Business Tax Planning
We as accountants get frequent enquiries for tax deduction strategies. Please call us for a business tax planning session as part of our value-added services.
In summary, here are just few of the strategies accountants adopt to legally reduce your tax:
- Defer income/advance expenditure;
- Companies may defer sales of chargeable assets if current year capital gains annual exemptions have not been used;
- You may consider advancing the sale of chargeable assets if current year capital gains annual exemption have not been used;
- If the business is seasonal, the accountant could consider changing your accounting date. The tax rules associated with such a change are complex and great care on the selection of an alternative accounting date is required;
- You might accelerate bonuses to staff and directors but you have to pay it out and not just ad it back in the following year;
- Make extra contributions to pension/retirement schemes;
- First year allowances are claimable on some plant and machinery. Ask your accountant which is relevant;
- For a small company it is no more economical to pay dividend – rather pay a bonus;
- Consider the timing of dividends and bonuses with regard to the personal tax position of company shareholders;
Call us if you would like tax planning.
We as your accountants also help clientswith their personal tax planning.
The issues we cover are:
- Using your personal tax reliefs fully;
- Pension contributions to reduce your tax liability:
- Minimising capital gains tax.
We can calculate your potential tax liability under a whole range of options:
- Salary vs dividends:
- Employing your partner/spouse in the business;
- Public vs Limited Company.
Similarly we, as your accountants, can review your investment and saving strategy to take advantage of all tax breaks and consider tax exempt saving products.
Other issues we consider when reviewing your best personal tax strategy are :
- The tax aspects of your home;
- Making a Will and inheritance tax planning;
- Children advances through a trust as tax credit and
- Any other allowances and reliefs you may be entitled to.
Here’s a summary of three key issues you should think about from your own perspective.
Use your personal tax reliefs
- Capital and income can normally be transferred between husband and wife without any tax liabilities. Such transfers must be outright gifts and can be made free of both capital gains tax and inheritance tax;
- You could pay your husband/wife/children a salary for working in your business;
- You might consider taking your husband/wife into partnership;
- You can give once-off or recurring donations to charity, but make sure you get the Section 18 certificate.
Benefits in kind
- Keep full records of all business trips showing the date, mileage , and purpose of the trip to satisfy queries from the tax man;
- Consider reimbursing your employee for the full cost of private petrol to prevent the car fuel charges applying;
- Consider employee loans
Pension/Retirement annuity contributions
- Your accountant should check pension arrangements to ensure they are adequate for your retirement;
- Your accountant should take advantage of the maximum allowable contributions just before the tax year ends
- Employees in a company scheme may consider paying additional voluntary contributions to help boost their final pension, or may consider contributing to a stakeholder (or similar) pension;
Making a Will
Making a Will is one of the most important aspects of wealth planning, yet many people do not always have one!
A Will is an essential means of ensuring that your assets are distributed in accordance with your wishes. You will thus be assured that you have made proper provision for all those you feel should benefit. Your accountant can give you sound financial advice on how to structure your estate in order to get the most benefits for your situation.
A Will can also appoint guardians of infant children, besides making appropriate financial provision for them.
When we as accountants review a client’s wealth management strategy we consider:
- Whether your spouse/partner, children and/or grandchildren (present and future) are sufficiently provided for;
- Whether you use an executor and/or trustee and who;
- The need for flexibility e.g. a Discretionary Will Trust leaving decisions to trustees nominated by you who can make into account varying circumstances following your death;
- The safekeeping and regular review of you Will;
- Whether you and our spouse/partner are adequately insured against permanent disabilities; and
- Whether the life policies you have are written in trust so they do not form part of your estate.
If you haven’t got a Will, or it could be out of date or you are uncertain about what will happen to your estate, call us so that we can arrange for someone to take a thorough review.
Maximising the Profit in your Business
Profit is a reliable measurement of a business’ success. Profits are the very lifeblood of a business. They fuel growth, support the owners, provide for the well being of the staff, and ultimately determine the success or failure of the business. So how can you maximise your profits? Your accountant should play a crucial role in helping you to maximising your profit.
One objective is either to expand sales income while controlling direct cost, or reducing direct costs to increase gross profit.
You must ensure that:
- You know your market and your competitors;
- Your product knowledge is complete and you are technically able in all aspects of the business;
- Your service is of high quality, delivered on the time and according to specification;
- You take advantage of cost-effective means to increase sales – consider recommendations, promotions, leaflets press releases and adverts;
Warning – Be wary of dropping prices to boost sales. The increased volume may not be sufficient to cover the reduced gross profit margin.
- Your direct costs are to be kept to an absolute minimum. Most businesses should aim to reduce direct costs every year. Look carefully at material and labour cost, as well as production methods. Be flexible and innovative in seeking more cost-effective solutions and ask your accountant for advice;
Warning – Before changing a supplier, consider the level of service you are currently receiving as well as the cost.
We have a fantastic tool “Business Analyst” that can help show you gross profit strategies with “what if” scenario’s, such as the effect of:
- Reducing expenses;
- Increasing the number of items you sell;
- Increasing prices ; and
- How much you can increase/decrease sales price to achieve a certain profit.
You should also keep costs under your control:
- Expenses – Keep your business expenses to an absolute minimum, and ensure that any additional overheads you assume result in increased profitability/efficiency;
- Increasing your overheads – Are you satisfied that for all new overheads you have reviewed the market to establish where to place your orders? Reliability and backup service are important factors to make into account. The cheapest may not be the best for your business;
- Where assets are acquired on finance –Be sure to obtain quotations for your finance from your suppliers, your bank and finance company. Check with your accountant to see if your finance costs could be reduced;
- Reviews – Many businesses could benefit from a regular review of their telephone and insurance costs. Even bank charges can often be reduced;
- Credit – Control your credit account customers closely to avoid bad debts.
We also consider the ways of minimising your tax burden e.g.:
- Dividend vs salary vs bonus;
- Getting the timing of receipts an payments right;
- Pension and investment planning;
- Company car vs loans; and
- A number of other strategies!
You must be aware of your income and expenditure. Proper books and records are essential for monitoring the trends and patterns in your business. You therefor must invest good money in paying an accountant to keep your records up to date. Don’t make the mistake of falling behind on your administration: many businesses had to close down due to a lack of proper administration.
It is not necessary to produce a full profit and loss account every month, rather select the key factors that will best help you understand how you are doing, e.g. chargeable hours, sales volume, wastage, and materials used. Compare these figures with previous month, and with your targets. Please call us for a profit improvement survey on your business.