Save tax with our pre 6 April 2010 tax planning ideas
Whilst the country is officially out of recession, many individuals and businesses are still feeling the effects of the 18 month downturn. With the 31 January filing deadline passed, now is the ideal time to review your tax position to ensure you are paying no more tax than you need to.
If you are an individual looking at your personal finances, or the owner of a business, follow the links to access a wide range of planning ideas to help you save tax. We also include a specific section on planning for the new 50% tax rate and personal allowance restriction.
These ideas are not exhaustive and are not covered in detail. To discuss your specific circumstances please contact your usual Hazlewoods contact or e-mail firstname.lastname@example.org.
Review of company cars
The taxation of company cars is always changing and the list of ‘green’ cars which receive beneficial tax treatment is growing so it is worth reviewing your company car policy.
From 6 April 2011
• The £80,000 list price ceiling will be removed.
• The lower CO2 emissions threshold will reduce by 5g/km to 125g/km.
• The reductions given for electric/petrol hybrid cars and cars propelled by bi-fuels, road fuel gas and bioethanol will be abolished.
Pensions – salary sacrifice
Where high earners currently pay pension contributions out of their post tax earnings, tax and National Insurance savings could be made if they where instead part of a salary sacrifice scheme.
Cycle to Work scheme
The Cycle to Work scheme allows employers to provide employees with bicycles and accessories as a tax-free benefit and is part of the Government's Green Transport Plan.
Operating via salary sacrifice, payment for the bicycle by the employee is by way of deductions from gross pay, typically spread over 12 months. This gives rise to tax and National Insurance savings for the employee and National Insurance savings for the employer too.
In the run up to December’s Pre Budget Report (PBR) there was speculation that the tax and NIC advantages of employers providing their employees with childcare vouchers would be withdrawn.
In the end nothing was mentioned in the PBR but a few days later Gordon Brown issued a letter confirming that all families who currently receive vouchers will continue to get the same support and that tax relief will be retained for any new childcare vouchers that are issued in the future.
However from April 2011, all new recipients of childcare vouchers will get the same income tax relief as basic rate taxpayers do currently in order to ensure that the system does not disproportionately benefit higher rate taxpayers.
If you give your employees childcare vouchers, the first £55 a week is free from both tax and NICs if the qualifying conditions are met. Any associated childcare voucher administration costs you pay are also exempt. The qualifying conditions are that:
- your employees can only use the childcare vouchers to pay for childcare that has been registered or approved;
- The child:
- is a child or stepchild of the employee at whose expense, either in full or in part, the child is maintained; or
- is resident with the employee and for whom the employee has parental responsibility;
- qualifies up to 1 September after their 15th birthday (or 1st September after their 16th birthday if they are disabled); and
- your childcare voucher scheme is generally available to all of your employees where the scheme operates.
Specialist companies can administer the scheme for you, so the burden on your business can be minimised.
Pay rises in equity
Most innovative companies recognise that the expertise of their employees is critical to their success and to the value of the company. Attracting, retaining and incentivising key staff is a vitally important business concern. However, in the current economic climate, companies that are concerned with retaining or incentivising key staff may not have the cash resources to do so. If your company is in this position, it may be worth considering tax efficient share option schemes or share plans which effectively provide noncash incentives to employees.
Schemes include Enterprise Management Incentives (EMI), Company Share Option Plan (CSOP), Save As You Earn (SAYE), Growth Shares, Phantom Shares and Partly Paid Shares.
If you have an existing EMI scheme you should consider reviewing old existing Options in the light of the business’s current performance. If financial results indicate that the business’s value is less than previously agreed it may be worth contacting HMRC to potentially agree a revised lower share price. At the same time you might also like to amend the documentation to allow for more flexibility on the exercise date.
A dispensation is a notice from HMRC that means that specified expenses and benefits do not need to be included on a business’s P11Ds or P9Ds.
A dispensation can be applied for at anytime and although it usually takes effect from the date HMRC issue it, they may agree that it can be backdated to the beginning of the tax year in which it was applied for.
To make applying for a dispensation even easier HMRC have introduced an online application form.
PAYE Settlement Agreements (PSA)
A PSA is a more flexible way of dealing with some expense payments and benefits in kind.
It is a voluntary agreement between you as an employer and your HMRC office, under which you agree to meet the tax payable on certain expenses and benefits in kind that it gives to its employees.
Once agreed for a tax year, you do not have to
• enter the items covered on form P9D or P11D
• operate PAYE on them, or
• assess NICs liability for included items which are liable for Class 1 or Class1A NICs.
You do pay Class 1B NICs on the items included in PSAs and on the total amount of tax payable, but you will still need to calculate and pay Class 1 NICs where they were due to be paid before the date the PSA agreement was signed.