. The employee must also work in the UK and not be a member of a qualifying work pension scheme. Employees can opt-out of joining the pension scheme if they wish.

Under the rules, employers are also required to offer their workers access to a workplace pension when a change in their age or earnings makes them eligible. This must be done within 6 weeks of the day they meet the criteria.

Under the automatic enrolment rules the employer and the government also add money into the pension scheme. There are minimum contributions that must be made by employers and employees.

Both the employer and employee need to contribute. There is a minimum employer contribution of 3% and employee contribution of 4%. This means that contributions in total will be a minimum of 8%: 3% from the employer, 4% from the employee and an additional 1% tax relief.

The contributions are based on the qualifying earnings brackets highlighted above; this means that for many employees the 8% contribution rate will not be based on their full salary.

Source:Pensions Regulator | 18-03-2024

Tax on inherited private pensions

Private pensions can be an efficient way to pass on wealth, but it is important to consider what, if any, tax will be payable on a private pension you inherit. The person who died will usually have nominated you by telling their pension provider that you should inherit any monies left in their pension pot. If the nominated person can’t be found or has since died, the pension provider may make payments to someone else instead.

In general, if you inherit a private pension and the owner of the pension fund died before the age of 75, the benefits left in a private pension can be paid as a lump sum or drawdown income to you, with no tax to pay. If the deceased passed away after the age of 75 the pension will be taxed at your marginal income tax rate, so 20% if you are a basic rate taxpayer or 40% if you are in the higher tax bracket and 45% if you pay tax at the top rate. The rates may differ if you are a Scottish taxpayer.

There are restrictions on pensions from a defined benefit pot (usually workplace pensions) whereby the pension can only be paid to a dependant of the person who died, for example a husband, wife, civil partner or child under 23. This rule can sometimes be changed if the pension fund allows, but the inheritance will be taxed at up to 55% as an unauthorised payment.

The rules on inheriting a pension are complex and depend on what type it is and how old the holder was when they died. There are also important time limits that must be followed.

Source:HM Revenue & Customs | 11-02-2024

Tax relief on pension contributions

Taxpayers can usually claim tax relief for their private pension contributions. There is an annual allowance for tax relief on pensions of £60,000 for the current 2023-24 tax year. The annual allowance was £40,000 in 2022-23.

There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There used to be a lifetime limit for tax relief on pension contributions, but this was removed with effect from 6 April 2023.

You can qualify for tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is available on pension contributions at the highest rate of Income Tax paid by the person making the contributions.

This means that if you are:

  • a basic rate taxpayer you get 20% pension tax relief;
  • a higher rate taxpayer you can claim 40% pension tax relief; and
  • an additional rate taxpayer you can claim 45% pension tax relief.

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Source:HM Revenue & Customs | 13-11-2023

Tracking down lost pension details

Ever had a nagging feeling that you have a pension pot somewhere but have no idea how to track it down?

Well, there is a solution.

There is a search link on the GOV.UK website at https://www.gov.uk/find-pension-contact-details that will help.

The service will help you find contact details to search for a lost pension by tracking down contact details for:

  • your own workplace or personal pension scheme; or
  • someone else’s scheme if you have their permission.

This service will not tell you whether you have a pension, or what its value is, and you will need the name of an employer or a pension provider to use this service.

If this line of enquiry fails, you could also request contact details from the Pension Tracing Service by phone or by post.

Pension Tracing Service

Telephone: 0800 731 0193
From outside the UK: +44 (0)191 215 4491
Textphone: 0800 731 0176
Relay UK (if you cannot hear or speak on the phone): 18001 then 0800 731 0193
British Sign Language (BSL) video relay service if you’re on a computer – find out how to use the service on mobile or tablet. Monday to Friday, 10am to 3pm.
 

You could also write to The Pension Service at:

Post Handling Site A
Wolverhampton
WV98 1AF
United Kingdom

Source:Other| 03-09-2023

Pension tax relief at source

You can usually claim tax relief for your private pension contributions. There is an annual allowance for tax relief on pensions of £60,000 for the current 2023-24 tax year. The annual allowance for 2022-23 was £40,000.

You can claim tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid.

This means that if you are:

  • a basic rate taxpayer you receive 20% pension tax relief;
  • a higher rate taxpayer you can claim 40% pension tax relief; and
  • an additional rate taxpayer you can claim 45% pension tax relief.

There are two kinds of pension schemes where you receive relief automatically. Either:

  • your employer takes workplace pension contributions out of your pay before deducting Income Tax; or
  • your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (‘relief at source’).

If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs you are entitled to on your Self-Assessment tax return. You may also need to make a claim if your pension scheme is not set up for automatic tax relief or if someone else pays into your pension.

There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years; if you have made pension savings in those years. (There used to be a lifetime limit for tax relief on pension contributions, but this was removed with effect from 6 April 2023.)

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Source:HM Revenue & Customs| 28-08-2023

Overview of private pension contributions

You can usually claim tax relief for your private pension contributions. There is an annual allowance for tax relief on pensions of £60,000 for the current 2023-24 tax year. The annual allowance was £40,000 in 2022-23.

