Tax Relief on Capital Expenditure – changes imminent

There are significant changes to capital allowance from 1 April 2012. We have detailed these in a separate mail shot that you will receive in due course. Make sure you are aware of the changes so that you do not lose out.

Other considerations prior to 5 April 2012 include:

Utilising your Capital Gains Tax Relief

You are entitled to tax free gains of up to £10,600 per person during 2011/12.  If you have made no chargeable disposals in the tax year and have a share portfolio where there are inbuilt gains, it may be an advantage to make a sale prior to 5 April 2012.

Annual Gift Allowance – Inheritance Tax

Gifts of up to £3000 per person can be made without any implications for Inheritance Tax if you died within seven years (and you can utilise the previous year’s allowance if it has not been used).

ISAs

Investments can be made up to ISA limits prior to 5 April, when a new year’s allowance will commence.  The Cash ISA allowance is £5340 for 2011/12 or the ISA Investment Allowance (wholly in unit trusts and shares) is £10,680.  All interest and capital growth is tax free in ISAs.

Dividends

You may consider the dates when you withdraw dividends from your limited company.  Dividends voted or drawn up to 5 April 2012 will be taxed in 2011/12 and those voted and paid on or after 6 April 2012 will form part of your income for 2012/13.

Most small owner managed companies extract their remuneration in the form of dividends as opposed to salaries.
 
Whilst this could be a contentious issue being raised by HMRC in the future, the important consideration is the legal aspect that 'a company may only make a distribution out of profits available for the purpose'.
 
This means that dividends can only be voted and withdrawn out of available cumulative profits of the company, after providing for tax and the company should maintain records to confirm that is the position.
 
HMRC are undertaking a programme of business record checks and as part of that are reviewing the records to substantiate dividend payments.
 
It can be seen that this is an area which must be looked at carefully for all small limited companies and we will discuss this aspect further in a future newsletter
 
Some of the above points are quite complicated and please discuss the effect with the person dealing with your affairs.

Underpayment Surcharge 2010/11

Please remember that any balance of tax for 2010/11 which was due for payment by 31 January 2012 and is unpaid at 29 February 2012 will attract a 5% flat surcharge (as well as accruing interest from 1 February 2012).  Where possible, therefore, this tax should be paid to prevent this penalty applying.

2011 Autumn Statement

A couple of new reliefs announced in the autumn which come into effect shortly:-

Seed Enterprise Investment Scheme (SEIS)

A new scheme designed around investments in limited companies will provide investors with income tax relief at 50%, regardless of the rates at which they actually pay tax on their income.

The scheme is designed to help investment in small and potentially high risk companies with a new qualifying trade.

If the company and the investors meet the necessary criteria, they will obtain tax relief of 50% on their investment, as long as they have paid income tax of at least that amount in the tax year.

The number of employees must be less than 26 and directors will also be able to join in the scheme, provided they own less than 30% of the company’s shares.

During the term of the investment of five years, dividends cannot be voted, but in the event of the sale of the shares after that date, all gains will be free of capital gains tax.

Research and Development

The relief for SME’s will increase to 225% from the current 200% on Research and Development costs from April 2012 and the minimum spend, previously £10,000, has been abolished.  This means that if Research and Development costs of £10,000 are incurred, tax relief of £22,500 can be claimed and, at 20%, will give a reduction in corporation tax of £4500.

Contact us

If you have any further questions on this circular then please do not hesitate to contact Ian Killick, Consultant at our Hailsham office on 01323 846622 or email him on ian.killick@plummer-parsons.co.uk.

For other topical areas, please browse in our free Publications section of the website to view this month’s latest Active Business Series Mini Guides and The Insider publication.

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This circular is prepared and published by Plummer Parsons for the general interest and benefit of readers. The contents do not constitute business, accounting, taxation or financial planning advice and should not be relied upon as such. Advice should be taken on specific issues before you take or decide not to take any action. If you have found this email circular useful, then please feel free to give us some feedback.