SMALL firms can make a real difference to the financial health of their business if they take time out to get their tax issues in good order, according to Clive Owen & Co LLP.
The Darlington-based accountant has pulled together a list of 10 tips to help firms make the most of tax breaks and incentives and to ensure they are paying staff in the most tax-efficient way.
Alan Moore, a new tax partner at the firm, said: “It pays to take time out now to see how things like maximising tax breaks and identifying tax benefits can make a real difference to the health and future success of a business.”
The top 10 tips are:
1. Utilise your annual Capital Gains Tax allowance
If you have significant capital gains in your portfolio then it’s important to utilise the annual capital gains tax allowance. For the 2012/13 tax year this is worth £10,600 per person – one of the most generous annual allowances in the world.
2. Combined tax bill savings
For 2012/13 there are three rates of income tax – the basic rate of 20%, the higher rate of 40% and the additional rate of 50%. By transferring income to a lower-earning spouse or civil partner it’s possible to save tax at the higher rates thereby reducing the combined tax bill.
3. Time your dividend payments
Simply by timing the payment of dividends and bonuses from your own company you can save a considerable amount of tax or delay tax payments for up to a year.
4. Dispensations for employers
You can save a considerable amount of time and money by applying to HMRC for a dispensation for certain business expenses reimbursed to employees by the company.
It frees the employer from having to report certain expenses to HMRC and removes the need for the employee to claim the tax deduction, saving work all round.
5. Deduction for mileage payments
Under Approved Mileage Allowance Payments (AMAP) employers can pay staff tax-free mileage rates when they use their own car for business.
But many employees don’t realise that if their employer pays them at a rate which is less than the approved rate – ie less than 45p per mile for the first 10,000 miles – then they can claim a tax deduction for the shortfall.
6. Choose a low-emission car
It’s possible to secure a 100% tax deduction against profits for a car bought for your business by choosing a car with very low CO2 emissions.
Emissions have to be 110g/km or less if the car is bought on or before March 31, 2013 or 95g/km or less for those bought after April 1.
7. Are you self-employed? Consider incorporation
Although the basic rate of income tax at 20% is the same as the small profits rate of corporation tax (20% in financial year 2012), it can still be beneficial to incorporate and extract funds by way of dividends as they do not attract National Insurance Contributions.
8. Claim expenses if you don’t fill in a tax return
If you do not fill in a tax return, you need to claim relief for expenses incurred in relation to your employment on form P87 as if you don’t claim the relief you’ll miss out.
A claim for 2012/13 must be made by April 5, 2017.
9. Commencement losses
Unrepresented taxpayers frequently miss out on an additional valuable tax relief – the availability of a three-year carry back for losses incurred in the opening years of a trade.
10. Invest in an Enterprise Investment Scheme
EIS schemes offer tax relief on contributions at 30% and a tax deferral on gains. EIS investments are generally high risk and invest in a single company.