Their year end is 31st August. I suggested Ltd Company ASAP quite a while ago but they wanted to complete their 2nd year.Their cessation date is also 31 Aug.
Assessable profits for 2004/05 are £49k and £10k overlap profit from 1st year to include.
I have included all permissable costs and all usual things such as use of home, wife's wages etc.
Their Ltd company will be very tax efficient with a directors loan account etc.
realise everybody has to pay tax if they have done well, but I want to ensure I have covered all angles.
I haven't looked into pension considerations yet, but has anybody got any ideas
Many Thanks
Roger
Replies (3)
Please login or register to join the discussion.
Sounds like your problem is
sharply rising profits meaning that the overlap relief does not equate to 7/12 of the profit in the final year.
It is a timing thing. Overall they will not have been taxed on more tax adjusted profits than they have earned, it is just that they have bunched up in the final period.
Pension contributions might help - assuming they have not blown the cash already when the tax bills were low.
With hindsight some form of full tax provision would have been useful (if there is not provision in the accounts) particularly with an August year end, but the horse is long gone from the stable on that one
Points
Can i assume that you are deducting the overlap profits??!! Its not clear that thats the case from wht u say. As cessation was in August 2004 I would suggest (as the previously respondent said) that the horse has well and truly bolted! It doesnt seem that their are any ways to reduce the cessation profits. Is goodwill being created on tfr? How are you transferring the assets?
Change of year end
The facts are fairly unclear, but I wonder if you have considered changing the year end to 5th April if tax returns have not yet been submitted. This may push more profit into the prior tax year and therefore reduce the profits of the cessation tax year. If the profits of the cessation year create higher rate liabilities, but not the earlier year, a change of year end may "spread" the profits more efficiently and reduce/eliminate higher rate tax. You may also find an extra period for capital allowances?
Would it be better to calculate capital allowances at cessation on the basis of market value rather than transfer of written down value under the relevant election? If current value was less than tax WDV, you may get balancing allowances.