Taxbility toolkit – business edition

Your small business

Are you sure that you are taking money out of your business in the most tax-efficient way?

Tip: If your business is a limited company it often makes sense to get your money out by a combination of salary and dividends as well as other tax efficient strategies. It is worth regularly considering the most tax efficient options to maximise tax savings.

Are you paying your spouse a tax efficient salary?

Tip: The salary must be sensible and reflect the work done – and must actually be paid. Details will need to be submitted to HMRC especially if a state pension record is required. If their earnings exceed £112 per week their earnings will qualify them for both basic state pension and the additional state pension and below £155 there will be no NIC liability.

Have you made the most of your opportunities to save tax by investing in a personal pension?

Tip: Subject to certain limits, pension contributions made personally are tax allowable – which means that the effective cost may be as little as 55p to invest £1 in a pension. If you don’t provide for your retirement, who else will?

Have you reviewed your pension arrangements recently?

Tip: The new Work Place Pension provisions place a greater onus on Employers to provide and administer pension payments for all employees. Care is required to ensure that employers are compliant with all of the new rules if penalties from the Pension Regulator are to be avoided.

Tip: The new Work Place Pension rules are complicated and there is a significant amount of work required in advance of your staging date and so do not leave it until last minute. 

If you are a sole trader, have you considered taking your spouse into partnership?

Tip: Care must be taken to ensure that your spouse’s share of profits is not disproportionate to their share of involvement, and it must be run as a genuine partnership (e.g. both names on bank accounts, stationery, etc)

If you are a sole trader making losses or low profits have you considered whether to pay class 2 National Insurance Contributions?

Tip: If profits are below the small earnings exception, currently £5,965 (£5,885 in 2014/15), then you can claim exception from paying class 2 National Insurance Contributions. Alternatively you may wish to continue to pay contributions to build up entitlement to a State Pension.

Have you considered whether there are any benefits from converting partnership/business loans and/or surpluses into personal loans – or vice versa?

Tip: In general, finance used for business purposes will receive tax relief. However, care is always needed to ensure that tax relief can actually be claimed whenever setting up financial arrangements.

If you are a sole trader or partnership, have you considered making key employees partners?

Tip: Significant National Insurance savings can be made for both you and the key individuals by making them partners. It can also tie them into the business, but care is required.

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If you have subscribed for shares in an unquoted company and lost money, have you made a claim for tax relief?

Tip: Subject to restrictions it may be possible to obtain income tax relief on losses incurred on your shares.

Have you considered the legitimate ways to increase or decrease your business profits so that your allowances and tax rates are used as efficiently as possible?

Tip: Although there are severe penalties for artificial transactions, there are still some practical and legitimate steps you can take – including taking advantage of government promoted tax shelters.

If you are about to invest in a new car, computer or any other business equipment, have you considered the best time to buy them and the best way to pay for them?

Tip: You will get tax relief a lot quicker if you make the investment shortly before rather than shortly after your business year-end. 

Tip: A 100% Annual Investment Allowance of up to £500,000 is available until 31^st December 2015 on most plant and machinery, after which it will fall to £25,000. Care is required because the amount of relief available can be affected by your business yearend.

If your business has made losses, have you made sure that those losses are being used to reduce your current tax bills by as much as possible?

Tip: If you are self employed it may be possible to set off the losses against your other income, or even against income from the previous year.

Tip: The loss available may be restricted, including for non-active sole-traders or partners and professional advice should be taken. It may also be possible to use the losses to reduce your National Insurance bills. 

If you run a very profitable limited company, have you done everything possible to make sure that your profits taxed are as low as possible?

Tip: There are a number of considerations coming up to the company yearend that can have an impact on the company tax bill. Prior to the company yearend we would be delighted to undertake a pre-year end review and identify the possibilities for you.

If you run a company or a partnership and sell your personal services, knowledge or skills, have you taken appropriate steps to ensure that the IR35 rules won’t cost your business a fortune in additional tax?

