UHY Ross Brooke Chartered Accountants

Lucky 7 – Perfectly Permissible Tax Planning Pointers

Many small business owners will be feeling dejected in the wake of the 2016 Budget, particularly as we approach tax year end and the sun begins to set on the opportunity for low tax profit extraction.

Yes, for many, things are about to become more expensive. But I am the bearer of better tidings and come with news that some opportunities still exist for small businesses to plan and save money.

Below are some of my current ideas, things that I am proactively working on with my clients that are available, widely known but perhaps not discussed as often as they should be:

1. Research and Development Tax Relief – a scheme available to Companies investing cash directly or staff time costs in developing new products or processes or unique enhancements to those already in existence. This relief is broader than one might think and therefore if you have any interest whatever in considering if it applies to you then I would be happy to discuss it with you.

2. Business structuring – it is now more then ever important to consider your business structure to see if it remains appropriate in current times. Succession planning as part of restructuring is a good way to maximise family wealth and lower the household tax incidence.

Property ownership – also, make sure you get your rental business structure right from the off. Restrictions to interest relief will make highly geared portfolio property costly if owned personally as compared to, say, ownership through a Company but you need to consider overall circumstances.

3. Spare room? Rent-a-room relief – renting a room in your home came be financially extremely beneficial and with a raised allowance of £7,500 per annum tax free (from 6 April – currently £4,250), the time has never been better.

4. The Home Office? Perhaps not what they meant, but business use of home is a consideration – especially where dividend tax is a problem? Rent paid for using your home as an office is taxable on you as an individual but if you are a basic rate taxpayer you would be tax neutral paying rent from your Company to yourself as the rents would be taxable at 20% (after expenses) and the Company would obtain tax relief on the rents at a similar level.

But that of course means that money has been paid out of your Company without having incurred a 7.5% dividend charge (post 6 April). The level of such payments needs to be carefully judged and therefore you ought to seek advice.

5. Interesting? That is, lending money to your Company – banks don’t pay interest but commercially lending money to your own Company might and is tax effective post April 2016 if you have your savings allowance available.

6. Stamp duty woes – a huge fuss has been made about the charge on additional properties, however there are strategies to deal with it:

(i) Negotiate with the vendor;
(ii) Consider a slightly higher rent commercially;
(iii) Bear in mind that stamp duty is a capital gains tax expense and so if you are a 40% taxpayer (CGT at 20%) then a 3% cost ultimately is reduced to 2.4% as a consequence of the saving on eventual sale of the property.

7. Entrepreneur? What a relief. Entrepreneur’s relief remains available to trading businesses in many circumstances and reduces the tax rate on the first £10m of capital gains to 10% as a risk reward. All the conditions must be met and so it’s important to take proper advice.

I head up the Tax Department at Ross Brooke Chartered Accountants, a Berkshire firm with our Head Office in Newbury but also with offices in Swindon and Hungerford. We are regulated by the Institute of Chartered Accountants for England and Wales (ICAEW).

I can be contacted on 01635 555 666, or emailed at pkinzett-evans@ross-brooke.co.uk

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