Legal/Finance
Business advice from Griffins – Ray Honeywill answers your questions
It seems that we are going to be in for ever-increasing taxes over the next few years. What should my wife and I be considering before the end of the tax year? Vanessa
Dear Vanessa
You might be able to save tax by switching income from one spouse or partner to the other. You should aim to use up both individuals’ personal allowance (£6475 in 2009/20 and 2010/2011) and minimise any higher rate tax.
Couples earning higher incomes should think ahead. From April 2010 6, income over £150,000 will be taxed at 50 per cent, and the personal allowance withdrawn where income (less certain deductions) is more than £100,000.
You and your partner could reorganise your financial affairs now to avoid exceeding one of these limits next year. However, there might be capital gains tax to pay on switching ownership of an investment if you are not married or in a civil partnership.
If you are in business, you could pay a non-earning partner a salary on which you will then get tax relief.
You will not need PAYE records if the salary is below the national insurance contribution limit of £412 a month in 2009/10. However if the salary is between £412 and £476, your partner will avoid paying any NIC’s, but will still qualify for state benefits, such as a pension. In particular your partner’s benefits under the state second pension will accrue as if the annual salary were £13,900.
As well as salary, you can pay an employers contribution to your partner’s personal pension plan. There is no tax or NIC on the payment itself and it should be an allowable business expense. Be warned that the total value of your partner’s salary, benefits and pension contributions must be justifiable in relation to the work performed.
Alternatively, you could share the profits of your business by operating as a partnership. You both need to be genuinely involved as business partners though not necessarily equally.
If you operate your business as a company in which you both have shares you should consider paying a dividend before April 6 2010, if the gross income (including tax credit) falls into the basic rate band or to avoid next years tax increases for higher earners.
You could even give shares to your spouse or civil partner shortly before paying the dividend, provided you genuinely transfer ownership. You should leave as much time as possible between the gift and paying the dividend.
I have recently taken over my father’s catering business and I am currently looking at the businesses tax position. We operate out of a rented industrial unit and buy in a lot of specialist equipment. Is there anything I should be considering before the year end? Neil
Dear Neil
Business tax planning is usually best done before the end of the accounting period, but even if your business year end is not the 31 March or 5 April, this is a good time to review your tax position.
Much capital expenditure can qualify for tax relief. Businesses now get immediate tax relief on the first £50,000 a year spent on most types of equipment and many fixtures in buildings. There is also a 40 per cent allowance for certain expenditure above £50,000 incurred up to April 5 2010. You might be able to maximise tax relief by planning the timing of your purchases.
Consider when to dispose of cars and other equipment. Whether a disposal is before or after your accounting year end will affect your tax payments.
Up to £50,000 of trading losses made in your accounting period ending in the 2009/10 tax year can be carried back and set against profits up to three years earlier. You might be able to maximise expenditure this year, or in some cases even change your accounting period end to take advantage of this temporary extended loss of relief.
The major planning point to remember is that the timing of expenditure and asset disposals before or after the end of you accounting period can affect the amount of tax you pay.
For more information please feel free to contact the Griffins tax team on (01635) 265265. Alternatively e-mail Ray Honeywill, tax partner, on r.honeywill@griffins.co.uk
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