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Newsletter March 2010 |
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We have arrived at the last month of the current tax year. Later this month the Finance Bill 2010 will be announced. In view of the impending General Election, this is likely to be a thin one with a further Finance Bill after the election whoever wins. This month our newsletter looks at a possible strategy for reducing the effect of the 50% income tax rate in 2010-11, outlines some of the tax disadvantages if you are considered to be connected persons, a tip on utilising capital losses and finally an update on various HMRC issues. Would readers currently in the age group 50-55 please note that from April 2010 the age at which benefits can be taken from a personal or occupational pension will rise to age 55. Still time to discuss this with your Financial Advisor. After 5 April 2010 you will have to wait until your 55th birthday to draw your tax free lump sum and decide on your other benefits. Our next newsletter will be published on 6 April
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Garbetts Blog |
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Don't forget to visit our blog for up to date comment, or even better subscribe to it with a aggregator or via the change notification button. On http://garbetts.blogspot.com/ this month: - Abolition of IR35? - Compulsory online VAT and PAYE from April 2010 Back to top |
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From GFS: Making use of your Annual Allowances |
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We are fast approaching the end of the financial year. Particularly relevant in financial planning terms at this time are those areas in which an annual allowance is allotted. ISAs Time is running out to top up your 09/10 Individual Savings Account (ISA). This year, allowances have been increased from £7,200 to £10,200 for the over 50s. The new increased allowance will be available to everyone over the age of 18 from the 6th April 2010. Up to 50% of your ISA allowance each year can be placed in a Cash ISA. ISAs are highly tax efficient savings vehicles. The underlying investments grow virtually free from tax. When you come to take the benefits from the ISA, there is no capital gains tax or income tax to pay. The money can be used for anything you like and can be taken at any time. We can also arrange for your ISA to pay income completely free of any income tax. For these reasons, it is usually preferable to hold ISAs over almost every other investment product. If you don’t have sufficient cash in your bank account to make an ISA or a pension contribution this year, give Garbetts Financial Strategies a call. We can look at your other, less tax efficient investments to see if it would be worth your while transferring money over, so as to take advantage of this year’s allowance. Pensions Pensions are highly tax efficient
savings vehicles designed to provide you with a better quality of
life in retirement. Personal pension employee contributions benefit
from a top up from the government equivalent to your highest rate of
tax paid. For a basic rate tax payer, for every 80p you contribute
to your plan, £1 is invested up to 100% of your annual salary. For
employer contributions, tax relief is provided through reducing the
business corporation tax at a minimum of 21%. Even if you or
spouse has no relevant income, you can still contribute up to £2,880
per annum (grossed-up to £3,600). The underlying investments of the
pension grow virtually free from tax. When you come to take the
benefits from the pension, you are allowed to take 25% of the value
as a tax free lump sum which you can use for any purpose with the
rest used to provide an income in retirement. For these reasons, it
is usually better to save for retirement using pensions over almost
every other investment product. Back to top |
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Compulsory online VAT and PAYE from April 2010 |
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| From April 2010 it will be compulsory for businesses
to deal with certain aspects of VAT and PAYE online. VAT - all new businesses registering in the future, and all current businesses with a turnover of more than £100,000 must submit vat returns on online, and pay electronically. For more details on the process, see: http://garbetts.blogspot.com/2009/01/online-vat-returns.html PAYE - all employers, regardless of size, must submit their 09/10 employers annual return (p14, P60, P35 etc), and next year (2011/12) in year changes such as P45s & P46s will be moved to compulsory online filing as well. Whilst on the topic of PAYE, a reminder that from April 2010 there is an escalating scale of penalties for in year PAYE paid late: http://garbetts.blogspot.com/2009/12/new-penalties-for-late-payment-of-paye.html Back to top |
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Garbetts.com |
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Don't forget to keep an eye on garbetts.com, our www site, where you can find a selection of tools and briefings to help you with your accounts and taxes. For clients running personal service companies (PSCs), our PSC microsite at www.garbetts.com/psc is an invaluable source of information. For other clients our downloads sections has all sorts of briefings on useful topics. You can also find out more about our tax enquiry insurance schemes at www.garbetts.com/insurance, and find out more about the firm and its staff at www.garbetts.com/corporate. Also our blog, with up to date news and comment is at: http://www.garbetts.blogspot.com/ If your business has a www site then let us know the URL and we can provide a link from our site to help your search engine rankings - a reciprocal link is appreciated. Click on www.garbetts.com today! Back to top |
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Bonuses or dividends v higher salary |
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If you run your own company and are considering an increase in your salary 2010-11 you might like to consider the following points:
