Tax Planning Strategies

Tax planning needn’t be an all-or-nothing game. We’ve put together a list of 7 easy-to-implement tax planning strategies to help you reduce your taxes this year.

For businesses and entrepreneurs

Running a business is no easy task, so it’s easy to overlook the tax benefits that may be available to your company. Here are our top 3 tax planning tips for business – if you’d like to discuss more please contact us.

1.Capital Allowances

You are able to claim capital allowances when you purchase assets with a lasting benefit for your business. These can range from machinery, tools, building fixtures and features or even transport such cars and vans.

Not all Capital expenditure will qualify for capital allowances. Any assets purchased will generally need to be owned by the business which rules out those assets bought via credit. Find out what assets qualify.

2.R&D Claims

Recent data from HMRC shows that only around 3% of SMEs in the UK are taking advantage of the R&D Tax Credits scheme. One reason so many businesses are missing out is simply that they are unaware they are able to make a claim. We’ve worked on R&D claims for various sized companies across a wide range of sectors including IT, construction, manufacturing and food – so this tax credit isn’t just for those in lab coats.

Despite the clear benefits in claiming, R&D tax relief is still largely an underclaimed incentive so we encourage you to speak to R&D experts such as ourselves to see if you qualify.

3.Business Asset Disposal Relief (formerly Entrepreneurs Relief)

If you decide to sell all or part of your business, you may be able to do so at a reduced rate of 10% on all gains on qualifying assets. This is known as Business Asset Disposal Relief relief.

To qualify for this relief you must meet certain requirements throughout the ‘qualifying period’. This period equates to 2 years in which both of the following must apply up to the date you sell your business:

  • you’re a sole trader or business partner, and
  • you’ve owned the business for at least 2 years

Where you run your trade through a limited company you can qualify for Business Asset Disposal Relief on the sale of your shares providing:

  • you own 5% of the company,
  • you have held the shares for at least 2 years, and
  • you are either an employee or officer of the company.

For individuals

It’s not only businesses you can benefit from some savvy tax planning strategies. Here are our top 4 tax tips for individuals.

1.ISA Allowance

Every tax year, we are given an annual ISA allowance. This can build up quickly, letting you accumulate a substantial tax-efficient investment pot in the long-term.

The ISA limit for the current tax year is £20,000 per person. The proceeds are shielded from Income Tax, tax on dividends, and Capital Gains Tax. You cannot carry your allowance forward so if you’d like to utilise your ISA allowance you should do so before the deadline at midnight on Monday 5 April 2021 or you will lose it.

Have more questions about ISA’s? We’ve answered some of the most common questions we are asked here.

2.Pensions

Pension Annual Allowance (AA) is the most you can pay into your pension before paying tax. For the current tax year, the threshold is £40,000. If you have reached this threshold, there are certain instances when you might be able to carry over any annual allowance you did not use from the previous 3 tax years.

3.Capital Gains Tax

You’ll need to pay Capital Gains Tax (CGT) if you sell an asset at a profit. Currently, the tax-free allowance is £12,300.

The Office Of Tax Simplification has released its much-anticipated report into CGT.

Although there is no requirement for these recommendations to be actioned, it is probably fair to say that the disparity in the tax rates between capital gains and income is on borrowed time. Therefore taxpayers who are expecting or hoping to realise capital gains in the short to medium term should consider how they may be able to take advantage of current CGT rates.

4.Inheritance Tax (IHT)

It is never too early to start Inheritance Tax Planning. With the rise of property prices in the UK, IHT doesn’t only affect the rich.

Each person has a £325,000 inheritance tax Nil Rate Band plus a Residence Nil Rate Band of £175,000. Anything over these band will normally be subject to 40% IHT.

Married couples are able to share these allowances meaning and possessions you pass to a spouse will be tax-free in most cases.

This doubling up of relief means married couples or registered civil partnerships will share a joint nil-rate band of £650,000 or £1million where the Residence Nil Rate Band is available.

The UK tax year ends on 5th April 2021, so there is precious time left to get your affairs in order. If you’d like to discuss how we can help you implement these or any other tax planning strategies, please contact us on 0161 359 4227.