When you decide to get married, tax planning is probably fairly low on your list of romantic requirements. But making use of the Marriage Allowance can actually reduce your tax bill by £250, and can often be overlooked when thinking about your wealth planning.
Who qualifies for the Marriage Allowance?
The allowance applies to married couples and people in a civil partnership. To be eligible, one person in the couple must earn below the tax threshold, and the other mustn’t pay tax at a rate higher than the basic rate. NOTE: the allowance is NOT available to couples who are not married or in a civil partnership – so couples in a common-law relationship can’t apply.
How does the allowance work?
The lower earner transfers 10% of their personal allowance to their partner. For 2020/21 that’s a transfer of £1,250. The recipient offsets that against their own tax payable (20% x £1,250 =), saving up to £250. If the lower earner’s taxable income for 2020/21 is below £11,250 they still won’t pay tax, so have lost nothing by transferring the allowance.
How do I claim the allowance?
If you submit a self-assessment income tax return, you can make the claim in the return. Alternatively you can write to HMRC, or arrange it over the phone at 0300 200 3300. The easiest way, however, is to apply online at www.gov.uk/apply-marriage-allowance.
What are the main perks?
You can claim the allowance even if you’re drawing a pension, or even living abroad, as long as you claim a personal allowance. You can back-date your claim as far back as the 2017/18 tax year, so potentially there are tax savings up to £968 plus a further £252 for the current (2021/22) year and future years. It’s not a fortune, but not an amount to be sniffed at either.
Are there any potential snags?
The claim is for ‘all or nothing’. So, for example, if you want to use the allowance for the 2020/21 tax year, you must transfer the whole of the £1,250. If you earn more than 90% of the personal allowance (£11,250) and your spouse earns less than 110% of the allowance (£13,750) then your overall tax bill will be higher – which makes the whole claim process redundant.
Talk to us about applying for the Marriage Allowance
Saving £250 each year is not going to turn you and your partner into millionaires. But, as the old saying goes, ‘every penny counts’ and if the Marriage Allowance is available then it makes sense to make a claim.
As your accountant and tax adviser, we can let you know whether you’re eligible for the allowance and if backdating for previous tax years is also an option.
The Chancellor, Rishi Sunak, delivered his Spring Statement on 23 March. Faced with the task of creating a ‘strong economy’ for the UK, against the challenging background of high inflation, rising costs and the threat of conflict in Europe, he announced a raft of new measures.
So, what was in the Spring Statement for your business? And how will these announcements, government measures and new initiatives affect the business landscape in the coming year?
The challenge of creating a stronger UK economy
As we head into the second quarter of 2022, your business is facing a demanding economic landscape. Inflation is at a 30-year high, currently measured at 6.2%. There are significant supply chain issues to contend with. And fuel, energy and labour costs are increasing, leading to 73% of UK firms planning to raise their prices to cover rising costs.
What most UK businesses want is action from the government to ease these pressures. So, did the Chancellor’s mini-budget live up to these expectations?
Investment, innovation and growth
The Chancellor and the Office for Budget Responsibility (OBR) predict that the UK economy will grow by 3.8% this year. Projections are then for growth of 1.8% in 2023, and then 2.1%, 1.8% and 1.7% in the following three years. The OBR also now predicts that inflation will hit 7.4% by the end of the year. That’s a big hurdle to any kind of meaningful recovery.
What’s needed to counter this demanding economic landscape is a clear focus on growth and productivity for UK businesses. So, did the Chancellor announce the measures that will truly deliver this growth and innovation? There are measures here to support this aim, but it’s likely to be a slow and steady kind of growth.
Key measure announced include:
Employment Allowance – the Employment Allowance allows smaller businesses to reduce their employer National Insurance contributions bills. This allowance will rise from £4,000 to £5,000 from April this year. The cut will be worth up to £1,000 for half a million smaller businesses and starts in two weeks’ time.
Business rates – to support the decarbonisation of non-domestic buildings, the government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill.
VAT change – homeowners installing energy efficiency materials such as solar panels, heat pumps, or insulation will see VAT cut on these items from 5% to zero for five years.
Capital allowances – the current super-deduction scheme offers an enhanced capital allowance on qualifying purchases of equipment and assets. This super-deduction will end in March 2023, but the Chancellor indicated that the Government wants to offer more help around capital investment for UK businesses. The Government will work with businesses and other stakeholders to consider cuts and reforms that will support future investment.
Employee training – UK employers spend half the European average on training for their employees. This lack of qualifications is affecting our innovation and productivity. The Chancellor said he intends to make use of the tax system – including the operation of the Apprenticeship Levy – to encourage employers to invest in adult training.
R&D Tax Credits – R&D reliefs play a big part in encouraging research and development (R&D) and innovation. UK business R&D investment is less than half of the OECD’s average as a percentage of GDP. To tackle this shortfall, R&D tax reliefs will be reformed to deliver better value for money for the taxpayer. The scope of the available R&D reliefs will also be expanded to cover data, cloud computing and pure maths, to broaden the eligibility to a wider range of businesses, sectors and development.
Other measures – The Help to Grow: Management and Help to Grow: Digital schemes were also highlighted by the Chancellor as evidence of their commitment to provide support for enterprise. And the rise to £1 million for the Annual Investment Allowance will also help support businesses that are looking to invest in their future success.
Helping hard-working people
The Chancellor acknowledged the need to support hard-working families and business as part of this statement. He reinforced the Government’s and Parliament’s support for the people of Ukraine in the Ukrainian/Russian war. But he also made it clear that this commitment to providing support may well begin to impact on the UK’s own economy, in time.
However, the Chancellor does have a plan for combating the cost-of-living crisis. Mr Sunak wants to take a ‘principled approach to cutting taxes’ and to be disciplined in making decisions that will build a stronger economy. He set out the framework for this ambition with a new three-point plan for taxation.
The Government’s plan is intended to:
Support families with the cost of living
Provide the conditions for growth
Share the profits of this growth fairly
Measures to support this include:
Rise in the NIC threshold – the Government will raise the threshold for the amount people can earn before they pay National Insurance. From July, people will be able to earn £12,570 a year without paying a penny of income tax or National Insurance.
Cut to fuel costs – fuel duty has been cut by 5p from 6pm on 23 March 2022. This will help to cut fuel costs for many workers who are paying over the odds when commuting. It will also lower the pressure of rising fuel costs for businesses and their fleets.
Planned cut to basic rate income tax – the Chancellor was adamant that he wants to cut income tax to help those on lower and middle incomes. He stated a promise to drop the basic rate of income tax from 20% to 19% from April 2024. This will mean a cut in tax costs for many workers from 2024 – as long as the economic conditions allow it.
National Living Wage and Minimum Wage – don’t forget that the National Living Wage and National Minimum wage are both increasing from 1 April 2022. You can find the new rates for all age groups here.
Talk to us about the impact of the Spring Statement
There’s no simple way to overcome the UK’s economic issues at a stroke. A wealth tax may have been a more immediate solution for raising public funds quickly – as was suggested by the Shadow Chancellor, Rachel Reeves, in her response. But the Chancellor has taken some positive, practical steps to tackle the cost-of-living crisis in this Spring Statement.
If you’d like to talk through the potential impact of the Spring Statement for your business, please do get in touch. We’ll help you work any incentives and tax reliefs into your financial planning, so you set the best possible foundations for 2022 and beyond.