Plan now to reduce impact as tax deadline looms

With pivotal changes in taxation coming into force on April 6, PKF Accountants & business advisers is urging businesses, employees and families in Westbury on Trym to safeguard as much of their income as possible.

Increased National Insurance Contributions and wide-ranging charges in personal allowances and thresholds will affect everyone in the UK, and PKF’s financial experts are standing by to advise on how best to deal with the raft of changes.

National Insurance Contributions will increase by 1 per cent for employers, employees and the self-employed on April 6, but the PKF team said there might still be time to mitigate some of the cost to both parties by varying  pay, conditions and rewards packages.

For instance, offering additional holidays, typically by closing during quieter periods or conversely by incorporating more flexible working patterns with the added advantage of allowing the business to stay open longer without the need to pay overtime, could help offset the increase.

Companies of all sizes can also use share options or incentive schemes at a relatively low up-front cost so that employees can be awarded or given a vested interest in the business without increasing National Insurance Contributions.

PKF is also advising companies to review pension arrangements with a view to offering a salary sacrifice arrangement for pension contributions to reduce NIC costs for both the business and employee.

Personal tax thresholds will also be overhauled on April 6, with the basic personal allowance for people under 65 increased by £1,000 to £7,475. However, reducing the basic rate band to £35,000 from £37,400 will effectively remove the benefit of the increased allowance for higher rate taxpayers.

Individuals with income above £114,950 in 2011/12 will not only lose the personal allowance but will also pay tax at a higher rate on an additional £2,400 of their income.

PKF has formulated a range of points to help higher earners reduce their taxable income including advanced or deferred income, for instance by bringing forward income so that it is taxed in the 2010/11 tax year or deferring income so that it is taxed in 2011/12 if your income will otherwise fall in that year.

Alternatively, incorporating your business before April 6 2011 or including a company in the business structure may give individuals more control of the timing of taxable receipts.

Married couples should also consider boosting their after-tax income by maximising the use of personal tax allowances by transferring income-producing capital assets to the spouse with the lower income. Self-employed individuals or those running a family company who don’t already employ their spouse or partner should consider doing so.

PKF also has advice for families supporting children through university, by gifting income producing assets to children over 18 to utilise both their allowances and tax bands.

PKF has drawn up a 14-page briefing covering all aspects of business and personal taxation to help minimise the impact of increased taxation.

Tony Moorby, PKF’s South West Director of Taxation Services, said: “Making plans now can and will help once these new changes come into force. Not doing so could mean losing out and in these times of austerity, no one wants to be left out of pocket.”