The AIA is changing (again) but this time there is a reduction in the allowance. From April 2012 it moves from a very respectable £100,000 per 12 month period to £25,000. This large of a reduction means that it is likely to catch a number of businesses with medium level spends. The impact of this reduction is already being felt however even before the April 2012 introduction. The rules require that the calculation of the total AIA for any period ending after April 2012 to include a proportion of the lower limit. Therefore the AIA for a company with an accounting period ending on, say, 30 June 2012 will be: (£100,000 x 9/12) + (£25,000 x 3/12) = £81,250. So even if they purchase the item before the reduction it will be the £81,250 limit that applies and not the £100,000. The reduction in the limit is certainly something to bear in mind if you have flexibility as to which year to purchase the capital items as it is likely that an earlier purchase will have a larger tax reducing impact.

Enterprise Investment Scheme:- The EIS scheme is one possible way of helping to reduce the cost of investment. The scheme is designed to encourage the investment in the ordinary shares of unquoted companies. Where a qualifying individual subscribes for shares (remember these must be new shares and not existing shares purchased from another shareholder) then there is a tax reduction on the value of the amount invested. The reduction used to be 20% up to a maximum of £500k. However from April 2011 the % reduction has increased to 30% and from April 2012 the £500k limit will increase to £1m. This means that where an investment of £30,000 is made in a qualifying company a tax reduction of £9,000 will be available, depending on the individual’s tax liability before the reduction. This is a very useful incentive and one not to be missed but like all investment decisions, tax efficiency should certainly not be the only consideration.

Children’s allowances:- It is a useful one to remember that children (of whatever age) qualify for their own personal allowance. This applies to both income tax and capital gains. However you need to be careful as a child’s income that derives from funds supplied by a parent that exceeds £100 in a tax year may be taxed as income of the parent. However this £100 limit applies to each parent. You should also remember that a parent can put up to £3,600 per year into a pension plan for their children and this will still qualify for basic rate tax relief.

Property tax:- A simple one to remember for anyone who has property income; furniture within a residential dwelling cannot be deducted from rental income. Also the normal capital allowances that a trade may receive are also not available. However relief for this expenditure may be obtained either via a 10% wear and tear allowance or on a renewals basis. The renewals basis is where the initial cost of the furniture is not claimable but any replacement furniture is deductable. The wear and tear allowance is a straight forward deduction based on 10% of rents. But remember that rents will need to be adjusted for any costs that the landlord pays which would normally be paid by the tenant e.g. council tax.  One not to be forgotten if you wish to minimise tax.

Pension contributions for everyone: – It is an ongoing issue as to what is the correct balance between salary and dividend when a small company owner is considering remuneration. There are a number of things to consider in order to make the right decision. However one consideration that can often be overlooked is that dividends do not count towards relevant earnings for personal pension contributions.

The rules say that a taxpayer may contribute up to 100% of relevant earnings towards a pension. However as dividend income is not part of relevant earnings, this can limit contributions made. Something to consider in making this decision. However also bear in mind that regardless of relevant earnings, £3,600 is always allowed to be contributed to a personal pension.

Losing your tax personal allowance: From 6 April 2010 the tax personal allowance (that amount of income that you are broadly allowed to earn tax free) may be reduced if you have “adjusted net income” of more than £100k.

The term “adjusted net income” is important as this allows taxpayers to consider taking action in order to help avoid, what is effectively an increase in the personal tax rate.

Broadly a taxpayer’s net income (which is total income less certain deductable payments and loss relief where relevant) is adjusted in order to determine the reduction in the personal allowance.

There are a number of adjustments but probably the main one is personal pension contributions.

This is certainly an areas that might be well worth looking at as contributions made in this band of income can be particularly tax efficient.

Self Assessment tax returns – make sure that you pay extra special attention to your Self Assessment tax return this year. The penalties for late filing have seen significant changes.

The penalties for late filing include an immediate £100 fine for being between one day late and 3 months late. There is then a daily penalty of £10 for each additional day that the return is late up to a maximum of 90 days. There are then additional tax geared penalties of 5% of the tax due (or £300 – whichever is the higher) for being 6 months late and 12 months late.

This all means that if you file your return on, say 27 May instead of the due date of 31 January, the penalty will be £360.  This is significantly more than under the old penalty regime.

So watch out and get that return in on time!