Top ten tips for reducing your tax bill

Courtesy of Citroen Wells, Chartered Accountants

Tax tip 1: Attract Tax Efficient Funding

Utilise the Enterprise Investment Scheme to give your investors 30% income tax relief on share subscription monies, plus exemption of gains on a disposal of the qualifying shares and income tax relief if shares sold at a loss.

Tax tip 2: Only pay 10% Capital Gains Tax (CGT) on share sales

Ensure Entrepreneurs’ Relief is available to reduce the rate of capital gains tax to 10% on a sale of unquoted trading company shares. Briefly, a minimum holding of 5% of the ordinary voting shares must be held for at least twelve months prior to disposal by the shareholder who must be an employee and/or officer of the company throughout that period.

Tax tip 3: Make sure you’ve received your Capital Allowances

Review your expenditure on buildings and refurbishment in past years for expenditure qualifying for capital allowances you have not yet used. At present there is no time limit to claiming the allowances but there is a proposal to introduce a one or two year time limit.

Tax tip 4: Being green pays off

Expenditure on certain energy saving and/or environmentally beneficial plant or machinery attracts tax relief at 100%. If losses are being incurred the allowances can, subject to limits, be converted into an actual 19% cash payment to the company.

Tax tip 5: Recovery of all your VAT

If you are partially exempt for VAT look at using a special method or switching to the ‘standard method’ to reduce irrecoverable VAT.

Tax tip 6: Retain earnings to save top rate tax

Instead of a dividend or bonus consider retaining earnings especially whilst the top rate of income tax is ‘temporarily’ at 50%. Retained earnings having been subject to Corporation Tax can add to company valuation for sale. Be careful that surplus cash does not prejudice the trading (versus non trading) status of the company which may affect qualification for Entrepreneurs Relief, so document the commercial need for the cash and take advice if needed.

Tax tip 7: Reduce your employee NIC costs

Paying interest on loans to shareholders and rent to property owners avoids what would otherwise attract an employer’s NIC charge if paid as remuneration. But be aware that you may be converting company profits subject to a lower corporation tax rate into personal income taxable at up to 50%. Also paying rent may restrict Entrepreneurs’ Relief on an associated disposal of the property.

Tax tip 8: Reduce costs of employment

Consider a salary sacrifice arrangement/flexible benefits package to substitute non-taxable benefits e.g. pension contributions and death in service life cover to save the NIC cost to the company and in certain cases to reduce the employee’s income tax liability.

Tax tip 9: Avoid the costs of Private Fuel

Avoid the private fuel charge which is an expensive benefit.  Instead let the employee pay for private fuel, reimburse business mileage and (if necessary) pay additional salary to compensate for the private fuel.

Tax tip 10: Replace company cars with allowances

Go one step further and have the employee own the car and pay additional salary and reimburse business mileage. There are non-tax issues to consider including liability if the private car is involved in an accident whilst being used on company business.

For more information, please contact www.citroenwells.co.uk. For further information about The Academy for Chief Executives, please go to www.chiefexecutive.com.

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.