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Tax Tips

Personal Tax

If you are in business as a sole trader or partnership, you should maximize tax relief with careful structuring of your business and personal borrowings. As residential mortgages no longer attract any tax relief ensure that this borrowing structure is as efficient as possible.

The rules under which company cars are taxed alter radically from 5th April 2002. From that date the taxable benefit will depend on the CO2 emissions of your vehicle, the higher the figure the higher the taxable benefit. To find out the emissions reading for your vehicle go to www.smmt.co.uk
Alternatively, if a private car is used for business mileage a tax free rate per mile can be paid subject to various limits depending on the engine size of the car

Ensure you review your tax planning strategies annually to make the most of any particular tax breaks for that year. Do not forget the £3,000 IHT free gifts that can be made in each tax year to family members with no Inheritance Tax implications.

Capital Gains Tax

Two houses? You must make an election within 2 years of the date of acquisition of a second property as to which should be regarded as your tax exempt residence for capital gains tax. Your choice can be changed at any time by means of further elections but failure to make the initial election leaves it to the Inland Revenue to decide.

If you own shares that have sunk so low in value that they have been declared by the Inland Revenue to be of “negligible value”, you can claim a capital loss to set against capital gains on other assets.

If you have taxable capital gains you can defer paying the tax due on them by reinvesting the gain in authorised Venture Capital Trusts or Enterprise Investment Schemes. However, such investments only allow such favourable tax treatment because they carry high investment risks. They are certainly not recommended for the cautious investor.

As Capital Gains Tax is payable on the 31 January following the end of a Tax year, ensure assets on which chargeable gains arise are disposed of just after 5 April rather than before. This will ensure a long a period as possible before payment is required.

Business Tax

The date you contract to buy new equipment for your business normally governs the earliest tax year for which capital allowances can be claimed. It is often better to sign a purchase contract just before, rather than just after, your business year-end.

Consider replacing the business vehicle with a business mileage allowance based on fixed profit car scheme. This can prove tax efficient in many circumstances for both the employer and employee.

Always ensure that year end debts are collectable, if not ensure there is a specific reserve against the debt so that you will not pay tax on a debt you may not collect.

VAT Back up again

Consider registering for the VAT cash accounting scheme (turnover under £600,000) if you supply services rather than goods, as this will ensure maximum cash flow advantage.

A reduced rate of 5 percent VAT applies to expenditure on the renovation of some properties that have been empty for at least 3 years and on some residential conversions such as a conversion of a single household dwelling into a number of bedsits. If your expenditure qualifies make sure your builder is charging you the lower rate not the full rate.