Fawcetts End Of Year Tax Plan

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<ul><li> 1. End of year tax planning2011-2012</li></ul><p> 2. IntroductionIn an economic climate that continues topresent challenges to business and personalfinances, ensuring that your tax affairs arein the best possible shape is crucial.With the end of the tax year on 5 April 2012 fastapproaching, reviewing your tax arrangements, tominimise liabilities, is a commonsense step.We can help to identify appropriate tax planningopportunities open to you over the next few weeks and,by looking at the bigger picture of your circumstancesand priorities, we can also assist in shaping strategiesdesigned to enhance the future financial security of you,your family and your business.01 3. 01 / The tax landscape in 2011-2012A key priority of the HM Revenue &amp; Customs (HMRC) Business Plan2011-15 is to create a tax administration that is more efficient,flexible and effective.This includes investing 900 million to bring in around a new agreement on the taxation of funds held7 billion a year in additional revenues by 2014-15 by UK taxpayers held in Switzerlandas HMRC tackles avoidance and evasion throughtargeted campaigns and interventions; takes specific the launch of a new specialist unit targetingaction to tackle off-shore avoidance and evasion; offshore tax cheatsprevents tax avoidance before it happens; and compliance work expected to bring in 15 billionimproves its debt collection capability.in 2011-12, 1 billion more than last year.Measures to support this work in 2011-2012have included: the introduction of new penalties for late selfassessment returns and payments, includingWith the governmenta 100 penalty that applies even if the return is committed to closing the taxa day late and there is no tax due or tax due ispaid on timegap the difference between what should be collected work to move forward the Business Recordsand what actually comes in,Check initiative, designed to ensure businesses currently estimated at aroundkeep appropriate records to help them pay thecorrect amount of tax35 billion a year and toreducing the national deficit, campaigns targeting specific groups, including HMRCs more assertiveVAT defaulters, private tutors, plumbers, gasfitters and heating engineersstance underlines that carefultax planning, with expertadvice, makes more sense now than ever.www.fawcetts.co.uk 02 4. 02 / Personal tax planningIncome tax: the basics If one partner owns a business, it may be possible to pay an appropriate salary to the other (i.e. The individual personal allowance is 7,475 in not more than anyone else doing the same work2011-2012. For taxpayers with an income of morewould receive) and gain a tax deduction for thisthan 100,000, 1 of the personal allowance is against the profits. A salary of 7,000 a year wouldwithdrawn for every 2 above 100,000 in income, cover most of the 2011-2012 personal allowance,until it is completely withdrawn.without attracting national insurance contributions. For people aged 65 or over, the personal If the employed partner is active in the business,allowance is 9,940 and for those aged 75 andthey may wish to consider taking a lower salaryover, it increases to 10,090. For people aged 65(as outlined above) plus a higher pensionand over, if income exceeds 24,000, the personalcontribution made by the business. Provided theirallowance is reduced by 1 for every 2 above thetotal remuneration package (salary, plus benefits,24,000 limit until the basic allowance is reached.plus pension contribution) does not exceed the market rate salary for their role, the business will Children have their own personal tax allowance,be able to claim a tax deduction for the pensionin the same way as adults. cost against its profits.Income tax saving for couplesIncome tax saving for over-65sYou cannot carry forward any personal allowance that Taxpayers aged 65 and over with an income ofhas not been used at the end of the tax year, so if onemore than 24,000 should ensure that they keeppartners income exceeds their personal allowancetrack of all charitable donations and pensionthere may be tax saving opportunities if it were to fall contributions, which can be reported on their taxwithin the personal allowance of the other, if receivedreturn and deducted from their income to protectby them. Some options are set out below: their personal allowance. Where couples who are married or in a civilpartnership jointly own an income-generating Income tax saving for childrenasset, it is assumed that each receives 50 percent of the income, even where the asset is owned Parents can transfer income-producing assetsin unequal shares. However, an election can be to an unmarried child aged under 18, but themade for income to be taxed in proportion to the parent will be taxed if the income arising is moreunderlying capital ownership, e.g. if the wife owns than 100 a year.70 per cent and the husband 30 per cent. If, for tax purposes, it is beneficial for one