Tax returns for the New Year

Hopefully, you have all recovered from the hangovers and other related ailments that afflict people over Xmas and New Year.
Like many other accountants, we look forward to the end of January when we can hopefully celebrate getting all clients’ tax returns into the tax office on time.
If you do have difficulties in submitting your return then please contact us. We would be pleased to assist. Do not delay! Submitting your return after the deadline will incur a penalty of £100. Further delay, however, will only make the problem worse, and penalties can quickly escalate to over £1,500. Burying your head in the sands is an option, but a very expensive one.
Everyone wants to pay less tax, and one way that many people who are working for themselves can do so is by transferring the business into a limited company. This was made particularly attractive in 2008 when additional reliefs were introduced. The individual could transfer assets, including goodwill, into the company and only pay 10% Capital Gains Tax on the amount of the gain after deducting the annual allowance. This money could then be withdrawn free of any further tax or national insurance liability as and when the company became able to pay it. Meanwhile, the company could write the goodwill off in its accounts, admittedly over a number of years, and claim tax relief at 20% on the amount written off.
That was, until 5th December last year! The Chancellor obviously thought that this was too generous and decided that these provisions required “strengthening” or, in anyone else’s language, restricting. With immediate effect from the date of the Autumn statement, the CGT relief to the individual was withdrawn on the transfer of goodwill when the transfer was to a close company controlled by that same individual. At the same time, Corporation Tax relief was denied to the successor company when the transfer was made under those same circumstances.
Does this mean that incorporation is no longer beneficial? Not at all. However, it does mean that the benefits are reduced. There are still circumstances when tax can be reduced by operating through a company, and these savings can be substantial especially if significant amounts of profit are retained within the company for future investment. And we must never forget the safeguards that operating as a company provide to the business owner.
As always, the pros and cons must all be weighed up before a decision is made.
WatkinsonBlack are pleased to advise on these as well as other matters, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us.
Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.