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Higher earners urged to keep tax actions legal
Ahead of statutory tax increases, high earners reviewing their income levels for the coming tax years should ensure their proposed actions are workable and legal warns Norfolk accountants Mapus-Smith & Lemmon.
There is a sense of urgency amongst high earners to lessen the impact because, whatever the outcome of the election, the top rate of tax for those with annual incomes over £150,000 after 5th April 2010 will become 50% rather than 40%.
At the same time, for those with incomes over £100,000 a year, the personal allowance will be restricted. The effect of this will be a marginal rate of income tax of 60% in the band of approximately £100,000-£113,000 within which the allowance is being withdrawn.
“Understandably people are racing ahead with their tax planning but there are numerous legal pitfalls to watch out for” said Paul Farrow of Mapus-Smith & Lemmon. “Some of the legal ways to keep income beneath the critical thresholds include paying a bonus before 5th April 2010. Another is to pay a special dividend from limited companies or to bring forward capital expenditure plans to make full use of the £50,000 annual investment allowance. Many options exist and professional advice is essential because the legislation is complex regarding what is and what is not, a legitimate business expense.
“Interestingly, the knock on effect of high earners bringing their income forward could create a favourable cashflow for HM Revenue and Customs as the tax becomes payable one year earlier. As long as the benefit to high earners isn’t outweighed by pressure on their own cashflow it could be a win, win situation all round,” said Paul Farrow.
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