Tax Tips
Tax Tip 1
Incorporation
Corporation tax has reduced to 20%, for profits under £300,000 and to 26% for profits above £1,500,000. Therefore conversion of your business into a limited company is more beneficial than before. You will enjoy a marginal rate tax saving of 9% from 1 April 2011, compared to 8% previously. This is compared to running your business under self assessment where Income Tax is 20% and Class 4 National Insurance is 9% for profits up to £42,475, profits up to £150,000 will be subject to 40% Income Tax and 2% National Insurance. Profits over £150,000 will be taxed at 50%.
Corporation tax has reduced to 20%, for profits under £300,000 and to 26% for profits above £1,500,000. Therefore conversion of your business into a limited company is more beneficial than before. You will enjoy a marginal rate tax saving of 9% from 1 April 2011, compared to 8% previously. This is compared to running your business under self assessment where Income Tax is 20% and Class 4 National Insurance is 9% for profits up to £42,475, profits up to £150,000 will be subject to 40% Income Tax and 2% National Insurance. Profits over £150,000 will be taxed at 50%.
Tax Tip 2
Annual Investment Allowance
Where a business currently incurs expenditure on plant and machinery, the first £100,000 of the expenditure qualifies for 100% tax relief in the year of the expenditure. However from April 2012 the amount of expenditure on plant and machinery that qualifies for 100% immediate deduction will be reduced from £100,000 to £25,000. So you may wish to consider bringing forward significant expenditure as appropriate.
Where a business currently incurs expenditure on plant and machinery, the first £100,000 of the expenditure qualifies for 100% tax relief in the year of the expenditure. However from April 2012 the amount of expenditure on plant and machinery that qualifies for 100% immediate deduction will be reduced from £100,000 to £25,000. So you may wish to consider bringing forward significant expenditure as appropriate.
Tax Tip 3
VAT Flat Rate Scheme
If you are mainly working for commercial customers it may be beneficial to register for VAT under Flat Rate Scheme voluntarily, even if your turnover is below the new VAT turnover threshold of £73,000 per annum. This is on the basis that you do not have much input VAT to reclaim (i.e. service companies). The scheme allows you to charge 20% to your customers, but only pay a smaller percentage of the gross turnover to HMRC. For example a computer consultant with a turnover of £50,000 would charge his customer 20% VAT and therefore receive £60,000, the additional £10,000 would be paid to HMRC, however under the Flat Rate Scheme only 14.5% of the gross turnover needs to be paid i.e. £60,000 x 14.5% = £8,700. Therefore a VAT saving of £1,300.
You will also enjoy a 1% discount during the first 12 months from date of VAT registration under the Flat Rate.
N.B - Please note each industry has its own specific flat rate percentage.
If you are mainly working for commercial customers it may be beneficial to register for VAT under Flat Rate Scheme voluntarily, even if your turnover is below the new VAT turnover threshold of £73,000 per annum. This is on the basis that you do not have much input VAT to reclaim (i.e. service companies). The scheme allows you to charge 20% to your customers, but only pay a smaller percentage of the gross turnover to HMRC. For example a computer consultant with a turnover of £50,000 would charge his customer 20% VAT and therefore receive £60,000, the additional £10,000 would be paid to HMRC, however under the Flat Rate Scheme only 14.5% of the gross turnover needs to be paid i.e. £60,000 x 14.5% = £8,700. Therefore a VAT saving of £1,300.
You will also enjoy a 1% discount during the first 12 months from date of VAT registration under the Flat Rate.
N.B - Please note each industry has its own specific flat rate percentage.