The Salary Calculator

Navigating pension pots in times of financial crisis

by Madaline Dunn

Saving into a pension can help safeguard your future; the state pension is just £203.85 per week, and the cost of living is only increasing. However, the cost of living is also making it more difficult than ever to save into a pension, and increasingly the research shows that people are unable to afford to do so and are cutting back on contributions in order to afford the basics.

At The Salary Calculator, we’ll walk you through,

• What the data shows about people not being able to afford pensions
• The percentage of self-employed people that don’t pay into a pension
• How much is it recommended that you save into a pension?
• What the consequences of not saving into a pension are
• Where to go for advice and guidance

More and more people can’t afford to pay into a pension

According to a survey commissioned by insurer Aviva Life and Pensions Ireland, the cost of living crisis, and energy crisis are negatively impacting people’s ability to take sustainable action in their personal lives, despite a desire to do so. For example, the research found that four in ten people aged between 55 and 65 would like to hold some investments, this includes pensions.

However, while nearly 90% are eligible (over 22 and earning over £10,000 per annum) for the automatic pension enrolment scheme, more people are either stopping or reducing their workplace and personal pension contributions.

The number of people doing so reportedly increased by almost a third between March and July 2022.

Some proposed solutions to help counteract this have included increasing the amount that employers pay in under the scheme from 3% to 6%, allowing workers to supplement their disposable income. Others have suggested that employers opt to continue contributions while workers take a “temporary contribution holiday.”

What percentage of self-employed people don’t pay into a pension

While there’s an increasing number of people reducing or stopping their pension contributions when it comes to the self-employed population, which makes up 4.39 million workers, only 16% save into a private pension.

Further to this, as the number of self-employed people has risen, the number contributing to a private pension has fallen. It makes sense then, that a recent report from the Office for National Statistics (ONS) found that there’s a significant difference in the average pension wealth between employed and self-employed, with the latter, more likely to report not being able to afford to pay into a pension.

Further, the Institute for Fiscal Studies found that, for those self-employed workers that do pay into a pension, most rarely increase their contributions, even as their income rises. Indeed, nearly half kept their contribution at the same level for two years, and for those who had saved into a pension for nine years, one in five never increased their contributions. The average contribution is just £600 per year.

How much is it recommended that you save?

When it comes to saving into your pension, there are a lot of numbers thrown around, some advisors suggest that you contribute as much as ten times your average working-life salary by the time you retire. Others suggest that you aim for the ’50-70′ rule, which means you end up with an annual income that is between 50 and 70 per cent of your working income.

Elsewhere, it’s recommended that if you’re 30 years old, 15% of your salary should be pension contributions; further some advise that by your mid-thirties, you need to have twice your annual salary saved into your pension pot.

Of course, for many, this isn’t a feasible option, and many people have more immediate priorities to think about. Speaking about this to The Independent, Rebecca Aldridge, managing director of Balance: Wealth Planning, said that focusing solely on building up a pension pot “ignores the reality of life” for most people under the age of 35.

Indeed, it overlooks high levels of debt, and the expenses associated with raising children and childcare, for those who have them.

“Most worryingly in my view, most have little in accessible savings, making them incredibly vulnerable if they are made redundant, can’t work due to illness, want to take longer parental leave or so on. A healthy pension fund won’t help with any of those,” she said.

Instead, Aldridge recommends building a strong foundation by saving a little each month, enough to work toward paying off debt, and building up a savings fund of six months. After this, she explains, it makes sense to put money into “a mixture of other savings pots.”

What are the consequences of stopping paying into a pension?

More and more people are feeling less confident in their ability to afford retirement, according to research from Hargreaves Lansdown. In fact, 39 per cent feel this way, up from one-third a year prior. And the cost of living crisis is compounding the issue.

Speaking about this, Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrisey, said that the real shift has come from people who were “unsure if they had enough to retire” who now seem to know they “definitely don’t” as their costs rise and their investments “took a pounding.” Further, she said that while the younger you are, the better your chances of boosting your pension contribution, for those coming up to retirement age, “the prospects look bleak.” This, she said, is why more and more people who have retired are returning to work.

“Many believed they had enough set aside to see them through retirement, but the enormous hike in the costs of essentials such as fuel and food is making many revisit their plans. Though we expect inflation to start falling this year, it is likely to remain a squeeze on peoples’ plans for the foreseeable future.”

