Tax thresholds and planning opportunities 2011/12
There are lots of thresholds which can be utilised or avoided in order to make the most use of the tax system. As accountants we need to consider each clients personal situation to make sure that we make the most of the opportunities while minimising their tax bill. Many of my clients are owner managed limited companies and have the opportunity to plan their affairs accordingly. Let us consider some examples:
- A young couple recently set up a company and providing they can restrict their earnings to £30k pa between they will not have to make any student loan repayments. They are no doubt hoping that the business will grow so that they will have to be avoiding higher thresholds in the future.
- A recently retired but still working sole trader may benefit from incorporating as by restricting salary and dividends to £24k they may be able to retain the “age allowance” which could be lost by staying as a sole trader with profits over that amount
- A client wanting to take on a part time staff member for a few hours per week can ensure they qualify for basic state benefits by paying them more than £102pw (£5,304 pa) providing they work enough hours.
While always trying to save clients tax there is no tax free ticket, the old adage “if you earn it you need to pay it” always applies. Some of the thresholds are shown below which demonstrate the range of income levels which need to be considered day by day:
£5,304 Pay level at which NI contributions are recognised
£7,072 Employers start paying NI
£7225 Employees and self employed start paying NI
£7,475 Personal tax allowance for individuals
£9,940 Personal allowance for people aged 64-74
£10,600 Annual exempt amount for Capital Gains tax
£15,000 Repayment of student loan begins
£24,000 Income limit for age related personal allowances
£35,000 Amount which can be earned paying basic rate tax
£42.5k Employees and self employed NI contribution rate reduced
£100,000 Personal allowance starts to get lost
£150,000 50% tax band applies
£325,000 Inheritance tax threshold
This article is only for general information and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”
