Plan to maximise your tax position, now

I try not to talk tax too much in this newsletter as I am aware of how dull it can be, but it would be remiss of me not to encourage you to spend the final few weeks of the tax year considering your position and implementing opportunities to the make the most of your tax circumstances.

For many, the tax year is also the end of the financial year, so if you are not already having conversations with your accountant, why not?

Here's a "few" strategies to think about before 5th April catches up with us.

1. Profit extraction methods. Particularly for limited companies, profit extraction methods can be a key part of tax planning. Whether it involves salaries, bonuses, dividends, or a combination of these, choosing the right strategy can significantly impact tax liabilities.Optimising the method and timing of when you extract profits can mitigate tax while ensuring that owners and key staff are compensated fairly.
2. Dividend levels.For an owner-managed company, dividends frequently play a key role in the owner’s remuneration strategy as well as the company's debt-to-equity ratio.Particularly as the tax year concludes, it is important to check the timing of your dividend payments. For instance, have you earned more this year than you expected? Might another dividend payment push you into higher rate tax? Or cause a horrific high-income child benefit charge? If so, deferring a dividend may help you.By aligning dividend payments with tax thresholds and allowances, you may be able to reduce your tax exposure. You may also need to be mindful of share classes, as not all are equal.
3. Capital ExpenditureCapital allowances are a tax relief available on many types of capital expenditure. Bringing forward or delaying the purchase of capital items, for example, IT equipment or a refurb project, can help you to maximise the allowances available.For many small companies whose profit level means they pay at the 26.5% marginal relief rate, optimising capital allowance claims can also help to push them back into the 19% tax band, or for slighted bigger SME's, disclaiming could lift profits in the 25% band, providing more allowance in future years.Naturally, it is always important to avoid letting the tax ‘tail wag the dog,’ but using capital allowances effectively can not only reduce tax liabilities but also help to fund vital investments in business assets.
4. Research and Development Tax CreditsIf your limited company is involved in innovating, research and development (R&D) tax credits can be very worthwhile. However, claiming R&D tax credits requires thorough documentation and there are specific criteria that need to be adhered to.As the business approaches its year end, it is a good time to check that records of R&D activity are up-to-date and complete.R&D tax credits can reduce tax liabilities as well as provide real-cash-funding for future innovative activities that keep your business on the front foot.
5. Personal tax opportunitiesSpeak to an IFA regarding your pension contributions, ISA allowances etc. The timing of these is paramount to their effectiveness as tax tools.

In conclusion, tax planning as the tax year-end approaches, is an important part of leveraging the tax incentives available to you, minimising tax liabilities while staying compliant with tax laws.

If you would like help in proactively managing your tax liabilities, get in touch