By Stuart Sheldrick, LB Group

September 2009

From April 2010 a new rate of tax applies for those who earn over £150,000.

Stuart Sheldrick, a director of chartered tax advisers and accountants, LB Group, says that for these individuals, the impact will be much greater than seems at first glance.

He said, "This new rate of tax actually represents an increase of 25 percent over and above the current 40 percent. The rate at which gross dividends are taxed will also be raised from 32.5 to 42.5 percent - a massive increase of 44.4 percent.

"Those earning over £100,000 will lose £1 personal allowances for every £2 over this figure. This will mean an effective tax rate of more than 60 percent, at some income levels" he added.

But, he says, directors, employees, shareholders, sole traders and partners can soften the blow through careful tax planning and deferring payments.

His top tips for delaying the effects:

• If bonuses are paid, look at bringing these forward, e.g. if historically paid on the 30 April, 31 March may be a better option
• Within a limited company, dividend payments could be paid before 6 April 2010.
• Directors and employees with share options liable to income tax could exercise their options before 6 April 2010.
• Sole traders and partnerships could consider changing their year-end date to 31 March 2010 or earlier. Overlap relief would reduce the level of profits.

• If trading through a limited company, retain profits rather than distributing them, if individual shareholders are affected by the change. The capital accumulated could then be distributed to shareholders on a different basis on sale or liquidation
• Consider products available that can help extract profits more tax efficiently
• Within a limited company, consider diverting funds into pension contributions
• Within a sole trader or a partnership, consider the merits of becoming a limited company, giving consideration to profit levels and the amounts being distributed. Retaining the profits in a company could allow for future flexibility in capital distribution
• Sole traders and partnerships with a large payroll or other service costs may consider using a limited company to administer and pay costs for a marked up fee. However this is a complex option requiring professional advice
• Partnerships (including LLPs) could consider admitting a corporate partner, which may enable profits to be retained