A capital gain is the difference between what you paid for something and the amount you sell it for. It's good news, right? But the bad news is, you have to pay tax on this - Capital Gains Tax.
The amount of tax you pay depends on both your capital gain and your income. Here's how it works:
However, there are five ways that you can cut your Capital Gains Tax bill:
You could make a transfer to a spouse or civil partner as they are entitled to their own annual exemptions. This is a good way to make the most of this allowance, but do not make any arrangements to effect the sale until the transfer is complete. You should leave a reasonable amount of time between transactions. Also specify that the transfer is absolute and unconditional.
It's important to note that if unused, the annual exemption cannot be carried forward. Plan ahead to make the best use of each year's allowance.
If the annual exemption for the current year has already been used, consider deferring the sale of assets until after the end of the tax year. By doing this you will utilise the 2016-17 annual exemption and defer the payment of any Capital Gains Tax due by 12 months until 31 January 2018.
If you have any investments standing at a loss, it can be beneficial to crystallise them - especially if a capital gain has pushed you into the 28% bracket.
A capital loss must be claimed within four years of the end of the tax year in which it occurred for relief to be given. Subsequently, the loss claimed can be carried forward indefinitely.
Capital losses realised in respect of unquoted shares can, in some cases, be relieved against income. Relief must be claimed within 12 months of 31 January following the end of the relevant year of assessment.
The practice of bed and breakfasting is where stocks or shares are sold and then repurchased shortly afterwards to secure a higher acquisition cost. This practice is negated by the rule requiring a disposal to be matched with any acquisition of securities of the same class in the same company in the next 30 days.
However, this applies only to a repurchase by the same person. Your spouse or civil partner can repurchase the shares without this rule being applied; this is what's known as "bed and spousing".
If an asset becomes worthless, a negligible value claim can be made. Think of the worthless asset as having been sold for its current market value - which is zero - and then reacquired for the same price: zero. This puts your base cost for Capital Gains Tax purposes at nil.
A capital loss arises at the time of the owner's deemed disposal of the asset, therefore your loss can be treated as arising in the tax year in which the negligible value claim is made; or, provided HMRC is satisfied that your asset was of negligible value in the two years immediately preceding your claim, in any of the previous two tax years.
It's essential to plan ahead if you want to minimise any Capital Gain Tax. Consider other aspects of your finances and investments, talk to your accountant and choose a strategy that benefits you most.
Copyright © 2015 Carol Cheesman, principal of Cheesmans Accountants based in Islington, North London.
There is no doubt that staying on top of your tax obligations can be challenging, especially for small business owners who are already focusing all their time and efforts on running and growing their business.
To help ease your tax liabilities, here are ten useful tips for small businesses:
Copyright © 2015 Rachel Smith, technical writer at Nixon Williams's Vantage Online Accounting.
The UK's business groups and leaders have urged George Osborne, Chancellor of the Exchequer, to minimise the impact of today's Autumn Statement on businesses and to implement changes that will enable businesses to grow.
The ICAEW called on the Chancellor to avoid dropping any more 'bombshells'. The CBI joined in pressing the Government to "act on major infrastructure decisions that need making now" and to "deliver a package on Business Rate reform that makes the regime simpler, fairer and more competitive".
This view was supported by John Allan, National Chairman of the Federation of Small Businesses who said "It is essential we have a reliable transport system fit for the 21st century."
Businesses are already bracing themselves for the next tax year which will see the introduction of the new National Living Wage – which is expected to affect more than half of all employers - the Apprenticeship Levy and the continued roll out of workplace pensions. Measures that will help ease the introduction of these regimes would be welcomed across the board.
However, the Chancellor must find another £20bn of public spending cuts if he is to reach his target of eliminating the deficit by 2019-20. Faced with such sizeable cuts the picture was not looking good. So what did he announce?
Whether trading as a sole trader, partnership or limited company, every business needs a period up to which it makes its accounts and other returns. You may think that, as with your personal tax self-assessment returns, the year-end for your business must be 5 April, but that is not so.
