Tax Saving Tips

As everybody is aware the Coalition Government is planning a number of measures to cut the deficit including tax rises and measures to prevent tax avoidance. So what advice can we give in order to avoid paying as much tax as possible.

Here a number of tips which can save you some tax:-

PERSONAL TAX

Individual Savings Accounts (ISAs)

On 6^th April 2010, the annual subscription limit for ISAs rose to £10,200. The whole sum can be placed in a stocks and shares  ISA or half could be placed into a cash ISA and the remainder into a stocks and shares ISA.

Therefore, a couple could potentially shelter £20,400 worth of savings from either income tax or capital gains.

Pensions

 If you are an higher rate tax payer (and earn less than £130,000) the Inland Revenue will effectively give you £40 tax relief on every £100 of pension premium paid.

Taxpayers  can invest 100% of their earnings in their pension plan each year up to a maximum of £255,000 (the lifetime investment allowance is £1.8m).

Enterprise Investment Scheme

Subscribers to shares in an enterprise investment scheme will receive 20% income tax relief on the amount they subscribed for up to a limit of £500,000. To obtain the relief, the taxpayer must hold on to the shares for at least 3 years.

Husband and Wives

 If one of the partners in a marriage is a basic or lower rate taxpayer while the other partner is a higher rate taxpayer, then the higher rate taxpayer should consider transferring income producing assets (i.e. savings accounts, property and stocks & shares) to the spouse.

Obviously, the person who is a basic rate or lower rate taxpayer will pay less tax on these assets than the higher rate taxpayer.

PAYE Codes

In January of this year, the Inland Revenue issued a large number of PAYE codes to employers which were incorrect.

It is vital that taxpayers check the information on their PAYE codes is correct otherwise they may be overpaying tax.

If you believe that the wrong PAYE code is being used then write to the Tax District dealing with your employer’s PAYE scheme notifying them of the errors on their calculation.

Children Under 16

Children who are under 16 and receive any income which is less than their personal tax allowance do not have to pay any tax. Therefore, the child can claim back any tax deducted. If the child is not workings but receives income from a savings account then the parents should complete and submit the Form R85 to the Inland Revenue requesting that such income is paid to the child without tax being deducted.

Gift Aid Relief

If you a paying money to charity in whichever form, plus tick the Gift Aid box to ensure that the Charity can receive the basic rate deduction on the ‘gross’ equivalent o f your donation.

CAPITAL GAINS TAX

Each person has a capital gains tax allowance of £10,100 per annum. To ensure proper use of these allowances, a taxpayer should consider transferring assets to his spouse in order to use the spouse’s allowance.

Taxpayers who sell business assets should make sure that they claim entrepreneur’s relief, which means that the taxpayer will pay tax at 10% on the gain (rather than 18% for basic rate taxpayers and 28% for higher rate taxpayers on non-business gains).

A higher rate taxpayer may consider using some of the proceeds from the sale of an asset to fund a pension premium which could attract tax relief of 20% plus a further 20% for higher rate taxpayers.

INHERITANCE TAX

The most important thing to say is that taxpayers should make a will!

That way the taxpayer can plan how there estate is to be divided and use all of the various Inheritance Tax reliefs and exemptions to minimise any potential inheritance tax liability.

The correct planning will lead to reductions in inheritance tax liabilities.

BUSINESS TAX

VAT

If you gross trading income is less than £150,000 then the business can apply to use the flat rate scheme.

The scheme may not work for everyone, but it may result in lower quarterly VAT liabilities and a reduction in administration expenses.

Business Expenses

Business should look at their expenses and look at the most tax efficient ways of claiming then. In particular, should the business be basing its motoring expense on fuel, insurance and repair bills or instead claim a mileage allowance.

Trading Losses

If a sole trader makes a loss then they can set that loss off against other income in the year or carry it back to the previous year. If the loss was made during the first 4 years of trading then the trader can carry back the loss to the PREVIOUS three tax years.

Tax Credits

If a claim is being made for tax credits, then for a sole trader, a particular year’s claim is based on the previous year’s profit. If the actual profits for the year are a lot lower (maybe because you invested in a capital asset and claimed a 100% Annual Investment Allowance on the purchase) then you can ask the officials dealing with tax credit claim to recalculate you tax credit based on the lower profits.

This may result in the sole trader receiving an higher tax credit amount.

If you want any further advice on the matters raised above then please contact Mark Hewitt at Trueman Brown on 01708 854943 or www.truemanbrown.co.uk.