Q. I am considering cashing in my personal pension fund which has a value of £20,000. Will this have any impact on my Employment Support Allowance?
A. This is a very common question, and the short answer is yes, it will. If you have a pension arrangement, it will not usually be taken into account unless you either a) draw benefits or b) you or your partner reach the age when you become eligible for “Pension Credit” (this is the same as the State Pension Age for women, which is in the process of being raised from 60 to 65, and currently is around 63. The Department for Work & Pensions administers most means tested benefits, and it is your duty to declare to them if you bring any benefits into payment. Exactly how they are taken into account depends upon the type of ESA you receive, Income based or Contribution based. You might be tempted to wonder “How would they find out?” The answer is through something I have mentioned a few times in this column, “The Pension Tracing Service”, which is also provided by the DWP. It is worth taking account of all the implications before accessing your pension fund, in particular if it is for a short term purpose such as holidays.
Q. I use my own car for business purposes and my employer pays me 20 pence per mile. I have noticed that HMRC believe 45 pence per mile is appropriate. Can I insist my employer pays me this amount, as at 20 pence it barely covers the fuel cost let alone any depreciation and wear and tear on my car?
A. As with company cars, different companies operate different policies regarding the reimbursement of costs incurred by employees who use their own car for business purposes. It is up to the employer to decide what mileage rate it is prepared to pay and the employee to decide whether they are prepared to use their own car for that rate.
Employees who use their own vehicle for business purposes can be reimbursed using HMRC’s tax free authorised mileage rate. As you correctly point out for the current 2016/17 tax year, that rate is 45 pence per mile in respect of the first 10,000 business miles and 25 pence per mile for all subsequent miles.
If the employer pays more than the tax-free amount (which tends to be very rare) the excess is taxable as income at the employee’s marginal rate and the employer must deduct the appropriate tax and national insurance contributions.
If the employer pays less than the tax-free amount (which you have indicated is the situation in which you find yourself), you can claim Mileage Allowance Relief for the amount by which the payments you receive fall short of HMRC’s tax free authorised mileage rate. To do this you would need to complete form P87 (available online) and submit it to your local inspector of Taxes. It is worth noting that a claim can be made for the last six tax years (including the current tax year), which could amount to a substantial tax refund in the circumstances you described if you have been in your current job for all or a significant part of that period.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
