25 January 2010
From April 6 2010, anyone with a taxable income of over £150,000 will have to pay the new higher tax rate of 50%. The move is just one of a raft of changes being introduced by the Chancellor which will affect high earners and investors.
Other moves include the phasing out of basic personal allowances which starts for anyone earning over £100,000 and an increase in the dividend tax rate where an individuals income is above £150,000.
Twelve months later, further planned changes will see the halving of tax relief on pension contributions for those earning over £150,000 and an increase in all National Insurance contributions. It means someone earning £300,000 a year could face additional tax of between £15-20,000 depending on their personal circumstances.
By taking action now though, can you help to lessen the burden?
At B P Collins, we work closely with expert tax advisers to help clients determine the best approach to mitigate the tax which may be payable on earnings.
Partner David Smellie, said: "By combining the expertise of specialist accountants with the advice from our own corporate lawyers, we can help make a real difference to those individuals – and especially those with owner managed businesses – who are facing the higher tax rate."
There are more advantageous options available but some of the 'safer' ones include:
• Shortening your year end – this option is aimed at partnerships or sole traders who can bring forward their financial year end to a date prior to 6 April 2010. Doing this will mean profits may only be taxed at a maximum of 40% (albeit that there are other factors to consider such as the fact that two years of tax may be payable in one year although there may be overlap relief). If however, the year end continues past this date, any profits being made today (if over £150,000) will already be liable to tax at 50%.
• Draining distributable reserves – any dividends taken before 6 April 2010 will only be taxed at a maximum effective rate of 25%, but after 5 April 2010 the effective tax rate will rise to 36.11% if they take the shareholder’s income above £150,000. Take advantage of the lower rate by paying dividends early, then, if the company needs the funds by way of working capital, loan the money back to the company.
• Introducing a share scheme for key staff – thus enabling part payment of remuneration as salary and part in shares which, when sold, will be tax free for the first £10,100 and the remainder of the gain taxed at only 18% Capital Gains Tax.
Cormac Marum, from chartered accountants Harwood Hutton, one of the specialists with whom B P Collins works, commented: "Whatever the colour of the Government after the General Election in 2010 we are likely to be stuck with these higher tax rates into the medium term.
"Our message however is don't despair; there remain a number of ways to manage the position and escape the burden of 50% tax. Some will come under HMRC scrutiny and may be closed down; others involve standard practices and are likely to remain open for many years. Finding your way through all this requires help from experienced advisers."
His view was echoed by David, who also sounded a note of commercial caution: "Some of the more 'adventurous' routes may save you from the worst excesses of the taxman, but if they impact on your reputation with customers, suppliers or employees, the net effect may be more damaging than paying the extra pounds.
"It is critical that in aiming to save tax, individuals remember to step back and view their business as a whole and not just as a tax saving exercise, which is why we would urge clients to seek commercial legal advice at the same time as tax mitigation advice."
For further information and advice please contact the corporate team at B P Collins on 01753 279075 or Cormac Marum at Harwood Hutton LLP, 22 Wycombe End, Beaconsfield, Bucks HP9 INB. Tel: 01494 739500. |
