What has happened over the last few weeks in personal finance? (22/04/2020)

Category: News

FCA Warns Firms Over Paying Dividends

The FCA has set out its expectations on financial resilience for FCA solo-regulated firms. It has done this considering the coronavirus. It says it expects such firms to plan and ensure the sound management of their financial resources. This means taking appropriate steps to conserve capital, and to plan for how to meet potential demands on liquidity.

Firms may consider whether to make a discretionary distribution of capital. This may be to fund a share buy-back, fund a dividend, upstream cash or meet a variable remuneration decision. When doing so the FCA warns firms it expects them to satisfy themselves that each distribution is prudent. The FCA says that it would not expect firms to distribute capital that could credibly be required to absorb losses over the coming period. And the FCA adds that it may contact specific firms about this.

The FCA’s statement says that capital and liquidity buffers are there to be used in times of stress. Firms that have been set buffers can use them to support the continuation of the firm’s activities. If a firm is planning to draw down a buffer, it should contact the FCA or its named FCA supervisor.

If the firm needs to exit the market, planning should consider how this can be done while taking steps to reduce the harm to consumers and the markets. Firms should maintain an up-to-date wind-down plan considering the current impact of the COVID-19 crisis.

Government schemes to help firms through this period can be part of a firm’s plans for how they will meet debts as they fall due.

The firm should contact the FCA if it has any concerns over its finances.

HMRC confirms the Government’s coronavirus Job Retention Scheme will not cover dividends.

Jim Harra, chief executive at HMRC, has confirmed dividends will not qualify in the Job Retention Scheme (JRS). Therefore, company directors will only be able to claim 80% of their salaried wage.

Speaking via video conference to the Treasury committee on 8 April, he said:

“I am aware that some owner-managers of companies pay themselves a relatively small wage and top that up with dividends. However, those dividends would not qualify in the furlough scheme. It is only 80% of their wage that will qualify for the grant. They will also not qualify for the self-employed scheme.”

“From our perspective, we have no way of identifying which dividends people receive are dividends instead of wages and which are simply a return on capital in their own company or an investment. We have not been able to come up with a design to be able to top this up for those people in the timeframe given.”

“Of course, the Government continues to listen and knows what the issue here is, but there are no plans to do anything further on it.”

The Treasury’s guidance says “Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.”

This statement raises some questions about what a furloughed director who is an owner (shareholder) can and cannot do.

Job Retention Scheme and Furlough Payment

The CEO of HMRC, Jim Harra, has announced that employers can claim furlough payments from HMRC from 20 April.

According to the Financial Times, system testing shows the claims portal can cope with 450,000 applications per hour. It should also have money to employers within 10 days.

Around 2m employers are operating PAYE. Estimates suggest that payments under the scheme could amount to anywhere between £10bn-£40bn.

HMRC have some concern over the risk of fraud given such large sums being at stake. Areas of concern are employers specifying “fake employees” and furloughed workers working “on the quiet”. HMRC is thought to be planning selected checks in high-risk areas and are also asking employees to “whistle blow”. There is also a concern (given the sums involved) over the potential involvement of organised crime.

Jim Harra made it clear that HMRC had developed a mechanism to run the Job Retention Scheme (JRS) in a month–it would usually have taken two years.

In relation to the furlough rules, the Chancellor has emphasised the scheme was designed at a pace to be simple to operate. He observed some people might “fall between the cracks” finding they are not eligible to be included in the JRS and the Self-Employed Income Support Scheme (SEISS).

The Pension Regulator Issues COVID-19 Automatic Enrolment Guidance

The Pension Regulator (TPR) has issued guidance. This helps to ensure employers meet their automatic enrolment duties during what will tough times for many. Some key points raised, included:

  • Automatic enrolment (AE) duties continue, and these apply whether staff are working or being furloughed.
  • Obligations to pay employer contributions also continue.
  • Under the Job Retention Scheme employer can claim up to the level of the minimum automatic enrolment contributions, i.e. 3% of banded earnings.
  • Any contributions above the AE minimums as set out in the scheme rules, agreements or other governing documentation must continue.
  • Contribution levels can be reduced but this needs to be done with a formal consultation process.
  • There is a temporary regulatory easement regarding the consultation process. In limited circumstances, TPR will not enforce the 60 day consultation period.
  • A reminder that employers must not encourage employees to opt-out of the scheme or reduce contributions.

