Year End Tax Planning Tips For Companies

 iStock-587220926.jpg

Corporation tax is set to reduce to 19% with effect from 1 April 2017 but opportunities still remain to reduce and defer corporation tax liabilities. Here are some you may wish to consider.

MAXIMISE CAPITAL ALLOWANCE

The annual investment allowance (AIA) provides 100% tax relief for qualifying expenditure incurred up to a limit of £200,000 for 12 month periods starting on 1 January 2016. The allowance can only be claimed in the period in which the expenditure was incurred. You should be aware that cars are excluded from this relief.

If you have a 31 March year end, it would be sensible to review capital expenditure plans and consider bringing forward any purchase to before 31 March, thereby utilising this allowance which might otherwise be lost.

On the other hand, if the £200,000 limit has been exceeded, then further purchases should be delayed until after the year end, if possible.

PENSION CONTRIBUTIONS

Relief for employer contributions is given in the chargeable accounting period in which the contributions are paid. In most cases it is sensible to ensure that all contributions are paid before that date in order to accelerate the relief. In the context of a 31 March year-end, if the payments are made before 31 March, relief is given at 20%. This would reduce to 19% for contributions paid after this date.

DEFERRING INCOME OR PROFITS

Consider delaying a transaction to shift profits forward into the next financial year, so as to delay by one year any corporation tax payable. This will also have the effect of reducing the corporation tax payable from 20% to 19%.

There are several ways of deferring income to the next tax year. Sales could be pushed forward to the next period, selling goods on consignment, or if a seasonal trade, changing the year end to exclude a more profitable period or to include a loss-making one.

CLAIM RESEARCH & DEVELOPMENT TAX CREDITS

Companies that have undertaken research and development work could qualify for generous tax reliefs. For an SME, for every £1 of qualifying R & D expenditure, an additional £1.30 is allowed in the tax computation. A loss making SME may be able to surrender the loss arising as a result of the R & D claim for a cash credit of 14.5%

CLEAR OVERDRAWN LOAN ACCOUNTS

The tax charged on a company loan to a “participator” is equal to 32.5% of the amount of the loan outstanding at the year-end, unless the loan has been repaid or cleared within nine months of the end of the accounting period. Companies should therefore review outstanding loans and consider clearing them within the nine months to avoid the tax charge.

CONSIDER ROLL OVER RELIEF

Any company that has realised gains on the disposal of land and buildings used in a trade should consider whether the corporation tax on this can be deferred by way of business asset roll over relief. This may be available if the company reinvests all of the disposal proceeds in new qualifying assets, either within 12 months before the disposal or up to 3 years after. Partial relief could be available if all the proceeds are not reinvested.

For further information please contact the tax team at Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

How Pension Planning Can Help Retain Child Benefit And Save Inheritance Tax

www.greenandco.com

If you or your spouse/partner has an income between £50,000 and £60,000, your child benefit is clawed back at the rate of 1% for every £100, and for those earning above this, the claw back equals the whole amount of the benefit received.

By making additional pension contributions, you could retain child benefits. For example, if your income was £60,000 and you paid a net pension contribution of £8,000 (this is grossed up to £10,000 to take into account the tax relief due), your overall income would be reduced to £50,000 for child benefit purposes resulting in no claw back.

This month, new pension rules came into effect meaning that family members may contribute to each others pension pots. Provided you have enough earnings, family pension contributions are a useful way of helping to keep your income below the £50,000 limit and have the added benefit of saving the family member inheritance tax, either by making a gift of the contribution out of normal income, or by being within the annual exempt amount of £3,000 (£6,000 if the previous year’s annual exempt amount was not used).

There is potential to make substantial tax savings! For example, if you have income of around £60,000 and four children, and you decide to make a pension contribution of £8,000 it could save you about £6,500 in income tax and child benefits.

For further information contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Photo credit: freedigitalphotos.net

Pension Shake-Up

Pension

The rules regarding pension funds and how they can be drawn are changing radically with effect from 6 April 2015. The changes relate mainly to “defined contribution” schemes e.g. personal pensions, stakeholder pensions, self-invested pensions and pensions in drawn down contracts.

The most significant benefits of the new rules are flexibility of how income can be taken and changes to the tax position of the fund on death.

From the age of 55, you will be able to withdraw income from your pension as and when you like and in the amounts you want. It will be treated like a bank account – the whole amount can be withdrawn in one lump sum. The tax payable on the pension can therefore be minimised with careful tax planning.

Under what is termed flexi-access drawdown, the first 25% of any “uncrystallised fund” can be taken as a lump sum and will be tax free. Anything over that amount will be taxed at the taxpayer’s marginal rate. Thus a person can control when to take funds and how much to draw to minimise the tax payable.

