Make an allowance for tax changes in 2013 Says Chris Annis
- Credit: Archant
Well, 2013 is now well under way and Christmas certainly seems a long time ago! Today we are looking at what 2013 will bring from a tax perspective, with some of these measures already under way.
Withdrawal of child benefit
Or to give it its official snappy title; ‘Income Tax Charge for those on Higher Incomes’.
This became effective from January 7 and sees those who earn over £50,000 start to lose their entitlement to child benefit on a sliding scale, until their income reaches £60,000, when this benefit is lost completely.
The benefit will still be paid (unless you opt out) meaning that if any clawback is due, this must be made via a tax return, with any overpayment for the year to April 5, 2013 becoming repayable to HMRC by January 31, 2014.
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So, if you are earning over £50,000 and do not currently prepare a tax return you may be caught by this new legislation and may have to prepare a tax return in the future.
Remember, there are ways to mitigate, i.e. to reduce your income legally, for example, salary sacrifice, pension contributions and gifts to charities are all legitimate ways to reduce your income to protect your entitlement to child benefit.
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An increase in higher rate taxpayers
Personal allowances will increase in 2013/14 which is good news, but HMRC have also reduced the basic rate band (this is the amount of earnings taxed at 20% over and above your personal allowance).
This means that more taxpayers will be paying the 40% higher rate tax than ever before.
The basic rate band is being increased by 1% in 2014 and 2015 to £41,865 and £42,285 respectively.
Whilst any increase is good news this is less than the rate of inflation. HMRC say that an additional 1.2 million taxpayers will pay the higher rate tax in 2013/14.
Cap on pension relief
For those paying into personal pensions, HMRC have imposed a cap on the amount of higher rate relief that you can achieve. The numbers are high; the cap is £40,000 per annum from April 2014, but gone are the days of the high earners putting in £100,000 of their bonuses into their pensions and getting higher rate tax relief.
Aside from any unused relief brought forward, any contributions over the £40,000 (gross) will be taxable.
Please note the above does not constitute financial advice and LB Group cannot be held responsible for any errors or omissions.
;; Chris Annis is a director of the LB Group . If you need help or advice on any of the above topics please contact LB Group on 01473 359720 or email Ipswich@lbgroupltd.com