Whilst tightening the purse-strings and being selective about our purchases can help funds to accrue, it’s also possible to make substantial savings by being savvy when it comes to tax. With that in mind, here are 20 tips to help you beat the taxman.
Saving in a pension plan allows you to take advantage of the tax relief offered by the Government, the taxman adds to your child’s pension pot when you do (up to the Annual Allowance). So, for every £200 you pay, £250 is actually invested into your child’s plan. (These figures are for basic rate taxpayers higher and additional rate taxpayers can claim even more tax relief). If your child has no taxable earnings, the maximum gross contribution that you can get tax relief on is £3,600 in a tax year. If your child has relevant UK earnings, you can pay in up to the amount of these earnings in a tax year (net of basic rate tax relief).
This can be repeated each and every year regardless of age, although it’s very much a long term investment – the money cannot be accessed until the person reaches age 55.
There’s simply no means to escape penalties for filing a late tax return. Penalties begin at £100 for being a day late, and can steadily rise over time.
If you are due a tax repayment, simply submit your return online. Repayments are likely to be issued more promptly, since paper returns have to be manually input. An online return gives the taxman less chance to look over it and possibly change his mind.
Making money from auction sites such as eBay is of interest to HMRC. If you are trading online, its important to declare any earnings to avoid penalties.
Marriage Allowance lets you transfer £1,150 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.
This reduces their tax by up to £230 in the tax year (6 April to 5 April the next year).
Write a will
Writing a will ensures anything you leave behind is left to the right people. This is particularly important in the case of unmarried couples.
Under UK law it is permissible to claim mileage tax free if you use your vehicle for business purposes – at 45p p/m for the initial 10,000 miles, and 25p p/m afterwards.
Employers may give items to staff free of charge if HMRC deems them trivial – usually perishable and consumable goods, such as tea, coffee, lunches and so on.
Prevention > Cure
Minimise your risk of being hit with a large tax bill by being ready for a compliance check or inspection – keep records of all incomings, outgoings and business costs.
Children’s personal allowances
If children have an income from a building society or bank account, and the total annual income is less than their personal allowance, the child (or parent) can register in order to receive the gross income minus the deduction of tax.
Timing and planning
At 18% basic rate, capital gains tax can be costly. It’s possible to reduce this via carefully planned disposal of assets.
Review any investments
Make sure you make appropriate payments where you can – for example, it’s possible to put £15,432 per year into an ISA.
Review any pension contributions
Consider making AVCs (additional voluntary contributions) to your employer pension scheme or Free Standing AVCs to your own arrangement. If these are not paid by the end of the tax year you will not receive a tax deduction for them against your annual income.
Look at claims for working/child tax credits
Claims for credit must be made within three months of the beginning of the tax year. If your earnings do not exceed £41,300, you could benefit from these tax credits.
Make things easy
Try and sort out as much as you can at the end of the tax year, in order to make the process of submitting your return much easier – get everything in well in advance, so the Revenue can do the tax calculation.
Annual investment allowance
AIA limits are now available up to £200,000 on purchases of assets, allowing 100% relief within the taxable profit limit. Plan carefully to ensure any purchases you make qualify in order to make the most of AIA.
Enterprise Investment Scheme/Venture Capital Trusts
Now is a good time to consider alternative investments – each of the schemes mentioned above has no minimum limit, and both offer an income reduction which could serve to reduce your income tax.
This year’s budget saw an increase of the amount an individual may earn before being subject to income tax. The amount now stands at £11,600. Be sure to check your tax code on your payslip to ensure you are receiving the correct allowance.
If in doubt call Livingstones Accountants on 020 8903 9538 or leave a message in our contact box and we will call you at a time that suits.