Opinions / Time for a financial ‘spring clean’
THE NEW Year is the time when many people make resolutions about what they hope to do differently in the year ahead and often their New Year’s resolutions are already broken by now, writes chartered accountant Martin Tregonning.
Some people don’t make any New Year’s resolutions as they know that they will have to live with the disappointment of not keeping them.
Looking back over the last year, there is an argument that we shouldn’t bother making any New Year’s resolutions, because who knows how things will turn out anyway. I know one person whose only New Year’s resolution after last year is not to buy a 2021 wall planner.
But there are a few financial New Year’s resolutions that everyone should make – almost like a financial spring clean – but at the start of the New Year.
National Insurance contributions and State Pension forecast
There are several important state benefits that depend on your National Insurance contributions over time, and the most important one of these is the State Pension. In order to get a full State Pension someone has to either have paid National Insurance or received some other form of benefit for enough years.
You can now check your State Pension forecast and see if it shows any gaps or shortfall in National Insurance contributions, and also offers advice on what you can do to make up for any gaps so you can still get the full State Pension.
Child Benefit
Closely associated with the first point is the making sure that your Child Benefit is set up in the best way. Child Benefit is important because if someone is full-time parent and not receiving any income, because they are receiving Child Benefit then that counts the same as paying National Insurance for receiving the State Pension (and Maternity Allowance).
By default, the Child Benefit is automatically paid to the mother, but where the mother is the primary earner and the second parent does not earn enough to pay National Insurance, then the benefit of having the Child Benefit can be transferred to the other parent.
Since 2012, where one parent earns more than £50,000, HMRC start “clawing-back” the Child Benefit, to the point where effectively you get nothing. To save the hassle of dealing with HMRC and the claw-back” some parents may choose to either opt-out of Child Benefit or never apply for it for newborn children.
The problem with this would again be that unless the other parent pays enough National Insurance in their own right, they will not be able to get the full State pension or other benefits. It can often be better to receive the Child Benefit, and then have it all taken off you, in order to keep your other benefits.
Marriage Allowance
Since 2016, it has been possible for someone, who has not earned enough to fully use up their Personal Allowance, to transfer up to 10 per cent of their Personal Allowance to their spouse or civil partner. This would then increase their spouse’s/civil partner’s Personal Allowance, and be a saving of £250 per year in tax for a Basic Rate taxpayer.
Tax Code
Most Scottish taxpayers are on the basic tax code of S1250L, and that determines how much tax their employer takes off them. If for any reason the amount of tax is different e.g. you have more than one job, you owe tax from previous years, etc. then HMRC will send you a Tax Code notice, which will set out what their revised Tax Code is, and so how much your employer will deduct from your pay.
If you receive a Tax Code notice, it is very important that you read it. If you don’t understand it or think that it is wrong, contact HMRC for an explanation, and they will correct it if needs be.
Fixed Rate Deductions
HMRC allows Fixed Rate Deductions for certain things, depending on what industry people work in, but they are fixed deductions for things such as uniforms, or washing, or tools.
HMRC published a set list of allowable Fixed Rate Deductions, and if you qualify for any of those you simply notify HMRC and they can amend your Tax Code so that you get the benefit of those allowances.
This is general guidance only, and the exact way it would work might vary according to someone’s individual circumstances, but these are the most common areas that ordinary taxpayers don’t know about or overlook.
Make it your New Year’s resolution to check these financial tips, and then you will be on the start to a better 2021.
Martin Tregonning is a Shetland-based chartered accountant and the director of Tregonning and Co Ltd
Further advice is available:
National Insurance contributions and State Pension Forecast
https://www.gov.uk/new-state-pension/your-national-insurance-record-and-your-state-pension
Child Benefit
https://www.gov.uk/child-benefit-tax-charge
https://www.gov.uk/government/publications/national-insurance-credits-for-parents-and-carers-cf411a
Marriage Allowance
https://www.gov.uk/marriage-allowance
Tax Code
https://www.gov.uk/tax-codes/updating-tax-code
Fixed Rate Deductions
https://www.gov.uk/guidance/job-expenses-for-uniforms-work-clothing-and-tools
General Advice – The Money Advisory Service
https://www.moneyadviceservice.org.uk/en
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