5 End of Year Tax Planning Tip for Family Companies

31st March 2015

Would you like the opportunity to reduce your’s and your company’s tax liability?  If so the period to the end of the tax year on 5 April is one of the best times to review your position.

  1. In the family companies it is typical that the Directors and Shareholders are one in the same and consideration of whether bonuses or dividends should be made before the end of the tax year. The date of payment will affect the date tax is due and possibly the rate of tax payable. Remember if bonuses are to be paid there must be a clear commitment before the company yearend for the bonus to be paid and it must be paid within nine months of the accounting year end in order to obtain the corporation tax relief.  The timing of the dividends and bonuses around the year end needs particular consideration for owners and directors with income levels in excess of £50,000 as this may lead to loss of child benefits, loss of personal allowances for those with income in excess of £100,000 and 45% tax for those in excess of £150,000.
  1. Alternatively consider the payment of an employer’s pension contribution by the company. This is generally tax and National Insurance free.  The company should obtain tax relief on the contribution if the payment is made before the company yearend.  If the individual makes the contribution this would need to be before the end of the tax year in order to reduce your income and enhance your child benefits or reduce your tax.  Tax relief is available at your marginal rate of tax.
  1. It is common for a director/shareholder to have a “loan” advances to be paid to them by their company. These are accounted for via “director’s loans accounts” with the company and they may become overdrawn.  Where the balance is still outstanding at the end of an accounting period and it is still outstanding nine months later a tax charge arises on the company.  Where balances are repaid there is no tax charge.  The balances must be genuinely repaid either via valid bonuses/dividends or funds introduced which but repaid shortly after.
  1. There is an annual investment allowance (AIA) of 100%. Therefore there is 100%  write off on most types of plant and machinery costs, but not cars, of up to £500,000 per annum from April 2014.  This is allowance is set to reduce to £25,000 from 1 January 2016.  Any costs over the AIA will attract an ongoing allowance of 8% or 18% depending upon the type of asset.  It is therefore key to review your timing of your capital expenditure plans in order to maximise the reliefs available.
  1. In addition to the AIA all businesses are eligible for 100% allowance on certain energy efficient plant and low emission cars. On reviewing the capital expenditure requirements these should be assessed as to whether they may meet the commercial needs and if they do there will be additional tax savings.