Tax Planning – What you should do if you run a profitable business, and when…
If you are running your own business and looking to consider what areas of advice you should be seeking on a regular basis, then holding a pre-year-end tax planning meeting with your tax and financial advisors should be high on the list.
When should I consider Tax Planning?
There are two important dates for most owner managers to bear in mind. The first one for all of us is the fiscal year end of 5th April each year.
There are a wide range of allowances which expire on the 5th April each and cannot be carried forward. These include:
- The Capital Gains tax exemption.
- Use of our various income tax bands.
- The use of Inheritance tax gifting allowances.
- Looking into the ever-increasing complexity around what level of pension contributions can be made for us as individuals within each fiscal year.
All companies then have a financial year end which, if 31st March, is effectively coterminous with the fiscal year end but if any other month end, overlaps the fiscal year end.
We would normally recommend that company owners have a pre-year-end tax planning meeting at around month nine or ten of their business financial year.
This is usually a point sufficiently far through the trading period where the company can predict, with a degree of certainty, the financial outcome for the full year.
What is the benefit of Tax Planning?
The advantages of holding a tax planning meeting of this type include:
- Being able to forward predict the trading outcome for the year and assessing what the Corporation Tax liability will look like if no planning steps are taken. This effectively gives a ten or eleven month view ahead of what the Corporation Tax payment will look like when it falls due.
- Capital Expenditure. There are very attractive allowances against Corporation Tax for qualifying capital expenditure in a company’s financial year but only if it is properly contracted for and committed to prior to the financial year end. Carefully planning not only the timing of the expenditure but also the amount of the expenditure and ensuring it qualifies for annual investment allowances can be an extremely important part of tax planning for many companies.
- If the company is making, or planning to make, pension contributions from the company on behalf of employees then the money must have passed out of the company bank account prior to the financial year end in order to attract Corporation Tax relief within the financial year.
- It is an important point in time to review any Director Loan Account movements and to consider whether or not any additional bonuses or dividends are appropriate to be voted and to plan for the most effective timing both from a fiscal year end point of view and a company financial year end point of view.
- We would also recommend that at this point in the company’s financial year it is probably appropriate to consider revisiting the way in which Director’s and owners of the business are extracting remuneration to ensure that this continues to be carried out in the most tax effective way possible.
What else should you think about?
Whilst these points are being raised predominantly from a tax planning point of view, it is also an important opportunity for owner managers to continue to bear in mind the performance of their personal financial planning within pensions or other investments and these meetings are often joined up with the owner’s independent financial planner to ensure that a holistic view point is considered.
We also find that it is an opportune time to continue to nag many of our clients to consider either putting in place an effective Will and Lasting Power of Attorney, or if one has been put in place many years ago, to consider whether it is an appropriate time to review and update these important, but often neglected, documents!
In the same vein, we believe that clients should review on a regular, possibly annual, basis with their financial planner whether there exists sufficient financial protection for the owner and their family in the event of situations such as the loss of a key employee, the incapacity of a key employee to continue to work and whether there is sufficient shareholder protection between owners of businesses that continue to reflect the value of their company.
At IN Accountancy we pride ourselves on being a go to person for our clients, so while we clearly don’t provide financial legal or HR advice, wills or insurance, we take care to surround ourselves with contacts and partners to whom we can introduce our clients for (almost) any service they require, and who we trust to deliver their service in line with the high standards which our clients have come to expect from the IN Accountancy team.
If you are in business and unsure what you need or who to speak to, feel free to give us a call or drop us a line and we will be happy to point you in the right direction!