partner A business owned by a parent can employto take all the income from an income-generating the child and pay them a wage, while makingasset, it must be transferred into their sole name.sure that all necessary employment law andAs the owner, the asset is then under their sole payroll obligations are observed.control. For couples who are married or in acivil partnership, there may be inheritance tax There is no tax payable by either child or parentimplications (IHT) and this also applies to non- on income paid on a Child Trust Fund or Juniormarried couples. For these couples, the transfer ISA investment, even if the parent has providedmay also involve a capital gains liability.the invested money. Anti-tax avoidance legislation is in place to prevent A parent can put money into a personal pensionincome shifting where a couple jointly owns afor a child. They will receive tax relief added to itbusiness. The exception is dividend income fromat the basic rate, without affecting the parentsjointly owned shares in close companies (broadly tax bill. If they have no income, the parent canthose owned by five or fewer people) which is splitpay in up to 2,880 a year, which becomesaccording to the actual ownership of the shares. 3,600 with tax relief.www.fawcetts.co.uk 03 5. 03 / Business tax planningExtracting profits from a company For unincorporated businesses (sole traders andpartnerships), whose profits are taxed as income,There are various options for extracting profits from profits for the tax year are decided at the accountinga company, which are outlined below:date in that tax year. Salary: the salary can be deducted from the There may be commercial reasons relating to thetaxable profits of the company (and can also be nature and trade of the business that influence theset at a rate that makes this efficient from amost appropriate accounting date. Otherwise, it isnational insurance point of view).generally considered beneficial to have an accountingdate early in the tax year if profits are rising and late in Dividends: no national insurance is payable onthe year if profits are falling, so if profits are reducingdividends and the income tax rate on dividendsit may be worth changing the accounting date tois lower than for other income sources. However,later in the year.the company cannot claim corporation tax reliefon dividends. Bonuses: where payable, an annual bonus mustMultiple businessesbe declared before the company year end, evenif the amount has not been finalised. The bonus If you have interests in a number of businesses,and employers national insurance payable onit is important to consider the initial and ongoingit is deductible for corporation tax purposes for tax implications.the period in which it is charged in the accounts,provided it is paid within the nine months followingIf two or more companies have the same ownership,the end of the accounting period. they share the rate limits for corporation tax (although Benefits in kind: tax-efficient benefits in kindfrom 1 April 2011, there is an exemption where theinclude a company mobile phone and a lowcompanies are not interdependent).emission company car. Pension contributions: where pensionThis means that if, for example, two companies arecontributions for a director shareholder are made in common ownership, each is taxable at the smallby the business, provided their total remunerationcompanies rate of 20 per cent on the first 150,000package (salary, benefits, and pension contribution)of profits (the upper limit for the small company ratedoes not exceed the market rate salary for theirbeing 300,000).role, the business can claim a tax deduction forthe cost against its profits. The annual pensionCompanies can form a tax group if one companycontribution limit is now 50,000, although unusedowns 75 per cent or more of the shares of one orallowances from the previous three tax years canmore other companies. Although profits and lossesbe brought forward tax-free.are calculated separately for each company, grouprelief can allow trading losses to be set against theprofits of others in the group.Accounting datesThe accounting date will affect when you pay taxon your profits. For incorporated businesses(companies) paying corporation tax, the accountingdate determines the payment date of the tax due (ninemonths after the end of the accounting period, unlessthe taxable profits are more than 1.5 million), so thecompany must ensure it has enough money availableto pay the tax when it falls due.www.fawcetts.co.uk 04 6. 