Yet another tax year-end will soon be upon us.  It is important that you’re financial and taxation position is reviewed before the end of the tax year to ensure that you take action to utilise all available reliefs before the tax year finishes.  We recommend you seek professional advice early if any particular issue affects you.

Income Tax and National Insurance
Personal Allowances and Basic Rate Bands - Using personal allowances and basic rate bands is an obvious point but is surprisingly often missed.  Unused allowances are not available to be carried forward so it is important to ensure you utilise them each year.  Simple planning can be applied, such as changing ownership of assets or creating an employment.  However, care is needed to escape the anti-avoidance legislation.
 

Charitable Giving - The gift aid scheme is an effective way to reduce tax.  If you have made a donation, it is important to ensure you have ticked for gift aid so that the charity can benefit from the basic rate tax relief.  If you are a higher rate taxpayer it is important that you make the necessary claim on your tax return for further relief. 

PAYE Coding Notices - Check your new code for 2007/08 and ensure that any inaccuracies are amended.

Car Benefits – If you are provided with fuel for private use of a company car you should seek advice to consider whether this is tax efficient in your particular circumstances.  In addition if your PAYE code includes a figure of more than £3,000 for car benefit and you are a higher rate tax payer, the car is costing you at least £100 per month in tax, ignoring fuel.  You should therefore seek advice to consider the alternative of buying a car for yourself and avoiding the tax costs, especially if you cover a high business mileage each year.  This may benefit you and your employer.

Van Benefits - The current benefit in kind for an employee who is provided with a van for private use is from £350 to £500.  This benefit is increasing from 6 April 2007 to £3,000, or if fuel is also provided, £3,500.  Therefore please seek advice in advance of 6 April regarding the alternatives.
 

Businesses
If you are a small enterprise you qualify for first year capital allowances at 50% for the year ended 5 April 2007, 31 March 2007 for companies.  This will decrease to 40% again from 6 April 2007 or 1 April 2007 for companies.  Therefore, if you are considering making a capital purchase, you may like to bring the purchase forward to before 5 April 2007.

We recommend you seek advice before the end of the tax year where you are a shareholder and director of a company regarding your remuneration and the payment of bonuses and dividends.

Where there are beneficial loans made to office holders and employees, these should be reviewed prior to the end of the tax year and accounting year to minimise income tax, national insurance and corporation tax.

Where remuneration can be justified, you should consider making payments to your spouse or other family members to reduce the overall tax and national insurance bill.

Review timing of disposal and acquisition of business assets to minimise tax or obtain tax deferral.

You should apply for deferment of Class 2 and 4 National Insurance contributions for 2007/08 if Class 1 contributions will be paid on employment income. 

If you expect profits from your business to be below the small earnings exception you can apply for exception from payment of Class 2 contributions.

Review dispensations for items normally declared on form P11D.

Check procedures for year-end payroll returns as deadlines will approach after 5 April.

Please see the last two points under “Income Tax” regarding Car Benefits and Van Benefits.

Please see the last point under “Pensions”.

Capital Gains
Defer sales until after 5 April.  This will delay the due date for payment of the tax for 12 months.  Delaying a sale can also mean more taper relief and therefore less tax and this should always be considered before the end of the tax year.  Although consideration should be given to utilising the annual exemption.

If potential sales are likely to result in gains in excess of this years annual exemption, split them across the end of the tax year and make use of two years' annual exemptions.

Make an outright gift to your spouse, who can make use of his or her exemption, too.

If your spouse has unused losses, consider transferring (unconditionally) assets with in-built gains to them prior to disposal.

If you have made a gain in the tax year, in excess of the annual exemption, consider disposals of assets standing at a loss in the same tax year, so that the losses can be offset against current year gains.

 
Inheritance Tax
There is an annual exemption of £3,000 which can be carried forward for one year only.   It is good planning to make use of this exemption each tax year so that you give away up to £3,000 per annum exempt from IHT.
 
For smaller gifts, £250 can be gifted to any number of individuals.

A useful mechanism to make gifts outside of inheritance tax (IHT) is to give away surplus income.  If you have surplus income after tax each year you should consider making regular gifts out of that income over a period of time, for example, each tax year.  A pattern can then be generated in order to establish that the expenditure is a normal gift out of income and thus it will escape IHT.  We would therefore suggest that your income position is reviewed for the 2006/07 tax year with a view to making a gift before 5 April 2007.

Consider lifetime gifts in addition to the above to start the seven-year clock running and mitigate IHT on death.  However, take advice as capital gains tax should also be considered when making gifts.

Pensions
For those with substantial pension savings, there is the need to register for protection.  The deadline for registering for protection of your pension savings from the charges under the new regime is 5 April 2009, but make sure you take advice well in advance of the deadline.

Under the new regime there is no scope to carry forward or carry back, therefore it is important to pay the premiums in respect of your earnings for 2006/07 by 5 April 2007.

For high earners there is less complication, so long as you know your earnings will exceed £215,000 for 2006/07, £215,000 is the maximum your total pension savings can grow in the relevant scheme year without attracting an annual allowance charge.

Remember you could also make use of your child’s or grandchild’s annual allowance by making contributions for them.

In some circumstances, for owner managed companies, the new pension rules mean that instead of funding pension contributions yourself out of post-national insurance contributions (NICs) income, your company could contribute free of NICs.

Tax Credits
A pension premium, or the purchase of a “green” car before 5 April will reduce income for 2006/07, and may increase your tax credit award, depending upon your circumstances.  In addition, the renewal award for 2007/08 will be based on the final 2006/07 income, so any increased award will be carried forward.  As the final 2007/08 award will not change if income for that year increases by less than £25,000, it is possible to arrange matters so that there will not be any clawback of credit even if a similar premium is not paid next year.  Deferral of a bonus or other income until after 5 April may similarly affect the tax credit award.

Investment Savings Accounts (ISA)
If you have not invested in an ISA this tax year then you should consider doing so before this years limit is lost.  The current limits are:-

Mini ISA           Up to £3,000 in cash and/or up to £4,000 in unit trusts, investment funds, stocks and shares
Maxi ISA          Up to £7,000 in unit trusts, investment funds, stocks and shares.

Other Tax Efficient Investments
Enterprise Investment Schemes (EIS) attract tax relief up to £200,000 (in aggregate in a tax year).
Venture Capital Trusts (VCT) attract tax relief up to £200,000 in a tax year.

Posted on 05 Jan 2007