2012 is going to be an exciting year, with both the Olympics and the Queen’s Diamond Jubilee celebrations to look forward to. But 2012 should also be the year in which we all review our finances to ensure that HMRC does not take more than is absolutely necessary. Here are some items to consider.
Review the structure of your business. If you are a sole trader or in partnership, there might be tax savings in transferring to a limited company. This can usually be done without incurring excessive costs. Companies pay Corporation Tax on profits at 20% up to a certain level and a maximum of 27.5%, whereas the top rate of tax for individuals is now 52% when National Insurance is included. Do remember that you will have to pay tax when you take salary or dividends out of the company, but with careful planning the total deductions can be significantly reduced.
If you run a family business, you might consider employing family members to spread the income and therefore the tax burden. You will need to take care with this, as the level of reward which they receive must be commercially justifiable. Any wages must also actually be paid, and the Minimum Wage rules and similar employment legislation will need to be considered.
Think carefully about the type of car you are using for your business. The rules for taxing company cars are now firmly biased towards encouraging the use of ‘greener’ cars. Higher capital allowances are available for low emission cars, and the benefit in kind is much lower for these; if the CO2 emissions are less than 75g/km, the benefit is just 5% of the manufacturer’s list price and the business can generally obtain tax relief on the full cost of the car in the year of purchase. If you use your own car for business, the tax free reimbursement for the first 10,000 miles in each tax year has now increased to 45p per mile.
Pension contributions still generally attract full tax relief, but the rules can be complex. Over the next few years there will be new requirements for employers to enrol all eligible employees into a qualifying pension scheme and make contributions to their plan. There can be advantages to setting up a company pension scheme now and arranging for the employer to make pension contributions, as this can also save national insurance if structured correctly.