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Busy Practitioner by Mark McLaughlin ATII TEP

This article outlines some key deadlines and practice points for accountants and tax practitioners.

Self-Assessment

From this year, there are now two additional self-assessment deadlines to remember, these are 29 December and 30 December respectively. They relate to the automatic collection of tax underpayments of less than £2,000 by restriction of an employee’s PAYE code for a later tax year, and apply to the electronic submission of self-assessment returns. The Inland Revenue can automatically collect 2001/02 self-assessment underpayments of this nature through coding restrictions in 2003/04. The normal filing deadline of 30 September following the tax year for collecting tax underpayments of less than £2,000 continues to apply to the filing of paper returns. However, the filing deadline is extended to 29 December for returns sent using the Electronic Lodgement Service (ELS), and 30 December for returns sent over the internet. These extended dates apply to 2001/02 and later years.

Practice Points

There are two practice points regarding personal pension contributions which are worth noting at this time:

• Personal pension contributions paid between 6 April 2002 and 31 January 2003 can be carried back to the 2001/02 tax year. However, an irrevocable election to carry back the whole or part of a contribution must be made on or before the time of payment (ICTA 1988, s 641A). Any personal pension planning exercise of this nature on behalf of clients should therefore be undertaken between now and 31 January 2003.

• A taxpayer’s earnings can form the basis for the maximum level of personal pension contributions in the same and following five tax years, subject to an upper earnings ‘cap’ (ICTA 1988, s 646B). However, from 6 April 2003 the rate of National Insurance contributions (NICs) for employees is set to increase to 11% from 10%, with earnings in excess of the upper limit subject to an additional 1% charge. The rate of employers’ NICs also increases to 12.8% from 11.8%. For certain company director/shareholders wishing to maximise their personal pension contributions, it may therefore be worthwhile using 2002/03 as the basis year for contributions and receiving an appropriately high level of remuneration by 5 April 2003 while the current lower NIC rates apply. In the subsequent 5 years, those individuals could possibly extract the greater proportion of their income from the company by way of dividends (which are not earnings for pension purposes), if circumstances allow.

Finally, a reminder that retirement relief for capital gains tax purposes ceases to be available after 5 April 2003, and time is therefore running out to claim the relief. Sole traders or partners not contemplating a business disposal before that date but who would otherwise satisfy the relief conditions could consider incorporating the business as a way of triggering gains on a disposal against which retirement relief could be claimed.

Shareholders of existing trading companies could consider transferring their shares to a life interest settlement for themselves to achieve a similar purpose. However, care and consideration is required in every case.