However, many finance experts advise that while it might feel tempting to pause your pension contributions, so you can divert that money elsewhere, it could come back to bite you in the long run. Not only will you miss out on your employer matching your contribution, you’ll also no longer benefit from the tax relief the government pays on those contributions. Even pausing for a period of two years could see tens of thousands of pounds wiped from your pension pot, depending on salary and contribution.

Where should I go if I’m seeking advice?

Considering the long-term consequences of cutting back on contributions, it’s a good idea to speak with a financial adviser who can give you a deeper understanding of how it might affect you later on, alternatives and ways in which you can mitigate the effects of reducing your contributions.

Some sources which can help and point you in the right direction include:

• Unbiased 
• Money Helper
• Citizens Advice 

Tags: investments, pension, private pension, self employed

Making Tax Digital for Income Tax – Should you start to prepare now?

by Admin

[Sponsored post by GoSimpleTax]

All VAT-registered businesses in the UK must now meet new reporting requirements introduced as a consequence of Making Tax Digital. If you don’t run a VAT-registered business, Making Tax Digital won’t have affected you so far. You may not have even heard of Making Tax Digital.

However, if you report income and pay tax via Self Assessment, come April 2024, Making Tax Digital is likely to impact you. And the changes that Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will bring are significant, so finding out more about MTD for ITSA now is recommended, so you’re better prepared and avoid having to pay a non-compliance penalty.

In this guide you can:

• Find out what Making Tax Digital for Income Tax Self Assessment is.
• Discover whether you’ll be affected by MTD for ITSA.
• Learn how MTD for ITSA will change the reporting of taxable income.

What is Making Tax Digital?

Making Tax Digital is an important government digital initiative that is already transforming the UK tax system. Its introduction got underway in 2019 and it will continue in stages until complete. The VAT reporting system has already been digitised and Income Tax Self Assessment is next, before Corporation Tax gets the MTD treatment. Full introduction of MTD across the entire UK tax system remains some years off.

Why is Making Tax Digital being introduced? The government says it wants to make it easier for people and businesses to more easily and efficiently manage their tax responsibilities, while it hopes MTD will prevent basic tax reporting errors that cost the UK many billions a year in lost tax revenue.

Introduction of MTD for ITSA was to start on 6 April 2023, but it’s been delayed for a year until 6 April 2024 in response to COVID-19 and stakeholder groups asking for more time so that businesses and individual taxpayers could better prepare themselves for MTD for ITSA.

Put in very basic terms, Making Tax Digital for Income Tax is simply a new way of using digital solutions to report income and expenses to HMRC every quarter rather than once a year.

Who will be affected by Making Tax Digital for ITSA?

• If you’re a self-employed sole trader or landlord who is registered for Income Tax Self Assessment and you have a gross income of more than £10,000, you’ll need to comply with Making Tax Digital for Income Tax requirements from 6 April 2024.
• Members of ordinary business partnerships who earn more than £10,000 a year must sign up for MTD for ITSA by 6 April 2025.
• You can apply for a MTD for ITSA exemption if it’s not practical for you to use software to keep digital records or submit them to HMRC digitally, for example, because of your age, disability, location (ie poor broadband connection) or another justifiable reason. MTD exemption can also be granted on religious grounds. You’ll need to explain your reasons to HMRC and an alternative solution will be sought.

How will reporting change under MTD for ITSA?

Sole traders, landlords and other Self Assessment taxpayers with taxable income won’t need to submit a Self Assessment tax return each year (unless they choose to report other income from shares, interest, etc, via Self Assessment, although HMRC would prefer you to report all taxable income via MTD for ITSA).

MTD for ITSA requires you to maintain digital records of your taxable income and expenses/costs, update them regularly and send summary figures to HMRC digitally within a month of the end of every quarter.

If you’ll need to report via MTD for ITSA you must use:

• MTD for ITSA-compatible third-party software or
• “bridging software” that allows you to send the necessary information digitally in the right format to HMRC from non-MTD-compatible software, spreadsheets, etc.

At the end of the tax year (5 April), you must submit your “end of period statement” (EOPS) and a final declaration (MTD version of the current self assessment tax return), confirming the accuracy of the figures you’ve submitted, with any accounting adjustments made and any additional earnings reported. HMRC will then send you your tax bill, which you must pay before 31 January in the following tax year. Unjustifiable late submissions or payments will continue to result in penalties.

