I am often asked by clients and potential clients, what is the best way to reduce my tax bill?
Unfortunately there is no stock answer for this question. Each person and situation will be different and individual circumstances will need to be reviewed in detail before any specific advice can be given.
However, the following 10 points are the items that could easily be reviewed and may help to reduce your tax bill now or in the future.
1. If you are a sole trader paying tax at the higher rates and your spouse or civil partner helps out in your business and is a lower rate taxpayer it may be beneficial to make them a partner in your business. You could then allocate profits to them at a lower rate of tax.
2. If you are a sole trader or a partnership have you looked into the potential tax saving benefits of incorporating your business?
3. If you work at home (including simply writing up your business books) do you make a claim in your business accounts for ‘Use of home’? Even if you do make a claim are you claiming enough?
In most cases business owners or their accountants simply claim a set amount, say £3 per week, however HM Revenue and Customs actually allow you to claim a proportion of the actual expenses of running your home, i.e mortgage interest, gas, electricity, water rates, council tax etc. It is often the case that this method results in a bigger deduction.
4. If you are planning to spend money on capital equipment or plant do you ensure that you time the purchase correctly? For example if you purchase equipment just before your yearend you will bring forward the tax relief claimable on expenditure which will normally be due at 100% of the cost for the first year.
5. If you trade as a limited company have you made sure that you are extracting money from the company in the most tax efficient way. You could look to use dividends to avoid national insurance and often the most tax efficient route is a mixture of a low salary and dividends.
There are other ‘higher level’ extraction methods available such as the use of trusts, LLP partners and pensions.
6. If you operate as a limited company and have a company car, have you looked at whether or not it is better to own the car personally instead? If you own the car personally you will not be taxed on a benefit in kind which is based on the list price of the car when new and the cars CO2 emissions and can claim a mileage allowance for the business miles covered in the car at the approved rate of 40p (first 10,000 miles) or 25p (over 10,000 miles) per mile.
7. If you pay your staff bonuses why not save them up and pay them half yearly or yearly rather than monthly. Doing this can save on employees National Insurances meaning your staff keep more. This is not available for directors.
8. Do you make sure you always have a pre year-end tax planning meeting with your accountant to make sure all necessary action is taken before your year end? After then it will probably be too late.
9. Inheritance tax could be a big drain on your estate. Have you reviewed your will lately? There are a number of tax efficient strategies available to reduce the burden of IHT.
10. Do you take advantage of your ISA investment limit? The income and capital growth on savings in an ISA is tax free.
All of the points mentioned above a totally legal and above board however just implementing one of them could save your hundreds or potentially thousands of pounds in tax.
As a director of Crump Pearce & Co one of my main aims is that our clients do not pay a penny more in tax than they legally have to. I work with my clients to ensure that all available reliefs, claims and deductions have been made and that my clients are fully aware of all of their options at all times.
If you would like to discuss any of the points raised above please do get in touch to arrange a FREE no obligation consultation where we can discuss your individual circumstances and whilst we cannot guarantee to save you any tax we will give it a good go!
The above is provided for guidance only and should not be relied upon in any way without first seeking professional advice. Crump Pearce & Co cannot accept any responsibility for any loss however caused as a result of reading this article.
Tim Pearce FCCA
Crump Pearce & Co Limited
Chartered Certified Accountants
43 Merstow Green
Member since: 28th January 2011
I am a Chartered Certified Accountant and director of Crump Pearce & Co a local firm of accountants, business advisors and tax consultants.