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News - 22 March 2013

The 45% Tax Rate: what it means to you.

We asked our resident Tax Gurus what they think of the new 45% Tax Rate.

When does the new rate come into place?

Stuart Coleman, Manager of the Tax Department of ABDS comments:
“The new rate will be effective from 6 April 2013; i.e. for income falling into the 2013/14 tax year.”

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“The 45% tax rate may not be universally popular, but it is still better than the 50% rate it replaces. The top rate applies to individuals with income over £150,000 per annum. As a consequence, the top dividend tax rate will be reduced in line with this from 42.5% to 37.5% and Trust rates will mirror these changes”

Stuart Coleman
“Reducing the rate with effect from 2013 provides an extended opportunity for deferring income into 2013/14. Interestingly, the Budget forecasts include a cost of £2.4bn in 2012/13, representing the tax revenues lost in that year as a result of deferring income into 2013/14 or beyond.”

Tonmoy Kumar
 “Structuring deferrals to meet regulatory requirements and not to fall foul of the complex rules on disguised remuneration will be important. HR, technical and practical issues should also be considered e.g. which population(s) of employees should be offered deferrals without discrimination, and ensuring that the necessary documentation is effective to achieve the desired outcome.”

What effect will this have on the income tax payable on dividends, whether received from your own company or from investments?
Stuart Coleman
“If you pay tax at the top rate, a dividend of, say, £10,000 will cost you £3,610 in tax if paid in the current tax year, but if delayed until 6 April 2013 that goes down to £3,055. That is a tax saving of £555 or 5.55% - well worth having if it is possible to defer payment. No doubt quoted companies will plan their dividend dates carefully to help their personal shareholders.”
Is the rate of 45% competitive in the realm of global mobility of businesses and their employees?

Tonmoy Kumar
 “The Chancellor made various references to the competitiveness of the UK's tax regime. A comparison of the top rates of income tax with some popular destinations suggests that a 45% top rate is now more comparable. We hope to see a return to 40% in the not too distant future in order to be truly competitive.”

Stuart Coleman
“The UK rate will now be the same as China and Germany, with the USA on 42% and France on 41%.”

Tonmoy Kumar
“Finally, it is worth noting that opportunities to achieve capital growth over income will remain attractive based on a rate differential of 19% - between income tax and national insurance contributions at 47% and capital gains tax of 28%.”

Thank you
 

If you are unsure and need any help and advice on Self Assessment, Corporation tax, VAT, or you need to keep abreast of changes in legislation and how it could impinge upon your finances, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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