Ian Sergeant, our staff accountant, says…

It has been well publicised in recent times that HM Revenue & Customs are targeting aggressive tax avoidance schemes however there are still a number of ways small companies and individuals can minimise their tax bills.  Below is a list of ideas worth considering if you wish to reduce you tax bill.

 

Companies

Making pension contributions through the company should be considered.  Not only does this build the director’s pension fund for later life, it is also a tax deductible expense for the company.  That is provided that HMRC don’t rule the contributions in excess of what is commensurate with the directors’ duties.

When purchasing capital assets the use of the annual investment allowance should also be considered before the year end.  Since 1^st January 2016 AIA is £200,000 per year.  This covers all plant and machinery assets except cars, meaning that the cost of capital assets reduces taxable profits for the year.

 

Individuals

 

Ensure that you are making the best use of ISA contributions available to you each year.   The annual limit which can be split between cash ISA’s or stocks and shares ISA’s is £15,240 per year as of 6^th April 2015.  Any earnings generated from ISA’s are tax free.  Help to buy ISA’s are another form of ISA which have been introduced this year.  These allow prospective first time home buyers to claim an extra £50 for every £200 invested (upto a maximum of £3,000).

Pension contributions are another way of reducing your tax bill. Soon all employers in the UK will have to offer a pension scheme to employees.  The contributions made to an employer pension scheme can either be taken from your gross pay before any tax is deducted or if the contribution is paid net the pension provider claims back basic rate tax at 20% and adds this to your pension pot.

 

For self -employed people this isn’t an option, however if you are paying tax above the basic rate band, making personal pension contributions can also be of benefit.  The contributions made extend the basic rate band and therefore more of your earnings are taxed at 20% rather than 40%.

 

These are just a few simple ideas in order to try and help you minimise your tax bills, and it is key to act before any tax period ends.  So if you would like any further assistance with any tax advice then please let us know.

Summer Budget 2015 Update

This week we have an additional blog following the budget on Wednesday. You will have all no doubt heard a lot on the subject already but a few things we think are topical for our clients are as follows;

1)      A National Living Wage has been introduced which will be set at £7.20 from April 2016, rising to £9.00 by 2020. The National Minimum Wage was due to be £6.80 in October 2015

2)      Inheritance tax relief will increase to £500,000 with the introduction of an allowance of up to £175,000 per person in respect of the family home, in addition to the current nil rate band of £325,000

3)      The tax credits on dividends will be removed and instead there will be the introduction of an exemption of the first £5,000 per person. Above the £5,000, the rate of tax will depend on the effective tax rate of the individual but for a basic tax payer the effective rate will be 7.5% (currently 0%) and for a higher rate tax payer it will be 32.5% (currently 25%)

4)      The tax relief available to buy to let landlords on mortgage interest will be restricted so that all tax payers receive 20% tax relief, as opposed to the current reliefs of 40 and 45% for higher rate tax payers. This will be implemented by April 2017.

5)      Landlords will also lose the benefit of the 10% wear and tear allowance from April 2016

6)      The Annual Investment Allowance will be reduced from £500,000 to £200,000

7)      Corporation tax rates will fall from 20% to 18% by 2020. Companies with a turnover of more than £20m will have to pay earlier – currently this is two payments before the year end and two after – it will now all be due in the year of assessment.

8)      The Employers Allowances of £2,000 will be increased to £3,000 although there will be greater restrictions on who can claim this.

Overall the Budget did have some surprises and the full extent of the revelations won’t be known until the legislation and details surrounding the measures has been disclosed.

If you are worried or have any queries please contact one of our team who will be happy to discuss any arising issues.