Monday, January 28th, 2019
A Happy and Prosperous 2019 to you all!
Here at Copia Wealth & Tax Chartered Accountants, we strive to help ensure our clients keep as much of what they earn as possible – one way we can do this is to ensure they reduce their tax bills. So here are some tips to help achieve this during 2019.
An obvious tax planning point would be to maximise your ISA allowances for the 2018/19 tax year (currently £20,000 each).
For most taxpayers, the maximum tax-deductible pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers contributions by both the individual and their employer.
Remember that the unused allowance for a tax year may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. Also, under current rules, the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000, but there are rumours that this generous relief may be reduced in future so it may be worth acting now.
The Chancellor announced a temporary increase in the Annual Investment Allowance (AIA) for expenditure on plant and machinery from £200,000 to £1 million from 1 January 2019, meaning you get full tax relief on expenditure up to this level in the year of spend. However, transitional rules mean that the full £1 million will not necessarily apply to your business straight away, so ask us to help you calculate it.
For example, if your business year end is 30 June 2019, the maximum AIA would be £600,000 (6/12 of the old £200,000 limit plus 6/12 of the new £1 million limit). The following year to 30 June 2020 you would be entitled to the full £1 million.
The Autumn 2018 Budget announced a new 2% straight line tax deduction for the cost of construction or renovation of commercial buildings and structures. HMRC have now issued a technical note setting out the details of how this new relief operates.
Unlike the old Industrial Buildings Allowance, the new relief is available for the construction of shops and offices as well as factories and warehouses.
The new tax break is available where the contract is entered into and construction costs are incurred on or after 29 October 2019. The allowance is available to commercial property landlords as well as trading businesses. There are special rules for leasehold buildings which determine whether the landlord or the tenant is entitled to the allowance.
Remember that there are more generous plant and machinery allowances available for fixtures and fittings within the building and we can work with you to help you maximise tax relief. The AIA referred to above would mean that there may be 100% capital allowances for equipment such as central heating and air conditioning, so it’s well worth giving us a call.
Another change in the Autumn Budget was the reduction of the writing down allowance (“WDA”) on assets in the special rate pool from 8% to just 6% per annum reducing balance from April 2019. Types of assets included in this pool include long life assets, such as aircraft, integral features within buildings and cars emitting more than 110g CO2 per kilometre.
A claim for the 100% AIA can be made for expenditure on these assets in the year of purchase (except for cars), and this will result in faster tax relief.
However, where a company buys a car that emits more than 110g CO2 per km, it will take many years to get tax relief for the expenditure.
For example, if a company buys a new £40,000 Mercedes E220d AMG line for its MD before April 2019, as the CO2 emissions are 127g per km, the WDA would be 8% in the year of purchase (£3,200) leaving a tax written down value of £36,800. The 6% WDA would then apply for the following year = £2,208 leaving £34,592 as the written down value.
If the car was then sold for £25,000 in the following year, the remaining written down value of £9,592 would continue to be written down at 6% per annum, meaning a long wait to get all the capital allowances.
You might want to consider leasing the vehicle instead. Even though 15% of the lease rentals are disallowed for tax purposes for high CO2 vehicles, it may still be more tax efficient to do so, so take advice before you decide!
These rules operate differently where the car is acquired by a sole trader or a partner for his/her business.
If any of these opportunities strike a chord and you want to find out more, our specialist tax team here at Copia Wealth & Tax Limited, Wolverhampton can guide you through the entire process, so call us today on 01902 783172 or alternatively just click HERE to contact us via our website.
We very much look forward to hearing from you!