As the new tax year approaches, now is the time to make sure that you have made the most of the available allowances and exemptions for 2017/18. Here, we outline some key measures to help boost your business and personal wealth.
Make use of capital allowances
Most businesses can take advantage of a 100% Annual Investment Allowance (AIA), which can be applied to the first £200,000 of plant and machinery expenditure (excluding cars). Plant and machinery includes items such as furniture, certain fixtures, computers, commercial vehicles, machines and similar equipment used in the course of doing business. The AIA applies to businesses of any size and most business structures except partnerships with corporate partners, although provisions are in place to prevent multiple claims.
TIP: A purchase made just before the end of the current accounting year means that the allowances are usually available a year earlier than if the purchase was made just after the year end.
Consider the company car
Many businesses choose to make use of company cars – however, have you considered whether a company car is the most tax-efficient option for your needs?
In 2017/18, car benefit and car fuel benefit is calculated at up to 37% of the list price (car), and by the same percentage on a notional £22,600 (fuel). Every year, the percentages increase, and further changes to the rules are set to come into effect in April 2018, so now may be the ideal time to review your company car policy.
TIP: Paying employees for business mileage in their own vehicles may prove more advantageous, especially if their business mileage is high. You may also wish to consider a company van. We can discuss the options with you.
Extract business profits tax-efficiently
There are a number of ways in which you can extract profits from your business tax-efficiently.
Some business owners may opt to take a dividend rather than a salary or a bonus. While a salary or bonus can carry up to 25.8% in employer and employee national insurance contributions (NICs), dividends are paid free of NICs. Dividends are not, however, tax deductible for the company. This area requires careful consideration, so please speak to us.
TIP: The Dividend Allowance is being cut from £5,000 to £2,000 from 6 April 2018, so it may be beneficial to take dividends before the 2017/18 tax year end. If feasible, funds can then be loaned back to your company paying a commercial rate of interest, thus taking advantage of your savings allowances.
Make tax-efficient savings
Over the years, Individual Savings Accounts (ISAs) have proved to be a popular way to save. The overall annual ISA subscription limit is currently £20,000.
The new Lifetime ISA, available to adults aged under 40, allows first-time buyers and those saving for retirement to deposit up to £4,000 into an account each year. The government will add a 25% bonus on any savings put into the account before their 50th birthday.
TIP: Make sure you have fully utilised your ISA allowance, ahead of 5 April.
Maximise your retirement income
If you are not currently in an appropriate employer pension scheme, it is important to make your own pension arrangements.
Relief is available on annual contributions limited to the greater of £3,600 (gross) or the amount of UK relevant earnings eligible for tax relief, and subject also to the annual allowance, which is generally £40,000.
TIP: Pension contributions must be paid on or before 5 April 2018 to be applied against 2017/18 income.
Consider the whole family
All individuals – including children – have their own tax-free personal allowance, which is £11,500 in 2017/18, so you may wish to consider spreading your income more evenly across the family. (Some restrictions apply: please contact us for further information.)
TIP: The Marriage Allowance is available to married couples and civil partners where one earns no more than £11,500 and neither pays tax at the higher or additional rate – potentially reducing the tax liability by up to £230 in 2017/18.
These are just some of the measures that you may wish to consider. Please contact us for further advice.