Business Profile
In the run-up to Christmas, it may seem that there are more pressing concerns than tax planning. But the Government is grappling with a huge deficit, and tax increases are imminent. You should review your affairs now, before the year-end deadline of April 5 2010 to ensure that Gordon Brown, in his efforts to bridge the gap, does not take any more of your hard-earned cash than he needs to.
The 2009 Finance Act announced an increase of the top tax rate to 50 per cent on taxable income over £150,000, and from April 2010 earners over £100,00 will suffer a withdrawal of their personal allowances. Also, the VAT rate returns to 17.5 per cent on New Year’s Day.
Whether you are in business as self employed, in partnership, or a director of a limited company, here are some examples of tax planning that you should be thinking about right now:
n A change of year-end accounting date can make a difference to the timing of tax payments on business profits, and also enable overlap relief to be used from earlier years.
n Choose whether to take a bonus, or pay a dividend before or after 5th April 2010, which may reduce the rate of tax payable, and affect when the tax is due.
n A director who is a major shareholder in the company should consider the balance of salary and dividends to use up personal allowances and basic rate bands, and minimise the NIC burden. Don’t forget that your spouse has personal allowances and a basic rate band too, so if they help in the business consider making them a partner or employee (as long as the pay is commercially proportionate to the work they do) in order to maximise the income coming into your household. (Subject to the IR35 rules).
n The first £50,000 of the year’s investment in plant and machinery (except cars) is allowed 100% tax relief. FA 2009 allowed for additional expenditure over the Annual Investment Allowance level to qualify for a First Year Allowance of 40 per cent, rather than a 25 per cent Writing Down Allowance, for a 12 month period starting on April 1 this year. Bringing forward capital expenditure could accelerate the rate at which you can claim allowances.
n Consider whether it is tax-efficient to have a company car with the taxable benefit implications, or claim the Revenue’s tax-free mileage allowance for driving your own car on business.
n If you are the director of a family company, pension contributions can be a tax- efficient way of extracting profit. With tax relief, a higher rate taxpayer can add £1,000 to their pension fund for only £600. Employer contributions to an employer scheme are free of tax and NI for the employee, and provided the payment is made before the year end and is deemed for a business purpose, the company will also receive a full deduction against its taxable profits. There’s a single lifetime limit (£1.75 million for 2009/10) for contributions qualifying for tax relief and also an annual limit (£245k for 2009/10). There are complex rules restricting those on incomes over £150k from increasing contributions in 2009/10 and 2010/11 so you should take advice on this.
Some tax planning strategies apply to everyone – use up your annual ISA allowance before April 5, consider other tax-efficient investments like National Savings, Enterprise Investment Schemes and Venture Capital Trusts, and check your PAYE coding is correct. Whether you have a young family, and are reviewing your Child Tax Credits, or over 65 and not sure if you are getting your full age allowances or are entitled to a tax refund, or thinking about using some capital or income losses, now’s the time to get expert advice.
PBA Accountants
130 High Street, Hungerford, RG17 0DL
Tel (01488) 682027
Fax (01488) 684759
http://www.pbaaccountants.co.uk
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