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09 March 2021

End of Year Tax Planning

Frequently Asked Business Question:

I own a family business and as the end of the tax year approaches, should I be considering end-of-year planning?

Top Tip:

Tax planning is essential to ensure that individuals are optimizing all available tax reliefs and opportunities both individually and for your business.  During the last tax year, the effects of Covid-19 and Brexit, both positive and negative, have impacted on businesses and at this juncture, it would be critical that individuals and business owners carry out a financial and tax health check which should be aligned with their future goals and aspirations.  These will change as a business grows and transitions through its different life cycles.

For businesses, it is important to consider what stage your business is at and what plans you have for the future.  Perhaps you have a sole-trader business and are considering incorporating it into a limited company to grow the business and protect personal assets.  Consideration should be given to when would be the best time to make this transition and planning is crucial to secure all available tax reliefs.

In contrast to this, business owners who have a succession plan in place and are considering retirement would also need to have adequate planning in place.  Areas that would need to be considered would be pension planning to ensure that the individuals had sufficient net disposable income,  adequate life cover, capital gains tax and inheritance tax planning.

Some financial areas that businesses should consider would be, a review of bad debts, are any additional provisions required due to the challenges of COVID-19, is a review of the banking facility required, is it still adequate for the business’s needs or perhaps,  staffing resources, does the business have the right staff mix/team in place in order to up-scale or down-scale the business.  It is also important to review the business plan and assess the availability of all business supports.  There are various business supports available to assist business owners to navigate their business through challenging times or to secure its future growth.

From a tax perspective, there are several areas that businesses and individuals should consider prior to the end of the tax year.  If a business needs to invest in capital equipment, utilisation of the annual investment allowance should be considered and timing of the investment.  Pension planning should be considered and utilisation of the annual pension allowance.  Extraction of income from the business personally should be reviewed to ensure that this is being maximised tax efficiently.  The various methods of extraction would depend on each individual’s circumstances, but it could be a mix of salary, dividend, rent, and an employer pension contribution.

Business owners and individuals should also consider changes to their personal life, for example, the birth of a child, marriage, divorce, property investment etc. as these can all impact on your tax planning strategy.  Individuals should ensure that they make the most of their ISA personal allowance, currently £20,000.  ISA’s have gone through significant change and a review of your savings could be required.  If you or your partner is in receipt of child benefit, any changes to your income above £60,000 or falling between £50,000 – £60,000  should be considered as this could result in a clawback or restriction to the child tax credit.   Simple planning to share out income might help plan around this.

Individuals investing in property should consider the timing of the investment, joint ownership of the property (if applicable, for example, joint tenancy or tenants in common), and how this would be funded. If planning on renting the property out, consideration needs to be given to how the rental business should be operated, for example, a limited company or a personal rental business.

Individuals wishing to make an investment should consider various investor reliefs, for example, Enterprise Investment Relief, Seed Enterprise Investment Scheme, Investor’s relief, and Social Investment Tax Relief. These reliefs can help shelter income tax and capital gains tax.

For more information and/or assistance, please contact our Tax Team who will be pleased to help you.

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Other areas that should not be overlooked would be gift aid donations, inheritance tax reliefs for making lifetime gifts, and utilisation of the annual capital gains tax exemption.

It is important to note that your tax planning strategy should be reviewed, not just on annual basis, but also throughout the tax year as your personal and business circumstances change.

The advice in this column is specific to the facts surrounding the questions posed.  Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Contact Siobhan

Siobhan McCreesh / Associate Tax Director

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