Tax Planning Have you got it covered?

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1 Tax Planning Have you got it covered?

2 You are entitled to a large range of tax reliefs and allowances, but these can be wasted if not used within the tax year. Here are some ideas from our tax team to help you plan before April.

3 Remuneration Think about payments of dividends or bonuses when looking at each individual s tax position for the year. Have all family members used their allowances to ensure the minimum amount of tax is paid? Consider employing your spouse or family members as a way of redistributing income if appropriate Pension contributions are generally a tax and NIC free remuneration option for the employee and the employer should obtain tax relief on the contribution. Loans The tax on loans to participators remains at 32.5%. Where the balance is repaid there is no tax charge, however complex rules exist to catch artificial arrangements, so it is vital that you discuss any transactions before going ahead. If a Director s loan account is in credit, consider paying interest to the Director to ensure their Personal Savings Allowance is fully utilised and that they draw money tax-efficiently from the company.

4 For a family business it is generally worthwhile paying wages of between 118 and 166 per week from 2019/20 to family members engaged in the business. At this level of earnings no NIC will be due, and the employee will still accrue entitlement to a state pension and certain other state benefits. If your earnings are low, then you should consider making voluntary contributions to ensure your state pension record is maintained for the year. Employment Allowance An employer is entitled to deduct 3,000 from its employer s NIC bill. Make sure you claim this if you are eligible. It is not allowed for certain employers or sole employee payroll schemes, so if you operate a sole employee payroll, it may be worth employing a second person. While this remains open to all employers in 2019/20, from April 2020 the Employment Allowance will be restricted to those employers whose employers NIC liability was below 100,000 for the previous year.

5 Cars and fuel Cheap or interest free loans Employer provided car benefits are calculated by reference to the CO2 emissions, fuel type and the original list price of the car. Percentage charges are increasing year on year, and for 2019/20 range from 16% to 37% of the list price of the car. Where private fuel is provided, the benefit charge is also based on CO2 emissions. The additional charge for diesel cars will rise from 3% to 4%, however the maximum charge will still be capped at 37%. If loans made by the employer to an employee exceed 10,000 at any point in a tax year, tax is chargeable on the difference between the interest paid and the official rate of interest of 2.5%. Check your position to confirm that an employer provided car is still a worthwhile benefit. It may be better to receive a tax free mileage allowance of up to 45p per mile for business travel in your own vehicle. An exception applies for certain qualifying loans which may present a tax-efficient opportunity.

6 Annual Investment Allowance (AIA) Currently the AIA gives a full deduction for most plant and machinery costs (except cars), of up to 200,000 per annum. From 1 January 2019, the AIA is to increase to 1 million for a period of two years. Any costs over the AIA will attract an annual ongoing allowance of 8% or 18% depending upon the type of asset, however this is set to reduce to 6% or 18% from April This lower rate of capital allowances applies to items such as long-life assets, thermal insulation, integral features and expenditure on cars with CO2 emissions of more than 110g/km. In addition to the AIA all businesses are eligible for a 100% allowance, often referred to as an enhanced capital allowance, on certain energy efficient plant, electric charge points and low emission cars. Structures and Buildings Allowance A new capital allowances regime for new nonresidential buildings and structures is to be introduced. Relief will be provided on eligible construction costs incurred after 29 October 2018, at an annual rate of 2% on a straight-line basis. Motor cars The tax allowance on a car purchase depends on CO2 emissions. From April 2019, cars with emissions in excess of 110g/km are eligible for a 6% allowance. Cars with emissions of less than 110g/km will still be eligible for an allowance of 18%. Ensure all expenditure is reviewed and timing considered to ensure these valuable allowances are used efficiently.

7 Tax relief is available on pension contributions at the taxpayer s marginal rate of tax, and can give up to 45% relief, so this is a valuable tax planning exercise. Currently an individual has a standard lifetime allowance of 1,030,000 increasing to 1,055,000 from April Any excess pension is subject to tax charges when eventually withdrawn. There are also contribution annual allowances of up to 40,000, depending on your circumstances, and any unused annual allowances from the previous three years may be included in calculating the maximum payable. Directors of family companies should consider the advantages of the company making employer pension contributions. Additionally, if a spouse is employed, the company could make reasonable contributions on their behalf.

8 All individuals are entitled to the Dividend Allowance. This allowance taxes the first 2,000 of dividends received in a tax year at 0%. The rates of tax are then 7.5%, 32.5% or 38.1% depending on your level of income. Where possible, you should ensure your dividend allowance is fully utilised. This may require transferring the ownership of some shares and, although this may seem counterintuitive, savings can be made by transferring income producing assets to a higher or additional rate taxpayer.

