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Newsletter
February 2008 |
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This month
we have included details of the Chancellor's proposed changes to the Capital Gains
Tax legislation which will now take place on 6 April 2008. The expected
concessions to ease the impact of CGT on certain business sales are included.
We have also included a check list outlining personal tax planning
opportunities pre 6 April 2008, a discussion of the associated company
dilemma, and finally an article about code numbers! Our next
newsletter is due to be published on Wednesday 5th March 2008. |
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Employers
Be Aware |
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Some
of you may be aware that a Government Report published a few years ago
recommended that compulsory employer pension contributions should come into
force. The 2007 Pensions Bill, which is likely to become the 2008 Pensions
Act will bring this legislation into law. The
Act is likely to come into force in 2012 and will mean that all employers
will have to make a pension contribution of 3% of earnings for all their
employees. For employers that don't make their own arrangements the
Government will set up a State run personal account. We believe that most
employers should choose the type of pension scheme that best suits their own
needs and the needs of their employees rather than a State provided
arrangement. DS Financial Management are well placed to advise on these
matters with wide experience of dealing with many different types of employer
sponsored pension schemes. Please contact us if you require further details Back to top |
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Capital
Gains Tax Update |
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As expected
the Chancellor has bowed to the small business lobby and offered a reduced CGT
charge for gains realised on the disposal of certain businesses after 5 April
2008 - details are highlighted below. All the other declared changes to CGT
are to go ahead. They will affect the tax charge on all disposals after 5
April 2008. There will be winners and losers in the process! In a
nutshell indexation and taper relief will no longer be available from 6 April
2008. All gains, with the exception of the gains on disposal of certain
business assets, will be taxable at a flat rate of 18%. If you own assets
which have appreciated in value since purchase you should certainly take a
look at the possible opportunities to utilise the existing indexation and
taper relief before 6 April 2008. The clock is now ticking! Entrepreneur
Relief - The
Revenue have called the reduced rate which will be applied to gains on
disposal of certain businesses, as Entrepreneur Relief. The basic details
are:
Click here for a call back from our office
regarding this article. |
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Personal
Tax Planning reminders 2007-2008 |
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Readers may
like to scan the list of possible tax planning options that could be
considered prior to 6 April 2008. The list is not complete. Tax payers with
complex affairs should consider a formal review before the end of the present
tax year. Savings: 1.
Maximising
ISA’s for younger savers. 2.
Maximising
ISA’s for other savers. 3.
Appropriate
redistribution of savings among family members with differing tax rates, to
reduce overall tax spend. 4.
Utilisation
of Child Trust Funds. Pensions: 1.
Consider
maximising contributions for the year. 2.
Non-tax
payers can also contribute up to £3,600 per annum with no earnings. Inheritance
Tax: 1.
Utilising
available allowances and reliefs to protect assets from excessive IHT risks. 2.
Time
to review Wills to ensure they are compatible wealth protection strategies. Capital
Gains Tax: 1.
If
appropriate make sure you utilise your Annual Exemption, £9,200, for
2007-2008. 2.
Consider
inter-spouse transfer of assets with "pregnant" gains if the other
partner has capital losses which will not otherwise be utilised. 3.
Review
portfolios to consider holdings that may have negligible value for tax
purposes. This offers opportunities to reduce other taxable gains in the
current tax year. Charitable
Giving: 1.
Consider
Gift Aid donations. The same gifts made after 5 April 2008 will result in
slightly less cash benefit to charities as the tax they will reclaim on your
donations will decrease from 22% to 20%. Click here for a call back from our office
regarding this article. |
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Associated
companies and corporation tax |
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Most
smaller companies pay corporation tax on their profits at the "Small
companies rate" - presently 20%. However if profits exceed £300,000 the
average rate of corporation tax payable gradually increases, until at profits
of £1,500,000 and above all profits are taxable at the main rate of
corporation tax, 30%. Enterprising
entrepreneurs might be tempted to make the most of the small companies rate,
and transfer certain parts of their businesses to separate companies. If each
separate company made profits of £300,000 or under, the possible tax saving
could be significant - a reduction in tax payable from 30% of
"grouped" profits, to 20%. Not
surprisingly the Revenue saw that strategy coming, hence the Associated
Company rules. Basically
if two, on the face of it, separate companies are owned or controlled by
persons who the tax man considers to be "Associated" then the
amount of profits that each company can earn at the small companies rate
(20%) is reduced pro rata. For example if two companies are judged to be
associated in this way each company can earn up to £150,000 at the 20% rate.
(£300,000 divided by the number of associated companies, in our example 2.) It is easy
to see that companies may be associated if they are both owned and controlled
by the same person(s). Unfortunately the Revenue will also associate
companies owned by the following groups as well. 1.
Husband,
wife, or civil partners, including separated but not divorced couples. 2.
Parents,
grandparents and more remote forebears. 3.
Children
or grandchildren or remoter issue. 4.
Brothers
or sisters, including half siblings but not step. 5.
Business
partners. 6.
Certain
trustees or personal representatives. 7.
