Get on top of your 2021 / 22 tax planning today

Unfortunately, the majority of people seem to think about tax at the end of the tax year. That’s understandable – you want to make sure everything is in order and no opportunities have been wasted as tax deadlines loom – but it’s not ideal. A better way to think about tax is to start at the beginning of the tax year (or close thereafter) making sure you’ve got a solid plan for how to minimise the tax you owe from day one.

With a new tax year underway, we wanted to share our top tips for making the most of your tax planning now, when you can still get the most value out of them.

Business tax

The first question you should ask yourself at the start of a tax year is whether or not you have the right company structure in place. You shouldn’t determine your company structure solely in reference to tax, but it is a factor to take into account. Generally speaking, incorporation is useful if a business is likely to retain a significant amount of profit, but is unnecessary if all the profit will be taken out and used for personal consumption. This is because corporation tax is currently 19%, whereas income tax is 20% between £12,570 and £50,270, jumps to 40% up-to £150,000, and to 45% above £150,000. (When thinking longer term, you’ll also want to remember that corporation tax is set to rise to 25% from April 2023).

Looking beyond the benefits of incorporation, the possible benefits of “income sharing” are ones that everyone should consider, whatever company structure is in use. You can income share with a spouse, civil partner, or “significant other” by giving them shares in your company or introducing them as into a partnership or LLP (as partner or member, respectively). Also remember that the benefits of income sharing also apply to income from investment assets, like rental properties.

One strategy that is less beneficial now than it used to be is running a car through your limited company. Unless this car is a zero-emission electric vehicle, the amount you pay tax on as a “benefit in kind” probably exceeds the real value it delivers. As a result, the sooner you take the car outside the company, the sooner you start saving.

Lastly, it is important to make the most of your capital expenditure allowance. If your business is incorporated as a company and is making large capital expenditures this tax year, you should be making use of the 130% super deduction announced at the last budget. If you’re not a company, but are considering large capital expenditure on your business, then you should remember that the 100% Annual Investment Allowance will revert from £1 million back to £200,000 as at January 1^st, 2022.

Personal tax

It’s always sensible to think about things like pension contributions early in the tax year, when you still have plenty of time to make them. Likewise, you should make ISAs and IHT planning a priority now, not leave them until later. Another thing to think about today is how you will use your £3,000 annual gift exemption – this can be carried over by a year if needs be, but that’s it: so, as with all these benefits, it’s use it, or lose it.

Annual gift exemptions are also possible on all “small gifts” of £250 or less, in addition to the main exemption of £3,000 / year. While gifts made beyond the £3,000 exemption limit may be classified as “potentially exempt transfers” if made to individuals. These “potentially exempt transfers” fall out of your estate seven years after they are made – so the sooner you make them, the sooner you will benefit.

A final thing to note when it comes to personal tax planning is that there are no indications that capital tax planning is about to become any easier. As a result, it is just good practise to start thinking about this now, rather than at the end of the tax year when, frankly, you will already be under enough pressure.

A professional touch

We hope that these suggestions make 2021 / 2022 an easier tax year than you’re used to, but we also want to reiterate the value that a solid tax team can add to your business. Our experienced team of experts can help ensure you fulfil all your obligations while also not paying more than you owe. Contact us on 0121 456 0190 to find out more about how we can help you maximise profits and minimise taxes.