News Updates - April
23rd April 2020
Help for the self employed
Self-employed workers can receive up to 80% of their profits lost due to coronavirus-related disruption to their business paid by the government. Average monthly profits from the last three years of up to £2,500 a month will be used to calculate how much self-employed workers can claim. The scheme is similar to that promised to workers on the PAYE payroll last week by Mr Sunak. But it will only be available to available to people who's the majority of their income comes from self-employment and they must have been working for themselves for the past two years in a bid to cut back on fraudulent claims. Anyone who missed the January self-assessment deadline is also being given a four week extension to file their tax return. Here's what help has been promised to self-employed workers during the coronavirus crisis:
- The government is to pay up to 80 per cent of wages for self-employed workers based on their average monthly profits over the last two years.
- This will be up to a limit of £2,500 a month. It’s only available to those with profits of up to £50,000.
- Average monthly pay-outs are thought to be about £940 each per month. For example, a freelancer with average trading profits of £18,000 a year over the last three years would be able to get £1,200 per month.
- You won’t get paid until the first week in June but payments will be backdated until March 1.
- It will only be available to those “adversely affected” by the coronavirus shutdown and half of their income in these periods must come from self-employment.
- HMRC will contact directly, ask you to fill in form and pay into your bank account.
- Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.
Child benefit claims and tax credits
Child Benefit will pay monthly payments which are dependent on the number of children being claimed for. Payments for Child Tax Credit will also depend on how many children are being claimed for but will also be affected by the context of the claim. The payments will change depending on if the claimant is making a new claim or if they’re already receiving Child Tax Credit. While Child Tax Credit has been replaced by Universal Credit it still can be claimed, albeit under very specific circumstances. The government state that a new claim can only be made if the claimant is:
- Getting the severe disability premium, or are entitled to it
- Gets or was entitled to the severe disability premium in previous month and they’re still eligible for it
There are few things that will affect a person’s eligibility for Child Benefit but there are a couple rules to note.
- Only one person can receive the payment for a child so the parents will need to decide which among them will get it.
- Children under 16 can be claimed for but it is possible to claim for children up until the age of 20 in certain circumstances.
There are only two things which severely impact eligibility rules and they are if the child goes into hospital/care or if they live away from the parents.
A good time to invest for children
The Junior ISA limit has gone up to £9,000 for the new tax year 2020/21 – almost double what it was previously. The new limit, up from £4,368, was announced in the Budget last month and is the highest increase we have seen since Junior ISAs were launched in November 2011. Junior ISAs are long-term savings accounts for children, which allow parents and legal guardians to put money away in a tax efficient way. Here’s what you need to know about Junior ISAs:
- Just like adult ISAs, you can save into either a cash Junior ISA or an investment one.
- With a cash ISA, you will earn interest on your money. Interest rates are currently very low, so it's important to hunt around for the best possible rate.
- You can also put money into a Stocks and Shares ISA, which would potentially give you better growth. Stock markets go up and down, but these are long-term investments, which gives your investments time to grow.
- If you invested last year’s full Junior ISA allowance of £4,368 in a stocks and shares ISA every year for 18 years, your child’s junior ISA could be worth £125,295. If you put away £9,000 every year for 18 years, your child would have a savings pot worth of £258,495
- The account can be opened by and controlled by the parent or legal guardian, but anyone can pay into it for your child.
- Once the money is put into a Junior ISA, it belongs to the child and only they can access it once they are 18.
Final salary transfer lockdown
Transfers out of final salary or defined benefit (DB) pensions have notably declined following the steep market falls that have taken place over the past two months in response to the coronavirus pandemic. Analysis of data from company pension schemes by pension consultancy LCP found that member interest in transfers out of DB pension schemes is at its lowest level since early 2014, before the introduction of the pension freedoms. According to LCP’s analysis, volumes of requests for transfer value quotations were already markedly down in 2019 compared with 2018, but the first quarter of 2020 has seen further declines. According to LCP, possible explanations for the most recent decline in requests for transfer values include pension savers delaying decision-making in light of steep market falls. Another key driver is that the coronavirus has disrupted the work of financial advisers, which might have otherwise led to inquiries about transfer values. On this front, in order to help financial advisers, the Financial Conduct Authority (FCA) has stepped in to reduce their workload by relaxing for six months a regulatory requirement that requires advisers and wealth managers to notify clients when a portfolio suffers a 10% or more drop in a three-month period. In addition, a significant number of DB schemes have decided to put a temporary hold on providing transfer quotations to allow market volatility to settle down and give them time to review their transfer value calculations. In turn, this is likely to reduce overall transfer activity further for a period of time.
Retail footfall plunges
Footfall in high streets and shopping destinations jumped last weekend as warmer weather brought more people out of their homes, according to new data. Figures from retail experts Springboard showed that footfall rose 9.5% on Saturday April 4 and 21.3% on Sunday April 5, against the same weekend a week earlier. It reported a particular spike in footfall in central London, where footfall jumped 51.4% on Sunday. Other large cities and coastal towns also saw a jump in footfall over the weekend, with coastal locations reporting a 29.6% rise in footfall on Sunday. Nevertheless, the figures reflected a significant decline against the same weekend last year, due to the government’s social distancing instructions. Springboard said the data is taken from markers by high streets, retail parks and shopping centres. It said the figures do not show what people were doing on their excursions and simply record the number of people walking through these areas. Footfall for last week – the week starting March 29 – dived 81.4% against the same period last year, while it was also 31.6% lower than the previous week.
