The View from No 50

 

 

 

 

March 2011

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby RoadMenston

IlkleyLS29 6JA

Tel:01943 870933

Fax:01943 870925

Email:keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 


 

 

CAN I BEAT THE 60% TAX RATE?

 

You might have thought the top rate of income tax for 2010/11 was 50%.It isnít.On the band of income between £100,000 and £112,950 the rate of tax is 60%.

 

Those with incomes up to £100,000 have the benefit of a tax free allowance of £6,475. Those with incomes above £112,950 get no tax free allowance at all.

 

For those with incomes in the band between £100,000 and £112,950 their tax free allowance is withdrawn at the rate of £1 for every extra £2 of income.This is how the effective tax rate of 60% comes about.

 

You can avoid the 60% tax rate by paying pension contributions before 6 April 2011.Care is required here as there are limits on how much relief you can claim for pension contributions.

 

Another way to avoid the 60% rate is to make gift aid payments to your favourite charities.

 

Suppose your income for 2010/11 is exactly £112,950.To avoid the 60% tax rate completely you make a gift aid payment of £10,360 (£12,950 x 80%).Remember you only pay 80% because you deduct and retain an amount equal to the basic rate of tax.

 

You get the rest of your tax relief through your tax return.This produces a repayment of tax of £5,180 making the cost of the donation to you only £5,180.And the charity receives £13,282!

 

If you are employed on a fixed salary you might be able to estimate your income for 2010/11 and make a gift aid payment which will get your income down to £100,000.

 

But what if you cannot estimate your income for 2010/11 before 6 April 2011?Is all lost?Well, no it isnít.

 

By the summer of 2011 you should be able to measure your income for 2010/11 accurately.You can then work out what gift aid payment would have enabled you to escape the 60% rate.You then make the appropriate gift aid payments to your chosen charities.After that you complete the claim for carry back of these gift aid contributions on your self assessment tax return.Your selected gift aid payments of 2011/12 are then deemed to have been made in 2010/11.Finally, you file your return with HMRC.

 

So all is not lost if you donít manage to make your gift aid payments by 5 April 2011.

 

Our Advice:If your income for 2010/11 falls between £100,000 and £115,000 consider making personal pension contributions before 6 April 2011.Also consider making gift aid payments.You can even leave the making of gift aid payments until after 5 April 2011.But be aware you only get one bite at the carry back cherry.If you submit your return without making a carry back claim you can not later submit an amended return containing such a claim.

 

 

REGISTERING LOSSES

 

In December 2005 William sold some shares realising a loss of £25,000.He had no other disposals in the year.He didnít bother to put the loss on his 2005/06 self assessment return as he didnít think he would ever be able to claim relief for it.

 

In December 2009 William sold an investment property making a gain of £40,000.

 

On his 2009/10 tax return, filed in the summer of 2010, William declared his gain of £40,000 and deducted his brought forward loss of £25,000 leaving net gains of £15,000.

 

HMRC denied William the deduction of the loss of £25,000 on the grounds that he should have registered it (i.e. claimed it) by 5 April 2010.

 

As an 18% CGT taxpayer the missed claim cost William £4,500.

 

In order to preserve a loss for use against future gains you must claim the loss in your tax return.If you forget to claim in your return you can make a claim up to four years after the end of the year of the loss.After that it is too late.

 

The same point applies to other kinds of losses too.For example, property letting activities often start out as loss making.If you donít enter the loss on your tax return you run the risk of depriving yourself of relief in later years.

 

Our Advice: As we approach 5 April 2011 think carefully about whether you have suffered any losses in 2006/07 or later years.When we get to 6 April 2011 claims for 2006/07 will no longer be possible.Tax rates have increased in recent years so your old losses are worth more now than before.†† Action taken now could save very worthwhile amounts of money.

 

 

 

HOW COMPLETE IS MY NI CONTRIBUTIONS RECORD?

 

Me. Ė ďHello.Iím 65 and Iíve come to collect my pension.My NI number is ZX 12 34 56 B.Ē

 

Pension Service. Ė ďHello.Letís have a look at our records.Ah. Sorry, but we donít seem to have any record of you ever having made any contributions so Iím afraid you are not entitled to any state pension at all.Ē

 

Do you have this nightmare too?

 

As we journey through our working lives we rely on our employers to make accurate returns of our earnings and national insurance contributions.†† We also rely on H M Revenue & Customs to record these returns accurately.

 

If either fails, our contribution record is not complete and we might not get the pension to which we are entitled.

 

The form on which an employer provides details of an employeeís earnings and contributions is called a P14.

 

According to the Chancellor of the Exchequer, for the year 2008/09, HMRC was unable to match 1,542,773 P14ís to contributors.The figures for the four previous years are even higher.

 

These are the known unknowns.There are also the unknown unknowns.†† What about all the employers who have gone bust and who never got round to filing P14ís at all?

 

For us contributors the problem is we donít get to find out about the gaps in our contribution record until we come to draw our pension.By then we have probably thrown away any helpful evidence of contributions which we ourselves might have held.

 

Itís a muddle.Perhaps one day we shall all have real time access to our NI contribution records and we will know straight away when something goes wrong.

 

Our Advice: For now the best thing we can do is ask for a pension forecast.

 

http://www.direct.gov.uk/en/Diol1/DoItOnline/DG_189931

 

 

 

ADVISORY FUEL RATE (AFR)

 

Responding to increases in fuel prices HMRC has announced the introduction of new AFRís from 1 March 2011.If you reclaim VAT by reference to the AFR check the HMRC website for the latest rate.

The authorised mileage rate remains stubbornly at 40p per mile.

 

 

 

SMART FOOTBALLER

Sunday lunchtime and the team is in the pub for a few drinks and a spot of Hansen style post match analysis.

The barman is standing at the bar looking at three small brown pellets in his hand. The footballer across the bar asks what they are and the barman replies, "They are brain pills.They make you smart."

The footballer says excitedly, "Give me one." He snatches one from the barmanís hand and gulps it down with his beer.

A few minutes later the footballer comes back over to the bar and says he doesn't feel any smarter.

"You probably didn't take enough," says the barman.So the footballer takes another one.

Half an hour later the footballer asks for a third pill. This one he looks at with more care. He sniffs it and tastes it. "Why, these are nothing but sheep droppings!"

"See," says the barman, "you're getting smarter already!"

 

Copyright:K P Bonney & Co LLP 2011.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 publisher.

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