Tax Year End Planning 2011/12 (Part 1)

Pre-year end spending

If you are thinking of investing in any fixed assets (like vehicles, computers and equipment etc.) in the next few months, it may be appropriate to do this just before the year-end rather than just after it. That way you will start getting your tax relief on those items a full year early.

If there are any other expenses where the timing is under your control - for example maintenance, marketing and training - then, once again, it is more sensible to spend this just before the year-end rather than just after it, since you will get your tax relief a full year earlier.

Please remember, though, that tax is only part of the story. You should also look closely at the commercial viability of doing these things before making any decision.

Limited company salary/dividends

Have you fully utilised your personal allowance and gained full Class 1 national insurance credits by paying a salary of at least £5,305? The recommended salary is £7,072 in the tax year. Gross dividends are then tax free up to the higher rate tax band of £35,000. If you have not paid a salary to date, as a director you can still pay a lump sum bonus this month up to £7,072 without incurring a national insurance charge.

Dividends are taxed based on the amount paid in the tax year therefore it is worth considering deferring dividend payments to the following year if a tax charge would result from payments above the higher rate band in the current year. A judgement would be required on expected distributable profits in 2012/13.

Seed Enterprise Investment Scheme (SEIS)

This is a new scheme starting on 6th April 2012. If you have investment funds you will be able to invest up to £100,000 in an eligible start up business and receive 50% income tax relief in the year the investment is made. In addition if you make an asset disposal in 2012/13 which is liable to capital gains tax and invest the gain into an SEIS you will also receive a full capital gains tax exemption worth up to 28%. Potentially this could give 78% tax relief. Therefore if you are considering an asset disposal it is worth considering delaying until 2012/13.