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VAT

Changes from 1 January 2010 could affect your strategy.  To see HMR&C detailed guidance click this:.   www.hmrc.gov.uk/agents/forms-vat.htm#2

Future increases in taxation will make it more beneficial to have matters structured in the most efficient way. 

With the advent of a 50% top rate of Income Tax (Income over £ 150,000) and the claw-back of the tax personal allowance for high earners (Income over £ 100,000), tax planning becomes more important.  In addition, allowance for personal pension contributions may be restricted and the main rates of National Insurance Contributions are to increase by 1% in 2011/12.  

For 2010/11 See (PDF File): www.hmrc.gov.uk/budget2009/bn01.pdf

The highest potential marginal rate of tax for those loosing £1 of Personal Allowance for each £ 2 of  income becomes 60%. (£ 2 of income gives tax of 80p, but lost is tax relief of £ 1 at 40p = Tax is  £ 1.20 for the £ 2 of income).. 

For some self-employed high-earners, depending on their accounting date, the higher rate may be effectively already in operation.  This will be because their current earnings will be taxed in the year 2010/11.

The usual possible application of general tax avoidance / postponement measures will remain, of course:

If there are tax-allowable expenses to be incurred, or equipment to be purchased, if it does not make much difference, bring them forward to pre your accounting date, or if you are an employee: 5th April.  BUT, if you know you will be paying a higher rate in the next year, you may wish to do the opposite and postpone the costs. 

 Income Tax

 Expenses (tax allowable).  You should see that these are claimed.  Generally, if employed see that they are reimbursed by your employer (this also applies to your own employment with your own company too).

 Allowances Consider any unused personal family allowances and lower rate tax bands.  Is it possible that some use could be made of these (Income Shifting)?  With investment income there is generally little difficulty, but if disposals have to be made watch out for Capital Gains Tax.  With earned income, it does need to be justifiably “earned,” of course.

 Placing of income Could any income be better placed before, or after, 5^th April?

 Pension Contributions Generally, consider your pension contributions – get your employer to make them if possible. If their contributions amount to more than £ 20,000 per annum, those whose net taxable income exceeds £ 150,000 should take care now.  

 ISA Consider making your ISA investment.

 Incorporation Should an existing business be incorporated?    For the owner/director, apart from general tax saving, a major advantage is being in a position to choose into which tax year a dividend might fall.

 Charitable giving As a higher rate taxpayer, consider your charitable contributions – make sure that they are under Gift Aid and that you claim the relief.

 Income conversion Could some income be removed and instead converted into Capital for which the taxation rate is 18%. There may be individual possibilities – otherwise scope is probably limited to switching investment into accumulation units in unit trusts or into zero-coupon preference shares, or into general low-yield stocks, which have growth rather than income policies and prospects.

 Capital Gains Tax

 No Realised Gains?  If there are no realised Capital Gains and if there are paper gains, should sufficient to use up the exempt annual allowance be realised – so as to take the profit free of tax – avoiding the potential future tax?   If the investment is to be held and the appropriate time allowance is observed, it would be possible to re-purchase the investment at a later date.

 Gains to be realised? If there are to be realised Capital Gains, consider first splitting the investment with your spouse so as to bring into play two annual exempt amounts.   Also, consider realising some paper capital losses to set off against the gains.

  Generally

Business. "Spruce-up" on the matter of expenses claimed.  Make sure that you obtain tax relief for all justifiable.  Remember that employers obtain tax relief for employer's pension contribution payments.  The latter would apply to your own business, if it is trading as a limited company, against Corporation Tax..    

There are investments which can be made offering potentially significant tax saving inducements.  However, these would likely be in high risk undertakings that you would not normally consider.. 

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