The View from No 50

 

 

 

 

January 2003

K P Bonney & Co 

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston 

Ilkley LS29 6JA

Tel: 01943 870933 

Fax:  01943 870925 

www.kpbonney.co.uk

 

 

 


CAPITAL LOSSES

 

If you have a portfolio of shares you are probably nursing some heavy losses right now and capital gains tax will be the last thing on your mind.  But with a little creative thinking you can save tax.

 

Oscar and Dylan each bought 10,000 Vodaphone shares at £2.00 per share.  The shares are now quoted at £1.20.  Each has a paper loss of £8,000.  On the bright side, each expects the shares to recover and to go on to make handsome profits.  Oscar and Dylan are higher rate taxpayers.

 

Dylan sells his shares in 2006 at a price of £3.00.  His profit on sale is £10,000.  If we ignore taper relief and if we assume his capital gains tax annual exemption is used elsewhere, Dylan will have to pay tax of £4,000 on his profit.

 

Oscar sells his shares just before 5 April 2003 and realises his loss of £8,000.  On 6 April 2003 he buys back 5,000 shares through his ISA and his wife buys 5,000 through hers.  They encash their ISA’s in 2006 when the shares are priced at £3.00.  The profits are tax free because they arise within ISAs. If Oscar makes taxable gains on his share portfolio he can use the loss of £8,000 which he realised in 2002/03 to reduce his capital gains tax liability.  This could yield a saving of tax of £3,200.

 

At the end of 2006 Oscar is £7,200 better off than Dylan.

 

My advice:  Even when your shares are on the floor there are things you can do to minimise your tax liabilities.  

 

TAX RISES ON THE WAY

 

The Chancellor of the Exchequer has a habit of announcing tax changes well in advance.  This is helpful as it allows those affected to plan accordingly.  For many, the long delay before implementation is a good enough reason to ignore the changes and concentrate on more important matters.  If you are one of these people, now is the time to lift your head out of the sand. 

 

On 6 April 2003 we see the introduction of several changes, the most important of which are

 

·          the increase of 1% in the rate of national insurance contributions for employers, employees and the self employed and

 

·          the change in the basis of taxation of fuel provided by businesses for private motoring.

 

National Insurance

 

From 6 April 2003 the rate of employee’s national insurance contributions increases from 10% to 11%.  National insurance is only charged on earnings between fixed lower and upper limits.  In 2002/03 these limits are £4,628 and £30,420 per annum respectively, which means the maximum amount of national insurance payable by an employee is £2,579.  Subject to an upward indexing of the limits, the maximum amount of national insurance payable on earnings falling between the limits will be £2,837 in 2003/04.  But that is not all.  With effect from 6 April 2003, national insurance will be charged at the rate of 1% on earnings above the upper earnings limit.  For the first time ever  there is no cap on the amount of national insurance payable by an employee.

 

It is a similar story for the self employed.  The rate of national insurance on earnings between the limits increases from 7% to 8% and the 1% rate applies to all earnings above the upper limit.

 

The rate of employer’s national insurance contributions increases from 11.8% to 12.8%.

 

My advice:  If you are an employee you might try to persuade your employer to advance to 2002/03 some of your pay which would otherwise fall in 2003/04.  Your employer might be willing to do this as they will save 1% in national insurance contributions too.  This course of action might not be advantageous if it has the effect of increasing your rate of income tax in 2002/03 from 22% to 40%.

 

If you are an employee of a company which you own, you could avoid the increased national insurance cost by taking your income as dividend instead of salary.  There is no national insurance on dividends.

 

If you are self employed and you intend to remain so, there is little you can do to avoid the extra national insurance.  If you have a business year end of February or March or 5 April, you could try to boost profits in what remains of your current accounting period by advancing sales which might otherwise fall after the year end and deferring expenditure which you would normally incur before the year end.

 

As a self employed person you could avoid the extra national insurance cost by running your business through a limited company.  You should take individual advice before incorporating your business as there are many other facts to consider.

 

Fuel for private motoring

 

If you are an employee and your employer provides you with fuel for private motoring you are chargeable to income tax on a notional amount of income each year.  The notional amount is often called the car fuel scale charge.

 

Up until 2002/03 the scale charge was based on the engine capacity of the car provided by your employer.  The highest possible scale charge was £4,200.  For a 40% tax payer this would result in a tax liability of £1,680.

 

From 6 April 2003 the scale charge is based on the CO2 emissions of the car. 

 

CO2 emmissions       Petrol              Diesel

  in grams per      scale charge    scale charge

     kilometre                  £                      £

 

        155                   2,160               2,592

        160                   2,304               2,736

        165                   2,448               2,880

        170                   2,592               3,024

        175                   2,736               3,168

        180                   2,880               3,312

        185                   3,024               3,456

        190                   3,168               3,600

        195                   3,312               3,744

        200                   3,456               3,888

        205                   3,600               4,032

        210                   3,744               4,176

        215                   3,888               4,320

        220                   4,032               4,464

        225                   4,176               4,608

        230                   4,320               4,752

        235                   4,464               4,896

        240                   4,608               5,040

        245                   4,752               5,040

        250                   4,896               5,040

        255                   5,040               5,040

 

It can be seen from the figures in the table that some people will find themselves paying much more tax under the new system.

 

As employers have to pay national insurance contributions based on these amounts, the new system could produce extra costs for them too.

My advice:  The change has forced car manufacturers to concentrate on improving the CO2 efficiency of their cars.   Some people will be better off under the new system and some will be worse off.  Contact me if you would like me to assess the impact of the change for you.

 

FINDING THE RIGHT BUSINESS ACCOUNT

 

The British Bankers’ Association has designed a website to help businesses find the most appropriate bank account.

 

The service enables any small business, club, society or charity to gather a wealth of information from one central source.  The search pages allow you to build tailored account comparison tables that suit your business’s circumstances.

 

There is an option to view a full breakdown of any account listed, including the latest account charges, interest rates payable, borrowing rates and any other services that are available with the account.

 

Moreover it is possible to see a list of business accounts that are giving introductory offers.

 

In addition, there is a facility to compare two accounts side by side.

 

The service is provided by Business Moneyfacts and is a useful aid for all those involved in finance for business.

 

If you wish to use the service, view www.bba.org.uk/public/smallbusiness/

 

OFFSIDE

 

The offside rule constantly baffles fans, players and referees – yet really it is quite straightforward!  A player is offside if he is nearer to the opponent’s goal line than both the ball and the second last player – except on alternate Saturdays when in addition the second last player must be facing in an easterly direction.

 

A player is not offside if he is in his own half of the field, or he is level with the second last opponent, or the player, opponent and referee form an obtuse triangle as perceived by an imaginary linesman positioned on the Celestial Meridian.

 

 

Copyright  Ó  K P Bonney & Co LLP 2003.  All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer  The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors  or the publishers.

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