Government encourages tax avoidance

Whilst the government has encouraged a media campaign to hound individuals, large multi-national companies who are perceived as avoiding paying their fair share of taxation, there are a number of areas where you can minimise your tax with the government’s blessing such as..

Annual Investment Allowance (AIA)

In order to stimulate the economy and in particularly manufacturing, the chancellor has repeatedly increase the levels of capital expenditure on qualifying plant and machinery on which you can claim 100% capital allowances.

That’s a full writing down allowance in year one, even if you only buy the asset the day before the end of the accounting period.

The usual annual AIA is a miserly £25,000, however it was increased to £250,000 last year and in the most recent budget a further enhancement saw it increased to £500,000. This new allowance is only temporary although it was extended to 31 December 2015. After that date it will fall back to the £25,000 limit.

So, if you are planning significant capital expenditure over the new couple of years, its worth keeping these figures and dates in mind

Company cars

For years, now successive budgets have increased the tax cost of company cars, both in terms of the taxable benefit assessed on the individual employee and by restricting the capital allowances available to the employer, now down to an 8% writing down allowance where the CO2 emissions exceed 130 g/km.

However for the really low CO2 emission cars (less than 95 g/km) 100% capital allowances are available in the first year. And in addition the taxable benefit is much reduced currently 12% of the list price, although it is set to steadily increase to 20% over the next few years.

So if you are thinking of changing your car, or purchasing a company vehicle, it is worth checking out what’s available with a low CO2 emissions figure

Pensions

We know pensions are not everyone’s favourite investment vehicle, and they regularly get a bad press from financial experts filling out the pages in the weekend financial supplements (I’m being sarcastic) but with tax relief at your marginal rate of tax (as much as 60%) they remain a super tax efficient saving.

It might be a case of “buy now whilst stocks last” because the government is forever limiting their use. From April 2014 the maximum annual contribution has been reduced to £40,000, whilst your maximum cumulative pension benefits have been reduced to £1.25 million. More important to most of us, however, is the ever present danger that a chancellor will at some stage will abolish higher rate tax relief on contributions by limiting tax relief on contributions to basic rate tax.   

Research & development (R & D) tax credits

This can be a very valuable benefit for both SMEs and large companies. The rate of relief for small and medium sized entities is 225%. That is to say for every £100 of R & D expenditure you can claim tax deduction of £225. There is similar relief for large companies at the rate of 130%. Moreover the last budget increased the repayable tax credit for loss-making companies from 11% to 14.5%. 

R & D can be any project which seeks to advance overall knowledge or capability in a field of science or technology by resolving scientific or technological uncertainty. Sounds complicated but in practice this can mean work carried out by you to enhance or develop your products, perhaps to a specification set by a customer. Some of our claimants have been clients who were carrying on R & D without realising their work qualified.

If you’re not sure we can have this work checked out to see if you qualify.

If you have queries with any of the above issues please call either Keith Roberts or Andrew Jackson.