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Planning for the 45% tax rate

The present tax rate on earnings in excess of £150,000 is 50%. Some would say that you are in a fortunate position to be earning over £150,000 but regardless of how much you earn, handing half of it to HMRC doesn’t sound good.

From 6 April 2013, the top rate of tax is to be cut to 45%, but there are ways that you can plan for this to maximise tax savings by shifting income from the current tax year into next year saving yourself 5% tax on anything you shift.

Savings income
If you have savings, by opening up an account that pays annually instead of monthly, you can defer the interest received to next year. Most banks and building societies offer one-year bonds which pay interest at the end of the investment period.

Earned income
If you pay bonuses as a company director, by deferring a bonus until next tax year you can save 5% on the amount deferred. For example, a bonus of £25,000 paid on 31 March 2013 would incur a tax charge of £12,500. If it is deferred until 30 April 2013, it will only incur a tax charge of £11,250.

If you are a partner or sole trader, moving your year end could effectively defer income from this tax year to next.

Expenses/ Reliefs
If you are unable to shift your income to next year, maybe you can shift some expenses forward to this year. For example, a payment into a pension fund of £20,000 in 2013/14 will receive £9,000 tax relief, whilst bringing it forward to 2012/13 will receive £10,000 in tax relief.

By bringing forward charitable donations that you plan to pay next tax year to before 5 April 2013, you could achieve a similar result to the above

The two planning tips above are particularly relevant in light of the proposed cap on tax relief that the government is planning to introduce in April 2013.

As a sole trader, partner or employee, if you bring forward expenditure on fixed assets on which you can claim capital allowances, you can gain the additional tax relief. For example, buying a new van for £20,000 before 5th April 2013 instead of after this date, you could save you an additional £1,000 in tax.

For further assistance, please contact:

John Hill
Tel: 01235 773300
Email: john@ace-accounting.co.uk

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One Response to “Planning for the 45% tax rate”

  1. […] If you are a 50% tax payer, please see our blog on tax planning tips for 50% tax payers. […]

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