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Four tax tips to help client cash flow in hard times

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12th Jul 2010
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Giles Mooney, managing director of PTP Limited and presenter of TAXtv, outlines four opportunities for tax agents to help their clients to improve their cash flow.

1. Tax credits
More and more advisers are helping clients with tax credits. With a potential additional income of more than £20,000 for a large family, it makes sense to review your client’s affairs and see if they are claiming their full entitlement. Aspects as diverse as divorce, the timing of capital allowances and making pension contributions can increase a family's credits, so knowing the rules and helping your clients to apply them can make a big difference.

2. Changing year ends
It’s important not to waste overlap profits by simply leaving them until cessation. An easy way to use them is by extending a business’s year end. This is particularly useful where the taxpayer had been very successful during their opening years but is currently struggling.

For example, if the year-end is moved by six months, 18 months' profit will be assessed in one tax year after the deduction of six months of overlap profits. If current profits are £1,000 per month and overlap profits were £2,000 per month, the taxable profits for the year would be (£18,000-£12,000) £6,000 rather than the £12,000 which would have been taxed without a year-end move.

3. Buying a car – company v sole trader

With expensive cars no longer qualifying for the ‘single asset pool’ rules but cars with private use fractions still qualifying, the timing difference in relief from capital allowances between a company and a sole trader buying the same car is significant. The company will not be able to claim the balancing allowance immediately whereas the sole trader will (subject to the private use restriction). Any client setting up in business where the main asset is likely to be an expensive (sorry, costly) car would be sensible to ‘do the maths’ before deciding on a business structure. This is certainly advice practitioners should be offering.

4. Keep a track of losses
Far too many practitioners keep a record of the ‘tax loss’ only. Following a loss-making year, the set off options should, of course, be considered and applied for the best. Agents must remember that while losses can be set against total income in the previous year, losses for Class 4 NIC purposes are only set against trading profits of that year. Failing to keep a record of the ‘NIC loss’ as well as the ‘tax loss’ can result in overpaid NIC in future years – an entirely avoidable cash flow issue.

A third loss carry forward may well relate to tax credits and, if you didn’t know that, see number one above!
There is, of course, a huge range of other possibilities to help clients minimise their cash outflows but these four represent, in my experience, some of the most commonly overlooked possibilities.   

TAXtv is now available on AccountingWEB. Members can download a special budget update at £49+VAT or download a full subscription. Click here for more information.

 

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By chrischapman5
13th Jul 2010 14:57

cash savings

All good points, but worth mentioning R&D tax credits for those who aren't aware - a fantastic opportunity to get back PAYE taxes already paid. This can often be quite significant and relatively quick and easy if you have a clear case for qualification.

I know most of us are aware already but I'm continuously surprised as to how many companies aren't.

Chris

www.mybusinessfd.com

 

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By chrischapman5
14th Jul 2010 16:53

cashflow

... and why dont we talk about other products and services that can help ease cashflow rather than just tax tricks.... applications in the cloud can save you significant cash over traditional PC-based systems.

Take Sage for example which still struggles with the concept of online accounting, versus Brightpearl (just rebranded from Pearl). Their online offering for accounting 'software as a service' only costs £12 per user with no upfront capex whatsoever, single click import from Sage and nice intuitive performance dashboards. They go way beyond accounting and offer a full 'mini-ERP for SME's', but thats for another day or for you to do your own research on.

They've just secured VC funding from the smart folks at Eden Ventures and Notion Capital, and with Doug Richard (ex BBC Dragon) also on the board, it seems they're going to be around for some time to come.

Where else can we see innovative services break down traditional pricing structures to generate real cash savings for small (and not so small) businesses?

Anyone else throw some ideas in to the pot.....?

chris

www.mybusinessfd.com

 

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By MacDonald9
13th Aug 2010 16:12

Helping Cash flow in hard times

This was a very timely reminder! I discovered that a recently inherited (and currently struggling) client had fairly substantial overlap profits. By changing the year end, not only has he already benefitted from a £2000 plus tax rebate but the loss created also saved him from a possible large repayment of tax credits. A result most welcome at this juncture.

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