Entrepreneurial businesses in the West Midlands are being urged
to make final reviews of their tax position to ensure their
financial house is in order before the end of the tax
year.
According to business advisory firm Deloitte, if action hasn't
already been taken, now is the time for entrepreneurs to consider
any steps whilst there is still time to act.
Deloitte's call comes in light of the numerous changes
introduced in the 2009 Budget that are due to come into effect on 6
April 2010.
Ashley Hollinshead, who heads up the entrepreneurial business
practice at Deloitte in Birmingham, said entrepreneurs should be
considering ways in which the forthcoming tax changes could affect
their business.
He said: "Although issues like the 50 per cent top rate of
income tax have garnered much attention, there are many aspects
surrounding tax that are being potentially overlooked. With that in
mind, entrepreneurs should take careful steps to review all aspects
of their tax strategy to ensure they are fully aware of the changes
and taking full advantage of any available reliefs."
In advance of the end of the current tax year, Deloitte has
compiled an overview of some common areas that growing enterprises
should consider, including:
• Retained profit position and the level of dividends which
could be paid out at the 25 per cent effective rate (for most
dividends) before it rises to 36.11 per cent for those with income
in excess of £150,0000 from 6 April. Reinvestment of the
dividend by way of further equity or loan could be considered to
neutralise any depletion of working capital.
• Early payment of salary and bonuses for business owners
or their high earning employees where those amounts may fall within
the 50 per cent income tax bracket. Clearly, there are both
employment law and commercial considerations here, for example,
notice periods and claw back provisions, and separate advice should
be taken on this matter.
• Share awards to high earning employees might be made
before 6 April to reduce the tax and NIC burden where the shares
are awarded for less than the unrestricted market value. Where a
company has unapproved share options in place, higher-rate taxpayer
employees may consider exercising those options in order to pay tax
on the gain at the current 40 per cent top rate, provided they feel
this is a commercially sensible time to exercise.
• As the rate of capital gains tax (CGT) has been left
unchanged at 18 per cent (and ten per cent for Entrepreneurs'
Relief), share remuneration continues to be an attractive method of
rewarding employees. Many entrepreneurial businesses are
re-examining the potential of approved share schemes for their key
personnel and directors. Certain unapproved schemes, such as growth
shares and joint ownership arrangements, can deliver value at 18
per cent CGT, based on the growth of the company, providing a
strong incentive tool combined with a relatively low up-front tax
cost. The tax value of the shares awarded will depend on its
current performance and the prospects for the business.
• Unincorporated businesses may wish to look into the
timing of deductions, including certain capital allowance claims,
to see if the benefit of these can be deferred to a tax year where
the 50 per cent relief is available rather than 40 per cent.