There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There also used to also be a lifetime limit for tax relief on pension contributions but this was removed with effect from 6 April 2023.

You can qualify for tax relief on private pension contributions amounting to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid by the contributor.

This means that if you are:

  • A basic rate taxpayer you get 20% pension tax relief.
  • A higher rate taxpayer you can claim 40% pension tax relief.
  • An additional rate taxpayer you can claim 45% pension tax relief.

The first 20% of tax relief is usually applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are resident for Income Tax in Scotland.

Source:HM Revenue & Customs| 13-08-2023

State Pension if you retire abroad

If you are retiring abroad, you are still entitled to claim your UK State Pension as long as you have built up a suitable amount of qualifying years of NIC contributions. However, your entitlement to yearly increases in the State Pension only apply in certain countries. 

The increases only apply if you live in:

  • The European Economic Area (EEA) or Switzerland.
  • A country that has a social security agreement with the UK that allows for cost of living increases to the State Pension. Note, the UK has social security agreements with Canada and New Zealand, but you cannot get a yearly increase in your UK State Pension if you live in either of those countries.

If you do not qualify for the annual increase in the State Pension but move back to the UK then your pension will revert to the current rate.

If you are living abroad, you must be within four months of your State Pension age to claim.

To claim your pension, you can either:

  • contact the International Pension Centre; or
  • send the international claim form to the International Pension Centre (the address is on the form).

You can elect to have your pension paid into a UK or foreign bank account. There are also tax implications that need to be considered. If your country of residence does not have a double taxation agreement with the UK, you may pay tax in both places. 

Source:HM Government| 31-07-2023

Check your State Pension forecast

The State Pension forecast provides an estimate of how much State Pension an individual can expect to receive when they reach State Pension age. The estimate is based on the applicant's National Insurance current and future contribution record.

A forecast application can be made online using the government gateway by sending the BR19 application form by post or by calling the Future Pension Centre. The forecast includes basic information explaining what effect further qualifying years may have on the amounts shown in the forecast.

The forecast also shows what date the taxpayer will reach their State Pension age based on the current law. The State Pension age is regularly reviewed and may change in the future. The estimate does not take account of future payments to fill possible gaps in the taxpayer's contribution record.

If you do not have 10 qualifying years, the forecast will only tell you how many qualifying years you currently have. This is because taxpayers usually require a minimum of 10 qualifying years to qualify for any State Pension.

It is worthwhile to regularly check your State Pension position to help optimise your entitlement. You should also consider what other savings or pensions might be required for a long and comfortable retirement.

Source:Department for Work & Pensions| 24-07-2023

Pension Credits

Pension Credits can provide extra income to those over State Pension age and on a low income. The credits were first introduced in 2003 to help keep retired people out of poverty. There are two main parts to Pension Credit.

The first part is referred to as the ‘Guarantee Credit’.

Pension Credit can top up:

  • your weekly income to £201.05 if you are single; and
  • your joint weekly income to £306.85 if you have a partner.

If your income is higher, you might still be eligible for Pension Credit if you have a disability, you care for someone, you have savings or you have housing costs. Not all benefits are counted as income.

The second part of Pension Credit is referred to as the ‘Savings Credit’.

You could get the ‘Savings Credit’ part of Pension Credit if both of the following apply:

  • you reached State Pension age before 6 April 2016; and
  • you saved for retirement, for example a personal or workplace pension.

Recipients get up to £15.94 Savings Credit a week if they are single and up to £17.84 a week if they have a partner.

It is possible to qualify for one or both parts of the Pension Credit.

Recipients of Pension Credits will automatically get cold weather payments and are also eligible to apply for a free TV licence if they are aged 75 or over and to assist with NHS costs if they receive the ‘Guarantee Credit’ part of Pension Credit.

Source:HM Revenue & Customs| 10-07-2023

Take advantage of new pension tax reforms

The new pension tax reforms that were announced in the recent Spring Budget took effect from 6 April 2023. The old £40,000 cap on annual pension contributions has been increased by 50% to £60,000, with effect from 6 April 2023. Tax relief for contributions to pension schemes is given at a taxpayer’s marginal rate of Income Tax and is subject to the increased underlying limits. Taxpayers will continue to be able to carry forward unused annual allowances the last three tax years if they have made pension savings in those years.

The lifetime allowance was the maximum amount of pension and/or lump sum that benefits from tax relief. The lifetime allowance was removed from 6 April 2023 and will be fully abolished in a future Finance Bill. Both of these changes are intended to incentivise older employees to continue in work whilst continuing to build additional pension savings.

In addition, the adjusted income threshold for the Tapered Annual Allowance increased from £240,000 to £260,000 on 6 April 2023. Those earning over £260,000 (from 6 April 2023) will see their £60,000 annual allowance tapered. For every complete £2 income exceeds £260,000 the annual allowance is reduced by £1. The annual allowance cannot be reduced to less than £10,000 (2022-23: £4,000). The Money Purchase Annual Allowance also increased to £10,000 (2022-23: £4,000) from 6 April 2023.

