Get your ducks in a row. April 5th is fast approaching!
With the income tax year 2019-20 ending on the 5th April, now’s the time to ensure you’ve been canny with your tax planning.
Each owner’s situation is unique. Some may have income outside the salon. Some want to re-invest in their salon rather than pull cash out. Some are married or in civil partnership. Some have used up their company’s employment allowance already. Some want to invest in a pension. The list goes on. Which means that there is no standard rule to follow.
Salonfrog runs through its own tax planning for its Clients who have our Salon Business+ package but here’s a few tips for those who prefer to do it themselves, or don’t have an accountant who does it for them.
- Your personal tax allowance
for this tax year is £12,500, so if at all possible, ensure you use it (or loose it).
- Extract profits from your Ltd company in the most efficient way.
Ensure you’ve pulled the most tax efficient salary from your Ltd company and report it through RTI by the 5th April.
- Protect your state pension
Ensure your salary is enough to receive an NI credit for the year (which adds to your state pension). More here.
- Consider paying dividends
After setting your salary level, but be mindful of which tax band this takes you into and that you comply with all the legalities. You don’t want illegal dividends.
- Capital gains
Ensure any gains you’ve made in the year are also taken into account when setting salary and dividends levels, otherwise you could end up paying a lot more in CGT tax than you need to.
- Pass you allowance
Consider passing some of your personal allowance to your partner (if you earn less than £12,500 and they are a basic tax rate payer) so they can get the benefit where you can’t.
- Student Loans
If you have a student loan, watch what level your income gets to, as this can trigger a repayment charge in your tax bill. More here.
- High Income Benefit Charge
Consider whether you or your partner have received child benefit in the year. If you exceed £50,000 of income in the year, you’ll need to start repaying it at 1% for every additional £100.
Read more here.
Pension contributions can be highly tax efficient – but have a number of areas to consider. Getting your Ltd Co to contribute the payments is also a great option. There are numerous rules around this area, so speak to an accountant or pension advisor before going down this route.
- Loan Account
If you have an overdrawn Director’s Loan Account, consider clearing this through additional salary or dividend. If your loan is still in place 9 months after your Ltd co’s year end, you may be liable to an additional corporation tax charge of 32.5% on it. This tax charge is reclaimable when you do eventually pay the loan balance off, but it’s another thing to think about.
- Tax rates
Consider if any tax rates are likely to increase (or decrease) next year. If increasing, it may be better to take an additional hit in tax this year rather than a bigger hit next year. And vice versa!
- Charity Gifts
Giving to charity has tax benefits, so if you are going to give, doing this before 5th April can bring the benefit forward. More here.
- Trivial Benefits
Ensure you’ve used your maximum £300. More here.
Those are some of the key areas that affect most salon owners but as we said, each person is different!