For the last few months, the priority has been getting 2019/20 accounts and tax returns completed and filed but once that has been done more focus can be turned to year-end tax planning for the 2020/21 tax year. Many clients have 31 March/5 April year ends which means that there are still a couple of months to take sensible tax planning actions. So, what should you be looking at:
All Businesses:
Timing of necessary capital expenditure around the year-end - tax relief can be brought forward by a full 12 months by completing a contract to purchase prior to your year-end so long as payment is due within 4 months of signing the contract.
Timing of expenditure on equipment and property repairs - can a planned repair be brought forward to benefit from earlier tax relief.
Ensure that your contractors are up to date with their invoicing and that work carried out in the year is shown as an expense in that year. Why wait 12 months for that tax relief?
Consider carefully when to make sales around the year end. A sale before the year end will realise the profit in that year but deferring until after the year end will carry forward just the cost element and mean that the profit will fall into the next year.
Consider transferring assets between husband and wife before a capital disposal in order to access two CGT annual exemptions (£12,300 per person for 2020/21). Speak to your accountant about this before acting as once the asset has been sold the opportunity has gone.
If you have surplus cash that you are happy to remove from the business then you may consider personal pension contributions, payments into ISAs or Lifetime ISAs or gift aid. Always seek advice from your regulated financial adviser.
Companies
A tax efficient salary will earn a year’s credit for national insurance contributions but incur no NIC payments. The salary is a deductible expense in the company.
Dividends can be used to “top up” a director’s loan account in a family-owned company providing a source of taxed funds for the director to draw down during the year.
Review of a director’s overall tax positions prior to the end of the tax year will highlight the optimal dividend figure to take for the year bearing in mind all other sources of income and, sometimes, the need to clear an overdrawn director’s loan account balance.
Surplus funds in the company can be used to make company pension contributions which are a deductible expense for corporation tax purposes within the company and may be a useful planning tool in certain circumstances. It is important to seek advice from qualified financial services professionals.
All of the points above have one thing in common - accurate, up to date and properly reconciled accounts will allow the right decisions to be made at the right time.
Jenny Rowe
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