Tax planning for sme's
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Tax planning for sme's

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A guide to tax planning for SME's

A guide to tax planning for SME's

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  • 1. A presentation given by MichelleAllen and Sarah Smith Wright Vigar at the BizGen Conference and Expo Lincoln
  • 2. Tax Planning for SME’s Michelle Allen & Sarah Smith
  • 3. “In this world nothing can besaid to be certain, exceptdeath and taxes" Benjamin Franklin
  • 4. Tax Planning• Simple or complicated• Attitude to risk• Cash• Associated costs• When?
  • 5. Business• Pre year end spending• Pension contributions• Asset purchases• Property transactions• Trading vehicle• VAT
  • 6. Pre year End Spending• Simple• Timing• Cash availability or finance• General expenditure – Marketing – Training• Capital assets
  • 7. Pension Contributions• Tax efficient• Investment• Remuneration• Employer contributions – allowable• Annual allowance - £50,000
  • 8. Asset Purchases• Vans, machinery• Full allowance in year of purchase• Annual Investment Allowance – To 31/03/12 £100,000 – From 1/04/12 £ 25,000• Capital Allowances – To 31/03/12 20% & 10% – From 01/04/12 18% & 8%
  • 9. Property Transactions• Buying or selling• Improving/extending• Maximum relief as capital allowances• Capital - integral features• Repairs• VAT
  • 10. Trading Vehicle• Now• Future• 3 main options 1. Unincorporated 2. Incorporated 3. LLP
  • 11. Business Vehicle Unincorporated• Sole trader or partnership• Flexibility with losses – carry back 3 years• Less cost• Easier to unwind• Potentially 40% and 50% tax
  • 12. Business Vehicle Company• Tax rates – Profit under £300,000 – 20% – Profit over £1.5m – 26% – In between – 27.5%• Benefits lost on extraction
  • 13. Business Vehicle LLP• Limited Liability Partnership• Losses limited to capital introduced• Limited liability – partners only liable to capital introduced• Accounts must be published• Potentially 40% and 50% tax
  • 14. Unincorporated vs Incorporated• Potential tax savings• Example: – Anthony & Cleopatra make annual profits of £100,000 as a partnership – Year end is 31 March – Higher rate tax payers
  • 15. Example (1)• 2011/12 Tax Rates• As Partners – Taxed on profits – Amount drawn is irrelevant Income Tax £20,020 NI £ 6,914 TOTAL £26,934
  • 16. Example (2)• 2011/12 Tax Rates• As a Company – Company pays corporation tax – Individuals pay income tax and NI on earnings Corporation Tax £17,171 Income Tax £ Nil NI £ Nil Tax on Dividends £ 1,240 TOTAL £18,411
  • 17. Example - Comparison Partnership CompanyIncome Tax 20,020 1,240National Insurance 6,914 NilCorporation Tax N/A 17,171TOTAL 26,934 18,411 • Additional tax paid if remain unincorporated £8,523
  • 18. Unincorporated vs Incorporated• What if individual is an additional rate tax payer• Example: – Anthony & Cleopatra make annual profits of £400,000 – Year end is 31 March – Additional rate tax payers – Personal Allowance restricted
  • 19. Example (3)• 2011/12 Tax Rates• As Partners – Taxed on profits – Amount drawn is irrelevant Income Tax £156,000 NI £ 12,914 TOTAL £168,914
  • 20. Example (4)• 2011/12 Tax Rates• As a Company – Company pays corporation tax – Individuals pay income tax and NI on earnings Corporation Tax £ 83,610 Income Tax £ 2,828 NI £ Nil Tax on Dividends £ 67,990 TOTAL £154,428
  • 21. Example - Comparison Partnership CompanyIncome Tax 156,000 70,818National Insurance 12,914 NilCorporation Tax N/A 83,610TOTAL 168,914 154,428 • Additional tax paid if remain unincorporated £14,486
  • 22. Summary• Tax saving – all profits extracted• Consider retaining profits – Second scenario earnings restricted to £100,000 each. – Saving £30,726
  • 23. VAT• Registration threshold - £73,000• Schemes – Smooth cash flow – Simplify administration• 3 Main schemes 1.Cash accounting – cash movement 2.Annual accounting – 1 return per year 3.Flat rate – % on sales
  • 24. Personal• Capital Gains Tax – Rates – Entrepreneurs relief• Inheritance Tax• Pension Contributions• ISA
  • 25. Capital Gains Tax• Rates – 18% – 28%• Entrepreneurs Relief – 10% – Lifetime limit £10m – Business asset – Rent
  • 26. Inheritance Tax• Business Property Relief – 100% – 2 years minimum ownership – 50%
  • 27. Pension Contributions• Annual Allowance• Limits - £3,600 or qualifying income
  • 28. ISA• Annual Investment Allowance – Max £10,680 pa stocks & shares – Max £5,340 pa cash only• Two separate ISAs only in one year
  • 29. If you have any queries regarding issues raised duringthe seminar or any other taxation issues please contact Michelle Allen – Newark Office Director Sarah Smith – Senior Manager Wright Vigar 15 Newland Lincoln LN1 1XG 01522 531341 action@wrightvigar.co.uk www.wrightvigar.co.uk
  • 30. BizMidlands.co.uk