Year end tax (part 2)

Year end tax planning for businesses, freelancers and self-employed web designers

In association with London Tax Accountants Coman & Co. we’re offering some handy posts to help with financial queries and crucial advice useful to those who need it. This week we’re starting with year end tax planning…

Planning before the end of your accounting year could save tax and improve cash flow.  With 5 April approaching and many web designers reaching the end of their year on 31 March, we have put together these ten tips for year end tax planning and we have the last five now in this second part:

6. Plan when to take profits out of the company. Any profits for the current year, plus any undrawn profits for previous years can be taken as a dividend.  If you are already a higher tax payer this tax year, you could delay paying a dividend; if you may become a higher tax payer next year then you could bring forward the payment.  If your spouse is a shareholder in the business, then you effectively have two lots of personal allowance and basic rate to keep taxes low across the family.

7. Use your ISA allowance. Up to £10,200 for the over 50s and up to £7,200 can be invested in an ISA for the year to 5 April 2010.  Income and gains in an ISA are tax free.  Any unused allowance cannot be carried forward, so there are only a few days left to take advantage of the allowance.

8. Realise capital gains. You can realise capital gains of £10,100 each tax year before you are liable to pay tax.  A capital gain could arise on your shares, second home or buy to let property.

9. Be aware that it is widely predicted that taxes will rise with this year’s budget. Capital gains tax is at a historically low level of 18%, and many are predicting that it will increase to 25%, or more.  Cashing in your investments, or transferring them to someone else (other than your spouse) now will ensure you are taxed at the current rate.

10. Assess whether to change your business type next year. Becoming a sole trader is a cheap, simple way to start, and tax efficient if you made an initial loss.  Now could be the time to go limited or form an LLP, especially with the upcoming rises in tax and national insurance.

Coman & Co. are London Tax Accountants able to help your web design business to succeed through quality accounting and tax advice.