For many of us, most of the focus during 2009 has centered around cash flow management with tax mitigation taking a back seat. However, now that we are hearing positive noises regarding the economy, serious consideration should be given to one of the 2009 Budget announcements.
The Chancellor proposed that from 6 April 2010 a new “super tax” rate of 50% will be introduced. Potentially this will see a rate of 51.5% (including 1.5% national insurance) on income over £150,000 together with an even higher effective rate of 61.5% on incomes between £100,000 and £113,000.
It is possible to mitigate the exposure to the new 50% rate by careful organisation of your affairs. However, this action needs to be considered during the current tax year. There are a number of different tax planning techniques that can be used, and we have been putting a major amount of effort and resource into what has become a key issue. The strength of feeling amongst taxpayers against paying 50% or 60% tax is absolutely huge. Planning opportunities range from those that look at the timing of expenses and remuneration of the business owners, to more complicated changes to the structure. You do not need to be in business to mitigate the effects. The list below is by no means extensive but is an example of the ideas that can be considered:
- Planning the timing of dividend payments
- Changing the year end of a business
- Bringing spouses into the ownership of a business
- Capital allowance planning including not making claims in certain circumstances
- Maximising the tax relief of pension contributions
- Reviewing business expenses to avoid incurring expenditure that is not tax deductible
- Reviewing the business structure to determine if there is any benefit in using limited companies and / or LLPs
- Using tax planning schemes that have been developed in association with Queen’s Counsel
Whilst some of the above ideas may work in your circumstances others will not. It is therefore very important that careful consideration is given to your tax affairs before implementing a technique.
If you are a Hazlewoods’ client the implications of the new super tax will be discussed with you during the coming months, if it has not been already.