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.

Please call if you would like to discuss any of these ideas in more detail.

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Employers should make sure that they are ready for the switch to the Real Time Information (RTI) from April 2013. Most employers will be affected from April 2013 and all employers by October 2013.

Essentially, RTI requires that you submit payroll data on or before the date that salaries and wages are paid to employees rather than wait until the end of the tax year to submit a P35 and associated returns.

This is the first major change to the PAYE system since 1944.

According to HMRC employers should take action on the following three steps:

1. Visit HMRC website for comprehensive information about RTI, including how to prepare, payroll software options and hints and tips to help avoid some common pitfalls.
2. Acquire new or updated payroll software – employers will need to talk to their payroll software provider or their payroll service-provider (if they have one) about this.
3. Start checking and updating employee information. It’s vital that the information employers have about their employees is accurate and up to date.

These generalised comments hide a multitude of tasks that must be completed before 6 April 2013 when RTI commences for smaller businesses. If we provide a payroll service for your business all of these transitional tasks will be sorted for you, if you still prepare your own payroll and need help with the transfer to RTI please call. Less than two months to go…

It has been proposed that from 2017 a new flat-rate state pension will be paid – worth in today’s money £144 a week.

Details will no doubt change over time but some of the information available so far is listed below:

• As stated above the starting rate April 2017 will be £144 per week, £7,488 annually, based on current value of money. This will likely rise to approximately £160 per week when changes in the value of money are taken into account.
• This is good news for self-employed retiring April 2017 as currently they are only entitled to the basic state pension of £107.45 per week. We will have to wait and see if self-employed National Insurance contributions, Class 2 and 4, will increase to compensate.
• Contracting out and the present second state pension will be abolished and this will increase National Insurance costs for those employers with contracted out employees.
• The minimum number of years that you need to make National Insurance contributions is increasing from the present thirty years to thirty five years.
• Government is also reintroducing a minimum qualification period. Persons with less than ten years of NI contributions will not get a state pension.
• Persons retiring before April 2017 will continue to receive benefits previously paid. If this is less than the flat rate they will lose out, if more the higher amount will continue to be paid.

A 65 year old would need a pension pot of over £200,000 to generate a weekly pension of £144 so the new flat rate scheme is not ungenerous. However, there will be winners and losers.

There are a number of tax allowances that can be claimed if certain conditions apply, in some cases these can be transferred to your spouse or civil partner if you are unable to utilise the additional tax relief.

1. Increased personal allowance from age 65.
You will be eligible to apply for an additional personal tax allowance in the tax year in which you reach your 65th birthday. Whether you are successful in your claim will depend on your total income in that tax year. Currently the under 65 allowance is £8,105, if you are between 65 and 74 the increased allowance is £10,500 and 75 or over £10,660. The additional element will be reduced if your income exceeds £25,400. From 6 April 2013, increased allowances will be restricted to those born before 6 April 1948.

2. Married couple’s allowance.
This allowance is available if at least one spouse, or civil partner, was born before 6 April 1935. The allowance is made as a deduction from your tax bill so if you pay no tax it is of no value. However if your income is not high enough to absorb the additional tax relief you can transfer any balance to your spouse or civil partner. For the tax year 2012-13 the minimum benefit from this allowance will be £296 and the maximum, depending on the level of your income, £770.50.

3. Maintenance payments relief.
It is still possible to claim to reduce your tax bill for maintenance payments you make to your ex-spouse or former civil partner. The conditions are:
• You or your former spouse or civil partner was born before 6 April 1935.
• You’re separated or divorced or the civil partnership has dissolved and you’re making the payments under a court order.
• The payments are for the maintenance of your ex-spouse or former civil partner (as long as they haven’t remarried or formed a new civil partnership) or for your children who are under 21.
The amount of tax relief is the lesser of 10% of the qualifying payments or 10% of the basic married couples allowance. If you receive maintenance payments you will not pay tax on the amount received.

4. Blind person’s allowance.
Blind Person’s Allowance is added to your tax-free Personal Allowance. For 2012-13 the allowance is £2,100. There are no age related or income restrictions. You can claim it if either of the following applies:
• You’re certified blind and are on a local authority register of blind persons.
• You live in Scotland or Northern Ireland and are unable to perform any work for which eyesight is essential.
If you’re married or in a civil partnership and you don’t pay enough tax to use all the allowance, you can transfer any unused allowance to your husband, wife or civil partner. You can do this regardless of the state of their eyesight.

Businesses that have failed to submit their VAT returns by the due date will be targeted by HMRC this month. An estimated 50,000 businesses may be affected by this latest campaign by HMRC. Registered traders who have outstanding returns to file may find that their tax affairs will be closely scrutinised and without prior warning.
According to HMRC more than 600,000 businesses have to file VAT returns each month and most do so on time. From 28 February, the 50,000 who have not filed on time may find their tax affairs attracting greater attention.

The VAT Outstanding Returns campaign is aimed at businesses that have one or more VAT return outstanding and that have been told to submit their returns but have not done so. Some will have received an assessment of VAT for these periods. These businesses are being given an opportunity to get up to date and pay the tax they owe by 28 February. After this date HMRC will target them and take a much closer look at their tax affairs. If traders do come forward voluntarily they may receive better terms – lower penalties.

