Tax planning tips

Tax planning tips

It is essential to utilise all the tax reliefs and allowances available to minimise your tax liabilities.

To help, we have listed some taxes to be aware of and how to reduce them.

Business tax

There are many ways businesses can reduce a potentially hefty tax bill, but careful planning is vital and it could help your business save money or even offer cash tax credits to support investment in your company.

Businesses should start by looking into capital allowances and schemes, such as the Annual Investment Allowance (AIA), Super-Deduction and the Enhanced Capital Allowance (ECA) scheme. 

The temporary £1 million increase to the AIA ends on 1 January 2022, so businesses need to be quick to take advantage of the higher rate.

Up until then, firms across the UK can claim up to £1 million in same-year tax relief for capital investments in assets, by subtracting the full value of an item (not including cars) that qualifies for the AIA from a business’ profits before tax.

Meanwhile the super-deduction, launched on 1 April 2021, allows a business to claim:

  • A super-deduction providing allowances of 130 per cent on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances
  • A first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for special rate writing down allowances

The super-deduction is only available to incorporated companies, such as limited companies, but unincorporated businesses continue to benefit from the Annual Investment Allowance (AIA) that provides a deduction of 100 per cent for qualifying plant or machinery expenditure up to the threshold of £1 million.

Finally, through the ECA scheme, businesses can invest in environmentally efficient technologies and claim 100 per cent first-year allowances, such as tax relief on investments into specific products and technology.

You can deduct either the total cost or up to the published claim value of the product against taxable profits in the year of purchase.

Items that qualify for this allowance and scheme are new machinery and plant only, not second-hand or used.

If you conduct Research and Development (R&D) projects, your business could also benefit from related tax credits.

R&D Expenditure Credit (RDEC) is available for larger companies plus companies who have subcontracted R&D work by a large company, to claim for working on R&D projects. The RDEC increased to 13 per cent of your qualifying R&D expenditure on 1 April 2020.

SME R&D Relief is available for small and medium-sized companies (SMEs) if they have less than 500 employees and a turnover of under £89 million or a balance sheet total under £77 million.

Another business-related tax help to consider is the Business Asset Disposal Relief. This helps eligible business owners to reduce their Capital Gains Tax rate to just 10 per cent when they dispose of shares – slashing their tax bill in half in most cases. Known previously as Entrepreneur’s Relief, this lifetime limit for qualifying gains decreased to £1 million from £10 million.

Personal tax

Reducing your tax liabilities is not restricted to your business, there are several ways to reduce personal tax bills too, such as the following:

  • Using the annual gifting allowance of £3,000 without being charged Inheritance Tax (IHT).
  • Maximising capital gains and income tax rates and allowances through inter-spouse transfers, if your annual income is between £100,001 and £125,000.
  • Exchanging part of your salary for payments into an approved share scheme or additional pension contributions, referred to as Salary vs Benefits.
  • Balancing your income between salary and dividends. Dividends are taxed at a lower rate to regular salary income and benefit from an annual £2,000 tax-free allowance.

You must consider if you can take advantage of any exemptions, such as the annual Capital Gains Tax (CGT) exemption.

For more information or guidance on tax planning, to minimise your liabilities, please contact our expert team at Benson Wood & Co today.

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