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Like Tinkerbelle waiving her magic wand, the Chancellor has extended the carry back of trading losses incurred in the tax year 2008/2009 and 2009/2010 for sole traders and for companies with accounting periods ending between 24th November 2008 and 23rd November 2010 from one year to three years. The amount of trading losses that can be carried back to the preceding year remains unlimited but after carry back to the preceding year, a maximum of £50,000 (for each of the 2 accounting periods) of unused losses will be available for carry back to the earlier two years. For companies who are considering making large pension contributions or purchasing large amounts of capital equipment which create a loss, these costs can be mitigated by reclaiming tax paid in previous accounting periods.
The large tax increases for higher earners are not due to come into effect until the tax year 2010/11 by which time Mr Darling will be tucked up with his Nana dreaming of pirates and the Never Never land!
The increase to the top income tax rate of 50% will be charged on income over £150,000 from 2010/11. This means that an individual earning £200,000 a year will pay an extra £5,000 in tax
This increased differential between capital gains tax (18%) and higher rate of income tax (50%) means that the structuring of new investments is crucial.
Also individuals who fall into the higher rate of tax would be advised to think of extracting dividends/bonuses from their companies before 5th April 2010.
There is also a new 42.5% tax rate on dividends where these represent the “top slice” of taxable income above £150,000
The increase to the trust rate to 50% and dividend trust rate to 42.5% have been made to align with the income tax rates.
The tax rates for 2009/2010 were left as previously published. The increase in the personal allowance gives a basic rate and higher rate tax payer increases of £97 and £176 a year respectively