This month’s newsletter contains tax planning tips for high income earners, extracts from the published clauses for the Finance Bill 2013, a further reminder of the PAYE reporting changes from 6 April 2013 and notice of new tax clampdowns by HMRC.
Tax planning for high income earners 2012-13
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.
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.
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.
Finance Bill 2013 draft clauses published
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.
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.
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.
Further reminder of payroll changes April 2013
Last month’s newsletter included details of the major change in reporting of PAYE information to HMRC from April 2013.
The new process is to be known as Real Time Information (RTI) reporting. From 6 April 2013 you will be required to 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.
If you are still unsure how to proceed please contact us as a matter of some urgency. This is not a voluntary change. HMRC have disclosed that they will go easy on employers who are late filing their required online returns for a period of time. Ultimately you will need to comply and we can help.
Self Assessment crack down in South East
HMRC issued a press release 12 February 2013 advising “tax cheats” in London and the South East that they will be targeted by a new taskforce.
The taskforce will put the spotlight on people abusing the Self Assessment system fraudulently to claim back money they are not entitled to. It is expected to recover £6 million and prevent future fraudulent repayments being claimed.
David Gauke, the Exchequer Secretary to the Treasury, said:
“This taskforce is targeting people who are not playing by the rules. Most of us pay what we should. We have made it clear that we will not tolerate tax evasion and will crack down on those who break the rules.
HMRC is on track to collect more than £50 million as a result of taskforces launched in 2011-12. We expect over £90 million from this year’s taskforces.”
HMRC’s Jennie Granger, Director General Enforcement and Compliance, said:
“Most people and businesses voluntarily comply, so it is important we deal firmly with those who don’t.
Up to 400 people will be targeted by this taskforce. The message is clear – if you choose to defraud the tax system or seek to evade tax, we can and will track you down. You will face not only a heavy fine, but possibly a criminal prosecution as well.”
Taskforces tackling tax evasion in Northern Ireland, the jewellery trade in the Midlands and fast food outlets in East Anglia were also launched on the same day.
Taskforces are specialist teams that undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK. The teams may visit traders to examine their records and carry out other investigations.
Tax Diary March/April 2013