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Summary of points from 2009 budget affecting gps tax

April 2009

Income Tax

  • From 6th April 2010 taxable income above £150,000 will be liable to a new rate of income tax of 50%
  • From 6th April 2010, personal allowance will be restricted by £1 for ever £2 of income above £100,000. Individuals with net income of £112,950 will have no personal allowance resulting in additional tax of £2,590.
  • Individuals earning over £150,000 will pay 35% income tax on net dividends received.

Tax Relief on Pension Contributions

  • From 6th April 2011 an individual whose taxable income is £150,000 or more and change their normal pattern of pension contributions will receive reduced tax relief on pension contributions. Tax relief will be tapered down as income increases until the relief reaches 20% at income of £180,000.
  • Any contributions made on or before 22nd April 2009 are not affected.
  • A special annual allowance charge is being introduced from 22nd April 2009 to prevent individuals increasing their pension contributions to reduce their taxable income before 6th April 2011.
  • These restrictions will apply to individuals with taxable income over £150,000 and pay pension contributions over £20,000 who changes their normal pattern of regular contributions.

National Insurance

  • From 6th April 2009 upper profits limit for class 4 increasing from £40,040 to £43,875 which means an increase in profits liable to class 4 NI of £3,555, costing an additional £284.40.
  • From 6th April 2011, national insurance will be increasing by 0.5%, new rates:-
    • Self employed (Class 4) - 8.5%, and 1.5% (previously 8% & 1%)
    • Employee’s (Class 1) – 11.5% and 1.5% (previously 11% & 1%)
    • Employer’s (Class 1) – 13.3% (previously 12.8%)

Capital Allowances

  • The capital allowances rate will be doubled from 20% to 40%, this will only apply to additions in year. However since April 2008 practices have been able to claim 100% capital allowances on fixture, fittings and equipment up to £50,000.
  • From April 2009 special rules for cars costing over £12,000 abolished, capital allowances on motor cars will be dependant on the car’s CO2 emissions.
    • Expenditure on cars with CO2 emissions less than 110g/km – 100% first year allowances
    • Expenditure on cars with CO2 emissions between 100g/km and 160g/km – 20% capital allowances
    • Expenditure on cars with CO2 emissions over 160g/km – 10% capital allowances

Furnished Holiday Lettings

  • From 6th April 2010, losses on furnished holiday lettings will no longer be offset against other income as it will not be considered a trading loss. Therefore losses will be carried forward against future profits.

Investment in ISA

  • From 6th October 2009 ISA limit will increase from £7,200 to £10,200 for investors aged 50 and over. Up to £5,100 of this can be saved in cash. The new limits will apply for everyone from April 2010.

Late Filing Penalties – Self Assessment & PAYE

  • For the first time practices who are late in making monthly PAYE and NIC payments will incur late payment penalties. The first time the employer defaults there will not be a penalty, the second time will attract a penalty of 2% of unpaid tax rising to 5% of unpaid tax.
  • £100 late filing penalty for tax returns will be automatically issued regardless of whether the tax was paid by the deadline. Daily £10 penalties for returns more than three months late.

TAX PLANNING

Setting up Limited Company for Private Income

  • A limited company with profits up to £300,000 pays corporation tax at 21%, this will increase to 22% from April 2010.
  • Most tax efficient way to extract income from company is by way of dividends. However a higher rate tax payer at 50% will pay the higher rate of tax on dividends taken. Therefore the effective rate of tax on this income will remain at 50%.
  • There is however no NI on dividends.
  • A company could be beneficial if you did not need to withdraw all the income. The income could be left in the company until your taxable income fell below £150,000 or when the company is wound up the income could be taken as payment for shares and would be taxable as a capital gain at 18%.

Introducing spouses as partners

  • Spouses could be made partners and be allocated a share of profits to reduce taxable income below £150,000.
  • Spouse would need to work for the practice in order to justify their share of income.
  • If reducing profits, this will reduce pensionable profits and effect NHS pension.
  • This may jeopardise membership of the NHS pension scheme.
  • The budget did propose the introduction of new legislation to attack transfers of income streams.

Increasing business loan interest for tax relief

  • If you have equity in practice premises then could do a mortgage switch to convert a home mortgage to a business loan so that the interest qualifies for tax relief.
  • If repaying capital on practice mortgage, could consider switching to interest only so higher interest payments which will reduce taxable income.

Investing in Equipment, Fixture and Fittings

  • Expenditure on equipment, fixture and fittings qualifies for 100% capital allowances up to £50,000. This means the full cost will be offset against income reducing your taxable income.

Interest and Dividend Income

  • If taxable income is over £150,000, interest earned on bank accounts will be taxed at 50% and net dividend income taxed at 35%, consider transferring into spouse’s name if their earnings below £150,000.

Rental Income from properties

  • The fall in interest rates means individuals could make a profit on income from investment properties. If properties in joint names, income normally allocated equally, however could apply to have income allocated in different proportions so lower rate taxpayer has larger share of income.

Earning Less!

  • When considering new services, it needs to borne in mind that if taxable income is over £150,000, will pay tax at 50%, national insurance at 1.5% and if NHS income a further 11.25% (net of tax) in superannuation, leaving 37.25% of additional income to take home! If paying maximum added years would only take home 32.75% of new income.

Investments to reduce tax liability

  • Venture Capital Trusts (VCTs). These are investments in unquoted and AIM listed firms and attract tax relief of 30% on investments up to £200,000 p.a.
  • Enterprise Investments Schemes (EIS) These are investments in smaller unquoted firms and give tax relief of 20% on up to £500,000 of investments. Gains are tax free and these investments are excluded from your estate for inheritance tax.
  • Investment in film partnerships qualify for tax relief in the first year meaning a higher rate tax payer could get 50p back for every £1 invested from 2010.
  • Enterprise Zone Trust

Investments that attract tax relief are risky and you should seek advise from independent financial advisors.