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Top 10 Year End Tax Planning Tips

Newsletter issue - March 09.

Sunday 5 April 2009 is the last day of the current tax year, and many small businesses choose either 5 April or 31 March as the end of their accounting year. Tax planning is key at this time of year, as action often needs to be taken before the end of the tax year or before the end of the accounting year. These are our top ten tips for action in March:

  1. Total up your gross income for 2008/09. If this sum is over £40,835 you will pay tax at 40% on any excess, subject to extra tax relief for pension or charitable gifts. You may need to reduce the gross dividends you take from your company, if you don't want to start paying higher rate tax. Where possible try to ensure you use up your full basic rate allowance.
  2. Buy a new company car. Company cars with CO2 emissions of over 160g/km will attract less tax relief from 1 April 2009 (for unincorporated businesses it is 6th April 2009), so you may want to acquire any new cars in this category before that date. You will also accelerate capital allowances for all plant and machinery by purchasing before your accounts year end.
  3. End your accounting period early. If your unincorporated business is currently making a loss, you will be able to set that loss against profits made up to three years ago if the accounting period ends before 6 April 2009. This is subject to a limit of £50,000 to the earlier 2 years but unlimited for the first year.
  4. Make pension contributions to get tax relief of up to 40%. Even pension contributions for your children of £3600 (gross) can me made which will only cost you £2808.
  5. Realise capital losses by selling the investment to cover any capital gains above your annual exemption limit. Some can even be set against income. It could be bought back by yourself if you wait 30 days or perhaps use an alternative vehicle to buy it back immediately.
  6. Use up your ISA annual investment allowance of £7200 for tax free investing.
  7. Use up your capital gains annual exemption by realising investments to use it up. Transfers between spouses are tax free and if planned properly can result in use of two annual exemptions.
  8. Consider other investment based tax reliefs such as the Enterprise Investment Scheme and Venture Capital Trusts which can give substantial amounts of tax relief.
  9. Work out your company's marginal corporation tax rate. This could be as high as 29.75% where profits are over £300,000 or you and your spouse control several companies. Making a payment into your company pension scheme before the company's year end could reduce that marginal tax rate.
  10. Pay NICs due for past years. You can normally only pay past NI contributions for the previous 6 tax years, but some people have the opportunity to pay for earlier years if the payment is made before 6 April 2009. The rate of voluntary contributions increases to £12.05 from £8.10 per week on 6 April 2009, so it's worth making these contributions before then if you need to.

To discuss these and other year end tax planning ideas relevant to your circumstances please contact us.

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