Personal Thoughts
All of us will benefit from a rise in the personal allowance by £1,335 to £9,440 from April 2013. This is great unless you are fortunate enough to earn in excess of £100,000 per annum when you start to lose your personal allowance at a rate of £1 for every £2 over. We will all then get an increase of the personal allowance to £10,000 from 2014. The basic rate ceiling is reducing again to £32,010 for 2013-14 and again to £31,865 from 2014-15. There is a little bit of give with one hand and take back with the other here.
There is some good new for higher earners over the £150,000 ceiling for the top rate as the top rate will 45% rather than 50% for the 2013-14 tax year. Despite Mr Miliband’s objections to this, any economists out there will know that hefty top rates of tax actually collect very little extra. In fact all higher rates do is to motivate higher earners to move abroad or seek out tax planning schemes. The logic follows the higher the tax the more motivated people become to mitigate it. Think about it this way a 100% tax rate would collect exactly Zero tax!!! Simply no one would be motivated to work just to pay it all to the tax man.
Even still a 45% tax rate is still pretty high especially taking until account you would have also lost your personal allowance in the process. If you are in this position it may be worth talking to a Chartered Financial Planner or Wealth Manager who will be very familiar with coaching you though the steps to make your financial affairs work harder for you.
Apparently the HMRC has issued a table showing people with income between £7,500 and £100,000 will pay less tax and national insurance in the coming financial year. If you fall in the income bracket of £30,000 to £50,000 bracket, there is going to be a reduction in tax to the tune of about £200. Any ideas what you can spend the extra £200 in your pocket on?
Good news for those using draw-down to access you pension plans. From 26th March 2013 the maximum capped pension drawdown will increase from 100% to 120% of an equivalent annuity. This is a great relief to many who in recent years have seen GILT yields falling along with their drawdown rates. This will present many with an extra planning opportunity.
Business Thoughts
It was announced last year that the main rate of corporation tax will be 23%, with the small companies rate unchanged at 20%. The main rate will reduce to 21% next year, and from April 2015 all companies will simply pay a flat rate of 20%. Great news for business owners who are the one hope we have in pulling ourselves out of low growth levels.
Employers have also been given a break as the first £2,000 of national insurance is being offset by an “employment allowance”. Again good news for business owners who may have been questioning the extra cost of employing their first or next employee.
There are a few extras on ‘Green’ company cars but I am not too convinced that this is the first thing on a sales persons mind when they are looking down their new company car list. For those with one eye on a budget and the other on the environment there will be a few things of interest.
Any employers out there rushing out to to offer beneficial loans of £10,000 to their staff, from April 2014 employers will be able to grant these without it being treated as a taxable benefit. I do find this all a bit strange when small business can’t even get banks to lend to them for business purposes.
It has been announced that there is a planned capital gains tax relief on the disposal of controlling shareholdings where these are sold into an employee ownership structure. There could be some really interesting stuff on exit strategies for business owners ready to retire. We will need to wait until the 2014 Finance Bill for the finer detail.
Tax Thoughts
If you are still in the mind set of creating a tax avoidance plan then watch out. HMRC is looking for you.
The intention is to make the General Anti-Abuse Rule part of the 2013 Finance Act.
HMRC claims that the three major themes for their anti-avoidance campaign:
- Remuneration through offshore intermediaries
- Use of Limited Liability Partnerships to disguise employment relationships
- Manipulation of profits in partnerships (including LLPs) in order to secure tax advantages.
Food for thought HMRC wins around 85% of the avoidance cases it takes to court.
As with all these things there is always a fine line between legitimate tax planning and tax avoidance. Gaining access to qualified financial planning advice should enable you to make use of your legitimate allowances but stay the right side of the line.