New tax rates – you have choices!

We all know the story. Banks not properly regulated by the Government, and bailed out to the tune of billions and billions of pounds. The figure given in the budget was £175 billion deficit up from an expected £38 billion expected deficit just one year ago. I think most people agree the increased figure is also going to be an under-estimate. Now we have to pay for it.

From 6th April 2010 personal allowances are gradually withdrawn for those earning over £100,000. For every £2 of income earned above £100,000 personal allowances will be reduced by £1. This makes the effective rate of tax for those with earnings over £100,000 of 60%. There is national insurance of 1% also, so the true rate is 61%.

The rate will go back to 40% (really41%) for earningas over £112,500.

Then from £150,000 the new rate of 50% plus 1%NI ie 51%will apply.

If you dont like the idea of paying 40%, 51% or even 61% tax rates, you do have choices.

Perhaps one of the most straightforward options is to organise your affairs so that some or all of your income goes into a limited company. A company will pay 21% tax on profits up to £300,000. Clearly a big saving on 61%.

There is much more detail to discuss than we would wish to include here and indeed other tax planning options. Please contact us to discuss the details.