Below I have highlighted three of the many areas of change announced in yesterday’s budget.
- Changes to the Taxation of dividends
From April 2016 dividends will be subject to further income tax at 7.5% above £5000 for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate 45% taxpayers. For a small business owner paying himself a small salary of £10,000 and dividends of £32,000 there would be extra personal income tax payable of £2025.00.
This is partly offset by the reduction in the company tax rate to 19% in 2017 and then 18% in 2020.
- Abolition of Goodwill write-down.
For purchases of goodwill – customer lists / business reputation etc the amortisation of goodwill is abolished for purchases after budget day.
This will change the way many small business owners consider purchasing a business as now a large part of it will not qualify for tax relief.
- Changes in the Taxation of property income
Higher rate relief on interest paid to buy or improve a property will be restricted to the basic rate of tax. This will be withdrawn over a four-year period from 2017.
Also the wear and tear allowance to cover depreciation of soft furnishings and white goods currently 10% of gross rents will be abolished from April 2016.
- Changes to non Domicile status
Individuals who have been resident in the UK for more than 15 out of the past 20 tax years will be treated as deemed UK domiciled for all tax purposes from April 2017.
There is also consultation on the taxation of non-domicile individuals who leave UK and then return.
1. Personal Allowance to rise to £10,000 from 6 April 2014
This will help those on low income and clients / contacts who live overseas but remain taxable on UK rental income. Of course this will not benefit those earning above £118,880 for 2013/14 who since 6 April 2010 no longer qualify for the personal allowance and whose tax liability actually goes up due to the consequent reduction in the basic rate band.
2. Changes to tax relief for Childcare
Income tax relief via a new childcare account will be introduced from Autumn 2015 for up to 20% of childcare costs or £6000 per child @ 20% = £1,200. The self employed and non taxpayers will now get some help. However this may mean some losers who are presently claiming per parent at the top rate and use cost-effective childcare voucher providers like that offered by our sister business – DIY Childcare Vouchers – http://www.diychildcarevouchers.co.uk/
3. Increase in Inheritance Tax (IHT) limits for “Non Dom” husbands and wives
Currently if one spouse is not from the UK and is thus non-domiciled only the first £55,000 of capital passing from one spouse to another is exempt from IHT. As previously announced this will increase to the same as the IHT nil rate band – currently £325,000. Non-domiciled spouses will also be able to make an election to be treated as UK domiciled for IHT purposes from April 2013.
4. Capital Gains Tax benefits of the Seed Enterprise Investment scheme to be extended to 5 April 2014
For gains reinvested in the two tax years to 5 April 2014 relief will be available for half the reinvested gain instead of all of the gain as presently.
5. New Employment allowance of £2,000 off payroll costs
Small businesses and charities will be entitled from April 2014 to a reduction of £2000 per year from their Employers Class One National Insurance bill – currently 13.8% of gross pay.
Of course there were many other matters covered in the budget. There are some good summaries from the BBC budget site or on the HMRC site here. Please seek advice before taking action as a result of this note.
Over on our sister site we had a brief introductory video made. We hope you like it.
The Chancellor of the Exchequer George Osborne stands up next Wednesday 5 December to make his Autumn statement.
Here below are some quick simple ideas you may wish to consider acting on – one possibly before next week and the other two before the end of the current tax year on 5 April 2013
1. Contribute to your Pension pot whilst the current limits still last
It is rumoured that either the current annual limit or the rate at which contributions are relieved may well change next week. Currently the “annual allowance” is £50,000 for which relief is given at your top rate of tax. The calculations can quickly get complicated but it is possible to carry forward unused relief from the previous four years.
If you are in the happy position of having any spare cash you may wish to consider prepaying now some pension contributions you intend to make for the next five years. This will ensure the maximum possible contributions are relieved and at up to 50%.
2. For Additional Rate 50% Taxpayers Defer income beyond 5 April 2013
The additional top rate of tax reduces from 50 to 45% for income received on or after 6 April 2013. Maybe consider deferring the receipt of income until after that date? This would clearly save 5% of the income delayed.
Of course to effect this you have to either be in control of your own business or be sufficiently senior in an organisation to have control over the timing of bonuses and dividends.
3. Accelerate Reliefs while tax relief is available at 50%
Again a simple point but for those with the cash available consider taking reliefs in the current tax year to be relieved at rates up to 50% rather than only 45% from 6 April 2013. This might apply for example to pension contributions, charitable donations and losses.Eg
By way of example John a top rate 50% taxpayer pays £4,000 net to his personal pension plan each year. As he has the money available he decides to pay the next five years contributions now. This means that he writes a cheque for £20,000 and receives an extra £1,250 of tax relief than if he had instead made the contributions on an annual basis as he had planned.
There is more detailed prediction and commentary on the Autumn Statement from PWC here.
Please do contact me on Andrew.firstname.lastname@example.org or 079415 80062 if you want more detailed help on how to implement any of these ideas from a london tax adviser, london tax advisor, london tax consultant – covering West End, Ealing, Mayfair, Knightsbridge, Chiswick, Fulham, Chelsea, Notting Hill, Belgravia, Bayswater, Kensington, Ladbroke Grove, Kingston, Marylebone, Barnes, Putney, Richmond, Wandsworth, Kew, Putney..
For those who prefer (mainly Google!) there is a brief video here which covers the above matters but no more detail than already here. Please feel free to share.
We are pleased to announce our sister business has recently released the new childcare vouchers solution – DIY childcare vouchers.
This means you can offer your directors and staff vouchers that enable them to effectively obtain a tax deduction for qualifying childcare. This covers nurseries, childminders, after school clubs as well as registered nannies.
For a one off cost of just £147 our DIY Childcare Vouchers toolkit gives you all the tools you need to save money with Childcare Vouchers.
The DIY Childcare Vouchers toolkit offers
– Tax savings of £933 a year for most taxpayers
– Further saving for employers of up to £401 Employers National Insurance
– Save Hundreds of Pounds compared to traditional providers – Low cost Childcare Voucher solution
– Ideal for SMEs Small / Medium sized businesses
– Implement your own Childcare Voucher scheme in half an hour or less
Please click here to go the website for more information.