Archives for March 2013

The main tax announcements for the 2013-14 tax year, as announced 5 December 2012, have now been published as draft clauses for the forthcoming Finance Bill 2013.

GAAR
The new acronym stands for General Anti-Abuse Rule. It will give HMRC powers to stop companies and tax payers taking advantage of complex tax arrangements in order to save tax.  The new powers will affect all tax arrangements entered into from the date the Finance Bill 2013 receives Royal Assent.

Statutory residence test
A new statutory residence test will come into force from 6 April 2013. For the first time this will place the determination of an individual’s tax residence on a statutory basis. The legislation will also provide for a tax year to be split into a UK part and an overseas part in certain circumstances and new rules for the taxation of particular income and gains arising during a period of temporary non-residence.

Higher rate threshold
As announced in the Autumn Statement 2012, the higher rate threshold for Income Tax will be increased by 1%: for 2014-15 to £41,865 and for 2015-16 to £42,285. This threshold is the amount at which an individual pays tax at the higher rate, presently 40%.

Capital Gains Tax annual exemption
As for the higher rate threshold the Capital Gains Tax annual exemption is also being raised by 1%: for 2014-15 to £11,000 and for 2015-16 to £11,100. This threshold determines the maximum gains that an individual can accrue in each tax year without paying Capital Gains Tax.

Fuel duty
Secondary legislation will be introduced to confirm the cancellation of the fuel duty rate increase due to have been made January 2013.

Employer supported childcare
Secondary legislation is also being introduced to increase the tax exempt amount for employer supported childcare. This includes childcare vouchers or directly contracted childcare. The tax exempt amount will be increased from £22 to £25 per week for additional rate tax payers who joined such a scheme on or after 5 April 2011. This will ensure that the value of tax relief available for employer supported childcare continues to be aligned to the value received by basic rate tax payers.

High income earners have until 5 April 2013 to review their tax position for 2012-13. In most cases action will need to be taken prior to this date.

Deferring income
If you normally receive bonuses this month or a dividend from your company you should estimate your earnings for the next tax year, 2013-14, and if next year’s earnings are likely to be lower than the current year’s earnings consider deferring the voting of a dividend or bonus until after 5 April 2013. In this way you can defer any liability on dividends and possibly reduce your overall tax bill. If you are currently paying tax at the 50% rate then deferring income to 2013-14 makes sense as the 50% rate reduces to 45%.

Gift Aid Payments
Any Gift Aid payments you make in 2012-13 will effectively increase the amount of income you can earn at basic rate. For a higher rate tax payer (especially those with earnings between £100,000 to £116,210) this can significantly reduce the net cash cost of your donation. This strategy is particularly useful as the deadline for making gift aid payments for 2012-13 is the date you file your 2013 Self Assessment tax return – this is because such gift aid payments can be ‘carried back’ a year.

Furnished Holiday Let Property
If part of your income for 2012-13 arises from the letting of furnished holiday let property, it may be possible to reduce or eliminate this income by taking advantage of the Annual Investment Allowance. This type of property letting is considered to be a trade, so qualifying expenditure on refitting or refurbishing your property could be brought forward to this month and used to eliminate higher rate tax.

Pension payments
Have you maximised the amount you can pay into qualifying pension schemes this year? Although basic rate tax relief is generally deducted before you pay your contributions you can claim for the higher rate tax element on your tax return. Talk to your pension advisor about a possible top up.

Hopefully you will already have given serious consideration to these and other ideas to minimise your tax position for the current tax year. You still have a few weeks to fine tune your planning. As soon as midnight passes on 5 April 2013 these options, apart from the gift aid strategy, will cease to be effective. The clock is ticking.