Accountants In Leeds

62 ways to pay less tax – No. 6 Make the losses work

Duncan Barr — Fri, 15 Mar 2013 16:51:24 +0000

The value of shares quoted on the stock market has risen recently. This may encourage you to sell some investments before the end of this tax year (5 April 2013) in order to use your annual capital gains exemption and to soak up any capital losses. Any gains covered by the exemption (currently £10,600 per person) or capital losses are free of capital gains tax.

We can’t advise you on what to sell, but we can help you calculate the level of your capital losses and potential gains. It is essential that you tell your financial adviser or stockbroker how much capital loss you have already realised, so future disposals can be made to meet the level of those capital losses.

If you have forgotten to declare a disposal which made a capital loss on your tax return, there may be no harm done, but you need to submit a claim for the loss before it can be set against a later gain. The deadline for claiming capital losses is now four years from the end of the tax year in which the loss arose, so you can still claim for losses made in 2008/09 and later tax years. We can help you with these claims.

Don’t forget you can crystallise a capital loss on shares which you still hold, but are now worth nothing or almost nothing. This is called a negligible value claim, and we can help you with that.

If you would like any advice on a tax or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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62 ways to pay less tax – No. 5 Alternative to the office party

Duncan Barr — Fri, 23 Nov 2012 08:45:20 +0000

You normally have a Christmas party for your employees which the Taxman accepts as a tax-free benefit for directors and employees alike, provided the cost is less than £150 per head (including VAT). But what if the format is getting a little tired? What can you offer as a tax-free alternative?

Party bag alternative

You can make the annual bash a more modest affair but include a gift (e.g. a Christmas hamper) as part of the celebrations. As long as the total cost of the function including the gift is less than the £150 per head limit, it will be a tax and NI-free benefit.

Day at the races

The annual function does not have to be at Christmas and it doesn’t have to be a “party”. The £150 exemption can also apply to a trip out for your employees as long as everyone is invited. So another alternative would be a day at the races in the summer.

If you would like any advice on a tax or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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62 ways to pay less tax – No. 4 Should I buy assets or shares?

Duncan Barr — Wed, 07 Nov 2012 08:45:03 +0000

When buying a business, the purchaser should always stop and ask “should I buy assets or shares”? The seller will typically be keen to sell shares – it can have significant tax and non-tax advantages for him. But it is often not in the buyer’s interests to structure the deal this way.

Purchase of goodwill

This is particularly important if much of the value of the business is made up of “intangible assets” or “goodwill “ (i.e a brand name, commercial know-how, an established customer base or an excellent reputation for the quality of the goods or services provided). If you acquire the goodwill (via a new company) a buyer can write off the cost of the purchase against his future profits and get corporation tax relief on the write off. In contrast, a purchase of shares does not qualify for any relief.

Key catches

1. The relief is only available for companies – if you buy goodwill as a sole-trader or partnership, there is no tax-break.

2. There is no relief if goodwill is acquired from a related party – so no relief is available if you incorporate your own self-employed business, selling your goodwill to your newco.

Negotiation

On a business transfer, the seller and buyer can want the deal structured differently. The answer is often to negotiate around the price.

If you would like any advice on a business purchase or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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62 ways to pay less tax – No. 3 Company share buy back

Duncan Barr — Tue, 18 Sep 2012 12:22:45 +0000

Sometimes two shareholder/directors differ on how a company should be managed and moved forward. This can lead to a stalemate where nothing is achieved and the business starts to suffer. The answer is often for one shareholder to buy out the other but the purchasing shareholder may not have the funds to hand or face a large personal tax bill if he withdraws funds from the company as income to fund the buy-out.

Purchase of own shares

As an alternative to one shareholder buying out the other, it is possible in certain situations for the company to buy back the shares from the departing shareholder, leaving the remaining shareholder with 100% of the remaining shares. This has two big tax advantages:

- There is no need for the remaining shareholder to extract income and pay income tax on these funds; and

- The “default” position that proceeds of a share buy-back are taxed as dividends is over-ridden so that the departing shareholder gets the benefit of the lower tax rates and exemptions that apply for Capital Gains Tax.

