#Tax and your business: the year ahead
Don’t miss out on tax planning opportunities. Planning for the year ahead will benefit your business.
Tax is payable by an unincorporated business at income tax rates from 20 to 50 per cent. In addition there is a liability to class 4 national insurance which is taxed at a rate of 9 per cent on taxable profits from £7,225 to £42,475 and thereafter at a rate of 2 per cent without limit.
The family business
Involving the family
You can employ family members in your business, provided the salary and other benefits you pay them is commercially justifiable. You can remunerate family members with a salary, and perhaps also with benefits – such as a company car or van. The cost in tax of having a company van that is available for private purposes ranges to a maximum of £1,775 which includes the use of fuel for private purposes. Other options include medical insurance or making payments into a registered pension scheme.
You can also take family members into partnership, thereby gaining more flexibility in profit allocation. In fact, taking your children into partnership and gradually reducing your own involvement can be a very tax efficient way of passing on the family business. Be aware, though, that taking family members into your business may put the family wealth at risk if, for example, the business were to fail. HM Revenue & Customs may challenge excessive remuneration packages or profit shares for family members, so seek our advice before you make any decisions.
If you operate your business through a limited company, under current tax law you can pass shares on to other family members and thus gradually transfer the business with no immediate tax liability in most cases. However, a tax saving for the donor usually impacts on the recipient and you need to steer clear of the anti avoidance rules known as the settlements legislation, so again, seek our advice first.
HMRC has extensive and changing regulations on what expenses can and cannot be claimed against tax. The rules governing whether late night taxis are a taxable benefit or not, for example, run to five pages. Naturally, you will want to make sure your business is claiming all available expenses. Some of these benefits are due to be cut (including late night taxis).
Professional guidance can ensure your business is making the right claims, and at the right time: incurring expenditure just before the end of the accounting year means you can claim any available tax relief a year earlier. For 2011/12 and the previous year, the first £100,000 of most capital expenditure qualifies for a 100% allowance. You may also want to consider investing in energy efficient or environmentally beneficial plant and equipment which will attract 100% allowances, irrespective of cost – more information can be found at http://www.eca.gov.uk .
Do you have a home office?
The number of people working from home has soared. According to a report by Enterprise Nation, almost half of this country’s SMEs are based at a residential address, and 60% of new businesses start out of a home office. Frustratingly, the complex tax rules governing this situation mean few are receiving the full benefit. Yet if you arrange your business affairs in a clear and demonstrable way, you can claim a number of expenses. Potentially, depending on usage, area and working time, you can claim an apportionment of both fixed and running costs. Utility bills, mortgage interest (or rent), water rates and general repairs may all be eligible, as is telephone line rental and cleaning. HMRC officers are now instructed to ‘accept a claim on any reasonable basis.’. Naturally, any such claim should be diligently prepared. If you are working from home and qualify, please talk to us. You will also need to consider whether your business use of home breaches planning restrictions, and whether business rates may be due on the property.