News: Tax Planning Tips from Paula

Posted on 6th November 2019

It was going to be Boris’ first Budget today with, we hoped, a few sweeteners or at least the promise of a few. As we’ll only know on Friday 13th December what party or coalition will deliver the next Budget, what can you still rely on when trying to be tax efficient? As I see it, these are the enduring themes:

  • Innovation is a good thing
  • Green incentives will continue
  • Pension saving will still be encouraged (until your pension is ‘big’).
  • Timing is (nearly) everything

How do these themes translate into the tax system for you?

  1. Incentives to innovate such as research and development (R&D) tax relief are likely to continue. Linked to these are enterprise investment schemes (SEIS and EIS) as a way of encouraging investment into certain companies. Therefore, you could take the view to not hold back and carry on planning for these to be around. Keep calm and carry on!
  2. Low salary and high dividends remain likely to be tax efficient. With owner-managed companies, the shareholder-director has two capacities: as a shareholder and as a director. As long as this distinction remains, and national insurance remains high, it seems hard to see how a high salary can be more tax efficient than taking dividends.
  3. The company car has been restored! As long as it’s electric. From 6 April 2020, the taxable benefit, including ‘fuel’, will be £ZERO for all 100% electric cars. It will also be £ZERO for new hybrid cars registered on/after 6 April 2020 with up to 50g/km emisisons and at least a 130 mile range. The rates increase a tiny bit in later years, but it’s still likely to be a good option for your company, particularly if you take into account the company also saves tax on 100% of the cost in the year of purchase.
  4. Always at least consider making pension contributions. These work well for profitable companies when owners have taken all the dividends they need or want within the tax brackets and thresholds, and at the same time, they save corporation tax. Although higher rate tax relief for income tax may be reviewed, it would be a brave Chancellor to take away pension freedoms. Therefore you could arrange for company contributions to be paid into your pension scheme, wait until only age 55 to take, say, 25% out tax free, but delay taking the entire pension until later. Admittedly the 25% tax free part may be at risk, but I wouldn’t expect that to be brought in overnight. And you could at least still take your pension when your income tax rate is low, for whatever reason. Please take IFA advice along the way.
  5. Business and tax year ends – timing of income, costs, dividends. Always remember your company year end date eg 31 March and the tax year end of 5 April and ensure that you use them well. For example, when you pay interim dividends, don’t pay them on 5 April if you want it to be taxed in the next year. If making the company pension contributions referred to above, make sure the company pays them before the company year end, otherwise the corporation tax relief is delayed by 1 year. Finally, if you’ve made losses investigate whether you can get a tax refund whether you’re a sole trader, partner or limited company.

Conclusion

Of course, no-one knows what will actually happen, so please know there is some risk with any decision you take. Just take good advice and then decide!

 

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