Tax Planning

Apart from ensuring that all possible business expenses and allowances are claimed, there are a number of areas where a business can benefit from tax planning. Do seek further advice on these ideas.

New Businesses - Quite generous rules cover the offsetting of carrying back of trading losses incurred during the first 4 years of a new business against other forms of income which have already been taxed, e.g. salary. This can often lead to a tax refund which can be maximised by working as a partnership, and allocating the loss to the partner paying tax at a higher rate.

Limited Companies - Once a taxpayer has reached the high rate of tax threshold, then a Limited Company could be a better operating vehicle. OK there's more formality and cost involved, but income from a small salary and dividends up to a certain limit will be tax-free.

Directors Loan Account - By transferring a business from a self-employed or partnership status into a Limited Company at its market value, you will create goodwill as a capital gain on the one hand - but currently only taxed at 10% - and a loan on the other which can be gradually withdrawn tax free to top up dividend and salary as in (2) above.

VAT - To avoid having to register 2 self-employed businesses whose combined turnover exceeds the threshold, turn one into a Limited Company or a Partnership which you do not control. Both businesses are then treated as separate entities for VAT registration purposes.

Supplier member to the DSA