It's October already but there's still time to maximize your businesses profits for this and next year with our top 5 tax tips for 2016.
1. Taxation of dividends
The taxation of dividend income changed significantly from April this year, and it's likely to impact upon the vast majority of owner managed businesses who pay themselves via dividends rather than salary. The tax payable on dividend income has now increased sharply with a 7.5% extra charge on all dividends in excess of the first £5,000 which is tax free. As a result of this years adjustments it may now be more tax efficient to pay yourself a salary instead.
2. Utilise entrepreneurs relief
This is a valuable tax relief which means you only pay tax at 10% on the sale of business assets. You get a total of £10m each on which the 10% is payable, so you may be much better off building your business to sell off all or part of it; then doing it time after time if you fancy being a serial entrepreneur! With the valuable tax breaks available for re-investing in smaller growing companies and using your experience and expertise, this is something worth considering in terms of longer term strategy. Remember, selling your business doesn't mean retiring!
3. Marriage allowance
This allowance was introduced in April 2015 but not everyone entitled to this tax benefit have made a claim. The relief applies where the higher earning spouse is a basic rate taxpayer and the lower earning spouse does not use all of their personal income allowance. The lower earning spouse can then transfer some of their unused allowance to their spouse, thus saving the family tax.
4. Research and Development tax relief
No longer is the relief the preserve of those in white coats. In fact, according to the latest statistics released by HMRC, many companies, particularly those in the service sectors, are still not making use of this very valuable relief. Only 35,000 claims were made in 2015, when the government expected 180,000! Let's not disappoint them!
5. Declare your income!
HMRC are investing heavily in increasingly sophisticated software aimed at catching those evading tax or under-declaring income. We even heard a rumour that HMRC will be using social media to look for tax evaders! Recently HMRC have offered several disclosure facilities to certain targeted groups of individuals whom they believe may be under declaring income, including lawyers, landlords and plumbers. The idea of the disclosure facilities is that if you come forward before HMRC find you, they will reduce any penalties for the non-declaration of income.
For more information on the topics discussed above and how they apply to you and your business, contact the CBHC team at firstname.lastname@example.org or give us a call on 01245 495 588.