The maximum amount that most individuals can claim as a Pension commencement lump sum (PCLS) was historically based on a cap of 25% of the available lifetime allowance. In the current tax year, there remains a PCLS upper monetary cap of £268,275 (based on 25% of the 2022-23 lifetime allowance). Any individuals who already had a protected right to take a higher PCLS will continue be able to do so.

Source:HM Treasury| 17-04-2023
UK tax changes in 2023 spring finance bill; london accountant

Unpacking 2023 Spring Finance tax changes


The 2023 Spring Finance Bill consolidates changes proposed in the 2023 Spring Budget as well as additional changes to tax duty rates and tax relief allowances.You can
click here for our breakdown of the relevant changes to income tax, corporation tax, and tax-free allowances.

In this post, we will outline the changes to capital allowances and tax relief schemes for businesses. We will also cover changes to pension allowances, alcohol duty, and air travel taxes which were also included in the Spring Finance Bill.

Permanent increase to £1 million for the Annual Investment Allowance

Capital allowances allow businesses to deduct a portion of the value of assets they purchase from their taxable profits each year. You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.

The primary types of capital allowance are ‘writing down allowances’. Under this scheme, most assets qualify for the ‘main rate’, allowing you to deduct 18% of their value from taxable profits each year, with a 6% ‘special rate’ for assets like integral features of buildings.

The Annual Investment Allowance is a 100% capital allowance available for the cost of most plant and machinery incurred by most businesses up to a specified annual amount. This means you can deduct the full value of purchased assets from your taxable profit in the year of purchase. You can do this until the total value of assets purchased exceeds £1 million, after which you will have to use writing down allowances at the rates described above.

The AIA was temporarily raised from £200,000 to £1 million in 2019, and the 2023 Spring Finance Bill makes this permanent. The measure aims to provide a continued incentive to support business investment with a simple legislative change.

 

Full capital expensing and extension of 50% special rate

Capital allowances allow certain capital expenditure to be deducted when calculating a business’s taxable profits. As described above, writing down allowances are 18% per year for main rate expenditure and 6% per year for special rate items. For main rate assets, this means you can deduct 18% of the asset’s value from your taxable profits each tax year.

Special rate items include assets with an expected lifetime of over 25 years, integral building features, and cars in the higher bands of CO2 emissions. 

The 2023 Spring Finance Bill provides for 100% first-year allowances for main rate expenditure (known as full expensing) and the extension of 50% first-year allowances for special rate expenditure. This is subject to certain exclusions, most notably cars, and will last until 2026.

This change gives an increased incentive to invest in plant and machinery by providing higher rates of relief immediately in the year that assets were purchased, rather than over many years.

 

Expansion of R&D relief

There are currently two schemes aimed at providing tax relief for research and development (R&D) in science or technology. First is the ‘Small and medium-sized enterprise (SME) R&D tax relief’. For larger businesses, there is the R&D expenditure credit (RDEC) system.

The Spring Finance bill makes the following changes to these tax relief schemes:

  • Requiring claimants to submit a pre-notification of their claim, unless they are new claimants or have not claimed in the previous three accounting periods.
  • Expands the categories of qualifying expenditure to include data licences and cloud computing costs to better reflect developments in technology and the different ways that cutting edge R&D is now undertaken.
  • Require the provision of additional information to support claims.
  • Address several unintended consequences in the legislation.

Expansion of Seed Enterprise Investment Scheme

The UK Seed Enterprise Investment Scheme (SEIS) is a government-backed initiative designed to encourage investment in early-stage and startup companies. It offers tax incentives to individual investors who purchase shares in qualifying companies, including income tax relief, capital gains tax exemption, and loss relief.

The 2023 changes to the SEIS scheme raises limits on investment and expands which businesses are eligible.

To be eligible for the scheme, companies must have fewer than 25 employees, be less than two years old, and have assets worth less a certain amount. The Spring Finance Bill raises this from £200,000 to £350,000.

The Bill also increases the maximum amount that a company can raise through SEIS from £150,000 to £250,000. Investors can now also claim SEIS relief on investments up to £200,000 per tax year.

Pension lifetime allowance scrapped; allowances increased

The Spring Finance Bill will be abolishing the pension lifetime allowance and increasing pension-related tax-free allowances.

It also includes incentives to help get over 50’s back to work, including expanding the DWP’s “Mid-life MOT” Strategy. This helps people to access financial, health and career guidance ahead of retirement. There will also be a new kind of apprenticeship targeted at the over 50s who want to return to work, called Returnerships.

What is the lifetime pension allowance?

The UK’s pension lifetime allowance (LTA) is a limit on the total amount of pension benefits an individual can receive without incurring an additional tax charge. For the 2022/2023 tax year, the LTA was £1,073,100. If the value of an individual’s pension savings exceeds this limit, they may be subject to a tax charge of up to 25%.

The LTA was designed to limit the amount of tax relief that high earners can receive on their pension contributions and to ensure that the pension system is sustainable. However, it can also affect individuals with long careers or high salaries, as their pension savings may exceed the LTA even with relatively modest contributions over time.

Changes to pension allowances

The 2023 Spring Finance Bill removes the tax charge on pension savings that exceed the lifetime allowances for the 2023/24 tax year. Future legislation will aim to remove the concept of an LTA for pensions entirely.

