If the payment of bonuses to directors or dividends to shareholders is under consideration, give careful thought as to whether payment should be made before or after the end of the tax year. The date of payment will affect the date tax is due and possibly the rate at which it is payable.
Remember that any bonus must generally be provided for in the accounts and actually be paid within nine months of the company’s year end to ensure tax relief for the company in that period.
Carefully planning before 5 April 2013 may be particularly useful for individuals with high incomes. The effect of deferring payments may save the personal allowance for those with an income in excess of £100,000 and 50% tax for those with an income in excess of £150,000. This is because the 50% tax rate will decrease to 45% from 6 April 2013.
Alternatively, consider the payment of an employer’s pension contribution by the company. This is generally tax and national insurance free for the employee (but please read our ‘Pension contributions’ article relating to tax planning). Further, the company should obtain tax relief with no employer national insurance cost, provided the overall remuneration package is justifiable.
Capital allowance changes
Temporary increase in the Annual Investment Allowance (AIA)
The AIA was set at an annual rate of £25,000 for 2012/13 but has been increased to £250,000 for expenditure on or after 1 January 2013 (for a 2 year period beginning with this date). Any expenditure covered by the AIA qualifies for 100% tax relief in the period in which it is incurred.
Special rules are to apply in determining the maximum entitlement for all businesses with accounting periods which span this changeover date. Please consult us for further advice if you have any plans for new plant and machinery purchases. The timing and method of such acquisitions may be critical in securing the maximum 100% entitlement available.