It's all in the (tax) planning
As a timely reminder we have detailed some tax planning tips that you might find useful for you and your business.
Corporate & Business
By Robert Leggett
Make best use of your Capital Allowances – capital allowances are the tax reliefs granted to a business for qualifying expenditure on plant and machinery:
- Annual Investment Allowance – Every standalone business has £200,000 of AIA, allowing 100% tax relief in the year of expenditure. Larger businesses need to keep an eye on this threshold, as the timing of expenditure between tax years can be crucial to getting full relief. But watch out for items such as cars, which don’t get AIA, and for cases where the AIA has to be shared with connected businesses.
- Enhanced Capital Allowances (ECAs) – 100% relief can also be available for certain expenditure on energy efficient plant (if it is on a specified list). When planning a major project such as a building renovation, specifying items on the list can bring down the net cost.
- Capital allowances on historic commercial property acquisitions. Most businesses think about their current capital allowances, but in many cases a commercial property might have been purchased second hand many years ago. It may not be too late to make a capital allowances claim.
Be wary of company cars – the benefit in kind charge for employees with company cars has increased significantly in recent years, and even the lowest emission cars may still be tax inefficient. Private fuel is only very rarely worthwhile now. Fortunately this won’t affect the owners/partners of an unincorporated business who just have their tax relief restricted for private mileage.
Plan for exit
Many business owners will have an eye on their eventual business exit, but fewer undertake tax planning for it early enough. Take advice early to ensure you take the right steps.
Plan your remuneration – how you take profits out of your own company makes a big difference. Dividends will usually be cheaper than salary, so will they be practical in the circumstances? Sometimes, it may be possible to share dividends with a spouse or other family member by moving shares around, but very careful planning is required.
Pay at least enough for state pension entitlement – if you take money out as dividend rather than salary, don’t fall into the trap of having your salary too low to accrue state pension entitlement.
Enterprise Investment Scheme (EIS)
Use EIS to defer capital gains – many are aware of Enterprise Investment Scheme relief when investing in unconnected companies. Fewer are aware that it might be possible to defer capital gains tax by way of an EIS investment into your own company, subject to certain conditions. Income tax relief is not available.
R&D and patent box – there are still companies unaware that they are doing R&D that qualifies for extra tax relief. Consider if you have been trying to find a better way of doing something.
Large groups – if the company you operate is owned by a larger parent company with which you are not involved with, then be aware that you might have additional tax compliance responsibilities based on the size of the group. You need to know more about that parent company!
By Jan McLean
Locum Personal Service Companies (PSCs) and GP Practices
Previously the onus was on the Locum PSCs to determine their employment status with any tax liability resting with the Locum PSC if they were deemed employees. From April 2017 it has become the responsibility of the GP practice to assess the employment status of any Locum PSCs they use and the liability for any tax owed now sits with the GP practice, along with potential penalties. Make sure that you have reviewed your contracts with all of your Locum PSCs - HMRC has an online tool to assist with the decision making process.
Pension Annual Allowance tax charges
Many medical professionals face a large increase in their tax bill in January 2018, due to a quirk in the ‘pension tax’ allowances. From April 2016 if you have adjusted net income of more than £150,000 your Pension Annual Allowance will be restricted, possibly to as low as £10,000. Previously, it was possible for NHS Pensions to pay any tax charges which were in excess of £2,000 but given a peculiarity in the tax legislation only tax on the excess above the £40,000 ‘normal’ annual allowance can be paid via the ‘scheme pays election’. This means that some will personally have to pay tax on the part that falls between the lower £10,000 allowance and the ‘normal’ £40,000 allowance. At 45% tax this could be as much as £13,500.
Some potential tax savings may be made as every tax payer can currently earn £5,000 of dividends completely tax-free (reducing to £2,000 from April 2018). The dividends could be from a classic investment in shares or from your own limited company. If you set up a company with your other GP partners to provide some of your non NHS services, the company would pay corporation tax on its profits (currently 19%), and the first £5,000 of dividends each shareholder takes would be tax-free.
by Graham Page
Consider use of Farmers Averaging of profits across tax years. Recent changes have allowed the averaging to extend over a 5 year period.
Where a significant level of non-farm income is available beware of the rules for the offsetting of farming losses against that income. Restrictions exist and with some careful planning the offset can be maximised.
Keep under review capital expenditure on plant and machinery eligible for Annual Investment Allowances. The limit is generally £200,000 per business and careful planning will allow expenditure on large items of machinery to achieve the maximum.
Capital Gains Tax
Where the sale of a farm (or part of it) is considered – especially where development land is involved – seek advice regarding the potential for claiming the 10% tax rate afforded by Entrepreneurs Relief or the complete deferral of tax by using rollover relief.
Don’t forget that small disposals of land of up to £20,000 in value per year per person are allowed without creating an immediate capital gains tax liability. There are rules to be followed but across a family, each with an interest in a property, a reasonable sum can be generated without incurring an immediate tax liability.
Consider the gifting of non agricultural properties, such as let cottages, together with agricultural land to avoid creating a tax liability on transfer.
Review all of your property assets and seek advice as to whether they qualify for any form of Inheritance Tax Relief.
Make sure that agricultural property with significant development or hope value is held within the most efficient business structure to secure 100% Business Property relief for IHT purposes.
Keep under review IHT reliefs available on property not in agricultural use such as let cottages and buildings and property used for non farming activities. These can, with careful planning, still be IHT exempt.
Consider occupation of the principle houses on the farm. It is more IHT efficient for the house to be occupied by the working generation of the farming family rather than those less active in the older generation.
By Danny Clifford
Income tax relief at your highest marginal rate can be obtained by paying pension contributions or by making charitable donations. For those with income between £100,000 and £123,000 the effective rate of tax relief would be 60%.
While pension contributions must be made within the tax year to generate relief for that year, it is not too late to reduce your liability for 2016/17 if you make a charitable donation before you submit your 2016/17 tax return and include a claim thereon. For advice on the extent to which these solutions may work for you please speak to your usual Ensors contact. Note pension contributions may be restricted for certain individuals.
Capital Gains Tax
Where Entrepreneurs Relief is available it can reduce the rate of CGT to just 10%. However there are strict conditions governing both whether you qualify for the relief and, if you do, whether it will be restricted. Those rules to ensure that you do not miss out on what is a very valuable relief it is worth having your position “health checked” by Ensors where you have a trading business/partnership or own (unlisted) trading company shares (or if you are fortunate enough to own more than 5% of a listed trading company!).
It is still possible to defer a capital gains tax liability that arose in 2016/17. If the gain arose on a qualifying business asset you may be able to “roll it over” into the purchase of a new business asset. If not, consider investing into an EIS* (Enterprise Investment Scheme) qualifying company. Provided conditions are met this would defer the gain until the EIS shares (which would be CGT exempt) are sold, at which point the gain could be rolled into another EIS investment if desired. Again please ask your Ensors contact for advice on these possibilities. While the ideas are straightforward it would be easy to miss out on the relief by failing to meet a condition set by HMRC.
The new residence nil rate band will, over the course of the next few years, mean that an individual has a potential additional £175,000 IHT nil rate band (£350,000 for a couple). However do not assume that you will qualify for this – there are a number of conditions that must be met and they are not all obvious – for example you do not necessarily need to own a residence at the date of your death. You do, however, need to leave your residence (or assets representing it if you no longer own it) to direct descendants. Also the relief is gradually withdrawn where the value of the estate exceeds £2 million. To ensure you do not miss out it is worthwhile having your IHT planning and will checked by us at Ensors.
*Independent financial advice required.
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