The Bill raises the pension annual allowance from £40,000 to £60,000, allowing individuals to make more pension contributions each year without incurring tax charges.

The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023. This means that those earning over £260,000 (from 6 April 2023) will begin to see their £60,000 annual allowance tapered. For every £2 that your income exceeds £260,000, your annual allowance is reduced by £1.

The annual allowance cannot be reduced to be less than £10,000 (up from £4,000 in 2022/23).

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Changes to alcohol duty

 

HMRC’s Spring Budget also announced changes to the tax charged on alcoholic products. The policy document outlines how these changes will affect the average consumer:

  • 4% ABV pint of draught beer will be 0 pence higher.
  • 4% ABV 500ml bottle of non-draught beer will be 5 pence higher.
  • 5% ABV pint of draught cider will be 2 pence higher.
  • 5% ABV 500ml bottle of non-draught cider will be 5 pence higher.
  • 40% ABV 25ml serving of whisky will be 3 pence higher.
  • 5.4% ABV 250ml can of spirits-based RTD will be 6 pence lower.
  • 11% ABV 250ml glass of still wine will be 5 pence higher.

The document also states that individuals who drink stronger alcoholic products may pay more through the revised duty structure. Individuals who drink draught products in on-trade venues (such as pubs) will pay less tax than on the equivalent non-draught product in off-trade venues (such as supermarkets).

Air Passenger Duty changes

Air Passenger Duty is charged on commercial passenger flights. Previously, these charges had two bands based on distance travelled. Band A is for flights with a distance between 0 and 2000 miles, and Band B for those over 2000 miles.

The Spring Finance Bill introduced two new bands – one for domestic flights and one for long-haul flights of over 5500 miles. These changes will reduce the tax burden on domestic flights while increasing taxes on ultra-long-distance trips.

The full table of Air Passenger Duty rates is below. The reduced rate applies to the lowest class of travel available on the aircraft, and the standard rates to any other class. The higher rates apply to aircraft of 20 tonnes or more equipped to carry fewer than 19 passengers.

Bands

Reduced rate

Standard rate

Higher rate

Domestic (within UK)

£6.50

£13

£78

0 -2000 miles

£13

£26

£78

2001 – 5500 miles

£87

£191

£574

over 5500 miles

£91

£200

£601



bottom line

The 2023 Spring Finance Bill is broadly aimed at stimulating the UK economy by lowering limits and taxes on business investment, and encouraging individuals to work more (via increased annual pension allowances) and longer (via incentive schemes for over 50’s).

Most notably, the Bill makes permanent the previously temporary £1 million Annual Investment Allowance, and provides ‘full expensing’ for most capital purchases until 2026.

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Spring Budget 2023 – Pension changes

One of the key measures of the Spring Budget was the announcement that the £40,000 cap on annual pension contributions will be increased by 50% to £60,000 from 6 April 2023. Tax relief for contributions to pension schemes is given at a taxpayer’s marginal rate of Income Tax and is subject to the increased underlying limits. Taxpayers will continue to access carry-forward, unused annual allowances for the last three tax years if they have made pension savings in those years.

The lifetime allowance is the maximum amount of pension and/or lump sum that benefits from tax relief. Although it was expected that the lifetime allowance would increase, the Chancellor made the unexpected announcement that the lifetime allowance of £1,073,100 is being abolished from 6 April 2023. Both of these changes are intended to incentivise older employees to continue in work whilst continuing to build additional pension savings.

The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023. Those earning over £260,000 (from 6 April 2023) will begin to see their £60,000 annual allowance tapered. For every complete £2 income exceeds £260,000 the annual allowance is reduced by £1. The annual allowance cannot be reduced to be less than £10,000 (2022-23: £4,000). The Money Purchase Annual Allowance will also increase to £10,000 (2022-23: £4,000) from 6 April 2023.

There will be other incentives to help get over 50’s back to work including expanding the DWP’s “Mid-life MOT” Strategy. This helps people to access financial, health and career guidance ahead of retirement. There will also be a new kind of apprenticeship targeted at the over 50s who want to return to work, called Returnerships.

Source:HM Treasury| 15-03-2023

Adding employees to a workplace pension scheme

Automatic enrolment for workplace pensions has helped many employees make a start on providing for their retirement with the advantage that employers and government are also contributing to their pension pot.

The law states that employers must automatically enrol workers into a workplace pension if they are aged between 22 and State Pension Age and earn more than the minimum earnings threshold. The minimum threshold has remained fixed at £10,000 since 6 April 2014. The employee must also work in the UK and not be a member of an existing, qualifying pension scheme. Employees can opt-out of joining the pension scheme if they wish.

Under the rules, employers are also required to offer their workers access to a workplace pension when a change in their age or earnings makes them eligible. This must be done within 6-weeks of the day they meet the criteria.

Under the automatic enrolment rules the employer and the government also add money into the pension scheme. There are minimum contributions that must be made by employers and employees.

Both the employer and employee need to contribute. There is a minimum employer contribution of 3% and employee contribution of 4%. This means that contributions in total will be a minimum of 8%: 3% from the employer, 4% from the employee and an additional 1% tax relief.

