Year-end 2019: Tax-saving advice (Part 1)
Running through the same year-end advice repeatedly with clients can be mundane, but it is also essential that you do it. A number of tax reliefs depend on getting the timing right, so what do you need to be thinking about?
Director shareholders - salary: The personal allowance for 2018/19 is £11,850. If you have clients who have control over their remuneration (i.e. company owner managers), they should review what level of salary they have taken to date if they are pursuing a tax-efficient remuneration strategy.
If the company is able to claim the employment allowance for a secondary 'Class 1 NI', your client could withdraw further salary up to the level of their personal allowance. If your client is the only employee of the company, the employment allowance won't be available, and they should restrict the salary taken to the secondary NI threshold of £8,424.
Dividends: Once the personal allowance has been utilised, the tried-and-tested method of extracting more profit from the company is to vote dividends, as the applicable income tax rates are lower than they would be if a bonus were paid instead. Dividends are not subject to NI, but are not deductible for Corporation Tax purposes either. The snag with Dividends is that there have to be cumulative profits to pay them from. Paying out more than what is actually available can lead to problems further down the line, for example, by having HMRC reclassify the dividend as a salary payment and looking to charge NI.
To avoid this, prepare an up-to-date set of management accounts to ensure any proposed dividends aren't likely to exceed the available profits. You should ensure your client declares the interim dividends at a board meeting, along with the review of the accounts.
Other income: If you have clients who are not owner managers, there may still be opportunities to make the most of the income tax allowances, and the basic or higher rate band (as applicable). To do this they would need to trigger additional income ahead of the 5th April 2019. This can be done be disposing of assets that trigger income gains, such as offshore life assurance bonds. Whilst you may be able to identify such assets from your client's investment portfolio, you must point them in the direction of their financial adviser before any transactions take place.
If your clients are unincorporated landlords, additional income could be realised if their tenants could be persuaded to make an advance payment of rent, perhaps in exchange for a discount in the overall amount payable. This is likely to be more realistic if their tenants are commercial rather than residential.
If your clients are of pensionable age, they could also top up their income by using flexible access to withdraw pension income. This is not recommended if further contributions in excess of £4,000 per year are intended to be made.