Certain
beneficiaries of a settlement, or estate. It is
beyond the scope of this article to describe in detail the interesting
possibilities that these associated groups can produce. For example spouses
of business partners can be taken into account. To add to the mix the Revenue
have also granted a concessionary treatment in the case of certain related
persons, whose separate business interests have no "substantial
commercial trading interdependence".(This concession does not extend to
husbands, wives and minor children.) So beware.
If a husband and wife each own totally independent businesses, they will be
associated under these rules. Consequently each company can only earn up to
£150,000 at the 20% corporation tax rate. Substitute any of the other 7
categories listed above and potentially large numbers of companies may be
associated. If 6 companies are associated each can only earn up to £50,000 at
the 20% rate. If you are
concerned that you may be caught by these rules, please call to discuss. This
is a complex area of taxation, with its own unique "grey" areas. Click here for a call back from our office
regarding this article. |
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Adjustments
to your tax code |
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Employees
and employers receive periodic updates to tax code numbers. This number is used
by your employer/pension provider to calculate the amount of tax you are
stopped on your salary and/or pension. If your
affairs are straight forward (and you are not able to claim certain age
related allowances) you are entitled to earn the first £5,225 of your income
in 2007-2008, tax free. If this were the case your code number would be 522L. If your
code number drops, to say 200L, you will pay more tax each pay period. If the
tax code increases, you will pay less tax. (But see note on K codes below.) We have
listed below a number of generalised factors that may affect your code
number. The list is not comprehensive so do contact us if you receive a code
number adjustment that is difficult to understand. 1.
Reduction for unpaid tax in earlier years. If you had
underpaid tax in the tax year to 5 April 2006 by say £500 the Revenue will
allow you, in certain circumstances, to pay the tax back in a following tax
year. To facilitate this, the Revenue will deduct an amount from your tax
code. For instance if you are a standard rate tax payer, currently 22%, your
tax allowances would need to be reduced by £2,272 to effectively recover the
£500 you owe. (For those of you who like to see the maths this is calculated
by dividing £500 by 22 and multiplying the result by 100 = £2,272). On your
notice of coding you would see a reduction in your code number from say 522L
to 295L. (522-227). 2.
Reduction for benefits provided by
employer.
If your employer provides you with a company car, or private medical
insurance, or indeed any other form of benefit, without an adjustment to your
tax code you would always owe the Revenue the tax on the benefit at the end
of each tax year. So that this does not happen your code number will be
reduced accordingly. The reduction works by deducting the value of the
benefit from your code; thus a benefit of £500 will result in a reduction in
your code number of £500, i.e. 50 points. 3.
Reduction for higher rate tax payers. If your earnings
are part subject to tax at 40%, and they include significant interest
received or dividend income, you will owe the higher rate tax on your
investment income at the end of the tax year. To counter this the estimated
higher rate tax on your non-salaried/pensionable income will be recovered by
reducing your tax code. As your interest and dividends received are taxed at
the basic rate, only the marginal increase above the tax already deducted
will be taken into account. What
happens if the reduction in your code number is more than your present code? K
Codes - If
your tax free allowance of £5,225 is reduced by £2,272, as in example 1
above, you will still have a positive tax code of 295L. If however the
deduction from your tax allowance is £10,000 you will have changed a positive
tax free deduction of £5,225 into a negative position of -£4,775. This
"negative deduction" is actually taxable income. Instead of
receiving a tax free allowance of £5,225 you are being taxed on additional
income of £4,775. Your tax
code could be changed from 522L to -477L. In their wisdom the Revenue have
chosen to display -477L as K477. When you see a tax code prefixed by the
letter "K" add on a zero and this is the equivalent income being
added to your tax assessment for the year. The larger the K code, the more
tax you will pay - although the revenue cannot take more than 50% of your
salary in tax in this way! Click here for a call back from our office
regarding this article. |
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Tax
Diary February/March 2008 |
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1
February 2008
- Due date for corporation tax due for the year ended 30 April 2007. 19
February 2008
- PAYE and NIC deductions due for month ended 5 February 2008. (If you pay
your tax electronically the due date is 22 February 2008) 19
February 2008
- Filing deadline for the CIS300 monthly return for the month ended 5
February 2008. 19
February 2008
- CIS tax deducted for the month ended 5 February 2008 is payable by today. 28
February 2008
- Last day to pay your balance of self assessed tax for the year ending 5
April 2007 in order to avoid interest and surcharges. Payment made after this
date will be subject to a 5% surcharge on tax outstanding, plus interest. 1
March 2008
- Due date for corporation tax due for the year ended 31 May 2007. 19
March 2008
- PAYE and NIC deductions due for month ended 5 March 2008. (If you pay your
tax electronically the due date is 22 March 2008) 19
March 2008
- Filing deadline for the CIS300 monthly return for the month ended 5 March
2008. 19
March 2008
- CIS tax deducted for the month ended 5 March 2008 is payable by today. Click here for a call back from our office
regarding this article. |
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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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Dean
Statham, Dean
Statham is a limited liability partnership, registered for VAT under
reference 812 0016 96. Partners in the firm are members of the Institute of
Chartered Accountants in England and Wales (ICAEW). This body has its
headquarters in the UK and its rules of professional conduct can be obtained
from its web site. Dean
Statham are authorised to act as statutory auditors by the ICAEW. |
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