Monthly Archives: December 2016

Attention staff: the cafeteria is closing
December 2016

The Autumn Statement confirmed plans to limit the scope for salary sacrifice arrangements.

In recent years, the number of employers offering ‘cafeteria’ remuneration has steadily increased. Under the system, employees can swap pay for benefits, which can range from anything from mobile phones through to company cars or gym membership.

The advantage of visiting the cafeteria depends on what is chosen from the menu. In some instances – mobile phones for example – pay that is subject to income tax and employees’ and employer’s national insurance contributions (NICs) becomes a benefit free of both tax and NICs.

The party on the other side of this disappearing trick, HM Treasury, has now decided enough is enough. Over the summer, HM Revenue & Customs issued a consultation paper on countering the effects of salary sacrifice and the Autumn Statement confirmed that most of the proposals in the document will take effect from 6 April 2017. Broadly speaking, if you give up salary for a benefit, then from 2017/18 you will be taxed on the greater of:

  • the salary foregone; and
  • the statutory value of the benefits

Your employer will also be subject to NICs on the same basis, so the only saving remaining will be employee NICs, which for higher rate taxpayers is generally 2% of the earnings sacrificed.

There will be a range of transitional protection for arrangements in place before April 2017 and a limited number of total exemptions. The most important of these is for pensions, where the gain from using salary sacrifice can be as much as 33.9%. If you would like to learn more about the continuing advantages of this type of salary sacrifice arrangement, please talk to us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Deposit protection limits to rise next year
December 2016

It looks likely that the deposit protection limit will rise at the end of January.

At the start of 2016, the maximum amount of a bank or building society deposit covered by the Financial Services Compensation Scheme (FSCS) was cut from £85,000 to £75,000. The reduction was a consequence of the review rules in the European Deposit Guarantee Schemes Directive (EDGSD). That Directive placed a minimum level of €100,000 (or the local currency equivalent) on deposit protection and requires non-Eurozone member states like the UK to reassess their cover level every five years in the light of prevailing exchange rates.

When the last review took place in summer 2015, the pound was trading around €1.40, so the Prudential Regulation Authority (PRA) had little choice but to lower the ceiling, although it did introduce transitional measures deferring the main impact until the end of the year.

In winter 2016, following the Brexit vote, the pound has fallen about a sixth and is trading at around €1.17. Although the next EDGSD review is not due until mid-2020, the PRA has taken advantage of a clause in the Directive to re-review the protection level. The Directive says that non-euro limits are to be adjusted “following unforeseen events such as currency fluctuations”.

The PRA has issued a consultation on plans to return the deposit protection ceiling to £85,000 from 30 January 2017. In practice the process is something of a formality – administrative details may change slightly, but the number and timing are very unlikely to alter.

The revision will make it marginally easier to protect large deposits. For example, to be fully covered at present, £165,000 needs to be spread across three separate deposit takers, whereas the new limit will cut the number required to two. However, if you are holding high levels of cash, now could be a good time to review with us whether you need to keep so much money on deposit. After all, the best instant access accounts now offer just 1% and many are paying less.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Putting a price on unpaid work
December 2016

The Office for National Statistics has been examining the value of unpaid work.

Every three months the news headlines draw attention to how much UK gross domestic product (GDP) has changed over the past quarter – the last reading was +0.5%, better than many experts had predicted in the wake of the Brexit vote.  However, GDP is a slippery concept and some activity is deliberately excluded from the measure.

In November the Office for National Statistics (ONS) looked at one of those excluded areas – the unpaid work which households carry out for themselves or other households.  Such work covers a range of activities, from housework and cooking through to driving ‘mum’s/dad’s taxi’ and volunteering.  The ONS puts the value of all such unpaid work at just over £1,000bn in 2014, which is more than half of the GDP for the year of £1.8 bn.

ONS says that on average men do 16 hours of unpaid work each week, worth about £166, whereas women do 26 hours, worth about £260.  If you want to see how much your (or your partner’s) unpaid work is worth, the ONS has developed a simple calculator available at https://www.ons.gov.uk/visualisations/dvc376/index.html.

Discovering what you are not earning (or paying for!) is an interesting exercise, but there is a serious aspect to consider.  Who would do that unpaid work if you or your partner were unable to so, for example because of illness?  The cost would be considerably more than the ONS website numbers because their calculator works from what the notional employee would be paid for the service concerned, not what their employer would charge to provide it.

When you next review your income protection and life assurance cover – January would be a good time – it’s worth remembering the cost of those unpaid services.