To help with tax planning for the 2021/22 tax year we have put together a list of tax-saving tips and reminders about what allowances are available both for business and individuals. With the Chancellor looking to raid businesses to pay for the Covid-19 business support and furlough schemes there has never been a better time to tax plan and try and reduce your tax bill as much as possible. It’s going to get tough for small businesses so we have put together another checklist of tax-saving ideas for small businesses.
ISA (Individual Savings Account)
You can put up to £20,000 in an ISA every year but you cannot carry over between tax years. You have until midnight on the 5th of April 2022 to finalise all your ISA contributions. ISAS are free from Capital Gains Tax and Income Tax so make sure you max out and put in as much as you can afford.
ISA: £20,000
Junior ISA: £9000 a year
Help to Buy ISA: £200 a month
Lifetime ISA: £4000 a year
ELECTRIC CARS – TAX PERKS
The tax perks for companies are outstanding. For example, if you picked up the keys to a sporty, petrol-fuelled BMW 3-series company car you will pay a benefit in kind (BIK) tax of 32 per cent, rising to 34 per cent by 2022-23. However, had you opted instead for a top-of-the-range Nissan Leaf for a similar price, the BIK would be zero this year, 1 per cent next year and 2 per cent the year after. Over three years a higher-rate taxpayer opting for the BMW will pay around £13,700 in tax. The Nissan Leaf driver just £423. An electric car can also cost half as much to run, and you pay no road tax. You are also exempt from paying the London congestion charge, potentially worth thousands a year to a daily commuter.
For business owners there are extra perks for running an electric car. Brand new zero-emission cars qualify for a 100 per cent first-year tax allowance, which means company owners can write off the whole cost of the car against their profits in year one thereby reducing their corporation tax bill. Also, charging the car at the office is not a taxable benefit either.
SALARY vs DIVIDENDS
Very importantly take money out of the business in a combination of dividends and salary. Make sure your accountant calculates the most tax efficient way to do it. If you are married, pay your spouse a salary that reflects the work that he/she does for the business. Remember the tax-free dividend applies to all directors.
PENSION CONTRIBUTIONS
Consider making Pension contributions. It is one of the most tax efficient saving schemes about and there are a number of options available to you. Pension schemes are ways for you to save money for retirement. Self-Invested Pension Plans (SIPP) are gaining more popularity as you decide how much, when and where you invest. Make sure you consult a Pension Advisor. Also, keep up your NI contributions to build up your state pension entitlement.
KEY EMPLOYEES – REDUCE YOUR NI BILL
Depending on whether you are a limited company or partnership consider making key employees directors or partners. This can reduce your NI bill and increase key employee loyalty.
BUSINESS STATUS
Consider the best tax efficient status for your business. Your accountant should be able to help you with this decision by doing the sums. You have three options:
a. Limited Company
b. Partnership
c. Sole Trader
More information can be found here: https://taxcompute.com/company-formation-business-start-up/
SELLING YOUR BUSINESS
If you are thinking of selling your business make sure you tax plan and make sure your accountant gives you sound advice on how best to plan for this. You have worked hard so you deserve to retain as much profit as possible.
VAT FLAT RATE SCHEME
If your net sales are less than £150,000 consider switching to the flat rate VAT accounting scheme. There are rules and it is not always beneficial but the administration is much easier and again get your accountant to advise you on this. Under the flat rate scheme, you do not need to calculate the VAT liability from invoices received and issued. Instead, you pay VAT as a flat rate percentage of sales. You may pay less VAT but make sure your accountant does the sums for you.
CAPITAL ALLOWANCES
Maximise your capital allowances especially if you own the business property. We are sometimes surprised to find that owners of business properties have not maxed out on the capital allowances that can be claimed.
RESEARCH & DEVELOPMENT (R&D)
You may be entitled to R&D tax credits. We work with one of the leading R&D specialists who will review and calculate your entitlement to tax credits and prepare the R&D forms for submission.
More information can be found here: https://taxcompute.com/about-r-d-tax-relief/
EMPLOYEES ON LOW WAGES
You should note the following and research whether any of your employees have eligibility. The HMRC website provides up to date information on this. And remember as an Employer you must pay the minimum wage and take care of your employees as best you can by ensuring they all receive their full entitlements.
a. Working tax credits
b. Child tax credits
c. Universal credit
d. Childcare vouchers
EMPLOY YOUR CHILDREN THROUGH THE COMPANY
You can generally employ any of your children aged 13 or over and pay them a salary which is deductible from your own business income. How much can you pay a relative to work in your business? A salary paid to a child must be justified by the amount of work which they actually do in your business. So, for example if your child works one hour a day you can only pay them a salary commensurate with that amount of work.
TAX-FREE EMPLOYEE BENEFITS
- Providing company bicycles. Or pay employees up to 20p a mile when they use their personal bicycles for business.
- You are allowed to give one mobile phone to each employee.
- Transport subsidies.
- Providing health club membership.
- Workplace crèches.
- Allowance of £150/year for staff parties
INVESTING EIS & SEIS SCHEMES
If you are a higher-rate taxpayer and willing to take risk you could consider tax-efficient investments in the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS). Under these schemes there are generous tax incentives for investing in smaller start-ups or unlisted companies.
INHERITANCE TAX (IHT)
Do you know the value of your estate and will your family be burdened with IHT? Have you considered IHT planning and if you have not done so already, you need to start?
Exempted gifts
- You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’. You can carry any unused annual exemption forward to the next year – but only for one year.
- wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- payments to help with another person’s living costs, such as an elderly relative or a child under 18
- gifts to charities and political parties
- You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.
The Inheritance Tax seven-year rule
- This means the beneficiary of the gift will only be completely tax-free if you survive for at least seven years, following making the gift. If you die within seven years, the gift will be subject to IHT. This is known as the seven-year rule.
- If there’s Inheritance Tax to pay, it is charged at 40% on gifts given in the 3 years before you die.
- Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.
More advice on Inheritance tax can be found here: https://taxcompute.com/inheritance-tax/
If you require further information please contact us. As Accountants, Tax Compute will always advise what is best for the client. Give us a call and we can offer you a free consultation and advice on what is best for your business.
Roger Gunning FCMA CGMA
roger@taxcompute.co.uk
Hammersmith Office
Tel: 020 7118 4422