The financial impact of lockdown on employees can be as severe as the mental and physical side effects of not being able to live and work normally. While the Government backed schemes are welcome, they may still leave millions of households facing new financial challenges. Employers may wish to facilitate financial wellbeing support, so that once employees return, they can resume work with less financial stress. LEBC is offering a helpline for the employees of our corporate clients to provide financial guidance during this difficult time.
The Job Retention Scheme for furloughed staff provides a grant of 80% of PAYE salary up to a maximum of £2,500 per month. For furloughed employees who usually earn more than £37,500 per year, the drop-in income is greater than 20%. A financial well being review can help them regain financial resilience in the following ways: -
Tax Allowances and Reliefs
Income tax collection works on the premise that what happened last year is what will happen next year. Major disruptive events can alter the pattern but unless the taxpayer notifies HMRC of the changes in their income, they may continue to be taxed for some time on higher historic earnings. A personal tax audit may uncover refunds due or allowances unclaimed.
Our current income tax law embeds “cliff edges” when calculating tax due and availability of some allowances. These apply when income exceeds £12,500, £50,000 and £100,000. Where income falls below these thresholds eligibility for allowances and reliefs may become available.
For example, a couple where one has income below £12,500 and the other below £50,000, will qualify for marriage allowance.
If income falls below £50,000, tax -free savings income doubles from £500 per year to £1,000.
A reduction in income below £100,000 makes the taxpayer eligible for a personal allowance of £12,500 worth £5,000 of tax saved.
Couples whose earning pattern and income has changed radically may benefit from a review of their savings and investment income. Transferring assets to the lower taxpayer can produce savings.
Those with young children, whose income drops below £60,000 can once again claim child benefit without losing it all in tax charges, while a higher earner whose income falls below £100,000 will become eligible for Tax Free Childcare of up to £2,000 per child per year. Whether Vouchers are still appropriate can also be considered.
Where lower incomes have meant debts have been built up debt counselling can be helpful. Following deep cuts in base rates, remortgaging may save money, as lenders tend to be slower to pass on savings to existing borrowers.
Employee benefits form the bedrock of financial resilience but are sometimes underappreciated, unless employees are reminded of their value from time to time. An assessment of current benefits provided by the employer, filling any gaps in the employee’s needs and updating of nomination forms, help to reinforce the value of the employment package.
Where employees have insufficient short- term savings to weather a financial emergency, steps can be taken to build up funds. Our bionic cash management service enables savers to keep on top of the best savings rates.
Our Hummingbird app makes spending patterns visible in real time and can be used to set budgets and savings goals.
Rebuilding Pensions and Investments
Many employees may fear that the drop-in stock markets in the first quarter of 2020 has derailed their retirement plans. The fall in value may be much less than feared. While stock markets have shown deep losses, many pension default funds are invested in mixed assets, with other investments offsetting the fall in share prices. A review of funds and what this means for long term plans can set minds at rest and reset retirement planning.
Top rate taxpayers, with income between £150,000 and £240,000, can make more pension savings with tax relief at 45% from 6 April, so could benefit from a review of pension savings.
Wills, powers of attorney and inheritance tax
The Coronavirus emergency has reminded us all of our mortality. A wills and power of attorney service, together with consideration of inheritance tax planning, can also be part of a comprehensive financial well being package.
Director of Public Policy
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.Back to News & Views
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