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...When A Plan Comes Together
Every great adventurer who ever darted back under a rapidly descending stone wall to retrieve a beloved adventuring hat understands the value of timing and a cool head under pressure (or at least a cool-looking head - because, you know - adventuring hat). With the end of the tax year looming like an enormous rolling boulder trap, it's time to get your 2014-15 situation prepped, primed and optimised - so let's get to it.
If you're a Sole Trader, now's a good moment to take a step back and examine your business. Sure, you've probably been enjoying a relatively simple life, but when it comes to tax efficiency and long-term security you're probably missing out. Maybe it's time to consider taking a step up and establishing a Limited Company.
If your business is already a Limited Company, then it's time to look at your expenses and tax set-up. If you think you may have discretionary costs coming up in the near future that might be better paid off now to reduce your tax burden for this year, then you should check with your accountant. Similarly, it may be worth looking at your upcoming capital expenditure to see if any of it should be taken care of this year, reducing your taxable profits.
One of the key areas to look into is Shareholder dividends. For example, if the combined salary and dividends you're paying yourself still rests within the Basic tax band, then you'll get a tax credit that'll essentially wipe out the tax on those dividends. If you're making enough profit to pay dividends, then it's definitely worth making full use of the Basic-rate tax band.
Another thing to think about is the benefits-in-kind your business might be offering to Directors or employees. Depending on the specifics, the company might be paying Class 1A National Insurance on giving the benefits, while the recipient is paying tax on receiving them! Consider whether there might be a better way of making sure the benefits you offer are really effective, and get advice on the best way to provide them.
Let's take a look at pensions next. Pensions have a lot of tax implications for both the company and its employees. The business gets tax relief on pension contributions, which can be valuable, but individuals have maximum allowances for this. For example, a Basic-rate rate taxpayer might receive 20% income tax relief on pension contributions, with 40-45% Higher or Additional rate taxpayers. With big changes introducing much more freedom and flexibility into the field of pensions after the 6th of April 2015, you should get professional advice to make sure your strategy keeps pace.
Other things to take into account, and to get comprehensive advice on, include tax-favoured investments like Individual Savings Accounts (ISAs), Venture Capital Trusts and initiatives such as the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme. Each of these can offer benefits ranging from tax-free income to tax relief of 30% on qualifying investments.
Effective year end strategies are essential to any successful business adventure. Get in touch now so we can start showing you how to plan for success, and watch this space for more Voices from the RIFT...