Tax planning tips for Business Owners and Entrepreneurs

Transcription

1 Tax planning tips for Business Owners and Entrepreneurs 1

2 Tax Tips for Business Owners In depth look at: School fees Limited company vs. sole trader Company car Payment in lieu of notice Fund Raising EIS/SEED EIS/VCT EMI (share options) Optimum way to draw money salary/dividends Is section 455 worth explaining? Salary for children Entrepreneur s relief 62% marginal rate of tax 2

3 Top 10% of taxpayers % of total income tax collected 59% 35% Top 1% of taxpayers % of total income tax collected 27% 11% Tax Allowances 2017/18 Personal allowance 11,500 Rent a room 7,500 Property allowance/air BNB 1,000 Trading allowance/ebay 1,000 Personal savings allowance 1,000 Tax free dividends 5,000 CGT 11,300 38,300 For a couple 76,600 Example 1 3

4 Corporation Tax Rates % % % % % Dividend Tax Allowance 5,000 Basic rate 7.5% Higher rate 32.5% Additional rate 38.1% No tax credit from 6 April 2016 To be rounded up? 4

5 ISA 2017/18 allowance 20,000 Lifetime ISA Maximum 4,000 per year Under 40 years old 25% addition put in by the Government if under 50 years of age Tax free growth All fine if used for either towards house purchase of < 450,000 withdrawal after 60 years old 5

6 Salary v Dividends v Sole Trader 2017/18 Net of tax & NI Gross Salary Dividends Sole Trader 750, , , , , , , , , , , , ,500 76,381 87,893 86,787 ST ST ST D But Limited company gives greatest flexibility Undrawn amounts taxed are 19% (reducing to 17%) Best course of action probably Small salary Dividends Entrepreneurs relief 6

7 Landlords 10% wear & tear allowance abolished 6 th April 2016 Tax relief for the actual cost of replacing furniture after 6 th April 2016 Tax relief on mortgage interest restricted to basic rate only from 2020/ /18 only 75% tax relief on mortgage interest 2017/18 to 2020/21 restriction of mortgage interest relief Example 2 7

8 Repay loans Increase rents 8

9 Sell residential buy to lets and Invest in commercial property (new interest restriction does not apply) Invest via a company for new acquisitions Transfer a percentage of your properties to your spouse and make use of his/her lower rate of tax Sell your buy to let properties to a company 9

10 But If you do beware of: Capital gains tax SDLT IHT And rising interest rates! Ask ABG! Benefits in kind new regime 10

11 Pension contributions Lifetime allowance down to 1m Annual allowance tapered to 10,000 for additional rate taxpayers 25% tax free Remaining fund can be drawn after age 55 Child Benefit Taxable when income between 50,000-60,000 with effective 57.71% marginal rate for two child family Consider pension contribution 5,000 pension contribution net cost 2, Buy to let changes may increase your income. 11

12 62% Margin tax rate Taxable income between 100,000 and 122,000 marginal tax rate 62% (buy to let changes may increase your income) Example 3 Jointly owned assets Consider transferring assets so lower paid spouse gets income Beware of marital issues 12

13 Spouses Transfer 50% of shares in trading company to spouse (Only recommended to client s with strong marriages!) Spouse can get Entrepreneur s Relief but has to be a director/employee and 5% shareholder for at least 12 months Dividends to husband and wife as opposed to one spouse only After two years, both spouses can get business property relief (for IHT purposes) Tax free amounts Pay your son/daughter 8,164 PA No tax or NI up to 8,164 for 2016/17 ( per month) Tax saving outcome: Tax deductible in your company s accounts No tax or NI payable 13

14 Entrepreneurs Relief Maximum 10m per person Husband and wife get 20m between them Where shares are split, possible tax savings of 1.8m ( 10m x 18%) School fees Gift shares Pay dividends Declaration of trust 14

15 New shares issued at market value Shares transferred XYZ Limited Shares owned by husband and wife Children Example 4 EIS (Enterprise Investment Scheme) 30% income tax relief on cost Maximum 1m per annum Unlimited deferral of CGT No capital gains tax on disposal Exempt from IHT if held for two years at death Maximum shareholding 30% EIS for all new companies if possible Example 5 15

