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THINGS TO DO BEFORE 5 APRIL 2010There are things you need to think about as the end of any tax year approaches. But they are given extra poignancy this year because of the tax increases that take effect on 6 April 2010, with more in the pipeline for 2011 (and possibly a few more we don’t know about yet. Find our more about what this means for... Pensions
The amount you can invest in a pension (while getting tax relief) is fixed annually, based on your salary/self-employed income, so if you are thinking of putting more money into your pension fund, speak to your pensions adviser and see whether you are better doing so before or after 5 April. You could also ask about the interesting things you can do with a self-managed pension.
Changes from 6 April: There will be restrictions on tax relief for high earners (over £150k) from 6 April 2011. There are provisions to make sure you don’t overload your pension fund before that date but if you want to invest in a pension, find out how much you can legitimately put away. Contact your financial adviser or ask us to put you in touch with someone. Everyone can invest up to £7,200 in an ISA the current tax year, with a maximum of £3,600 in a cash ISA. Contact your financial adviser or ask us to put you in touch with someone. Changes from 6 April: ISA limits are the same for most people but will increase for anyone over 50.
Everyone can earn £6,475 in the current tax year without having to pay any tax and £110 per week (£5700 per year) without having to make national insurance contributions. If you have been dragooning your lovely family to help out in your business, you should pay them a fair rate for their work. If this is less than or equal to their personal allowance, they will not have to pay any tax, while it is a deductible expense for your business. This advice may not apply if they have other sources of income so check with your accountant if you are in any doubt. If you pay salaries, it makes sense to register as an employer – and it may be compulsory, check with us. It can also save you tax and your employees can get NI entitlements (e.g. pensions). Do this before 5 April to stay to get the benefit in the current tax year. Changes from 6 April: Tax rates are going up for anyone earning over £100,000. NI rates are due to increase by 0.5% in 2011, for both employers and employees. DividendsDividends are paid to shareholders from after-tax profits. The net dividend is effectively tax-free for standard rate taxpayers. If your company is profitable, you should consider declaring a dividend before 5 April to use up as much as possible of the shareholders’ standard rate tax bands – but remember to add on the tax credit (1/9th) when you are working out the amount. On the other hand, if you have already earned enough to put you in the higher tax bracket, it may make sense to hold out until 6 April so that the dividend falls into the next tax year. Even if you end up paying higher rate tax next year, you will at least delay the pain by 12 months. However, taxes are going up for anyone earning over £100k so it may make sense to increase your income this year while taxes are still ‘low’. Ask your accountant for advice. Changes from 6 April: the effective tax rate on income between £100k and £112k is 60%. Then it’s down to 40% again. But everything over £150k is taxed at 50%. If you are sitting on capital gains and are thinking of selling your assets, then it’s worth considering the tax impact of the timing of the sale. You can make gains of £10,200 in the current tax year without having to pay any tax. It may be sensible to sell the asset (or part of it) before 5 April to use up your allowance. Assets can be transferred freely between spouses, so a couple could claim double the allowance with a little careful planning. Naturally there are some anti-avoidance rules so check with your accountant first. With so much volatility in asset prices, many people may be holding potential capital losses. Losses can be offset against gains, so it might be worth your while to sell some assets at a loss if it brings your overall capital gains for the year below the £10,200 annual allowance. If you have no capital gains, then you should still include any capital losses on your tax return as these can be carried forward and offset against future capital gains. You may not be aware that even giving away an asset (other than between spouses) normally creates a capital gain or loss, so if you are feeling generous you might also want to keep an eye on the annual limits. Changes from 6 April: CGT is currently charged at 18% of the gain, or 10% with entrepreneurs’ relief. No changes have been announced. However, the differential between CGT rates and top rate income tax at 50% makes this a likely target if the government needs to raise more money (if?). Inheritance Tax provisions allow gifts of £3,000 per year to be made that are exempt from tax. If you are contemplating making a gift of a larger amount to someone, read this... Each person can make gifts totaling up to £3,000 per year that are exempt from inheritance tax. Any excess over this amount may be included in the estate of the person making the gift if that person dies within 7 years of making the gift. If you are looking for ways of reducing the inheritance tax that will be payable on your estate, you should think about making gifts of £3,000 per year to your loved ones (each individual can do this so a couple can give away £6,000 – that makes for a tax saving at current rates of £2,400). Gifts of up to £250 per recipient per year may also be made without having to worry about inheritance tax. You can also do what you like with your income (as opposed to your capital). So if you have income of £50,000 per year after tax and only need £30,000 to live on, you can give the rest to whomever you like without anyone having to worry about the tax consequences. As with all tax issues, always consult an accountant or tax expert for specific advice about your situation.
Under current legislation, all businesses can make use of an Annual Investment Allowance of £50,000. This enables assets to the value of £50,000 to be written off in the year of purchase, instead of being depreciated over a number of years. Conservative Party policy is to remove the Annual Investment Allowance (to pay for a reduction in the rate of Corporation Tax). If you are planning capital purchases, therefore, you should consider doing so before the end of the current tax year or at least before the date of the election. It is not clear when exactly any change would take effect - but it's best to be sure.
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