Tax saving tips 2022 – Part 2

This is the second of two blogs on tax planning for 2022. We have so many tips to give you, that we couldn’t fit them all in one blog! The first blog covered ‘Maximising Tax Allowances’. In this blog, we’re covering expenses to claim, general tax planning and investing in SEIS/EIS.

Claim expenses

When you are running a business its important to gain an understanding of business expenses– or the company may end up paying too much tax! There are so many potential expenses you can claim for your business that we can’t put them all in this blog. However, all is not lost! You can download our comprehensive guide to expenses here.

Note that all expenses you claim must be incurred ‘wholly and exclusively’ for the purposes of running the business to be allowable for tax purposes. For an expense to satisfy the ‘wholly and exclusively’ test, the business purpose must be the sole purpose. If the expense has duality of purpose – both personal and business use, an apportionment could be used provided the business element of the expense can be identified.

If you’re a sole trader or partnership there are two ways you can calculate business expenses for vehicles, working from home and living on your business premises. You can use simplified expenses or calculate your expenses by working out the actual costs.

If you’re not sure what expenses are tax allowable, then speak to your accountant or tax adviser and make sure you’re claiming everything you can.

Tax planning 2022

Here’s just a few of my tax planning tips for 2022. I would recommend that you seek tax advice every year and go through a tax planning exercise with your accountants or discuss with your account manager.

Trading losses carry back rule - To help otherwise-viable UK businesses which have been pushed into a loss-making position, the trading loss carryback rule has been temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.

Sole traders and partners will be able to obtain relief for losses in each of 2020-21 and 2021-22. For property clients with furnished holiday lettings, the temporary extension will not apply.

CGT losses – If your company or organisation is liable for Corporation Tax and makes a loss from trading, the sale or disposal of a capital asset, or on property income, then you may be able to claim relief from Corporation Tax.

You get tax relief by offsetting the loss against your other gains or profits of your business in the same accounting period. You can also choose to carry the loss back if you do not it will be carried forward to another accounting period.

Unused losses from previous years can be brought forward, provided they are reported to HMRC within four years from the end of the tax year in which the asset was disposed of.

Transfer property to spouse or civil partner - If you have income from property, you can consider transferring the property to your spouse/civil partner if they pay tax at a lower rate. The transfer will be at no gain no loss. The Stamp Duty Land Tax (SDLT) position will need to be considered if there is a mortgage on the property.

If you already own the property jointly, HMRCs default position is that the income will be split 50%-50%, irrespective of whether its bought under tenants in common or joint tenancy. Form 17 can be used to declare entitlement to income in a different share, but you will need supporting documents to show the interest is held in this ratio.

Annual Investment Allowance (AIA) – There is a temporary increase in annual investment allowance from £200,000 to £1 million for all qualifying plant and machinery till 31 March 2023.

Get the right business structure – If you’re self-employed or in a partnership, you are subject to income tax on the profits irrespective of the funds withdrawn so the highest rate could be 45% compared to a limited company where you will be able to make tax savings. However, remember for the self-employed and partnership structure, the compliance needs are substantially less – no annual returns, no company tax returns, favourable treatment of losses, especially if the business will be in losses for the first few years. So you need to decide carefully how you want to trade.

Preserving child benefit - Preserve entitlement to child benefit if your total income is between £50,099 and £60,000 by making personal pension contributions and donations to UK/EU charities.

Preserving personal allowance - Similarly, you can preserve your personal allowance if the income is above £100,000 by making contributions to pensions.

Invest in SEIS/EIS

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) offer generous incentives in the form of tax breaks to investors in return for investment in qualifying companies.

50% income tax relief is available where an individual subscribes for shares in a qualifying SEIS company. 30% tax relief is available for investing in EIS.

The maximum contribution an individual can make in any tax year is restricted to £100,000, so the maximum relief is £50,000. The amount of relief cannot exceed the individuals tax liability for the year in other words it cannot create losses

A claim can also be made to treat the subscriptions as made in the previous tax year provided the limit for relief in the earlier year is not exceeded.

If you hold the shares for 3 years, they are free from CGT.

EIS reinvestment relief allows the taxpayer to defer the capital gain to a later time. For example, if you have made a gain of £100,000 and you invest this into EIS approved shares, the tax can be deferred till you sell the EIS shares. It is particularly useful if you have sold a residential property which is subject to 28% tax as the gains from selling the shares will be taxed at 20% (saving 8%).

You must make the investment either 12 months before or 3 years after the sale of the asset.

If an individual sells an asset and reinvests the sale proceeds in acquiring shares on which SEIS income tax relief is claimed in respect of the year of disposal of the asset, they may claim SEIS reinvestment relief

Gains are not deferred or frozen instead it exempts an amount of the gain from CGT. The maximum gain that can be exempt is £50,000

For more information and detail on SEIS and EIS contact us now.

Tax saving 2022

This blog only contains a small number of tax saving tips for 2022. A good accountant and tax adviser should work closely with you to ensure you’re using all your allowances, claiming tax relief, and saving tax wherever you can.

To hear our other tax saving tips for 2022, why not watch our recent tax saving tips 2022 webinar.

For more help and advise on making tax savings in 2022, contact us.

About the author

Siddharth Agarwal
I am a Chartered Tax Advisor (OMB) and ACCA. I have 9+ years of experience in owner-managed business taxation issues, company reorganisations, property taxation, and succession planning. I also work with private clients on bespoke tax planning strategies for trusts, residence status, and non-residents. I aim to fulfil my professional duties towards my clients and keep them satisfied, my utmost priority. I believe in establishing and maintaining businesses and personal relationships as the key to mutual growth.