For most, the Chancellor’s 2010 Budget had little or no substance, with the focus on a forthcoming election as opposed to addressing the state of the economy. The danger is that businesses think, or lull, themselves into a false sense of security that nothing has changed and there is nothing they need to act on.
While the Budget itself may not have presented the need for specific action, it served to highlight the underlying trend for hikes in tax rates which, without careful consideration to their impact, will be hard-hitting for businesses owners and individuals alike.
Looking to the year ahead our post-Budget presentations highlighted a number of approaches and steps to assist in minimising future tax liabilities, safeguarding wealth and achieving both personal and corporate aspirations.
Income equalisation
The beginning of the month saw the introduction of the 50% tax rate for those with incomes of over £150,000 and a rate of 60% for income between £100,000 and £113,000.
To alleviate some of the tax burden it might pay to consider moving income from a high earning spouse to a spouse with lower income.
Going limited
For sole traders or those businesses that trade and operate as a partnership, it might be time to look at incorporating the business and forming a limited liability company. Generally, a limited company will be more tax efficient than an unincorporated business.
A time to invest in the business
The Chancellor did make a welcome announcement with an increase in the annual investment allowance from £50,000 per annum to £100,000 per annum. This means that businesses can now spend double the amount in capital expenditure, qualifying for an immediate 100% deduction against taxable profits for the forthcoming year.
Review your remuneration policy
For those businesses owners, directors and managers who are facing higher tax rates and have not reviewed their approach to remuneration it must now be time to do so.
Effective remuneration planning which can include use of dividend payments to replace salary and even the use of employee share schemes, help to optimise earnings. Also, the use of Employee Benefit Trusts can and do provide a tax effective way of rewarding key directors and personnel.
Creating wealth and protecting wealth tax efficiently
Seemingly it is increasingly challenging to attain good returns on investments. However there are a number of tax efficient investments worthy of consideration including Enterprise Investment Schemes, Venture Capital Trusts and Individual Savings Accounts, in addition the use of pensions should not be overlooked despite recently introduced restrictions.
Looking to the next generation too, with no announced increase in the IHT threshold, it is now as important as ever to look at tax efficient protection and transfer of assets from one generation to the next.
Keeping your house in order
With the onslaught of new penalties for late, wrong and fraudulent tax returns, it has never been as important to ensure your tax affairs are handled in a timely and efficient manner.
The vogue must be to ensure you are working with your accountants and tax advisers to ensure not only that you are compliant with current legislation but you are also taking advantage of the easily overlooked opportunities to create and protect wealth tax efficiently.
James Pinchbeck is a Marketing Partner with Streets Chartered Accountants, a top 40 UK accountancy firm. Telephone 0845 8800320 or email info@streetsweb.co.uk or visit www.streetsweb.co.uk
