April 08, 2011 at 8:48 AM
With major tax changes happening in April 2011, business owners need to prepare now in order to maximise tax efficiency and manage cashflow.
We love helping people save tax! If you'd like to discuss how to pay less tax in 2011, get in touch.
Paying yourself in the most tax-efficient way has changed!
- From 6 April, you will be able to pay yourself a salary of £589/month without having to pay any income tax or National Insurance. This is an increase of 23% on the current 2010/11 level.
- This amount is sufficient to maintain your entitlement to the Basic State Pension.
- One of the most tax-efficient ways to pay yourself as a shareholder of a Limited Company is to pay this basic amount each month in salary, taking the rest in dividends. A dividend can only be paid from profits remaining after the payment of Corporation Tax, so it is important to do the sums on this one, to avoid an unlawful distribution of company funds.
- Assuming that you pay yourself the £589/month and don’t have any other income, you can pay yourself a net dividend of £31,866 each year before you pay additional income tax.
- Tax planning tip: Setup your £589 per month salary as a regular monthly payment and then keep track of the dividends you pay yourself throughout the year. Doing a few sums prior to the end of a tax year will help you pay yourself in the most tax-efficient way.
- Employer National Insurance Contributions (NIC) will rise by 1% to 13.8% from 6 April 2011. The rate that employees pay will also rise by 1% to 12%.
- To lessen the blow, the government has also raised the employer NIC threshold (the point at which employers start to pay NI) to £136 per week (£7,072 per year).
Tax planning tip: Instead of increasing salaries for some employees, you could make pension contributions on their behalf instead. There is no tax or National Insurance to pay on employer pension contributions, so it can be of significant financial benefit to both the company and the individual.
- If you are planning major expenditure in plant and machinery, such as new IT systems or equipment, now could be the time to do it.
- The reason is that the Annual Investment Allowance (which gives firms 100% tax relief on qualifying capital expenditure) is due to be reduced from £100,000 to £25,000 in April 2012. This gives companies 12 months to get advice on the most tax-efficient way to make these purchases.
- The rate that can be claimed on all other types of expenditure will also be cut from 20% to 18% for general pool items and from 10% to 8% for special rate items.
- Tax planning tip: If you are planning on any capital expenditure in the next 12 months, speak to your accountant early, so that they can help you plan the most tax-efficient way of doing this.
- Some good news for small businesses is the Small Business rate of Corporation Tax dropping from 21% to 20% from 1st April 2011.
- Tax planning tip: Don't forget to put money aside for your Corporation Tax (and other taxes) each month. Setup a separate bank account for this cash. This is an important habit to get into.
- With effect from the 2011/12 tax year the annual allowance is reduced from £255,000 to £50,000. Anyone exceeding the annual allowance will be liable for a tax charge on the excess.
- There are ways around this by potentially looking at shortening Pension Input Periods and carrying forward any unused annual allowance from up to three previous tax years.
- Tax planning tip: Time is of the essence, so speak to your Financial Planner right away if you think this change will affect you. If you don't have a Financial Planner that works alongside your accountant, then get in touch.
Mileage allowance (cars & vans)
- You will be able to claim 45p per mile (for the first 10,000 miles) for business travel, up from the current allowance of 40p per mile (from 6 April 2011). After the first 10,000 business miles, you can claim 25p per mile.
Tax Investigations on the rise
- The Government has announced a number of tax avoidance proposals, with the aim of increasing tax revenue by £2bn by 2014. This will inevitably result in more inspections from HMRC, so make sure you are covered with some sort of Fee Protection Insurance. For more details, click here.
We love helping people save tax! If you'd like to find out how you can pay less tax in 2011, get in touch.