Chris Williams takes a look at some tax planning ideas with the end of the tax year in mind.
Make use of tax allowances, etc.
There are two ways:
- Draw enough salary or bonus to qualify for NIC credit without paying any. Directors’ NICs are calculated on an annual basis and the threshold for paying contributions (employer’s start lower than employee’s) is £7,696, so peg your salary at £7,695.
- If you are the sole shareholder take the rest of your income from the company as dividends.
If your spouse or partner is involved in the business too, pay them a salary appropriate to their level of work if they’re a basic rate taxpayer and you pay higher rate tax; but don’t pay them more than you can justify to HMRC as reasonable. If you give them shares they can receive dividends too but don’t try to be too clever by waiving your dividends so that they can receive more: even if the company has enough reserves to pay the full dividend, including any waived amounts, HMRC are likely to call any diversion of income a ‘settlement’ and tax you on it anyway, as well as charging penalties for incorrect returns.
Self-employed? Can you bring your spouse into partnership?
If so, you can allocate him/her a share of the profits to use their spare income tax allowances.
Estimate your business profits and your likely tax bill on the income you’ve received so far.
Have you maximised your pension contributions?
Unused relief of up to £150,000 from the last three years can potentially be brought forward and used this year. The annual allowance goes down from £50,000 to £40,000 from 6 April. Just make sure you actually pay the premiums before the end of the year.
Claiming capital allowances
If your business needs to invest in new plant or equipment, get it ordered before your year-end (don’t leave it till 4 April if you make your accounts up to 31 March) to claim capital allowances. But make sure that you can get it delivered within four months to be sure of getting the allowance in this year. You can claim 100% annual investment allowance on expenditure of up to £250,000.
Relief for bad debts
Times have been hard and you may be owed money, so review every debt owed to your business and take a hard look at your debtor list. You don’t have to write them off, but you can make a provision for any that you think unlikely to be paid and so won’t have to declare profits that you haven’t received.
Check the VAT too!
If you’re providing for bad debts in your accounts make sure you’ve made the correct VAT adjustments and get back any overpaid VAT.
Annual CGT exemption – Use it or lose it!
Have you got gains on shares? Sell enough to realise gains up to your £10,900 annual exemption, but don’t buy them back personally within 30 days or you’ll be caught by the bed and breakfast rules. But if you sell and your spouse buys an equivalent holding of the same shares those rules don’t apply. You can do the same by one of you selling and the other buying.
If you’re expecting to make a gain of more than £10,900, consider putting the asset into joint names with your spouse to use their allowance as well.
Another way of reducing CGT if you are expecting to make large gains is to sell enough before 5 April to use this year’s allowance and the rest afterwards: you’ll not only make full use of your allowance, you’ll also defer paying the tax until 31 January 2016.
Practical Tip:
Don’t forget inheritance tax! You can make any number of ‘small gifts’, up to £250 per person and have an annual exemption for gifts up to £3,000, which is increased by a further £3,000 if you didn’t make any gifts last year.
