Financial Monitor (January 2006)
Quote of the month
"There is nothing so useless as doing efficiently what should not be done at all".
End of year Tax Planning for Individuals and Partnerships
It is important that consideration is given to maximising tax reliefs and allowances available on an annual basis before 5 April each year.
- An individual is entitled to earn approximately £37,000 per annum before paying tax at higher rates. Those who are shareholders in family owned businesses should where practical ensure dividends are declared to provide maximum earnings at the basic rate of tax.
- The annual capital gains tax allowance (currently £8,500) should also be utilised wherever possible. Those with share portfolios should crystallise gains by selling shares and either waiting thirty days before repurchase or buying back immediately through a spouse or via an ISA investment.
- Any employee wishing to make an additional voluntary contribution to their employer's pension scheme must do so by 5 April 2006 if the payment is to qualify for tax relief in 2005/06. This is especially important if the employee is a higher rate taxpayer in 2005/06 but unlikely to be so in 2006/07.
- It is now too late to carry back personal pension contributions to 2004/05 but retirement annuity contributions can be paid by 5 April 2006 and carried back to 2004/05 as long as the election is made by 31 January 2007.
Offshore bank accounts
H M Revenue and Customs have obtained details from a UK Financial Institution of customers who have a credit card which is linked to an offshore bank account. The Revenue were able to convince a Special Commissioner that it was likely that a number of these customers had offshore bank accounts where interest earned had not been declared to the Revenue authorities. The Institution has been required to provide details of the interest earned and the Revenue will be checking self assessment tax returns to ensure that the interest has been declared.
Tax efficient investment - Venture Capital Trusts
Investment in shares in a Venture Capital Trust (VCT) attracts up to 40% income tax relief and dividends paid by the VCT are tax free. In addition, there is no capital gains tax charged on a gain in the shares when disposed of, but nor is there any relief for losses on the shares. The level of income tax relief is particularly attractive to a higher rate tax payer who is willing to invest in a higher risk type of investment
New employees - Forms P45 and P46
When an employee changes jobs, his Tax Code, and whether he is required to make student loan repayments, should be notified to his new employer via the long-established Form P45 procedure. However, the system is no longer working well, because nearly three-quarters of job-changers fail to give their new employer a Form P45.
From 6 April 2006 a new version of Form P46 (the form completed by a new employee who does not produce a P45) will be used. This will:
- ask for more personal information, to enable a correct Code Number to be implemented as quickly as possible;
- require the employer to operate Code BR (to deduct tax at the basic rate from all earnings) if the employee has another job, or is in receipt of a pension;
- require the employee to state whether or not he is liable to make student loan repayments.
Winter fuel payment
Don't forget that virtually everyone who reached their 60th birthday by 25 September 2005, whether retired or still working, is entitled to a Winter Fuel Payment. (The main exceptions are some long-term hospital in-patients and care home residents). The benefit is not means-tested and is worth £200 (for either a single person or a couple), or £300 if any member of the household is aged 80 or more. Payments are normally made automatically by Christmas. If any qualifying member of your family has not yet received their 2005/06 payment, they should telephone the Winter Fuel Helpline on 08459 15 15 15.
Entitlement to Holiday Pay when sick
All employees are entitled to four weeks paid holiday per year. It used to be the case that they could take their holiday pay even when they were already off sick. Well, not anymore.
The Court of Appeal has recently handed down its judgement in a case which overturns previous decisions - decisions which have been very unpopular with many employers.
The Court of Appeal has decided that:
- a worker who is on long-term sick cannot remain on sick and take his or her statutory holiday leave at the same time;
- if the worker is still off sick by the end of the holiday year he or she loses the entitlement to statutory holiday
- f the worker is to be allowed to carry any leave from one year to another, it has to be because
i. the contract allows this; and
ii. the 'carry forward' element is over and above the four weeks specified by law.
As always though, if the contract of employment provides better terms than the minimum specified by law, the contractual agreement will prevail.
Employment Tribunal DVD
ACAS have produced a training DVD "The Essential Guide to Employment Tribunals" designed to guide employers and individuals through the employment tribunal process. It offers advice on whether viewers should be going to tribunal at all and, if they decide to go ahead, provides comprehensive guidance on how to prepare and what to expect once they get there. It also contains interviews with experts and a dramatised case study to show what actually happens at a tribunal.
The DVD costs £44.22 and can be ordered by calling 08702 42 90 90.
Self-assessment tax liabilities
Please remember that any balance of tax due for the 2004/05 tax year which is not paid by 31 January 2006 will accrue interest from that date. If payment is not made by 28 February 2006 a surcharge of 5% of the tax due will be applied in addition to interest. In practice surcharges below £50 are not raised.
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