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A guide to tax planning for SME's
Citation preview
A presentation given by Michelle
Allen and Sarah Smith Wright Vigar
at the BizGen Conference and
Expo Lincoln
Tax Planning for SME’s
Michelle Allen & Sarah Smith
“In this world nothing can be
said to be certain, except
death and taxes"
Benjamin Franklin
Tax Planning
• Simple or complicated
• Attitude to risk
• Cash
• Associated costs
• When?
Business
• Pre year end spending
• Pension contributions
• Asset purchases
• Property transactions
• Trading vehicle
• VAT
Pre year End Spending
• Simple
• Timing
• Cash availability or finance
• General expenditure
– Marketing
– Training
• Capital assets
Pension Contributions
• Tax efficient
• Investment
• Remuneration
• Employer contributions – allowable
• Annual allowance - £50,000
Asset Purchases
• Vans, machinery
• Full allowance in year of purchase
• Annual Investment Allowance
– To 31/03/12 £100,000
– From 1/04/12 £ 25,000
• Capital Allowances
– To 31/03/12 20% & 10%
– From 01/04/12 18% & 8%
Property Transactions
• Buying or selling
• Improving/extending
• Maximum relief as capital allowances
• Capital - integral features
• Repairs
• VAT
Trading Vehicle
• Now
• Future
• 3 main options
1. Unincorporated
2. Incorporated
3. LLP
Business Vehicle
Unincorporated
• Sole trader or partnership
• Flexibility with losses – carry back 3 years
• Less cost
• Easier to unwind
• Potentially 40% and 50% tax
Business Vehicle
Company
• Tax rates
– Profit under £300,000 – 20%
– Profit over £1.5m – 26%
– In between – 27.5%
• Benefits lost on extraction
Business Vehicle
LLP
• Limited Liability Partnership
• Losses limited to capital introduced
• Limited liability – partners only liable to
capital introduced
• Accounts must be published
• Potentially 40% and 50% tax
Unincorporated
vs Incorporated • Potential tax savings
• Example:
– Anthony & Cleopatra make annual profits of
£100,000 as a partnership
– Year end is 31 March
– Higher rate tax payers
Example (1)
• 2011/12 Tax Rates
• As Partners
– Taxed on profits
– Amount drawn is irrelevant
Income Tax £20,020
NI £ 6,914
TOTAL £26,934
Example (2)
• 2011/12 Tax Rates
• As a Company
– Company pays corporation tax
– Individuals pay income tax and NI on earnings
Corporation Tax £17,171
Income Tax £ Nil
NI £ Nil
Tax on Dividends £ 1,240
TOTAL £18,411
Example - Comparison
Partnership Company
Income Tax 20,020 1,240
National Insurance 6,914 Nil
Corporation Tax N/A 17,171
TOTAL 26,934 18,411
• Additional tax paid if remain unincorporated £8,523
Unincorporated
vs Incorporated • What if individual is an additional rate tax
payer
• Example:
– Anthony & Cleopatra make annual profits of
£400,000
– Year end is 31 March
– Additional rate tax payers
– Personal Allowance restricted
Example (3)
• 2011/12 Tax Rates
• As Partners
– Taxed on profits
– Amount drawn is irrelevant
Income Tax £156,000
NI £ 12,914
TOTAL £168,914
Example (4)
• 2011/12 Tax Rates
• As a Company
– Company pays corporation tax
– Individuals pay income tax and NI on earnings
Corporation Tax £ 83,610
Income Tax £ 2,828
NI £ Nil
Tax on Dividends £ 67,990
TOTAL £154,428
Example - Comparison
Partnership Company
Income Tax 156,000 70,818
National Insurance 12,914 Nil
Corporation Tax N/A 83,610
TOTAL 168,914 154,428
• Additional tax paid if remain unincorporated £14,486
Summary
• Tax saving – all profits extracted
• Consider retaining profits
– Second scenario earnings restricted to
£100,000 each.
– Saving £30,726
VAT
• Registration threshold - £73,000
• Schemes
– Smooth cash flow
– Simplify administration
• 3 Main schemes
1.Cash accounting – cash movement
2.Annual accounting – 1 return per year
3.Flat rate – % on sales
Personal
• Capital Gains Tax
– Rates
– Entrepreneurs relief
• Inheritance Tax
• Pension Contributions
• ISA
Capital Gains Tax
• Rates
–18%
–28%
• Entrepreneurs Relief
–10%
–Lifetime limit £10m
–Business asset
–Rent
Inheritance Tax
• Business Property Relief
–100%
–2 years minimum ownership
–50%
Pension Contributions
• Annual Allowance
• Limits - £3,600 or qualifying income
ISA
• Annual Investment Allowance
– Max £10,680 pa stocks & shares
– Max £5,340 pa cash only
• Two separate ISAs only in one year
Michelle Allen – Newark Office Director
Sarah Smith – Senior Manager
Wright Vigar
15 Newland
Lincoln
LN1 1XG
01522 531341
www.wrightvigar.co.uk
If you have any queries regarding issues raised during
the seminar or any other taxation issues please contact
BizMidlands.co.uk