Autumn Statement 2011 (1) – Pensions, Tax & NICs

• Recommend on Facebook
• 
• Share on Linkedin
• share via Reddit
• Tweet about it
• Subscribe to the comments on this post
• Print for later
• Tell a friend

State Pension Age

The Pensions Act 2011 gave the green light to accelerate the State Pension Age increases to 65 for women from 2018 and 66 for men and women by September / October 2020. Now, we are told that it will be accelerated further to 67 between April 2026 and April 2028. This increase was initially going to happen between 2034 and 2036.

Comment

More tweaks to existing legislation will be required to bring forward this pension age increase – look out for it to be included in a Pensions Bill 2012 or 2013.  This change will impact anyone under the age of 52.  The obvious question to ask now is when will Government bring forward the increase from 67 to 68?  Legislation still has this set to happen between 2044 and 2046.

State Pension

This has been increased in line with the ‘triple guarantee’ protection it enjoys – i.e. the higher of 2.5%, average earnings or CPI.  The basic State Pension and Pension Credit will increase by £5.30 to £107.45.

Seed Enterprise Investment Scheme (SEIS)

The Government consulted on ways to generate new business investment following an announcement at Budget 2011.  As a result, the Seed Enterprise Investment Scheme (SEIS) will be effective April 2012, which will allow anyone investing up to £100,000.00 in a new business to be entitled to tax relief at 50%.  The investment will be capped at £100,000.00 for individuals.

Comment

This is an improvement on the existing Enterprise Investment Scheme, and the 50% relief will be given regardless of the employees’ marginal rate of tax.  Whilst not strictly a payroll topic, it is nice to know these things!

CPI Inflation

Consumer Prices Index (CPI) inflation is used to uprate ‘most tax rates, allowances and thresholds and the uprating of benefits and public sector pensions’.  The Office for Budget Responsibility (OBR) emphasises the importance of the difference between CPI and RPI inflation and the Autumn Statement confirmed that it will be the September CPI inflation rate that will be used (5.2%). Of course, this was always the Government’s intention, however, the OBR state that the high rate has contributed to the overall gloomy forecast.  The Chancellor did announce that the couple and lone parent parts of the Working Tax Credit would not be uprated by inflation next year and the planned £110.00 increase in the child element of Child Tax Credit would not take place.

Comment

Government is adhering to its June 2010 Budget announcement that these will rise by the value of CPI.

Personal Allowances

As part of the agreement between the Coalition parties, it had already been announced that the long-term intention was to increase the Personal Allowance to £10,000.00.  HM Treasury have confirmed that they are not in a position to make a commitment to progress this increase.  The OBR’s forecast confirms that 2012/13 will see the personal allowance as £8,105.00, projected to increase to £9,215.00 in 2016/17.

HM Treasury confirmed the income tax allowances for 2012/13 as follows, which we have compared to the current tax year:

	2011/12	2012/13	Change
	£	£	£
Personal Allowance
Under 65	7,475	8,105	+630
65 – 74	9,940	10,500	+560
75+	10,090	10,660	+570
Married Couple’s Allowance
maximum	7,295	7,705	+410
minimum	2,800	2,960	+160
Income Limit for under 65 Personal Allow’	100,000	100,000	0
Income Limit for age-related Allowance	24,000	25,400	+1,400
Blind Person’s Allowance	1,980	2,100	+120

They also confirm the tax bands and percentages:

Band	2011/12	2012/13	Change
	£	£	£
Basic Rate (20%)	0 – 35,000	0 – 34,370	-630
Higher Rate (40%)	35,001 – 150,000	34,371 – 150,000	+630
Additional Rate (50%)	Over 150,000	Over 150,000	0

 

Comment

The following allowances have been increased by RPI, as agreed at June 2010 Budget to ensure that certain categories of employees do not lose out:

• income tax age-related allowances
• age-related income limits
• married couples allowance
• blind persons allowance.

The increase by RPI will continue for the duration of the current Government, assumed to be 2016.

