A presentation given by Michelle

Allen and Sarah Smith Wright Vigar

at the BizGen Conference and

Expo Lincoln

Tax Planning for SME’s

Michelle Allen & Sarah Smith

“In this world nothing can be

said to be certain, except

death and taxes"

Benjamin Franklin

Tax Planning

• Simple or complicated

• Attitude to risk

• Cash

• Associated costs

• When?

Business

• Pre year end spending

• Pension contributions

• Asset purchases

• Property transactions

• Trading vehicle

• VAT

Pre year End Spending

• Simple

• Timing

• Cash availability or finance

• General expenditure

– Marketing

– Training

• Capital assets

Pension Contributions

• Tax efficient

• Investment

• Remuneration

• Employer contributions – allowable

• Annual allowance - £50,000

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%

Property Transactions

• Buying or selling

• Improving/extending

• Maximum relief as capital allowances

• Capital - integral features

• Repairs

• VAT

Trading Vehicle

• Now

• Future

• 3 main options

1. Unincorporated

2. Incorporated

3. LLP

Business Vehicle

Unincorporated

• Sole trader or partnership

• Flexibility with losses – carry back 3 years

• Less cost

• Easier to unwind

• Potentially 40% and 50% tax

Business Vehicle

Company

• Tax rates

– Profit under £300,000 – 20%

– Profit over £1.5m – 26%

– In between – 27.5%

• Benefits lost on extraction

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

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

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

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

Example - Comparison

Partnership Company

Income Tax 20,020 1,240

National Insurance 6,914 Nil

Corporation Tax N/A 17,171

TOTAL 26,934 18,411

• Additional tax paid if remain unincorporated £8,523

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

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

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

Example - Comparison

Partnership Company

Income Tax 156,000 70,818

National Insurance 12,914 Nil

Corporation Tax N/A 83,610

TOTAL 168,914 154,428

• Additional tax paid if remain unincorporated £14,486

Summary

• Tax saving – all profits extracted

• Consider retaining profits

– Second scenario earnings restricted to

£100,000 each.

– Saving £30,726

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

Personal

• Capital Gains Tax

– Rates

– Entrepreneurs relief

• Inheritance Tax

• Pension Contributions

• ISA

Capital Gains Tax

• Rates

–18%

–28%

• Entrepreneurs Relief

–10%

–Lifetime limit £10m

–Business asset

–Rent

Inheritance Tax

• Business Property Relief

–100%

–2 years minimum ownership

–50%

Pension Contributions

• Annual Allowance

• Limits - £3,600 or qualifying income

ISA

• Annual Investment Allowance

– Max £10,680 pa stocks & shares

– Max £5,340 pa cash only

• Two separate ISAs only in one year

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

If you have any queries regarding issues raised during

the seminar or any other taxation issues please contact

BizMidlands.co.uk