If the payment of bonuses to directors or dividends to shareholders is under consideration, give careful thought as to whether payment should be made before or after the end of the tax year. The date of payment will affect the date tax is due and possibly the rate at which it is payable.
Remember that any bonuses must generally be provided for in the accounts and actually be paid within nine months of the company's year end to ensure tax relief for the company in that period.
Careful planning before 5 April 2015 may be particularly useful for individuals with high incomes. The effect of deferring payments may save paying the High Income Child Benefit Charge for those with incomes in excess of £50,000, personal allowance for those with an income in excess of £100,000 and 45% tax for those with an income in excess of £150,000.
Alternatively, consider the payment of an employer's pension contribution by the company. This is generally tax and National Insurance contribution (NIC) free for the employee (but see Pensions section). Furthermore, the company should obtain tax relief on the contribution, provided the overall remuneration package is justifiable.
It is common in family companies for a director/shareholder to have 'loan' advances made to them by the company (e.g personal expenses paid by the company). These are accounted for via a 'director's loan account' with the company which may become overdrawn.
Where the overdrawn balance at the end of an accounting period is still outstanding nine months later a tax charge arises on the company. Where the balance is repaid there is no tax charge. Rules have been introduced to catch certain arrangements where loan balances are repaid but shortly afterwards the company provides another loan to the shareholder. These rules do not apply where there is a genuine repayment through the award of a valid bonus/dividend. If monies are repaid and then a new loan provided in other situations there may be a tax charge. If you are concerned about whether this could apply to your company, we would be happy to review this area.
Capital allowance changes
When assets are purchased for the business, such as machinery, office equipment or motor vehicles, capital allowances are available. As with expenses, these are deducted from income to calculate taxable profit.
Annual Investment Allowance (AIA)
Currently the AIA gives a 100% write off on most types of plant and machinery costs, but not cars, of up to £500,000 per annum from April 2014 (1 April for companies 6 April for unincorporated businesses). The AIA is due to revert back to £25,000 from 1 January 2016. Special rules apply to accounting periods straddling April 2014 and January 2016 when the amounts of available AIA changes.
Any costs over the AIA will attract an annual ongoing allowance of 8% or 18% depending upon the type of asset.
Clearly where full relief is not obtained in the initial period there will be further tax relief in subsequent years but maximising tax relief early has an important impact on tax cash flow.
Please contact us for further advice if you have any plans for new plant and machinery purchases. The timing and method of such acquisitions may be critical in securing the maximum 100% entitlement available.
In addition to the AIA all businesses are eligible for a 100% allowance, often referred to as an enhanced capital allowance, on certain energy efficient plant and low emission cars.
The tax allowance on a car purchase depends on CO² emissions. For purchases from April 2013 cars with emissions of up to 130 grams per kilometre (g/km) attract an 18% allowance and those in excess of 130g/km are only eligible for an 8% allowance.