Lots of small businesses have a financial year-end of March. Now is a really good time to look at your current year figures and consider some tax planning before your year-end.
If your business has made profits in this financial year, one thing to consider to mitigate your tax bill is pension planning. This works well for small businesses and limited companies who have built up some cash funds in their business accounts and can spend funds without having a huge impact on their working capital needs.
There are very specific rules regarding pension schemes and advice must be taken specific to your own circumstances. We can put you in touch with pension advisors who can take you through the process and advise you best based on your specific needs.
Limited companies can set up a SIPP (self-invested pension scheme) for the directors, who become trustees of the scheme. A company contribution of £20,000 will attract tax relief of £3,800 (subject to meeting rules regarding the “wholly and exclusively” nature of the payment). This means a pension pot of £20,000 is created for a ‘net’ cost of £16,200.
The SIPP can re-invest the funds in various ways including commercial property. This allows the pension pot to grow sheltered from tax. The pension fund becomes available to the directors upon their retirement.
The two key points on planning are:
- You need to know how your business has performed so far this year. This is why using Xero and keeping your cloud books up-to-date is so important. Tax planning is only effective if the real picture can be viewed quickly and easily.
- You need to act now on this as getting proper pension advice and setting up various pension schemes takes time