Businesses and individuals have just over a month before the tax year ends on 5 April 2021. Therefore, it is essential to utilise all the tax reliefs and allowances available to minimise your tax liabilities before this date.
In this blog, our experts listed some key investment and tax planning ideas that you should consider.
Not all options are suitable for everyone, which is why you should consult a specialist to provide you with more in-depth information and detailed advice, tailored to your circumstance.
Before the year-end, you must consider if you can take advantage of what is available, and ask the following questions:
Have you considered changing your accounting dates, and taking advantage of the tax benefits of overlap relief or incorporation?
Have you used the zero per cent Dividend Tax Band of £2,000?
- Can you examine the payment of salaries to owner-managers, at tax-efficient levels, following the Band reduction?
Have you used your Capital Gains Tax (CGT) annual exemption of £12,300 for 2020-21?
- In the 2020 Budget, the CGT annual exemption amount increased to £12,300 for individuals and personal representatives and £6,150 for trustees of settlements for 2020 to 2021.
Are you eligible for Business Asset Disposal Relief (know before as Entrepreneur’s Relief)?
- This lifetime limit, for qualifying gains, reduced from £10 million to £1 million at the 2020 Budget.
Can you benefit from capital allowances?
- The temporary £1 million increase to the Annual Investment Allowance (AIA) from £200,000 is extended until 1 January 2022, to help businesses invest.
- Firms across the UK can claim up to £1 million in same-year tax relief for capital investments in assets, by subtracting the full value of an item (not including cars) that qualifies for the AIA from a business’ profits before tax.
Can you benefit from capital schemes?
- Through the Enhanced Capital Allowance (ECA) scheme, businesses can invest in environmentally efficient technologies and claim 100 per cent first-year allowances, such as tax relief on investments into specific products and technology.
- You can deduct either the total cost or up to the published claim value of the product against taxable profits in the year of purchase.
- Items that qualify for this allowance and scheme are new machinery and plant only, not second-hand or used.
Do you conduct Research and Development (R&D) projects?
- R&D Expenditure Credit (RDEC) is available for larger companies plus companies who have subcontracted R&D work by a large company, to claim for working on R&D projects. The RDEC increased to 13 per cent of your qualifying R&D expenditure on 1 April 2020.
- SME R&D Relief is available for small and medium-sized companies (SMEs) if they have less than 500 employees and a turnover of under £89 million or a balance sheet total under £77 million.
Individuals can also look at ways to reduce personal tax bills, such as the following:
Inheritance Tax (IHT)
- Using the annual gifting allowance of £3,000 without being charged.
- You can use this to maximise capital gains and income tax rates and allowances if your annual income is between £100,001 and £125,000.
Salary vs Benefits
- This refers to exchanging part of your salary for payments into an approved share scheme or additional pension contributions.