The contributions are based on the qualifying earnings brackets highlighted above; this means that for many employees the 8% contribution rate will not be based on their full salary.

Source:Pensions Regulator| 06-03-2023
State and Private Pensions UK

Guide to UK Pensions: Workplace & Private

Let’s talk pensions. Everybody needs to make a plan for when they eventually retire. Nobody wants to work forever, and that means making sure you have enough money to live off of after saying goodbye to your 9 – 5 job. The most common way to save for retirement is through pensions.

Pensions are schemes which you pay a certain amount into regularly and which will pay money out to you once you reach retirement age. Pensions don’t simply hold onto this money to pay it back to you later. They will invest this money in some way so that you end up receiving more money in the end than you’ve paid in over the years.

There are many types of pensions in the UK, but the most important divide is that of the state pension vs. private pensions.

State Pension Summary

As the name suggests, the state pension is provided by the UK government. The previous state pension scheme is called the Basic State Pension. In 2016, this scheme was replaced by the New State Pension. Those who reached pension age before 2016 will continue to be paid the Basic State Pension.

The New State Pension rules therefore apply to men born on or after 6 April 1951, and women born on or after 6 April 1953.

How do I check if I have a state pension?

To get information about your State Pension, contact the Pension Service if you’re in the UK or the International Pension Centre if you live abroad.

Eligibility for the New State Pension is based on how many years you have paid National Insurance Contributions (NICs). Usually, NICs are taken off your salary automatically by your employer if you earn at least £242 a week from one employer. Employers are also required to pay a portion of NICs for each employee.

If you’re not working, you can still receive ‘National Insurance credits’ in certain cases. This applies if you are getting Jobseeker’s Allowance, Employment and Support Allowance, Carer’s Allowance, or claim Child Benefit for a child under 12.

The number of years you’ve paid NICs or received credits as above, are called your Qualifying Years. You usually need at least 10 Qualifying Years to claim any state pension.

What is the state pension amount in the UK?

The full New State Pension payout is £185.15 per week. However, this is the maximum amount. You will only receive this full payout if you have a total of 35 Qualifying Years, as explained above.

Of course, the New State Pension only came into effect in 2016. This means that most people began accumulating Qualifying Years while the Basic State Pension scheme was still in place.

Qualifying Years from before 2016 will be considered using the new rules except when you would have gotten a higher amount under the old scheme. If this is the case, Qualifying Years from before 2016 will be worth this higher amount. This won’t often be the case as the old full Basic State Pension was £141.85 per week.

All Qualifying Years from after 2016 will be considered using the New State Pension rules.

How do I calculate my state pension amount?

In most cases, you will need at least 10 Qualifying Years (QYs) to qualify for any state pension. The maximum QYs you can have is 35, which will net you the full £185.15 per week.

 

Each QY is worth the same amount, so we can work out that each year would add about £5.29 a week to your payouts. You can get a pension amount estimate by dividing 185.5 by 35, and multiplying by your number of Qualifying Years.

 

This means someone with 17 QYs would receive £89,8 per week (£5.29 x 17 QY).

 

This also means that the New State Pension minimum is £52.9 (£5.29 x 10 QY).


You can get a state pension estimate by using the State Pension Forecast tool.

UK State Pension 2023 Infographic

Does the state pension amount increase?

The new State Pension increases each year by whichever is the highest:

  • Earnings – the average percentage growth in wages (in Great Britain)
  • Prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
  • 2.5%

What if I was contracted out of state pension contributions?

You will have a deduction from your state pension amount because you were ‘contracted out’ before April 2016. This means that you paid lower National Insurance Contributions because you were also paying into some kind of private pension scheme. This is more likely if you worked in the public sector

You can check if you were contracted out by looking at old payslips. If your National Insurance Contributions line has the letter D or N next to it, you were contracted out. If it has the letter A, you have not been contracted out.

What is the state pension age?

The state pension age is currently 66. However, this is increasing over time, and so it may in fact be higher by the time you reach pension age. Between May 2026 and March 2028, the state pension age will gradually increase to 67.

To find out exactly what your state pension age will be when you get there, use the government’s state pension age calculator.

Private pensions

Aside from state pensions, you can also take part in private pension schemes, which are not run by the government. These are split into personal pensions, which you yourself must organise, and workplace pensions, which are organised by employers.

You can claim from both the state pension, and any other pensions you have contributed to. Private pensions will have different ages at which you can start claiming payments. This is usually at least 55.

Workplace pension providers

All employers are required to provide a workplace pension scheme for workers who:

  • Are aged between 22 and state pension age
  • Earn at least £10,000 per year

 

This is referred to as ‘automatic enrolment’. Contributions for these pensions are taken off your salary, but your employer is required to also pay into the scheme themselves.

A common provider is the NEST pension for workplace schemes. The National Employment Savings Trust was set up after workplace pensions became mandatory, and any employer can use it as their pension provider.

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Personal pension contributions

You can also make payments into a personal pension scheme that you sign up to yourself. These can be ‘stakeholder pensions’, which must meet specific government requirements such as charge limits. These could also be self-invested personal pensions (SIPPs), which give you greater control over the investments you make.

