Year-end tax planning tips: putting effective tax planning strategies into place

It’s now less than two months until the end of this tax year and so it’s really time to get your businesses finances into shape! As the 5 April fast approaches, it’s important that you are fully aware of the new Business Record Checks from the HMRC and also how to minimise your tax liabilities.

The Business Record Checks by HMRC aim to uncover poor tax record keeping and unpaid tax. Any inconsistencies or failure to produce the correct documentation could lead to fines. Aside from avoiding HMRC scrutiny, there are also a wealth of business benefits for effective payroll year end management.

Here are our top tips and key considerations for effective tax planning, and if you’re looking for even more information then download our  guide to year end tax planning

1. Income Extradition – dividends versus salary

Taking dividends can often be more tax efficient than drawing a salary but be wary of the traps!

  • Remember all shareholders are entitled to take dividends
  • If using dividend waivers, make sure you have the right paperwork in place
  • If only taking dividends as your salary, you may not qualify for full pensions relief
  • If claiming R&D relief, consider the impact that extracting dividends will have on your R&D claim

2. Capital Allowances

There are some key changes to the way capital allowances work – weighing up the pros and cons of when and how much to invest will help you to make your money go further.

  • The capital allowance system that allows businesses to write off plant and machinery costs will now have a reduced rate of 18% or 8% from April of this year.
  • The annual investment allowance allows businesses to claim 100% of the cost of new equipment against taxable profits in the year of purchase. From April however, the £100,000 a year allowance reduces to £25,000.
  • The enhanced capital allowances regime gives relief at 100% when buying plant and equipment.  As tax relief for capital expenditure is being reduced from April onwards you might be wise to get your skates on and bring your investment forward!
  • But be aware; calculations for how the annual investment allowance is applied are complicated and it depends on the year end of your business. Timing will affect tax relief and it’s not always necessarily more tax effective to buy equipment early.

3. Short Life Assets

The Short Life Asset (SLA) rule enables businesses to claim better allowances on assets they sell or scrap within a defined period. When planning for tax year-end this April, remember that:

  • Changes in April 11 meant that the terms were redefined from 4 years to 8 years for tax purposes
  • Business owners should now consider putting items into the pool which might previously not have qualified
  • For those items in the SLA pool which are coming to the end of their life, consider whether they would be better off being scrapped?

4. Staff remuneration

Disguised remuneration rules were introduced back in April 2011. They’re incredibly complex and if you have an employee benefit trust, you should now consider whether it’s actually going to be worthwhile continuing with it.


5. Vouchers for staff

Don’t forget: From 1 January 2012, if you are offering salary sacrifice to employees then the VAT must be recorded!

6. Company cars

It’s beneficial to reassess the tax efficiency of offering either a company car or a cash allowance but if it’s a family business then there could also be an advantage in providing a family member with a small fuel efficient car.


7. Staff entertaining

Spending more than £150 per head on annual parties or similar functions could result in employees facing an unwelcome tax bill. PAYE Settlement Agreements mean that you can give employees small, irregular benefits such as gifts; meaning you pay the tax instead of them, something your employees might be very grateful for!


8. New PAYE penalty regime

Small businesses need to be aware that there is a new PAYE penalty regime which was introduced in April 2010. If a company pays late once in the tax year then there is no penalty, but more than once and the penalty will apply. This can be significantly more than the interest lost to HMRC and can be up to 4% of PAYE NIC liabilities. So it’s time to get those PAYE payment deadlines ingrained in your head – the 19 of the month if paying by cheque and 22 of the month if paying electronically. 


Hopefully you’re now pretty up-to-date with all the latest legislation regarding your businesses tax liabilities and can look forward to a smooth running year end this April. However, if you’d like to find out about minimising tax liabilities in a little more detail, then why not download our guide to year end tax planning

Iain Ramsay, Small Business Team