Tax Planning Services – Plan Tax Efficiencies and Reduce Your Company or Personal Tax Bill
Planning your financial affairs to induce tax efficiencies is legal and is completely different from tax evasion, which is undertaking illegal activities. Company Tax Planning could involve cash extraction strategies or implementing an Enterprise Management Incentive (EMI) while Personal Tax Planning may explore opportunities around Inheritance Tax or Gift Aid. Adams Moore can help you or your business take advantage of available reliefs, allowances and contributions to reduce your tax bill in a legitimate way. Please contact us to discuss your needs and to arrange a free accountancy consultation at our offices in Tamworth, near Birmingham, or over the phone.
Tax Planning for Businesses
Businesses need to focus on tax planning for corporation tax reasons, such as bringing forward expenses into the current financial year, but the company owner will also need to consider his or her income tax liabilities. For example, the dividends a business owner takes are not liable for National Insurance Contributions (NIC) and they could take advantage of pension contribution tax relief. Below is a selection of some very simple tax efficiency tactics as well as some you may not be aware of.
How Money is Taken Out of the Business
Directors and Shareholders can enjoy their profits through a salary, dividends and company contributions to a pension, and choosing the right balance and timing can generate tax efficiencies. Dividends extracted in the following tax year provides tax cash flow advantages, as tax isn’t liable until the year after. Bringing outgoings forward or pushing the generation of income into the next tax year can also help with planning what the tax bill will say.
Business Property Relief (BPR)
This option is a relief from inheritance tax for certain shareholdings or assets that are used by the business, but there a number of conditions that must be met. The shares, assets or securities become either 100 or 50 percent inheritance tax exempt after the relatively short holding period of two years. The shares must still be held at the time of death.
Enhanced Tax Deduction for Research and Development
A tax break can be gained by companies that undertake scientific or technological research and development to advance their field, not individual business. Even if the goal was not reached, a claim can still be made as long as the business can meet the criteria. The Research and Development Tax Credit allows 11% of your qualifying R&D expenditure up to 31 December 2017 and 12% from 1 January 2018. The SME R&D Relief allows companies to deduct an extra 130% from their yearly profit, to make a huge 230% deduction.
Tax Relief Allowances on Capital Expenditure
A business can take advantage of a range of tax allowances when purchasing capital assets, which include machinery, integral office features and company cars. An accountancy firm like Adams Moore can advise on the most beneficial timing of such purchases, especially when large amounts of money are impacting your company finances; plant, property and building or refurbishment work are the most common substantial purchases and sales that should be planned for.
Tax-approved Options Schemes
An Enterprise Management Incentive (EMI), for example, can help companies with assets of under £30 million attract and retain the talented staff required to grow. Employees can be granted share options as a reward in lieu of a bonus scheme and a Corporation Tax deduction and NICs not being payable are the tax benefits for the business.
Patent Box – companies that operate and hold patents could see profits taxed at rates as low as 10%
Entrepreneurs’ Relief - individuals and certain trustees can obtain tax relief when selling part or whole of a business as well as shares
Family Businesses – tax reliefs can be maximised if the family business is structured right, and pitfalls can be avoided if it is being passed on or sold to family
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) – smaller, higher-risk trading companies can offer tax relief to investors while raising finance
Tax Planning for Individuals
More individuals than you might think can benefit from planning their tax affairs. From self-employed people to those earning more than £100,000, from individuals who qualify for tax credits to married couples who can better utilise their tax free personal allowances. Below are some examples of the areas in which Adams Moore can assist.
Where one person in a married couple is a higher or additional rate tax payer and their spouse pays no or the basic rate of tax, assets that bring in money can be transferred to share the income effectively. Whether the income is from a rental property, investments or company shares, couples may be able to reduce their tax bills by full utilising their tax free personal allowances. Furthermore, if requested, income from a jointly held property can be assessed for tax purposes in line with the actual beneficial interest rather than assumed equally.
Personal Pension Contributions
Personal pension contributions come with the potential for gaining tax relief, and effects people who earn over £100,000 who have lost their tax free personal allowance and over £150,000 where tax is paid at 45 per cent. Considering tax efficient company benefits in lieu of a proportion of salary can also have the same effect of lowering the taxable income.
Gift Aid Donations
If a person donates money to a registered gift aid charity, tax relief can be gained on their marginal rate of tax, which is the percentage of tax paid on earnings for the next pound earned. This can be a beneficial approach for those who pay high tax rates, and tax liabilities can be reduced if the claims are made at the most advantageous time. For example, tax relief on donations can be claimed for up to the date you submit your tax return, not just the previous financial year.
Planning for the somewhat controversial Inheritance Tax should start earlier than you might think, and in doing this it is possible for loved ones to benefit from the full value of the estate. Anyone who has finances in excess of the nil rate band, set at £325,000 until the year 2020/21 should consider inheritance tax planning so assets can be distributed at the best time and generous reliefs can be taken advantage of. Examples of exempt gifting transfers include gifts for marriage, up to £3,000 annually and any small gifts of up to £250.
Capital Gains and Losses
Assets with a potential capital gain can be transferred into the name of the owners’ spouse if the spouse has any unrelieved capital losses for them to be set against. This offsetting can effectively make the assets Capital Gains Tax exempt. If assets are transferred into joint names, both of the people’s annual capital gains tax exemption figures can be utilised upon a sale.
Tax Efficient Investments – ISAs, Venture Capital Trusts and Seed Enterprise Investment Schemes are three options.
Main Residence – To ensure there are no issues with Capital Gains for people who own more than one property, they should elect a main residence.
Tax Credits – self-employed people who do not have steady profits month-on-month may benefit from a protective tax credit claim, whereby the claim is effectively made in advance ready for the time when their income drops.
A Note on Tax Avoidance
Tax avoidance is a grey area because legal means are used to reduce tax liabilities, but they are used in to subvert the system, and are therefore non-compliant; essentially when the law is unclear it can be exploited. There are a number of hallmarks that denote what constitutes a tax avoidance, and before you choose an accountancy and business advice firm, you should feel comfortable with your decision.
Be wary of schemes that:
> Sound too good to be true
> The commercial activity and benefits are disproportionate
> It appears unnecessarily complex or there is no risk
> Money is required to be paid upfront or the scheme promoter pays such a fee
> False arrangements are involved or there are secret agreements
> You are unsure of the verification, supposedly by HMRC, lawyers or accountants
> Offshore accounts or tax haven countries are involved
> Exit arrangements circumvent tax or money is moved in a circle