the credit crunch should not be taxing

“Tax should not be taxing” says our old friend at HM Revenue and Customs but frankly it is hard to think of anything more taxing in these troubled times. For many individuals and businesses the possibility of saving tax and the cash flow benefit of doing so, must be a welcome possibility.  

The questions though are how do go about doing it and is it worth spending the money that it will cost to have someone tell you what you can properly do. I have been asked to write a series of articles for the TIP newsletter on tax planning over the coming months. I intend to give you some light suggestions that may help with your tax planning. Some are more weird and wonderful than others but all are legal and all could potentially save you large amounts of tax if your circumstances fit. I will get into some more interesting schemes later on but to kick you off I will look at some relatively simple steps you can take that will help cash flow and may help you to reduce your tax:

Review your self-assessment and other payments on account. If your profits are falling or can be made to fall (legally of course) you are not obliged to make a payment on account of the next year’s profit, usually about half a year’s tax. The impact on cash flow of not making such a payment ought to be highly beneficial.

If you are running a small business are you running your VAT on a cash accounting basis, so that you get the money in before VAT has to be paid?

Would a change in year-end for businesses result in beneficial cash flow advantages?

Have you lost money on assets to the point that they have become of negligible value? If you have you may be able to make a loss relief claim against your current income tax bill.

If your company has dropped in value, now may be the time to issue employee shares under a share option scheme (cheaper incentivisation!) or indeed to deal with long-term strategic issues concerning the succession planning for the business. Similarly with a drop in property prices, now may be the time to transfer a property to a pension fund, reducing latent gains in the value of the property and freeing up working capital for the business.

Finally, if you are trading as a company or a partnership, perhaps you could give some thought to carrying on your business through a limited liability partnership. Doing so may allow you to set off business losses against non-business income at the same time as retaining limited liability status for those assets.

Duncan Rann is Senior Partner of Sandersons Solicitors and a specialist in tax and commercial matters. He deals with a variety of clients including individuals and businesses from large to small and a wide variety of transactions.

Sandersons Solicitors are the preferred legal partners of the TIP group.

Sandersons Solicitors

17-19 Parliament Street

Hull

HU1 2BH 

Tel:       01482 324662

Fax:      01482 223110

e-mail:  enquiries@sandersonssolicitors.co.uk

 Source: Federation of Small Businesses, October 2008