1 Minute Guide to University Tuition fees and Tuition loans

The academic year beginning this autumn will see a new regime for student finance introduced in England.

Tuition fees

The biggest change, which only affects students starting their courses this autumn, is the increase in the tuition fee cap. For 2011/12 the ceiling was £3,375, but for 2012/13 it will rise to £9,000. When the proposed increase was first announced, the expectation was that few universities would charge the full £9,000. In practice, it now looks as if most courses will carry the maximum fee. 

As is the case today, the fee does not have to be paid up front, but can instead be covered by a tuition fee loan. Theoretically, a wealthy parent or student could pay the fee rather than take the loan and some universities are even offering discounts for a year’s fees paid in advance but; in practice, taking the loan will often be the best option – even if the cash is available. 

Maintenance

The financial screws are also being tightened in the area of maintenance provision. As last year, if the student’s family income is not more than £25,000, a full grant (up to £3,250 in 2012/13) is payable. However, above that level the grant is scaled back and by £42,600 of income it will have disappeared. The corresponding figure for 2011/12 was £50,000.

Maintenance loans (reduced by 50% of any maintenance grant) are also available. 65% such a loan is available regardless and the remaining 35% (28% in 2011/12) is means-tested. The 2012/13 means test assumes a ‘parental contribution’ of 20% of all ‘residual income’ above £42,875 in 2011/12. Residual income is, broadly speaking, gross income less pension contributions and allowances for other dependent children. In 2011/12 the same parental contribution percentage applied, but the starting point was £50,778 of residual income. 

Loan repayment

The existing scheme generally charges no interest on student loans, but simply revalues them in line with inflation. Loans have to be repaid at the rate of 9% of gross income over £15,000 in 2011/12 (for a student graduating in 2011/12) and over £15,795 in 2012/13 for such a student.

For 2012/13 students, repayments (again at a rate of 9%) apply to income above £21,000. The rate of interest charged is inflation plus 3% during the period of study and once income exceeds £41,000 a year. If income is £21,000 or less, then only the inflation rate is charged, while between £21,000 and £41,000 a sliding scale applies.

Loans are written off after 30 years from the date repayment was due to start, on death or on permanent disablement. 

What next?

A student starting university this autumn could well graduate with a debt of £50,000 in summer 2015. The maths suggest that many will eventually see part of their debt written off, which is the reason why paying up-front fees looks unwise. 

The world is changing if you want to plan for your children’s (or grandchildren’s) university costs. The loans are potentially much larger and the “interest” is no longer as low. Curiously, the result is that there is now a greater incentive to cover the repayments as they fall due rather than clear the debt, or avoid creating it in the first place.

Looking for Aggressive tax avoidance schemes?

June saw the media launch a full frontal attack on aggressive tax avoidance schemes in the wake of a series of ‘revelations’ in The Times. 

Even David Cameron joined in, describing the comedian Jimmy Carr’s involvement in a complex Jersey-based scheme as ‘morally wrong’. 

Tax avoidance and tax evasion

Although politicians (and sometimes HMRC) tend to speak of tax avoidance and tax evasion in the same breath, there is a significant distinction between the two:

Tax avoidance involves arranging your financial matters within the terms of existing legislation to reduce or eliminate tax liabilities. The law now requires details of nearly all complex tax avoidance schemes to be reported to HMRC. Similarly, anyone who uses such a scheme must give details on their tax return (usually just an eight digit reference number given to the scheme by HMRC). Designing and using tax avoidance schemes is not illegal.

Tax evasion will normally involve hiding wealth and/or information from HMRC. The classic example used to be putting money into an offshore bank account and not declaring the interest earned. Tax evasion is illegal and, as Lester Piggott the famous jockey showed, can result in time spent behind bars.

The thickness of that prison wall

To quote Denis Healey, a Labour Chancellor of the 1970s, ‘The difference between tax avoidance and tax evasion is the thickness of a prison wall’. That wall can sometimes appear surprisingly thin.

The schemes which grabbed the headlines this summer were at the ‘aggressive’ end of the tax avoidance spectrum, often pushing the interpretation of the law to its limits. However, the Courts and Tax Tribunals are themselves increasingly adopting a more robust approach to the aggressors. A tax avoidance scheme can be legal, but still fail, leaving the would-be avoider with no tax-saving, interest on overdue tax and legal/advisory costs. 

Past, present and future

A fair slice of the press coverage tended to concentrate on celebrity more than fact, which meant some valuable detail was missing:

The K2 scheme used by Jimmy Carr relied in part on interest–free loans and an employer-financed retirement benefits scheme (EFRBS). 

The latter were the subject of anti-avoidance legislation announced in December 2010 and legislated for in last year’s Finance Act. 

As far as the loans are concerned, HMRC will always want to be satisfied that they are genuine, repayable loans. 

The Eclipse 35 film scheme, which had several high profile football managers among its users, was found not to qualify for tax relief by the First-tier Tribunal in April 2012. However, the investments were made six years earlier, shortly before revised legislation was introduced to restrict tax relief for film investment, other than by film production companies.

At much the same time as all the tax avoidance publicity, the government launched a formal consultation on a General Anti-Abuse Rule (GAAR), targeted at closing down aggressive avoidance schemes. The legislation for this will be in next year’s Finance Act.

What is acceptable?

The attention given these low-profile, highly complex schemes, has once again raised the issue of when acceptable tax planning becomes aggressive tax avoidance. 

