Q&A Tax Tips – What you need to do BEFORE the end of the tax year to reduce your tax bill

This month I answer your questions on what you need to do BEFORE the end of the tax year to reduce your tax bill. By addressing these points now, you should have sufficient time to make those all important changes.

Q: I own a Limited Company with a 31 March year end. Any tips on what I need to do before the year-end to save tax? Often I speak to my accountant after the year end and he says it’s now too late to make changes!

A: Do you need to invest in any capital equipment? You may claim up to a possible 100% tax relief if your business invests in certain qualifying plant and equipment during the current tax year. The allowance is currently available on the first £100,000 of expenditure. Also the allowance reduces from April 2012 to just £25,000p.a. This allowance also applies to sole-traders and partnerships

Profit extraction is critically important to a business owner and needs to be discussed in detail with a qualified accountant, however consider increased pension contributions by the company and note that dividend payments are usually more tax efficient than bonuses.

Q: I am employed and I have various shareholdings and bank savings. What tax planning should I consider before 5 April?

A: Consider the timing of the sale of your shares to make the most of your annual capital gains tax allowance. As an individual you have an annual allowance of £10,100 where no tax is due on the gains. Have you used your ISA allowance this year? The ISA limit to 5 April 2011 is £10,680, of which up to £5,340 can be saved in cash. Pension contributions are tax efficient, particularly if you are a higher rate tax payer. Charity giving by a higher rate tax payer can increase the amount of tax paid at basic rate instead of higher rate. Company cars, and especially private petrol benefits, are rarely beneficial. Consider acquiring a car privately and instead receiving a car allowance and tax-free mileage allowances.

Q: I employ 8 members of staff and this is my first year end. What tax advice do you recommend?

A: Are you taking advantage of the National Insurance Contributions (NIC) Holiday? Many new businesses have not heard of it. Subject to meeting certain conditions, new businesses that have started up since 22 June 2010 may qualify for a deduction of up to £5,000 from the employer NICs that would normally be due for each of the first 10 employees they take on. That is a potential saving for you of up to £40,000 for 8 members of staff.