You can make either regular or lump sum payments to pension providers.

What are the different types of private pension schemes?

Pensions come in two types – ‘defined benefit’ and ‘defined contribution’.

 

Defined benefit schemes take the money you pay into them and put them into investments. These investments could include things like shares, property, or other financial assets. The total value of your pension will go up or down depending on how these investments perform.

 

Defined benefit schemes pay out a set amount, and are not dependent on the amount you paid in or on investments. These are often used as workplace pensions, and based on your salary and how long you’ve worked for your employer.

The State Pension scheme acts as a combination of these two types. The amount you receive in the end is based on how much you have paid in, but that money is not invested. Your payouts will only change based on your number of Qualifying Years.

Are pensions taxable?

You will pay Income Tax as usual if your total income is above the Personal Allowance of £12,570. This could include:

  • Your state pension
  • Private pensions (both workplace and personal)
  • Employment earnings
  • Income from investments

But, you can also take up to 25% of the amount in any pension as a tax-free lump sum. This tax-free one-time deposit does not affect your personal allowance. Keep in mind that despite this tax-free 25%, taking large sums from your pension could push you into a higher tax bracket.

How does pension tax relief work for contributions?

You do not pay tax on your pension contributions unless they:

  • Total more than 100% of your earnings in a year
  • Exceed the annual allowance of £40,000
  • Exceed the lifetime allowance of £1,073,100

You will receive pension tax relief up to these amounts automatically if:

  • Your employer takes workplace pension contributions out of your pay before deducting Income Tax
  • Your rate of Income Tax is 20%. Your pension provider will claim it as tax relief and add it to your pension pot.

If you pay Income Tax above 20%, you will have to claim extra pension tax relief on your Self Assessment tax return.

You will also pay tax on your contributions if your pension provider:

  • is not registered for tax relief with HM Revenue and Customs (HMRC)
  • does not invest your pension pot according to HMRC’s rules

Need Assistance from an Accountant?

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guide to compliance obligations for UK companies

Your guide to UK Compliance Obligations

Companies need to follow rules set out by many different government bodies, written in various legislative documents. When setting up and running a limited company, you have to keep in mind all of the following:

  • Complying with applicable industry regulations set out by professional regulators – for example, the Financial Conduct Authority, the Office of Rail and Road, the Law Society or the Environment Agency
  • Complying with finance regulations – such as tax, payroll, HMRC, accounting, record keeping, Companies House and anti-money laundering regulations
  • Employment law and workers’ rights
  • Health and safety for workers and visitors to your offices/site
  • General Data Protection Regulation (GDPR) 
  • Contracts and agreements with third parties
  • Sector-specific permits, licences, permissions

It’s an expansive list! Our accountants at CIGMA Accounting are CIMA-registered Management Accountants. They specialise in working with businesses to form companies, create strategies, and making sure you’re on the right side of financial regulation.

CIGMA Accounting helps businesses around the UK grow while navigating the red tape. You can contact us here for a free quote.

Limited company obligations

This article is going to focus on the Companies Act 2006, which is the main piece of law setting out rules and expectations for limited companies. The Act outlines what are called ‘compliance obligations’ for companies. These are actions which companies are obliged to do in order to comply with the rules.

company records

1. Registered office

Companies must provide an office address which is able to receive letters and documents. This address must be in the country where the company was registered. You are legally required to display the address on all communications with clients, and your website.

2. Confirmation statement

Companies must file a Corporation Tax Return to HMRC, even if the company has no tax to pay. This must include details about:

  • Capital allowances claimed for business asset purchases
  • Gains on assets sold
  • Directors’ loans that are unpaid
  • Reliefs to be claimed
  • Any losses carried forward

Businesses with a trade volume over £85,000 must also register with HMRC for VAT.

Your final tax obligation is Pay As You Earn (PAYE). The PAYE system collects taxes from employees at the source. You as the employer are responsible for running this system. This involves deducting income tax and National Insurance Contributions.

3. Directors

Aside from financial records, companies are also expected to keep up to date details about their addresses, directors, and shareholders. Incorporated businesses must supply the following information to Companies House:

This is an annual report which must record your:

  • Office address
  • Business activity
  • Details of directors
  • Ownership and division of shares

4. Event Driven Reporting

Companies must inform Companies House of changes such as:

  • Change of directors, shareholders, or their personal details
  • Change of office address
  • Sales of shares
  • Change of company name or constitution


This is in addition to the three statutory registers which businesses must keep.

Companies must appoint at least one individual as a director. Directors are legally responsible for running the company and ensuring reports are made. The director of a UK company does not have to be a UK resident and can live anywhere in the world. Directors must supply their personal information, including an address, which will be publically available.

financial statements

A company’s annual accounts are prepared at the end of a financial year. These accounts must include:

  • A balance sheet of what the company owns, owes, and is owed by others
  • An account of sales, running costs, and profit / loss made over the year
  • A director’s report

This account needs to be sent to all shareholders, HMRC, Companies House, and anyone who attends the company’s general meetings.

You are also required to appoint an auditor for each financial year. An auditor’s job is to report back to a company’s members and the government about the company’s accounts. They are meant to give a true and fair view of the company’s financial records and whether they have been done properly.

