Small business owners should make plans now to take advantage or minimise the pain of a raft of new accounting rules that will come into force in April.
According to accountancy firm and business advice company PKF, entrepreneurs should act now to ensure they are not caught out by any of the changes, despite the fact that there is a Budget on 12th March and that a finance bill is also expected to be introduced before the end of that month.
"This Spring is probably the most important ever in terms of
getting your tax affairs in order and arranging your finances to save tax,"
said Lisa Macpherson, national director of tax at PKF.
"This is a very busy year because many changes to long-established tax rules take effect from 6 April 2008.
"There are many planning opportunities available in the run up the end of the tax year but it will pay to get things moving now, even if you have to wait until after the Budget before completing the arrangements."
PKF recommends small business owners should focus on the following areas:
Non-doms
Non-doms should
review their overseas arrangements now as individuals who are UK-resident
but non-domiciled face substantial changes to the tax treatment of their
foreign income and gains from 6th April 2008. Some of these may
bring income and gains arising in past years within the UK tax net
Check your visits
Individuals visiting the UK for short periods should check
their visiting pattern carefully. HMRC has been tightening up on its approach
to visits and new rules from 6th April will mean that days of
arrival and departure must be counted
Private investors
Making the most of the changes in the capital gains tax
rules that take effect from 6th April could mean selling assets now,
transferring them to a spouse or delaying a sale until the new tax year. What
is most tax-efficient for each investor will depend on your investments and
circumstances, so starting the number-crunching as early as possible is vital
Trusts
Major changes to the way trusts are taxed were announced in
2006 but the transitional period, during which settlors and trustees can change
current arrangements to ensure they remain tax-efficient, ends on 5th
April
Pre-Budget IHT
As the Government has made a major concession by introducing
the transferable nil-rate band in the Pre-Budget Report, it is highly likely
that it will ‘take with the other hand' in the Budget. Individuals considering
plans to reduce their family's inheritance tax bill should try to put them in place
before the Budget on the 12th March to make sure that current tax
reliefs can be used
Transfer of income-producing assets
Spouses and civil partners can save tax by transferring
income-producing assets between them to ensure that tax allowances and rate
bands are used effectively. With the government taking increasing interest in
family tax planning (see income of business owners above), it may be wise to
make any relevant transfers of assets before the Budget
Pension contributions
The option to make large personal pension contributions is
particularly important this year as with the reduction in the basic rate of
income tax from 6th April 2008 onwards amounts going into your fund
will only be topped up with a 20% tax credit, rather than the 22% addition to
contributions the government currently makes
Capital gains of business owners
Most business owners are aware that the 10% effective rate
of tax on gains from selling your business will rise to 18% on 6th
April unless the gain is under £1m and they meet the tests for the new
entrepreneurs relief. However, not all will realise that there are a number of
ways to ‘bank' the 10% rate by making a disposal even if you cannot at present
sell your business outright
Income of family company owners
Those owning their own family company will have to consider
the new ‘income shifting rules' where other family members work in the business
or receive dividends. If your business is likely to be affected, extracting
profits by way of dividends before 6th April is your last chance to
allocate the profits around the family tax-efficiently
Business investment
Business owners considering purchasing new plant or
machinery should assess whether advancing or delaying expenditure will earn
them faster tax relief as many changes to the capital allowances regime take
effect from April (1st April for companies, 6th April for
unincorporated businesses)
