Taking Account
The Quarterly newsletter of
Marshall Roche - Christmas 2000
Same profit, same tax? - not quite…
With a penny off the rate of income tax and a small
rise in the personal tax allowance, most people would be forgiven for believing
that their tax bill should come down this year. Unfortunately the opposite is true for most small businesses:-.
1.
Loss of the married couples allowance or the single
parent allowance will cost all married men and single parents an extra £197 in
tax this year.
2.
The rate of Class 4 National Insurance for
self-employed has not only gone up by 1%, but it now applies to a much broader
band of income. This will add £330 to
the average bill and increase the maximum contribution by £532.25p.
The impact will not be felt until
January 2002, but small businesses need to start budgeting for this now. As tax payments on account for 2001/02 will
also reflect this rise, the extra payable in January 2002 is increased by a
further 50%.
The net result is that a self-employed married man
or single parent on average income will see their tax & NI bill rise by
over £600 in January 2002 - even without any increase in profits!
With the rate of corporation tax for small companies now
just 10% and no NI on dividends, it is now possible for a self-employed person
with even moderate earnings to save literally thousands of pounds in tax &
NIC by forming a limited company.
Contact us for further details.
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Capital Gains Tax notes £7,200 tax free Each tax-payer is entitled to
capital gains of up to £7,200 tax free during the current year. Therefore, if you have investments which
are showing a profit, it may be worth selling some of them before 5 April in
order to take advantage of the tax free gain. The allowance does not get rolled forward. For example, something which goes up in
value by £14,000 over two years does not get 2 years worth of relief against
it. Nearly half the gain would be
subject to tax. Transfers between husband and wife
are tax free, so consider splitting investments in two before disposing of
them, so as to benefit from two lots of £7,200 tax free. Retirement relief Business assets sold on retirement
after age 50 are currently free of Capital Gains Tax on gains of up to
£150,000. This allowance reduces to
£100,000 after 5 April 2001 and reduces by £50,000 each year until it
disappears in April 2003. If you are over 50 and are
thinking of selling a business with capital gains (eg. property or goodwill),
it might benefit you to bring the sale forward to take advantage of this
relief. Taper relief The relief to stop you paying tax
purely on inflation gains (known as indexation allowance) has now gone. It has been replaced by taper relief,
which simply reduces the gain by a proportion for each year the asset has
been held since 5 April 1998. The taper is more for business
assets than for other assets.
Business assets for this purpose include, for example, business
property, goodwill and shares in unlisted companies. As a result, assuming that
retirement relief is not an issue (see above), it can pay to hold onto an
asset until after 5 April to gain an extra year’s relief. As
an example, the tax saving on a business asset with taxable gains of £50,000
could be £5,000, just by delaying until after Save literally £000’s Getting on the wrong side of
Capital Gains Tax can cost you a fortune.
The gain simply gets added to your income and, before you know it, the
Treasury is taking 40%. With some simple planning and careful
timing, many situations can be arranged to avoid the tax altogether. Contact Tony Marshall for
further advice. |
IR 35 - Cash
Flow Basis The Inland Revenue have confirmed that the new IR
35 rules for ‘personal service companies’ will operate on a receipts basis,
not an invoice basis. Therefore, the turnover figure used in calculating
the deemed salary will be the amount received by the company up to 5 April,
thus excluding any work carried out prior to that date but paid for after 5
April. If IR35 cannot be avoided, any opportunity to
delay paying tax and NIC will be beneficial.
A simple arrangement with the contractor to delay payment by a few
days to get it into the next tax year might well be worthwhile. It is currently possible to carry forward unused
pension contribution relief from earlier years and use this to enable a
substantial lump sum to be invested. In this way, under-provision in earlier years can
be made good and tax relief obtained on the full amount. This is about to change.
If you are considering a lump sum pension
investment, now is the time to do it.
Contact either Tony Marshall or Sue Jones for further information. |
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Wishing you a very Merry Christmas and a Happy and Prosperous New
Year from everyone at Marshall Roche This year we have donated
our The Imperial Cancer Research Fund. Thank you |