Key issue

Certain conditions must apply to get this CGT treatment (e.g. length of time the shares have been held, residence of seller, trading status of the company etc). The key issue is that the purchase must be for the benefit of the company’s trade. If you are worried that HMRC might challenge this, it is possible to apply for pre-transaction clearance setting out the motives and expected result of a share buy-back. If CGT treatment is refused you will be subject to the less generous income tax rules but there can still be some savings by utilising inter-spouse transfer exemptions and/or by spreading the sale over more than one tax year.

If you would like any advice on share buy backs or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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62 ways to pay less tax – No. 2 Tax breaks for green cars

Duncan Barr — Wed, 29 Aug 2012 13:32:16 +0000

Since 2009 the rate at which you can claim capital allowances (CAs), i.e. the Taxman’s version of depreciation, has been linked to CO₂ emissions. For cars with CO₂emissions over 160g/km, you can claim CAs equal to just 8% of the cost of the car each year on a reducing balance. This compares with CAs at the rate of 18% for those with CO₂emissions of less than 160g/km. Even if you sell the car after a few years, the tax relief just trickles along at these same rates.

Ultra low CO₂

There’s a new very low emissions limit of 110g/km. Where your company buys a car which has emissions at this level or lower, you can claim tax relief on 100% of the cost in the year of purchase. You may think that this will only apply to Smart cars, but versions of the Audi A3, BMW 320d and the Honda Civic and others also fall into the 110g/km bracket.

Savings for the employee

It’s not just CAs where tax can be saved. The taxable benefit in kind for those driving the car also decreases in line with CO₂emissions. And for the same reason, so will the Class1A National Insurance your company has to pay.

So, if you want the most tax-efficient company cars, buy those with CO₂emissions below 110g/km. You can claim the full cost as a tax deduction in the year of purchase and the benefit in kind on which tax and NI is based will also be lower.

If you would like any advice on saving tax or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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62 ways to pay less tax – No. 1 The classic car solution

Duncan Barr — Fri, 29 Jun 2012 07:45:47 +0000

At this time of year (P11D season) company car drivers get the bad news about the taxable benefit of having a company car – and employers have to face up to the additional (Class 1A) National Insurance charge of providing this benefit. The tax charge is based on the car’s CO2 emissions and original list price and the percentages creep up every year.

The charge could be much less if you ran a “classic car” with a market value of less than £15,000. Say, for example, a 1963 MRG roadster – it’s list price in 1963 was only £500. What’s more even though it may be heavy on CO2 emissions, most classic cars don’t have an official emissions rating and so engine size is used to calculate the benefit – which is 25% for any car with an engine size between 1,400 cc and 2,000 cc (including the MGB roadster with a 1600cc engine). So the taxable BiK is £125 (£500 x 25%) and the company pays Class 1A NIC of just £17.25 (£125 x 13.8%). Plus the company gets tax relief on picking up the tab for the running and any repair costs.

If you would like any advice on saving tax or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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IR35 Tests

Duncan Barr — Wed, 20 Jun 2012 07:30:36 +0000

If you provide services through your own personal service company you should be aware of the tax law known as IR35. This tax rule imposes an extra charge on your company, if you would be treated as an employee of your customer or customers, if you worked for the customer directly. It is very difficult to pin down when IR35 should apply, as it depends on the relationship between the contractor and the customer, which will be different in every case.

The Taxman thinks he can generalise about what makes some companies fall within IR35 and others escape it. He has drawn-up a set of business entity tests, complete with a scoring system, to help you judge whether your business would be at high, medium, or low risk of being investigated for falling under IR35.

These business entity tests are not derived from the tax law. They merely represent the Taxman’s view of the risk of a business falling within IR35.

The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner’s home. These IR35 business entity tests do not change the IR35 law..

If you choose to use the IR35 business entity tests, you don’t have to declare your score to the Taxman, the tests are merely for your own guidance. However, if you are concerned that the business entity tests produce a high risk score for your business, we should discuss why this is the case. Are there any changes which can be made to the way your business operates which would make it less likely to be caught by IR35?

We can advise you on the correct tests for IR35, which would be recognised by the Tax Tribunal, so do ask if you would like some reassurance.

If you would like any advice on IR35 or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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When a marriage ends….

Duncan Barr — Thu, 07 Jun 2012 14:35:47 +0000

Where a marriage ends, special tax rules come into play which can be particularly tricky if you own a business together. Timing the exchange of assets is vital. What steps can you take to avoid triggering a Capital Gains Tax (CGT) bill?

