Quick Tax Tips - Autumn 2008

A review of your business structure could save thousands!

How your business is structured can have a dramatic effect on your annual tax bills. In the early years of a business it may be more advisable to be a sole trader or partnership. However as profits increase there can become a time when transferring the business into a limited company can make more sense. The tax savings alone can be quite substantial.

We offer a business health check to review the current business structure and identify the possible annual tax savings by transferring the business into a limited company. Please contact us if you are interested in finding out more.

Save tax with advanced tax planning

We have teamed up with the very best tax experts in the UK to bring leading edge advanced tax planning strategies to you. These strategies can save many thousands of pounds in tax. For companies that are looking to pay their key employees/directors in excess of £100,000 in discretionary bonuses and have the cash available, then there are strategies that could result in significant savings. We offer a remuneration review to identify the possible tax savings on some alternatives to bonuses and dividends.

QTT - Looking to sell your company?

You are thinking of retiring from your company. You would like to sell your shares for as much as possible to help fund your retirement plans. Unfortunately the other shareholders may not have the resources to buy you out. If the company has funds it may be possible for the company to buy your shares.

Providing certain conditions are met then the sale of shares could be treated as a capital disposal for tax purposes. This could mean up to £1 million in gains could be taxed at as little 10%, depending upon whether Entrepreneur's Relief is available. It is worth reviewing whether Entrepreneur's Relief will be available and what action should be taken to secure it.

This solution will not suit all situations, and greater tax savings may be possible using a combination of profit extraction and sale of shares. The ways to extract profits can include, bonuses, dividends, pensions, to name but a few.

QTT - Inheritance Tax planning at anytime!

Inheritance Tax planning should never be overlooked, even if a spouse or civil partner has recently passed away. It may still be possible to undertake some planning to save Inheritance Tax on the deceased's estate or even for future estates. A deed of variation can be made within 2 years of the death, with the approval of all beneficiaries, to reorganise legacies more tax efficiently.

In fact recent guidance published by HM Revenue & Customs includes the use of a deed of variation as a way to undo a Will if the surviving spouse wishes to have full use of two nil rate Inheritance Tax bands against their estate on death.

QTT - Shattering the tax myths - money overseas is tax free

Tax myths are creating problems in an already confusing tax system. In each edition we will unravel a well known tax myth and give you the truth. In this edition we'll concentrate on the myth "Keeping money overseas is tax free".

Most people living in the UK will need to declare the income from money held offshore in bank accounts or other investments, and where necessary pay tax on them. It doesn't matter whether they touch these accounts or investments at all.

As HM Revenue and Customs is looking more closely at overseas bank accounts this is an area that should not be overlooked.

QTT - How tax efficient are your investments?

From 6^th April 2008 a flat rate of 18% applies to gains on investments. In the current tax year gains of £9,600 (annual exemption) can be made before Capital Gains Tax is actually payable. The combination of these two can make capital investments significantly more attractive then income producing ones, especially for higher rate tax payers. Imagine paying 18% tax on the investment gains (or less after taking into account the annual exemption of £9,600), rather than 40% on income received.

However this should be weighed up against the risks involved in capital investments, which can go down as well as up. Whilst it may be worth reviewing your investments, proper financial advice should be taken.

QTT - Help fund University with tax savings!

If your child has started University this Autumn, have you considered buying them a house? Not interested? Well, if they owned a reasonable size property they could let out rooms to other students. The rent they receive could be used to fund their University education.

Still not interested? Well, they may be able to enjoy tax savings which could also help with their University education. Providing certain conditions are met and records maintained then they may be able to receive up to £4,250 rental income tax free. This is known as rent a room relief. If the rent exceeds this amount then the profits from renting can be taxed on an alternative basis, which may produce a lower tax bill.

If the property is their main residence throughout their period of ownership, then when they do eventually sell it would be free of capital gains tax. It may be possible for you to lend your child the money to buy the property and have a charge over the property to protect your monies, or consider the use of a trust. While the tax savings could be significant, and it may be possible to pick up a bargain property, the decision should not be taken lightly in the current climate. Should you not wish to purchase the property, then the rent a room relief will still apply if your child rents a whole house and then sub lets rooms.

QTT - Reclaim the VAT on mileage payments!

Where mileage rates are paid for business journeys and adequate records are maintained then it is possible for a VAT registered business to consider reclaiming VAT on the amounts paid. The VAT that can be reclaimed can only be on the proportion of mileage allowance that relates to fuel.

The 40p and 25p rates used for employees using their own cars, includes a substantial reimbursement of other car running costs. Hence the advisory fuel rates for company cars (rates from 1^st July 2008 below) should be used. As the rates are not binding, where actual costs can be demonstrated to be different, these can be used instead by agreement with the local tax office.

For example if a vehicle has a 1600cc petrol engine and the business reimburses the driver for 10,000 business miles, then the value of the fuel at 15p per mile would be 10,000 x 15p = £1,500, of which the VAT element to reclaim would be £223 (7/47 of £1,500). However the employee will need to supply VAT petrol receipts totalling at least £1,500 in order to allow the business to reclaim the VAT. As the VAT reclaimed is purely for business journeys then no fuel scale charges would be imposed for the vehicle.