With many businesses using the calendar year as the timeline for their financial year, now may be a good time to take stock and review your financial plans to make sure you and your business are making the most of all tax-saving opportunities you are eligible for.
Of course, your planning will require identifying any areas where your local TaxAssist Accountant can help you to reduce your tax liabilities, boost the profitability of your business and maximise your personal wealth.
It’s also worth considering making your financial planning an ongoing, year-round activity and ideally one that is not left until a few days away from your business’ fiscal year end.
To get your planning off to a good start, we offer some tax-efficient tips that you might wish to consider.
A steer on company cars
So, let’s put your plans into the right gear and look at whether a company car is the best option.
While company cars can be useful for some businesses, you may be surprised to hear that they may not be the most tax-efficient option.
The car benefit and car fuel benefit (where fuel for private use is provided with the car), on which you pay income tax at up to 45%, is calculated at up to 37% of the list price (car) and the same percentage on a notional £22,600 (fuel) in 2017-18.
With the percentages (and therefore the taxable benefits on cars) rising on an annual basis, now may be the perfect time to carry out a thorough review of your company car policy. It may be more beneficial to pay your employees for business mileage in their own vehicles at the statutory mileage rates, especially if their business mileage is high.
In some cases, a company van might be more appropriate. The taxable benefit for the unrestricted use of company vans is £3,230 plus a further £610 of taxable benefit if fuel is provided by the employer for private travel. Please note that changes to the rules on company cars are set to take effect from April 2018 onwards, with the appropriate percentages due to rise significantly.
Maximise personal allowances
When planning your financial goals, you may be surprised to learn that your whole family can play a vital role in helping minimise the amount of taxes you pay.
Each spouse is generally entitled to their own personal allowance (PA), which for 2017-18 is £11,500. Therefore, if your spouse or partner has little or no income, you might want to consider spreading your income more evenly to ensure that you make full use of each PA. This may involve transferring income or income-producing assets, but be mindful of the settlements legislation governing ‘income shifting’. Any transfer must be an outright gift and have ‘no strings attached’.
Certain married couples may also be eligible to transfer 10% of their PA to their spouse. The Marriage Allowance is available to married couples and civil partners where one earns no more than £11,500 and neither pays tax at the higher or additional rate. It means £1,150 can be transferred in 2017-18, reducing a couple’s tax liability by up to £230 in the current year.
Reduce taxable income
Occasionally, it might be appropriate to think about ways to reduce your taxable income, for example by increasing contributions into a pension scheme or making charitable donations via Gift Aid. This may be beneficial if you or your spouse or partner are receiving Child Benefit, and either of your incomes are expected to be £50,000 to £60,000. Reducing income to below this level may help to eliminate the High Income Child Benefit Tax Charge, which applies at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. You might also want to consider adopting a similar strategy if your income is just above £100,000, as the PA is reduced by £1 for every £2 of income over this figure.
Capital allowances relief
If you are thinking about buying some new business equipment, you should consider whether you can make a claim for capital allowances.
Most businesses can claim a 100% Annual Investment Allowance (AIA) on the first £200,000 of expenditure on a vast range of plant and machinery (except cars and a few other items). The AIA applies to businesses of any size and most business structures, but there are provisions to prevent multiple claims.
‘Greener’ investment is encouraged through specific 100% first year allowances available for some investments, including energy-saving equipment and low CO2 emissions cars (up to 75 g/km, reducing to 50 g/km from April 2018). Otherwise, the general rate of annual writing down allowance is 18% on the reducing balance, with an 8% allowance for certain categories, including cars with CO2 emissions exceeding 130 g/km, long life assets and certain specified integral features of buildings. It is worth noting that the main rate threshold for capital allowances for business cars is set to reduce to 110 g/km from April 2018. Therefore, it could be prudent to make any purchase in the current tax year before the figure falls, but please speak to us before acting.
Typically, if a purchase is made just before the end of the current accounting year the allowances will usually be available a year earlier than if you bought it just after the year end. In the same way, selling an asset may trigger an earlier claim for relief or even an additional charge to tax.
We can help
These are just some of the areas for which we can offer advice on ways to keep your tax bill to a minimum. We can review your finances and ensure you are claiming the expenses you are entitled to (either in your business or against your employment income), look for any planning opportunities relating to allowances and reliefs.
Last updated: 4th October 2020This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.