Should you sign up for MTD for ITSA now?

For some time, some businesses, landlords and accountants have been taking part in a live Making Tax Digital for Income Tax Self Assessment pilot scheme. 

You don’t have to sign up for MTD for ITSA. However, you can sign up voluntarily now for MTD for ITSA and start using the service if you’re:

• a UK resident
• registered for Self Assessment and your returns and payments are up to date a sole trader with income from one business or a landlord who rents out UK property.
• You can’t currently sign up if you also need to report income from other sources (eg share dividends).

Need to know! At this stage, it’s probably best to delay signing up for MTD for ITSA, until at least April 2023.The new system is very much in its infancy, with HMRC taking steps to refine it to iron out any issues and provide a better user experience.

Conclusion

Preparation is key, starting to use digital software now to record income and expenses on a regular basis will get you into the routine before MTD for ITSA comes into effect.

As April 2023 approaches you will then be in a better place to decide what software or bridging software will be best for your circumstance/business.

About GoSimpleTax

Income, Expenses and tax submission all in one.

GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way.

GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees. Available on desktop or mobile application.

Tags: income tax, ITSA, making tax digital, Self Assessment, self employed, self employment, VAT

The great resignation: What is it and what does it mean for you?

by Madaline Dunn

The great resignation is the hot topic on everyone’s lips, with millions either leaving behind their old roles, or looking to in the near future. Much like the pandemic, it was unprecedented but bound to happen eventually.

This movement of people leaving their jobs en masse includes individuals from every demographic, too, reflecting a widespread frustration with traditional work and labour models.

At The Salary Calculator, we’ll walk you through:

• What the great resignation is
• What’s driving the great resignation
• The pros and cons of the great resignation
• How it will affect you and your work

What is the great resignation?

The great resignation, a term coined by business and management professor Dr Anthony Klotz in May 2021, refers to the current mass exodus from the workforce.

A study by recruitment firm Randstad UK recently conducted a survey of 6,000 workers and found that 24% of those polled were planning a job change within the next three to six months, 69% of which felt confident about their decision. Meanwhile, 16% felt anxious or concerned about finding a new role.

Employment Hero found that young people aged between 25 and 34 are those most looking towards a change, with a whopping 77% actively looking to leave their jobs within the next year. 74% of those aged 18-24 expressed similar sentiments. These were also the demographics that reported the most’ burn-out.’ Moreover, data published in i, showed one-third of millennials will seek out new employment if forced to return to the office full-time after the pandemic.

That said, those in more senior positions have also joined the great resignation. Executive outplacement firm Challenger, Gray & Christmas, found that in December, 106 CEOs said goodbye to their senior roles, and in the final quarter of 2021, this was up 16% on a year-over-year basis

It comes as no surprise then, that in the UK in July, job vacancies were at an all-time high, crossing the threshold of one million for the first time.

What’s driving the great resignation?

The great resignation has a number of different causes. One aspect is that following nationwide government-sanctioned lockdowns; remote working became the norm for many people. This life readjustment gave people time for reflection, and when compared with office work, many found they were able to spend less time commuting and more time with their family.

Remote working is also a good move for the wallet, with fewer expenses such as travel and eating out. Likewise, many are also quitting in search of better work opportunities and higher pay. There has also been a rise in the number of people deciding to be their own boss, and go self-employed.

It’s also important to note that certain industries are seeing more workers leave than others. Specifically, leisure and hospitality, retail and healthcare are the industries that have seen the biggest departures.

Should you join the great resignation?

Of course, when mulling over whether or not to leave your job, there are many factors to consider, and as with anything, there will be pros and cons.

Leaving your job and seeking out new employment or a different kind of employment can help you access greater flexibility, secure a more healthy work-life balance, and enjoy the benefits of a bigger salary. Likewise, those looking to leave their job may have come to the realisation that their work is no longer fulfilling or aligning with their values. As such, finding a company that shares similar guiding principles can mean much more job satisfaction.

That said, quitting one’s job is not necessarily an option for everyone. When thinking about quitting, it’s important to assess key questions such as:

• Am I in a financial situation to do so?
• Do I know what you want to do next?
• Do I require further training or education?
• Am I looking to join a new field?
• What are my family obligations?

How will the great resignation affect you?

