SMEs - 'tis the season to prepare for 2008
A raft of changing tax legislation means that SME owner-managers shouldn't take a complete break this Christmas if they want their businesses to be in good shape for the end of the tax year, warns Accountants & business advisers PKF East Anglia.
PKF tax Partner Peter Harrup, who works from the firm's Ipswich office, points out that 2008 will probably be one of the most demanding years smaller enterprises have faced in a long time, with the lack of clarity over changes to Capital Gains Tax adding to the overall stress for those considering selling up.
Mr Harrup says: 'There are a number of areas where new rules are being introduced around the end of the tax year and it's important that business owners get to grips with them or they could lose out. The Christmas break is a good time to get everything in order, particularly if the business is taking an extended break over the whole week.
'Much has been said recently about CGT but there are other areas that need to be checked and claims to consider. Missing tax reliefs for research and development costs, capital investment and pension contributions could significantly damage an entrepreneur's finances.
'It might seem a pain when you're looking forward to some time off but the reality is that it's better to set aside some spare time to address important financial issues over the break than to try to sort it out in the New Year when the demands of customers and running the business are going full steam.'
Mr Harrup highlighted the following areas that SMEs should focus on:Extracting retained profits before 6 April should be considered by family companies to avoid the proposed 'income-shifting' legislation. After that date, dividends paid out to some family members may fall to be taxed on the 'main earner' working for the company and trigger higher tax charges. Important capital gains and inheritance tax reliefs depend on the business remaining a trading entity without significant non-trading investments. It is easy for surplus business cash to be crystallised into non-business assets over time and put the tax status of the business at risk: so checking the position regularly and extracting non-business assets is an important task.
Is it time to sell up? If you have established that your business does qualify for business asset taper relief (giving an effect 10% tax rate on gains made when it is sold), it may be time to sell up before the relief is scheduled to be abolished on 6 April. Whilst the new rules are still far from clear, deciding whether or not you want to sell your business now or during 2008 will help you move faster once the final details are published.
Sole traders should examine their circumstances to decide whether they would be better off incorporating as a company before the new tax year.
New capital allowances rules for asset purchases come into force in April and businesses need to understand how the changes affect their investment plans and delay or advance purchases to ensure they can claim the most tax relief.
Making personal pension contributions before 6 April will ensure that the Government contributes basic rate tax relief at 22% to your pension pot. When the basic rate falls to 20% on 6 April, so will the pension top-up from the Government. Higher rate taxpayers will still get 40% tax relief on contributions but 2% less will find its way into their pension funds.
The VAT penalty regime for errors changes in April so it's time to get up to date with the paperwork so that returns are accurate and in on time.
Research and Development - claims for R&D costs incurred in any accounting periods ending between 31 March 2002 and 31 March 2006 must be made by 31 March 2008 or the allowances will be lost.