The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
PRE YEAR END PLANNING / AVOIDING HIGH MARGINAL RATES
The end of the tax year approaches.
As politicians meddle so we have an increasing number of high marginal tax rates. Are there things you can do before 6 April to avoid these rates?
Income between £50,000 and £60,000?
If you reckon your income will peak in this bracket and if you or your partner is in receipt of child benefit you have a marginal tax rate of at least 52.6%. The more children you have the higher the marginal rate. You should think seriously about ways to reduce your income.
Income between £100,000 and £116,210?
The effective rate of tax on income in this bracket is 60%. This is so because for every extra £2 of income you receive you lose £1 of personal allowance. If you reckon your income is on course to peak in or just above this bracket you should think seriously about ways to reduce it.
Income over £150,000?
The rate of tax on income above £150,000 falls from 50% to 45% on 6 April 2013. If you reckon your income is on course to peak just above this threshold you should think seriously about ways to reduce or defer it.
Consider sacrificing pay for employer pension contributions or extra leave.
Consider deferring bonuses. This is something the investment banks and utility companies are doing.
If you are self-employed and have a business year end of 31 March or 5 April, consider investing in equipment.
If you are an owner manager of a limited company, consider deferring the payment of dividends which might otherwise take place in 2012/13.
And these techniques can be used to good effect by individuals on lower incomes too. For example, it is not unusual for individuals in receipt of tax credits to have a marginal rate (including tax, NI and the withdrawal of tax credits) of over 70%.
Our Advice: To follow up on any of these ideas or to discuss tax planning generally please get in touch.
Furnished holiday lettings aside, there is a golden rule that you can’t claim capital allowances for expenditure on fixtures and equipment situated in a residential property.
Up until now it has been possible to claim for the cost of replacing certain items of equipment on something called the ‘renewals’ basis. This would enable a landlord to claim for the cost of replacement assets such as boilers, baths and basins.
But the renewals basis is concessionary and along with several other concessions is being withdrawn with effect from 6 April 2013.
After that date there will be no income tax relief for expenditure on replacement fixtures.
Our Advice: If you own a furnished or an unfurnished investment property you should consider replacing worn out items like boilers, fridges, cookers, baths and basins now. If you incur the expenditure after 5 April 2013 you won’t get any tax relief.
The taxpayer company, based in North Yorkshire, was late in paying its PAYE in eight of the twelve months of 2010/11. Accordingly it incurred a fine. Set at 4% of the aggregate of the amounts paid late, the fine was £7,000. The company appealed against the penalty.
It is evident from the case report that the company was not familiar with the changes to the penalty regime which took place in 2010/11 and did not understand how the penalties were computed.
Its appeal was dismissed.
Tax tribunals are hearing many cases like this. Why is this one newsworthy?
It is newsworthy because the appellant company is a firm of accountants. Pity their clients.
Our Advice: Pay your PAYE on time. Using HMRC as a short term provider of credit is now very expensive indeed.
If you are an accountant you might like to impress your colleagues with the stat that 578,000 taxpayers filed their tax returns on deadline day 31 January 2013.
If you are non-accountant you might like to impress your friends with the stat that 1,500 taxpayers filed their tax returns on Christmas day. Probably accountants.
DOWN A BIT, UP A BIT, ER…
Small businesses can claim 100% tax relief for expenditure on plant and equipment. But this only applies to the first £25,000 of expenditure. Once this threshold is reached, any further expenditure qualifies for an allowance of only 18% with the rest being allowed at 18% per annum in succeeding years.
Imagine you are the Chancellor. There is no money. There is lots of debt.
Do you decrease the threshold in order to increase tax receipts and so shore up the public finances?
Or do you increase the threshold in order to stimulate private sector investment and profits and so shore up the public finances?
Well, if it is any consolation the real Chancellor doesn’t know the answer either. When he came into office the threshold was £100,000. In his 2011 budget he reduced it to £25,000. In his 2012 autumn statement he increased it to £250,000, effective from 1 January 2013.
He’s got all the levers and all the buttons. He doesn’t know which ones to pull or press so like any good politician he pulls and presses them all because doing something rather than doing nothing gives the impression he is in control.
In the words of the editor of Taxation magazine, “In whose world does this constitute a coherent strategy? And how are businesses supposed to plan when the amount they can deduct for capital expenditure goes up and down like a roller-coaster?”
LIBERATING THE PENSION SCHEME
A number of cheeky chappies out there are claiming they can help pension scheme members obtain early access (before age 55) to their pension savings.
The truth is, early access is possible only in rare circumstances such as terminal illness.
Pension scheme trustees find themselves in something of a dilemma here. They are supposed to act in the best interests of the member. But if they cannot be sure the transferee is a bona fide pension provider they expose themselves to a claim from the member at a later date.
Our Advice: If you are a pension scheme member and you think you have been targeted contact Action Fraud on 0300 123 2040.
JEFF AND BOB
Having hung up their football boots, Jeff and Bob decide to open a bungee-jumping business in Mexico. They set up in the square of a small town.
Bob attaches the bungee rope, jumps, bounces and springs back up. Jeff isn’t able to catch his friend but he notices he has a few cuts and scratches.
Bob falls again, bounces and comes back up. This time, he is bruised and bleeding. Again, Jeff misses him.
The third time it happens, Bob comes back pretty messed up. He has a couple of broken bones and is almost unconscious. Luckily, Jeff catches him and says, “Hey man! What happened? Was the rope too long?”
Bob looks confused and says, “No, the rope was fine… but what the heck is a pinata?”
Copyright: K P Bonney & Co LLP 2013. 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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