BUSINESS IN FOCUS Year End Tax Planning
As I write this I’m currently surrounded in a sea of tax returns, thankfully the majority of my clients have sought my advice during the year and have planned their tax affairs accordingly, however throughout the years I have seen many examples of were, in some case, simple planning could have avoided or reduced tax liabilities. Written by Robbie Barr, Muldoon & Co Chartered Accountants
T
hus NOW is the time to consider what tax planning you can put in place ahead of the expiry of the
current tax year. It is important to regularly review your tax affairs to ensure you are obtaining the appropriate relief and with this in mind, I have detailed below some tax planning tips.
Capital Gains Tax • Each individual has a capital gains threshold, below which gains are not taxed. The threshold for 2015-16 is £11,100. Is it possible to spread your planned disposal before and after the 5th April 2016 and thereby obtain two sets of exemptions?
• Capital disposals between a husband and wife are treated on a no gain no loss basis, hence providing the opportunity to transfer some assets to your spouse prior to disposal in order to utilise their exemption as well.
• Careful planning involving and combining the previous two points can save up to £9,300 of tax.
• Entrepreneur’s relief is available on most trading assets; this allows the gain to be taxed at an effective rate of tax of 10% (for higher rate taxpayers). In order to avail of the relief certain conditions and timescales must be met. Please ensure these conditions are met prior to the disposal of the assets.
• Losses on capital disposals may be utilised against any gains occurring in the same tax year or later tax years, however they cannot be used against gains generated in earlier tax years. Hence, if you have the ability to plan when you will incur a capital loss it is better to realise it before crystallising capital gains elsewhere.
• In some circumstances it may possible to offset a capital loss against income, however there are very specific conditions that need to apply thus specialist advice should be sought.
Income Tax • If you are self-employed or trade as a limited company and are approaching the end of your financial year end, you should consider what expenditure you have planned. Can this expenditure be brought forward so that it occurs before the year end? This will ensure
you receive the tax relief a year earlier than had you waited until post year end.
• Does your spouse or other family members work for the business; do they actually get paid the appropriate rate? Employing a family member not only allows income to be retained within the family circle but the cost of employing them will enjoy tax relief. Care must be taken to ensure the rate of pay is commercially justifiable so that it can be defended against any attack from HMRC.
• If you are trading as a self-employed individual or a partnership; have you considered converting to a limited company? The tax savings can be substantial, even after the recent changes in dividend tax legislation.
• If you trading via a limited company: - Are you remunerated via a combination of minimum salary and dividend as opposed to pure salary? Again the tax savings can be substantial. - Is it possible for you to declare more dividends prior to the introduction of the higher dividend tax rates which come in force on the 6th April 2016? - Are you owed money from the company, have you considered charging interest to the company to take advantage of the tax free limits for individuals who receive interest?
Investments • Income & gains from ISA’s are tax free. Have you utilised your annual contribution level?
• Personal pension contributions are paid net of 20% tax, however 40% taxpayers will benefit from an additional 20% relief.
• New rules restricting the level of pension contributions for individuals who earn more than £150,000 come into force on the 6/4/16, if you fall into this income bracket you should give this serious consideration.
• Investments into Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) enjoy tax relief at the rate of 30%, subject to various restrictions. The relief can be applied to the year in which the investment is made or carried back to the previous year.
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As with all investments, professional advice should be sought before making any decisions.
These are a few ideas to consider for tax housekeeping however you should set aside time to seek professional tax advice on a regular basis. n
For independent, professional advice, contact Robbie Barr on 028 9032 5050 or email
robbie@muldoonaccountants.co.uk Muldoon & Co Chartered Accountants, 16 Mount Charles, Belfast BT7 1NZ.
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