Tip: PAYE and National Insurance Contributions will be applied to all payments made to individuals by Managed Service Companies.

If you run a one-man band business (not a limited company), have you made sure that there is absolutely no possibility of the Taxman charging you much more money by treating you as being employed by one or more of your best customers?

Tip: You may firmly believe you are self-employed. But the Taxman may think differently. And it could cost your customer and possibly you a lot of money. So we strongly recommend you take some good advice.

Have you considered recently (i.e. in the last 12 months) whether your business would be better off trading as a sole trader, partnership, limited company or limited liability partnership?

Tip: The many changes announced in recent Budgets have moved the goalposts. For many businesses the scales may have tipped in favour of becoming a company, while for a few it may now be better to go back to being a sole trader or partnership. And limited liability partnerships may be better than either for some businesses.

If you trade through a limited company and pay your spouse or minor children dividends on shares they own, are you sure that the Taxman won’t be able to tax those dividends as if they were your income?

Tip: In the last couple of years the Taxman has been targeting family-owned companies where one spouse does most of the work, but seeks to divert some of the business income to a non-working spouse.  Whilst the implementation of any new rules has been delayed until further notice, there are often steps that can be taken now to minimise the risk of such an attack, but the law is complex and proper advice is essential. Extra care is required if redirecting income to children under 18, since annual income in excess of £100 may well still be assessed on the parents.

Have you correctly recorded dividend payments by your company on board minutes and dividend vouchers?

Tip: HM Revenue & Customs may declare payments as loans or salary if proper paperwork is not in place for the dividend payments. The content and timing of paperwork is extremely important.

Have you considered using different classes of shares for company shareholders?

Tip: Different classes of shares may allow the company directors to pay different levels of dividends to different shareholders, without extra complications or paperwork. However care is required to ensure it is correctly set up and implemented.

Have you planned ahead and taken action to minimise your tax bills when you eventually come to sell the business?

Tip: Do you really want the Taxman to take up to 57% of everything your business is worth? The amounts involved could be huge. But with proper planning at an early stage you should be able to keep much more of your money in your pocket… and not in the Taxman’s

If your company invests in Research and Development (‘R&D’), have you planned how to make the most of the up to 230% (225% until 31^st March 2015) effective tax relief?

Tip: To make the most of one of the most generous tax breaks in the UK tax system, you will need professional help.

Have you considered making greater use of business gifts as a marketing tool?

Tip: The cost of business gifts is tax deductible for the business if the gift (a) contains a conspicuous advert for your business, and (b) is NOT food, drink, tobacco or tokens or vouchers exchangeable for goods, and (c) does not amount to more than £50 per person per year.

If you are not already registered for VAT, do you have a system for making sure that you are still entitled to stay non VAT registered?

Tip: If your sales in the previous 12 months are more than £82,000 from April 2015 then you MUST register for VAT immediately. So our advice is to set up a system for monitoring your 12 monthly cumulative sales every single month.

If your sales are less than £1.35m a year, are you making VAT potentially much easier and cheaper for your business by making the most of the cash accounting scheme or the annual accounting scheme?

Tip: Many businesses find that annual VAT accounting saves them a lot of time, and cash accounting dramatically improves their cash flow. So, both are well worth exploring.

If your sales (excluding VAT) are less than £150,000, have you considered switching to the flat rate VAT accounting scheme?

Tip: Under the flat rate VAT scheme smaller businesses do not need to calculate the VAT liability from invoices received and issued. Instead they are allowed to pay VAT as a flat rate percentage of their sales.

Tip: Not only could this scheme be simpler to administer, but it could also result in you paying less VAT.  But it could cost you more – so proper advice is essential.

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Do you always time the payment of dividends and bonuses from your company so that they fall in the “right” tax year for you?

Tip: The timing of dividends and bonuses can have a big effect on how much tax you pay on them – and when it must be paid.

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Have you considered reducing the amounts of cash held by the company?

Tip: Too much cash within the company could increase the Inheritance Tax liability of shareholders or their ultimate Capital Gains Tax liability on disposing of their shareholdings. There are a number of options to reduce the cash tax efficiently.