9 Each spouse or civil partner is taxed separately, so it is important that maximum use is made of personal allowances, reliefs and the starting and basic rate tax bands. It may be necessary to consider gifts of assets between partners to distribute income more evenly. If it is not possible to use one spouse s full personal allowance, the Marriage Allowance should be considered. Child Benefit If either you or your live-in partner have taxable income above 50,000, HMRC are entitled to claw back some or all of the Child Benefit received. Income reducers, such as pension contributions and gift aid payments can help to reduce taxable income, and this limit may therefore be critical. Children Children are entitled to their own personal allowance and the same tax rates as adults. It is worth using their allowances each year, although care should be taken to ensure the income does not arise from their parents, as this could end up being taxed back on the parent.

10 Although this tax doesn t usually become chargeable until death, there is plenty of planning that can be undertaken on an annual basis to reduce any liability and maximise the benefit for the next generation: Annual Exemption - 3,000 can be given away each year. One prior year s unused allowance may be used. 250 per person per annum can be given away free of IHT, but the whole amount comes into charge if this is exceeded. Regular gifts out of income are not chargeable to IHT, though HMRC require a high degree of evidence regarding these gifts. IHT planning doesn t need to be complicated, and we have an in-house solicitor available to discuss your IHT position in conjunction with your will.

11 Personal Savings Allowance Up to 1,000 of interest income each year can be exempt from tax, depending on your level of income. Ensure that each individual s allowances are fully used which may even mean transferring savings to a higher earner. Individual Savings Accounts (ISAs) ISAs provide an income tax and capital gains tax free form of investment. An individual aged 18 or over may invest in one cash and one stocks and shares ISA per tax year with an annual total investment of 20,000 for 2017/18. Children s Individual Savings Accounts A Junior ISA (for children born from 3 January 2011) or Child Trust Fund (CTF) account offer tax free savings opportunities for children. Both accounts allow parents, other family members and friends to invest up to 4,260 in 2018/19, 4,368 in 2019/20, in a tax free fund for a child, although no access is given until age 18. There are other savings schemes available, such as Help to Buy ISAs, for those looking to purchase their first home, and the Lifetime ISA, for the under 40 s looking to supplement their retirement provision.

12 Both the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) allow income tax relief on new equity investment in qualifying companies. EIS relief is at 30%, and SEIS at 50%, although annual limits apply. A CGT exemption is given on qualifying shares held for at least three years and capital gains realised on the sale of any chargeable asset can be deferred where gains are reinvested in EIS shares. A Venture Capital Trust (VCT) invests in the shares of unquoted trading companies. The dividends received on VCTs are exempt from income tax, and the shares are also exempt from CGT on disposal. Income tax relief at 30% is available on subscriptions for VCT shares so long as the shares are held for at least five years.

13 The basic rate of Tax (CGT) is 10%, and the higher rate is 20%. The previous rates of 18% and 28% still apply to the disposal of residential property. Entrepreneur s Relief reduces the rate to 10% on certain disposals of business assets, but the qualifying criteria must be met or the relief is lost. This should be reviewed thoroughly when a business sale is being considered. Annual exemption Each individual receives an annual exemption, which we recommend you review before the end of the tax year, to ensure full utilisation between spouses and civil partners. Entrepreneurs relief This can mean that individuals pay Capital Gains Tax on the disposal of shares in their personal company at 10% rather than 20%. In order to qualify, the claimant must now have, throughout the qualifying period (increasing to two years from year with effect from 6 April 2019), an entitlement to at least a 5% interest in the distributable profits of the company and a 5% interest in the net assets of the company. This is in addition to the existing conditions whereby an individual must hold at least a 5% interest in the ordinary share capital and voting rights of the company.

14 Charitable donations made under the Gift Aid scheme allow a charity to claim back 20% basic rate tax on any donations, so to make a 10 donation, you only need to spend 8. A higher rate taxpayer will receive a further 20% tax relief on donations made. Tax relief against 2017/18 income is possible for charitable donations made between 6 April 2017 and 31 January 2019 providing the payment is made before filing the 2017/18 tax return. Always remember to keep a record of any gifts you make. It may also be possible to make gifts of quoted shares and securities or land and buildings to charities and claim income tax relief on the value of the gift. This may be tax efficient for larger charitable donations.

15 Need some? Our team are on hand to ensure you make the most of all of the opportunities available to put you and your business in the best possible tax position. If there are any of these ideas that you would like to discuss in more detail please get in touch with your usual D&T contact, call your nearest D&T office or send an to Duncan & Toplis is the trading name of Duncan & Toplis Limited, registered in England and Wales, company number Registered Office: 3 Castlegate, Grantham, Lincolnshire, NG31 6SF. Registered to carry on audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Published November We have offices in: Boston Grantham Lincoln Loughborough Louth Melton Mowbray Newark Skegness Sleaford Spalding Stamford duntop.co.uk