Workplace pensions

UK companies are required to put certain employees into a pension scheme, a process called ‘automatic enrolment’. If you employ at least one person aged between 22 and state pension age, who earns more than £10,000 per year, this applies to you. 

Business licences

A business licence is a permit issued by the government or a professional body that outlines how specific business activities should be carried out. The most easily recognisable example is that of a liquor licence, which authorises businesses to sell alcohol and under what terms they can do so.

The list of licences is extensive, but you can use HMRC’s online tool to find out which licences your business may need.

steps to complaince obligations

Mastering your compliance obligations is essential for success – this step-by-step guide provides an introduction to understanding & fulfilling them!

Step 1 - Conduct a Self-Assessment and Risk Analysis
Analysis 20%

When getting started, first conduct a self-assessment and risk analysis to identify any current or potential noncompliance issues. Evaluate the nature and breadth of your operations, processes, policies and regulations that may affect your compliance needs. This assessment can identify any areas that require actionable strategies to help ensure compliance maturity at all levels of your organisation.

Step 2 - Research Your Relevant Regulatory Requirements and Standards.
Research 40%

Complying with regulations and standards is an essential step for keeping up with compliance obligations. It’s important to research the relevant regulations and standards that apply to your organisation, in order to understand exactly what is required from you in terms of compliance. Identify any applicable laws, industry standards, or government policies which are relevant to your operations and need to be adhered to, as not doing so could result in harsh penalties for noncompliance.

Step 3 - Identify Gaps Between Your Compliance & Regulations.
Identify Gaps 60%

Once you’ve identified the applicable regulations, standards and policies, it’s important to review your current compliance procedures and ensure that they meet the required expectations. Compare your existing process to the regulations and identify any gaps between the two. If there are any discrepancies or potential risks, it’s essential to address them as soon as possible in order to avoid penalties or other consequences of noncompliance.

Step 4 -Implement an Effective Compliance Program.
Implement Program 80%

Before developing your compliance program, it’s essential to ensure that you understand the expectations and obligations of each applicable regulation. Once you’ve done this, you can create a comprehensive compliance program which will guide you through the process of meeting all legal requirements. This program should include risk and compliance assessments, processes for monitoring and ensuring ongoing compliance, and plans for regularly tracking and improving performance.

Step 5 -Monitor, Measure, and Document Your Compliance Efforts.
Monitor 100%

Once you have developed a compliance program, it is necessary to continuously monitor, measure, and document any efforts to ensure that your organisation is compliant. All changes to processes made as part of ensuring compliance must be tracked and regularly assessed. Your organisation should also institute an effective system for processing internal complaints related to any violations of law or policy. This system will provide critical information that can be used by the compliance team when it comes to improving compliance efforts.

Need Assistance from an Accountant?

We’d be more than happy to help you with your accounting needs in London, or anywhere else in the UK!

Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


how to complain about a UK accountant

How to complain about an accountant

Regulatory groups are important in any profession. Someone must make sure, for example, that people who call themselves lawyers are actually trained and qualified.  Someone must also make sure that professionals’ work is up to standard, and handle complaints when it is not.

This is doubly important for accountants, whose work with both public and private money makes ethical and competent work essential.

CIGMA Accounting is registered with the Chartered Institute of Management Accountants (CIMA), which holds its members an international standard of excellent work and ethical practice. Our accountants specialise in management accounts and personal tax returns.

We believe small businesses can change the world, and love helping them work in the most tax-efficient way.

Who regulates accountants?

At the highest level, the accountancy profession is regulated by the Financial Reporting Council (FRC). The FRC is an independent body that receives its power from the UK government.

However, the FRC does not deal with complaints about individual accountants. Rather, the FRC designates what are called ‘professional accountancy bodies’ to create standards and hold accountants to them.

The six chartered accountant bodies chosen by the FRC to oversee accountants are the following:

These accountancy bodies train accountants, run exams, and finally award qualifications. To call yourself a ‘chartered accountant’ in the UK, you must have a qualification from one of these bodies.

In addition, these bodies are responsible for handling complaints and disciplining accountants where needed. For example if an accountant holds an ACCA qualification, then they are a member of the ACCA and that is where you should direct a complaint.

Can I complain about an accounting firm?

Accountancy bodies like the ACCA and CIPFA are meant to oversee individual accountants that are part of their organisation. They are not responsible for handling complaints about an entire firm, except under specific circumstances.

Accountancy bodies will consider complaints against firms when it is about serious misconduct on the level of the whole organisation – such as money laundering. Complaints against firms may also be considered if the body has given the firm authorisation to perform auditing work.

What complaints will be considered?

Usually, these bodies will only consider complaints about a member’s conduct while they were providing accounting-related services. There are several valid reasons to complain about an accountant:

  • Poor quality of work / service.
  • Dishonest or misleading behaviour.
  • Breaching confidentiality.
  • Providing their services when there is a conflict of interest.
  • Making exaggerated claims.
  • Signing audit forms when they are not legally eligible to do so.

How do I submit a complaint?

