The end of the 2021/22 Tax Year will be with us in just over a month. For many business owners and self employed, this is also the end of the business accounting year.
For many business 2021-22 wasn’t a great year – decreasing levels of government support, sluggish consumer recovery, rising input costs and other existential crises.
Here are a few things to think about as the tax year end approaches.
VAT – Keep an eye on the registration and de-registration limits. The threshold for compulsory VAT registration is £85k of turnover on a rolling 12 month basis, and if you are near to this you need to check the figures retrospectively each month. If you are already VAT registered consider if your turnover has dropped under the de-registration threshold; this isn’t straight forward but here is an article we wrote about this previously which is still relevant – VAT De-registration
If you run retreats or trainings, then a separate business for these can often help with VAT planning, but it needs to be approached with care.
Business Structure -Now is a good time to ask if your business structure is fit for purpose. Has business got simpler for you, meaning a sole trader may be more appropriate than a limited company? Alternatively if you trade as a sole trader or partnership has the risk landscape changed so that a limited liability company may be better for you? If you expect your business to grow as we exit the pandemic, that could trigger a review of your structure, as could starting to re-offer retreats or trainings.
Business Records – Keeping on top of taxes starts with good records. Are you picking up all your expenses? Is your income recording robust, especially cash income? Here is a briefing from our website on Business Expenses for Tax
Know What Your Spouse Earns – This is important for your taxes. For example, if you are Self Employed is it worth paying them a salary from your business? If you run a company, how is it best to allocate shares between you? Are you compliant with the rules on High Income Child Benefit Charge which cuts in at £50k of income.
Timing is Everything – If you are planning capital expenditure, like replacement equipment, or discretionary revenue expenditure like a studio refurbishment or an expensive CPD, then consider bringing the spend forward into 2021-22 to benefit from tax relief a year earlier.
Watch the Radar – There are probably three major things on the tax landscape for the next few years, that we know of:
First, Making Tax Digital – from this April VAT MTD will apply to registered businesses not already mandated (generally those trading below the VAT threshold). And then the “big bang” with MTD for Income Tax coming in for Sole Traders and Landlords from April 2024, and Partnerships from April 2025. This means suitable compatible digital software, and, in the case of Making Digital for Income Tax, quarterly returns.
Second, be ready for the Health and Social Care Levy from this April being 1.25% on NI for 2022-23, and then a separate levy for 2023-24 onward.
Finally, from 2023-24 Corporation Tax rises where company profits are over £50,000. The £50,000 threshold is split between related businesses, so if you have more than one company in the family, consider how this will affect you.
Plan Ahead for 5 Years and 25 Years – Planning ahead is important. For example, are you planning a substantial period off of work in the next few years? In which case can some income be deferred? Likewise, if you are going to be disposing of assets, such as a property, in future years, plan your income so you can potentially get a lower tax rate in the year of disposal.
Longer term, what will your retirement income and estate planning look like? That may influence how you structure investments now. Plans are good, but don’t let them be too rigid, and review them every few years.
Don’t Let the Tail Wag the Dog – A frequent question we get asked this time of year goes along the lines of “Should I change my car / upgrade my computer / buy a new widget to save some tax?” These are commercial decisions first and foremost – if a car, van or computer need changing and its the right time, then do it – you will get a reduction in your taxes, but you still need to spend some money – for example if you are a 40% tax payer then spending £10,000 on a equipment saves you £4,000 but you still have to spend £6,000 net to achieve it.
Get your Taxes Done Early – Getting your taxes done early is a good idea. You don’t end up paying your taxes any earlier, but you get time to review them at your leisure, and plan for payment. When taxes are left late it becomes a rush – errors can creep in, things may be found to be missing, and an unexpectedly large tax bill can create sleepless nights without time to rustle funds up.
Be Ethical – No one likes paying tax, but its part of the price of a civilised society with roads, hospitals, etc. Being ethical, as well as a civic duty, lets you sleep easily without worrying about “what ifs”. Our view is there are plenty of opportunities for people to structure their finances and taxes for optimal benefit within the law, and without resorting to dodgy schemes and dubious planning.