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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.The imminent end of another tax year turns the practitioner’s attention to pre-year end tax planning.

Some points that are relevant to forthcoming dates are highlighted below.

31 March 2003

Small businesses that are considering whether to take advantage of 100% first year capital allowances on information and communications technology have until 31 March 2003 to purchase their computers or other qualifying equipment (CAA 2001, s 45).

5 April 2003

Consideration should be given as to whether a particular action takes place before or after 5 April 2003.

For example, by paying a dividend to fall within 2002/03, family companies may help to utilise the shareholder’s basic rate tax band, reliefs (e.g. enterprise investment scheme or venture capital trust relief) or losses. On the other hand, delaying the dividend until 6 April or beyond may assist the shareholders’ cashflow in terms of delaying the payment of higher rate tax liabilities on that or other income.

Other considerations

Other tax planning considerations include the following:

• The final date for disposal of a business or shares qualifying for retirement relief is 5 April 2003. Retirement relief is abolished after that date, although taper relief may compensate for capital gains tax purposes;

• Bonuses to directors and employees after 5 April 2003 are potentially subject to higher rates of National Insurance contributions (NIC) for 2003/04. Accelerating bonuses to fall into 2002/03 could therefore achieve NIC savings in appropriate circumstances;

• Personal allowances not used by 5 April 2003 are lost. This will lead many business owners to consider paying a salary or bonus to the spouse, although any such payments must be a justifiable for the duties performed;

• The annual capital gains tax exemption (£7,700 for 2002/03) must normally be used by the end of the tax year. Taxpayers have until 5 April 2003 to realise sufficient gains to utilise the exemption for the current tax year;

• Pension contributions and charitable donations must be paid by 5 April 2003, to obtain tax relief in the 2002/03 year. However, personal pension contributions that are paid between 6 April 2003 and 31 January 2004 can be treated as paid in 2002/03 by election (ICTA 1988, s 641A). In addition, for gift aid donations from 6 April 2003, the donor may elect to carry back the relief to the previous year, if certain conditions are satisfied (FA 2002, s 98).

In many cases, maximum tax relief entitlement is available by reference to fiscal years. For example, the maximum annual investment in an Individual Savings Account is £7,000. In addition, tax relief for personal pension contributions is subject to an upper ‘earnings cap’ (i.e. £97,200 for 2002/03). Unused relief cannot be carried forward, and pre-year end tax planning may involve ensuring that these entitlements are used if possible.

Claims and elections

In most cases under self-assessment, the statutory time limit for making claims and elections is 31 January rather then 5 April, such as elections to carry back personal pension contributions to the previous year. However, certain claims and elections must be made by 5 April 2003, and some are made by reference to the date of a particular event.

Some examples follow:

• For couples still entitled to married couples allowance (MCA) (i.e. if one or both individuals was born before 6 April 1935), elections are still made by reference to 5 April (e.g. an election by 5 April 2003 for the wife to receive one-half of the MCA for 2003/04, or by the spouses jointly for the wife to receive the full MCA) (ICTA 1988, s 257BA);

• Capital gains tax rollover relief can be claimed if qualifying replacement assets are acquired in the period 12 months before and 3 years after the disposal of the original asset, or possibly longer if the Revenue allows (TCGA 1992, s 152(3)).

• If husband and wife are not beneficially entitled to income from jointly held property in equal shares, they may make a declaration of their beneficial interests, so that they are no longer treated (and taxed) as beneficially entitled to the income in equal shares. Notice of a declaration must be given to the Inland Revenue (on form 17) within 60 days from the date of the declaration, (ICTA 1988, s 282B).