With the end of another financial year in sight, are you sure you’ve utilised all the opportunities to minimise your tax burdens?
Manchester based accountants, Jack Ross would like to highlight a number of year end tax planning opportunities that could potentially help your company make substantial tax savings.
Some maybe appropriate for you – others may not – but they are definitely worth a look!
Bringing Forward Costs
Perhaps you could consider bringing forward staff bonus payments, review provisions against bad debts or accelerate “discretionary” expenditure such as building maintenance, advertising, purchasing business assets (see Capital Allowances below).
Capital Allowances
When assets are purchased for a business, such as machinery, office equipment or motor vehicles, capital allowances can be claimed which will go towards reducing a company’s taxable profits.
Capital allowances are given at different rates. The Annual Investment Allowance (AIA) is the most generous, providing a 100% write off on most types of plant and machinery, but not cars, on spend up to £500,000 per annum for a period of two years ending 31st December 2015. Thereafter the AIA drops to £25,000 per annum.
In addition to the AIA an enhanced 100% capital allowance is available on energy efficient plant and low emission cars.
Should you be think of purchasing business assets then consideration should be given to the timing of the purchase. You may also be considering purchasing or changing company cars, in which case thought needs to be given to how green the car is and the effect on capital allowances.
Directors Loan Accounts
As a director/shareholder you may have loan advances made to you by the company (e.g. your personal expenses paid by the company). These are accounted for via a directors’ loan account with the company which may become overdrawn.
If the directors’ loan account is still overdrawn nine months after the accounting year end then a tax charge of 25% will be levied on the company.
It should also be noted that if the loan account is overdrawn by more than £10,000 then a taxable benefit-in-kind will arise on the director.
Due to the tax implications for the company and the individual it is advisable that the loan accounts are cleared as soon as possible – this will help to reduce the benefit-in-kind and tax charge arising on the director.
Extracting Dividends from the Company
For the year ending 5th April 2015 the basic rate tax band is £41,865 (this increases to £42,385 from 6th April 2015). If an individual receives dividend income up to the basic rate tax band then they will have no additional tax pay on the dividend.
If the company has sufficient funds then dividends should be extracted to make full use of an individual’s basic rate tax band.
Benefits-in-Kind
Providing benefits-in-kind (company car/fuel, medical insurance etc) to directors/employees can be costly to both the company and the individual. The company may be liable to Class 1A National Insurance (13.8%) on the cost of providing the benefit and the individual will be taxed on the benefit. It may be worthwhile considering if the benefits are actually beneficial or whether they can be provided more effectively.
On a compliance point if you provide directors/employees with benefits-in-kind or reimburse expenses then you will need to submit and annual P11D return to HM Revenue & Customs. This can be a particularly onerous annual procedure. Our Manchester team at Jack Ross can assist with these – call us today on 0161 832 4451 for more information.
Pension Contributions
The company will obtain tax relief for employer’s pension contributions paid during the year. This is generally tax and national insurance free for the employee, although care needs to be taken to ensure the payment is commercially justifiable and any contribution is within the individual’s annual pension limits.
Donations to Charity
A company’s donations to charity are tax deductible, so care should be taken to accurately record all such donations.
If you would like more information or assistance on any of the above areas please call our Jack Ross Manchester Accounting team on 0161 832 4451 or email info@jackross.co.uk.