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Tax Planning

Tax planning is often sold to clients as some form of “magic bullet”. Do some tax planning and all your troubles will be over and we can all go off to the Maldives for a well earned holiday. Sadly it is rarely that simple; we will always advise clients on the most tax efficient structure for their business as part of the first meetings or when we do the first major piece of work, thereafter it must always be remembered that tax is only a percentage of the profit earned; the correct business decision is always the one that creates the most profits. However once a commercially correct decision is arrived at the exact path or details taken, can make a significant difference to the amount, and timing, of the tax payable. As an example; whether to buy a new van or piece of equipment is a decision that should always be decided simply by whether the old van will cost more to run in depreciation and repairs etc. than the new one, but once you have decided to acquire the new van, doing so by a means that passes ownership to you immediately (e.g. bank loan, HP or paying outright) can get you the VAT back immediately and some £3,000 or so off your next tax bill, whereas buying on lease will probably see the same cash inflow spread over the next four years. Well worth a ten minute telephone call.

Alternatively a feature that was recently highlighted by the MP expenses problems is the position of second homes, the tax options here are not solely available to MPs but to us all. A second property can be treated as a Principal Private Residence, but you have to make the right elections at the right time, and you have to ensure that for some of the time at least you do live in at as a home. Once a house has been a principal private residence of its owner the last three years of ownership are treated as being so, as well as the actual period of the election, of course whilst the election is in force your original main home is accruing value without Capital Gains Tax protection, but it can mean that with a bit of careful planning a second home can be owned for say four years, achieve a significant gain in value without having to pay any Capital Gains Tax, which might otherwise have been taxed at 28%, whilst leaving your original home with only minimal exposure to a tax that could easily fall within the annual exemptions when and if it ever arises. Of course if you get it wrong the reverse could easily occur. Again what you decide to do should be based upon lifestyle or commercial rationale, but exactly how you go about it can make a major difference to the outcome and is therefore well worth some professional Tax Planning.