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Tax Accounting – top tax tips for the new tax year

Tax Accounting – our top tax tips will help you plan for the year ahead.

So the Budget’s come and gone and we’re now into a new tax year. Here we look at what you can do to ensure you’re in the best financial position for the coming year, with our tax accounting tips.

With the advice of your tax accounting expert, you can now take action to structure your tax affairs effectively for you and your business.

Top tax tips – Dividend allowance 

As outlined in our recent blog post on the new dividend tax, from 6 April 2016, the new Dividend Allowance means that the first £5,000 of your dividend income is tax-free.

For family-owned companies

To take advantage of the £5,000 dividend allowance, family-owned businesses may want to consider restructuring their share capital. Don’t forget that the allowance applies to higher rate taxpayers too!

For dividend-paying share portfolio investments

Married couples (and registered civil partners) should spread their dividend paying share portfolios between them to take advantage of each individual’s allowance.

New businesses looking for investment – SEIS & EIS

Companies who are starting out and looking for investment funds into their business, should consider making use of the HMRC approved Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS).

The individuals investing in your business will receive tax relief of up to 50% of the value of the shares that they subscribe for and a future sale of the shares could be free of capital gains tax.

Higher-rate taxpayers pay 60% tax 

If your total income is over £100,000, you may want to think about ways to reduce your taxable income.

This is because once over the £100,000 threshold, your personal allowance is reduced by £1 for every £2 of net
income. Therefore this means anyone with an income of between £100,000 and £150,000 could end up paying tax at an effective rate of 60%.

Reducing your taxable income could be achieved in a variety of ways, such as by making charitable donations, pension contributions, deferring income into 2017/18 or transferring income producing assets to your spouse.

Marriage allowance 

Introduced in April 2015, there’s evidence that not everyone entitled to claim marriage allowance has actually done so. If you’re a basic rate taxpayer and your spouse doesn’t work or they do not pay tax, consider the benefits offered by the marriage allowance. The lower earning partner who is not fully utilising their personal allowance can transfer up to £1,100 of their allowance to the higher earner, resulting in tax savings.

Research and development (R&D) tax relief – could save your company thousands

If your company’s involved in making advancements in science or technology, you could potentially benefit from tax credits, either as a cash amount or with a reduced tax bill. This could be up to 130% additional enhancement of your R&D spend and if you’re loss-making, it could enable a Corporation Tax refund or cash credit.

As the above figure shows, this relief for businesses can be substantial, however many are not taking advantage of this very valuable benefit.

So it’s definitely worth checking with your tax adviser or accountant to see if your business is eligible.

Maximise your pension contributions

The anticipated hit on pensions did not come to fruition in the 2016 Budget.  The annual allowance for pension contributions still remains at £40,000 for 2016/17, however for high earners receiving £150,000 per year (including employer pension contributions), the annual allowance falls.  This fall will gradually reduce for additional rate taxpayers down to a minimum of £10,000 for those earning over £210,000.

Consider taking advantage of the pension rules and particularly, if relevant, the option to carry forward contributions from the previous three years, if the full pension contributions were not made in those years.

Employer’s National Insurance (NI) allowance

The rules for employer’s NI allowance have changed. The allowance increased to £3,000 from 6 April 2016, however you are excluded from making a claim if you are a company with one director and no employees. If you are a one-director company, contact your tax adviser for ways to make your business as tax efficient as possible.

ISA savings and investment accounts

Under the ISA investment rules, interest on cash savings and gains from investments are tax-free.

So, if possible, you should consider making full use of your ISA allowance, which is £15,240 for the 2016/17 tax year and £20,000 for 2017/18.  Although the investment itself doesn’t attract any tax relief, any income generated from it will be tax-free.

Inheritance Tax – leave more to your loved ones

It’s not something anyone wants to think about, let alone plan for, but being aware of how Inheritance Tax (IHT) might affect your estate and your family, after your death, is one of the most important things you should prepare for.

If your estate will be worth more than £325,000 on your death, then it will have to pay tax at 40% on anything above this threshold. It’s therefore essential that you’re aware of the options available to you, as by proactively managing your affairs in advance, you can be confident that you’re leaving as much of your well-earned estate as possible to your loved ones.

Capital Gains Tax 

Every year we recommend you review your investments to take advantage of the £11,100 annual exemption. This exemption cannot be carried forward, if you do not use it you lose it.

Remember that the annual exemption is per individual, so if you are married you essentially have a £22,200 annual opportunity to take advantage of. If you transfer an asset to your spouse, then it does not trigger a capital gains tax charge, so that’s a valuable consideration if you want to take advantage of the higher combined allowances.

If you would like more information on tax accounting, or tax advice in Worcestershire West Midlands give us a call on 01299 488860.

You might also like to read our last blog on the 2016 budget.