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Business
owners
Many
self-employed traders, or private limited companies, have set their
business accounting year ends to coincide with the tax year end (31
March or 5 April). If your year end is end of March 2011 you may
want to consider the following pointers that may help reduce any tax
liability for 2010/11. The comments will also have some relevance
for businesses, self-employed or limited companies, with year ends
other than end of March 2011 - but obviously there may be more time
to consider your options.
1. If you are
considering significant capital or revenue expenditure during April
2011 or later in 2011 you may want to see if you can bring the
payments forward and claim tax relief in the accounts to March 2011.
This may involve you funding the payments earlier but you may
possibly benefit from reduced tax bills a year
earlier.
2. Following on
from point 1, there are still generous capital allowances for
purchases of equipment that qualify for the Annual Investment
Allowance. The annual limit is set at £100,000 to April 2012 when it
will be reduced to just £25,000.
3. If you are
carrying stock on your balance sheet at cost and it is now worth
less than cost, you should revalue, reducing the stock to its
current realisable value. This will reduce your trading profit in
the current year or increase your losses; it will also reduce your
tax bill or increase any loss relief carry
backs.
4. If you are
considering the sale of a business or business property that will
create a chargeable gain for capital gains tax purposes, you might
be advised to delay contracts until after the 5 April 2011. For
individuals, any tax payable on gains made on or after the 6 April
2011 will not be due for payment until 31 January 2013. Tax payable
on gains on or before 5 April 2011 will be due for payment a year
earlier, 31 January 2012. At present CGT rates are still 18% or 28%.
Also if your gain qualifies for Entrepreneurs' Relief your CGT
liability will be reduced to 10% of gains - up to a lifetime maximum
of £5m chargeable gains (for disposals after 23 June 2010). Of
course it is always possible that capital gains tax rates will be
increased in the 2011 Budget.
5. Consider your
pension options. Could you make additional contributions before the
6 April 2011 to reduce your higher rate tax this year? But beware of
the anti-forestalling provisions if your income is more than
£130,000.
Directors and
employees
1. Directors'
pension contributions. From April 2011 the rules that determine the
amount of tax relief on pension contributions are changing
significantly. The annual limit on contributions allowable is
dropping from £255,000 to £50,000. It may be worth seeking advice
now to see if there is scope to top up directors' contributions
before 31 March 2011.(These changes also affect self employed
persons). Company contributions are usually, but not always, more
tax efficient than personal contributions.
2. Directors'
bonuses. As long as the commitment to pay director's bonuses is
correctly minuted prior to the end of the accounting year, and any
tax and NIC deducted from the bonus is paid to HMRC within 9 months
of the accounting year end, then there should be no problem in
securing tax relief. It is acceptable to hold a board meeting at
which the liability to pay a bonus is crystallised by a decision,
but the amount of the bonus is left undetermined until the accounts
are finalised. In this way, the bonus will be tax deductible in the
year to which it relates rather than the later year in which it is
paid.
Individuals
- Have you
maximised your ISA investments this year?
- Have you
maximised your pension contributions?
- If possible
have you utilised your capital gains tax personal exemption?
£10,100 2010/11.
- If your
employer still pays for the private fuel used in your company car,
you can effectively avoid the car fuel benefit charge if you repay
your employer for the private fuel before the end of the tax year,
or shortly thereafter. Please note that your employer will need to
make this repayment a formal requirement of your employment. It
may be worth crunching the numbers as the tax benefit in kind is
expensive and the private fuel refund may be less. HMRC advisory
fuel rates can be used to calculate the repayment
necessary.
- For
Inheritance Tax purposes each person can give £250 a year to any
number of recipients, as well as £3,000 annually over and above
that. They can also make regular gifts out of their income (not
capital) that should fall to be exempt.
- If you are
married or in a Civil Partnership and one partner/spouse has a
much lower level of earned income, consider transferring income
producing assets to the lower income earner. With the highest rate
of income tax now at 50%, savings could be
significant.
The
ideas outlined above are by no means all the options you may have to
minimise the amount of tax you pay this year. The key is to bring
your current management accounts up to date and weigh the various
options. Please call if we can help.
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