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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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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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Swan
Partnership Tel 01926 334773
Fax 01926 314060 Web: www.uktaxworld.com Swan is a Limited Liability
Partnership registered in |
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