Tax planning goes beyond tax compliance. It is proactive and it can only happen when two things are in place.
The first thing is that you communicate with a professional adviser. When there’s no communication, it makes the tax planning almost possible.
The second thing is an understanding by the financial adviser of the client’s business. The perfect 2-way communication to reach the final objective.
It is the optimum position to enable the professional adviser to make tax planning decisions that can benefit both the business and the taxpayer.
One important thing to think about within tax planning is the interaction of taxes. Whilst one path can reduce a particular tax, it could have an effect on another type of tax. The perspective of tax planning is very important, and this is what an accountant will have a good grasp of. The interaction of taxes.
There are different times during the year where tax planning is important. This can be at the start of an accounting period, during the middle of an accounting period, or it can be before the end of an accounting period, so a pre-year-end review.
What a pre-year end of year review would be, is to perhaps look at a capital purchase, what effect this would have on the tax, and cash flow of capital ounces, for example the interaction of corporation tax,
But there needs to be enough time before the year end for certain actions to be taken. There is no point in looking at this 2-days before year end. Plan a meeting with your accountant to look at emergency tax planning before the end of an accounting period. By doing this you will have more time to put essential plans in place, such as a purchase, or a pension contribution, or it could be to defer a course of action. For example, taking an amount of money out of a limited company.
There are other key times to look at tax planning as well and these are life events.
They could be an average, a house purchase, or a sale of a house. Whilst we can’t go into the minutiae of what happens on each life event, when these types of events happen, this is the point where the communication between the accountant and adviser needs to begin.
The relationship between the accountant, the professional adviser, and the client should be that of synergy, if the relationship is strong, both professionals will be able to look at family tax planning and the life events that have happened, they will then be in a better position to advise.
When one of those things is missing, then it’s a bit like squeezing a balloon. It will have a bulge elsewhere, so that bulge could then have a negative effect on another type of tax that hadn’t been considered if the information was known at the time.
Tax changes almost annually, such as personal tax, changes in allowances, changes in national insurance thresholds. These happen with some regularity, which is why we would encourage communication with the accountant, to give plenty of time to consider what the effects are.
The ultimate benefits of tax planning are to reduce taxes, and to reduce unnecessary cash flow Some of the benefits of tax planning will be to defer corporation tax.
If you have a limited company, you will also have a personal tax liability. The interaction of corporation tax and income tax is very important in terms of dividend planning and pension planning as well.
As a summary, the conversation between the accountant the financial adviser and the client, is a triangle, ‘the trinity’ Tax planning It’s a continuous cycle. It needs to not just happen once a year, it should happen with regularity because one plan might take a little while to evolve.
If you would like to know more about the importance of tax planning, join us on the 8th February for our latest webinar, click HERE for more details
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
