Tax and Financial Strategies 2016/17
For all the media controversy about the tax arrangements of multinational corporations, sensible tax planning within the law remains a perfectly legitimate practice for normal businesses and individuals.
There are numerous allowances and incentives in place, and this guide is designed to help make you aware of the main opportunities for minimising tax, so that you might incorporate them into your financial strategy.
However, the sheer complexity of the UK tax system means that you need expert advice and planning strategies in order to remain compliant, while also ensuring that you don't pay more tax than is necessary. We therefore recommend that you view this guide as a starting point, and contact us for specific advice. Every individual and every business situation is different, and what works for one party may not be appropriate for another.
Remember also that minimising your tax liability should form just one part of your financial planning or business development strategy, and it should not be viewed as an end in itself to the detriment of your wider goals.
As your advisers, we can help you to meet those goals - do contact us for one-to-one advice tailored to your individual circumstances.
How to benefit from our services:
Please read those chapters which are relevant to you as soon as possible.
- Take note of the key points arising from this guide, and any action you may wish to consider
- Contact us to discuss your action points, and to evaluate your long-term financial plans.
We would welcome the opportunity to assist you.
The general effect of the Civil Partnership Act is to treat registered civil partners on a consistent basis with married couples. For the purposes of this guide we have on occasions referred only to spouses.
'HMRC' refers to HM Revenue & Customs.
This guide is based on current understanding of legislation and the Government's proposals at the time of publication and under no circumstances should action be taken without first seeking appropriate professional advice.
With ongoing concerns about the risks presented by a weak global outlook, proper forward planning remains the best way of ensuring that you are on course to achieve your business and financial goals.
Planning for your business
A sound business tax strategy will include such things as:
- making the most of the available incentives, allowances and reliefs
- choosing the most appropriate structure for your business
- claiming tax deductible expenses
- deciding on the best year end date
- minimising your liability to capital gains tax (CGT)
- optimising the roles of family members
- a tax-efficient business exit strategy.
Planning for your personal finances
A good personal tax strategy will focus on helping to ensure that you, your family and your dependents are financially secure in the long term. It will typically include such elements as:
- a tax-efficient remuneration package
- tax-efficient ways to extract profit from your business
- tax-efficient saving and investment strategies
- retirement planning strategies
- estate and inheritance tax (IHT) planning
- tax-efficient gifting strategies.
Recent tax and business measures
A number of significant measures affecting businesses and individuals have recently taken effect.
All change for dividends
Historically, it has been favourable for a director-shareholder to take dividends rather than a salary. A salary or bonus carries up to 25.8% in combined employer and employee national insurance contributions (NICs) and dividends are paid free of NICs, and the low tax rates on dividends made them a cheaper option.
The start of the tax year saw significant changes to the taxation of dividends, and although the amount of tax saved is likely to be reduced, there may still be a tax benefit for a director-shareholder in taking a dividend over a salary. The decision on whether to pay a dividend is complex and it is important to consider the wider implications. Please speak to us about the best course of action.
The new National Living Wage
The Government's new compulsory National Living Wage (NLW) has now come into effect, with the rate of pay for workers aged 25 and over initially set at a rate of £7.20 an hour. The NLW is expected to rise to around £9 an hour by 2020. Alongside the introduction of the NLW, tougher penalties have also been introduced for non-compliance with payment of the NLW and National Minimum Wage rates.
Single-tier State Pension
The new 'flat rate', or single-tier, State Pension has now come into effect for those reaching State Pension age (SPa) on or after 6 April 2016; those who had already reached SPa continue to receive the Basic and Additional State Pensions. Weekly payments have been set at a rate of £155.65. The new pensions entitlement sees an end to the ability to contract out of the Additional State Pension, leading to an increase in the NIC liability for some.
Abolition of employer NICs for young apprentices
The new tax year saw the introduction of a 'zero rate' for qualifying apprentices on weekly earnings up to the Upper Secondary Threshold, removing the requirement for employers to pay Class 1 secondary NICs on earnings up to £827 for apprentices aged under 25 who are in a government-recognised apprenticeship within the UK.
Increase in the Employment Allowance
Most businesses, charities and Community Amateur Sports Clubs can now reduce their Class 1 NICs by means of the Employment Allowance, which for 2016/17 has been increased from £2,000 to £3,000. However, companies where the director is the sole employee are no longer able to claim the allowance.
The 3% stamp duty land tax (SDLT) surcharge
1 April 2016 saw the introduction of a new additional 3% SDLT surcharge on the purchase of additional residential properties in England, Wales and Northern Ireland. The surcharge applies to additional properties costing £40,000 or more, such as buy-to-let properties and second homes. The Scottish Government has introduced a similar 3% levy on top of the existing Land and Buildings Transaction Tax (LBTT) in Scotland.
The new Personal Savings Allowance (PSA)
Many savers can now benefit from the new PSA, which allows basic rate taxpayers to earn up to £1,000 each year in tax-free savings income (such as interest on bank and building society savings). Higher rate taxpayers can receive up to £500 before paying tax, but the PSA is not available to additional rate taxpayers.
We can help with all of your tax and financial planning needs. For a strategic review of your finances, and expert advice on taking your business forward, please contact us.