The full guidance is available on the TPR website

Pension Savings – Tax Charges

HMRC has updated its Self Assessment helpsheet (HS345) and Working Papers to help taxpayers complete the pension savings tax charges and taxable lump sums from overseas pension schemes.

HMRC Annual Allowance

HMRC has updated its annual allowance and carry forward guidance which includes a link to its carry forward tool.

Pensions Dashboard Progress

The Money and Pensions Service published its first full report on the progress made so far on the pensions dashboard project.

The report proposes ways forward about user testing, an ID verification service and agreeing data standards. It also covers how the programme will work with partners to align regulation and legislation.

However, no launch date is proposed or even intimated. Instead, the report notes that pensions dashboards will only be ready when the following requirements have been met:

  • The security of the ecosystem is fully assured;
  • The user experience has been extensively and robustly tested;
  • User behaviours have been understood and any adverse impacts or unintended consequences mitigated;
  • The service has enough coverage and enough information so that it has been proved to meet a user need and be useful to a significant majority of people.

The report is optimistic that MaPs will set out the shape of a more detailed programme timeline before the end of the year.

The ABI Warns About Scammers

The ABI is warning in a Press Release for people to be aware of scammers looking to cash in on the financial hardship the COVID-19 pandemic is causing.

The ABI highlights fraudsters could offer bogus insurance products and high-risk investment and pension products. Mark Allen, ABI’s Fraud and Financial Crime Manager, said: “Criminals are experts at exploiting situations for their own gain and coronavirus is a perfect opportunity for them, so people need to be on their guard.”

Charlotte Jackson, Head of Pensions Operations and Consumer Protection at the Money and Pensions Service (MaPS), echoed these concerns, saying: “This is a very worrying time for everyone, and the impact of the coronavirus on financial markets is adding to the stress. Difficult as it is, the most important thing is not to panic or rush into making any decisions about your pension at the moment. We know scammers will try to take advantage of the situation so you should be suspicious of any unexpected approach. Before you do anything, it’s worth getting independent guidance or advice.”

Salary Sacrifice – COVID 19 Update

HMRC has published an amendment to its new rules on salary sacrifice concerning cars with CO2 emissions of more 75g/km, living accommodation and school fees.

Salary sacrifice

These are agreements between an employer and employee to reduce the employee’s salary in exchange for some form of non-cash benefit in kind. The effect of this, depending on the benefit in kind, is often to reduce the amount of income tax, employee and employer NICs due. Making efficient pension contributions is one of many reasons to sacrifice salary.

2017 changes

In its 2016 Budget report, the Government announced it would limit the benefits that attract tax advantages.

As a result, from 6 April 2017 certain benefits provided under through salary sacrifice arrangements (described in the legislation as ‘optional remuneration arrangements’), no longer benefit from the income tax and NICs advantages previously available under salary sacrifice arrangements – see Employment Income Manual EIM42750.

This does not, however, affect all benefits. For example, employer pension contributions are not affected. So, salary sacrifice can remain as tax efficient as ever for employer pension contributions.

From 6 April 2017, where an affected benefit in kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer NICs, at the greater of:

  • the amount of salary sacrificed; and
  • the taxable value of the benefit under the normal benefit in kind rules (also known as the cash equivalent).

This means that where the normal taxable value of the benefit in kind is higher than the amount of salary sacrificed, it is subject to tax and Class 1A NICs in the normal way.

Transitional rules

However, if a salary sacrifice arrangement was set up with an employee before 6 April 2017, the employer can continue to calculate the value of the benefit in the same way until April 2021. This only relates to specific arrangements with an employee, not to the employer’s overall salary sacrifice policy. It applies to:

  • cars with CO2 emissions of more 75g/km;
  • living accommodation;
  • school fees (even if varied, renewed or modified for the same child and school).

The arrangement becomes subject to the new rules if it is varied, renewed (including auto-renewal) or modified. However, an arrangement is not regarded as being varied if it is only in connection with a replacement for reasons beyond the control of the parties.

Variation of an arrangement is also disregarded if the variation is in connection with an employee’s entitlement to statutory sick pay, statutory maternity pay, statutory adoption pay, statutory paternity pay or statutory shared parental pay.

The Government has now updated its guidance to also say an arrangement is not regarded as varied if the amendment is caused by (directly connected to a change of circumstances as a result of) the coronavirus (COVID-19).

You can read HMRC’s updated guidance on optional remuneration arrangements here, and on salary sacrifice for employers here.

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