– By Jonathan Prevezer and Nick Brennan, Partners, Citroen Wells, Chartered Accountants
In these uncertain times, we are finding that our clients are often looking not to expand their businesses but to try to preserve what has taken them so long to accumulate. We have been advising our clients that a company’s tax affairs should be reviewed more regularly than ever.
There can be a fine line between minimising the profits for tax purposes and maximising them for commercial reasons; for example, if a sale is in the pipeline or to ensure the company’s loan covenants are not breached. It is important to understand the outcomes that you require when deciding on your tax strategy.
We have listed below a few points to consider. Our top ten tax tips are also available in this newsletter here.
Structure of your Company
First consider the structuring and financing of your company and secondly where to hold property.
It is much simpler to obtain repayment of a loan to a company rather than recover initial share capital. Gearing the company through loans enables interest to be charged which will reduce taxable profits. Business angels, however, will want to share in the growth of the company and will normally take shares.
Trading premises will often be held outside a company to protect it from the company’s creditors and also to avoid a double tax charge – first on its disposal by the company and second on a distribution of the proceeds to shareholders. However if held outside the company, the potential inheritance tax business property relief is only 50% of the property’s value, but if held by the company there is potentially a full 100% tax relief for the company’s shares reflecting the value of the property; for protection the property could be held in a holding company with trading conducted in a subsidiary.
Trading generally
Some areas to consider:
Capital allowances. If possible claim expenditure as a repair in the profit and loss account and obtain a 100% tax deduction immediately. Otherwise, ensure qualifying expenditure is identified and claimed on a timeous basis. The 100% Annual Investment Allowance (AIA) is reducing from £100,000 to £25,000 per annum on 1 April 2012 so bring forward qualifying expenditure to maximise the relief available.
VAT. Ensure relief is claimed for debts more than six months old. For start-ups consider the Flat Rate Scheme or Cash Accounting Scheme to ease cash flow. If there are more than one company in a Group, a Group VAT registration minimises compliance costs and avoids the need to charge VAT on inter-group supplies.
Tax efficient remuneration. Generally dividends taken are more tax efficient than salary paid. But dividends are not always appropriate or possible; for example salary may be required to make pension contributions or there may not be sufficient distributable reserves to pay a dividend.
Company cars. These can be very expensive but even more emotive if you try to remove the benefit. The benefit in kind is a function of the list price and CO2 emissions so look to reducing one or both, e.g. the manual version will invariably have lower emissions than an automatic. This will reduce the employee income tax charge and employer’s NIC charge.
Compliance. Ensure PAYE and other tax payments and returns are paid/submitted on time to prevent interest and late filing penalties and avoid the costs and time of dealing with them. HMRC have recently issued statistics on inaccuracies in PAYE data with staff entered as ‘Dummy’, ‘Unknown’, ‘X’ and ‘A N Other’ and some people were apparently more than 200 years old!
This memorandum is for guidance only and professional advice should be obtained before acting on any information contained herein as no responsibility can be accepted by Citroen Wells for loss occasioned to any person as a result of action taken or refrained from in consequence of its contents.