June 25 is the ‘real’ Tax Freedom Day
Smith & Williamson provide their top five tax tips for owner-managers
This year’s Tax Freedom Day, the date when we finish paying our tax burden for the year, was May 14 - the earliest since 1973. However, economists say that government deficits are really a form of deferred taxation and when government borrowing is factored in this momentous date does not fall until June 25 - the latest since 1984.
The average taxpayer is now working more than half the year on behalf of the Government and with each year that goes by this date gets later. In 2008 it fell on 15 June but in 2009 it will take 10 days longer before you start to earn any money for yourself.
However, Geoff Everett, tax director at Smith & Williamson, the accountancy and financial services group, believes that with effective planning you can shave days or possibly weeks off this hypothetical date. "Every taxpayer should invest time and effort into ensuring they don't pay over the odds. Unfortunately you cannot rely on HMRC doing your tax planning for you."
Five top tax tips for owner-managers
1. Assess reward package
Aim for a tax efficient mix of salary, dividends, bonuses and benefits. With respect to share schemes, consider Enterprise Management Incentives and Approved share option schemes. These arrangements can prove tax efficient for both employers and staff.
2. Consider further pension contributions
Pension schemes represent one of the few Government sponsored tax saving vehicles where significant tax relief is still available.
3. Maximise tax breaks on capital expenditure
Capital allowance claims permit the taxpayer to offset certain capital expenditure against their business income. These include, amongst others, the Annual Investment Allowance and Enhanced Capital Allowances for qualifying energy and water efficient expenditure, which are relevant for both corporate and unincorporated businesses. There is an additional temporary 40% rate of first year allowance available to all businesses for expenditure incurred on plant or machinery qualifying for the ‘general pool of expenditure’ in the 12 months from 1 April 2009.
4. Review loss relief claims
An extended loss relief facility was announced in November 2008 enabling businesses to carry back trade loss relief of up to £50,000 for up to three years instead of the usual one year limit. Budget 2009 announced an extension to this relief, to cover an additional £50,000 of trade losses incurred in the year following that announced in November 2008.
5. Furnished holiday letting properties
Overseas furnished holiday letting properties located outside the UK, but within the European Economic Area, can qualify for the furnished holiday lettings regime. This treats the furnished holiday lettings business as a trade rather than an investment activity, with favourable capital allowance, loss relief and capital gains consequences. A review of this area by corporates and individuals is imperative as the regime is to be withdrawn from April 2010. Additionally, all claims for previous periods where claims can be amended have to be submitted by 31 July 2009.
Tax Freedom day is getting later
Only two years a go there was as little as nine days between Tax Freedom Day based on actual revenues and Tax Freedom Day once government borrowing has been factored in. This year there will be a massive 42 days.
Tax Freedom days, 2007 - 2009
2007
1 June Based on actual revenues
10 June If government borrowing is factored in
2008
22 May Based on actual revenues
15 June If government borrowing is factored in
2009
14 May Based on actual revenues
25 June If government borrowing is factored in
For further information, contact:
Geoff Everett, tax director at Smith & Williamson
tel: 020 7131 8370
geoff.everett@smith.williamson.co.uk
PR enquiries:
Matthew Rowe, tel: 020 7131 4550
Kate Harrison, tel: 020 7131 4228
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Note to editors
Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, North London, Salisbury, Southampton, and Worcester.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International, a worldwide network of independent accounting firms.
