At this time of year, many firms send year end ‘checklists’ to their clients with a shopping list of tax planning schemes. That is not the way we tend to approach year end planning at Mercer & Hole; we would much prefer to have tailored discussions with our clients, focusing on areas that are most relevant or of particular interest to them.
Here is some food for thought…
Health & Social Care Levy
This comes in on 6 April 2022 and is effectively a National Insurance Contributions (NICs) increase of 1.25%, which will apply to employees, employers and sole traders. There will also be a corresponding increase in the rate of dividend tax. Clearly, the biggest impact for most business owners will be the increased employer’s NICs, but if you are considering bonuses and /or dividends before the year end, this upcoming increase might be an extra incentive to pay them sooner rather than later. Additionally, for tax-efficient ways of rewarding higher earners, employers may want to look at share option schemes rather than bonuses.
A combination of tax relief on the initial contributions, tax free growth within the fund and the ability to take out a tax-free lump sum on retirement, make pensions extremely efficient from a tax perspective and probably the number one consideration when it comes to year end planning. Pension planning is of course dependent on cashflow as not only do you need ‘ready funds’ to facilitate the contributions, but you also need to bear in mind that the funds will be tied up until at least age 55. Please don’t hesitate to speak to us if you would like to explore the possibility of making additional pension contributions – you may have some unused relief brought forward from earlier years?
Inheritance Tax planning
While this is not necessarily something to consider before 5 April, please remember that we can help with the wider planning too. We can review wills, make recommendations on LPAs, carry out cashflow modelling and look at ways to reduce your potential exposure to inheritance tax.
Other ‘year-end’ planning
It is always worth reviewing your annual reliefs and allowances to make sure you have made the most of them including relief on eligible expenses. It is also worth considering:
- ISAs (remember that you can consider Junior ISAs for your children)
- CGT annual exemptions
- Lifetime gifting
In addition, from a company perspective, the timing of capital expenditure is also important to consider at year end. What about charitable donations under Gift Aid or investment in a venture capital scheme such as EIS or SEIS? Whilst these must be considered carefully in terms of investment risk, they do offer attractive rates of income tax relief as well as other tax benefits that could be a welcome bonus.
Please don’t hesitate to get in touch if you would like any additional information or support on any of the above. Our team at Mercer & Hole can help you plan your finances with a tailored approach to suit you and your business.