Should you invest in tax planning before the of the tax year?
At this time of year we are often asked, should I invest in tax planning? Most of us would rather avoid the word “tax” completely and yet tax planning offers a unique opportunity to reduce the amount of tax that you pay and makes a positive contribution to your efforts to outpace the current economic downturn and emerge financially more secure.
This blog post sketches out some of the tax planning opportunities for individuals and businesses to save tax, more importantly, it also sets out the case for investing in an appropriate level of tax planning advice; for you or your business.
Let’s start with what our tax planning services do not offer!
We are all entitled to use the present tax legislation to minimise our tax payments. What we are not entitled to do is evade tax by adopting strategies that stretch the credibility of laws set by parliament beyond those originally intended.
Penalties for engaging in tax schemes that would be challenged by HMRC as tax evasion can be punitive and in some cases are treated as fraud.
So, what does tax planning achieve?
Tax planning achieves two major outcomes:
• It reveals one-off tax saving opportunities, but it also reveals ongoing tax savings; savings that you will reap for many years with no further investment in professional advice.
• Without straying into tax evasion, tax planning will also ensure you pay the minimum tax applicable to your circumstances, and no more…
HMRC are tax collectors. They are obliged to publish details of any tax savings options open to you, but under no obligation to tell you. A review of your personal and business circumstances is required to achieve this, and this is what tax planning advice will provide.
In the following three sections we outline some of the areas that we could cover as part of an annual tax planning review. However, these are just the tip of the tax planning iceberg.
Much will depend on consideration of your personal and business circumstances.
Personal tax planning objectives
• Take advantage of all allowances and reliefs to which you are entitled.
• Direct your income into tax-free forms – for example, tax-free benefits in kind.
• Advising on the tax benefits of certain investment opportunities; the Enterprise Investment Scheme for example.
• Consider pension payments as a way to reduce taxes, particularly higher rates of income tax as well as providing for income when you retire.
• Share income producing assets with family members.
• Consider use of companies to shelter income from higher rates of income tax.
Company tax planning objectives
• Choosing the best tax structure for your company if incorporating a self-employed business.
• Maximise tax relief for investment in new or used vehicles, plant or other equipment.
• Formulating the best mix of profit extraction choices: salary, dividends, pension contributions, rents, or interest.
• Choosing the best tax strategy when you dispose of your business.
• Deciding when to register or deregister.
• Choosing the most beneficial special scheme if available.
• Dealing with complications if part of your business turnover is partially exempt.
When it comes to tax planning there is no one-fits-all approach
Every person and company, to some extent, is unique. Good advice for one would be bad advice for another and there is no substitute for discussing tax planning options with a qualified tax practitioner.
How much does tax planning cost?
Cost may not be the most appropriate word to use, sometimes the better question might be, how much would not seeking tax planning advice cost you in the long-term?
This post illustrates that tax planning is a sound investment and we will always strive to ensure that you secure a return on your investment. However, it is important to note that changes in legislation may require changes in the way you organise your financial affairs for the current tax year and in future tax years. In which case it is necessary to consider the long-term tax savings and in this instance any short-term fees payable may not immediately be offset, but over time the investment will return.
One thing is clear. We will always determine the positive benefits of our advice whether this be a reduction in taxes payable or the avoidance of penalties and interest charges that may arise if no advice is taken. We will also provide you with a quote for our fees before undertaking any planning work on your behalf.
When should you seek tax planning advice?
Change should be the motivating factor; has tax legislation or have your personal or business circumstances changed?
Ideally, we should discuss these changes – whenever possible – BEFORE the change occurs. Waiting until after the event, for example, after your business year end, may be too late to take appropriate action.
Tax planning is not a formulaic exercise. At its best, it is reshaping existing strategy in order to minimise the tax effects of change on existing planning.
And so, the quick answer to this question is talk to us. If you are going to:
• buy or sell a property,
• experience a change in your personal circumstances,
• want to buy or sell a business, or
• consider any other options that impact your personal finances or business affairs.
If your personal or business financial affairs warrant a periodic tax planning review, we would suggest that this is considered annually to ring-fence any changes in legislation or any other circumstances.
If you would like to speak to a member of RPGCC’s personal or corporate tax teams regarding the tax planning opportunities that might be available before we approach the end of the current tax year, contact us on 020 7870 9050 or visit our webchat in the bottom right corner to speak to a member of our team.