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We provide audit, accounting, tax and business advice to individuals, family, and owner-managed businesses from across our offices in Leeds, Newcastle and York.

"I know that 50% tax is coming...will it affect me and how do I prepare for it?"

Richard Whitelock, Tax Consultant

Although a General Election will be held in the coming months, it seems almost certain that whoever the winners are, they will retain the new 50% rate for at the very least the 2010/11 tax year, and possibly for some years to come.

Most recent headlines have discussed the increased higher rate of Income Tax of 50% for those taxpayers with total income over £150,000. But what is perhaps not as well known is that the annual tax-free Personal Allowance (PA) will be also tapered for those with total income in excess of £100,000.

The PA (which is currently set at £6,475) will be tapered by £1 for every £2 that the total income exceeds £100,000. This means that once total income has reached £112,950 the PA will be tapered away completely, meaning that the effective rate of tax on income in this £100,000 to £112,950 bracket is a massive 60% - and an immediate tax increase of £2,590.

Taxpayers who expect their total gross 2010/11 income levels to exceed either of the £100,000 or £150,000 thresholds have only a few weeks to consider what action they can take to minimise the impact of these changes. Precisely what could or should be done differs from case to case, as it very much depends on the type of income received:

• For those receiving high salary/benefits, could the timings of any bonus payments be brought forward pre-6 April, or could any salary sacrifice arrangements be used to reduce the effective gross earnings?
• For company owner-managers, could a special dividend be voted before 6 April?
• Could any income-producing assets be transferred to the individual’s spouse, partner or family (which may have the added benefit of tapping into unused basic rate tax bands)?
• Should a business owner consider a different trading structure?

At Garbutt & Elliott, we have assisted many of our higher earning clients in planning ahead for 2010/11, and for some of our corporate clients this has involved reviewing their profit extraction strategies. Taking remuneration out of the company in a more tax efficient way than a standard salary can often be key to ensuring that not only the new higher tax rates are avoided, but it can also lead to significant ongoing annual tax savings and cash-flow benefits.

So whether your income is derived from employment, self employment, pensions, investments or property, now is the time to review your income position before it is too late.

Richard Whitelock is head of our Personal Tax Department and is responsible for a large portfolio of clients, including many high net worth individuals. He has a wide experience of both personal tax compliance and planning.

At Garbutt & Elliott we have considerable experience in advising on all aspects of tax compliance and planning, providing solutions to help our clients pay less tax. If you would like to discuss how we could help you prepare for the new 50% tax rate please contact Richard Whitelock, Leeds 0113 2739600, York 01904 464100 or by email to rwhitelock@garbutt-elliott.co.uk