Tax and marriage

Both tax and marriage are tricky! But together they can be really complicated, especially if the relationship goes awry. You can take the “it will never happen to me” approach but if statistics are correct there’s a one in three chance that what’s written below will apply to you at some time.

Basic rules

There are special rules for married couples covering most taxes but we’re concentrating on the Capital Gains Tax (CGT) side of things. There are three key points to keep in mind:

1) Transferring assets between spouses living together doesn’t trigger a CGT bill

2) The first rule extends to the end of the tax year in which a couple separate

3) Spouses remain connected parties for tax purposes until the decree absolute. This means transfers between them are treated as a sale at market value.

Example:

Background: Janet and John separated in January 2011. Their main assets were the marital home and a company owned equally. In January 2011 John moved out while Janet remained in the marital home. Janet stopped being active in the company, but retained her shares in it.

Assets exchanged: In May 2012 Janet and John agreed on a plan of action. He would transfer his share of the marital home to Janet and she would transfer her shares to him at no cost.

Tax consequences: John is treated as having sold his part of the marital home to Janet in May 2012 for its market value. This was £50,000 more than his share of what they paid for it, meaning he made a capital gain on this amount. The good news for John is the gain is covered by the private residence exemption.

Janet is treated as selling her stake in the company for its market value. Agreeing the value of private company shares with the Taxman is often a long-winded and tricky process. In the meantime because Janet’s shares only cost a few pounds at the time the company was formed, Janet faces a massive tax bill because the business is now worth around £500,000.

Had Janet and John transferred the assets by 5 April 2011, no CGT would be triggered under the first “basic rule” above.. Plus, the share valuation wouldn’t be required at all.

Tip: Sort out who gets what before the end of the tax year in which separation occurs. Where you can’t agree on how much things are worth or how much money should change hands, at least decide which of those assets, potentially subject to CGT, should go to whom. It’s the date of this agreement that counts as the date of transfer for CGT. Any money which passes between you later has no effect for tax purposes.

If you would like any advice on tax issues or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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Increased relief for R & D expenses

Duncan Barr — Fri, 04 May 2012 08:16:45 +0000

From 1 April 2012 the tax deduction for research and development (R & D) expenses available to SMEs was increased from 100% to 125%. So, for example, a company that spends £8,000 on R & D expenses will be entitled to a tax deduction of £18,000. Assuming Corporation Tax on profits at the small profits rate of 20%, this will result in a tax saving of £3,600.

It’s now also easier to make a claim for R & D tax relief because certain restrictions have been removed in respect of expenses incurred on or after 1 April:

There is no longer a minimum spend on R & D projects. Before April 2012 a company had to spend at least £10,000 on qualifying R & D expenses, excluding capital equipment, in any year to make the claim.

There is no restriction on the amount that can be claimed as payable tax credits. For period ending before 1 April 2012 the payable tax credits were capped by the amount of the company’s PAYE and NI contribution liabilities.

If you would like any advice on salary levels or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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How much should I now pay myself?

Duncan Barr — Fri, 20 Apr 2012 15:43:47 +0000

As a director and shareholder of your own company you can decide how much salary to pay yourself each month, in order to use your personal allowance in the most tax efficient way. As a director of your personal company you do not have to pay yourself the national minimum wage unless you have an employment contract with your company.

From 6 April 2012 the tax free personal allowance is £675 per month (£8,105 per year), so you could take a salary at that level and pay no income tax. However, the monthly thresholds for paying class 1 national insurance (NI) are: £634 for employees and £624 for employers. If your salary is £675 gross per month, your company needs to deduct NI of £4.92 and pay employer’s NI of £7.04 on top.

If you take a lower salary of just over the NI lower earnings threshold of £464 per month you will get the NI credit, so your wages count towards your state pension entitlement, but you don’t pay any tax or NI and neither does the company. However, at that annual salary level (£5,568) you will be ‘wasting’ £2,537 of your tax free personal allowance. At £624 per month there will be no NI to pay and you only have £617 of unused personal allowance, so this is likely to be more beneficial.

As a director’s salary is an allowable expense for Corporation Tax purposes it is always beneficial to pay yourself a salary but talk to us first about the best salary level for you. The correct procedures also need to be in place when paying a salary and we will also need to take into account your other sources of income.

If you would like any advice on salary levels or any other matters please click here to contact us or call DBA Chartered Accountants on 0113 244 9811.

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