Contractors urged to plan income strategy before April 2010 tax hikes

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Contractors urged to plan income strategy before April 2010 tax hikes

Posted Dec 4, 2009

As most contractors will be aware, from 6th April 2010, a new 50% income tax rate comes into effect for anyone earning £150,000 or more. A new top rate dividend tax of 42.5% will also apply above this threshold.

However, alongside the new tax band, several other unpleasant tax increases also come into play for those earning £100,000 or more - as originally announced in Budget 2009 back in April.

Sting in the tail

If your income exceeds £100,000, the basic personal allowance will be withdrawn at the rate of £1 for each £2 your income exceeds £100,000.

If personal allowances stay at the present level £6,475, you will lose your allowance completely when your income exceeds £112,950.

As you will be taxed at 40% on income between £100,000 and £112,950, whilst progressively losing your personal allowance, the marginal tax rate in this banding can be up to 60%.

London-based HfM Accountants suggest that if you have a legitimate strategy to keep your taxable income below £100,000 in 2010-11 and so potentially save 60% tax, then this would be an opportunity not to miss

In addition to these income tax changes, from 6th April 2011 higher rate pension relief is being withdrawn from individuals who earn in excess of £150,000 a year.

If you are likely to be affected by the forthcoming tax changes, you should certainly discuss your position with your contractor accountant.

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