Business Advice expert and chief FreeAgent accountant, Emily Coltman, explains what business owners can do between now and 5 April 2018 to make the most of this financial year, offering five important tax tips.
The end of the tax year is just a few days away, so if you’re a sole trader or individual taxpayer you may be looking at whether there are any last-minute checks you can make to get your tax bill in order.
Check the timing of planned asset purchases
If you plan to buy a new large piece of equipment for your business, such as a computer, make sure you check how much you’ve already spent on large items of equipment so far in the tax year (assuming you prepare your accounts to 5 April each year).
The annual investment allowance, which lets you claim tax relief of 100 per cent of the cost of qualifying assets is currently £200,000. However, you may have to pro-rata the annual investment allowance depending on what date you use for your accounting year end. Remember that this is not an allowance you can carry forward, so you either have to use it or lose it – and some assets, such as cars, don’t qualify for it.
Plan your disposals
If you plan to sell an asset that would give rise to capital gains tax, you may be better waiting until after the end of the tax year (i.e. 5 April 2018) – as this means you’ll pay the capital gains tax a year later.
However, this might not be the best idea if you’re planning to sell a lot more assets next year. This is because each year, every individual gets an annual exemption – £11,300 for 2017/18 and soon to be £11,700 for 2018/19 – that we can set against capital gains and it can’t be carried forward to the next tax year.
So if you’re going to be selling a lot of assets that give rise to capital gains tax in the near future, you may opt to spread the sales between two tax years instead (for example, sell some in March and some in May), to make best use of your annual exemptions. This means you may pay tax sooner, but you’ll also pay less tax overall.
Time your costs
You might also be able to bring forward tax relief if you have genuine business costs coming up soon. Incurring a cost in March rather than in April, means you could get the tax relief on it a year earlier.
For example, if you’re thinking about getting new business cards printed and your business’s accounting year coincides with the tax year, you should think about getting these done before 5 April.
Remember, unless you’re using the cash basis of accounting, expenses go into your business accounts when they’re incurred, not when you pay for them – so even if you don’t pay the printer until 6 April, so long as (s)he did the work before 5 April and you have an invoice, you should be OK to put that expense into your accounts.
Time your income
You may be thinking about waiting until 6 April to invoice your customer for some work done, so that this income goes into your next tax year and you pay tax on it a year later. But HMRC is wise to this!
If you do the work before the end of the tax year, you need to accrue that income, i.e. count it as income of the tax year in which you did the work. The exception is if you’re preparing your accounts on the cash basis, when you count the income when your customers pay you, instead.
Make use of government-backed schemes
The chancellor does (sometimes) make tax relief available. Here are some schemes that you might find helpful:
- If you’re looking to put some money aside, consider investing what you can of this year’s allowance in an ISA, because this year’s allowance will be lost on 5 April**.
- Consider putting money into a pension, to get tax relief. Speak to your accountant and your financial adviser if you want to do this, because there are rules around tax avoidance in this area.
- If you want to invest in someone else’s business, consider investing in shares under the Seed Enterprise Investment Scheme.
** That’s £20,000 in 2017/18.
Tax is never simple at the best of times, but by timing your sales and purchases carefully you can stay within the rules and yet make sure that you don’t pay more tax than you should.
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