Consequently increasing your earnings in 2010-11 may not be a tax effective move if you are a high income earner. Instead you may like to consider paying yourself a bonus in March 2010? You must have a clear and commercially sound reason for a bonus payment. If you were to follow this strategy the bonus would be taxable at the current highest rate, 40% and would have no effect on your current year personal allowance. There is a timing downside to this arrangement; any tax and NIC due on the bonus would become payable on 19 April 2010 (22 April if you pay electronically) instead of being spread over the year if you settled on a salary increase instead. Of course, when practical to do so, extra dividends are usually a better option than bonuses. Dividends voted in March 2010 will mean extra higher rate tax due 31 January 2011. If you are a high income earner and would like to discuss this and other strategies for minimising the impact of the changes coming in the next tax year please get in touch. There are still options we could look at before 6 April 2010. Back to top |
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Connected persons |
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If you are a connected person for tax purposes you will be required to substitute the market value of any asset you transfer or acquire when working out the gain or loss on disposal - not the amount you have actually agreed, unless of course this is the same as market value. The most likely connection is that you are married or in a Civil Partnership. Fortunately if you and your spouse or civil partner are living together at any time in a tax year in which you make the transfer or sale, any gains are deferred until your spouse or civil partner sells the asset. One consequence of being connected is that any company you control, either on your own or with other connected persons may be treated as associated companies and affect the amount of company profits that qualify for the small company’s rate. The full list of connected persons for the purposes of transferring assets is set out below:
The definition for the purposes of determining associated companies is more limited. Clogged Losses If for any reason you dispose of an asset to a connected person and make a loss on the transaction, the loss can only be used in the same year or carried forward and used against future gains, to the same connected person. It will also be necessary to demonstrate that on the second or subsequent disposal you were still connected. HMRC refers to these as Clogged Losses! Back to top |
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Negligible value claims |
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HMRC define an asset to be of negligible value if "it is worth next to nothing". If you make a formal negligible value claim, the effect is to treat the asset as sold and immediately reacquired at a nil value, thereby creating a capital loss. Interestingly you can specify a time in the previous two tax years at which the deemed disposal should be treated. Obviously you will need to prove that negligible value applied at the earlier date. Accordingly any claim you make in 2009-10 could be treated as made in 2007-08 or 2008-09. The claim creates a capital loss. However, if the asset is shares that you have subscribed for in a qualifying trading company, it is possible to claim to convert the capital loss into an income loss that can be set against any other income. This is a useful way to recover some of your investment if a company in which you own subscriber shares becomes dormant for any reason and you have no prospect of recovering the cash you have tied up in share capital. Subscriber shares are shares you acquire from the company and not shares transferred to you by previous shareholders. Back to top |
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Updates from HMRC |
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Online filing: Payroll returns 2009-10 Just a reminder that whatever the scale of your payroll activity you will need to file the 2009-10 P35 and P14s online this year. VAT returns filed after 1 April 2010 There are two categories of businesses that have no choice about online filing after 1 April 2010:
D1 Tax Codes The new D1 (50%) tax code will not be introduced until 2011-12. Any additional tax due in 2010-11 on second sources of income as deductions were made at 40% instead of 50%, will be collected through self assessment. Email scams - phishing You should never respond to emails purporting to come from H M Revenue & Customs. HMRC's advice on this issue is set out below: "HMRC would never contact you asking you to disclose personal information. If you have received an email requesting personal information, payment of tax or suggests you are due a tax rebate, please take the following action:
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Tax Diary March/April 2010 |
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1 March 2010 - Due date for corporation tax due for the year ended 31 May 2009. 19 March 2010 - PAYE and NIC deductions due for month ended 5 March 2010. (If you pay your tax electronically the due date is 22 March 2010) 19 March 2010 - Filing deadline for the CIS300 monthly return for the month ended 5 March 2010. 19 March 2010 - CIS tax deducted for the month ended 5 March 2010 is payable by today. 1 April 2010 - Due date for corporation tax due for the year ended 30 June 2009. 19 April 2010 - PAYE and NIC deductions due for month ended 5 April 2010. (If you pay your tax electronically the due date is 22 April 2010) 19 April 2010 - Filing deadline for the CIS300 monthly return for the month ended 5 April 2010. 19 April 2010 - CIS tax deducted for the month ended 5 April 2010 is payable by today. Back to top |
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DISCLAIMER - PLEASE NOTE: The ideas shared with
you in this email are intended to inform rather than advise.
Taxpayers circumstances do vary and if you feel that tax strategies
we have outlined may be beneficial it is important that you contact
us before implementation. If you do or do not take action as a
result of reading this newsletter, before receiving our written
endorsement, we will accept no responsibility for any financial loss
incurred. |
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Garbetts, Arnold House, 2-6 New Road, Brading, Sandown, Isle of Wight, PO36 0DT. Tel: 01983 400350 Fax: 01983 404016. Web: www.garbetts.com Garbetts is a limited company, registered in England & Wales with number 02988424. |
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