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Hazlewoods Agriculture team update - year end tax planning for individuals and businesses

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3 March 2014
With the tax year end for individuals of 5 April 2014 approaching, and with many businesses having a year end of 31 March or 30 April, the following are matters that should be considered by individuals and businesses, and whether action needs to be taken before 5 April or the year end of the business.
  • Where machinery is being acquired shortly before the year end, to ensure that tax relief is obtained at the earliest opportunity, if an asset is being purchased outright with no finance, the acquisition date for tax purposes is the date that the invoice is issued. If an asset is to be acquired with hire purchase, the acquisition date for tax purposes is the date that the asset is brought into use.
  • Accruals should be made in the business accounts for all repair expenditure that will be made in the following accounting period, where it has not been possible to undertake the work before the year end.
  • If it is planned to crystallise a capital loss on an asset, for example purchased milk quota, to set against a capital gain in the year ended 5 April 2015, this should be done before 5 April 2014, as it will preserve the capital gains tax annual exemption if no capital losses are crystallised in the year ended 5 April 2015.
  • Where a farming business is operated through a limited company, and shareholders have not fully utilised their 20% income tax band (up to £41,450 for the year ended 5 April 2014), dividends should be paid before 5 April 2014, up to the limit of the 20% tax band, as no income tax liability will be suffered on the additional income.
  • Where either spouse has total annual income exceeding £50,000, there will be a restriction of child benefit received. Where possible, income received should be equally divided between spouses to ensure that neither spouse receives more than £50,000 total income.
  • The rules relating to tax relief on pension contributions allow an individual to contribute up to 100% of earned income (for example salary or partnership profit) subject to an annual limit of £50,000. In addition, any unused relief can be carried forward for three years. The limit is to be reduced to £40,000 with effect from 6 April 2014. Therefore, individuals planning to make pension contributions should consider whether they need to make contributions before 5 April 2014 to maximise the available relief, or reduce the amount of income suffering higher rates of tax, or prevent child benefit being lost.
  • Each individual has an annual exemption for gifts for Inheritance Tax of £3,000, which can be carried forward for one year. Therefore, if no gifts have been made in recent years, an individual can gift £6,000 with no Inheritance Tax implications before 5 April 2014.
Please contact either Nick Dee or Peter Griffiths if you would like to discuss possible year end tax planning.