Should you decide not to draw all the fund during your lifetime, the balance of the fund can be left to the next generation. The fund will not be liable to Inheritance Tax (as is the case under the current rules) and may be free of income tax as there are options available to the beneficiary as to how the cash is extracted from the fund (unlike the current position where the beneficiary who is not financial dependent is restricted to a lump sum death benefit). This change gives potential for the income from the fund to be taken tax free, whereas currently heavy contributions to a pension fund increased the risk of paying 55% recovery tax on the residual fund on death or higher rate tax if taken as income.

Careful planning is required to obtain the most tax advantageous route to withdrawn your pension and Independent Financial Advice should be sought. Please contact Green & Co for further information.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Mister GC at FreeDigitalPhotos.net

Nick Park analyses the Budget on BBC Radio Wales

To find out what other announcements were made in  the Chancellor’s Budget, read our Budget Summary.

5 Tax Planning Tips As 5 April Approaches

www.greenandco.comFor those of you in self-assessment, you know the drill by now…the annual cycle will be all too familiar. Your accountants will soon be issuing reminders through all available channels of communication, hot on the heels of HMRC and their teal green reminders. But before we hit the 6 April and commence on our self-assessment journey, there is still time to consider tax savings that can be implemented prior to the tax year-end:

  1. Maximising your personal allowance and basic rate band – In 2014-15 the personal allowance is £10,000 and the basic rate band is £31,865, so for many taxpayers higher rate tax will become due when total taxable income exceeds £41,865. For married couples, maximising the personal allowance and basic rate band is a key planning point. For example, consider how your investment portfolios are shared or a beneficial ownership on shared rental properties to apportion rents in the most tax efficient way. Paying a salary to spouses who work in the family business could also be an option.
  2. Retaining personal allowance – Individuals with taxable income of £100,000 will have their tax-free personal allowance clawed back at a rate of £1 for every £2 that the adjusted net income goes above £100,000. This means you will not be entitled to any personal allowance if your income is £120,000 or above and will result in an effective tax rate of 60% on a proportion of your income. Tax planning should be considered where claw backs are avoidable.
  3. Keep your child benefit – There will be a claw back of child benefit where one individual in a household has income higher than £50,000. If both partners have income below £50,000 however, the claw back will be avoided and you will not have to pay back any child benefit received. Tax planning should be considered where claw backs are avoidable.
  4. Pension contributions and charitable donations – Pension contributions must be made before 5 April 2015 to be applied to 2014/15 income. For every £1 contributed to a pension scheme HMRC will contribute 20p. You will also receive a further 20p or 25p reduction in any higher or upper rate tax paid. Charitable donations made under gift aid will also reduce your higher rate liability, so now’s the time to give if you’re feeling generous.
  5. Tax efficient investments schemes – Higher rate taxpayers may also consider tax efficient investment schemes which mitigate higher rate tax, such as venture capital trusts and enterprise investment schemes.

Finally, don’t forget your annual new ISA allowance and capital gains tax annual exemption!

This list is by no means exhaustive and each individual’s personal circumstances should be considered before implementing any of the above. Please contact Green & Co for further information.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

So I’ve Set Up A New Limited Company – What Next?

What's Next?

Many businesses choose to incorporate for several reasons, including liability protection and tax planning.

But what should you do next, once you have gone through the initial effort of setting up your new limited company?

Within a few weeks of incorporating you will receive an introductory letter  from Her Majesty’s Revenue and Customs. You should send back:

  • Form 64-8 –  You can  provide HMRC with your accountant’s details by completing this form. It is important that this is submitted promptly, as HMRC will not discuss your affairs with your accountant without one.
  • If your company is dormant, simply write back to HMRC at the address shown on their letter to tell them so. You won’t then need to file any tax returns for your dormant company unless/until it starts trading.

Once you start trading there will also be tax planning issues to consider, including:

  • Goodwill valuation – If you have incorporated a sole trade or partnership business you may be able to include the cost of buying the reputation of your business from you personally. This cost, set off over a number of years, may also be  allowable against corporation tax if the sole trade or partnership started after 2002.
  • Remuneration planning – How are you going to pay yourself? It would normally be appropriate to register your company as an employer so that you can pay yourself a basic salary. You will also need to consider when you will be able to pay dividends, how much you could pay and be able to deal with the required dividend minutes and warrants.
  • VAT registered status – You may need to consider registering the company for VAT. There are a number of different VAT schemes that could be appropriate, each with its own benefits.

It is always good practice to plan in advance, and although many of the above issues may appear daunting to tackle, we at Green & Co can provide you with the support needed to make this a stress-free process.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net