Top ten tax tips for a healthy 2015

As with any New Year, come resolutions – what about your business!

One of the main issues affecting business owners is tax, so below are our list of top tips to keep your business “tax healthy” in 2015!

The list ranges from making the most of Research and Development Tax Credits to avoiding the 60 per cent tax trap.

Lee Watson, our senior tax manager, said: “It really pays for business owners to take time out and focus on whether they are making the most of tax saving opportunities.

“They may be surprised to learn what their businesses can qualify for and there’s no better time to get started than the start of a New Year.”

The tips include:

1.    Business form

Whether you trade as a sole trader, partnership or limited company, there could be tax savings to be made by changing the business form. For example, a sole trader with increasing profits could save tax, therefore leaving profits to expand the business by trading through a limited company. Or vice versa, a director operating a limited company with reducing profits, may be better off by trading as a sole trader.

 

2.    Year end change

If you’re trading as a sole trader or in a partnership, then you could reduce or delay tax bills by changing the business’ year end. Most accountants will advise you to have a 31 March or 5 April year end as this coincides with the end of the tax year. However this may be detrimental to your overall tax bill.

 

3.    The 60 per cent tax trap

If you earn more than £100,000 you may be paying tax at 60 per cent. You won’t find this listed on the HMRC website, but due to the withdrawal of the personal tax allowance for income over £100,000, earnings of between £100,000 and £120,000 will be taxed at an effective rate of 60 per cent for 2014/15. It would be wise to seek tax advice to see if you can reduce the tax payable by taking action prior to 5 April 2015.

 

4.    Use your spouse’s tax allowances

If you work and your spouse doesn’t or pays tax at a lower tax rate, then you may be missing out on tax savings if you have investment income. You could make tax savings by transferring savings or shares into your spouse’s name or changing the ownership of investment properties so that the ownership is weighted in favour of your spouse, which means that the income would be too. In addition, if one spouse pays tax at basic rate and the other spouse does not use up their personal tax allowance, then you may be able to take advantage of the new married couple’s allowance from 6 April 2015.

 

5.    Don’t overpay national insurance

If you are employed and self-employed or have been in the same tax year (perhaps if you started self employment after being an employee or vice versa), then you may have overpaid national insurance. Not all accountants will check this for you as the computerised systems for tax returns do not calculate overpayments of national insurance. In some instances, individuals may be inadvertently overpaying national insurance by thousands of pounds each year.

 

6.    Research and development tax relief

Don’t fall into the trap of thinking that you don’t carry out research or that this relief only applies to companies which employ people who wear lab coats. In 2012/13, nearly £500m of relief (in total) was claimed by more than 5,000 manufacturing companies. It’s not just manufacturing companies either as claims were made by mining and quarrying companies, transport and storage companies and many more. Don’t dismiss a claim for valuable tax relief.

 

7.    Employer’s national insurance

For 2014/15, HMRC gave most employers a discount of £2,000 off their employer national insurance bill. This has been extended for 2015/16. In addition, there are forthcoming reductions in employer national insurance where employers take on apprentices under 25 and employee’s under 21. Make sure that you are claiming the reductions in your employer’s national insurance bills.

 

8.    Staff retention

As the economy grows, staff retention is becoming a greater issue for a number of employers. While salary remains important, making the employees feel like part of the business is key. If you have an employee who you feel could be better rewarded or retained by partaking in the company growth, why not set up an Enterprise Management Incentive plan to allow them to purchase a number of shares tax efficiently in the company. There are benefits for both the employer and the employee, so it can be win–win.

 

9.    Have a tax review

Are you aware of your exposure to inheritance tax? Are you unknowingly paying too much income tax? Are you making the most of capital gains tax allowances? Can you make your investments tax efficient? There are multiple legal and HMRC approved ways to reduce current and future tax bills. Speak to our private client tax team to arrange a no obligation meeting.

 

10.   Make pension contributions

If you are trading via your own limited company, then the company can make pension contributions on behalf of a director and receive tax relief on the contribution.

If you are an individual, then you will automatically receive basic rate tax relief on any pension contributions (i.e. you pay £80 but your pension plan receives £100) but you may be missing out on additional tax relief if you pay tax at the higher rates. In addition, if you earn between £100,000 and £120,000, then your pension plan could receive a pension contribution of £100 for a net outlay of only £40 by you.