Tuesday, March 23, 2010

Have you been subject to 50% tax since May 2009?

The Chancellor announced the introduction of a new top rate of 50% income tax during his 2009 Budget statement. It will apply to incomes above £150,000 with effect from 6 April 2010. So it only applies to taxable earnings and profits after that date?

To be precise, it applies to all earnings and profits that are taxable after 6 April 2010. Bonuses earned by and paid to employees beforehand will only be subject to 40% tax.

What about the self employed and those in partnerships?

They will be subject to 50% tax if their taxable earnings in 2010-11 are above £150,000. For the self employed and those in partnerships this affects the profits of accounting periods ending after 5 April 2010. Thus, anyone with an accounting date of, say, 30 April will be subject to the 50% rate as regards their taxable profits in the accounting period that started on 1 May 2009 and which ends on 30 April 2010.

I would suggest that any appropriate action will depend upon current and future cashflow and profit projections. Rash changes to accounting year ends should be resisted to avoid losing more than the hoped for gains in the long run.

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