Don’t write off investment trusts just yet
The gap between the best and worst performing investments trusts in the first three month of the year is wide, as managers grapple with the impact of the coronavirus. By and large, the most resilient trusts in March proved to be the better performers in the first quarter of the year as a whole, and the worst performers in the month are also among the weakest year to date. Some of the most highly rated investment trusts are among the best performers – with trusts rated Gold, Silver and Bronze making it into the top 10. Just two trusts in the produced a positive return in March - no mean feat at a time when the FTSE All Share fell 26% and the S&P500 20%. There is little commonality between the top-performing trusts. Ruffer has a large exposure to bonds, which have in general provided the defensive qualities investors value in a crisis while JPMorgan China has benefited from China’s quick bounce-back from the coronavirus and the resilience of its equity markets. The trusts returned 2.12% and 0.89% respectively in the first quarter of 2020, and Ruffer posted an impressive 6.74% in March. Meanwhile, Scottish Mortgage’s bias towards technology companies has helped it at a time when millions of people are having to work from home and socialise through social media and apps. The trust is up 0.4% in the first quarter of the year, and down 5.76% in March. It is, perhaps, of little surprise to see two healthcare and biotech funds among the top performers, as governments across race to find a cure for Covid-19. Worldwide Healthcare is down 7.41% year to date and Biotech Growth 8.42%. Investing in certain healthcare companies, such as virtual GP service Teladoc, has boosted the performance of a number of funds and trusts in recent weeks. With the world still trying to understand the full impact of Coronavirus, commentators believe it is likely that markets will remain volatile in the coming quarter and a wide dispersion of returns for Q2 highly likely.
New tax year changes
Traditionally, the beginning of a new tax year brings changes to taxes, benefits and the cost of some essentials – and despite the extraordinary conditions we are currently living in, this year is no different. From 6 April we will see changes to junior Isas, national insurance and inheritance tax (IHT), among many adjustments that will affect the pounds in your pocket. There were also a number of price changes that came into effect on Wednesday 1 April, dubbed by some as “national price hike day”. Here’s what is changing:
- The threshold for national insurance contributions is increasing from £8,632 to £9,500 from 6 April. The new threshold means the average full-time worker will see their tax bill cut by £104 a year and the typical self-employed worker by £78.
- Junior Isas – allowance doubled. There was good news for parents in the budget – the maximum amount they can save in a junior Isa for their child is increasing from £4,368 to £9,000 a year from 6 April. As with all types of Isa, there is no tax to pay on interest or capital gains on growth.
- State pension – up 3.9%. The state pension will go up by 3.9% in April, the biggest rise since 2012. This means those receiving the new state pension (who reached pension age after 6 April 2016) will see an increase of £6.60 a week to £175.20. Those claiming the old state pension will see their basic payment increase by £5.05 a week to £134.25.
- High earners can save even more in their pensions from 6 April as the lifetime allowance (the maximum you can save into a pension before high tax charges apply) will rise from £1,055,000 to £1,073,000.
- Inheritance tax – homes up to £1m can avoid tax. The nil-rate IHT band for anyone passing the family home to their direct descendants increases to £500,000 from 6 April. The family home allowance has increased each year since its introduction in 2017. In the 2020-21 tax year the final increase will be up to £175,000. Combined with the standard threshold of £325,000, it means many families will not pay IHT on estates worth less than £500,000, while couples will be able to leave estates worth up to £1m before IHT kicks in.
- Buy-to-let. Mortgage tax relief for buy-to-let landlords has been gradually phased out since 2017. The new tax year marks the final phase of its removal – this will affect higher and additional rate tax payers. Landlords can no longer deduct mortgage expenses from their rental income to reduce the tax they pay. Instead, they will receive a tax-credit, based on 20% of their mortgage interest payments. Landlords selling up will also be affected by new capital gains tax (CGT) rules, which come into effect in April.
Coronavirus – know your rights
The coronavirus crisis has shut down many workplaces in the UK and forced the government to make major changes to the benefits system to support those who are unable to work. The self-employed and employees who have lost work are covered, as are people who are unable to work because they have the virus. Depending on which category you are in, here are your rights as things stand currently.
I’m an employee and I’ve been sent home
Some employers have told workers they will pay them as usual, at least for the next few weeks. If you are in that position and you do not usually receive any benefits then you will not need to make a claim. Other employers are not in a position to meet the costs themselves. It is their workers who will be covered by the government’s pledge to cover 80% of wages. This will be claimed by the employers and distributed to staff, so you will not need to do anything yourself. It will be up to employers to decide whether to make up the difference.
I’ve been off work because I had to self-isolate
You should be eligible for sick pay. If you are an employee, your employer may have a scheme that is more generous than that offered by the government. If it does, it should pay you that. Otherwise you will be entitled to statutory sick pay. The payment is worth £94.25 a week and is paid for up to 28 weeks. The rules have also been changed so that statutory sick pay can be claimed from day one rather than day four as previously.
I’m self-employed and have lost all of my work
The government has said it will pay up to 80% of earnings for self-employed people who usually make trading profits of £50,000 or less. The payment is worth up to £2,500 a month and based on your average self-employed income over the past three years. It is taxable and will be paid for at least three months. You cannot apply if you started your business after April 2019, and you need to have a tax return for the 2018-19 tax year to apply. If you have not completed that tax return, which was due on 31 January 2020, you have been given four weeks from 26 March to do so. You will need to apply to HMRC for the self-employed income support scheme and it will pay the money into your bank account in a single lump sum. It will not be available until the beginning of June, but you can claim universal credit in the meantime.
Sunak has also said he will delay the date at which self-assessment tax payments are due. If you were due to pay a second instalment by 31 July, you will not have to do so until January 2021.