12 Free Tax Planning Idea this festive period
Instead of ‘The Twelve Days of Christmas” our Christmas gift to you this year is our alternative Christmas advent calendar… with our 12 top tax tips for a tax efficient year ahead!
Your #1 tax planning TIP: Don’t forget to gift yourself!
You can gift yourself up to £300 a financial year as a director in £50 installments throughout the year, and what better time than at Christmas?
As long it is not cash, you can buy a voucher for absolutely anything! And if you are feeling generous, you can share this with your trusted employees too if you wish.
And if you are self employed? You can also have a tax deductible business expense if you are buy something through the business that invests in the business’ future - why not invest in that new computer, or office equipment or software to enhance your services or productivity? Whatever eligible business expense you decide on, you too can see a reduction in your tax liability if you invest in yourself.
Your #2 tax planning TIP: Gifting clients AND reduce your tax burden AND build your brand? Yes you can!
Normally substantial gifting to clients is considered entertaining by HMRC and therefore not allowable for tax purposes - but there are exceptions to the rule.
Why not consider making small gifts (not more than £50) to say thank you to your clients and customers for the work that they provide to you? As long as there is some form advertisement on the gift, such as your logo, these gifts are tax deductible business expenses.
And you don’t have to gift just at Christmas time, this small gift rule apples throughout the accounting period, but be careful, never go above £50 per client.
#3 Tax planning idea: Celebrate and benefit your staff, not the taxman!
Large or small business, all employees deserve a thank you for their hard work at Christmas or any other time of the year. Showing your appreciation of your staff’s efforts by means of gifts and benefits is good for morale, but you need to take care to do this in the most tax efficient way. If you go about it in the right way, you can give tax free benefits to your staff whilst also obtaining tax relief for yourself.
Throwing a party?
You can spend up to £150 per year per head without any tax implications.
An added bonus is that the £150 limit is also applied to guests attending, which makes the limit £300 if a member of staff brings a partner or friend!”
Be careful:
Anything above this amount and the whole amount becomes taxable, not just amounts over £150.
The cost per head must include VAT, any related transport cost and/or overnight accommodation
#4 Tax Tip: Spread your workload tax efficiently whilst retaining talent in your business!
Have you heard of the Employee Management Incentive (EMI) Scheme? Ideal for those fast growing limited companies with growing reliance on staff.
The EMI scheme allows you to incentivise senior employees in your business to take on the responsibility of management decisions.
The principle tax benefit of an EMI scheme is that workers don’t need to pay income tax that would ordinarily be charged on the estimated market value of any shares or options given to them.
Simply put, an ‘EMI’ scheme is the most tax efficient structure for staff members offering them the most significant benefit.
And as an employer gifting these share option scheme to key employees? The difference between the price of the shares that an employee pays and the actual value of the shares at the time of exercise is an allowable deductible expense for corporation tax purposes.
Win win!
#5 Tax tip: Give up to £3,000 to your kids rather than the taxman!
Maybe your kids could do with a spot of cash and you want to help them out. Did you know you can gift cash to your kids of up to £3,000 per tax year and reduce your overall estate for inheritance tax purposes?
So rather than gifting cash to your kids after your death, with a potential inheritance tax liability reducing the amount they actually get, you can start gifting tax free in your lifetime, perhaps when they need it the most?
Your #6 tax planning tip: Would you like to give financial support to your kids whilst reducing your tax liability? Consider Alphabet Shares!
If you have children over 18 who need that helping hand, perhaps to buy their first home, or financial support whilst studying or at the start of their career, you may be able to help whilst also reducing your overall tax liability - consider alphabet shares.
Although HMRC may not look kindly on these types of shares if you are unconnected parties, in other words, not related, but as a business owner with adult children, you could consider changing the share ownership of your limited company to bring in family members, such as your children, and distribute dividends or profits.
Considering this option means that you are potentially using up the kids’ any unused personal allowances of £12,570 per tax year rather than distributing these dividends via yourself and paying dividend tax on them.
