EBS

Changes have just been announced by HMRC to even out the amount of tax-saving available for employees who participate in Childcare Voucher schemes, regardless of the individual’s tax rate.

Employees who already participate in a scheme on or before 5th April 2011 are not affected but for new joiners beyond that date the employer must carry out a ‘basic earnings assessment’.

These changes are the result of a campaign against the previous Labour Government’s proposal to abolish tax-relief on Childcare altogether and mean that every participant receives basic-rate tax relief worth up to £11 per week. Currently higher-rate tax-payers can benefit by up to £22pw and additional rate tax payers by as much as £27.50.

Employers will be required to carry out an assessment of the taxpayer’s basic employment income based on basic pay, contractual or guaranteed bonus payments, regional allowances, taxable benefits (P11d) & shift allowances. The assessment excludes performance related or discretionary bonus payments, overtime and other benefits which are tax-exempt (pension contributions, employee share schemes & charitable donations made via payroll.

For salary sacrifice arrangements it is the post-salary sacrifice amount which should be used for the assessment. No assessment is necessary for employees already participating in a scheme on or before 5th April 2011.

Full details are available from these HMRC Guides:

• Guide for employers
• Guide for employees

EBS has recently negotiated charge reductions on childcare schemes for a number of clients, if you would like to see what we can do for you, without obligation, please get in touch.

These changes do not apply to workplace nursery schemes.

There has been widespread speculation regarding the State Pension following reports in one national newspaper. Just in case you missed it, these are the key points of the story:

• The source of this story is a national newspaper. Whilst nothing has been denied by Government, there is no official source, though Vince Cable has been quoted extensively. Some speculators are suggesting that this was a controlled leak to gauge public reaction…
• The basic state pension will be increased to £140pw (currently £97.65 though with a minimum income guarantee of £132.60pw and £198.45 for couples).
• This increased pension will replace entitlement to all other state pensions including SERPS, S2P and pensions credit.
• The new pension would be based on years of UK residence rather than NI contributions/credits. This would significantly benefit women & carers.
• The new benefit will only apply to new pensioners after the implementation date , it will not apply to current pensioners. 2015 is the earliest likely implementation date.

What these proposals would do is simplify the state pension entitlement process and EBS would welcome any change which eliminates any disincentive to save for retirement.

There are though many issues to consider:

• How will this be paid for? It is well-documented that the UK cannot afford the current level of State Pension provision and whilst there would be savings to be made through a simplified process, these would take many years to appear, especially as existing pensioners would remain on their current entitlements.
• What happens to those individuals who have accumulated a greater entitlement than £140pw – particularly by buying additional credits? Will they maintain their greater entitlement or is this a ‘for better or for worse’ change. If the cost is to be met through simplifying the process it might be fair to assume the latter.
• How will UK residence be determined?
• Is there an added incentive to contract-out of S2P as presumably any private pension funds will accumulate in addition to the State provision?

As is often the case, more questions than answers, but EBS remains on hand to handle any questions which employees may have and will be monitoring developments.

EBS strongly recommends that every employee secures an up to date state pension forecast (BR19) which is available from www.direct.gov.uk.