04 / Investment tax planningTax-efficient investment vehicles can be a useful tool in tax planning.Some options are set out below:ISAs From April 2012, anyone investing up to 100,000 in a qualifying new start-up business will be eligibleThere is no tax relief on what you invest in an ISAfor income tax relief of 50 per cent, regardless ofbut the income and gains the investment produces the rate they pay tax, under a new Seed Enterpriseare tax-free.Investment Scheme (SEIS). Other capital gains made in the first year can be reinvested into a SEIS andAdults aged over 18 have a 2011-12 ISA limit ofthen be completely exempt from capital gains tax.10,680, of which 5,340 can be in a cash ISA.Junior ISAs (for those aged under 18 with no Child VCTsTrust Fund) have an annual allowance of 3,600. The VCT scheme is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies through VentureEnterprise Investment Scheme (EIS) Capital Trusts (VCTs), which are companies listedand Venture Capital Trusts (VCTs)on the London Stock Exchange.These are higher risk schemes that offer tax reliefIndividuals qualify for 30 per cent income taxbenefits on investments in smaller and growing relief on an investment of up to 200,000 per taxbusinesses.year, provided the shares are held for at least five years (three years if the shares were issued beforeEIS6 April 2006).Subject to certain conditions, the EIS gives incomeDividends received are exempt from income tax andtax relief to individuals at 30 per cent on qualifying there is no capital gains tax on disposal, providedinvestments in unquoted trading companies of upVCT investments are held for five years.to 500,000 per year (1 million per year from 6 April2012). After three years, the disposal of EIS share isexempt from capital gains tax. Pension contributionsCapital gains tax on the disposal of other assets can Tax relief is available on pension contributions up tobe deferred by investing the proceeds in EIS, with the annual limit of 50,000 a year and it is possiblethe tax on the original gain becoming payable on the to bring forward unused allowance from the threesale of the EIS investment and gain up to the EIS previous tax years.investment that can be reinvested, and reinvestmentcan be made up to 12 months before or within threeyears after the gain was made.www.fawcetts.co.uk05 7. 05 / Capital tax planningCapital gains tax (CGT) can involve some substantial sums, soone of the most useful steps you can take is to seek our advice incalculating your current exposure to CGT and discuss your optionsfor restructuring your affairs to reduce your liabilities. Some key pointsrelating to CGT are listed below: Each individual has an annual capital gains taxInheritance tax(CGT) allowance (10,600 in 2011-2012). In sellingassets, married couples and civil partners can As with CGT, it is sensible to regularly review yourmake the most of their CGT allowances by makinginheritance tax (IHT) planning to achieve the mostsure that the assets are jointly owned.favourable position. Some points to consider are listed below. Entrepreneurs relief reduces the CGT rate (28 percent for taxpayers at the higher or additional rate) Since October 2007, any unused IHT allowanceto ten per cent on the disposal by an individual (the nil rate band) from a late spouse or civilof a business, assets of a business or shares in partner can be transferred to the second whena company, if certain conditions are met.they die. This can increase the IHT threshold of the second partner from 325,000 to as much There is a maximum lifetime limit to the amount of as 650,000 in 2011-12 but if the second partnergains that can be reduced by entrepreneurs relief,remarries, some estate planning work may beset at 10 million for qualifying disposals on ornecessary to protect the unused nil rate band.after 6 April 2011. Gifts of up to 3,000 can be made annually, which There is no CGT on the sale of your main homewill be exempt from IHT on death. If the allowance(your principal private residence). If you own is not fully used in one year, the balance can bemore than one home you can elect which you brought forward to the following year.wish classed as your main home, provided thereis some evidence that you have lived there, even From April 2012, anyone leaving ten per cent orif only for short periods. You must elect whichmore of their estate to charity will reduce the IHTwill be your primary residence within two yearsrate on their estate from 40 per cent to 36 perof the purchase of one of the properties you cent, so it may be worth reviewing your will.own, and you can change the election, but it isimportant not to miss the initial opportunity tomake the election.www.fawcetts.co.uk 06 8. 06 / Offshore tax planningOffshore tax issues are often complex and require careful planning.With some significant changes due to take effect from April 2012, itwould be wise to look ahead and seek expert advice in reviewing yourtax position in the light of these. From 2012-13, the remittance basis charge will The law on UK tax residence has largely beenrise from 30,000 to 50,000 once an individual subjective, with the only definitive rule being thathas been resident in the UK for at least 12 of thea person is resident in the UK if they spend moreprevious 14 years.than 183 days in the UK in a tax year. A new investment relief will also come into effect The new rules will set out conditions qualifyingon 6 April 2012, designed to allow no...</p>