The boundary between the two has undoubtedly moved, with the current round of austerity reducing the acceptable area. 

It is hard to imagine today any judge echoing the 1929 comment of Lord Clyde that ‘No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.’ 

Summary

There is no suggestion that normal tax planning, such as arranging ISAs or contributing to a pension, has suddenly become unacceptable avoidance. 

If you think you are paying too much tax, do not let all the recent publicity prevent you from seeing what can be done to reduce your payments to the Exchequer. In many instances there is scope to reduce the Chancellor’s slice by tried and tested (and non-contentious) means.

Changes to Employer Staging Dates

Employer’s staging dates have been extended to February 2018. 

The staging dates from March 2014 to May 2015 will only apply to employers with 50 to 249 people in their PAYE scheme as at 1 April 2012.

Where an employer has less than 50 employees in his PAYE scheme as at 1 April 2012 the revised staging dates are set out below:

40 to 49 employees – 1 August 2015

30 to 39 employees – 1 October 2015

Less than 30 (First PAYE income paid before 1 April 2012) Between 1 June 2015 and 1 April 2017 

Where an employer sets up a new PAYE scheme between 1 April 2012 and 30 September 2017 the employer will be assigned a staging date between 1 March 2017 and 1 February 2018.

Where an employer sets up a new PAYE scheme on or after 1 October 2017 the employer will have an immediate staging date where the employer is paying PAYE income in respect of any worker.

Where an employer did not have a PAYE scheme, their staging date will be 1 April 2017, while new employers set up after 1 April 2017 without a PAYE scheme, will have an immediate staging date where they pay qualifying earnings to a worker.

Transitional phasing in period for money purchase contributions 

The regulations also now confirm the one year delay in the phasing in of the minimum employer and minimum aggregate contributions for automatic enrolment, where the qualifying scheme is a money purchase scheme. The revised phasing in periods will be as follows:

Minimum Employer Contribution

First transitional period (years 1 – 5 from 1/10/12) 1%

Second transitional period (year 6 from 1/10/2017) 2%

Fully in force (year 7 onwards from 1/10/2018) 3%

Minimum Total Contribution

First transitional period (years 1 – 5 from 1/10/12) 2%

Second transitional period (year 6 from 1/10/2017) 5%

Fully in force (year 7 onwards from 1/10/2018) 8%

The transitional period for defined benefit and hybrid schemes will also be extended to finish on 30 September 2017.

Which payroll software is the best?

If you’ve been trying to decide which payroll software is best for your company payroll, you’ll already know that there are many payroll providers in the marketplace.

I wouldn’t be surprised if your accountant had recommended Sage Payroll to you. 

Accountants can earn commission from selling you the software and by providing training for it, even if they don’t happen to like Sage’s software themselves!  I know, because I used to work in the Accountant’s Division at Sage!

I’d like to share with you the software we use, and have been using for some time now.

We wanted software that had no training required. It had to be online. It had to be intuitive software. And it had to be useful. Oh, and relatively cheap as well!

The Payroll Site delivers pretty all of that experience, so if you’re in the market for a simple, online, cost effective payroll solution, this could be it.

How to get free Company & Director information

Historically you’ve probably used a combination of internet research and Companies House to obtain information on companies and directors. Companies House charges you a relatively small amount for annual accounts and other statutory forms.

You may like to have a look at a this website which provides company and director information, currently free of charge, called Duedil (which I presume is short for Due Diligence).

Duedil has some great features, including allowing you to compare companies side-by-side as well as being able to save them under ‘competitors’, ‘suppliers’ or your own category.

Small Pension Funds

In pensions, this is known as a ‘trivial’ pension. Trivial commutation simply means taking the pension fund as a lump sum. Triviality rules are the rules which apply to these small sums.

As long as you’re over 60, and the total benefit values of all your pensions is less than £18,000 (2011/12), you may be able to take the whole £18,000 in one go.

Sort of.

The first 25% is tax free. The balance of 75% will be taxed as if it were income.

And you don’t get a choice in the matter as HMRC have instructed pension scheme providers to deduct the tax before sending it to you!

If you happen to be a high or higher rate tax payer at the time, you’ll also be paying the additional tax rate over and above the 20% that’s being deducted by the pension provider.

An extra rule for non-occupational schemes is that if you have a one or two small pension pots of £2000 or less in each, you can take these under triviality rules as well.

If you’re considering taking your pension benefits under triviality rules, be very careful and take advice from an appropriately qualified adviser.

Getting it wrong could leave you liable to an unauthorised payment charge of 40% on the amount of the unauthorised payment – something possibly worth trying to avoid!

Email productivity tips

I don’t know about you, but I have historically struggled with my email inbox. It seems that there is a constant stream of emails to action or respond to. And not just when you’re in the office, but when you’re out and about and there they are, on your iPhone or Blackberry.

As a subscriber to Andy Bounds (link at the end of this post), one of his ‘Tuesday Tips’ I found to be extremely useful when dealing with emails, and here is his 4 step guide to email productivity:

When you receive an email either:

• Deal with it there and then
• Delete it
• Delegate it to someone else
• Diarise it till a specific day or time

By following these simple rules, and trying to just check my emails once or twice a day, this saved loads of time.

The biggest time saver for me though was by delegating my email to a trusted colleague. Anything they can’t deal with they ‘star’ (we use Google Apps for business) for me to look at later. This means that email is being monitored and dealt with by the right person.

Andy’s tips are very useful – have a look here.