Setting up multiple companies to separate business interests can seem very straight forward. There are however important considerations. We explore the implications of owning too many companies.
February 2024 Newsletter
21 February 2024
Accounting & Compliance, Building a Business, Reducing Tax
Use a Lifetime ISA (LISA) to save for your first home
Those aged between 18 and 40 can set up a Lifetime ISA (Individual Savings Account) to buy their first home or save for later life.
You can put in up to £4,000 each year until you’re 50.
The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
Note that the Lifetime ISA limit of £4,000 counts towards your £20,000 annual ISA limit.
Making Withdrawals
You can withdraw money from your ISA if you’re:
- buying your first home,
- aged 60 or over, or
- terminally ill, with less than 12 months to live.
However, you’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (an unauthorised withdrawal).
This recovers the government bonus you received on your original savings.
Pension Planning
Under the current rules, the government adds to your pension contributions at the 20% basic rate.
For instance, if you save £4,000 in a personal pension, the government tops this up to £5,000.
If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000.
Additional Contributions
Additional pension contributions can be even more effective if your income is between £100,000 and £125,140 as the gross pension contribution reduces net income for the purposes of the reduction in the personal allowance.
Note that for every £2 of income in excess of £100,000, the £12,570 personal allowance is reduced by £1, with reduction to nil where net income is £125,140 or more.
This is effectively a 60% tax saving.
Those earning in excess of £260,000 will be subject to the tapered annual allowance.
Where an individual can usually invest up to £60,000 into their pension each tax year, those higher earners will see this amount reduce by £1 for every £2 of income over £260,000.
It is worth noting that you are able to carry forward unused allowances to the following 3 years.
When to make contributions
Making a lump sum pension contribution prior to the 5th of April is one of the most effective ways to reduce your tax bill for those earning over £50,000 with a bit of spare income.
If you’re thinking of making a contribution, please contact your account manager to discuss your options.
Capital Expenditure Planning
Unless the business year end is 31 March or 5 April, the end of the tax year is not a significant date as far as capital allowances are concerned.
In order for new equipment to attract capital allowances, the expenditure must be incurred on or before the end of the accounting period.
Limited Companies
Limited companies buying new (not second hand) equipment are entitled to fully expense the cost of most acquisitions against business profits.
There is no financial limit on expenditure qualifying for this “full expensing” relief.
Unincorporated Businesses
Unincorporated businesses are entitled to 100% write off for the first £1 million spent on new and used equipment in a 12 month period.
This “annual investment allowance” (AIA) is also available to limited companies buying second hand equipment.
The AIA does not apply to motor cars but there is a special 100% tax relief if you buy a new zero-emissions motor car.
Hire Purchase
Where equipment is bought under a hire purchase contract, the capital allowances outlined above are available on the full cost of the asset provided it has been brought into use by the end of the accounting period.
This is despite the fact that the payments may be spread over a number of months.
Vehicles purchased under finance are notoriously tricky when it comes to tax treatment.
If you’re thinking of acquiring a vehicle in this way, please contact your account manager first to ensure the finance option you’re selecting allows you to enjoy the maximum tax benefits.
Get Ready for more R&D Changes
On top of the major changes to research and development (R&D) tax relief that took effect from 1 April 2023, there are yet more changes that take effect from 1 April 2024.
The main change from 1 April 2024 is that most companies carrying out qualifying R&D will be entitled to a 20% expenditure credit.
How is this calculated?
The 20% is calculated on the amount of qualifying expenditure.
Qualifying expenditure is extended to include subsidised expenditure from 1 April 2024, although R&D carried out overseas will no longer qualify unless the work cannot be undertaken in the UK.
Trading Losses
“R&D intensive” companies that make trading losses will continue to be entitled to a tax refund instead of the expenditure credit.
The definition of “R&D intensive” is reduced from 40% to 30% from 1 April 2024, which means a company that spends at least 30% of total expenditure on qualifying R&D.
For those of our clients who we already assist with R&D claims, we will ensure you’re claiming under the scheme most beneficial to you.
If you’re carrying out a project that you believe may qualify for R&D tax relief, then please get in touch with you account manager and we can advise.
The content in this blog is correct as at 21st February 2024. See terms and conditions.
