QUESTION: I own a family business and should I think about year-end planning towards the end of the tax year?
ANSWER: Tax planning is important to ensure that individuals optimize all available tax breaks and opportunities, both individually and for your company. During the last tax year, the positive and negative effects of Covid-19 and Brexit have had an impact on companies. At this point, it would be critical that individuals and business owners conduct a financial and tax health review that should be aligned with their future goals and aspirations. These will change as a company grows and goes through its various life cycles.
It is important for companies to consider what stage your company is at and what your plans are for the future. Perhaps you have a sole proprietorship and are considering integrating it into a limited company to grow the business and protect personal assets. Consideration should be given to the best time to make this transition. Planning is critical to ensuring all available tax breaks.
In contrast, entrepreneurs who have a succession plan and are considering retirement would also need adequate planning in place. Areas that would need to be considered would be retirement planning to ensure that the individual has adequate net disposable income, adequate life insurance, capital gains tax, and inheritance tax planning.
Some areas of finance businesses should consider are a bad debt review, additional regulations required due to the challenges of Covid-19, a review of required banking facility that still meets business needs, or possibly human resources: Does the business have about the right mix of staff / the right team to expand or shrink the company? It is also important to review the business plan and assess the availability of all business support. Various business supports are available to help business owners manage their business during challenging times or ensure its future growth.
From a tax perspective, there are several areas that businesses and individuals should consider before the end of the tax year. If a company needs to invest in capital goods, the use of the annual investment allowance and the timing of the investment should be considered.
Pension planning should be taken into account and drawing on the annual pension allowance should be considered. The withdrawal of income from the business in person should be verified to ensure that it is maximized in a tax efficient manner. The different extraction methods depend on the circumstances of the individual, but can be a mix of salary, dividend, rent, and an employer’s pension contribution.
Entrepreneurs and individuals should also consider changes in their personal life, such as: Childbirth, marriage, divorce, real estate investment, etc. as these can all affect your tax planning strategy.
Individuals should ensure that they are making the most of their personal ISA allowance, currently £ 20,000. ISAs have seen significant changes and your savings may need to be reviewed. If you or your partner are receiving child benefit, account should be taken of changes in your income above £ 60,000 or between £ 50,000 and £ 60,000 as this may result in a recovery or reduction in your child tax credit. A simple plan of dividing the income could help plan this.
Individuals investing in real estate should consider the timing of the investment, the co-ownership of the property (if applicable, e.g. co-ownership or common tenants) and the way in which it will be financed. When renting out real estate, it is important to consider how the rental business will be operated, e.g. B. a limited liability company or a personal rental business.
Individuals wishing to make an investment should consider various facilities for investors, such as: B. Business Investment Facilitation, Seed Enterprise Investment Scheme, Investor Facility, and Social Investment Tax Facility. These reliefs can help protect income tax and capital gains tax. Other areas that shouldn’t be overlooked include gift giving, inheritance tax breaks for lifelong gifts, and claiming the annual tax exemption for investment income.
It is important to note that your tax planning strategy should be reviewed not just annually, but throughout the tax year as your personal and business circumstances change.
:: Siobhan McCreesh (email@example.com) is Associate Tax Director at PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question asked. Neither the Irish News nor any of its contributors accept liability for any loss, direct or indirect, arising out of reliance on any replies.