A guide to tax planning for SME's

1. A presentation given by Michelle
Allen and Sarah Smith Wright Vigar
at the BizGen Conference and
Expo Lincoln

2. Tax Planning for SME’s
Michelle Allen & Sarah Smith

3. “In this world nothing can be
said to be certain, except
death and taxes"
Benjamin Franklin

4. Tax Planning
• Simple or complicated
• Attitude to risk
• Cash
• Associated costs
• When?

5. Business
• Pre year end spending
• Pension contributions
• Asset purchases
• Property transactions
• Trading vehicle
• VAT

6. Pre year End Spending
• Simple
• Timing
• Cash availability or finance
• General expenditure
– Marketing
– Training
• Capital assets

7. Pension Contributions
• Tax efficient
• Investment
• Remuneration
• Employer contributions – allowable
• Annual allowance - £50,000

8. Asset Purchases
• Vans, machinery
• Full allowance in year of purchase
• Annual Investment Allowance
– To 31/03/12 £100,000
– From 1/04/12 £ 25,000
• Capital Allowances
– To 31/03/12 20% & 10%
– From 01/04/12 18% & 8%

9. Property Transactions
• Buying or selling
• Improving/extending
• Maximum relief as capital allowances
• Capital - integral features
• Repairs
• VAT

10. Trading Vehicle
• Now
• Future
• 3 main options
1. Unincorporated
2. Incorporated
3. LLP

11. Business Vehicle
Unincorporated
• Sole trader or partnership
• Flexibility with losses – carry back 3 years
• Less cost
• Easier to unwind
• Potentially 40% and 50% tax

12. Business Vehicle
Company
• Tax rates
– Profit under £300,000 – 20%
– Profit over £1.5m – 26%
– In between – 27.5%
• Benefits lost on extraction

13. Business Vehicle
LLP
• Limited Liability Partnership
• Losses limited to capital introduced
• Limited liability – partners only liable to
capital introduced
• Accounts must be published
• Potentially 40% and 50% tax

14. Unincorporated
vs Incorporated
• Potential tax savings
• Example:
– Anthony & Cleopatra make annual profits of
£100,000 as a partnership
– Year end is 31 March
– Higher rate tax payers

15. Example (1)
• 2011/12 Tax Rates
• As Partners
– Taxed on profits
– Amount drawn is irrelevant
Income Tax £20,020
NI £ 6,914
TOTAL £26,934

16. Example (2)
• 2011/12 Tax Rates
• As a Company
– Company pays corporation tax
– Individuals pay income tax and NI on earnings
Corporation Tax £17,171
Income Tax £ Nil
NI £ Nil
Tax on Dividends £ 1,240
TOTAL £18,411

17. Example - Comparison
Partnership Company
Income Tax 20,020 1,240
National Insurance 6,914 Nil
Corporation Tax N/A 17,171
TOTAL 26,934 18,411
• Additional tax paid if remain unincorporated £8,523

18. Unincorporated
vs Incorporated
• What if individual is an additional rate tax
payer
• Example:
– Anthony & Cleopatra make annual profits of
£400,000
– Year end is 31 March
– Additional rate tax payers
– Personal Allowance restricted

19. Example (3)
• 2011/12 Tax Rates
• As Partners
– Taxed on profits
– Amount drawn is irrelevant
Income Tax £156,000
NI £ 12,914
TOTAL £168,914

20. Example (4)
• 2011/12 Tax Rates
• As a Company
– Company pays corporation tax
– Individuals pay income tax and NI on earnings
Corporation Tax £ 83,610
Income Tax £ 2,828
NI £ Nil
Tax on Dividends £ 67,990
TOTAL £154,428

21. Example - Comparison
Partnership Company
Income Tax 156,000 70,818
National Insurance 12,914 Nil
Corporation Tax N/A 83,610
TOTAL 168,914 154,428
• Additional tax paid if remain unincorporated £14,486

22. Summary
• Tax saving – all profits extracted
• Consider retaining profits
– Second scenario earnings restricted to
£100,000 each.
– Saving £30,726

23. VAT
• Registration threshold - £73,000
• Schemes
– Smooth cash flow
– Simplify administration
• 3 Main schemes
1.Cash accounting – cash movement
2.Annual accounting – 1 return per year
3.Flat rate – % on sales

24. Personal
• Capital Gains Tax
– Rates
– Entrepreneurs relief
• Inheritance Tax
• Pension Contributions
• ISA

25. Capital Gains Tax
• Rates
– 18%
– 28%
• Entrepreneurs Relief
– 10%
– Lifetime limit £10m
– Business asset
– Rent

26. Inheritance Tax
• Business Property Relief
– 100%
– 2 years minimum ownership
– 50%

27. Pension Contributions
• Annual Allowance
• Limits - £3,600 or qualifying income

28. ISA
• Annual Investment Allowance
– Max £10,680 pa stocks & shares
– Max £5,340 pa cash only
• Two separate ISAs only in one year

29. If you have any queries regarding issues raised during
the seminar or any other taxation issues please contact
Michelle Allen – Newark Office Director
Sarah Smith – Senior Manager
Wright Vigar
15 Newland
Lincoln
LN1 1XG
01522 531341
action@wrightvigar.co.uk
www.wrightvigar.co.uk

30. BizMidlands.co.uk