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 Mike Harrison - Saffery Champness The forthcoming new tax year will be different from previous years and marks ‘the end of an era’, say top 20 accountancy firm Saffery Champness. “As announced last year, the tax regime from the 5th April 2010 onwards will be different. And in the light of certain, and possible changes, rural business owners should be considering a number of actions to avoid higher rates of tax”, says Mike Harrison, Partner in the Manchester office of Saffery Champness“.
Importantly, rural business owners may well find that part of their income will, post 5 April, be subject to the new 50 per cent income tax rate. However, there are several ways to restructure a business to compensate for possible tax increases, which Mike Harrison summarises as follows:- • Short term planning – this can advance income into this tax year and defer expenditure into the next tax year. • Tax planning with a longer term benefit – by restructuring ownership of a businesses or the income producing assets, by:- - Bringing other family members into the business as partners or employees. While care is needed to ensure salaries are commercially justified this can reduce the overall tax burden, although the cost of national Insurance needs to be taken into account. - Transferring assets to non-earning or lower taxed spouse will reduce potential tax liabilities - Transferring business assets, including property, to family trust or the next generation as part of an overall IHT planning strategy • Consider incorporating the business activity. • Consider restructuring the business assets to produce gains that are taxable under a CGT code that is currently 18 per cent, rather than a possible maximum income tax rate of 50 per cent. However care is need as rates are expected to increase and both spouses should remember to claim their annual exemptions. • Watch for pitfalls on structure changes such as VAT, CGT or IHT. All or some of these will need to be considered and business owners should take appropriate professional advice before making changes.
For many rural businesses the current CGT rate of 18 per cent is regarded as being quite generous when compared to the new increase in the top rate of income tax to 50 per cent. However, as Mike Harrison comments: “Surprisingly there was no mention of Capital Gains Tax in Alistair Darling’s December 2009 Pre Budget Report. Many commentators were expecting the Chancellor to announce either an increase in the Capital Gains Tax rate or the introduction of anti avoidance legislation to prevent tax payers effectively converting income into capital gains”.
“An announcement of a change from April 2010 might have increased the number of transactions undertaken before April to take advantage of the 18% rate and hence increased the Treasury’s tax take and help in some small way to reduce the Government debt. “With such a large variance between Income and Capital Gain Tax rates it must remain a very strong possibility that the Capital Gains Tax rate will be increased in one of this year’s Budgets, the first of which is expected later this month” Mike Harrison warns.. |
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