If you crunch the numbers, and decide that investing in new technology, a new van, or other equipment will make a positive difference to your bottom line profits, and in a reasonable time-frame, the next question to ask is – what difference will the initial purchase make to your tax bill?

As long as the asset you are buying qualifies, the maximum write off is provided by the Annual Investment Allowance (AIA). Currently, you would be allowed to write off 100% of your assets purchases up to a value of £200,000 against your taxable profits for the accounting year during which you make the investment.

Assets that are specifically excluded from the AIA are:

• cars
• items you owned for another reason before you started using them in your business
• items given to you or your business

Also, you cannot claim the AIA in a final period of trading.

This allowance is particularly useful for self-employed business owners who may be paying income tax at the higher 40% or 45% rates. A qualifying investment of £200,000 would reduce their self-employed income tax bill by a significant amount.

For example, a self-employed sole trader, James, with profits of £220,000 and investing in qualifying plant of £200,000 during 2017-18, would see their income tax bill reduce from £85,200 to £1,700.

In addition to the income tax savings, James’s graduated Class 4 NIC payment would also reduce, from £6,963.44 to just £1,213.44.

The AIA is a generous allowance and whilst it is inadvisable to let the tax tail wag the dog, if there is a strong indication that a proposed investment will make a difference to your business, then the tax incentive is a useful bonus.

Finally, as with all tax planning, taking a hard look at the figures prior to any firm commitment to invest is paramount. Please call if you are planning an acquisition in the near future – essential if you want to get your tax ducks all in a row.

You are required to make National Insurance Contributions on your earnings, whether employed or self-employed, until you reach the State Retirement Age.

The only exception is if you qualify for exemption from contributions if your salary or business profits are below a certain minimum amount. For 2017-18 these lower limits are:

• Below £157 a week if you are employed,
• Below annual profits of £6,025 to claim exemption from Class 2 self-employed contributions, and
• Below annual profits of £8,164 to claim exemption from Class 4 self-employed contributions.

It is worth noting that claiming these exemptions, whist this will save you money in the short-term, may reduce the credits you acquire in order to qualify for the State Pension. Currently, you need to have 35 years of paid up NIC contributions in order to qualify for the new full State Pension if you have no contributions record prior to April 2016. If you have contributions before this date the sums are more complicated.

To recap, at State Pension age, you will no longer have to pay have to pay the following NIC contributions if you continue working:

• Class 1 NIC if you are employed;
• Class 2 NIC if you are self-employed;

Class 4 contributions for the self-employed are slightly different. If you continue in self-employment beyond the State Pension age, you will pay contributions in the tax year during which you reach the pension age, but in future years you will be exempt from contributions.

Under current legislation, women’s State Pension age will increase more quickly to 65 between April 2016 and November 2018. From December 2018 the State Pension age for both men and women will start to increase to reach 66 by October 2020.

Computers are not everyone’s cup of tea. In fact, there are very few of us who can declare with some confidence that we are computer literate.

Unfortunately, there does seem to be a drive to increase their effective use in business and the offices of HMRC. Gone are the days when HMRC’s offices were populated by human beings checking hand written tax returns and transferring the data to foolscap folders. Racks and racks of these files flanked by rows of desks. The data is now pushed along underground cables, from your PC, or by your advisors’ desktop, and seamlessly integrated into your personal tax account on some distant server. Or at least that’s what we are led to believe.

If HMRC’s current ambition, to forward this process by requiring business owners to upload – essentially send information to HMRC via computerised process – quarterly, summarised data, then any non-computerised accounts process will become extinct.

Where does this leave smaller businesses, especially those who have no great desire to become computer literate, are content with the annual chore of dumping everything: invoices, bank statements, cheque stubs etc., into a carrier bag, and leaving this with their accountant?

We seem to be moving into an age where computer software is taking over the computational activity previously undertaken by accounts clerks and bookkeepers, bent double over ledgers and calculators.

The message we need to communicate to readers today is that this digital process seems to be unstoppable. HMRC’s Making Tax Digital for Business endeavours aim to make this digital upload a legal requirement, starting April 2018.

We can help. We have already crossed the computer Rubicon. Our staff are trained and ready to go. We have software that we can use on your behalf, or if you fancy having a dabble, we can recommend and show you how to use software to meet these new obligations, in house.

The clock is ticking. If you are still unsure whether to embrace these new challenges, or consider our support in dealing with them for you, can we suggest that you call to discuss your options.

Employers, or more specifically, the persons in charge of processing their payroll, are hopefully checking the box to claim the National Insurance Employment Allowance (EA)?

The EA reduces the employers’ (secondary) Class 1 NIC bill. If your employers’ NIC charge is normally more than £3,000, then this is as good as £3,000 additional cash in the bank. If your employers’ NIC bill is less than £3,000, then the EA will wipe out this employment cost for your business.

So far, so good. Why is there always a but…?

You can’t claim this allowance if:

• You are the director and the only paid employee in your company.

• You employ someone for personal, household or domestic work (like a nanny or gardener) – unless they’re a care or support worker.

• You are a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity.

• You are a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership)

If you or your company have more than one registered payroll reference with HMRC, you can only claim the EA against one of them.

The first bullet point will no doubt be the most applicable exclusion, the owner managers of one-person companies, but if you can claim, a simple tick in the correct box of your payroll software should do the trick – your NIC payments should be automatically reduced until the £3,000 EA has been fully claimed.

Please note, the EA is only available to set off against employers’ Class 1 NIC, you cannot use this allowance to reduce employees’ contributions.

There are a number of ways that director shareholders of private companies can withdraw funds from their businesses. We have listed below a number of options, the list is not exhaustive, but the points do provide insight into the opportunities that current tax law allows incorporated businesses.

1. Director shareholders can provide themselves with up to £300 a year in non-cash benefits as long as each “gift” does not exceed £50 and is not related to their employment. Potentially, unlimited “trivial benefits” can be provided to non-family employees, i.e. the £300 annual cap does not apply.
2. Directors who have lent their company significant funds, can receive interest at a commercial rate on the funds deposited. There are a number of reliefs that can be claimed to reduce tax on interest received, and even if these do not apply, the interest payment will not attract an NIC charge.
3. Directors aged below the State retirement age will no doubt want to ensure that they are still making NIC contributions that will qualify them for the State Retirement Pension. Many directors ensure that they pay themselves the minimum salary to achieve this planning objective.
4. Dividends remain the most tax efficient method of taking retained profits from your business. The annual tax-free limit is still £5,000. Dividends drawn in excess of this will be taxed at 7.5%, 32.5% or 38.1%, all dependent on where the dividend income slots into the basic, higher or additional rate income tax bands. However, dividends continue to be exempt from a NIC charge. A final point to observe: dividends can only be taken from the company’s retained profits.
5. Recent legislation has mitigated against the practice of taking benefits in place of remuneration – so-called salary sacrifice arrangements. In future years these benefits may be taxed as if they were salary. There may be short-term benefits in exploring these options, and these should be considered. Longer-term, other planning strategies may be required.
6. If director shareholders have children, 18 years or older, it may be possible to issue them with company shares and pay them a small dividend each year. Currently, there is a potential here to provide over 18s with a £5,000 annual, tax-free income.

As you can see, extracting funds from a company can be achieved in a number of different ways, and these options should be a priority when considering your tax planning strategy. Please call if you would like more information on any of the topics raised in this post.