Tax planning and advice is important to all businesses and their owners, particularly before the business financial year end or the tax year end. At Leonherman we can carry out a thorough review of your tax affairs and assist you in meeting your goals.
Corporation Tax Planning:
Research and Development (“R&D”)
R&D tax credits are a valuable government relief which HM Revenue & Customs are actively encouraging companies to claim across all sectors.
It can deliver substantial reductions in your corporation tax payments or give a cash injection if you are a loss making company.
The deduction for qualifying research and development expenditure when computing taxable profits has increased from 225% to 230% from 1 April 2015.
If your company is involved in innovating, improving, developing, resolving or adding value to a process, product, device, material or service then it can qualify for R&D tax credits.
Company Car or Private Car?
One of the most common tax queries raised by our clients is whether to purchase a vehicle in the company name or privately. Similarly, sole traders may ask whether to introduce their vehicle as a business asset or claim a mileage allowance for business travel. In addition, we may also be asked to offer a recommendation on whether to lease or buy.
The optimal position for purchasing a car will vary for each business, and we consider your personal circumstances carefully before making a recommendation on how to proceed.
Essentially capital allowances are a form of tax-approved depreciation on certain capital assets. Relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits for the accounting period.
Capital allowances are available when expenditure is incurred on a qualifying asset, even if this is funded by a loan.
The allowances available depend on the type of asset and can be summarised as:
- Annual Investment Allowance (AIAs), effectively a 100% first year allowance on qualifying expenditure up to a certain amount in the accounting period
- First Year Allowances (FYAs), which mainly apply to energy-saving or ‘green’ expenditure
- Writing Down Allowances (WDAs), a varying percentage depending on the type of expenditure incurred given on a reducing balance basis
- Balancing adjustments on sale, which are either an allowance or a charge
Short life asset elections can be beneficial where an asset’s economic life is estimated to be less than 8 years such that a balancing allowance will arise if the asset is sold at a loss within that period.
The Annual Investment Allowance has been capped at an annual limit of £200,000 from 1 January 2016.
Salary v Dividend
When extracting profit from your company it is important to consider whether it would be most tax efficient to take salary or dividends. There are many factors to take into account and it is recommended that a comparison is made each tax year.
First year allowances for energy saving products
The Enhanced Capital Allowance (“ECA”) energy scheme provides tax allowances for energy saving products.
The scheme offers a 100% first-year allowance for investments in certain energy saving plant and machinery. If you buy equipment that qualifies, you can write off the whole of the cost against that year’s taxable profits. This could generate cash savings, as well as reduce your business’ energy use, carbon footprint and climate change levy payments.
The ECA energy scheme supports a variety of energy saving technologies, such as energy efficient boilers, lighting, refrigeration equipment, metering and monitoring systems and should not be overlooked.
A Separate ECA scheme is available for new electric and low CO2 emission cars and goods vehicles up to 31 March 2018.
For companies acquiring commercial premises, are there unclaimed allowances on integral features?
Features integral to buildings
You can claim plant and machinery allowances for expenditure on certain, specified assets in a building that is in use for the purposes of your business. These are called integral features for capital allowance purposes. This expenditure qualifies for writing down allowances at the rate for the special rate pool, currently at 8%.
You can claim plant and machinery allowances for the following integral features:
- Electrical systems, including lighting systems
- Cold water systems
- Space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such systems
- Lifts, escalators, and moving walkways
- External solar shading
You can claim plant and machinery allowances on expenditure on both of the following:
- The initial expenditure on a new integral feature
- Any replacement expenditure incurred where either the whole, or more than 50 per cent, of an integral feature is replaced within any 12 month period.
Personal Tax Planning:
Giving to charity
In addition to potentially preserving your personal allowance, a gift can provide a tax free amount to a charity at a relatively low cost to you.
It is possible for an additional rate (45 %) taxpayer to provide a charity with £100 at a total cost to the individual of £55.
Individual Savings Accounts (ISAs) for under 18’s
ISAs for under 18’s were introduced from November 2011. These allow children under 18 to save up to £4,128 for 2017/18 in any single tax year, and pay no tax on the interest or dividends received from those savings.
A child under 16 will require a parent to open the account for them, and any money saved in a Junior ISA will belong to the child, becoming available to them at the age of 18.
If you have any queries regarding the above summary please do not hesitate to contact a member of the tax department.
The annual ISA limit for adults is £20,000 for the 2017/18 tax year.
If you own assets that have lost value and are unlikely to recover their position, consider disposing of them in the current tax year to crystallise the capital loss. Losses brought forward are more flexible than those arising in the same year as you make a gain. They do not need to be claimed in full, i.e. you can reduce your gain to the level of the annual exemption, rather than wasting losses.
Capital Gains Tax:
If you dispose of a chargeable asset e.g. property, shares, a business or any other assets that are not exempt then you will be subject to capital gains tax.
The capital gains tax rules are complex and there are various reliefs available depending on the specific circumstances.
At Leonherman we can advise you on whether you are subject to capital gains tax on any assets you have sold, calculate any capital gains or tax relief available and notify you of any payable costs.
Inheritance Tax (“IHT”):
For the business owner the vital elements in the IHT regime are the reliefs on business and agricultural property up to 100% which continue to afford exemption on the transfer of qualifying property or shareholdings.
On death, inheritance tax will be paid on assets in your estate above the Nil Rate Band for that year, currently HMRC rates are £325,000. It is important that you discuss your financial affairs with your accountant and solicitor, to take advantage of any tax planning opportunities that can be incorporated into your Will.
Inheritance Tax Exempt Amounts
Every individual can make the following exempt lifetime transfers:
- Small gifts (<£250 per annum – each)
- Gifts falling within your annual exemption (£3,000 per annum – each).
- Gifts made in consideration of marriage (Child £5,000 – each)
- Gifts made in consideration of marriage (Grandchild £2,500 – each)
- Gifts out of ordinary income
- Gifts made during lifetime providing you survive for a minimum of seven years after the gift
A reduced rate of IHT applies where 10% or more of a deceased’s net estate is left to charity. In those cases the 40% IHT rate becomes 36%.
For an in depth review of your estate and your potential exposure to Inheritance Tax, contact us to discuss the preparation of a Personal Balance Sheet and IHT report.
Get in Touch
To discuss your corporate taxation needs call 0161 249 5040 or email firstname.lastname@example.org