Budget 2011 announced the basic Personal Allowance and that it would increase by £630.00 to £8,105.00.  It was also announced that, as happened in April 2011, the Basic Rate limit would be reduced by the same amount, i.e. from £35,000 down to £34,370.  The Higher Rate threshold, the point at which an employee starts to pay tax at 40%, therefore, remains unchanged for 2012/13 at £42,475 (£34,370 + £8,105).  However, we knew this already as the decision to freeze the threshold was made by the previous Government at Pre-Budget Report 2009.  What it means is that, for a second consecutive year, taxpayers at the Higher marginal rate will not benefit from the increase in the personal allowance.

National Insurance Contributions (Class 1)

Employee Thresholds

 

 

 

 

 

• Contributions percentages remain unchanged at 12% on earnings above the PT up to an including the UEL and 2% on earnings above the UEL
• COSR rebate is 1.4% on earnings above the LEL up to an including the UAP. COMP rebate is abolished on 05 April 2012
• Married Women’s Reduced Rate remains at 5.85%

Employer Thresholds

 

 

 

 

 

• Contributions percentages remain unchanged at 13.8% on earnings above the PT
• COSR rebate is 3.4% on earnings above the LEL up to an including the UAP.  COMP rebate is abolished on 05 April 2012

Comment

The Pensions Act 2007 repealed the obligation to align the LEL with the basic State Pension, rounded down to the nearest whole pound.  However, whilst there was no requirement to do so, it still appears as though the two are linked for 2012/2013 tax year, with the threshold being increased by the CPI (5.2%).

For the duration of the current Government, the ST applicable from the start of the new tax year will be increased by the RPI rate as at September the previous year.  The RPI in September 2011 was 5.6%.

The PT has also increased by the CPI. The fact that the PT increases by the lower CPI and the ST by the higher RPI is demonstrated, in part, by observing that the point at which the employee starts to pay NICs has increased by £5.00 per week whilst the point at which the employer starts to pay has risen by £8.00 per week. For the coming years, as long as the CPI and RPI calculation rules are maintained, the implication will be that the ST increase is higher than the PT.

The UAP was introduced from 6 April 2009 as a result of changes to the method of calculating accrual under the State Second Pension (S2P).  As a result of those changes, the UAP also became the upper threshold for contracted-out earnings, i.e. earnings above this are charged at the Not-Contracted Out NI percentages.  The threshold is fixed at £770 per week and does not increase annually.  Only the weekly rate is defined in Regulations; the values for other earnings periods are calculated according to statutory rules.

There are no statutory rules that govern how the UEL is calculated.  However, the UEL currently remains aligned with the Higher Rate threshold, i.e. the point at which an employee starts to pay tax at 40% is aligned to the point at which they stop paying NICs at the highest rate.

Other National Insurance

	2011/12	2012/13	Change
	£	£	£
Class 2
Weekly Rate	2.50	2.65	+0.15
Small Earnings Exemption	5,315	5,595	+280
Class 2 Special
Share Fishermen	3.15	3.30	+0.15
Volunteer Development Workers	5.10	5.35	+0.25
Class 3 Weekly Rate	12.60	13.25	+0.65

 

Working and Child Tax Credit (WTC and CTC) and Child Benefit

The Basic element of the WTC remains unchanged and the Disability elements have been increased in line with the September 2011 CPI.  However, the Couple and Lone Parent element has not been increased.

The Family element of the CTC remains unchanged but the planned £110.00 above-inflation increase to the Child element will not go ahead.  The Disability elements have been increased by the CPI.

Further Information

• Payroll Help - Autumn Statement 2011 (2) – Employment Law
• Payroll Help - Autumn Statement 2011 (3) – Independent Review of Sickness
• HM Treasury – Autumn Statement Speech
• HM Treasury – Autumn Statement Press Release
• HM Treasury – Autumn Statement Documents
• HM Treasury – Tax and National Insurance Thresholds and Rates
• OBR  - Economic and Fiscal Outlook and Supporting Documents
• Direct.Gov  - Changes to the Planned Increase in State Pension Age

Tags: Autumn Statement 2011, Child Benefit, Child Tax Credit, CPI Inflation, Employee Thresholds, Employer Thresholds, NIC Class 1, Personal Allowances, SEIS, state pension, State pension age, Working Tax Credit

This entry was posted on Friday, December 2nd, 2011 at 14:19 and is filed under Autumn Statement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.