Importantly, the FRC stresses that you should always reach out to the accountant or their firm first. The firm employs the accountant, and it is primarily their responsibility to handle any misconduct.

Professional bodies even provide standard forms online which you can use to submit your complaint to the accountant or their firm.

But if the accountant or firm has not resolved your complaint in four weeks, their professional body will take up the case. The bodies will each have their complaint forms online, along with instructions on how to submit them. Here are links to the complaints web pages for each of the accounting oversight bodies:

What complaints can bodies not investigate?

Accountancy bodies cannot handle complaints relating to an Insolvency Practitioner – for example a Trustee under a Trust Deed or a liquidator. You must submit your complaint to the Insolvency Service via its online complaint form.

The following kinds of complaints will also not be considered:

  • Ones that should have first been brought to accountant’s firm.
  • Complaints that do not involve the accountant providing accounting-related services.
  • Complaints made more than 12 months after the incident / reason for complaint.
  • Criminal offences, which should be taken to the police.
  • Fee amounts. Professional bodies do not set fees for accounting work, and they are considered a commercial matter.

If you’d like to learn more about the organisations that qualify and regulate accountants, have a look at this post. If you’re looking to avoid accountants and file your own taxes, check out this post about self-assessment. A reminder that soon you will have to use HMRC-approved software to submit self-assessments! You can learn about those here.

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Limits to tax relief for pension contributions

Under current rules, you can claim tax relief for your private pension contributions. The annual allowance for tax relief on pensions is £40,000 for the current tax year. There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There is also a lifetime limit for tax relief on pension contributions. The limit is currently £1,073,100 and will remain frozen at that level until at least April 2026.

You can get tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid.

This means that if you are:

  • A basic rate taxpayer you get 20% pension tax relief
  • A higher rate taxpayer you can claim 40% pension tax relief
  • An additional rate taxpayer you can claim 45% pension tax relief

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Source:HM Revenue & Customs| 02-01-2023
UK Defined Pension Contribution

What is a defined contribution pension?

There are two main pension types in the UK namely Defined contribution (otherwise known as a money purchase pension scheme) and Benefit pension. A benefit pension is where the pension provider promises to give you a certain amount each year when you retire. However, a defined pension is a type of pension scheme where the pension pot is based on how much money is paid into the scheme.

Benefits of a Defined Pension Scheme: 

  • Can be a company pension or private pension 
  • Pension pot is based on the contribution from you and/or your employer.
  • The money added to the pension by yourself and/or your employer is invested by the pension scheme

Disadvantage of Defined Pension Scheme

  • The final return with these pensions is not guaranteed and the value of the pension pot can go up or down depending on how investments perform.

 

There are three main options available once you retire namely lifetime annuity, flexi-access drawdown and a lump sum payment.

Lifetime Annuity

It guarantees you with a regular retirement income for life. Lifetime annuity options and features vary and your choice will depend on your personal circumstances and your life expectancy.

Flexi-Access Drawdown

Flexi-access is also referred to as a pension drawdown. It can give you more flexibility over how and when you receive your pension. You can take up to 25% of the pot as a tax-free lump sum.

Lump Sum Payment

A lump-sum distribution is a one-time payment from your pension administrator. By taking a lump sum payment, you gain access to a large sum of money, which you can spend or invest as you see fit.

These options can be used on their own or in combination. The first 25% drawdown is tax-free and the remainder is taxed at the individual’s marginal rate.

There are no overall limits to employer or employee contributions and no upper limit to the total amount of pension saving that can be built up. However, there are limits that affect tax relief on pension contributions including an annual and lifetime allowance.

Glass jar with money and tax note

Private pension contributions tax relief

Under current rules, you can claim tax relief for your private pension contributions within certain limitations.

The current annual allowance for tax relief on pension contributions is £40,000. You can also carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years.

Additionally, there is a lifetime limit for tax relief on pension contributions. The limit is currently £1,073,100.

You can qualify for tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid.

This means that if you are:

  • A basic rate taxpayer qualifies for 20% pension tax relief.
  • A higher rate taxpayer qualifies for 40% pension tax relief.
  • An additional rate taxpayer qualifies for 45% pension tax relief.

The first 20% of tax relief is usually applied by your employer with no further action required. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Source:HM Revenue & Customs| 14-11-2022

The pension savings annual allowance

The pension savings annual allowance for tax relief on pensions has been fixed at £40,000 since 6 April 2014. The annual allowance is further reduced for high earners. Since 6 April 2020, the tapered annual allowance increased from £150,000 to £240,000. 

This means that anyone with income below £240,000 is not affected by the tapered annual allowance rules. Those earning over £240,000 will begin to see their £40,000 annual allowance tapered. For every complete £2 income exceeds £240,000 the annual allowance is reduced by £1. The annual allowance cannot be reduced to be less than £4,000. The annual allowance can also be affected if the taxpayer flexibly accessed their pension pot.

There is a three-year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years. The calculation of the exact amount of unused annual allowance that can be carried forward can be complicated especially if subject to the tapered annual allowance.

There is also a pensions lifetime allowance that needs to be considered. The limit is currently £1,073,100.

Source:HM Revenue & Customs| 12-09-2022