Entrepreneurial businesses in East Anglia are being urged to make final reviews of their tax position to ensure their financial house is in order before the end of the tax year.
How tidy is your financial house?
According to business advisory firm Deloitte, if action hasn’t already been taken, now is the time for entrepreneurs to consider any steps whilst there is still time to act. Deloitte’s call comes in light of the numerous changes introduced in the 2009 Budget that are due to come into effect on 6 April 2010. Nick Barrett, tax manager at Deloitte in Cambridge, said entrepreneurs should be considering ways in which the forthcoming tax changes could affect their business.
He said: “Although issues like the 50 per cent top rate of income tax have garnered much attention, there are many aspects surrounding tax that are being potentially overlooked. With that in mind, entrepreneurs should take careful steps to review all aspects of their tax strategy to ensure they are fully aware of the changes and taking full advantage of any available reliefs.”
In advance of the end of the current tax year, Deloitte has compiled an overview of some common areas that growing enterprises should consider, including:
• Retained profit position and the level of dividends which could be paid out at the 25 per cent effective rate (for most dividends) before it rises to 36.11 per cent for those with income in excess of £150,0000 from 6 April. Reinvestment of the dividend by way of further equity or loan could be considered to neutralise any depletion of working capital.
• Early payment of salary and bonuses for business owners or their high earning employees where those amounts may fall within the 50 per cent income tax bracket. Clearly, there are both employment law and commercial considerations here, for example, notice periods and claw back provisions, and separate advice should be taken on this matter.
• Share awards to high earning employees might be made before 6 April to reduce the tax and NIC burden where the shares are awarded for less than the unrestricted market value. Where a company has unapproved share options in place, higher-rate taxpayer employees may consider exercising those options in order to pay tax on the gain at the current 40 per cent top rate, provided they feel this is a commercially sensible time to exercise.
• As the rate of capital gains tax (CGT) has been left unchanged at 18 per cent (and ten per cent for Entrepreneurs’ Relief), share remuneration continues to be an attractive method of rewarding employees. Many entrepreneurial businesses are re- examining the potential of approved share schemes for their key personnel and directors. Certain unapproved schemes, such as growth shares and joint ownership arrangements, can deliver value at 18 per cent CGT, based on the growth of the company, providing a strong incentive tool combined with a relatively low up-front tax cost. The tax value of the shares awarded will depend on its current performance and the prospects for the business.
• Unincorporated businesses may wish to look into the timing of deductions, including certain capital allowance claims, to see if the benefit of these can be deferred to a tax year where the 50 per cent relief is available rather than 40 per cent.
The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.