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We have now been presented with the Government's latest Budget
announcements and perhaps for the first time in recent years
many of the tax rates and allowances are unchanged. We have
highlighted one of the few increases below, the doubling of
the Annual Investment Allowance. We have also covered this month
articles which highlight a possible 61% tax rate, planning pointers
regarding Gift Aid donations and Notice of Coding irregularities
for 2010-11.
Our next newsletter will be published 5 May 2010.
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Annual Investment Allowance (AIA)
IOne of the few increases in tax allowances disclosed in the
Budget last month was a doubling of the Annual Investment Allowance,
from £50,000 to £100,000. This increase is effective
from 6 April 2010 (income tax ) and 1 April 2010 (corporation
tax).
The AIA is a capital allowance, an amount you can write off
against taxable profits for purchases of qualifying plant and
equipment; not cars.
What also slipped through, perhaps unnoticed, is the cessation
of the 40% first year allowance (FYA) on the same date. During
the tax year 2009-10 it was possible to claim a £50,000
AIA and a 40% FYA on any balance of qualifying expenditure over
£50,000. So if you spent £200,000 your total write
off against profits would be £110,000. (100% x £50,000,
plus 40% x £150,000)
Taking into account the increase in the AIA and the 20% writing
down allowance on expenditure in excess of £100,000, the
actual break even mark is capital expenditure of £250,000.
Any expenditure in excess of this amount will qualify for less
overall capital allowances in 2010-11 as compared with allowances
available in 2009-10.
Bonus for self-employed businesses.
Profitable self-employed business owners are facing an additional
50% income tax charge in 2010-11 on earnings in excess of £150,000.
Judicious use of the AIA can have considerable benefits.
Lets consider a self-employed trader with taxable profits after
all deductions, but before claims for capital allowances, of
£250,000.
For 2010-11 the 50% income tax charge, not the total tax charge,
would be £50,000. (£250,000 - £150,000 at
50%) If the trader spent £100,000 on qualifying plant
or equipment, that qualified for the AIA, he or she could write
off the £100,000 against the £250,000 profits and
all of the 50% rate income tax charge would be eliminated! A
tax saving of £50,000.
In cash terms that represents a 50% recovery of the £100,000
investment in the new plant or equipment.
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61% Tax Rate?
As part of the drive to increase tax revenues HMRC will be
reducing your personal tax allowance of £6,475 in 2010-11,
if your taxable income exceeds £100,000. They will knock
£1 from your allowance for every £2 your income
exceeds £100,000. Your personal allowance will be eliminated
when your earnings reach £112,950.
The extra tax you will pay on the top £12,950 of your
earnings is 40% of the £12,950 plus 40% of the lost personal
allowance (£6,475 x 40%), a combined 60% tax charge. If
you take into account the extra 1% NIC charge, a not inconsiderable
61% marginal rate!
Accordingly anything you can do to reduce your income back
below £100,000 will save you up to 61% in reduced tax
and NIC.
Careful planning of capital expenditure to make use of the
AIA as mentioned in the previous article in this newsletter
could be the key; or perhaps a salary sacrifice or increase
in pension contributions? You could also consider a gift aid
donation, see article that follows.
Planning is obviously critical - call if you would like us
to design a strategy to safeguard your tax allowance, should
it be under threat
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Problems with PAYE Notices of Coding for 2010-11
HMRC have belatedly realised that a significant number of the
Notice of Codings issued for 2010-11 are incorrect. One unfortunate
consequence is that whilst you may have been sent a revised,
corrected code number, your employer may not. Employers cannot
change their payroll records unless they are formally sent a
copy.
This is likely to affect the following groups of tax payers:
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Pensioners and those receiving State Benefits
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Those with company car and possibly car fuel benefit
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Those on incomes over £100,000 who may continue to
receive their full personal allowance when they should not.
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Taxpayers who had one-off deductions from their 2009-10
code number, underpayments of tax for previous years, one-off
benefits and so on.
There is a danger that if you are affected you will pay too
much, or not enough tax in 2010-11, at least until your code
number is corrected.
If you are concerned and have recently received a corrected
code number for 2010-11, be sure to speak with the person or
department that operates your employers PAYE - you need to ensure
the code number they will use for April 2010 onwards is the
latest code number you have received.
Of course even the corrected code may be incorrect! Please
call if you would like us to check your Notice of Coding.
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Tax Diary April/May 2010
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.
1 May 2010 - Due date for corporation tax
due for the year ended 31 July 2009.
19 May 2010 - PAYE and NIC deductions due
for month ended 5 May 2010. (If you pay your tax electronically
the due date is 22 May 2010)
19 May 2010 - Filing deadline for the CIS300
monthly return for the month ended 5 May 2010.
19 May 2010 - CIS tax deducted for the month
ended 5 May 2010 is payable by today.
19 May 2010 - The payroll forms P35 and P14s
must be filed by this date - employers late in filing these
forms may receive a penalty.
31 May 2010 - Ensure all employees have been
given their P60s.
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. |