Remember the dividend tax rate has recently increased whilst the dividend allowance - or the tax free amount of dividends you can take out of the business before dividend tax kicks in - is reducing from £2,000 to £500 over the next 5 years.
There is no better time to reassess your tax position so you can enjoy more of your profits tax free, and potentially consider alphabet shares as a viable option for your business.
Your #7 tax planning tip: This is the time to reassess salary/dividend profit extraction to stay tax efficient
Taxes are going up for everyone over the next two years at least, and business owners particularly will feel the pain as they are taxed more on both their personal and business taxes.
Any tax changes that happen, good or bad, is a perfect opportunity to reassess your tax position to ensure you are extracting profit from your business as tax efficiently as possible.
The first of the tax rises are coming in April 2023, so this is the time to crunch some numbers to keep more of your hard earned cash in your pocket.
Your #8 tax planning tip: Get organised now to save time and money
Although not officially a tax tip, getting your self assessment tax return done as early as possible will gift you more time to plan and pay your tax bill.
Delaying submission to the deadline of 31 January, means you have little time to prepare for a large tax bill and although setting up a payment plan is usually possible to spread your tax bill up to 12 months maximum, interest will be added to your installments - with interest rates going up, this could cost you more in the long-run.
So don’t delay, if you have not completed your tax return yet, please get in touch while we still have capacity to help.
Your #9 tax planning tip: Give to your favourite charities whilst being tax efficient!
At this time of year, many businesses, small and big, give to their favourite charity instead of sending a corporate card or gift to clients.
Money donated to charity by your limited company is generally tax deductible.
And if you are in a partnership or are a sole trader/self employed, you can claim tax relief if you are a higher rate you ca clam relief if higher rate tax payer.
So not only are you helping make the world a better place, you can ensure you are and your nominated charities are receiving their full donation and getting tax relief.
And of course, you can donate any time of year if you so wish!
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Your #9 tax planning tip: Don’t delay, there is still time to utilise the 130% super deduction tax in your business!
The Super Deduction tax relief was introduced temporarily during covid to encourage business owners to continue investing in their business after the slow down of the pandemic.
The Super Deduction gives you 130% qualifying tax relief on certain assets you can buy through your business in the year of purchase, versus the usual lucrative 100% tax relief available.
The super deduction is coming to an end of 31 March 2023, so this is your last chance to consider making that investment in your business to set you up for future growth and continuity.
Qualifying assets covers plant and machinery in your business, such as (but not limited to): computers, printers, small equipment pertinent to your trade, office equipment such as desks and chairs. Even commercial vehicles such as vans, lorries and tractors (but not cars).
The other caveat is that the qualifying asset must be new, not second hand.
Your #11 tax planning tip: You may be able to gift your home to your children to avoid Inheritance Tax!
With more of us now needing to do some estate planning to make sure that - among other things - that our loved ones can pay little or no inheritance tax on our estate we leave them, you could consider gifting one of your biggest assets whilst you are still alive - your home.
If your home does indeed form the lions share of your estate’s value, your estate being everything you own, and you have children you would like to inherit your estate once you die, you could actually gift your home in your lifetime to remove your home from the valuation of your estate, which could mean very little or no inheritance to pay.
But…you didn’t think it would be that easy surely!?!…..
The big but is that you need to demonstrate that you do not have any association or benefit from your home once it is gifted to your child or children. So you would need to gift your home in it’s entirety and not live in it anymore, for example, and you can’t let your kids move in and take rental income either.
If you are lucky enough to have other living options over and above living in your home, this could be a viable option for you.
Your #12 and final tax tip for the year: You are not alone!
As a trusted adviser, with a focus on providing full accounting support and tailored tax advice, and because we care about all our clients, we inevitably want to help where we can.
We have access to a host of professionals who we trust to give you the advice and support you may need, personally or in business. Whether you need mortgage help, a financial adviser for your pension and investment needs, debt recovery, HR support and advice, health and safety advice, or even help with managing your utility bills - we can help!
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If you would like help with any of the above, please mention Mirandus or we are happy to introduce you directly.