16 EIS and VCT recent amendments Changes include: Requirement to raise first investment under EIS, VCT or other risk finance investment within 7 years of making first commercial sale. New cap of 12m on total amount of investment a company may raise under EIS, VCT or other risk finance investment. Problem with loans??? SEED EIS 50% income tax relief on investments up to Exempt from CGT when sold Each company maximum 150,000 See example 6 16

17 EMI Very tax efficient Corporation Tax deduction on crystallisation Alternatives are not as tax efficient See example 7 Growth Shares Avoids employer related securities issues 17

18 Alphabet Shares Very flexible, possible tax savings National Insurance No employer s NIC for apprentices under 25 (salary below 43,000) No employer s NIC for under 21 s (salary below 43,000) 18

19 Company Cars Company Car Employee Position 2017/18 Mitsubishi Outlander Teslar Model X Porsche 911 Carrera S Ford Focus 1.0 Eco Boost 125 P11D value 37,499 80,400 87,335 19,995 BIK P11D car 3,375 7,236 32,314 3,999 BIK P11D fuel 2,034 N/A 8,362 4,520 2 CO Tax Payable by employee at 40% Re: Car benefit 1,350 2,894 12,926 1,600 Re: Fuel benefit 814-3,435 1,808 Total 2,164 2,894 16,271 3,408 2 It s all about the CO emissions! VAT Reclaim VAT on entertaining overseas customers 19

20 Research & Development Tax Credit now 230% for SME s Where losses are cashed in HMRC rebate is now 14.5% See example 8 Buy back of company s own shares Must own shares for 5 years for ER treatment Otherwise dividend treatment Must exit company 20

21 Annual investments allowance now fixed at 200,000 per annum Making Tax Digital By the end of 2019 all businesses will be updating HMRC quarterly Annual tax return replaced with digital tax account HMRC wants information via an online accounting package ABG will help you so please do not panic We are busy working on our plans and we are certified in the installation and operation of Online Accounting software all of which is digitally compliant. 21

22 Making Tax Digital MTD - whom will it impact upon and when? Effect from 6 April 2018 Unincorporated businesses and landlords with turnovers over the VAT registration threshold (currently 85,000) Effect from 6 April 2019 Landlords and businesses with annual turnover above 10,000 Effect from 6 April 2020 Limited companies and partnerships with turnovers in excess of 10m Changes to PILON New legislation from 6 April 2018, that splits an employee s termination payments into 2 types of payment: Payments that can still benefit from the 30k exemption and those that cannot and will therefore be treated as earnings. From 6 April 2018, employers will pay NIC on termination payments in excess of 30,000, where income tax is also due. Employees will continue to benefit from unlimited employee NIC exemption for payments associated with the termination of employment. 22

23 Changes to PILON All payments in lieu of notice (whether contractual or not) will be taxable earnings and subject to tax & Class 1 NIC. Government want to ensure termination payments are not used as a form of tax free remuneration It is likely you will have to be made redundant/voluntary redundancy to qualify for the 30k exemption. See example 9 Is a section 455 Strategy a good idea? See example 10 23

24 Capital Allowances on Business Assets 100% FYA for low emission cars extended to April 2021 Low emission means 75g/km or less up to 31 March 2018 and 50g/km from 1 April 2018 to 31 March 2021 Offshore trusts 24

25 EBT s and 5 April mrubinson@abggroup.co.uk 30 City Road, London, EC1Y 2AB Google me! 25

26 Legal & Copyright Notes Arram Berlyn Gardner LLP is a limited liability partnership registered in England and Wales with the registered number OC and registered office address of 30 City Road, London, EC1Y 2AB. Registered to carry on audit work in the UK and Ireland and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Details about our audit registration can be viewed at for the UK and for Ireland, under reference number C A member of EuraAudit with worldwide representation. ABG and Arram Berlyn Gardner are trading names of Arram Berlyn Gardner LLP and Arram Berlyn Gardner (AH) Limited. ABG and Arram Berlyn Gardner are registered trademarks of Arram Berlyn Gardner LLP. Arram Berlyn Gardner (AH) Limited is registered in England with the company number Registered Office as above. A list of directors is available upon request. Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. This presentation has been written for the general interest of our clients and contacts and is correct at 1 Sept No responsibility for loss occasioned to any person acting or refraining from acting as a result of material in this publication can be accepted. The images used in this publication are for illustration purposes only. Any unauthorised copying, alteration, distribution, transmission, display or other use of this material is strictly prohibited. Copyright Arram Berlyn Gardner LLP. All rights reserved. 26