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Year-end tax planning is crucial, not just to ensure opportunities are seized and the correct amount of tax is paid, but also to ensure compliance with the rules, and to be ready for changes in the tax laws.

For business owners, year-end tax planning must combine an assessment of both personal and business taxes.

The list below is possible ideas of ways that you can legitimately reduce the tax payable on the profits for the year ended. If any of them seem to apply to you, call us to discuss them further. 

For personal tax there are many elements that need to be part of your decision making.

  • When it comes to car ownership you need to consider which is best for your circumstances:
    • Personal or Company ownership
    • Petrol, Electric or Hybrid
    • Own the car or lease it
  • Planning income will help you to make full use of the allowances available and lower rate thresholds such as:
    • Use personal allowance & Basic Rate Tax Band in full
    • Aim to stay below £100k taxable income (to preserve personal allowances)
    • Aim to stay below £150k taxable income (to prevent top rate tax being applied)
    • Use dividends / Directors loan account drawings to manage income levels year on year
    • Share / pass income bearing assets with spouses to ensure their personal allowances / basic rate tax bands are also used.  But beware passing only a right to income to the spouse (and retaining the capital value of the asset), HMRC can and do unravel this type of arrangement.  A form 17 may be required for some assets to split the income differently to the actual ownership split.
    • Use family trusts to pass income to children, using their personal allowances, whilst retaining control of both the capital and accumulated income.
  • Can the use of tax efficient investments, such as ISA’s and Junior ISA’s be right for you?
  • What are your mortgage payments? Is it worth comparing the interest rate cost / tax relief available in order to decide whether to pay down capital balances or personal mortgages or buy to let property mortgages?
  • Do you want to plan for the future and explore tax efficient pension contributions (personal and company) or commercial property acquisition / planned investments.  
  • Are you planning to give charitable donations? Don’t forget you can claim tax. It is important to note that any donations must be made before the tax year end.
  • Are you applying Capital Gains Tax annual exemption wherever possible? For example by making disposals from a property investment portfolio / by passing shares / property equity to your children?
  • Have you considered ownership of buy to let property, and what the implications for tax relief on mortgage interest can be?

 

 

A range of complex interconnecting issues that require very careful planning.

Just like personal tax there are many factors that need to be considered for business tax.

  • There are opportunities to make claims which affect only your taxable profit these include
    • Making full use of Capital Allowances on plant, equipment, fixtures, cars etc. acquired in the year.  Consider whether all available allowances have been claimed on assets acquired in the past (especially property and property improvements)
    • Ensure that Research & Development claims are considered for any ‘trial and error’ based activities or problems solved by the company.  A Small & Medium Enterprise can claim an enhanced deduction of 230% of its R&D expenditure against its taxable profits (or a repayable tax credit of 14.5% for loss making companies.
  • By changing your accounting date you can
    • accelerate recognition or use of losses
    • delay payment of tax on rapid increase in profits / one off profitable events
    • plan timing of  quarterly instalments to fall at times when cash is available (e.g. for seasonal businesses)
  • If you have any overdrawn director loan accounts plan to clear them within 9 months of the year-end to prevent a 32.75% Section 455 tax charge. Understanding the tax implications of ‘doing nothing’ is the important first step in understanding the tax arising on the options to clear the loan balances.
  • If insufficient distributable reserves exist to pay dividends, consider clearing overdrawn loan account balances by writing them off.  This can be taxed like a dividend, but must be planned carefully.
  • Plan the use of capital allowances within a group.  This can help to access past trading losses locked into group companies. 
  • Where a group exists, plan any capital disposals to ensure the gain arises in the most suitable group member for tax efficiency.
  • Keep one eye on the upcoming increase in Corporation Tax in April 2023 (from 19% to 25%). Could any income be accelerated, expenses deferred, or claims and allowances deferred?
  • Consider making tax efficient employee / director pension contributions – these must be paid before the year end.
  • Consider the ‘trading’ status of the company shares for Capital Gains Tax (Business Asset Disposal Relief) purposes, and Inheritance tax (Business Relief) purposes.  Significant cash or non-trading assets / activities could put these allowances at risk.  Action may be taken to minimise that risk.

 

As you can see Year-end Tax Planning is not only complicated but you need to be on top of the do’s and don’ts. It should be part of your annual tax planning strategy which guarantees you are using the right structure and have the right security in place to protect your finances. If it isn’t or you feel more can be covered give us a call.