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If your company owns property that it rents out, have you fully considered the tax opportunities?

Tip: Owning a property within the company could in some circumstances increase the corporation tax payable by the company. It may also increase the Inheritance Tax liability of shareholders or their ultimate Capital Gains Tax liability on disposing of their shareholdings. It may be possible to reduce these taxes and move the property out of the company tax efficiently.

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If you own any business property, have you maximised the capital allowances that you can claim?

Tip: It may be possible to get extra tax relief on the features within the business property, even if the property was bought many years ago. A detailed review of the business property can often result in significant tax savings and, in some cases, significant tax refunds. 

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Have you considered the impact of Entrepreneur’s relief and Capital Gains Tax rules on selling your business and/or assets?

Tip: Selling assets rented to businesses no longer automatically enjoy lower Capital Gains Tax treatment. The rules for Entrepreneur’s relief are complicated and care should be taken to plan the sale carefully to maximise tax savings.

Do you have a company pension scheme?  Are you making the most of pensions as a highly tax efficient way of rewarding and retaining key staff?

Tip: Employer contributions into a pension scheme can provide significant savings for both the employee and the employer. With the advent of auto-enrolment changes, and the requirement for all employers to be making contributions for employees in the near future, it is worth considering how to make savings now.

Have you explored how to use pensions to cut the tax bill on wages and salaries?

Tip: Under what are known as “salary sacrifice” schemes, it is possible to save up to 25.8% in National Insurance contributions on the pension contributions made. These savings can, of course, be shared between you and your staff so that everybody is better off.

Have you considered using one of the more “exotic” types of pension schemes to give you more control and flexibility and allow you and your staff to build up even bigger nest-eggs?

Tip: Some of your options might include an Executive Pension Plan (EPP), a Small Self Administered Scheme (SSAS), or a Self Invested Personal Pension (SIPP).  These schemes allow you to invest in a wider range of assets, which may include the premises occupied by your business.

If your income is more than £150,000 have you considered the impact of the changes on your pension contributions?

Tip: Individuals with income in excess of £150,000 can claim a further 25% in 2015-16 tax relief on pension contributions in addition to the 20% reclaimed by the pension provider, subject to meeting certain limits. Higher rate tax payers can still reclaim 20%.

Do you fully understand how to calculate the tax value of benefits in kind?

Tip: As an employer it is your responsibility to calculate these tax values and include them on your employees’ P11Ds. Many of the calculations are not intuitive, and if you get them wrong you could find yourself facing a fine of up to £3,000 per incorrect P11D!

Have you told the Taxman about any changes to your company cars or who uses them?

Tip: Changes to company cars can be reported on form P46 (car) online or through payroll software and can save employees from paying the wrong amount of tax in the year and receiving a large tax bill later.

If you provide company cars, have you checked in the last year whether you and your employees could be better off by changing your company car and petrol policy?

Tip: The last few years have seen dramatic changes to the way company cars are taxed. Inevitably, the tax on most types of cars is now higher – especially for cars with high CO² emissions.

If your employees use their own cars for company business, do you know how the mileage rules affect them and the business?

Tip: Employers are able to pay employees up to 45p per business mile tax free, dropping to 25p per business mile after 10,000 business miles for using their cars on business journeys. Where employees receive less than these limits for business journeys in their own cars they can claim the difference as a deduction against their wages and reduce their tax bill.

Have you considered providing your employees with low emission cars?

Tip: The tax paid by employees on low emission cars is less than on high emission cars, and you can also claim 100% tax relief when you buy certain low emission cars. Note: This 100% relief is much more generous than the normal capital allowances on standard and high emission cars. It is surprising what cars are now included. A list can be found at www.comcar.co.uk. 

Are you utilising the rules for employees taking home company vans?

Tip: Unrestricted private use will generate a benefit in kind chargeable to tax of £3,150 per annum in 2015-16, with an additional £594 chargeable if fuel is also provided. Carefully documented procedures restricting private use could avoid this tax.  Remember that the definition of ‘van’ may include pick-up trucks.