Although we are now at the beginning of a new calendar year we are in the last quarter of the current tax year.

Whether you are a business person, property landlord or pay significant amounts of tax as an employed or retired person there is now a short window of opportunity to examine your likely earnings for the 2012-13 tax year, and more importantly, see what can be done to minimise those liabilities.

It is impossible to outline all of the possible tax planning issues that could be of benefit. We have listed below a few and would request that you give us a call to discuss your individual circumstances.

* Have you maximised your ISA investments this year?
* Have you maximised your pension contributions?
* If possible have you utilised your Capital Gains Tax personal exemption? Currently £10,600 2012-13.
* If your employer still pays for the private fuel used in your company car, you can effectively avoid the car fuel benefit charge if you repay your employer for the private fuel before the end of the tax year. It may be worth crunching the numbers as the tax benefit in kind is expensive and the private fuel refund may be less.
* For Inheritance Tax purposes each person can give £250 a year to any number of recipients, as well as £3,000 annually over and above that amount. They can also make regular gifts out of their income (not capital) that should fall to be exempt.
* If you are married or in a Civil Partnership and one partner/spouse has a much lower level of earned income, consider transferring income producing assets to the lower income earner. With Income Tax rates at a maximum 50% this current tax year, savings could be significant.
* If you are in business would it be prudent to bring forward capital expenditure so that you can take advantage of the increase in the Annual Investment Allowance from 1 January 2013 – see article that follows.
* If your income is likely to exceed £100,000 this tax year have you considered the potential reduction or loss of your personal tax allowance?
* If you are a high income earner paying tax at the 50% additional rate, could you defer taking bonuses or dividends until after 5 April 2013 when the additional rate reduces to 45%?
* Is it likely you will have business tax losses for 2012-13?

As indicated above every person’s circumstances are different and the above list is by no means exhaustive. Please call if you would like to organise a review of your tax planning opportunities for 2012-13.

One of the surprise announcements in the Autumn Statement 2012 was the decision to increase the Annual Investment Allowance (AIA) from 1 January 2013 to £250,000. The increase will apply for two years.

Obviously, this is an attempt to focus the minds of entrepreneurs on investment. For profitable, self-employed traders this could be a useful tax planning tool providing a means to drastically reduce higher rate tax payments. Indeed all businesses should consider this change as an opportunity to bring forward the tax relief on qualifying equipment purchases.

There may be an opportunity to quite legitimately create tax losses if the AIA claimed exceeds taxable trading profits for the year. If the losses can be carried back, perhaps tax paid in earlier years can be reclaimed… However, beware if your accounting period falls in the tax year 2013/14 or later, as loss relief may then be restricted by the new cap (see below).

We would advise business owners to consider a rounded approach to investment decisions as it would be imprudent for the “tax tail” to unduly influence other commercial considerations. For example, how would the capital expenditure be funded without depleting working capital?

Please contact us if you would like to discuss how your business would best make use of this new opportunity.

A new Universal Credit (UC) benefits system will be introduced in the UK this year:

– The Greater Manchester and Cheshire regions from April 2013,
– All new claimants from October 2013,
– All existing claimants will be transferred to the new system on a phased approach to be completed in 2017.

Universal Credit will be paid into a claimant’s designated bank account on a monthly basis. Claimants will manage their claims online and will be required to disclose any monthly earnings.

But what if you are self-employed?

It is common for new businesses to be run on a loss making basis in the early years and many businesses are badly affected by the current downturn in economic activity. The Department of Work and Pensions (DWP), who are responsible for managing UC, will apparently require claimants to declare their current earnings, online, each month. The self-employed will need to report the number of hours they work in their business and this will be valued at the National Minimum Wage (NMW) rate. If the actual profits of their business are higher, the higher amount will need to be declared.

Hopefully, the DWP will reconsider these monthly reporting obligations for the self-employed, for two reasons:

1. Setting a minimum income for the self-employed (hours times the NMW) means that benefits may be reduced even though actual earnings may be lower, and
2. How many small businesses are going to be able to cope with the need to produce monthly accounts?

It will be interesting to see how the final regulations are drafted…

Draft clauses recently published for the Finance Bill 2013 outline the way in which the Government proposes to limit the amount of tax relief an individual can claim. Capped reliefs will be limited to the greater of £50,000 or 25% of net taxable income – this is income less pension payments and charitable donations. The cap will commence 6 April 2013 and will include claims to carry back losses from 2013-14 to 2012-13.

Readers may remember that it was originally intended to include charitable donations in the capped reliefs but after successful lobbying by charities this proposal was dropped. We are pleased to report that two further reliefs will be excluded from the cap. These are:

1. Certain trade loss reliefs that are created by a claim for overlap relief – these losses generally occur when a self-employed trader changes their accounting year end date or ceases trading.
2. Losses incurred on shares that qualify as Enterprise Investment or Seed Enterprise Investment Schemes.