What's With The............................. Long Pause?

As we head into Autumn, the natural world slows down, getting ready for the hibernation process. The business world may seem to mirror this at the moment, much like the grizzly bear going to sleep for the winter to ride out the harsh times ahead.

However, with the income tax changes that are coming next spring, going to sleep over the autumn/winter months may not be a good idea!

From 6 April 2010:

• the rate of income tax payable by individuals on taxable income in excess of £150,000 will increase from 40% to 50% (new increased rates will also apply for dividends) and
• individuals whose adjusted net income exceeds £100,000 will have their personal allowance restricted by £1 for every £2 over the limit.  Based on 2009/10 personal allowances, this will result in an income tax rate of up to 60% on adjusted net income falling between £100,000 and £112,950.

No changes have been announced yet for capital gains tax which remains at a flat rate of 18% (or 10% if entrepreneur's relief is available) but it is quite possible that the capital gains tax rates will increase to reduce what will become a large differential between income tax and capital gains tax rates. 

Given the above, you may not be surprised to hear that we have been thinking about tax-planning steps that could be implemented now to ensure that your tax affairs are in order when the new income tax rates arrive next spring.  Here are some measures you may wish to consider:

• Changing  your business  accounting date: by changing the year end it may be possible to bring forward taxable profits, and have them assessed at the lower income tax rates which continue to apply until 6 April 2010
• Company cars: consider acquiring company cars at market value to avoid having benefits assessed at the higher income tax rates
• Capital gains: Consider realising capital gains now while the low rates of capital gains tax remain
• Incorporation : may enable you to reduce your overall tax liability and defer tax
• Capital allowances: consider the timing of purchasing/bringing into use machinery and vehicles to maximise allowances and reduce your tax
• Gift Aid: not very charitable we know but, consider postponing gifts until post 5 April 2010 (and also ensure that the spouse taxed at the highest rate makes the gift)
• Pension contributions: make pension contributions post 5 April 2010 (but do bear in mind the anti-forestalling provisions which already apply)
• Losses: Think carefully about the best tax year in which to use any losses
• Interest payments: Restructure borrowings to maximise tax-relief on interest payments
• Bed and ISA: May enable you to realise capital losses and shelter from tax any subsequent income or gains
• Income splitting: Consider inter-spouse transfers of income producing assets to spouses with lower income tax rates.

Other general tax-planning measures which you should also consider before 6 April 2010 include:

• PAYE tax codes: make sure the allowances/reliefs/deductions in your coding notice are correct to save you paying excess tax 
• Capital gains: make sure you use your annual exemption each year, currently £10,100 per individual (£5,050 for most trustees). 
• Inheritance tax: use your £3,000 annual exemption and the other gift exemptions and consider other tax planning opportunities
• Tax efficient investments: use your annual ISA entitlement and consider other types of investments such as EIS and VCT companies 

At Springfords, we understand that our clients needs change like the seasons and that we must always be awake to new possibilities.

To help clients deal with these issues, Springfords staff respond quickly and provide easily understood answers.

We go beyond the numbers and don't want to be the bear, asleep in a cave.

For more information about how Springfords can help you contact Ian Haynes or Fiona Donaldson on 0131 440 5000 or go to www.springfords.com.