Are you certain that you make the most of tax-free benefits in kind for your staff?

Some of the possibilities include:

·         Providing mobile phones (no more than one per employee)

·         Subsidising certain forms of transport to and from work – including bus fares

·         Providing workplace nurseries and crèches

·         Sporting and recreational facilities

·         Health checks

·         Car parking

·         Paying relocation expenses

·         Up to £150 per person per year for staff parties

·         Making cash awards for contributions to a staff suggestion scheme

·         Allowing staff to use pool cars for business purposes

·         Paying staff up to an extra 5p a mile if they use their own car to take fellow employees on the same business trip

·         Providing company bicycles

·         And even… paying employees up to 20p a mile when they use their personal bicycles on business journeys! (or up to 24p a mile for a motorbike)

If you use contract workers and freelancers, have you made absolutely sure that the Taxman has no grounds for treating them as your employees?

Tip: This area can be a real minefield. Many businesses have unexpectedly found themselves with very expensive tax and National Insurance bills for people that they thought were contractors and/or freelancers – but the Taxman regarded as employees.

If any of your employees have been with you for more than 20 years, do you know how to reward them with a really special long-service present that is completely tax free for both you and them?

Tip: Tax-free gifts can now be worth up to £50 for each year of service (up to a maximum of 20 years).

If your employees work from home, are you using the rules so that you can reimburse them tax free?

Tip: It is possible for you to pay £4pw tax-free without the employee providing any evidence that they have spent money, and larger amounts if they provide evidence of spending.

Have you looked into whether it is possible to cut your costs and improve your cash flow by paying your PAYE and National Insurance quarterly instead of monthly?

Tip: This is possible if your average monthly PAYE and NIC payments are less than £1,500

Have you looked at the possibility of motivating and rewarding your staff by giving them share options?

Tip: Some commentators regard the government’s Enterprise Management Initiative scheme as a “must” for small businesses who want to motivate and reward their team. Not only is the scheme very flexible, but the tax and National Insurance savings are very attractive, despite the changes to capital gains tax.

If you have relatively low waged employees and/or employees with children, have you advised them to claim Working Tax Credits and Child Tax Credits?

Tip: You may be eligible to claim these credits too or the new Universal Credits.

Are you sure that you are staying on the right side of the minimum wage law?

Tip: The minimum wage before Oct 2015 is £6.50 (£6.70 from 1 Oct 2015) an hour for people aged 21 and over.  For those aged 18-20 the minimum wage is £5.13 (£5.30 from 1 Oct 2015) an hour and for 16 and 17 year olds it is £3.79 (£3.87 from 1 Oct 2015).

Have you advised your employees to check their 2015/16 PAYE coding to make sure that the details are correct and that they are receiving the correct allowances? And have you done this for your own notice of coding?

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Have you asked the Inland Revenue for P11D dispensations to reduce your paperwork?

Tip: By agreeing a dispensation with the Revenue in advance of making the payment, you do not have to report it on a P11D.

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Have you considered using childcare vouchers to save Tax and National Insurance for both employees with young children and the business?

Tip: Employers can pay child care vouchers to employees of up to £55 per week where the individuals joined the employer’s scheme before 6^th April 2011, without the employee suffering Tax or National Insurance.

Where individuals joined the scheme on or after 6^th April 2011 then higher rate taxpayers can get up to £28 per week, and £25 per week for additional rate taxpayers without the employee suffering Tax or National Insurance. On top of this the employer can save 13.8% National Insurance on the payments. Employees must be registered by the end of August 2015.   

This checklist is designed to alert you to some of the major issues you should be considering.

It is not a replacement for professional advice tailored to your precise needs and circumstances.

We strongly recommend that you contact us today to discuss

any questions where you have answered “no”.

Alternatively return your completed checklist to us and we will contact you.

No action should be taken without first taking professional advice.

No responsibility for any loss to any person from acting as a result of this material can be accepted by us.