The great resignation is very much a workers revolution, and many are arguing that employees are now in the driver’s seat. That said, it’s important to note that it’s still competitive out there, and in order to succeed, you need to be able to sell yourself, negotiate and network. Keeping your Linkedin fresh, making sure your resume is updated and conducting deep job searches will help you make the most of this opportunity.

However, not everyone is quite ready to jump ship just yet. For those who are comfortable in their position, you may have questions about how the great resignation will affect you at work. Well, a study recently conducted by the Society of Human Resource Management in the US found that out of those employees who decided to stay on when their co-workers left, 52% had taken on more responsibilities, and 30% found themselves struggling to get “necessary” work done. As a result, 55% are now questioning their salary, and whether it’s enough.

So, it’s fair to say that workers are feeling the knock-on effect of their co-workers joining the revolution. However, it’s not all doom and gloom for those who wish to stay in their current job, it’s important to be assertive if you’re struggling.

Speaking to The Guardian, Rahaf Harfoush, a digital anthropologist and the author of Hustle and Float, says in the aftermath of coworkers leaving, you should: “Look at your original role,” and assess how much you’ve taken on, then spell it out: “Here’s what I was hired to do; here’s how my time is allocated now. So either we need to reprioritise or we need to reallocate.”

Moreover, during this time, negotiating power is in the hands of employees, so it could be the right time to ask for a pay rise or a loyalty bonus.

 

Tags: Employed and Self Employed, Finances, Jobs, self employed, The great resignation

Changes to Self Assessment this year

by Madaline Dunn

The Self Assessment deadline is just around the corner, and by 31st January self-employed individuals must file and submit their Self Assessment tax return and pay any tax owed to HMRC.

While there’s still time to submit, it’s always best to complete your tax return as soon as possible, so you don’t risk making any silly mistakes and avoid getting hit with late penalties. Also, this year, there are some changes to Self Assessment to look out for.

At The Salary Calculator, we’ll walk you through:

• How to report Capital Gains Tax
• How to report Covid support measures
• How to access Self-serve Time to Pay
• What to watch out for

Capital Gains Tax reporting

Capital Gains Tax applies to those who have sold or ‘disposed of’ an asset, for example, a house that’s increased in value. From 6 April 2020 to 26 October 2021, this had to be reported and paid for within 30 days of completion. However, there is an update here, and for property disposals made on or after 27 October 2021, the “report and pay” deadline has been extended to 60 days.

If you’re registered for Self Assessment, it’s important to remember that you must report this on your tax return in the capital gains pages. That said, there are exemptions. If your only disposal is of your home and private residence relief applies, you don’t have to report this on the capital gains pages.

Reporting any Covid support measures

HMRC recently issued a warning to self-employed individuals that they must declare any COVID-19 grants they received on their tax return for the year 2020-2021. According to HMRC, over 2.7 million people claimed at least one Self-Employment Income Support Scheme (SEISS) payment up to 5 April 2021, and if you did indeed receive SEISS, this must be recorded.

Likewise, other Covid support measures that must be included in one’s Self Assessment are:

• The Coronavirus Job Retention Scheme (otherwise known as the furlough scheme)
• Self-isolation payments
• Local authority grants
• Eat Out to Help Out scheme

That said, it’s also important to note that if you received a £500 one-off payment as a working household receiving Tax Credits, this does not need to be reported in your Self Assessment.

Self-serve Time to Pay

For many, the last couple of years has been a struggle financially. In 2020, according to a study by LSE, over a third (34%) of self-employed workers struggled to pay for basic expenses such as rent and mortgage payments. So, if you’re feeling the pinch this year, you’re not alone. That said, for those feeling anxious and overwhelmed at their tax bill this year, there is help out there if you’re worried you can’t pay your tax bill in full. You can now spread your tax bill over a period of time online via HMRC’s self serve Time to Pay system.

The Time to Pay system is available to eligible to Self Assessment taxpayers who:

• Don’t have other outstanding tax returns or any other tax debts
• Have debts between £32 and £30,000
• The plan made must be set up no later than 60 days after the tax payment’s due date (30 March 2021)

When setting up your payment plan online, you’ll need to be equipped with:

• Your unique Tax Reference number
• Your VAT registration number, if applicable
• Your Bank account details
• Details relating to any previous payments you’ve missed

When arranging your payment plan, HMRC will ask you some questions about your financial circumstances to gauge what will be affordable for you. Questions may include how much you’re earning, what an affordable payment scheme would look like for you, what your outgoings are, whether you have any savings or investments.

