Last minute tax planning tips

As the tax year-end approaches, have you done the things that need to be done to reduce your tax bill? There is still time but it is essential to act soon so as not to miss out on potential savings.

Here are some reminders:

Annual investment allowance

Your business can get a tax deduction of 100% of the cost of any new equipment up to the total value of £250,000 per annum. This includes plant and machinery, IT equipment as well as furniture and fittings for the workplace.

This amount is usually £25,000 per annum, but there is a special dispensation (a HMRC “special offer” if you like) for 2 years only (from January 2013 to December 2014) where this figure has been increased 10 fold.  So if you are thinking about any new capital items, it may be a good idea to get this money spent now whilst the tax allowance is favourable, especially if your tax bill for this financial  year is looking to be high.

Spouses and family members on the payroll

Has your spouse or other family member worked in the business this year without pay?  Are they a lower rate taxpayer than you?  You could consider adding them to the payroll, getting tax relief on their salary, and having them pay tax a lower rate.  If they have no other income, this works really well, because the first +/- £9,000 of income to them is tax-free!

ISAs

Have you used up your ISA allowances for this year yet?  If not, you only have until 5 April 2014 to do so.

The key benefits of an ISA are its income tax and capital gains tax-free status and its flexibility for either cash or stocks and shares deposits investments.

All UK tax residents qualify for an ISA, with the following age eligibilities:

    15 and under:  eligible for Junior ISA (JISA)

    16 and 17:  eligible for a JISA and/or an adult cash ISA

–     18:  eligible for a JISA and/or a full adult ISA

     Over 18:  eligible for an adult cash ISA

In 2013/14, the individual allowances for an adult ISA and a JISA are £11,520 and £3,720, respectively.

Key Tip: When investing in an ISA, keep in mind to use as much of your allowance as affordable every year, as these do not carry over. And as with any investment, consulting with a professional financial advisor before taking any action is always advisable.

Pensions

Pensions continue to be a tax advantageous vehicle for investment, initiated by the government to encourage people to save for their retirement. Contributions have to be paid into a registered pension scheme.

There is no limit on the contributions payable into pension schemes each year, however the tax relief that can be claimed does have a limit. This is calculated as the higher of the sum of total earnings in the tax year OR £3,600, which is the current minimum limit.

Taking this a step further, there is also a Pension Annual Allowance that cannot be exceeded; it is currently set at 50,000 for 2013/14 although it is set to drop to 40,000 for the coming tax year, 2014/15.

Unused relief on pensions can be carried forward for a period of three years. So an annual allowance of £50,000, provided no contributions have been made, could make available an allowance of £200,000 in a current period. Unused allowances not used in a required time frame are lost, so there is certainly action that could potentially be taken before the end of the tax year!

Summary

Just applying a couple of these tips could result in excellent tax savings and with immediate effect. Of course, with tax planning the best results come from looking at both short and long term and ensuring that personal goals such as retirement or property purchase are aligned with business objectives to ensure income levels meet target.

Figurit carry out tax planning as part of our routine service for all clients but we can only do so effectively if we have the full picture of your current and future plans and have access to current financial data. We would be happy to give guidance on any of the above points if you get in contact on 020 7376 9333.