Top ten tax year-end tips for owner-managers

Assess reward packageAim for a tax efficient mix of salary, dividends, bonuses and benefits.  With respect to share schemes, consider enterprise management incentives and approved share option schemes.   Consider further pension contributionsPension schemes represent one of the few government sponsored tax saving vehicles where significant tax relief is still available.   Where the company makes a contribution on behalf of the employee, or the individual makes a net payment to the pension provider, it is now possible to receive tax relief on an amount equal to earnings (subject to a cap of £235,000 for 2008/09). Furthermore, where an employee agrees to sacrifice a portion of salary in exchange for an employer making an equivalent employer pension contribution, there can be NIC savings for both employee and employer. Ensure efficient use of allowances on capital expenditure  Full advantage should be taken of those allowances giving 100 per cent relief where appropriate. These include the Annual Investment Allowance and Enhanced Capital Allowances for qualifying energy and water efficient expenditure, amongst others, which are relevant for both corporate and unincorporated businesses.

The small companies’ rate of corporation tax is due to increase from 21 per cent to 22 per cent on 1 April 2010.  It may be possible to defer claiming capital allowances to ensure allowances are set against profits chargeable to tax at the higher rate rather than a lower rate.   Review the possibility of making VAT reclaimsHMRC have introduced a deadline of 31 March 2009 for making retrospective VAT reclaims covering the period 1973 to 1997.  In addition, on 1 April 2009 the time limit for making VAT assessments, claims and reclaims as a result of mistake or failure to take reasonable care, changes from three to four years. 

Review loss relief claimsAn extended loss relief facility was announced in November 2008 enabling businesses to elect to carry back trade loss relief of up to £50,000 in certain instances for a period of up to three years instead of the usual one year limit.

Business Payment Support ServiceWhere businesses are experiencing cashflow difficulties it may be possible (in certain circumstances) to agree revised tax payment terms with HMRC, without incurring penalties. However, interest on overdue tax will still accrue.  The service is designed to assist all businesses (large and small) that are experiencing cashflow difficulties. It covers most taxes and duties including Income Tax, Corporation Tax, VAT, PAYE and National Insurance. Minimising the aggregate family tax billWhere possible ensure effective use of personal allowances and reliefs, and appropriate allocation of asset ownership and borrowings.   Ensure that both spouses’ CGT and income tax allowances and tax bands are utilised by considering whether capital appreciating or income producing assets should be redistributed from the more highly taxed spouse. It is necessary for the transfer to be outright and the donor must not benefit from the future income. 

Consideration should be given to borrowing working capital for business needs from business banking relationships instead of injecting personal equity or loan capital, with a view to preserving personal cash for personal use and obtaining relief for business financing costs through the business.  Consider IHT-free giftsEach person can make gifts of £3,000 per tax year without giving rise to IHT even if you die within seven years. If you have not made gifts in the past you can make use of the 2007/08 and 2008/09 allowances (i.e. £6,000), providing you act before 6 April 2009. In addition there are specific exemptions for gifts in consideration of marriage and regular gifts out of surplus income are IHT exempt.   Prepare for the new compliance regimeA new tax compliance regime begins on 1 April 2009, with increased information powers for HMRC and the imminent introduction of reduced time limits for direct tax claims and assessments.  In view of these changes it may be appropriate to ensure all tax affairs for the last six years are in order with the necessary supporting records, and that returns have been appropriately reviewed for errors or mistakes.

Gift qualifying assets rather than cash to charity to maximise tax reliefGiving quoted shares, loan notes or units in authorised unit trusts, is generally more tax efficient than a cash gift as you will benefit from both CGT and income tax relief (this also applies to gifts of qualifying interests in land).

Richard Mannion is tax director at independent professional and financial services group Smith & Williamson.

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