What to watch out for

HMRC has issued a warning around ​​copycat websites and phishing scams ahead of the Self Assessment deadline. As the deadline approaches, scammers are more likely to target taxpayers who are in a rush to submit their tax returns and have their guard down. According to HMRC, 800,000 tax-related scams have been reported in the last 12 months alone.

Myrtle Lloyd, HMRC’s Director General for Customer Services, has subsequently published advice on what to look out for if you think you might be being approached by a potential fraudster. Lloyd says to be wary of anyone who contacts you claiming to be from HMRC and rushes you. Likewise, anyone “threatening arrest” will not be calling from HMRC. Lloyd outlined: “If you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

Tags: coronavirus, Employed and Self Employed, Self Assessment, self employed, The Salary Calculator

All you need to know about UTR numbers

by Madaline Dunn

[Sponsored Post]

Self Assessment: It’s coming around to that time of year again. While some may have already completed and sent off their annual tax return, there are also many who have not! In 2020, 700,000 taxpayers waited until the last day to file their return, and a staggering 26,562 taxpayers left it to the last hour.

So, if you haven’t filed your tax return yet, and perhaps are doing so for the first time, you may have a few questions, including; what on earth is a UTR number?

Don’t worry; there’s still plenty of time to file your tax return before 31st January and make sure you’re not faced with late payment fines. At The Salary Calculator, in this article, we’ll get you to speed and explain:

• What a UTR number is
• When you need a UTR number
• How to register for a UTR number if you don’t have one
• What will happen after registering for a UTR number
• Where you can find your UTR number

What is a UTR number?

UTR stands for Unique Taxpayer Reference, and this is a 10-digit number that is unique for each person or business. Just as with a National Insurance (NI) number, once you have one, you have it for life. So, even if you’ve been out of business for a while, you’ll never lose your UTR number, your number will just become dormant.

A UTR number is issued by HMRC and sometimes includes the letter K at the end of it.

When do you need to provide a UTR number?

A UTR number is required if you:

• Need to create an online account with HMRC
• Are self-employed or have a limited company
• Owe tax on savings, capital gains, and dividends
• Must register individual taxes
• Work within the Construction Industry Scheme (CIS)

How do you register for a UTR number?

If you don’t already have a UTR number and need one, the most simple and fastest way to get one is to apply online on HMRC’s website.

Of course, not everyone’s preferred method involves a computer or laptop, so rest assured, you can also apply to get your UTR number via letter too. That said, this way is, unfortunately, much slower and will involve postage fees as well.

When it comes to registering for a UTR number, this must be done within the first three months of opening your business, regardless of your occupation.

In order to register, you must also submit a few different pieces of information. This information includes:

• Your name, DOB and address
• Your contact information (preferred number and email address)
• Your NI number
• When you commenced self-employment
• The type of business you have
• Basic business information (address, number, name)

What happens after registering for a UTR number?

Once you’ve applied for your UTR number, there are a few things to bear in mind. First of all, it can take up to ten days for your UTR number to arrive, sometimes longer.

In addition to this, once you’ve heard back from HMRC and received your activation code, don’t wait around too long before using it, as it expires at 28 days.

Where can you find your UTR number?

Your UTR number can be found in a number of places, including:

• Statements of accounts
• Your Self Assessment Tax Return
• HMRC payment reminders
• HMRC Self Assessment notices

If you think you’ve either misplaced or lost your UTR number, don’t panic. Contacting HMRC is your best bet. When reaching out to HMRC, you should have your NI number to hand, as you will be asked for it when you call.

HMRC can be contacted via:

• 0300 200 3310 (UK)
• +44 161 931 9070 (Outside UK)
• 0300 200 3319 (Textphone)

Final thoughts

Navigating the world of tax returns can be anxiety-inducing for some; that said, there are several sites out there that can lend a helping hand. HMRC are always available if you need guidance on your tax return and can answer any burning questions.

Go Simple Tax also helps to make things simple and straightforward. The software provides guidance, as well as hints and tips on how to save money.

Tags: Economy, Employed and Self Employed, Self Assessment, self employed, The Salary Calculator, UTR number