Important Changes to the Tax System which may affect you or your business
You maybe aware that new Government has made significant changes to the tax system since coming in.
Some of these changes took immediate effect after the emergency budget on 22nd June 2010 and more changes are set to come in at the next budget proposed to be on 23rd March 2011.
We have put together a list below of the changes which we believe you should be aware of so you can make any necessary changes or planning.
1. Personal Allowance:
The income tax free earnings allowance will increase from £6,475.00 to £7,475.00 for individuals on the 6th April 2011.
The National Insurance Primary Threshold will increase from £5,715.00 to £7,225.00 for individuals on the 6th April 2011.
All Directors of Limited Companies who currently pay themselves £5,715.00 per year should increase their salary to £7,225.00 per year from the 6th April 2011.
2. Tax Bands:
The basic rate income tax band will fall from £37,400.00 to £35,000.00 for individuals on the 6th April 2011.
All Directors of Limited Companies who currently pay themselves the maximum dividend before they incur personal tax should be aware that the total tax free dividends you will now be able to withdraw for the 2011/2012 tax year is £31,725.00 (this figure is assuming the director has no other personal income, please speak to us for advice if you do).
2. National Insurance:
The following NI increases are proposed from 6th April 2011
|Employed Rates||Employee (Class 1)||Employer (Class 1)|
|Earnings per week||Up to 05/04/2011||From 06/04/2011||Up to 05/04/2011||From 06/04/2011|
|Below primary threshold/secondary threshold||Nil||Nil||Nil||Nil|
|Above primary threshold/secondary threshold*||11%||12%||12.8%||13.8%|
|Above upper earnings limit||1%||2%||12.8%||12.8%|
|Self-Employed Rates||Class 2 (per week)||Class 4|
|Profits per year||Up to 05/04/2011||From 06/04/2011||Up to 05/04/2011||From 06/04/2011|
|Below small earnings exception||Nil||Nil||Nil||Nil|
|Small earnings exception to lower profits limit||£2.40||Not available||Nil||Nil|
|Lower profits limit to upper profits limit||£2.40||Not available||8%||9%|
|Above upper limit||£2.40||Not available||1%||2%|
- If you intend on paying any bonuses/commissions to staff do so before the 6th April 2011 so that you pay less NI contributions on them.
- If you are self employed and your accounting period ends before 6th April 2011 it may be beneficial if you have more profit in this tax year rather than future tax years as you will pay less in NI contributions.
3. Capital Gains Tax:
From the 23rd June 2010 the rate for CGT increased from 18% to 28% for higher rate tax payers.
This means that for individuals, their CGT remains at 18% if their total taxable income plus capital gains, after taking into account all allowable deductions including losses, personal allowances and the CGT exemption are less than the current upper limit of the income tax basic band i.e. £37,400.00.
- The new higher rate of CGT only applies to gains made after the 23rd June 2010. The old CGT rate of 18% still applies to gains made in the period 06th April 2010 to 22nd June 2010.
4. Corporation Tax (Limited Companies Only):
From the 1st April 2011 the small companies’ rate of corporation tax will fall from 21% to 20%
- If your Limited Company year end falls before 1st April 2011 it may be beneficial for your company to make less profit in that year rather than subsequent ones which will be taxed at the lower rate.
5. Pension Contributions:
From the 6th April 2011 the annual allowance for tax relief on pension contributions will be greatly reduced from £255,000.00 to £50,000.00.
- Clients who use pension contributions to mitigate tax liabilities should consider carefully how much they can afford to contribute before the 6th April 2011 to make sure they utilise the £255,000.00 allowance before it’s reduced.