There are some quite complex rules about the period of accounts that are reported in a tax return, but basically you can choose a year-end that is convenient to you, one that makes sense commercially and fiscally.
The two most popular dates for a year-end are 31 March (as close as possible to 5 April) and 31 December 31 (the end of the calendar year). But these dates don't suit everyone.
For example, let's imagine your business is selling Christmas trees. You need to assess the level of stock that you are holding as at the year-end. This means counting it, valuing it, considering whether it is of a fair value, etc, so it would be madness to choose a year-end when your stock is at its maximum.
A Christmas tree seller would hope to have sold all of their stock by 31 December, but there's all the accounting work to do to complete all the transactions that took place in the run-up to Christmas, and there could well be a lot of items that straddle the Christmas period, such as the receipt of final sales invoices and receipt of final purchase invoices.
If not 31 December, how about 31 March? Stocks of Christmas trees would be low then. But if you're a limited company, 31 March as a year-end may not be wise. This is because tax must be paid within nine months and one day of the year-end, which means, with a 31 March year-end, corporation tax must be paid by 1 January the following year. Any personal tax bills (if you are not totally under PAYE) have to be paid by 31 January. That could squeeze your cash flow.
Around February/March (having collected any debtors from November/December tree sales), cash reserves should be at their peak. Therefore it may be appropriate to choose a year-end requiring tax to be paid on 1 April, which would make the year-end 30 June. To check if this works as a date for a year-end, we need to answer yes to three questions:
You can see that by asking these questions about dates before and after 30 June, securing three yeses becomes more difficult. For example, a later date could drop year-end-related accounting work into a busy trading period, and an earlier date may mean tax bills becoming due when new stock has to be purchased.
You need to ask the above three questions in relation to your business, but of course there are other considerations. One factor that could override all others is whether everyone else in your industry uses the year-end date – do you want to be out of sync when your competitors are comparing results?
Choosing a year-end that suits your particular business and/or industry is incredibly important. Get it wrong and it could merely create more work and stress, but, if you get it really wrong, it could also mean game over. What anyone about to embark on a new business or anyone already in business needs to do is seek sound advice tailored to their business. Just think about those Christmas trees – they're all different.
Copyright © 2015 Carol Cheesman, principal of London-based Cheesmans Accountants.
Small businesses tend to be reliant on one or two key people. These individuals are the reason that these businesses turn a profit. Should something unforeseen happen to these people, it has huge implications for the business such as making less profit, increased staff costs or lost valuable knowledge and experience.
To protect against this, there is an insurance called keyman cover. It protects the business from the death or critical illness of a key individual. It acts as a business contingency plan, providing valuable funds directly to the business when it needs them most. An added plus for this insurance is that in some cases it can be tax deductible.
HMRC guidelines state that the insurance must: "Meet a loss of trading income arising from the loss of the service of the key person insured" and that: "Premiums are incurred wholly and exclusively" for the purpose of that business. Basically, if the insurance is taken out specifically to cover the loss of business profits and is paid for solely for the use of the business, it is a deductible business expense and is then an allowable expense for tax.
Obviously, there are limitations, if the insurance the employee is protected by owns more than a 10% share capital, then HMRC's tax stance changes.
However, there is a completely tax-deductible insurance, which has no tax implications on payout and has been created especially for directors of small businesses. This is known as relevant life insurance.
Relevant life cover is a singular death-in-service plan, otherwise known as life insurance. The company takes it out for the director or employee, as an employee benefit. The insurance pays out on the death or critical illness of the insured. To guarantee there are no tax implications on the payout, the cover is written into trust, bypassing inheritance tax and arriving directly with the director or employee's loved ones.
If the employee is over the age of 75, this policy will no longer be applicable.
The information in regards to tax treatment and basis reliefs are dependent on current legislation. Individual circumstances are not guaranteed and may be subject to change.
Copyright © 2015 Michael Hubbard, Keyman Insurance adviser at Business Protection Expert.