Our last tip is all about timing. It brings together some of the other tips, but we want to stress how deadliness and timing can have a big impact on your tax bill. It’s why planning is so important.

So why is timing important? Watch our video to find out.

TIMING OF CORPORATION TAX

Well, if you own a limited company, you pay tax on the profits based on the year in which they are earned. And, in some cases, you get the chance to decide when they are earned.

As an example, if you’re going to make a large purchase, it is better to make it the day before your year end than the day after.

 

This is because you get the tax relief a whole year earlier.

We actually had that the other year when a new client came to us because they were upset over the tax bill. They had bought three vans for about £50,000 pounds. The year end was 31 December and they bought them in the first week of January.

If they had bought them in the last week of December, they’d have got exactly the same tax relief – around £10,000. But they would have got it a whole year earlier, and that would have made a big difference on cashflow.

So that’s the first thing about timing.

TAX ON DIVIDENDS

The second is on dividends.

If you’re taking money out of the company as dividends then, you as the owner, can decide when you take out the dividend.

For example, if you take the dividend out on 5 April, it’s in a different tax year than if you take out the dividend on 6 April.

Again, you can delay the tax bill by a year by taking the dividend one day later.

But you also get a chance to look at the different thresholds and the effect that might have.

As an example, if you are paying dividend tax at 7.5% as basic rate tax payer and you have used all of the 7.5% band by early March,  you would pay tax at 32.5% on the next dividend. So you might wait until April to do it.

Conversely, if you haven’t used all of your allowance, you might pull your dividends forward to get them into that year. Because once your allowance has gone for the year it’s gone.

WHAT OTHER THRESHOLDS ARE THERE?

And you also need to look at some of the other important thresholds that reset on 6 April every year.

The first is your £2,000 pounds tax-free dividends allowance.

The next is when you become a higher rate tax payer at £50,000

£50,000 is also the point at which you start to lose and child benefit. When you hit £60,000, all of the child benefit has gone. So, it might be worth capping yourself at £49,999 to keep the child benefit.

The next big threshold is when you hit £100,000 because you start to lose your personal allowance as well.

And, the last one is the £150,000 where dividend tax goes up to 38.1% and you also start to you’re your annual pension allowance.

Therefore, thinking in advance about the timing of when you spend money…..and when you take money from the business……can have a big impact on your tax bill.