Welcome to the February 2013 Newsletter from Connolly Accountants & Business Advisors

The Government has this month announced the biggest reform of the state pension system in decades, with the proposed introduction of a new universal single-tier payment system. Under the plans, from 2017 recipients will receive a single pension of £144 (in today's terms), rather than a basic pension of around £107 which is then topped-up with various credits as is currently the case.

Meanwhile, new measures designed to reduce the number of workplace disputes and minimise red tape have been broadly welcomed by the business community. The reforms include capping the maximum compensatory award for unfair dismissal to one year's salary.

New era for the state pension as single-tier system unveiled

The Government has set out its plans for a new flat-rate state pension system, which is expected to take effect from April 2017.

Under the existing system, many poorer pensioners are entitled to top up their basic state pension payments of £107.45 a week, via the means-tested Pension Credit and the second state pension.

However, figures suggest that around 1.5 million people are failing to claim Pension Credit.

The new single-tier pension of around £144 a week (plus inflationary increases) will replace the state second pension, contracting out and out-dated additions. It is expected to be paid to all qualifying pensioners who reach the state pension age from 6 April 2017.

In addition, the Government has increased the number of years of national insurance contributions (NICs) required to qualify for the full state pension from 30 to 35. Under the new system, taking a career break to raise a family will also count towards the 35 years of NICs required to receive a full pension.

Currently, an individual begins to build up their entitlement to the state pension after one year of NICs. However, from April 2017 taxpayers will require a minimum of somewhere between seven and 10 years of NICs.

The changes are expected to benefit the self-employed and many women. However, the system would not distinguish between poorer and wealthier individuals, prompting some experts to warn that there could be long-term losers when the changes come into effect.

The Government will also need to determine how to deal with people who have contracted out of the state second pension.

Announcing the proposals, the Pensions Minister Steve Webb, said: 'The current state pension system is too complicated and leaves millions of people needing means-tested top-ups.

'Our simple, single-tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save.'

The proposals have been welcomed by the British Chambers of Commerce (BCC). '[This] announcement will bring welcome simplification for pension savers and parity for the self-employed, who were previously ineligible to top-up state pensions,' commented Dr Adam Marshall, BCC Director of Policy and External Affairs.

'These reforms support the rollout of automatic enrolment, providing certainty about the size of the state pension and creating a much-needed incentive for individuals to save privately.'

The state pension age is set to rise to 66 by 2020, and to 67 by 2028.

For further information and advice on tax-efficient retirement planning, please contact us.

Unfair dismissal payments to be capped under employment law reform

Business groups have largely welcomed a package of measures designed to reduce the number of workplace tribunal claims, including a proposed cap on unfair dismissal payments.

Publishing its response to the consultation 'Ending the Employment Relationship', the Government has confirmed that, subject to state approval, the maximum compensatory award for unfair dismissal will be restricted to one year's salary.

However, there are no plans to change the overall limit of the cap, which is due to rise to £74,200 on 1 February.

According to the Department for Business, Innovation & Skills, just one in 350 people who make a claim for unfair dismissal receive an award of more than their own salary, and the average award is less than £5,000.

The Government will also consult on proposals to reduce Transfer of Undertakings (Protection of Employment) or TUPE burdens on business, along with plans for a new ACAS Statutory Code for settlement agreements.

Business groups have applauded the move. 'It's right that the new cap is linked more explicitly to an employee's earnings,' commented Neil Carberry, director of employment of the Confederation of British Industry (CBI). 'This will give businesses clarity about the potential costs and will scrap the perverse incentive for workers not to settle in the hope of getting a higher award.'

His thoughts were echoed by the BCC, which said the measures 'should reduce stress, uncertainty, and delay for both employee and employer.'

Yet the Institute of Directors (IoD) warned that the changes 'do not go far enough', adding that it was disappointed that the Government had refused to reduce the overall cap.

2013 see the introduction of a number of changes to employment legislation, including the introduction of fees for issuing an employment tribunal claim, together with additional fees if the claim reaches a hearing.

Other changes coming into force include a cut in the current 90-day consultation period for redundancies involving 100 or more employees, to 45 days, in April 2013.


1 February
£100 penalty if 2012 Tax Return not yet filed online. Additional penalties may apply for further delay. Interest starts to accrue on 2011/12  tax not yet paid.

2 February
Submission date of P46 (Car) for quarter to 5 January.

14 February
Last date (for practical purposes) to request NIC deferment for 2012/13.

For more key tax dates and deadlines visit our 2012/13 Tax Calendar.


'A future referendum to decide the workings of our relationship is the best way to affirm Britain's participation in a free-market Europe which is competitive and deregulated.'

Simon Walker, director general of the Institute of Directors, pledges his support for a referendum on Britain's future membership of the EU.



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Tax saving tips ahead of the year end
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