Improve your business and partners’ personal tax planning. Some New Year business resolutions or perhaps just simply a reminder checklist of best practice previously promoted to help you manage your firm’s cashflow, remembering that cash is king!
Tax payments
Practices will be searching (or perhaps even borrowing) to pay balancing tax payments at 31 January 2015 on (possibly) improved results in the basis period 2013/2014 and with increased payments on account adding to the pain!!! So how come you do not have the cash sitting there with you all smugly writing out cheques?!! Perhaps because other people still have your money?! Therefore, once again, time to focus on the following:
Improve your credit control
Ensure your credit control department is adequately resourced, empowered and supported by all fee earners. Monitor your collection procedures to speed up collection of fees and thereby reduce the potential impact of bad debts. Once again, cash is king!
Work in progress (WIP)
Ensure all fee earners are fully recording their time and not making billing decisions when posting time. Agree in advance with your clients to interim bill and always bill at the height of client’s satisfaction, at the completion of a good job. You are more likely to be able to bill your full costs and you will collect your cash quicker. Fee earners should be regularly reviewing the WIP on their portfolios for billing opportunities and looking to hit billing and WIP day’s targets. If you do not bill it, you do not get paid!!
Sectors
Monitor your combined WIP and debtor exposure to clients in sectors that are particularly struggling in this present economic environment. Any major oil clients?!
Exposure limits
Set limits for exception reporting where combined WIP and debtors on individual clients is too high.
Communicate with your clients Regularly communicate with your clients to keep them fully informed of all matters and aspects of their cases and assignments, and get agreement to any additional costs before they are incurred.
Monitor your expenditure
Keep close control on expenditure and consider where savings could be made. Carefully consider any capital expenditure that is not vital.
Returning to tax payments
Back to where we started, many firms are still finding the present climate a challenge so do consider your likely results during the basis period 2014/2015 as payments on account may be able to be reduced; a useful cash flow saving appreciated by individuals and the practice.
Partners’ drawings
It may be that you need to assess the sustainability of the level of Partners’ drawings; not always the easiest of discussions but necessary if the funds are not there. This often acts as a decent encouragement to improve lock-up control.
Tax reliefs
Looking at tax matters associated with the practice’s taxable profit, the following reliefs should also not be overlooked:
Capital Allowances – do not waste your allowances
You should be monitoring capital expenditure not only to ensure non-essential is deferred but also to ensure you effectively use the 100% Annual Investment Allowance (AIA) and the Energy Conservation allowance. This AIA has been up to £500,000 from 5 April 2014. Those partnerships with corporate members will be aware that AIA is not available to them.
Buildings purchase and improvements
Do not forget that your building purchase and any improvements may incorporate a substantial qualifying spend for capital allowances thereby reducing tax payable. If you are about to (or in fact already have) undertaken any significant expenditure on your building this relief can be very valuable. These allowances are often missed so please contact us to arrange a review.
Individual tax matters and reliefs
Turning to more specific individual tax matters and reliefs:
Capital contributions
Due to the changes in disguised salary rules for LLP’s, more Partners are likely to have borrowings to fund capital. Therefore, it is important to ensure that these or other borrowings associated are communicated to your tax advisors so that interest on any borrowed funds at 5 April 2014 can be claimed as a deduction against your taxable income.
Likely income levels
Practices may have accounting year-ends forming the basis period for 2014/2015 that have already ended. Therefore consider the higher rate thresholds of £100,000 to £120,000 (60%) and greater than £150,000 (45%) and any tax planning opportunities arising. Examples of such opportunities would be:
Pension payments
Whilst not suggesting the present market is a buying opportunity (no advice given here, we hasten to add!!) but any pension contributions before 5 April 2015 could lead to a reduction in the highest rate of tax payable for individual partners. Perhaps the Autumn Statement’s comment on the drawdown of pension benefits also makes this more attractive?
Gift aid
With these thresholds in mind do not forget to record your gift aid payments as these can be very valuable. A donation of £80 allows the charity to claim a further £20 of income tax off HMRC. If you are a 40% tax payer then you can also claim a further £20 from HMRC. In addition contributions paid prior to the submission of your tax return (that is in the new tax year) may be carried back to the previous year and thus reduce your tax bill. For those considering more substantial donations then some careful planning can reap substantial tax savings.
ISAs
Up to £15,000 can be annually put into an ISA. The annual deadline for investing into an ISA is 5 April 2015.
Capital gains tax annual exemption
Gains of up to £11,000 can be made in 2014/2015 before any tax becomes payable. With some asset values/sectors having appreciated greatly in recent years, it may be that you are lucky enough to possess assets with a pregnant gain. Therefore consider which assets could or should be sold prior to 5 April 2015 to take advantage of this tax-free amount, which is per person and available to both husband and wife.
Inheritance tax annual exemptions
Gifts of up to £3,000 per year can be made on a tax free basis. The limit increases to £6,000 if the previous years annual exemption was not used, and do not forget gifts out of income.
For further information, please contact Peter Noyce at pnoyce@menzies.co.uk or your regular Menzies LLP Relationship Partner.
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