1. Summary of Key Points
• Everyone should check their tax codes and get their tax affairs in order to avoid fines and penalties.
• Anyone with spare cash should consider paying off some of their mortgage, making full use of their ISA allowance or topping up their pension.
• Ensure your Working Tax Credit records are kept up to date if your income has changed this tax year.
• Businesses should ensure they’re in a position to claim all the capital allowances they’re entitled to.
• Businesses should consider how to time their expenses to make the most of the tax system.
2. Background
The 2009-10 tax year ends on 5 April 2010 – which is also Easter Monday. Shortly after that we can all look forward to an Emergency Budget whoever is in power. This means that you can probably benefit more from good tax planning now than in most years.
3. Personal Tax Planning
• Check your notice of coding for 2010-11 as 20% of these have been issued with errors. The basic personal allowance is £6,475 so 647L will be your coding unless you have “extras” such as benefits-in-kind.
• Make a voluntary declaration of any income you have to HMRC – rental income from property being the most common omission. The penalty regime is likely to get more aggressive after the General Election.
• If you are aged between 50 and 55 you can apply to draw your pension now if you wish – but from 6 April 2010 you’ll have to be 55.
• If your income is below £58,000 (£66,000 if you have a child under one) check that your Working Tax Credit information is up to date, especially if your income has dropped during the 2009-10 tax year.
• Consider paying off some of your mortgage with spare cash. Check there are no charges first – there shouldn’t be! Interest rates in the USA rose on Friday 19 February signaling the end of dirt cheap money!
• Consider using up your ISA allowance with any spare cash. This is £7,200 if you are under 50 and £10,200 if you are over 50.
• Consider paying spare cash into your pension. The rules on this can be complex, so it’s best to seek specialist advice before doing this.
• If you are paid for fuel on your company car but drive under 10,000 private miles per year, it is often worth repaying this as the hefty tax charges outweigh the benefits.
• If your partner is in a lower tax band, consider transferring assets to him or her.
• If you have an asset with a capital gain over £10,000, consider cutting losses on other assets and notifying HMRC of the loss you’ve realised. This will be carried forward to reduce the bill when you sell the asset which has done well.
4. Small Business Tax Planning
Although businesses can choose when to have their year-ends, 31 March and 5 April are commonly chosen. So with that in mind:
• Ensure your accounts are up to date so you can plan properly for your year-end.
• Ensure all your returns are in order with HMRC – Companies House too if you have a limited company.
• If you’ve been investing in new plant, make sure you claim 100% capital allowances on the first £50,000. However, the rules on what is plant and what is capital – 0% allowance – are very complex and you should seek specialist advice on this – before you spend the cash.
• Consider bringing forward expenses such as repairs and office costs to reduce reported profits.
• High earners (over £100k) should consider paying dividends and/or bonuses this tax year before the new higher rates come in. From 6 April, anyone earning over £100,000 will pay 60% tax on some of their income.
• If profits have dropped this year, ensure you’ve notified the Working Tax Credits people. A higher award for 2009-10 will continue into 2010-11 unless you have a large increase in profits.