Chapter 22 - Gifts to Charity and Pension Contributions

Question 1

Overview of Gifts to Charity

Answer 1

3 ways:

1) Gift aid - cash goes directly to charity
2) Deductible payments - quoted shares and land & buildings
3) Payroll giving - using the PAYE scheme to collect donations and pass on

Question 2

Gift Aid

Answer 2

Payments are made net of 20% tax. For basic rate payers there is no further adjustment to make. For HR and AR, stretch the rate bands by the gross donation.
Ie 34.5k + (donation x 100/80) = new BR band

Question 3

Gifts of Quoted Shares and Land

Answer 3

If quoted shares are donated, the MV at gift is a deductible payment in the taxpayer’s income tax comp. We deduct the relevant value from total income to get net income which is then taxed normally

Question 4

Payroll Deduction Schemes

Answer 4

Employer enters arrangement with an HRMC approved payroll giving agency. Employee then instructs employer to deduct a certain amount each month to be passed on to charities.
Employer must pass over the amounts within 14 days of the end of the month. The agency must then pass it to the charities within 25 days of receipt
No min or max deductions

Question 5

Pension Schemes

Answer 5

Most individuals are entitled to the state pension. You can also have a personal pension. Contributions to personal schemes are paid net of 20% basic rate tax with HMRC putting 20% in the scheme for you. The rate bands are stretched by the gross amount like gift aid

Question 6

Occupational Pension Schemes

Answer 6

Defined contribution, scheme invests contributions in the fund, the value of the fund depends on underlying investments made by the fund manager.
Defined benefit, the benefits on retirement depend on the employee’s salary and length of service rather than fund size.
Employee contributions are deducted from gross pay for PAYE purposes but not NIC.
Employer contributions are a tax free benefit and doesn’t count as earnings for NIC
Contributions deducted from employee pay must be passed to the scheme with 19 days (22 if electronic) of the end of the month they were taken

Question 7

Maximum Contributions

Answer 7

100% of relevant earnings - total emp income including benefits and any taxable termination payments or share incentive income.
Anyone can pay up to £3,600 per year regardless of earnings.
Tax relief is restricted by annual pension allowance. It’s £40,000 for 18/19.

Question 8

Annual Allowance

Answer 8

Annual allowance is increased by the amount of any unused AA of the previous 3 years.

Question 9

Tapered Annual Allowance

Answer 9

Net income including pension contribs over £150,000 and net income excluding contribs over £110,000, the allowance is reduced by £1 for ever £2 net income including contribs over. Cannot be reduced below £10,000

Question 10

Automatic Enrolment into a Workplace Pension

Answer 10

Employers have to auto enrol anyone who:
- are not already in a registered scheme; and
- are aged 22 or over; and
- are under the state pension age; and
- earn more than £10,000 a year; and
- work or usually work in the UK
Minimum contributions have to be made under auto enrolment.

Question 11

PAYE and NIC

Answer 11

Employer operates PAYE on gross pay for an earnings period.
Gross pay is reduced in a payroll deduction scheme or through an occupational pension. Here, tax is calculated on net pay (gross minus contribs) but they do not reduce gross pay for NIC
Under net pay arrangements, employee receives tax relief for payments made as the amount of taxable earnings reduced. Greater the payments, the less tax will be deducted