| The latest tax tips |
| Wednesday, 24 June 2009 03:23 |
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Smith & Williamson provide their top five tax tips for SME owner-managers.
Smith & Williamson provide their top five tax tips for SME owner-managers. This year’s Tax Freedom Day, the date when we finish paying our tax burden for the year, was May 14 - the earliest since 1973. However, economists say that government deficits are really a form of deferred taxation and when government borrowing is factored in this momentous date does not fall until June 25 - the latest since 1984. The average taxpayer is now working more than half the year on behalf of the Government and with each year that goes by this date gets later. In 2008 it fell on 15 June but in 2009 it will take 10 days longer before you start to earn any money for yourself.However, Geoff Everett, tax director at Smith & Williamson, the accountancy and financial services group, believes that with effective planning you can shave days or possibly weeks off this hypothetical date. "Every taxpayer should invest time and effort into ensuring they don't pay over the odds. Unfortunately you cannot rely on HMRC doing your tax planning for you." Five top tax tips for owner-managers1. Assess reward package Aim for a tax efficient mix of salary, dividends, bonuses and benefits. With respect to share schemes, consider Enterprise Management Incentives and Approved share option schemes. These arrangements can prove tax efficient for both employers and staff. 2. Consider further pension contributions Pension schemes represent one of the few Government sponsored tax saving vehicles where significant tax relief is still available. Where the company makes a contribution on behalf of the employee, or the individual makes a net payment to the pension provider, it is now possible to receive tax relief on an amount equal to earnings (subject to a cap of £245,000 for 2009/10). Furthermore, where an employee agrees to sacrifice a portion of salary in exchange for an employer making an equivalent employer pension contribution, there can be NIC savings for both employee and employer. However, additional care is required for high earners considering additional pension contributions before 6 April 2011 over and above their usual monthly contributions (whether personal or employer paid) due to anti-forestalling rules introduced in Budget 2009. These rules could mean that additional contributions result in a tax charge on the employee. High earners for these rules are those with total income (note not just employment income) of £150,000 or more in the current tax year, or in one of the previous two tax years. 3. Maximise tax breaks on capital expenditure Capital allowance claims permit the taxpayer to offset certain capital expenditure against their business income. These include, amongst others, the Annual Investment Allowance and Enhanced Capital Allowances for qualifying energy and water efficient expenditure, which are relevant for both corporate and unincorporated businesses. There is an additional temporary 40% rate of first year allowance available to all businesses for expenditure incurred on plant or machinery qualifying for the ‘general pool of expenditure’ in the 12 months from 1 April 2009. 4. Review loss relief claims An extended loss relief facility was announced in November 2008 enabling businesses to carry back trade loss relief of up to £50,000 for up to three years instead of the usual one year limit. Budget 2009 announced an extension to this relief, to cover an additional £50,000 of trade losses incurred in the year following that announced in November 2008. 5. Furnished holiday letting properties Overseas furnished holiday letting properties located outside the UK, but within the European Economic Area, can qualify for the furnished holiday lettings regime. This treats the furnished holiday lettings business as a trade rather than an investment activity, with favourable capital allowance, loss relief and capital gains consequences. A review of this area by corporates and individuals is imperative as the regime is to be withdrawn from April 2010. Additionally, all claims for previous periods where claims can be amended have to be submitted by 31 July 2009.
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