The changes to income tax will hurt everyone, not just those earning over £150,000
In April 2010, the highest rate of income tax increased to 50% for income over £150,000. This means that for some, take home pay reduced by a massive 10%!
We believe that these rises in tax rates are here to stay so entrepreneurs with aspirations to have income of over £150,000, but are not there yet, should take action now so that when you reach your goal you know it is also tax efficient!
It is still not to late to take action
Those with income over £100,000 have also been hit - by the restrictions in personal allowances. The basic personal allowance is currently worth £2,600 to a higher rate taxpayer - this is not an insignificant sum.
As the true extent of the impact of these new rules is now being fully understood, it is clear that the financial life of the entrepreneur been never been so complex, but planning needn't be complicated.
With the recent announcement in the Emergency Budget that the basic rate band is to be restricted to prevent higher rate tax payers from receiving the benefit of the proposed increase in personal allowances, we will be seeing more and more individuals falling into higher rate tax.
Simple actions, such as making a Gift Aid payment to charity could have a surprising impact on your tax liability especially where income is between £100K and £150K – but calculating the optimal payment is a different matter altogether!
There are, of course, more complex, strategic issues to consider too - is it now better to run your business through a limited company? Should you change your accounting year end? Should you take share options? All these questions need to be revisited as a result of the proposed changes.
Entrepreneurs should urgently review business plans and revisit strategies. Being entrepreneurs ourselves, we have first hand experience in considering these issues and take it from us these are challenging times!