Tax planning

NOTE - the following list is aimed mainly at directors or owner managers interested in tax efficient profit extraction methods

Each item can be applied to each employee (director, husband, wife, son, daughter, relative) who has a defined role and contract of employment in the business.

Before exercising any of these, contact Suretax Accounting to ensure you implement these scenarios effectively.

Tax and Ni Free Salary

If you keep your earnings below the level of the basic personal allowance you will have no PAYE or National Insurance contributions to pay.

Your company can accrue a bonus in its books and award you the bonus in its following financial year (within 9 months), hence your company gets tax relief on the accrued bonus plus employers Ni accrual. You would pay income tax in the tax year in which you receive the bonus.

Pensions

Since A-Day, one can pay all their salary into a recognised pension scheme and receive tax relief at their highest rate, in addition your employer can pay in the equivalent of your salary package and receive tax relief on the contribution. These changes favour high net worth individuals who need to pump up their pension funds.

Loans to Employees

Up to £5000 per tax year per employee tax free so long as loan repaid in full within 12 months from the start of the loan.

Tax Free Benefits - Mobile Phones

If you are an employee in a company then you can have one mobile phone fully expensed by the company. The company can get tax relief on this cost in its books. The Mobile phone will not be subject to any tax or national insurance on the individual (it is not classed as a benefit in kind)

However the contract must be between the mobile phone company and the company you are employed with. If you have a phone in your own name and the company pays the bills, then this is a benefit in kind and is subject to tax/ni.

Tip - Get contracts changed into employers name without

Tax Free Benefits - Childcare

If you have a child (16 or under) and they are looked after by a registered child minder, then your company can pay that child minder £55 per week towards you childs childcare. For example little John 15 goes to Karate training twice per week and his instructor is a registered child minder, then you can have the company pay upto £55 a week towards his Karate lessons. Company gets tax relief on these payments.

Tax Free Benefits - Business Mileage

Your employer can pay you a business mile rate, based on travel you do on behalf of the business. Business travel is NOT from/to your place of work from/to home.

A maximum of 40p per mile can be paid for Business miles upto 10,000 each year, after this the rate falls to 25p. These rates are the top amounts you can receive tax/ni free, if your employer pays above these rates then tax/ni will be due.

A new rule has recently required that all employees who receive a payment based on business miles submit some receipts for fuel along with each mileage claim, these receipts are not expected to tally with the re-imbursement you receive, but serve to prove that fuel is in fact being put into your vehicle.

Tip - Keep a detailed business mileage log (date, from/to, reason, miles), and attach as many petrol receipts as you can to each claim.

Tax Free Benefits - Other

Car, motor cycle or bicycle parking facilities at or near the workplace

Compensation/termination payments up to £30,000

Redundancy counselling services

Luncheon vouchers up to 15p per day

Working from Home allowance £2 per week

Staff canteen and dining facilities (provided they are available to all directors and employees)

Sports facilities (provided they are available to all directors and employees)

Removal expenses, subject to HM Revenue & Customs limits

Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits

Awards under suggestion schemes (but there are restrictions)

Use of a pool car

The provision of representative accommodation (except for certain directors)

Approved share incentive plans

Use of cycles and cyclist's safety equipment used mainly for journeys between home and work

Certain bus services for journeys between home and work

Tax-Free Gifts to Staff

In an environment where most employee 'perks' are subject to tax it may be helpful for you as an employer to be aware of the few concessions that have been made by HM Revenue & Customs.

Long service awards are allowed within strict limits. There will be no tax charge so long as the employee has been with you for at least 20 years and the article given has a value not exceeding £50 for each year of service.

Suggestion scheme awards Such awards must be made under a properly constituted suggestion scheme, based on a set percentage of the expected financial benefit to your business. The maximum award allowed is £5,000. There is also a concession for 'encouragement awards' of £25 or less to reflect meritorious effort on the part of the employee concerned.

Staff parties Staff annual functions (e.g. a dinner dance or Christmas party) are tax-free where the total cost per person attending is not more than £150 per year (including VAT). Per person is the key words here, if you and your partner go to the party, then you get two times £150!

Promotional gifts Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.

