A Little Bit of Tax Planning

More businesses will be reporting lower profits for the base accounting periods for their 2009/10 returns and many will be reporting losses.

There are opportunities here to maximise the benefits of lower tax bills, generate tax repayments and improve family income provided that you or your agent are aware of the potential and can recognise scenarios that could provide these benefits.

A recent example:

Young couple with 3 young children. One employed and the other self employed in business. Business accounting date 30th June and year ended 30th June 2008 being the basis period for 2008/09 tax assessment.

Profits for year to 30th June 2008 very good – high tax bill for 2008/09 – low tax credits for 2009/10

Turnover and profit thereafter took a nosedive because of the effect of the recession.

No cash to pay 2008/09 tax bill in January 2010

By changing the year end to 31st December and preparing accounts for the 18 month period to 31st December 2009 (Max period acceptable to HMRC), taking advantage of Annual Investment Allowance and getting all the figures together at an early stage (January 2010) we achieved:

1.Nil tax liability for 2009/10 (accounts basis period to 31.12.09), tax return will be submitted in April. Next potential tax bill payment not due till Jan 2012.
2.Because of 1. above spread payment of the 2008/09 tax bill over 10 months
3.Early adjustment for tax credit purposes bringing in an extra £5k
4.Used the breathing space for aspects of restructuring and pricing and now that the business is picking up shelved plans for potential house sale.
5.Avoided cancellation of the family holiday!

The keys to achieving this might be summarised as:

1.Maintaining regular contact with the client and an understanding of business and family circumstances
2.Having access to the records (information provided monthly)
3.Recognising the possibilities having regard to circumstances
4.In-depth understanding of the rules relating to the various elements
5.Providing experience and independent view of business plan and market
6.Offering an element of flexibility on fees and payment thereof (commercial risk and some faith!)

For those reporting losses there are going to be lots of planning opportunities on how best to use them. The earlier these issues are addressed the earlier the benefit of tax repayments etc.

bjn

barrynudds.co.uk

If I am not mistaken presumably you can only do this once?

The answer is not quite as simple as your statement suggests:

This is suggested as an appropriate strategy for circumstances that are hopefully not typical or long standing, providing some relief for the trader. Otherwise the only constraints relate to frequency of change of accounting date, length of accounts period and as outlined above the ability to recognise circumstances that provide the opportunity and recommend actions. The latter of course being difficult in a recession when opportunities such as this are frequently lost.

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