We’re rapidly approach 5th April and the start of the 2010/11 tax year. Last week Alistair Darling announced his predictably benign budget and confirmed what’s ahead for the upcoming tax year. Here’s our review of the 2010/11 tax announcements for contractors and freelancers.
2010/11 tax year summary for contractors and freelancers
- Introduction of a new income tax rate bracket of 50% for individuals who earn over £150,000
- Introduction of a 60% marginal rate for those with incomes between £100,000 and £114,000, via a reduction of personal allowances
- No additional tax-free personal allowance
- New measures to clamp down on loopholes and grey areas that encourage tax avoidance (often referred to as “tax solutions” in the world of contracting)
If you’re an existing inniAccounts customer you don’t need to do a thing. The tax rates within our software have been updated to support the new 50% bracket and if you’re an inniAccounts Premium customer earning over £100,000 we’ll update your tax allowances when we receive the appropriate notification from HMRC.
The budget in detail
Unless you’ve been on holiday in a very remote location, you’ll be aware that last week Alistair Darling delivered his final budget before the impending general election and, as predicted, it was designed not to upset the voting public.
The top story – which had already been disclosed in the pre-budget report – was the introduction of a new income tax rate bracket of 50% (or 51% including national insurance) applicable to those whose income exceeds £150,000. A 60% marginal rate will then apply to those with total taxable income of between £100,000 and £114,000. These individuals will have their tax-free personal allowance reduced by £1 for every £2 of income over £100,000, adding an extra 20% onto their top tax rate of 40% (do drop us a line if you fall into this bracket, because we may be able to help you to reduce your tax bill). The chancellor also announced that all personal and age-related income tax allowances are to be frozen in 2010/11, and that no changes have been made to the main and small companies’ rates of corporation tax which for 2010/11 remain at 28% and 21% respectively.
Perhaps more relevant to the contractor community, though, was the announcement of several new measures aimed at eradicating existing legal ‘loop holes’ which encourage tax avoidance. Some of these loop holes have previously been advertised as ‘solutions’ to allow contractors to maximise their take-home pay, and if you’ve taken advantage of them in the past you’ll need to change the way you operate before 6th April, when HMRC will be clamping down on them by implementing the following regulations:
- Deliberate concealment of offshore income and gains will now carry penalties of up to 200%.
- Measures have been taken to strengthen the Disclosure of Tax Avoidance Schemes regime.
- Restrictions are being made on corporation tax deductions in cases where payments are made to Share Incentive Plans specifically to obtain a deduction (where funds are used to gain shares when value has been manipulated).
- Preventing the use of growth shares in subsidiary companies within CPOS employee share schemes to ensure relief is restricted to £30,000.
- From 2011, legislation will be implemented to prevent avoidance of income tax and NI through ‘disguised remuneration’, or the use of Employee Benefit Trusts set up to make payments.
- Geared growth arrangements for employee securities will be reviewed to ensure income from employment is taxed correctly.
If you’re concerned about how any of these new regulations will affect your business, please don’t hesitate to drop us a line – our accountancy team can always advise on the best ways to ensure your accounts are transparent and risk free.
Yes, we know tax talk can be tedious so we’ve put our heads together and come up with our top 5 tracks to sing along to whilst filing this year’s returns. Enjoy…
- What do you do for Money Honey, by ACDC
- The Tax Man, by the Beatles
- Comfortably Numb, by Pink Floyd
- Mo’ Money Mo’ Problems, by Notorious BIG
- Gold Digger, by Kanye West