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|Strategies for Delaying Income to 2013/14 and Saving Tax|
Mark Speed of Ward Williams Accountants has useful planning tips for people wanting to defer and possibly to reduce their tax bill.
From 6 April 2013 the Additional Rate of Income Tax will fall from 50% to 45% (42.5% to 37.5% for dividend income). It will therefore be advantageous for higher earners to delay the receipt of income until after this date, effectively saving 5% on any income successfully deferred.
The additional rates apply to income in excess of £150,000. Additional Rate taxpayers are not entitled to a Personal Allowance as, at this level of income, it has been tapered away to nil.
The following strategies could be used to reduce an individual's income, ideally to an amount of less than £150,000 in 2012/13, to ensure income is not taxed at the Additional Rate(s) unnecessarily.
Posponing and Saving Tax: Owner-Manager of a Limited Company
The most effective strategy may be to:
From a cash flow point of view, delaying dividend payments may also mean that the individual's Self Assessment payments on account can be reduced for 2012/13 and, as a consequence of the lower level of income in 2012/13, the payments on account will automatically be lower in 2013/14.
Postponing and Saving Tax: Self-Employed or in Partnership
Strategies for delaying income for those who are self-employed or in partnership are less obvious and will depend on the specific circumstances, but some ideas include:
Postponing and Saving Tax: Employees
Assuming income-producing assets have been transferred to a spouse/civil partner where appropriate; there is usually little an employee can do to influence his remuneration package unless he is also the owner of the business.
Unless the employee can persuade the employer to incorporate benefits free from Income Tax and National Insurance into his remuneration package, the most likely option is to increase his Basic Rate and Higher Rate tax bands by making pension contributions (via Additional Voluntary Contributions (AVCs)) or donations to charity under Gift Aid.
However, for employees who are able influence their remuneration packages, it may be possible to:
There are potential traps with some of the above ideas, for example, the potential for HMRC to reclassify dividends as employment income, and with pension contributions you must also take care to avoid an Annual Allowance Charge. You should therefore seek advice before any action is taken.
About The Author
Ward Williams was founded in 1992 by two of the current partners and now employs 60 staff across its 4 offices.
Ward Williams is a leading provider of quality business support and personal financial services to its chosen clients. They differentiate themselves through the range of services they provide. Their client-focused services are delivered through three divisions: Chartered Accountants, Financial Services and HR Consultants, all working together from four locations in Weybridge, Uxbridge, Sunninghill and Bracknell.
Their business clients are entrepreneurial businesses operating in the UK and overseas in a wide range of sectors, covering marketing services, professional services, technology and innovation, defence, property and construction, distribution and manufacturing. They assist their business clients in maximising profitability, mitigating future tax costs and ultimately helping them drive forward and enhance their growth strategies.
They are committed to helping their personal clients, many of whom are the entrepreneurs behind their business clients, achieve their financial objectives by providing an all-round financial solution to help create, build and preserve their financial wealth and security for now and for the generations to come.
Article Added Saturday, 09 June 2012 | 918 Hits