Gifts of food, drink, tobacco or vouchers are specifically excluded.

Other Efficient ways of extracting profits from a company but which do attract additional tax from the receiver. Contract us for more info on these methods, it may not be efficient overall to make charges to a company on one hand and have a personal liability on the other. We can run the scenario based on you personal circumstances to see whats best.

Dividends

Interest

Rent

Loans

Company Cars

Using Company Assets

Free Accomodation

Medical Expenses

More Tax hints from Suretax Accounting

  1. You can sometimes put together different types of tax schemes to maximise your advantage, for example, avoiding higher rates of income tax on investments by choosing schemes that produce capital growth rather than income.
  2. If you have forgotten to claim a relief or allowance, You have 5 years and 10 months from the end of the tax years in question to claim.
  3. If you are likely to make a taxable gain when you sell your shares, check whether you can transfer them into an Individual Savings Account (ISA). In some cases, transfers are free of Capital Gains Tax and shares in the ISA are tax-free when you enventually sell them. You may also be able to transfer shares into a personal pension fund.
  4. Free fuel for your Company Car is now heavily taxed, particularly if you end up paying national Insurance on fuel bills reimbursed by your employer. Consider paying for your private fuel yourself (but you have to pay for the whole cost of private use, not just part). Instead ask your employer for a business mile rate of 40p / mile
  5. You can claim tax relief on a mortgage to buy a property you let out, but not on a mortgage on your own home (unless you let part out).
  6. Couples may be able to save tax by transferring investments to the lower income partner.
  7. The rate of Capital gains tax depends on your taxable income. So, if you have an unavoidable capital gain in a year when you are on the verge of paying higher rate tax, you may be able to keep your gain below the higher rate band by reducing your taxable income through making a one-off pension contribution.
  8. If you have more than one home nominate which one you want as your main home within 2 years of acquiring the 2nd home. Choose which ever you think you will make the biggest gain on.
  9. Ask the Insurance Company about getting your policy written in trust for someone else (your children say - the payout will go immediately to them without forming part of your estate. The premium counts as a gift to your beneficiaries, but these are normally tax free as a gift out of your normal expenditure if you are transferring an existing policy this also counts as gifts.
  10. You might want to leave half of your house to someone else e.g your child, rather than your spouse in order to use up your tax threshold. You can do this if you own the house as tenants in common rather than joint tenants. But your widow or widower risks having to move if your child wants to sell.
  11. A simpler way to save tax is to move to a smaller home or take out a mortgage giving away the cash released.

Property investors - a few tax return pointers.

Redeeming a mortgage

The interest charges on your mortgage account are an allowable expense which you can set off against your rental income. Repayments of the capital owed are not. Also if you redeem your mortgage early, and pay redemption penalties, these costs are not allowable.

10% wear and tear allowance

If you own property which is let substantially furnished, you can make a decision to claim a wear and tear allowance each year to cover the costs of renewing furnishings, rather than claim the actual costs of the renewals.

The allowance is based on 10% of the rents received (less council tax or water rates etc. paid by the landlord).

Once you make a choice to claim the 10% allowance you cannot go back to claiming actual renewals costs.

Holiday let accommodation is treated as a trade by the taxman, and as a business asset for taper relief purposes. After one complete year of ownership 50% of the gain on sale is taxable. After two complete years of ownership only 25% of any gain is taxable.

Rent-a-room scheme

If you rent out part of your own house you can receive up to £4,250 in rents, in a tax year, and pay no tax at all.

If the rents received exceed £4,250 you can elect to either:

  • pay tax on the excess rents received over £4,250 - and make no claim for expenses, or
  • pay tax on the total rents received, less allowable expenses.

Holiday Let Accommodation.

As mentioned in the notes on taper relief above, holiday let accommodation is treated as a trade for tax purposes. The benefits in capital gains taper relief are set out above. Other tax benefits include:

  • Losses can be set off against other income, in the same year.
  • Capital Allowances can be claimed for furniture, fixtures and fittings. (But not the 10% wear and tear allowance).
  • Rental income qualifies as earnings for pension purposes

Holiday let accommodation need not be a conventional holiday resort property. As long as the required letting criteria are observed, city centre properties could qualify.