Why is a specialist tax advisor necessary?

Most accountants are more than capable of preparing accounts, and many can put together a tax return, but tax is a knotty issue and a specialist tax advisor is always a useful addition to the accountant's team.

Did you know there are 7 main taxes that need to be managed carefully?

  1. Income tax
  2. National Insurance
  3. Value Added Tax (VAT)
  4. Corporation tax
  5. Capital gains tax
  6. Inheritance tax
  7. Stamp duty land tax

There are other, more indirect taxes such as fuel duty, but let's stick to the main ones for now.

Income tax and national insurance are relatively straightforward - and there are tables for calculating these - providing, of course, that HMRC has issued the correct tax code.

If you're not 100% sure your tax code is correct, or if you are suddenly advised of a change in tax code, it's always worth double-checking. 

Value Added Tax (VAT) is payable on most, but not all purchases. A quarterly VAT return for all companies registered for VAT must be submitted. The current VAT threshold is a turnover of £85,000, although many companies register that have not yet achieved that figure.

Corporation tax is chargeable on a limited company's or PLC's profits at a rate of 19%, which is slightly less than the current basic income tax rate. Of course, this is why many directors of small businesses choose to take a nominal salary and draw dividends to supplement their income. 

However, maintaining the balance is important as the days of tax breaks for dividends have passed. Now income tax is payable on all dividends (above a small annual exemption). A tax advisor can help directors to legally draw funds without paying more tax than necessary.

The capital allowances regime is changing on 31st December when the annual investment allowance will drop from £1M per annum down to just £200K. That means that any capital expenditure exceeding £200K should be made before the end of December.

Capital gains tax is payable on any asset sold - whether by an individual or an organisation, with a few exemptions. For instance, the money made from selling your main residence is completely exempt, but if you haven't always lived in the property since owning it, there may be tax implications. 

If you sell a company property, even if completely occupied by your organisation to the point of sale, there's no such exemption. If a Trust sells a capital asset, there should be a nominal exemption available.

Assets subject to capital gains tax for companies include company shares, property, equipment, vehicles, etc. 

Inheritance tax tends to be something relevant to individuals, but can have implications for companies too. It's better to have a Will than not. Dying intestate can cause all kinds of problems for your nearest and dearest at a time when they're already under stress. A tax efficient Will ensures that your money and assets go to the people you want to have them - instead of being decimated by tax.

This is particularly important when it comes to willing of shares in a company as the terminology in the Will and/or shareholders agreement directly affects whether they are taxable or not under inheritance tax.

Stamp duty land tax is normally payable when you buy a new home or property - but currently there is a tax 'holiday' for first time buyers purchasing properties up to £500,000 until 31st March 2021. This has resulted in an upwards trend for the property market.

So why do you need a specialist tax advisor?

Tax is ever changing. Each year after both the Chancellor of the Exchequer's annual Budget and Autumn Statement, the Treasury issues all the detail behind the broad brush changes he has announced. Then tax specialists need to examine these changes to tax legislation and work out how it impacts on their clients.

Tax efficiency is legal, but to only pay what you absolutely have to, you need to know the best way to arrange your finances. If you earn a lot and pay high taxes there are ways to reduce your tax obligation with vehicles such as pensions, trusts, etc.

You must pay tax - but with the right advice, you could pay less tax than you think.

Pamela Chatterjee CTA, ATT, has recently joined the Cook & Partners team as Head of Tax.