FINANCE
A ccording to prominent Teesside chartered accountancy firm Baines Jewitt , there are a number of reasons why clients turn to them for tax and business advice .
“ Fear about getting things wrong , complexity and a desire to maximise tax efficiencies are key reasons why people come to us for help ,” explains Trevor Cook , director , Baines Jewitt .
“ With April 5 fast approaching , this is a key time to consider whether clients should be taking any action before the end of the tax year .”
Many business owners find understanding ever-changing tax and business regulations a bit of a minefield . However , to Stocktonbased Baines Jewitt , it is part of their everyday working lives .
For more than 100 years , Baines Jewitt has carved out an excellent reputation by working with individuals and firms to make sure their business and personal finances are in the strongest possible position for whatever the future may hold .
“ In particular , clients are keen to find out how they can save money through reliefs and allowances , while extracting profit from their business in the most tax-efficient manner ,” explains Anne Cowley , director , Baines Jewitt .
According to Trevor and Anne , some tax efficient planning options include :
1 . Taking a dividend over a salary or a bonus Dividends are paid from company profits after Corporation Tax is paid . Paying a salary creates a national insurance charge for the company , whereas dividends do not . The combined employee and employer National Insurance Contributions ( NICs ) can be up to 25.8 per cent There is also a Dividend Allowance which charges the first £ 2,000 of dividend income at 0 per cent tax . Consequently , dividends can be more tax efficient than a salary . However , when considering this , the Corporation Tax relief obtained on a salary needs to be factored in .
With both the rate of tax paid on dividends and the rate of NICs increasing by 1.25 per cent from April 6 , 2022 , this is an area that should be reviewed . A further review should be carried out for companies affected by the higher corporation tax rate that takes effect on April 1 , 2023 .
2 . Making the most of capital allowances Businesses are able to claim a 100 per cent Annual Investment Allowance ( AIA ) for expenditure on most types of plant and machinery , except cars , in a measure intended to support and encourage business investment .
The AIA applies to businesses of any size and most business structures . The maximum allowance is £ 1,000,000 for qualifying expenditure incurred on plant and machinery before March 31 , 2023 .
Limited Companies investing in qualifying , unused plant and machinery can benefit from a first year allowance ( FYA ) which entitles them to claim tax relief on 130 per cent of the actual expenditure incurred . To qualify for this , the equipment needs to be purchased before March 31 , 2023 .
From April 1 , 2023 , the AIA is due to reduce to £ 200,000 with complicated transitional rules in place for accounting periods straddling that date .
It follows that the purchase of plant and machinery should be timed carefully to maximise and accelerate allowances . Purchasing equipment just before a company ’ s accounting year end will result in a Corporation Tax saving a full 12 months earlier than if the purchase is made just after the year end .
3 . Pension contributions Employer pension contributions can be a very tax-efficient way of extracting profit from a company . It may be possible for contributions of up to £ 40,000 to be paid by a company on behalf of a director in a tax year and for the company to obtain Corporation Tax relief on them . There are also circumstances under which unused relief for the previous three years can be utilised .
Contributions made by an individual are also tax efficient . If an individual paying tax at 40 per cent makes a payment of £ 4,000 into their pension fund , after taking into account the higher rate tax relief they will obtain , the net cost of this contribution is £ 3,000 . However , when the basic rate tax relief is added to the pension fund by the government , the fund actually benefits to the tune of £ 5,000 .
Pension contributions can also be used to ensure that the High Income Child Benefit Charge does not apply .
4 . Review of company car policy In light of the increase in the rate of NICs from April 6 , 2022 , a review of company car policies may be prudent . It may prove more financially sound to pay employees for business mileage in their own vehicles , at the statutory mileage rates , especially if their business mileage is high . Alternatively , an employee could repay their private miles to the company at HMRC ’ s fuelonly mileage rates to prevent the fuel benefit charge arising .
Being provided with an electric car or low emissions car can reduce the level of taxable benefit . There are also generous capital allowances for a company buying a brand new electric car .
In some cases , a company van might be more appropriate . Taxable benefits on vans tend to be lower than for cars . Limited private use of a van is permitted without any taxable benefit arising .
Ann adds : “ These are just a few examples of tax-efficient planning options . When acting for our clients , we are proactive in making them aware of the tax savings they could make .
“ Of course , as with any of these measures , there might be other tax implications to consider , so care needs to be taken and we would certainly recommend talking to a trusted accountant before acting .”
For a free copy of Baines Jewitt ’ s ‘ Year End Tax Planning Guide ’, or to seek further help , contact : info @ bainesjewitt . co . uk or telephone 01642 632032
The voice of business in the Tees region | 59