Year-end 2019: Tax-saving advice (Part 2)

Savings Income: Savings income (i.e. interest) will be outside the control of most clients. However, the timing of payments can be controlled by owner managers who have lent money to their companies. This doesn't need to be a formal loan; it could be the case that your client has a director's loan account with substantial credit. If they are not charging interest on this, they are missing out on a tax-efficient means of extracting profit, so look to put in a charge for the 2018/19 year.

The interest is not earnings and so is exempt from NI and, provided it does not exceed a commercial rate, will be deductible for CT purposes too. If your client doesn't have a loan account in credit, they could still make a formal loan to the company to enable profit extraction via an interest charge. In fact, they are likely to find that they can justify a significantly higher rate of return than on, say, a regular deposit account because a small company would be viewed as inherently risky by a third-party lender. It could well be worth en-cashing existing investments to make a loan to the company.

Tax timing: From the individual's perspective, the interest is taxed in the tax year of receipt. So, it is possible for your client to make a loan to the company ahead of the 5th April 2019, and make a charge for interest for the next twelve months to include in the 2018/19 taxable income figures.

To avoid exceeding a commercial rate of interest, it may be worth discounting the rate applied to the advance payment. One issue with this is that your client will need to leave the amount in the company for the subsequent twelve months, or the interest would need to be repaid. Although, this is unlikely to be an issue if they are replacing existing long-term investments.

Extra tax boost: This strategy will become especially powerful if your client has their full personal savings allowance and savings starting rate available.

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